Sunday, February 17, 2013

Surprising candor at NYT on health care

The New York Times published a surprisingly sensible piece on health care on Sunday, "The health care benefits that cut your pay" by David Goldhill. A sample

We manage health care as if our needs were always urgent and unpredictable, ignoring how deeply this industry is integrated into our lives, with a vast amount of care now devoted to treating ongoing, chronic conditions.

Our system takes resources from all of us, pools the cost of certainties disguised as risks, extracts enormous costs of administration and complexity and then returns — to almost all of us — a fraction of the money we’ve put in.

Try to imagine what homeowners’ insurance would look like if we expected everyone’s house to burn down and then added coverage for each homeowner’s utility bills and furniture wear-and-tear. This would be insanely expensive without meaningfully reducing anyone’s risk. That, in short, is how health insurance works.

...Traditional health experts may repackage their ideas, but they are never discouraged by past failure. So the new Accountable Care Organizations are a reinvention of H.M.O.’s. The Independent Payment Advisory Board is the new Medicare Payment Advisory Commission, or MedPAC. Bundled payments are the new Prospective Payment System.

We often see some early benefit from the introduction of new ideas, but over time such initiatives are always subjugated by our system’s nefarious economic incentives. Implement cost control reforms and watch providers circumvent new rules and guidelines. Reduce reimbursement rates for procedures, and witness providers expand the definition of required services. Convert fee-for-service reimbursements into bundled payments, and soon more severe diagnoses are given. Attempt to use government buying power, and see providers turn to lobbyists to keep prices up. We are approaching a half-century of fighting this losing battle

...

Here’s a completely different idea, one that might actually work. Let’s give every American health insurance, but only for truly rare, major and unpredictable illnesses. In other words, let’s cover everyone but not everything. It would take a generation to transition fully to such a system, but eventually the most routine and expected medical treatments, from checkups and minor illnesses all the way to common chronic conditions and expected end-of-life care, would be funded from our individual health savings; only the most major needs — for example, cancer, stroke and trauma — would be paid out of insurance.

Defining insurable events more narrowly and enabling Americans to use the premium savings to build health savings would reduce the distortions inherent in our insurance approach. Most importantly, it will also compel providers to compete on the basis of price, quality and service, as they meet the one force that creates real incentives for good performance, innovation and safety: the consumer.
Sheer poetry, in few words accomplishing what took me many pages of "After the ACA."  Newspapers often publish contrary views to show they are balanced (or so a WSJ editor once told me when I complained!) But that this can even get aired at the Times is pretty remarkable.

21 comments:

  1. As revealing as anything is its implicit acknowledgement that the ACA is not the final word on health care policy.

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  2. isn't IPAB exactly that? A board that will decide what is critical and what is not, given the budget constraints? you would need something like this if you wanted to give every American catastrophic insurance, if only to properly define "catastrophic"

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  3. Good point. The reality is that we use the insurance system to achieve the kind of income redistribution that we've prohibited the government from doing. This is inefficient not just because of loading costs of insurance, but also because it often creates adverse selection where there otherwise wouldn't be any.

    We could just get rid of our small-government fantasy, hike insurance deductions, and offer the poor and chronically ill an offsetting welfare benefit.

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  4. I seem to remember the NYT editorial page savaging Whole Foods and its primitive CEO for having just such a medical program for its employees. It might have been pointed out by this Nobel awarded guy who can solve any problem. But, it could have been another sincere concerned individual there.

    Maybe I should get the NYT so I can find out what's in it ala MS Pellosi. Nahh. my futility has already been exercised.

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  5. But don't many of the most costly treatments happen in situations where the patient does not or cannot shop around based on price anyway? I think Ken Arrow wrote a paper about this back in the '60's, and as much as I love free markets and recognize insurance isn't about paying for everyday maladies, it still gives me pause.

    If you're having a heart attack or a stroke, you're going to go to the nearest ER, stat. Even if you're conscious, you're not going to call three different ER's and see who's running a special that weekend. Moreover, once your in the ER, you're going to get the cardiologist on duty, regardless of price. If you need emergency surgery, you're going to get the anesthesiologist and surgeon on call.

    The same is true if you're in a car accident, get hurt on the job, etc.

    Even if it's an elective surgery, say a new set of knees when you're older, you'll probably go to the orthopedic surgeon your GP recommends (and plays golf with) or the surgeon who did your own golf buddy's knee.

    Not sure there's any easy solution to healthcare costs.

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    1. Read my answer starting on page 22 of "After the ACA" Come back if not convinced.

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    2. I agree that a lot of people who favor the ACA and single-payer are just the patronizing, ivory-tower types who think they're smarter than the average Joe and know what's best for him. No argument there.

      But it seems your counterargument is that sunshine is a good disinfectant and that providers are afraid of bad reviews. Do we really think that if hospitals posted their prices, competition and transparency would drive prices lower? Aren't a lot of smaller areas a good textbook example of non-competitive markets with one or two hospitals? What's the guy whose tractor tips over with him underneath going to do? Look up ratings on the interwebs?

      Plus, if people are so knowledgeable about good health and are able to make good decisions, why are there so many fat people?

      I sure don't like the ACA and I understand the issues around third-party payers are stuff like that, but I'm not sure freer markets are a panacea.

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    3. I am not convinced. You make an assertion that adverse selection is not a problem.

      1) What evidence do we have that it's not a problem?
      2) you assert that if people are poor decision makers regarding their long term health, therefore they are bad at choosing cell phone plans. But the two empirically are very different things. You can easily be a smoker and a savvy shopper. We do know that Americans are bad at managing their health - hence for example the huge weight problem in this country.

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    4. John's position is that of the social planner who knows what's best. He dismisses the observation that no democracy has chosen to go the route he proposes. There is plenty of evidence that single payer health care systems are cost-savers. But 'why should I not dismiss evidence that indicates that I may be wrong' seems to be the mindset of the so-called 'conservative mind' nowadays.

      That is not much different than the mindset of utopian communists. They can never be proven wrong because their proposals are too indecent/impractical/stupid to be put to test.

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  6. The author of the NYT article referenced here also wrote an excellent piece for the Atlantic Monthly in August 2009. http://www.theatlantic.com/magazine/archive/2009/09/how-american-health-care-killed-my-father/307617/ Every time I get sucked into a health care policy debate with someone, I refer them to that article and tell them to come back to me after reading it. Haven't had any takers yet, but it is something like 8 pages long...
    It is,however, a near-perfect distillation of why our health care market is not working for people.

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    1. For several years, I reminded other authors, editors and columnists at The Atlantic about this article whenever they called for greater government intervention in the healthcare services industry.

      Most ignored me. But a few (including Derek Thompson) replied that Goldhill's ideas simply weren't “politically feasible.”

      That said more about the quality of debate inside the Beltway than just about anything else.

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    2. What's politically feasible can change quickly... All it takes is it to be clear that the old system is totally broken, and a good idea to be sitting on the table.

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  7. If it were that easy to achieve major savings on health care one of the big employers (GE, a major bank, the State of California) would have negotiated some version of such a system with its employees and with health care providers.

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    1. My employer switched to a version of this a few years ago. I pay for the first $5,400 of health care costs each year, insurance kicks in after that. It has worked rather well.

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  8. While I find this idea very appealing, I do question whether it might lead many individuals to forego preventative care, thus increasing the incidence of costly, insurable events.

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  9. The idea of a catastrophic insurance which did not try to cover every little or rare instance, and which could be purchased by large pools among states is a great idea. But for some reason it has been consistently shot down. To me, this is evidence that a certain political movement was not really interested in solving the health care problem but was much more interested in simply creating more intrusive, and expensive and powerful government.

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  10. It is a horrible proposal. It would make sense only if chronic conditions were not catastrophic, which is clearly not the case. Not surprisingly, there is not a single democracy in the world whose political system aggregates preferences so badly that such proposal was implemented.

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  11. The idea in NYT and in your paper (After the ACA) about offerring insurance policies which would cover only truly unpredictable/catastophic events is not new. I can buy high deductible policy ($3,500 annual deductible). So any type of routine expenses (doctor's visit, etc) is not covered. The problem with medical care is that it is very expensive. If you go to a hospital and pay cash, they will charge you full price. When you have insurance, the insurance company not only pays part of the expenses, but also negotiates with the hospital lower prices (significantly lower). There is no magic trick. The most effective system is single-payer. How good it is simply depends on how much in taxes people are willing to pay to cover medical expenses. Private-based system (Switzerland) is quite good too, but not as cost effective as single-payer. Government of Taiwan studied extensively health care systems in different countries and decided to go with the single-payer (they are not socialists in Taiwan, no ideological bias there).

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  12. You said it yourself, "often you only see benefit in new ideas". Two things; draw the line and tell me how you get it by the right wing.

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  13. To elaborate a bit on rafal's points. The primary benefit of health insurance for the individual is getting to pay for health care at insured prices rather than rack rates (~5 times higher at this time). A secondary benefit is to have one's expenses partly covered. Would the proposed limited insurance still limit prices for non-covered types of care? Also, what would be done for people rendered destitute by non-covered care, which I guess would be a pretty large group of people especially if non-covered care is paid for at rack rates? End of life care is not covered: thus, even if you've gotten as far as a terminal illness with some savings left, you run a big risk when dying of having your remaining wealth completely taken by the providers, and a surviving spouse socked with a gigantic bill for your death. (Simplifies administration of the estate tax, though.) Would people actively kill themselves to avoid this? I think I would.

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  14. Good point. The reality is that we use the insurance system to achieve the kind of income redistribution that we've prohibited the government from doing. This is inefficient not just because of loading costs of insurance, but also because it often creates adverse selection where there otherwise wouldn't be any.

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