Politics of Healthcare Rationing

The Obama administration’s remake of the US healthcare system stands on three legs. It makes the purchase of insurance compulsory. It doles out new entitlements via expanded Medicaid, subsidies and certain benefit mandates. And it promises to control the growth of medical costs. The title of the 2010 law, the Affordable Care Act, highlights the cost containment feature and Paul Krugman, for instance, has repeatedly cited a Congressional Budget Office prediction that the changes would reduce the federal budget deficit by keeping down costs.

Now we have more information as to how this supposed cost containment works.

So far, the mandates that came into effect increased the cost of health insurance to employers.  A Kaiser Family Foundation survey attributes to the mandates 1.5  points of this year’s nine percentage point premium increase.  That may not sound like a lot but most insurance plans are not yet affected by the new provisions.

A first step toward cost control came last week with a report from the National Academy of Sciences’ Institute of Medicine. It says the benefits that insurance plans will have to provide under the law should take costs into account and follow the coverage typically provided by small employers, which tend to be less generous than those provided by large employers.  Moreover, it recommends that the expense of any new benefit be offset by savings in the system.

So, some treatments and innovations will not be included in the “essential” benefits package offered under the aegis of the government. The mandated package is almost certain to become a model for most private insurance.

This is the beginning of federally administered healthcare rationing. You could scream death panel, but the real eye opener is how the essential benefits are determined. The administration’s notion is to put the veneer of expert panels on the rationing.

In fact the law and committees already mandate certain benefits that are not part of a typical plan—-click for Mario Rizzo’s comment on one such requirement, contraception.  The Institute of Medicine says employer plans will have to be expanded to include various required benefits, which are more specific than mandated broad categories like hospital care that are usually covered by insurance.

In other words, the coverage of some services are mandatory while other areas are open to rationing. These were political decisions.  Why did politicians mandate some specific services and not others? Best guess is the rationing-proof goodies went to those with the strongest political connections and influence. All medical service providers lobbied but some lobbied with more resources or more effectively.

By all evidence this mode of operation will continue. What it will do to medical costs is at best uncertain, with subsidies and mandates pushing up the consumption of healthcare and hence spending. That it raises the power and income of lobbyists is certain. Currently this is a major effect of ObamaCare, the President’s protests against lobbyists notwithstanding.

There are people who prefer political rationing to market rationing. Perhaps they honestly believe politicians and centralized bureaucrats make better choices than the many players that constitute a market. Or perhaps they themselves are likely to do better under government rationing than in a market. But do they want their medical options dictated by the lobbying success of this or that interest group? Because that is what happens in political allocation of resources, whatever the pretense.

About Chidem Kurdas 58 Articles

Chidem Kurdas is a financial journalist, analyst and writer.

Throughout her career she has held numerous positions, including: Research Analyst at Thomson Reuters, New York Bureau Chief at HedgeWorld, News Editor at Infovest21, Senior Associate Editor at Medical Economics Publications at The Thomson Corporation. She is currently Editor at Opalesque Futures Intelligence.

She holds a PhD in Economics from New School University.

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