Saturday, September 5, 2009

Market medicine, II

The Atlantic carries a provocative article on health care reform. And Frontline does too.

A few weeks ago, I reviewed Atul Gawande's diagnosis of what ails US health care and makes it more expensive than it needs to be. This week, I extend this analysis, reviewing two more sources, one an Atlantic monthly article by David Goldhill oriented towards laissez-faire solutions, and the other a Frontline documentary by T.R. Reid on how other advanced countries provide insurance.

There are some positive points to Goldhill's piece. He concludes, as I did in my post, that individuals are not really the consumers in our current system. Insurance pays doctors for procedures done, and doctors order procedures based on what they need, either on behalf of patients, or to keep their practices healthy. He connects this incentive system to observations about the shoddiness of care- that hundreds of thousands of preventable deaths take place annually in the US medical system because patients are not the primary customer. Indeed, one might make the case that a hospital-acquired infection, for instance, is found money for the hospital- a new revenue stream, whatever the outcome. And, because costs are carefuly shuffled around or hidden from all the players, little discipline occurs, either to keep profits in check, or to restrict overall health costs.

He also makes a decent case that our current system is the worst of all worlds, worse than either extreme of single-payer care or complete market-based care, with neither the cost discipline of fully market solutions, nor with the regulatory discipline of a single-payer system. Goldhill's solution would be to radically alter the system towards fully market incentives requiring each individual to generate a kitty (much like a 401k) from which to pay for routine, minor, and elective care, with catastrophic care covered uniformly by separate insurance.

Goldhill's prescription seems abhorrent. And it is not surprising that no other country with the means to provide decent health care has opted for such a system. He recommends a single-payer program for catastrophic health events, (to be defined by regulation of some kind), with premiums adjusted by age alone. But why not charge everyone the same? Why stick enormous premiums to the aged, due to their imminent need for catastrophic care? And how would catastrophic care be defined? He suggests 50K in cost, which would create incentives for providers to charge more for care in many instances, not less.

Secondly, Goldhill's personal heath account is to be used for end-of-life care, among many other things, and be bequethable to children, thus setting up just the kind of pro-euthanasia and pro-suicide incentive for the elderly that sounds like a recipe for ethical disaster. There are countless other problems of this kind in the details of his system. One's faith in the abililty of US consumers, in a completely free market system, to drive the core health system to higher quality and performance is shaken by the diet and plastic surgery industries. (Think of Herbalife!) Here is an industry where the assymetry of information, which Goldhill makes much of, is so severe that one has to be extremely careful about touting pure market mechanisms.

And utility is of course not the only issue at stake. Health care is a special kind of good, which we expect to get in the form of "care", not customer service. As a society, we have the feeling (in our better moments) that health care is a right akin to a human right- a fundamental decency by which we recognize our common humanity and vulnerability to fate in its most acute manifestations. It is not a game or a matter of competition, but of solidarity. Additionally, health is not a solely private good. Treatment of communicable diseases as well as mental health and substance abuse problems benefits society at large, often as much as it benefits the direct recipient. We are not only our brother's keeper, but his beneficiary as well.

So one way to make our society better will be listen to Goldberg's lament, but go in the opposite direction, towards a health insurance system that covers everyone (even illegal immigrants), minimizes monetary issues, and uses competition sparingly as needed to make the system more effective as well as more efficient. Currently competition is allowed to take numerous unconscionable and destructive forms, like cherry-picking those who apply for insurance and charging them for involuntary conditions (like age, sex, birth defects, etc.), or like denying care once charges have been rung up, or .. well, the horror stories of the current system are well known.

On the other hand, Reid's analysis was far more interesting. Other countries, like Taiwan, Switzerland, Japan, England, and Germany all have excellent systems, each with specific issues, but none with our toxic mix of uncontrolled costs, crazy incentives, and worst-in-class health outcomes. If we picked any one of them, we would be better off, and probably better also than the proposals wending their way through Congress.

The common themes of these systems is that competition is allowed in certain beneficial ways, but not in non-beneficial ways. No one can be denied insurance (indeed all must have insurance), it is easy to switch insurance (when it is not single-payer), and insurance is subsidized for the poor. No one goes bankrupt for health reasons, period. Insurance is uniformly priced, not priced by how much health care one is thought to need (the antithesis of insurance, actually). But competition does happen. Carriers compete on how fast they pay claims, or on extra features of their plans over and above the uniform basic coverage. In England, hospitals and providers are now competing by popularity. Each provider gets paid uniformly per client or per procedure by the government, but those that can not attract customers face reduction or elimination.

Many of these countries still have a system with non-government insurers. So the "public option" being discussed in the US is not essential, unless one wants to move to a single-payer system (which would not be bad either, as shown by Britain). The main thing is to regulate the industry in a thorough way that makes its incentives beneficial for society instead of destructive. In Switzerland, which only reformed its health insurance system in 1994, most insurers are non-profit but private. They play by a new set of rules, do quite well, and can feel good doing so.

Is there rationing? Yes, indeed there is. Germany and Japan limit payments to doctors. Taiwan sets overall limits on the health budget in relation to GDP, has a single-payer, electronic smart card payment system that simplifies billing and holds the user's medical record, as well as enforcing prices on care. And also conducts "meetings" with people who rack up excessive visits, to resolve issues of hypochondria and loneliness. Is our rationing any better? It certainly is not driving prices down. But it is restricting care- from the 40 million-odd citizens who have no insurance, to those who depend on which employer they happen to work for, whether miserly or generous, and beyond that on how rapacious the employer's chosen insurer is- how willing to obey the current market by evading its ethical responsibilities.

This general regulatory argument is true for other areas of regulation, like finance and politics. On Wall Street, we have toxic incentive systems that value short-term profits and "optics" (not to mention insider information) over the long-term health of companies and thus also of the economy as a whole. In Washington, corporations are allowed to spend freely to make their voices heard and elect favored politicians, under the toxic theory that corporations have free speech rights and citizenship rights just like any other fictitious "person". Perhaps they deserve votes in proportion to their wealth as well!

The health care system is an area where we should value societal solidarity and decency over ideological fixation and mirages of theoretical utility (especially now that the specter of communism is such a withered ghost). We know what works, because health care in comparable countries works. We just need the courage to get from here to there. In all honesty, this isn't rocket science. Compared to the challenges of climate change and re-engineering our cultural energy metabolism, it is downright trivial. Or would be if Washington were not mired in short-sighted corporate corruption.

  • One more lament on our current system, by Nicholas Kristof.
  • Kristof, again, on socialized firefighting.
  • Goldhill's system occurs in India, and serves the well-to-do pretty well.
  • Krugman on our dysfunctional politics.
  • Fed review offers very insightful diagnosis of the euphoria and its regulation
  • Some basic business economics, focusing on IBM.
  • Fascinating essay on the art of mathematics
  • What is the honor in honor killing?
  • Is the US embassy in Afghanistan protected and fit for use?
  • Praying for death?
  • Praying for ... sanity?
  • Religion in a denuded world?

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