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The Pre-existing Condition: Changing the Subject

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The Pre-existing Condition: Changing the Subject

September 29, 2015

Editor’s note: How to finance care for individuals with pre-existing medical conditions has long been one of the thorniest, most challenging issues in health care policy. The Affordable Care Act’s solution was a vast, complex clockwork of individual and employer coverage mandates, guaranteed issue, modified community rating, multiple subsidies, and other provisions. As commentators spanning the political spectrum warned prior to the law’s passage, this approach faces daunting logistical and financial hurdles. 

In a new set of essays commissioned by the Mercatus Center at George Mason University, seven leading policy experts share alternative ideas on how to solve the pre-existing condition challenge. While their approaches exhibit differences as well as similarities, their unified goal is a humane, equitable, fiscally sustainable solution to a conundrum that has driven and strained the entire post-World War II health care debate.

The following essay, the first in a seven-week series, is by Robert Graboyes, a senior research fellow and health care scholar with the Mercatus Center at George Mason University and the author of “Fortress and Frontier in American Health Care.” He earned his PhD in economics from Columbia University. An award-winning teacher, Graboyes holds teaching positions at Virginia Commonwealth University and the University of Virginia.

The full collection of essays, titled “The Pre-existing Condition: Innovative Solutions to America’s Thorniest Healthcare Challenge,” will be available on November 10.


The Patient Protection and Affordable Care Act’s individual mandate is an intrusive, expensive, mechanistic device for expanding the number of people with insurance cards rather than for the more important goal of bringing better care to more people at lower cost year after year.

The best alternative to the individual mandate is technological innovation that makes people ask why on earth anyone ever thought a mandate was necessary. In contrast with the creeping pace of health care technology over the past 25 years, information technology has, in fact, brought better computing and telecommunications to more people at lower cost year after year.

In 1990, I knew one person with a mobile telephone. Today, there are 7 billion cell phones on earth—more than the number of toilets or toothbrushes. Residents of the humblest villages in the developing world carry phones more powerful than 1980s supercomputers. IT has gone from a luxury for the wealthy to universal coverage (to borrow a healthcare buzzword).

In contrast, healthcare technology has advanced only modestly since 1990. Why the difference? Put simply, a bipartisan consensus allowed IT to innovate while health care was mired in a furious, partisan debate over how to distribute fixed stocks of resources.

This can change.

The Debate Provokes Bitter Partisanship

Since World War II, both Left and Right have battled over how best to allocate fixed quantities of doctors, hospitals, drugs, devices, and insurance dollars. Asked not long ago about the effects of the Affordable Care Act (ACA), I responded, “Some people get better coverage and others worse. It makes some people better off financially and others worse off. It likely improves health for some and worsens it for others. By none of these criteria do the winners clearly outnumber the losers. In sum, the law merely redistributes wealth and health at enormous cost.” The same would be true of proposals from the Right (e.g., high-risk pools, Medicaid block grants) and the Left (e.g., single-payer health care).

The ACA expands access to care by particular groups of individuals and for particular medical services. But the act does little to expand the supply of healthcare resources or, despite lip service in that direction, to improve the efficiency of delivery.

The individual mandate reflects one such distributive vision. Proposed alternatives reflect other visions. All are rife with winners and losers. Whether a particular scheme “works” depends on who you are, what you want, and when you want it.

The Debate Subordinates Technological Advances

With the public and policymakers focused almost exclusively on the distribution of care, healthcare technology policy has meandered counterproductively in the shadows.

My 2014 study “Fortress and Frontier in American Health Care” argued that medicine has been consigned to a “Fortress,” characterized by paternalism for patients and protectionism for providers. The Food and Drug Administration, for example, is institutionally biased toward excessive caution. If the FDA releases a drug that kills 100 people, alarms sound and careers crash and burn. But if the FDA fails to release a drug that could have saved 10,000 people, its inaction carries few penalties. Hence, the FDA will almost always steer toward risk-aversion.

Inaction or sluggish action has a compounding effect. In any innovative sector, one innovation leads to others. Slowing the rollout of a particular product hampers future progress in two ways: First, if the introduction of a new drug is delayed five years, spinoffs will likely also be delayed five years. Second, if the introduction of a new drug is delayed five years, some serendipitous interactions that would have yielded spinoffs will never occur, and the potential ideas will never see the light.

Excessive caution has also hampered innovation in other areas of health care. It has slowed the advent of genomic medicine, the use of telemedicine, the establishment of more efficient hospitals, the creative use of nonphysician medical labor, and the development of more up-to-date medical education. Privacy and security concerns unnecessarily paralyze lines of inquiry. Most of all, excessive caution has limited the role patients and consumers can play in managing their own health.

The aversion to provider competition is as powerful as the aversion to patient risk. Once again, the focus on distribution allows cronyism to go nearly unchecked in health care. Hospitals employ certificate-of-need laws to stave off potential competitors. Physicians similarly use restrictions on professional licensure, nonphysician scope of practice, medical school slots, and telemedicine to do the same. Insurers enjoy cozy relationships with state insurance commissioners. All these restrictions straddle the line between disinterested risk-aversion and deeply interested cronyism.

The present-day cascade of new technologies—genomics, 3-D printing, nanotechnology, wireless telemetry, artificial intelligence, big data—offers a chance to replicate in health care the dynamism we have seen in information technology over the past generation. But until we shift the healthcare debate away from its monomaniacal focus on distributive issues (i.e., conflicting insurance plans), healthcare innovation will remain in the doldrums.

The Debate Skews Technological Progress

The focus on distribution does not merely result in neglect and slowing technological progress. The insurance schemes also skew medical technology in particular directions.

An individual mandate (or a high-risk pool, a single-payer system, etc.) mechanistically offers to cover a particular array of medical goods and services. Medicare’s reimbursement methodology is perhaps the starkest example, though it is mirrored in other forms of health insurance.

Medicare excludes whole classes of goods and services from coverage: particular drugs and devices, time spent in email and telephone communication, telemedicine visits, purchases from international providers, experimental treatments. Limiting the flow of dollars in these ways shapes the sorts of goods and services provided, as well as research and development on newer modes of treatment.

The slow acceptance of new forms of health care unnecessarily heightens costs and risks, discouraging entrepreneurs and venture capitalists. After desiccating the capital markets for healthcare research and development, the government often seeks to fill the gap.

The ACA, for example, established the Centers for Medicare & Medicaid Services Innovation Center to serve as a clearinghouse for healthcare payment and delivery innovations. The central problem with the center is encapsulated in a recent article in the Atlantic. Titled “Why Experts Reject Creativity,” the caption reads, “People think they like creativity. But teachers, scientists, and executives are biased against new ways of thinking.” And by their very nature, public-sector incubators rely on teachers, scientists, and executives.

The IT Difference

The explosive advancement of IT came from public policies that denied those insiders—teachers, scientists, and executives—veto power over innovation. These policies unleashed the uncredentialed genius that led to Apple and BlackBerry.

If the federal government had maintained its grip on ARPANET post-1990, the Internet today would look nothing like the miraculous world of Siri, GPS, Skype, Translator, Street View, Uber, Twitter, and so forth. If a Federal Department of Apps (FDA?) had maintained oversight over innovation, the new technologies would be few in number, high in cost, and mediocre in function. And we would today be arguing about how best to distribute scarce IT resources.

Bringing computers, cell phones, and software to the world did not require an individual mandate or any other redistributive scheme. Universal coverage, the fantasy of healthcare reformers, became reality in IT within 25 years. And this was precisely because innovators could focus on creation of the new rather than on distribution of the old.

Conclusion

It would be naïve to think that the debate over distribution will suddenly give way to a debate over how best to unleash innovation. But it’s desirable to begin shifting public discourse in that direction. Around 1990, remarkably, a bipartisan consensus emerged in Congress to unleash the unknown potential of the Internet by allowing consumers to take risks and denying IT producers protection from market forces. As a result, connectivity changed global society for the better, in a way that was an achievement of neither the political Left nor the political Right. And it mostly emerged spontaneously from markets, not from mandates.

The same option is open to health care, if only we choose to take it.

 

Be sure to check back with e21 next week for the second installment in the “The Pre-existing Condition” series, Douglas Holtz-Eakin’s, “Market Incentives for Broader Coverage.”

Interested in real economic insights? Want to stay ahead of the competition? Each weekday morning, e21 delivers a short email that includes e21 exclusive commentaries and the latest market news and updates from Washington. Sign up for the e21 Morning eBrief.

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