Health Care Debate: How to Keep Score

We have now entered the critical phase of the debate over health care reform. I have deliberately ignored this issue for weeks because I didn’t see anything constructive going on: the entire month of August was spent in an orgy of extremism and name calling that served only to raise blood pressure and muddy waters. Nothing of value emerged. More importantly I do not believe, as some do, that the extremists managed to sink the reform effort. All they did was to highlight the depth of the opposition to reform amongst a fairly large, but a minority nonetheless, portion of the population.

With that unfortunate episode past us we are now focused on the real issues once again. Plus we now have the first drafts of the proposed legislation from the Senate and the House. Thus it is now possible to speculate about what we might achieve.

First the obvious: will we get reform?

Yes. A bill will go to Obama for signature. So to that extent we will get reform.

Will the reform solve the problems we have?

Hmmmm.

Herein lies the rub.

That all depends on what you think the problems are.

There appear to be a series of general issues that can be loosely lumped together under the rubric of ‘health care system problems’.

• The system we have is on an unaffordable cost trajectory. We simply cannot keep throwing money at health care the way we have been lately. It will destroy our national wealth. More to the point: demographics dictate that we we rein in spending because the population is about to hit the dreaded baby boomer retirement years. That bulge of retirees combined with ever more exotic and expensive treatments for the diseases of the elderly are what runs the risk of undermining our system. We absolutely have to learn how not to spend for ‘end of life’ treatments the way we have been. That may sound callous, but it is a truism: we should invest our dollars in the young and the able so that they remain productive. Without them the expensive goodies for the elderly cannot be paid for anyway.
• The insurance industry has some really bad habits. In fact some things it does routinely are flat out anti-social. This is a result of the need that a privately owned insurance company has to make a profit. In order to make profits it is only natural – and should be expected – that an insurer seeks to avoid paying big bills. They’re the costs that jeopardize profits. Smaller regular payments are not so threatening. Most of the angst that exists in the public’s mind about the insurance industry flow from this problem: the avoidance of pre-existing conditions and the denial of service are both strategies designed to protect profit. If we want private health insurance then we will have to put up with the creation of such strategies. It is to misunderstand private enterprise to think that these issues will go away unless a heavy penalty is imposed on the more egregious behaviors.
• Our system simply is inefficient at producing good outcomes. This is mainly due to its being a ‘fee for service’ system rather than a ‘fee for results’ system. This is a complex issue but it boils down simply to the fact that we pay our doctors for treatments, not for getting better. There is no economic incentive [thought there is obviously a huge moral incentive] for doctors to zero in on the best course of action. The result is multiple treatments, tests, and more ‘ad hoc’ activity than there should be. By now we all know that our system is twice as expensive as any other, and yet we do not get twice the benefit. Clearly we are paying for something that isn’t worth having. So reform should ferret that out and get rid of it.
• The problem with that is that it reduces doctor incomes. And that gets us into hot water with the operatives of the system. Some people argue this would eventually reduce the number of doctors which is supposed to be a bad thing. Well no. All the evidence suggests that costs go up when there are more doctors. This results from the specialization that exists whenever there is a large concentration of doctors: they each make the decision to specialize in order to stand out in the crowd, with the end result being a dearth of cheaper generalists and an abundance of expensive specialists. This phenomenon is easily observed in places like Los Angeles, Miami, or New York each of which is knee deep in doctors and each of which is an expensive place to get health care.
• The overall cost of our system drives away poor people: we have the world’s largest percentage of people without health care coverage. Besides being an obvious moral blight, this raises the costs above where they already are: we end upon paying for any treatments that these folks get because the costs are passed on to the rest of us in higher premiums and bills etc. Plus we pay a cost for lost work – everything we buy is more expensive because employers have to absorb that lost work. Then, of course, there is the cost of having the risk of disease spread more quickly throughout the ranks of the uninsured and presumably less treated. A related issue here is the cost of the young and uninsured: young people often cannot afford health premiums and so gamble that their youthful well being allows them to ‘get away’ with no insurance. This means that a large pool of premium revenues, with associated low payouts, is lost to the system. What remains is a much weaker insurance pool: people who are likely to want to have services paid for. We lose the cash flow from the healthy that could be used to subsidize the costs of the sick. Dealing with this issue alone could go a long way towards reducing costs.
• Our system is fragmented. There is no national health care system here. This is not a problem of the multiplicity of states having their own rules and regulations – that raises costs without raising outcomes, but is minor compared with the cost of paperwork in our hopelessly old fashioned and bureaucratic melange of management techniques. The loss of information within the system is extraordinary. It is an epic destroyer of value. Here’s the problem: when you switch doctors it is highly likely that all the useful information gathered over time by the original doctor never makes its way to the new one. So, necessarily, a huge amount of time is consumed in replicating already existing data. Not only this, but because of a lack of standard technology simple and very basic management techniques like ‘best practice’ sharing cannot take place. A doctor in Minneapolis might not know about the efficacy of a treatment being done in Miami. This wastes time and money on the need to re-invent the wheel all across the system. It is major contributor both to the cost of the system and to its poor results.
• Finally: we Americans have very poor health habits. We eat too much and don’t exercise. This inevitably drives up costs. So it’s not all the fault of the system or the insurers, we are to blame too. This has a corollary: because getting simple and plain service is so expensive in the system many people wait too long to go to the doctor. Preventative medicine and health care practices are de-emphasized in favor of expensive cures. In other words the incentives are screwed up. This is exacerbated by the fact that most middle class people get their coverage through a tax deductible employer provided plan. These plans mean that consumers do not pay for the cost of the services they consume and so never confront the need for choice. Were this changed people would be more likely to be healthier in their lifestyles because the cost of poor habits would be explicit.

These, then, should be the targets of reform.

OK. Where do we stand?

Well, given the cloud of dust in Congress it’s actually quite difficult to figure that out.

The Baucus bill, for instance, is weak on issues dealing with the insurance companies, but is quite strong on encouraging technology innovation and information sharing. It isn’t as bad as I feared it would be. Furthermore: Baucus’s obsession with being ‘bipartisan’ has meant the current version of the Senate bill represents, in essence, only the views of his, by now famous, ‘Gang of Six’. that means there are plenty of good suggestions yet to be put forward by Democrats and, hopefully, Republicans not involved so far. That means the current ‘state of play’ is practically impossible to discern. So the honest answer is that there is too much dust in the air even now for us to tell what the legislation will cover.

With that in mind, here’s my short list of desirable legislative features. Use them to keep score of the various bills:

1. A reformed system would open up the flow of information. Everyone involved should have both the necessary information and an incentive to act upon that information in order to pursue the most preferred outcome.
2. We need to switch to a value based system, rather than a fee based system.
3. We need to eliminate anti-social behavior. This has two aspects: the insurance industry, if it is to play an ongoing part in the system, must be heavily regulated to prevent its profit motivation getting in the way of service provision. Then we must make membership of the system mandatory. People who either opt out of the system or cannot afford to be part of it, but then use it when they are sick, are ‘free-riders’. They impose a cost on the rest of us. They should be forced and, or, subsidized to be part of the system.
4. All subsidies and payments should be directed towards provision of outcomes and not inputs. This is difficult since it will limit services in those cases where outcomes cannot be reasonably improved.
5. There should be a focus on general health issues of the public. Dealing with work/life balance issues, and even tax deductions for health improving activities could be part of this.

As the discussion continues these five overall targets represent an opportunity for real reform and progress against the problems I listed above. Whether they can be achieved without a strong government presence in the market for health care I personally doubt. But getting a government run system is not the goal: cutting costs and improving outcomes is. If we end up maintaining the illusion that a market driven system can achieve that, then so be it. Basic economics tells me that we need to rig the market to make it work in that case.

There is enough ideological mud flying at the moment that we should not add our own. Instead we should remain pragmatic and focus on the true goals. So let me repeat myself: lower costs and improved outcomes.

Easy, no?

At least we can keep score over the next couple of weeks.

Addendum:

I find it offensive that the Republicans keep on digging up stupid ways to delay the inevitable. Today’s fight over getting the Office Of Budget and Management to score the fully written up bill, rather than the current version with amendments is just a way of stalling. The Finance committee in the Senate always gets the OMB to score its plain English versions. This would be the first time ever that they ordered up a scoring on the legalese version. All this does is to make them look pathetic and, frankly, weak. Using tactics like this is a sure sign of their understanding of the weakness of their political position. It is both gratuitous and venal. Then again so has been most of the supposed ‘debate’ so far. Adult is has not been.