Critical Issues in Healthcare

Today I filled out the Future of America's Healthcare Survey from John McCain's Country First PAC. To some extent, it had the usual flaw of such surveys - a limited range of responses that made it easier to give a response in line with the organization's biases. But there were also places where one could step off the marked path and write one's own brief responses, including this open-ended final question: Please list, in order of importance, the four health issues you consider most critical. As an economist who works in the field of injury epidemiology, I am not unfamiliar with some of the problems of our healthcare system. So I took my time to come up with four critical healthcare issues. Here I will share my responses and expand upon them. (This will be an atypical blog post for me - more stream-of-consciousness, without my usual images, links, and obsessive editing.)

1. The system is rigged to favor the insured over the uninsured.

Unless you have the good fortune to live in Maryland, here is how hospitals determine how much you owe them: The hospital issues a bill for about twice what it actually spent to treat you. If you have insurance, your insurer then negotiates down the amount it actually pays to a more reasonable level. So the amount that is collected by the hospital depends primarily on the relative market power of the hospital and the payer. If the payer is the government (e.g., Medicaid) it has tremendous clout and can sometimes even force the hospital to treat patients at a loss. If you don't have insurance, on the other hand, you are stuck paying way more than you should.

If you've studied industrial organization, you will recognize that the system I have described here is not a competitive market. In a state of competition, by definition, everyone would pay the same price for the same service. What we have here, rather, is bilateral oligopoly. In the state of Maryland, we have cost controls to keep hospitals and insurers from playing this game. The result of this regulation, ironically, simulates a competitive market more closely than the free-for-all in other states. But maintaining such regulations is difficult. New York formerly had a similar cost-control regime, but it broke down when hospitals found they could get around the restriction on charges per day by increasing the length of stay of inpatients. Before the system was abandoned, New York had average lengths of stay that were (as I recall) roughly 25% higher than anywhere else.

It seems to be the consensus of pundits and policymakers that the solution to the problem of rising healthcare costs is simply to mandate that everyone be insured. This is like saying that the solution to the threat of lawsuits is to require everyone to keep a lawyer on retainer. Or the solution to the threat of armed robbery is to require everyone to carry a firearm at all times in public. In short, if there is going to be an arms race, everyone should be armed. The big winners, obviously, will be those who make and sell arms - in this case, the insurers.

While this approach might protect individuals from the threat of outrageous medical bills, it will not reduce medical costs overall. In fact, far from reducing the amount our society spends on healthcare, it would inevitably increase it. By making healthcare less expensive to individuals, it will encourage them to consume more healthcare. Greater demand will increase the price of healthcare. If these costs are not borne by individuals in the form of higher insurance premiums, they will have to take the form of reduced profits for hospitals and insurers . . . or increased subsidies from the government.

My opinion in short: Health insurance is the problem, not the solution. Making health insurance, as we now know it, universal will make our healthcare problems worse, not better.

2. Hospitals and doctors use secrecy to prevent evaluation and comparison shopping.

Hospitals and doctors fear competition. It is as if every hospital secretly fears that it is not as good as its peers, so it does its best to keep anyone from getting enough data to evaluate it. Researchers like me who do get access to the necessary data are generally forbidden from using it for this purpose. Doctors, meanwhile, have professional restrictions on advertising. This makes it difficult for potential healthcare consumers to discover where they can get the best treatment for the lowest price. This, in turn, makes a competitive market in healthcare impossible.

3. Too much reliance on drugs for treatment, rather than nutrition (including supplements) and exercise.

Our healthcare system has a drug dependence problem. Doctors have become so impressed with the power of medicines that many have come to see their primary role as prescribing medicine. Some doctors avoid career tracks, like the emergency room, where they would see a lot of patients whose problems cannot be treated with drugs. The pharmaceutical companies have encouraged this approach to doctoring for obvious reasons. And Americans, who like to think there is a quick, easy solution to any problem, can be persuaded to subscribe to this ideology without much arm-twisting.

The best solution to many health problems is prevention - cultivating healthy habits so that one does not get sick in the first place. But good health is not in the interest of drug companies and the doctors who prescribe drugs. They would rather see us contract chronic conditions (e.g., obesity, diabetes, arthritis) that require treatment for life with the medicines that only they can sell us.

In recent years there have been repeated efforts by drug companies and the Congressmen they control to prohibit most vitamins and other nutritional supplements. They make the specious argument that supplements are drugs and should be regulated like drugs. They have even extended this argument to some foods, reasoning that if health claims are made for a food (e.g., drinking milk will reduce the likelihood of osteoporosis), that makes it a drug. But since food, vitamins, etc. cannot be patented like synthetic drugs, no one would have an economic incentive to put them through the expensive trials that drugs have to go through.

4. Too many resources are wasted on useless and expensive end-of-life care.

I have been thinking about this one for a long time. It was my back-up dissertation topic. But since my adviser liked my primary topic (bureaucracy), I never pursued it. Currently, more than one-fourth of Medicare payments go to treating the terminally ill. In part, this results from a culture that is in denial about death and simply refuses to accept its reality. We either need strict controls on end-of-life care or a cultural revolution that encourages us to prepare for the inevitability of death.

There are other topics I could have covered if I were not limited to four issues. The next on my list would have been the threat of lawsuits, which raises the price of malpractice insurance and forces doctors to perform extra tests. Another issue, which I touched on above in 3, is the generally unhealthy lifestyles of most Americans today. In particular, the marketing arm of the food industry encourages us to consume way too much food and drink with too little nutritional content.

Fortunately, Senator McCain only asked me to list issues - he did not ask me to propose solutions. I really do not like any of the options that are politically realistic - especially the default option, the status quo.

However, I think there might be a confluence of developments on the horizon that will make a single-payer healthcare system inevitable. As we learn more about the genetic basis of illnesses and genetic testing becomes more widely available and more economical, individuals might soon be able to have fairly certain knowledge of the conditions for which they are at risk. At the same time, a growing obsession with privacy of medical information will make it impossible for insurers to see their clients' genetic information. If I have 100% knowledge of my genetic information and my insurance company has 0% knowledge of same, the information asymmetry will destroy the viability of private insurance.

What will happen when the government runs the healthcare system? It certainly will not be all bad. Many administrative costs will disappear and others will be slashed. The government will acquire an interest in keeping its citizens healthy in order to keep costs down, and this will end its too-cozy relationship with Big Pharma. We will actually have national conversations about some cultural issues that should be decided by the democratic process rather than by the market.

On the other hand, there will be obvious problems, as well. In addition to the usual problems of government bureaucracy, we will suffer the consequences of monopsony - a market with a single buyer. Those on the other side of the market - doctors, hospitals, makers of medical devices and drugs - will find their incomes squeezed. As a result, some hospitals will go out of business, and fewer young Americans will choose medical careers, and fewer new drugs will be developed. The US might lose its status as the world's leader in the development of new medical technology. The most expensive and innovative forms of care might be prohibited as too expensive. And matters of appropriate treatment and payment levels will become political questions, fought over every four years by special interests who could become powerful players in our political system. Every disease-of-the-month organization will try to get special treatment for its members/victims, which could easily eat up any cost savings if their entreaties receive positive responses.

Conclusion. The problems with our healthcare system are complex. Too complex, in fact, to be alleviated by any political quick fix. Any program that is rushed through Congress hastily on a single-party basis will make things worse, not better. This is not an emergency and should not be treated like one. But neither should we remain complacent about the growing costs of healthcare. The current system will not fall apart next year, but it might in ten years.

Addendum. One of my correspondents reminded me of an issue I forgot to mention. I tend to favor abolishing the tax exemption for employer-provided health insurance - and for most other fringe benefits, for that matter. One could argue that health insurance is a public good, and that it is reasonable for the government to subsidize it. But the logical conclusion of that argument is that the government should subsidize all private health insurance, not just that provided through employers.

There is also the matter of insurance for catastrophic health events. I think it might be best for the government to provide such insurance for all Americans. Such events are rare, but when they occur they can wipe out a family's finances, even if they have insurance. They can be so expensive that insurance companies will try to dump such policyholders or resist paying on their policies. If the government were to cover these rare events, it would level the playing field for insurance companies to compete in the non-catastrophic insurance market.

Yesterday, the New York Post published this piece by Robert A. Book and Robert E. Moffit of the Heritage Foundation. They conclude that the plan now being discussed in Congress would break most of President Obama's campaign promises about health insurance.