Aretae

The virtue of excellence

Friday, June 26, 2009

Health Care

So, having been asked 2 times in as many days to talk about actual solutions to health care in this country, I figure I'll write it down. As far as I can tell, there's near a half-dozen ways one could "fix" health care in this country. However...almost all of them are political non-starters. And...the question of what needs fixing is also up in the air. First, solutions. Second, a disputing of the premise.

Statement of the problem:
Health care's share of national income is rising with no end in sight. Unless something is done, very possible to have 30% of our economy spent on Healthcare in 15 years. Furthermore, the additional spending we do as compared to other countries does not appear to makes significant differences in any of the measured outcomes.

Solutions:
1. Do the whole Hillarycare thing...nationalize the payment industry, and then deal with shortages of doctors & new drugs as those activities become less lucrative, and begin to ration care. Explicit problem fixed. Less care, less cost. Potentially not much less health because most expensive treatments are statistically ineffective.

2. Do the McCain thing. Remove the employer subsidy for health insurance. Instead give a tax credit for health insurance (including HSA stuff). Now, it's people spending their own $, and all of a sudden, market forces work. Expect serious cost reductions and less service used.

3. Strip the FDA of it's ability to regulate effectiveness & advertising in drugs. Safety only. Cost of developing a new drug would drop dramatically. Also, devolves power away from established drug companies, and towards upstarts who are better at innovation. Since drugs are our primary method of improving health right now, this solution rocks.

3b. Remove from the FDA the ability to specify prescription only drugs. Feel free to put that category under CDC, so as to regulate such substances as are public health risks if overused.

4. De-cartelize medical services. There is no reason why you need 85 years of schooling in order to splint a broken finger, stitch a cut, etc. Why do doctors have a government enforced monopoly on doing this kind of thing, and why don't we have India-style Bachelor's of Medicine to do simple stuff. Sorry, dumb question. Public choice economics predicts that the government will protect monied interests who can't maintain their advantaged position by virtue of their skills. On the other hand, prices for simple stuff would drop tremendously.

5. De-criminalize medical diagnosis by non-doctors. Current research is pretty solid that a piece of software with a pile of statistical correlations between diseases and symptoms is a notably better diagnostic tool than an actual fallible human doctor with hidden biases. See issue 4.

6. Tort reform. Hard to go here at all because reality is that rich concentrated political interests (trial lawyers) will be in the middle of this, and the result will likely come out even worse than the current situation. If it did work to limit the liability of doctors for good choices with bad results, it might decrease costs a bit.

7. Criminalize our current form of insurance. It is not insurance. And the separation between the provider, the customer, and the payer is causing the growth in health care spending.

Now, the interesting part:

I don't necessarily believe that the problem is as stated.
I'd argue that the problems are that

(a) some people don't get care that is needed.
(b) much care is complex, and it is hard to disentangle what works
(c) much care statistically doesn't help any more than do crystals
(d) innovation is not progressing as fast as it should
(e) growth of wealth is too low: I don't care if we're spending 33% GDP on health if GDP is $300K/y (constant 2009 dollars).
(f) aging is not being treated as a disease that needs curing. (Gratuitous plug).

Those problems...all except the (a)...are all best solved by getting first "insurance" and second government...the heck out of health care.

Pure welfare for (a) works as well as any other civilized solution.

Maybe try Singapore's solution.
Posted by at

9 comments:

Ty Griffin said...

This is a nice piece of work. Good analysis, practical ideas, realistic views and comments. I'm impressed. Am forwarding to Phil, Jack, Paul, others.

July 7, 2009 at 4:18 PM
Jack McGregor said...

Many good points here, particularly about the need to better define The Problem before proposing solutions.

Also that there isn't necessarily anything wrong with spending a greater percentage of GDP on healthcare than do other nations. As you suggest, the real goal is to increase "wealth". If we triple our wealth and only double our health care expenditures, we come out ahead.

And although I have no disagreement with your list of problems, I would say that the central problem is that our level of expenditures (and especially the rate of increase relative to the rest of the economy), combined with the mediocre returns (although hard to quantify), are interfering with our ability to increase our overall wealth.

If health care was a small, isolated segment of the economy it wouldn't make much difference if we were comparatively high prices.

But, unfortunately, health care, like other major infrastructure systems (for example, transportation or education), is large enough that it's use of resources (brainpower, investment dollars, etc.) significantly reduces the resources we have to apply to other means of wealth production, while the quality of its output significantly impacts nearly all the other sectors of the economy (or at least those that depend on healthy workers.)

If we want to compete in the global economy, unless we have other overwhelming strengths (like we used to), the deficiencies of our health care system are likely to lead to further erosion of our competitive position in the world.

All these other issues and concerns (including your points a-f) are in my opinion, secondary.

The question remains, how best to "solve" the problem. I do agree that most of the solutions you suggest will likely lead to improvements over our current mess of a system. But, ultimately I have little faith that the market, by itself, can deliver an overall solution superior to the kinds of single-payer systems employed in nearly every other developed country.

Health care is not an ordinary commodity and humans just aren't very good at making rational choices which maximize even their own (long-term) health, much less the collective health. Without some amount of rationality at the decision-making level, market forces just don't work very well. (Or, they continue to work as well as they always do, but they don't lead to an optimum system.)

Perhaps we can adopt something like the Singapore system, but the cultural and other differences between us are so great that the European or Canadian models would seem like an "easier" target.

Personally, I would like to be able to buy real catastrophic insurance and then pay cash for less-than-catastrophic services. But even that simple design seems beyond the ability of the insurance companies to deliver. (Which isn't exactly their "fault"; it's more a consequence of the highly skewed risk curve that makes it more profitable to avoid risk than to seek premiums.) I don't see how getting the government out of the way is going to solve that problem. In fact, it (i.e. catastrophic insurance) is probably a role the government can play more efficiently than any existing profit-seeking institution.

I share your desire for a wide-open system with minimal interference by either the government or overly powerful, inefficient corporate entities. And it's fairly obvious that such a system would, in isolation, benefit me. But, unless we eliminate Medicare, Medicaid, and all the other taxpayer-subsidized health care programs, I have to consider their effects on me as well (through direct taxes, their effects on the economy, and the other ways in which my health and happiness is affected by the general health of the population). It's in the best interest of even libertarians to choose the most efficient, least disruptive approach. So far, the preponderance of evidence (as opposed to ideology) favors some form of single-payer. Failing to even consider it in the debate is like ignoring jet propulsion in a debate over how to power airplanes.

July 9, 2009 at 1:18 AM
Aretae said...

Jack,

You present several interesting issues, however, I don't quite follow the conclusion.

N items:
1. Hillarycare is single payer, as far as I can tell. I wasn't ignoring the elephant in the room.

This results in less care, fewer people in the health service industry, lower rates of medical improvement, rationing, etc. Or it results in political posturing and no cost-controls. Or both. Yes, this is the most likely thing to be politically feasible, even though I hate all the results here except cost containment. And I am primarily future-looking where we I care especially about incentives for future improvement in service. And single payer is the worst option we can think of for that purpose.

A related aside suggests that our model is no closer now to the model in England/Canada than it is to the Singapore system. Indeed, I work presently for a Health Insurance company, and my "Insurance" (a HSA) matches quite well with the Singapore approach, and internal communications in this company suggest that HSAs (high deductible, cash otherwise) programs are (by a large margin) the fastest growing segment of the health insurance industry.

2. Did you really want to use education as an example of how well central control has worked for us in our other systems?

3. It's a public choice problem again. Our current system is government supported insurance company welfare. It's changed completely since the 1940s, and in a worse, unsustainable direction, based on legal changes around WWII compensation limits and health-care coverage exemptions. If you were to simply follow option 2 (McCain), Health Insurance participation would drop radically, health care consumption would drop radically, and health outcomes wouldn't change much. Much simpler than any plan that has massive unintended consequences, and growth retardation in the innovation space.

4. Health care was a normal commodity 60 years ago. People made the right decisions for themselves. What changed? Legal incentives.

5. US spends 14%...France spends 9-10%, Singapore with equally good outcomes spends 4%.

6. Competing in the global economy is primarily around growth and innovation. Single payer involves a lot of stopping growth and innovation. I don't see how you work with global competition in one paragraph and single payer positives in another.

July 9, 2009 at 11:39 AM
Jack McGregor said...

N responses:

1. "Hillarycare" is/was most definitely not single-payer. Instead it was "managed competition" with a universal care mandate. Lumping single-payer with Hillarycare together with the codewords "shortages", "nationalization", and "rationing" may be an efficient way to identify your ideological position, but it doesn't advance the analysis.

In theory, one might expect it to lead to the kinds of outcomes you mention, but here's the problem: most of the available empirical evidence suggests otherwise. Some examples:

- The US has considerably lower doctors-per-capita than France and Norway and about the same as England and Canada. http://www.nationmaster.com/graph/hea_phy_per_1000_peo-physicians-per-1-000-people#source

- Although there are oft-repeated stories of long waits and "rationing" (for example, free mammograms only every 3 years, no free dialysis for octogenarians, and particularly waits for elective surgery), I'm not aware of any reliable evidence of slower rates of "improvements" or truly inferior care. The global drug industry does much of its research and virtually all of its manufacturing outside the US and makes sure that their latest products are globally available (ironically at lower prices outside the US). And as example of innovation, the latest flexible lens replacement technology now becoming popular here was invented in England and widely available in Canada at least a year before the US. (OK, blame the FDA for the delay.)

- As for the much-maligned "rationing" - this is purely a matter of the taxpayers (thru govt) putting limits on what they the taxpayers will pay for. Just because the UK taxpayers don't want to pay for nonagenarian hip replacements doesn't interfere with the ability to secure those in the private market. Right-thinking people of all political stripes should be in favor of "rationing" (only we prefer to call it "spending controls"). The idea that the Right should use anti-"rationing" as their rally cry against single-payer is beyond ironic.

Which raises the legitimate question of whether "single-payer" is a misnomer. If it doesn't preclude private cash transactions (or even supplemental insurance), then perhaps calling it "single-payer" is overstating the idea. Still, it's attractive, at least when compared to the present mess because:

a) The govt, for all its sloth, is much more efficient at administering Medicare than are private insurance companies (2-4% overhead vs. approx 30%).

b) By eliminating the need for providers to deal with the complex matrix of reimbursement rules and procedures which are a natural consequence of the competitive insurance market, they can devote more of their time to productive work. (This savings is hard to quantify, but is anecdotally quite significant.) Having to accept cash payments, and even some supplemental ins. muddies that efficiency somewhat, but the center of power would shift so that providers could demand that patients handle the burden of dealing with their out-of-system financial issues and paperwork on their own time.

With the govt acting as the single payer, there is great potential for political posturing, waste, stifling of innovation, etc. But let's not forget that single-payer doesn't mean socialized medicine. The government wouldn't be running the system, they'd just be doing the payment administration. (Figuring out an efficient, not overly-distortive funding scheme may well be a political impossibility though.) Providers would remain independent, like they are now, free to innovate.

That was a long item 1. I had hoped to make amends by being brief on the others, but apparently I've hit my 4096 byte spending limit and must stop altogether. (Evil socialist rationing? Or a sensible limit to prevent abuse of a free resource? You decide.)

July 9, 2009 at 4:18 PM
Aretae said...

Jack,

Now you're making me link data....

1. I appear to have been wrong on the Hillarycare bit. From this observer's point of view, further intrusion of the state into the medical system is mostly all the same, so I hadn't looked closely at which state-controlled proposal was supported by whom.

In my description, though, it seems as if I was describing single payer. So apologies for confusing things with the term Hillarycare.

Issue: The US has fewer doctors per capita because of the AMA cartel restricting entry into the profession.

Solution 4 from the original post solves that problem cleanly. India allows a 4y medical degree. Nurses might be allowed to do services w/o doctor supervision.

Solution B: Much of Europe pays for education. If you wanted more doctors, you could offer to pay for medical school. Neither of those are solved by nationalization.

Solution C: Doctors per capita (according to your graph) seems to be a good proxy for: poor in physical capital but can substitute human capital.


Meta-point. If you want to argue that Canada has cheap drugs, Germany has lots of doctors, and England has a longer lifespan...that's ok. But realize that they're all tradeoffs...and you are not buying all 3 of these things...but maybe one in a best case scenario wherein the insurance companies don't organize the political process to make health care reform MORE favorable for themselves.

Issue: inferior care. Very simply, I talked about this in my original post under real problems (b). Since this is one of Robin Hanson's favorite topics, I'd as soon let him explain. Roughly, we don't know what works, and most of it is ineffective. As per Hayek, the only way we'll get a good handle on that is if market forces play for real. Not this crappy "insurance" thing we've got now, and not single payer. Examples abound of the state's ability to discriminate....

Issue: Single payer doesn't prohibit private transactions.

It has in Canada:
"Six of Canada's ten provinces used to ban private insurance for publicly insured services to inhibit queue jumping in order to preserve fairness in the health care system. In a complex legal decision in 2005 the Supreme Court ruled that, in some circumstances, such bans could be illegal if the waiting period was unduly long.
"

Thus it isn't an unfair concern.
Issue: Administrative cost savings.

There are a couple concerns here

a) A lot of (all?) government medicare is handled through private insurers (I'm in the industry...we pay Medicare claims). Most of the admin cost (Per Member Per Month) that private plans charge is still there, despite any claims of admin cost savings. And then there's the 2-4% extra that Medicare expenses have.

b) Much more complex critiques of the admin cost fallacy are here and here.

Issue: Complex matrix of rules. Medicares rules and payment amounts are the worst. This is why we have a massive exodus of Doctors from the Medicare system(who no longer accept Medicare patients).

Issue: Single payer not socialism.
This nods to but doesn't take seriously enough the nature of politics. Are you suggesting that some collection of politicians, enticed by insurance company $, could be put in a room and not come out of the room with a plan that distorts the market absurdly? The idea stretches credulity.

July 10, 2009 at 7:06 AM
Aretae said...

I tried to find this to put in instead of the wikipedia on Canada/single payer health care prohibiting private work, but couldn't find it then. So ... here

July 10, 2009 at 1:14 PM
Jack McGregor said...

I see I'm losing ground here, with several unanswered points in your the previous message, plus a barrage of new ones. And I've certainly learned my lesson not to link to external sites. So I'm switching to random potshot mode:

- Some things were better in the 1940s. Indeed. But: life expectancy was about 63 vs 79 today. Society didn't waste a lot of resources on health care, because there wasn't much available to buy. If we were to compare the pre and post -government-interference era, we might notice that explosive innovation started just about the time the government started messing up the market and conclude that the two are at least not incompatible with each other. To say that people made the "right" choices then is purely tautological.

- Go Singapore! I'm on board with it being a leading contender for the world's best system. But, as Megan McArdle points out in one of your links, when explaining why single-payer may work in Europe but not here "they pay people less money in a way that's hard to replicate here". I would say that the societal differences between Singapore and the US are much larger than between Europe and the US, suggesting that the odds of replicating their system successfully are less. (BTW, Singapore also has a very good education system in which the govt plays a fairly central role.)

- Regarding Canada, I was afraid you'd bring up the fact that they do restrict private practice. I don't like that, but I'm somewhat sympathetic to the reasoning, which is a somewhat more practical than ideological response to the problem of provider shortages (which admittedly we also have). European countries with higher doctor ratios don't feel that need. The real problem there is the shortage of providers, and I completely agree with all of your reasoning and solutions there (although I'm not if you were serious when suggesting subsidized medical school - shouldn't that result in substandard physicians?)

- It's not fair to pick and choose the best of each system. It's probably also not fair to pretend that we could just adopt another country's system with similar results. (Or, that the invisible hand will do for healthcare what it does for toilet paper.) The point of mentioning several examples is mainly to reinforce the fact (which many partisans seem to ignore) that there are plenty of real-world working examples superior to ours. It's kind of sad that we can't do with healthcare what the Asian Tigers did with manufacturing: study our system, adopt it, improve it. (As an aside, their govts all played major distortive roles in their economic transformations.)

- Medicare channeled through private insurance. Can it get any worse? I'm guessing this is partly because of supplemental plans (which I suppose are a reasonable market reaction to the reasonable limits of Medicare), and partly because of the govt's idiotic efforts to "privatize" it.

- Administrative savings: agreed, this is a very complex issue, which we'll probably never be able to accurately measure. It's pretty clear there's no upside though to the present administrative burden on the provider side. And there's no societal benefit to underwriting costs, i.e. avoiding preexisting conditions or predictable risks, unless we think that people can reduce their risk by making choices. (Smoking, obesity, lifestyle choices, sure, but genetic predisposition to cancer? Show me the market mechanism that would allow people to insurer against that kind of risk. Particularly when genetic profiling becomes routine.)

- Mass exodus of doctors from Medicare. Two points:

37a) Good, that illustrates that they aren't captives. Between the taxpayers/govt pushing down rates, and the willingness of patients to pay out-of-pocket, perhaps we'll reach some kind of optimum balance.

37b) Show me one senior (and I know plenty of rich, highly discriminating ones) who chose not to have Medicare handle their knee replacement. Apparently the system hasn't yet gotten that bad.

July 10, 2009 at 3:26 PM
Aretae said...

Jack,

I think we've got an issue around the single payer bit in america:

http://www.ibdeditorials.com/IBDArticles.aspx?id=332548165656854

July 16, 2009 at 7:07 AM
Jeff said...

I read this about Singapore and immediately was astonished that both private and government programs coexists.


I think ideology gets in the way of most debates and more importantly in the way of the men and women who have jobs to try and fix this health care mess.


I like numbers. Data to be more specific. Decisions, solutions, conclusions should be based of data. So what about modeling? We know for the most part how certain groups of people (I do not define or care to know these groups, but I know they exists) will react and what measures they will be "forced" to take.


My point: Except for the insurance companies, everyone agrees something needs to be done to improve our health system. The first step isn't the end-all-be-all. Improvement needs to start and start small (trying to get to EVERYTHING with one stroke of the pen won't get far...not even to the door of the Senate). I believe doing something for the uninsured is first order of business. Don't focus on the solution as so much the direction we want to go. There are US citizens that are dying a lot faster because some insurance company sees them as a liability.

- I believe in a free market. The current health insurance can't compete with a government system, but a start-up can. Competition is good....for the most part (another conversation)


- 4-year medical degrees, yes. I would go and get one and open my own practice (now I am being self-centered and greedy).

July 22, 2009 at 2:20 PM

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