Sunday, September 18, 2011

Health care rant

The following is a lengthy comment (yes, comment; kushibo has a brevity problem) I left at ROK Drop, in response to GI Korea's offering of what he thought might be a good healthcare system for the US. Click HERE to go past the jump.

GI Korea, a few of your ideas are already considered and being employed, both in the private sector and in Obamacare.

Health economics is a fascinating area of study because it shows how health care itself represents a "market failure" (i.e., failure to conform to regular market conditions of supply and demand) and can also include a lot of different innovations that run the gamut of ideological perspectives. It is possible to create a system that is guided by government rules but is mostly implemented through private-sector entities.

Co-pays are a basic cost control because, as you say, when things cost money, even as small as the 12K won cost of a doctor's visit, people put the brakes on their own demand: a good copay will not be cost-prohibitive (lest we have the poor not going to the doctor when they really need it) but cost enough that they won't go in for every minor little thing.

 Retired GI is on to something big in that people need to take care of their own health instead of living unhealthy lives and then expecting others to pay for it. While some of this is lifestyle choices they would make no matter what, not all of it is. Making safe areas for walking and biking, eliminating "food deserts" with no affordable healthy foods (including fresh fruits and vegetables), getting people into regular healthcare checks, informing people of caloric content of the outside-the-home food they order so that they can be better informed about their own caloric intake and perhaps affect demand for healthier choices, aggressive drives against adult smoking or kids starting smoking, etc., etc., are ways that the public health sector is trying to push the general population toward that.

 Prevention is far cheaper than correction, and so eliminating the aforementioned copays on things that you want them to use a lot is in order: free annual checkups (age-appropriate for various screenings) are a money saver.

 But here's one of the problems: why should I, as Insurance Provider A, put all this money into preventive care when my client may up and move to Insurance Provider B when he/she gets a new job or whatever, and thus Insurance Provider B reaps the benefits of my investment? If we leave this all up to the free market, there is precious little incentive for insurance providers to offer preventive services at a cost that will entice much of the lower health percentiles to use them regularly and effectively. That's one cost component somewhat unique to the US that drives up our health costs but without better health results. Here is where government regulation, to require all insurance providers and healthcare programs provide such-and-such preventive care at no charge to the patient, can be effective without being too intrusive. 

The Obamacare requirement that insurance providers end the "pre-existing condition" ineligibility rules works on a similar idea: It would be patently unfair and financially ruinous for an individual insurance provider to end their "pre-existing condition" ineligibility rules when none of the others did: all the sick people who can't get insurance elsewhere would flock to that insurance provider and either financially destroy it or force them to raise premiums so high that they become unaffordable. If the government provides healthcare or merely insurance for those with pre-existing conditions, then the same ruinous effect falls on the government. The best solution that is the least intrusive is to make a blanket requirement of banning the pre-existing condition ineligibility rules for all companies.

Ole Tanker mentions the outrageous costs of various items, which is part of a huge mechanism driving prices out of control. Healthcare providers (e.g., doctors and hospitals) generally have an incentive to milk as much money out of a patient who walks in the door as possible; they also have an incentive to see as many patients as possible. The former is bad from a cost perspective, and the latter is bad if you're the patient (and Retired GI is absolutely right that we as consumers need to take control of health information related to our own condition).

There are a number of ways to work against this particular free market tendency, but they also have the problem where it is very difficult for one insurance provider or healthcare provider to do it (though Kaiser operates on this principle, I believe), which is why it requires the government changing the rules so all will have to do it.

One way is to pay doctors for outcomes. If Patient X walks in with a condition, you are paid a predictable sum of money, based on DRGs (one of the nearly 500 diagnostic-related groups in which almost all health conditions can be classified) and the outcome you provide. This is price controls based on industry averages in specific locales, but it eliminates the practice of hospitals charge $10 for a 50¢ blood test strip (the aforementioned example) because the hospital has zero incentive to pretend it cost that much for the blood strip: They will be paid by Insurance Provider A the same amount to effectively resolve Patient X's condition whether the blood strip costs 10¢ or $10.

Insurance mandates are a sound part of health economics, but they obviously represent the most (?) contentious part of Obamacare. If you have a system, as we do in the United States, where someone cannot be turned away at the emergency room, then we have a situation where those who cannot afford health insurance (e.g., those too poor, those with pre-existing conditions, etc.) and those who think they do not need it (e.g., the young, those feeling healthy) can get free care.

This drives up healthcare costs in a big way because these people do get sick. Instead of either (a) preventing the problem in the first place through preventive care or (b) dealing with it earlier and more cheaply, they end up waiting until the problem is big enough to warrant an ER visit. An expensive ER visit. This not only drives up costs for all of us (the hospital spreads their loss to paying patients and the government ends up picking up the tab for this anyway), but it also creates a health danger when those truly in need of emergency care (whether insured or not) are unable to get it. At some point, it becomes more cost effective to provide free medical insurance for those who are uninsured.

But hold on, in an effective program, we don't want the young and the "healthy" to get free insurance so we won't have to pay for them on the occasional situation when they do need health care. We want them to pay for health insurance like everyone else because they will provide a net flow of cash to the healthcare system. This is called pooling. Insurance works best when the pool of participants is large and represents as much of the general population as possible.

But that's not fair, Kushibo, why should the young and healthy have to buy insurance and pay for those old and the less-healthy? That's a Ponzi scheme! Well, not really, since the young and healthy are most definitely moving on a trajectory toward being older and less healthy. And since they do in fact get sick, it's not charging them for a service they do not use.

And that goes to the idea of the mandate's constitutionality. The argument being made is that it is forcing people to buy something when they are not in the health care market. But that is simply not true: if you live in the United States of America where you can benefit by laws that dictate hospitals must treat you if you are in the ER no matter what, you are in fact in the healthcare market, as much as you are using public infrastructure as soon as you walk outside your property.

Now, no mandate should be onerous, and in most countries and states with mandatory healthcare, there are options for those who cannot afford it or want a bare-bones approach. In the US, this would build on Medicaid or insurance exchanges. This does not even require a "public option," although there are sound principles behind that as well.

The US healthcare problems are eminently fixable without ruining what is good about the American system (innovation, etc.). The problem is that there are special interests poised against certain provisions that they feel will make them either lose money or not make as much money, and so they dupe groups of people to do their bidding by opposing it. "Death panels" was about counseling for hospice care, something that has been around for decades. Cries of "rationing" utterly ignore the fact that insurance providers today already ration healthcare and good proposals would undermine their ability to do so. 

Obamacare is not perfect, but like former Republican House Speaker Dennis Hastert says, it's better to tweak it than to repeal it. It's a very good start, but even if it works exactly as it is supposed to, it necessarily requires tweaking; times change, demand changes, technology changes. But it keeps in tact a mostly private-sector healthcare system while using minimally intrusive regulations and market mechanisms, not government fiat, to control costs and maintain high-quality care, at least based on states and countries where various aspects have been implemented.


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