In which Ezra Klein makes Avik Roy acknowledge why U.S. healthcare costs are so high

Avik Roy and Ezra Klein had a long --very long -- conversation about Roy's beefs with the Affordable Care Act. They covered "rate shock,"  minimum coverage standards, and Roy's dreams of a more fundamental system overhaul that would push everyone onto healthcare exchanges by privatizing Medicaid and Medicare and ending the employer tax deduction for health care benefit provision. 

Roy has been a relentless critic of the ACA. Having read some of his writings about it but by no means all, I was surprised to learn, as Klein probed his reaction to feature after feature, that he "do[esn't] have* a problem with standardizing benefits" and that "guaranteed issue [no refusals or cost bumps for preexisting conditions]is fine." His objections really boiled down to three: 1) he objects strenuously to "community rating," i.e., the ACA's limiting of the price differential between the youngest and oldest age cohorts to 3-to-1, as opposed to the roughly 6-to-1 ratio that Roy says the market would dictate.  2) He would like the exchanges to offer plans that cover even less than the lowest cost plans in the current design -- plans covering, say, 40% of a member's average yearly costs rather than the 60% that the exchange's lowest-run "bronze" plans are designed to cover. 3) As mentioned above, he would like more radical reform -- health exchanges for everyone.

As Klein eventually made Roy implicitly acknowledge, though, none of his favored solutions get at the root of the United States' disproportionate healthcare inflation.

As Klein kept pointing out, Roy's beefs with the ACA point toward incremental fixes. In a sane political environment, if Roy were right about the first two points, lawmakers would adjust the law along the lines he suggests as the data came in, altering the community rating formula and actuarial value of the lowest cost plans; it's to be expected that a major restructuring of a major sector of the economy will require constant tinkering. As for the last, as Klein pointed out, the Wyden-Bennett health reform proposal, which would have ended the employer healthcare deduction and greatly expanded the health exchanges, got no substantive support from Republicans during the ACA legislative process.

Someone holding Roy's image of the ideal might embrace the ACA as a camel's-nose-in-the-tent establishing the exchanges' viability.  In fact Roy has shown at least momentary enthusiasm for the ACA in this regard, in connection with Paul Ryan's proposals to recast Medicare as an ACA-like exchange. This spring, when Ryan was reportedly considering speeding up the proposed transition to a "premium support" model for Medicare in his 2014 budget, Roy envisioned a compromise in which Republicans accept the ACA as settled law and Democrats agree to gradually raise the Medicare eligibility age, thereby pushing more seniors onto ACA exchanges and smoothing a transition to a future Medicare exchange. For a moment he was almost enthusiastic. Still, my overall impression of Roy's stance was well captured by Klein:

I think if somebody read your writings, right, they would say you hate this goddamn bill. Like you’re not one of the people who’s a repeal dead-ender on this, so to speak, but you’re very negative on it. You think it’s a bad bill. You would have liked to see it repealed. I mean I think it’s more that you’ve accommodated to the reality of it as opposed to you support it.

Roy responded by blaming Democrats for failing to draw Republicans into working on the kind of more fundamental overhaul he envisions -- e.g., the Wyden-Bennett bill that would have transitioned Medicaid recipients onto private exchanges and paved the way for employers also to get out of the healthcare business.  Klein pointed out that no Republican ever offered an amendment to make the ACA more like Wyden Bennett. (He might have added that when Wyden himself offered a baby-step amendment in that direction in fall 2009, allowing some employees with access to company health care to opt for the exchanges, big business came out strong against it and it died a swift death.)  Roy jumped to another cherished shibboleth: government-mandated health savings accounts.Singapore has them, and Singapore's per capita health costs are 1/7 of ours! It was there that Klein got to the crux:

Yeah, but let’s say what Singapore does, right? And I’m very interested in the Singaporean system. They set all the prices that hospitals can charge. They set all the prices that doctors can charge. So everything you’re doing, essentially the government has negotiated around the front end. They have an individual mandate, we can call it, to save 20% of your wages. Essentially 20% of your wages are directly garnished into a health savings account...

But in these systems, right, because when you talk about the one-seventh, Singapore is very cheap. Great Britain is very cheap compared to us. Canada is cheap. Sweden’s cheap. France is cheap. Everybody’s cheap. And what all of them do, the thing that they all do, is not health savings accounts, right? That is not the common denominator. The thing every single one of those systems do is the government is a primary negotiator. The government says how much can a drug company charge. The government says how much will a doctor’s visit cost. The government says how much a hip replacement will cost. And the per-unit price of health care in those countries is way, way, way down.

ROY: Right.

The common denominator in cheaper, more efficient healthcare systems...is a government pricing monopsony. It doesn't solve all problems -- Klein acknowledges that if the U.S. had full government price control there might be a cost to innovation -- but it is the obvious sine qua non for cost control. All Roy's cherished preferences are just those -- preferences. And the ACA in fact incorporates more of them, via its subsidized exchange model, than any policy wonk has a right to expect of any epochal legislation restructuring a gargantuan industry and facet of modern life.  Roy's posture of disdain is politically motivated, whether he recognizes it or not.  Ezra Klein exposed that.

* Because Forbes.com fails to provide a one-page version of this 11-page transcript, I have linked each citation to the page on which it appears.