The Looming Failure of Obamacare, Part 3: Rent-Seeking

The third installment of my series on Obamacare is now up at Forbes.  An excerpt:

In the health care field, the Holy Grail of rent-seeking is to get one’s medical device, drug, or procedure added to state health insurance mandates.  Before Obamacare, health care insurance regulation had been a state function, and each state had written laws mandating that all health insurance policies written in the state must cover certain services.   By getting one’s particular service added to such a mandate, the service essentially becomes “free” to consumers in that state  (of course it’s not free — everyone pays in the form of higher premiums, but the marginal price for the service goes to zero).

Imagine you have a procedure — let’s use laser elimination of birthmarks as an example.   This procedures requires a series of treatments using a fairly expensive piece of equipment to produce results that are of enormous value to a few people with extensive birthmarks, and of smaller value to many other people with smaller birthmarks.  Business growth in such a field is typically good at first as those who most value the procedure pay for it.  But it can be hard to grow outside of a relatively small niche, as most potential customers may consider it to be an expensive elective cosmetic procedure that, given other uses for their money, they can do without.  What can an aspiring dermatologic surgeon do?  Run to the government!

In 1997, the University of Indiana conducted a study of the laser treatment of these birthmarks.  I don’t know who funded the study, but tellingly the study findings did not really touch on the efficacy of the treatment or its risks.  The study surveyed a number of dermatologic surgeons.  What was its primary finding?  ”Based on current health care policy guidelines, laser treatment of port-wine stains should be regarded, and covered, as a medical necessity by all insurance providers.”  In other words, the sole purpose of this research was to convince legislators to add this procedure to their state’s  insurance mandates.   To date, this procedure has been added to the must-carry list in only two states, but in those two states doctors no longer have to convince price-sensitive patients that this elective procedure is worth the cost – after all, its free!

As you can imagine, the cost of these mandates are staggering for those of us who pay the premiums.  State governments are requiring us to pay higher insurance rates in order to cover procedures we might never consider.   Four states have mandated coverage for naturopaths;  three for athletic trainers; one for oriental medicine; eleven for hair prosthesis; four for massage therapists; and three for pastoral counselors.  The state with the most such mandates is Rhode Island, with 70, a state which not coincidently also has the third highest insurance premiums in the country.

On a quasi-related note, John Goodman has thoughts on "government failure" (an analog to market failure) as it applied to health care.  It is a point that cannot be made too often.  Merely pointing out supposed imperfect outcomes from private action does not immediately justify government action -- too often people take the default position that if an improved outcome can be imagined, the government can achieve it.  But does this ever happen?  In health care, the irony is that many of the supposed market failures we are "fixing" with Obamacare are in fact results of past ham-handed government action.


  1. me:

    Sigh. Health-care is in desperate need of reform (just think for a moment where else paying cash up front is 3-4x more expensive than having the service provider attempt to collect on aroudn 30% of the price within a year or two?!). Obamacare is far from the reform this market needs. I swear, if anything, historians will probably look back on the Obama administration as a body of people not afraid of tackling the big important issues - and doing badly in pretty much every single case.

  2. sch:

    Plastic surgery and dermatology are perhaps the only medical specialties likely to survive the onslaught of ACO,
    which will pretty much wipe out over a 10 yr or so period independent practice by physicians. Derm and plastics
    can operate on a cash only non-medical basis. Much of what plastic surgeons do now is outside the current
    medical insurance system, ie no ones insurance covers face lifts, removal of excessive eyelid skin, excessive
    fat, breast implants, botox for wrinkles etc etc. The ophthalmologists have Lasix franchises and corneal implants
    and dabble in eyelid redos also but most are locked solid into medicare where most of ophthalmology lives. But
    a few do quite well remodeling corneas for $500-2000 each, cash, check or credit card only.

  3. caseyboy:

    Another example of a medical procedure outside normal coverage parameters is Lasik eye surgery. The cost has gone down, while the quality has gone up. Gee, what causes that? My grand papy used to talk about something he called competitive market forces or some such thing. M

  4. marco73:

    My wife just went to an Opthamologist for a check up, and he immediately said she would benefit from removal of excess upper eyelid skin. Its called Blepharoplasty.

    I tell her she still looks as beautiful as the day we got married, but she says I'm overdue for an eye checkup.

    It is not anything that she had ever considered before the check up, and didn't even realize she had such a condition. The surgery is $1500 to $2000, aledgedly all out of pocket. I thought that would be the end of it.

    Well that wasn't the end ot it. Why, if the doctor can document that the excess skin could be a problem for her vision, then insurance would pick up 80%. Lo and behold, for only $300 to $400 out of pocket, she could get the surgery done. So the doctor is going to submit paperwork to our insurance, to see if insurance will cover it.

    But wait, there's more! While I was checking my wife out of the doctor's office, the receptionist mentioned that I was also a good candidate for the surgery. I thanked the receptionist for her concern, and said I would think about it. Not.

    I believe that if Obamacare is ever implemented fully, we will have as many procedures as politically connected actors can jam through Washington, to hell with the cost.