Health Care and Rationing

I will keep this short in view of the reams we will be using as the debate roils on this year. The American health care system is irrevocably broken. It is horrible. Rotten. And the worst in any industrial country. There I said it.

What I mean is that the system is broken down. Not that care, when it is delivered is bad. And that’s an important point to keep in mind. Let’s not confuse the rotten nature of the system with the care it delivers when it finally gets around to delivering care.

Those who have an interest in the status quo will try to conflate the two issues. We need to be clear as to what we are attempting to fix.

The US heath care system delivers extremely poor value for money. By any normal measure of efficiency it produces bottom of the class performance. This is beyond argument.

We spend a full 16% of our annual national income, as measured by GDP, on health care, and get results below that of any other industrial nation. In other words we spend twice as much per person as any other nation on earth and then get less back.

“I am not so sure that America is truly ready for a strictly private health care system. But that’s what many people think they have. They don’t. By any stretch of the imagination.”

That’s not good. It is awful. It needs fixing. We simply cannot afford to continue this way, especially as demographic pressures build the case for spending more. Something has to give before the entire edifice crumbles.

Nor is helpful to go around blaming people. We are all to blame. Everyone has a finger in the mess. Doctors over prescribe. Insurance companies seek to avoid paying for care. Drug companies dump billions of R&D money into ‘lifestyle’ rather than disease treatments. The system is hopelessly under-automated. Consumers are ill informed and have no clue what their care actually costs. Businesses provide health care as a benefit and then cut wages in order to pay for it.

That last point should have grabbed your attention. Research has shown definitively that employers see health care costs and wages as a trade off. So do the unions. So in order to keep health care benefits for aging workers, think the auto industry or education as two prime examples, wages are often cut or held flat for today’s workers. Since those retirees are not productive the effect on the nation’s ability to produce future wealth is devastating. We are transferring huge wealth to retired Americans from the productive youth. We are eating away at the core of the American dream to keep retirees healthy. From a purely sterile efficiency point of view, that’s about as stupid as a society can get. The best estimate is that current wages are a minimum of 6% lower than they would otherwise be because of our health care system.

That’s a big deal.

Our problem is that our system is typically American. It is a cobbled together hodgepodge of programs resulting from decades of piece meal legislation and corporate action. We have never wanted to face up to the consequences of a national debate about health care. Most of the costs are hidden, so they are easy to avoid. Meanwhile most of us get good care, and none of us pays the true cost. There is absolutely no incentive to change. Add in the all-American love of new technology and the latest wonder drugs, plus the urge to consume cosmetic ‘medicine’ and the result is an orgy of expenditure, wild earnings opportunities for medical professionals, and no restraint.

So one of the key objectives has to be getting restraint. On doctors; on patients; on drug companies; and on insurers. That means building incentives for more cost effective behavior.

Free market types would argue we need to let the market allocate health care resources. Let the care flow to those who are willing to pay for it. Right now about half of all our spending flows through government channels like Medicare. So to get a true market allocation we would have to abolish those programs and let the current beneficiaries sort out alternatives, should they wish to.

Alternatively we can get the government more involved so that we allocate care through non-market mechanisms.

The choices are stark: do we allocate via prices – this is the market’s method of rationing. Or do we allocate via fiat – this is the centrally planned method of rationing.

Both are forms of rationing.

The word ‘rationing’ is often used pejoratively here in America. We look down at the rationed systems of Europe or Japan. But our system is ‘rationed’ too. Markets ‘ration’ by price. If you can’t afford something you don’t get it. Whenever a scarce resource like health care is allocated the effect is a rationed apportionment. We just don’t like to call it that.

And in essence that’s the debate we are about to have. Which form of rationing produces the allocation of resources we prefer?

As a nation do we want everyone to have access to health care. If so the market will fail to deliver that. Or do we prefer that only those who are willing to pay get care? If so the government will get in the way of that.

If we want the market system, then let’s have the courage to get the right incentives to reduce costs and let consumers get involved. That means aggressive cost cutting and business style efficiency on the part of doctors. It also means less focus on care and more on profit, since profit is the only viable incentive mechanism for a market.

I am not so sure that America is truly ready for a strictly private health care system. But that’s what many people think they have. They don’t. By any stretch of the imagination.

Perhaps it’s time for all those involved to recognize that the current system is both broken and not fully privatized.

At least then we can discuss what to replace it with sensibly. Defending the current system as if it is a privatized care system is to perpetuate an illusion. If those in medical profession, insurance companies, drug companies, and voting public who advocate a ‘non-European’ solution truly want one, then they should have the courage to step up and accept the consequences of market forces: lower costs and profits, reduced capacity, higher service standards, and greater customer scrutiny. Heck they may actually have to make that 1:00 appointment a 1:00 appointment rather than an an ‘any time I can get to you’ appointment. An those drugs may actually have to deliver, on time, cheaply. Patients will have to tell doctors to stop treatments that they, as newly empowered consumers deem too expensive or unnecessary. And, perhaps the most horrific, those insurance premiums had better produce a service rather than a denial of service.

Gulp.

This all sounds like a final exam:

“The watch phrase of customer service is that the customer is always right. Is that the way to run a health care system?”

Discuss.