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Santorum's faulty premise on healthcare reform

March 26, 2012 |  5:20 pm

Rick Santorum at the Supreme Court on Obamacare Day One
Rick Santorum stopped by the Supreme Court on Monday to argue -- again -- that he's better suited to run against President Obama in November than Mitt Romney. That's because of Romney's role in Massachusetts' healthcare reform law, which Santorum says makes the former governor too similar to Obama on that key issue.

Romney's criticisms of "Obamacare" and his pledge to repeal the federal law have rung hollow, at least to my ears. And if voters want nothing more than to chuck healthcare reform into the garbage can, then Santorum's position might be appealing.

But it's axiomatic that voters are reluctant to replace something with nothing, and to date Santorum hasn't offered much when it comes to improving the healthcare system beyond the standard Republican boilerplate. That's not going to satisfy voters who are alarmed by the rapid increase in insurance premiums and the jaw-dropping bills they receive when they run into seemingly minor health problems.

Santorum's website offers a six-point plan for replacing the Patient Protection and Affordable Care Act, proposing to give consumers more control over their healthcare dollars, encourage more competition among insurers and providers, and provide more flexibility to states in their Medicaid programs. There's value in all of the steps he lays out, and many economists agree that healthcare inflation is excessive in part because so much of the industry is shielded from market forces.

Nevertheless, Santorum's plan is built on the faulty premise that healthcare products and services are much like those in any other market. They aren't, and the differences make those products and services resistant to the sort of discipline that competition brings to other fields.

For starters, the care that's really costly tends to be the kind that's urgently needed. It's hard to shop around for an emergency room after you've been hit by a car or when you're having a stroke. Even when someone does have time to consider where to obtain treatment, the huge information gap between doctors and their patients makes it tough for the latter to push back when they're told they need an expensive treatment or drug. And unlike insurers or corporate buyers, individual consumers have little leverage to negotiate for better prices from physician groups and hospital chains.

Consider, for example, Santorum's call for strengthening health savings accounts that are tied to high-deductible insurance plans. In theory, these plans can help reduce the demand for less-vital healthcare services, easing the pressure on prices. In practice, however, big deductibles can give providers an opportunity to soak individual consumers. Witness my colleague Steve Lopez's column Monday about a family being hit with a $5,000 bill for their 11-year-old daughter's stomach ache. There's also the risk that penny-pinching consumers will put off treating ailments until they become full-blown crises.

Another issue is whether competition encourages insurers and providers to reduce costs through more efficient and effective care, or whether it simply encourages regulatory arbitrage. Like many Republicans, Santorum wants to let people buy health policies from insurers based in other states. As Santorum admits, though, the sole purpose is to let people avoid the coverage mandates that certain states (such as California) impose -- for example, a requirement that all policies include coverage for pregnancy. Such a change would make insurance less expensive for some, especially the young and healthy. But it would also make it more expensive for others because the risks they face wouldn't be spread across as many policyholders.

The current insurance system is already warped to favor the young and the healthy. By denying coverage or imposing repeated double-digit rate increases, insurers push older customers and those with preexisting conditions onto rival carriers or into costly state insurance plans for "high risk" consumers. Santorum's plan offers no solutions to that problem, however; instead, it counts on competition to somehow make healthcare and insurance policies more affordable to those who need those products the most.

Well, there is one other thing that Santorum adds to the mix. He calls for "meaningful" medical liability reform to "increase access" and reduce the cost of defensive medicine. There's fairly broad support for some type of medical tort reform, and "Obamacare" encourages states to experiment with it. But it's worth noting that two of the states that have already enacted significant medical liability limits -- California and Texas -- have seen their healthcare costs rise faster than most other states.

The Affordable Care Act leaves much to be desired, particularly in the area of slowing the growth of healthcare costs. But it would be a mistake to toss the law out and count on market forces to yield a better result. Doing so wouldn't address some of the most problematic incentives in the current system, which encourages healthcare providers to look at illness as a profit center and insurers to look at the sick as someone else's problem.

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--Jon Healey

Credit: Brendan Smialowski / AFP/Getty Images

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