In between police crackdowns there are special attractions on New York City’s crowded sidewalks. The most common of these are the “Shell Game” and its playing card offspring, “Three Card Monte” — and they are designed to separate the gullible from their money.
The basic principle underlying each of them is the bet that the “mark,” makes that he or she can keep track of the pea under the walnut shell — or the single card, usually a queen or ace, in Three Card Monte — while the dealer shuffles them around on the table with adept hand moves that are difficult to follow.
Sometimes the game is fixed, when during the shuffle the pea or the queen is extracted from the mix, but that isn’t always necessary. In most cases the player loses his or her money anyway because the dealer’s movements are too quick for the “mark” to follow.
The structure of our health care cost system bears more than a passing resemblance to Three Card Monte. Just when we think we’ve got it figured out and know exactly where the pea or the queen is, it turns out that we weren’t fast enough. And there is just enough deceit in the game to make it unlikely that we ever will be.
The health care cost muddle preceded Obamacare, of course. From its very beginnings it has always been a little vague about who pays and how much. However, while the Obamacare system did not directly address the total cost of health care it has succeeded in making cost analysis more difficult.
Very much like RomneyCare in Massachusetts, which had preceded it, Obamacare contained the assumption that the system’s health insurance markets would impose a discipline that would make the actual costs of health care lower and more visible.
For economists, analysts, and taxpayers it is important to emphasize the differences among a “cost,” a “cost incidence“ and a “cost shift.” The cost of something is the total amount of money that it takes to get something or to get something done, in other words a good or a service. Cost incidence is the person or group who pays for that good or service. A cost shift is when the cost incidence is moved around — sometimes with rapid, adept moves and distracting patter — so that the people currently paying are replaced by different people or groups. Somebody else is buying.
In a modern, politicized economy apparently the ideal cost shift is done so skillfully that the people now paying don’t even realize they’ve been had. This is known as “the perfect con” in the business and those of you who savor old movies remember that it was the underlying principle behind the police raid in “The Sting.”
As just one example of the complexity that Obamacare added to the system, consider the federal subsidy for medical insurance companies, recently referred to as a “bailout” by presidential critics.
What is interesting about this from a follow-the-pea cost-shifting standpoint is that the insurance companies will receive compensating subsidies if they lose money writing Obamacare policies. That presents a level of complexity by itself, but there’s more. The insurance companies who make money writing these policies are required to pay into a fund to compensate the companies that suffered losses.
What that means to the free market exchanges that were supposed to lower the costs of health care insurance is that the successful companies will have to subsidize their competition. This, of course, is definitely an incentive for some companies to “low ball” their prices to consumers seeking insurance, shifting costs of the losses from policy holders to the taxpayers and competing insurance companies.
One thing it is not, though, is a free market. We shouldn’t count on the health insurance exchanges, then, to improve the transparency of costs, lower costs, or in any way to make life easier for cost analysts.
From a cost analysis standpoint the health care system bears a disturbing resemblance to a hypothetical Three Card Monte game set up on a sidewalk near Times Square. The dealer seems particularly inept and there are frequent payouts to players. This, naturally, draws a crowd, in the way that an overly generous, malfunctioning cash machine might. Working the crowd, though, are several pickpockets, some of whom are accomplices of the supposedly inept dealer. Try following the costs and cost shifts in that system.
The full regulatory apparatus of Obamacare has not completely kicked in yet and at this point costs seem to be higher, not lower, and hidden, not transparent. But there is a whole lot of cost-shifting going on — enough to make cost analysis extremely difficult. At least “The Sting” had good music.
James McCusker is a Bothell economist, educator and consultant. He also writes a column for The Herald Business Journal.
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