Wednesday, August 19, 2009

Health Insurance Debate Fiasco

Judging by the coverage on CNN the past couple of mornings, I am chagrined to say that the healthcare debate has veered down an unproductive back alley. The discussion appears to focus on the organizational form that health insurers should take: private, government, and/or co-op. We've been down these paths before people! Bone up by reading Melissa Thomasson's excellent (and free) intro. to the history of U.S. health insurance here. Then move on to John Murray's recent book.
My own work on the subject is still forthcoming, in a book on the history of insurance and in Fubarnomics (Prometheus, 2010).

I'm not saying the organizational form is inconsequential. If conditions are right, a government-owned insurer might prove as efficient as a privately-owned one. (See my January 2009 post, "Adam Smith, Profitability, and Efficiency".) More likely, however, it will bloat into a giant, inefficient bureaucracy that will serve mostly to redistribute healthcare consumption in devious, opaque ways. Co-ops (non-profits) are unlikely to innovate much. Mutuals might but then again they might not if the incentive structure between them and their sales forces is not just right. (See Mutually Beneficial for details.) Enough has already been said about the advantages and disadvantages of the for-profit joint-stock companies.

The problem with the debate is that none of those organization forms will make much of a difference regarding healthcare price and hence availability. The root problem is that we pay healthcare professionals (HCPs) for seeing rather than for curing patients. It seems like a simple thing but it's not, it's crucial, especially in the realm of healthcare.

Suppose the automobile repair market were as dysfunctional as the market for healthcare. Would you keep bringing your car to garages, spend hundreds or thousands of dollars, only to get back a car that still did not run right? Not if you were paying for it out of pocket, that's for sure. You'd use every legal lever you could to get the repair dudes to abide by the original estimate ... and in fact many states have laws requiring auto repair companies to honor their estimates within certain parameters, lemon laws, etc. If legal recourse were unavailable, you would at some point sell the car and take public transportation or learn to repair it yourself. (And no I don't think we should fiddle with repair costs to cut down on carbon emissions. Two wrongs don't make a right, says Wright.) Of course there is no substitute for your health so we pay and pay and pay and the law, if anything, protects HCPs' right to bill for merely treating you.

Throw employer-provided insurance into this mix and matters get even worse due to the lack of portability, which is the biggest cause of under- and uninsured persons in the U.S.A., and the dearth of price competition. Insured people don't much care how much their doctors, hospitals, etc. charge or even the fact that they pay for treatment rather than for success. So costs spiral ever upward, usually much faster than inflation.

What should the government be doing, then? Very simply:

1) phase out employer-provided health insurance;
2) reform regulation to encourage the development of "all of life" individual health insurance policies, perhaps linked to life insurance policies;
3) force HCPs to base their fees on results (output), not treatment time (input).

And please, no b.s. comments saying "well then nobody would want to treat the chronically/terminally ill." It just ain't so. HCPs will create balanced portfolios of high volume/low margin easy to cure patients all the way up the risk-return line to 1% chance of curing but a big payday at the end if successful. True, nobody will take patients with absolutely no hope of recovery but then again they shouldn't be treated anyway.

Yes, many details still have to be sorted out like who will judge whether a doctor has cured or helped a patient and close attention will have to be paid to the incentive structures created in the process but THAT is precisely the debate we should be having right now, not the best organizational form for insurers to take.


Buzz Killington said...

I think you missed the root cause. The root cause is the abundance of unhealthy lazy Americans. Besides not exercising (less than 20% of Americans have gym memberships, only 15% of people with gym memberships go on a regular basis.) Americans stuff there faces with crap that should not be categorized as food and there portion sizes are far too large. With that said it’s hard anymore to eat healthy. Between the fertilizers, pesticides, hormones, antibiotics and franken foods, all these things in your body will eventually cause some kind of illness. Couple those problems with lazy Doctors who think they can fix everybody with pills and what do you expect to happen. The effects of most medications are far worse than the symptoms and you couple that with a couple of meds you end up with return customers, I mean come on I thought it was all about market share and repeat customers (business 101). For being a “developed nation” we should know better, but it’s not about knowing better it’s about profit and it’s not about eating healthy and exercising it’s about saving money. A lady at work brings her kids out to eat every night because it’s cheaper and easier to shove a McKill sandwich and some McCholesterol fries in there face than to cook a well balance nutritious meal. Take care of your self at the front end to save a lot of expense at the backend. People have forgot meals are more than felling full, meals are the time to give your body the nutrition it needs to function properly and to heal. You are what you eat, you are what you drink, you are what you breath, ect. ect.

Robert E. Wright said...

Hey there "Buzz" that does sound familiar and our healthcare costs would probably go down if we ate nothing but carrots and drank naught but asparagus juice while cycling madly for hundreds of miles each day. But I've got bad news for you ... people were getting sick and dying well before McDonald's came around. And preventation only goes so far. You can get your prostate checked every year but that isn't going to prevent you from getting cancer down there, etc. And how about this ... the plan I espouse in Fubarnomics will give individuals, their doctors, and their insurers incentives to improve eating and exercise habits. Right now we feel like we can eat whatever we want, smoke up a cloud, and take the elevator DOWN one flight of stairs because Uncie Sam is going to take care of us when we get sick. So why not slarf down some crappy fast food? It tastes goooooooood and won't cost you anything. In fact, you're a sucker for staying healthy because your taxes are going to subsidize lazy lard asses! So there, I'm a bigger Buzz Kill than Buzz Killington himself!!!!!!