With President Obama resetting the dialogue on health care reform with a major policy speech this Wednesday, I thought it would be a good time to share my thoughts on a matter very dear to my own heart (and career). For starters, I must express my disapproval at the way that Obama has gone about the policy revamp. Drawing upon Clinton’s mistakes in 1993, the White House approached Congress with a vague set of guidelines instead of slamming a grimoire of arcane policy down on the negotiation table. However, this was done to almost a fault. Even as congressional Democrats cried out for guidance, the White House let negotiations with Grassley and Enzi drag on, even when it became clear that the Gang of Six was just stalling. The gameplan for defeating reform is the same as it was in 1993; drag out discussion and bombard the public with twisted and unsavory aspects of hypotheticals. Obama’s approval ratings subsequently dropped to record lows for him and he is now facing rebellion from the left and the right. This has led to the upcoming policy address to rebut charges in hopes of swaying the public back.
Forewarning: The following essay is quite long, so if you’re looking for a summary, Greg Mankiw has an excellent article capturing the gist of my arguments.
The main problems with the current system of care are:
1) Health care is too costly (macro-scale). This is a loaded issue. Although the latest figures show that 17.6% of GDP is devoted to health care, this is not a problem in itself. Health care and education are the two only growing sectors in the current recession, so shouldn’t we continue to invest in it and become a global leader? After all, much of the medical research leading to better treatment and new drugs happens in the US. Others are worried that the country is becoming too angular by losing its diversity, such as its manufacturing base, IT industry, and finance sector. Again, this is not a serious issue. The theory of competitive advantages states that in the absence of protectionism, companies will shift production to countries that allow them to produce the best products (defined by quality and cost). If another country can make cars and push currency better than the US can, that’s not a problem. Workers who desire jobs in those fields can move to Japan, China, India, Brazil, and Switzerland. Of course, that’s a pipe dream in that there are structural barriers to free movement called immigration laws and cultural/linguistic issues. Also, individuals may develop attachment to a certain country that goes beyond practical considerations and into the realm of sentimentality.
If we change metrics and use per capita GDP spending on health care, the US does indeed rank #1. Here, I take issue with how the numbers are measured. Are we taking the 17.6% of GDP and dividing by population? In that case, we include things like advanced medical research that the US conducts that the rest of the world largely benefits from for free. A better measurement is the total cost of procedures divided by population.
Anyway, the topic of health spending being excessive reminds me of an excellent post by Tangoman on OTB. He claims that medicine is a superior good and if people are willing to spend more on it, why should we impede that? The post also claims that “[w]hen faced between measures to increase the quality of care, which increases costs, or reducing the quality of care, which decreases costs, we grumble but we invariably choose to bear the costs so that we can enjoy the quality of care.” I argue that this is not true for the following reasons regarding efficiency:
Consumers right now are not exposed to the cost of their operation. Therefore, we see cases in which the patient walks into a physician’s office and demands to have a knee MRI for an injury when a physical exam can be 95% correct at 1/50 the cost. The physician is not affected by the cost, so he or she is happy to oblige. This can be easily solved by making patients personally responsible for the costs of health care, with some degree of subsidization by governments. One idea I had is to set up health savings accounts, similar to retirement accounts in a way, into which individuals can siphon up to $10,000 of their pre-tax salary each year with matching government contributions. The individual will then be responsible for choosing providers and deciding treatment options. Naturally, hospitals and private practices will be forced to list their prices for each procedure, just as any other service provider currently does.
Another issue with respect to efficiency is colloquially referred to as “cover-your-ass medicine”. Physicians are eternally afraid of lawsuits for the most outrageous issues, so they order a battery of tests and images to rule out the 1/1000 chance of an obscure cancer. Not only does this take up time and money, but it can be harmful to the patient in some cases, such as repeated CT imaging. Tort reform is desperately needed to bring some sanity into malpractice, both by capping maximum awards and by ruling out frivolous lawsuits.
2) Reimbursement rates are not keeping up with costs. Speaking now from a health-care provider’s perspective, I’m constantly reminded that the hospital or practice loses money each time it treats a Medicare patient. This causes the problem of higher rates for private insurance and low physician morale. Low morale is probably the most underreported issue in health care, and it is serious in that it causes long lines and a deterioration in outcomes. There is a critical shortage of primary care physicians, and even many specialists are leaving the field for greener pastures. After all, if you can make it in medicine, you are probably smart enough to make it with more success and less work as a management consultant.
The solution to this is quite simple: move physicians to salary models. Granted, this is only possible for large firms that employ physicians, like HMOs and hospitals. Private practices, which I’m opposed to for efficiency’s sake, will merge or disband into regional care centers. Such a drastic move will only be possible if we consolidate all the options available for insurance. To this end, I have two ideas (independent of the other ideas I’ve presented):
The first is to move swiftly and destructively to a single-payer nationalized health system. This means UK-style NHS with the government owning hospitals and paying physicians salaries. If we take out insurance company profits, the government saves money; alternatively, we can provide more care that would otherwise be rejected by insurance companies. Some will worry that that this move will reduce physician salaries. I don’t think that it will happen because the amount of training required to be a qualified physician is so rigourous that it demands an appropriate degree of compensation to entice anyone to enter the field (hat tip: Greg Mankiw). Think of physician salaries as being indexed to the salaries of other professionals (I’m thinking investment bankers and corporate lawyers); if you lower the pay of one profession enough to overcome the hassle of and barriers intrinsic to switching to a comparable field, you’ll see a dramatic exodus of people willing to be in that field. The mistake that many people make is in comparing physician compensation in the US to that of other developed countries such as Australia, Canada, and the UK. Instead, we see that physician salaries in those countries are comparable to that of other professionals; the discrepancy is due to the average salary level of all indexed professions being lower). Another reason is that medical education is much cheaper outside the US, so practitioners have already been partially subsidized. So, if the US ever does try to reduce physician salaries, it had better do the same for bankers, lawyers, entrepreneurs, accountants, nurses, teachers, and professors. In fact, I would argue that the current shortage [especially] in [primary care] practitioners is partially due to low salaries. The other reason is that a shortage of medicals schools limit the number of people entering the profession (about a 50% acceptance rate) when the demand for the profession (due to high salary) is substantial.
Moving to a single-payer system does have the downside of overwhelming the current system’s ability to treat everyone. Massachusetts is now facing this problem after it implemented universal care (Mass-care). Naturally, if you can get unlimited care for free, wouldn’t you want to take advantage of it by upping the amount of care you receive as opposed to even the current situation of negligible deductibles? Introducing my earlier idea of health savings accounts and exposing patients to the cost of their care is an efficient form of rationing that minimizes pain. The word “rationing” is so loaded in today’s political world that it will instantly topple any politician who utters it. However, the reality is that rationing is a daily occurrence in any area where there is a shortage. More people demand access to a DMV service rep than is available at a given time (Have you seen the lines in California?), so we have a first-come-first-serve method of rationing. Britain offers a certain level of unlimited care for free but relies on individuals paying out-of-pocket or buying premium insurance from private companies for supplemental treatments. Of the two options, the first would be more egalitarian but the second would be more efficient and thus preferable, not to mention more easy to enforce (Steve Jobs transplant, anyone?).
If on the other hand the US wants to preserve elements of the current system, my advice would be to adopt a form of “controlled chaos”. This is a hodgepodge of conservative stepwise reforms nicely summarized by E.D. Kain and John Mackey. These include:
- Individual freedom to select insurance providers and have the premiums paid out of pocket or partially by the government (Medicare, Medicaid)
- Transition Medicare into a subsidy on individually chosen insurance instead of its own insurance program
- Deregulate and facilitate interstate competition among insurance providers
- Standardize billing forms and prohibit denial of reimbursement
- Tort reform
- Individual mandate
3) Medical outcomes are poor. Another common complaint targeted at the health care system is that the US does not have better outcomes (commonly measured in life expectancy and infant mortality) than other nations, despite spending more. The cost aspect I have addressed earlier. As for outcomes, I suspect that given the obesity epidemic, the current longevity estimates are outstanding. Compare the US with Japan, where obesity is much less prevalent, and you can explain much of the difference in life expectancy. Another aspect of life expectancy is societal contributions from things like poverty and crime, both of which put pressure on the medical system to treat a sicker population. On infant mortality, my understanding is that different methods are used to calculate the figure; the US attempts to save many babies with slim chances of survival while other countries do not even categorize them as births. Also, on some measurements, the US is far better at early detection of diseases such as prostate cancer and breast cancer.
4) Health care costs bankrupts the individual (micro-scale). This statement can be read in two ways. One is that the cost of health care for uninsured individuals paying out of pocket is more than they can reasonably afford. The other is that health care premiums are too costly for individuals to bear. The first matter definitely needs to be addressed, regardless of whether we move to a single-payer system or a more competitive private marketplace, individual bravado in “going it” on health care is foolhardy. I have no sympathy for those who decide not to procure insurance because they think they won’t get sick and then complain about high medical bills. It’s up to the individual in that case to live with the consequences.
Likewise, I have no sympathy for those who complain that premiums are unaffordable. Blue Cross’s individual plan is $451.75 a month, which becomes $5421 every year. Any individual earning less than $10,830 a year is in the poverty level and is eligible for Medicaid, so for the most part, everyone can afford to pay for medical insurance. Some choose not to because they feel that the risk doesn’t outweigh other expenses, such as food or entertainment. Therefore, the responsibility is again on the individual for not valuing health insurance enough among a myriad of possible purchases.
No comments:
Post a Comment