Health Insurance "Focus" and Cost Containment

The Washington Post tells us,

When it comes to health care, the way policymakers define the problem determines the answer they produce. Democratic presidential candidates tend to focus on the uninsured, Republicans on rising costs. Both are important: The unaffordability of health insurance won't be addressed without tackling health-care costs, but reducing cost growth alone won't solve the insurance problem.

That, of course, is false.

• Clinton: Right up front, "Hillary's American Health Choices Plan covers all Americans and improves health care by lowering costs and improving quality. It speaks to American values, American families, and American jobs." She explains further that she sees potential cost savings through such measures as prevention programs, chronic disease management, reduction in administrative costs, electronic medical records, improved communication between doctors, and waste reduction.

• Obama: While Obama doesn't focus on cost containment, his plan summary states, "Senator Obama strongly believes that greater use of health information technology can contain costs and improve the efficiency of our health care system. He introduced the Federal Employees Health Benefits Program Efficiency Act, which would leverage the federal government's purchasing power to encourage increased adoption of technology by participating health plans."

• Edwards: Provides numerous examples of how costs might be contained, including increased competition, better communication between doctors, lifestyle choices, error reduction, telemedicine for rural areas, and malpractice reform.

So just how do the Republicans focus on "rising costs"? Well, the McCain plan ballyhooed by the Washington Post... doesn't. At least not as they describe it. Instead it removes the tax preference for employer-based health care, and gives employees a tax credit ($2,500 per individual and $5,000 per family) which will be inadequate to replace a typical employer-based policy. I would venture that the Post's own employees receive insurance that costs substantially more.

McCain wants to change Medicare such that it reimburses " doctors and hospitals for treating overall conditions, not performing individual tests and treatments." Pilot programs in this area, the Post notes, have shown little promise. If McCain proposes to extend this proposal to all treatments, the obvious retort is that, given how much of Medicare costs go to end-of-life care, does he propose not paying hospitals, clinics and doctors when their patients die? As for other major costs, such as hip replacement surgery, how would this proposal change anything? Does he propose that doctors and hospitals not be paid until the outcome of treatments are known? Is the goal here to improve Medicare, or to convince doctors and hospitals to opt out? Is this really a shallow effort to put Medicare at a disadvantage as compared to private insurers, who currently cannot compete with Medicare without a hefty subsidy?

Finally...

Mr. McCain's plan is weakest on the underlying problem with the health-insurance market, in which insurers have every incentive to cherry-pick the healthiest purchasers. "We should give additional help to those who face particularly expensive care. If it is done right and the additional money is there, insurance companies will compete for these patients - not turn them away," Mr. McCain says.

So, to make up for a market failure, we're going to provide such massive subsidies for the chronically ill that insurance companies can't wait to sign them up? Boy... that sounds like cost control to me....

Let's compare the "cost control" focus of the other major Republican candidates....

• Giuliani: Quality and price transparency to "expand competition and open up new motivation for improving quality and reducing cost", malpractice tort reform, streamline the FDA drug approval process, use electronic medical records. You know... everything John Edwards has said, and less. Meanwhile he proposes a cost increase with the proposal that "Health insurance must be redefined to cover wellness as well as sickness."

• Huckabee: Huckabee's primary focus is on preventing chronic disease - again, something that will result in (at least) a short-term increase in health care costs under the current system. Beyond that, "We can make health care more affordable by reforming medical liability; adopting electronic record keeping; making health insurance more portable from one job to another; expanding health savings accounts to everyone, not just those with high deductibles; and making health insurance tax deductible for individuals and families as it now is for businesses." That is, an even stronger echo of Edwards and Clinton.

• Romney: Romney is a strong advocate of individual mandates and big government subsidies to make insurance affordable to all... or was that last year?This year he says, The health of our nation can be improved by extending health insurance to all Americans, not through a government program or new taxes, but through market reforms. - that's the entire summary of his health care plan from his website.

I guess this turns on how the Post defines the word "focus". The Democratic candidates address both universality and cost control. The Republican candidates echo some of the "cost control" ideas of the Democrats, particularly Edwards and Clinton, propose "reforms" which will reduce or eliminate insurance coverage for even more Americans, and... because they mostly ignore the uninsured... the Post describes them as being "focused" on cost containment.

If the Post was trying to achieve balance with that description, it failed.

(Meanwhile, at the Times, we learn that doctors will not turn in their incompetent colleagues or report serious mistakes by other doctors, and that a third will order expensive unnecessary tests - not out of worry of litigation, but simply because their patient asks - perhaps at a testing facility in which they have an ownership interest. I'm not sure that either set of candidates is addressing these issues.)

Health Care Costs

The New York Times has a published long, unsigned editorial on health care costs, The High Cost of Health Care. I don't know whether to praise the Times for trying to tackle the issue, or criticize it for presenting such a superficial summary which, as it seems, nobody on their editorial staff wished to sign. Maybe both?

The editorial starts out by being simplistic:

Almost all economists would agree that the main driver of high medical spending here is our wealth. We are richer than other countries and so willing to spend more. But authoritative analyses have found that we spend well above what mere wealth would predict.

If you look at health care costs and their growth, the U.S. was pretty much in line with other developed nations until those nations developed national health care plans. It was at that point that our health care costs started to rise at a disproportionate rate. The fact that we are increasingly recognizing that reform to limit health care costs is necessary reflects that, if anything, our nation's wealth allowed us to delay addressing the issue. To the extent, though, that our wealth plays a role in our health care costs, it seems to be primarily in our tolerance for waste (about 20% of each health care dollar) and bureaucratic inefficiencies:

This is mostly because we pay hospitals and doctors more than most other countries do. We rely more on costly specialists, who overuse advanced technologies, like CT scans and M.R.I. machines, and who resort to costly surgical or medical procedures a lot more than doctors in other countries do. Perverse insurance incentives entice doctors and patients to use expensive medical services more than is warranted. And our fragmented array of insurers and providers eats up a lot of money in administrative costs, marketing expenses and profits that do not afflict government-run systems abroad.

People may neglect the fat and waste in their budgets when they have a lot of discretionary income, but it becomes harder to do so when that discretionary income is reduced due either to increased cost or other priorities. What we should not do is pretend that individual consumer choices can affect health care costs or waste, or that people are "choosing" to spend more on health care - individuals have next to no influence on the cost of health care, which is primarily determined by the amount insurance companies deem appropriate for particular medical services.

If citizens of an extremely wealthy nation like the United States want to spend more on health care and less on a third car, a new computer or a vacation home, what’s wrong with that? By some measures, Americans are getting good value. Studies by reputable economists have concluded that spending on such advanced treatments as cardiac drugs, devices and surgery; neonatal care for low-birth-weight infants; and mental health drugs have more than paid for themselves by extending lives and improving their quality.

And again, the canard that this is an individual choice - that people choose between an extravagance (such as a "third car") or an overpriced health care system, and choose the latter. The "reputable economists" thing... Not one is named. And I think any reputable economist would also concede that other industrialized nations get the same or better results while spending far less money per capita.

The first proposed "solution" involves noting that health care outcomes are often the same in rural hospitals as they are in far more costly urban hospitals. Most likely to some degree higher salaries, specialist referrals and infrastructure costs, but I would venture that the leading contributing factor is health care technology. Cutting edge diagnostic technology is expensive, and when hospitals have it they will seek to recover the cost of their investment, as well as the continuing costs of staff and maintenance. When a hospital doesn't have a huge number of expensive diagnostic imaging machines, it can't order a CT scan for a suspicious headache - in most cases that's going to turn out to be an unnecessary expense that significantly inflates an emergency room visit. If the Times is sincere in suggesting this as a leading point for "reform", it needs to confront the fact that our access to expensive health care technologies is one of the leading factors that proponents of the status quo use to argue the superiority of U.S. health care over that of other nations. ("Our outcomes may be no better, or even worse, but we have all the cool toys.")

The second proposed solution is to "stick to what works", with the Times observing quite reasonably that a lot of medical care is not science based - it flows from a doctor's impressions or experiences. The problem here is differentiating between what medical science can quantify and what it cannot - it is not necessarily going to be an improvement to require doctors to follow checklists and protocols in a primary care setting. Sometimes the doctor's patient questioning or intuition is what will bring about the proper diagnosis, while that may not be immediately apparent from the standard tests or questions. Where treatment is symptomatic, it may not matter whether the science is behind the treatment - if palliative care works, the patient feels better even if the diagnosis is incorrect. Also, as is noted here, the human body is not a machine and the same treatment may produce very different results in different patients. I am a huge proponent of science-based medicine, but it is not a panacea.

The editorial presents a nebulous comment about managed care - it might reduce costs, but it might also produce a backlash if it (again) resulted in the denial of care. This is a peculiar issue as insurance companies don't have to pay for treatment that is not medically necessary, so in theory people could already be required to pay for their discretionary care above and beyond that level. The bigger problem with managed care was its broad effort to categorize expensive, potentially life-saving techniques as "experimental" and to deny them on that basis. People dying of cancer did not enjoy hearing that bone marrow transplants were "experimental" and thus not covered. If the Times wants to go back to that form of "managed care", yes, there will be a backlash.

The fourth proposal is that the U.S. should catch up with the world in health care information technologies. This alone should evidence how our so-called health care "market" has failed - when these costs can be passed to the consumer, insurance companies are happy to do just that. When the sky is not the limit and costs must be contained, health care systems typically act to contain these costs. It is no surprise that the V.A. is a domestic leader in health care information technology, while "private insurers" trail far behind the rest of the world.

The Times makes a valid point about prevention - there is an enormous potential for cost savings in prevention, but there is also an enormous cost in implementing a broad system of preventive medicine. The Times notes that there is potential for improvement in disease management for the chronically ill, but that there is little evidence to date that this will result in any appreciable savings.

The Times endorses allowing Medicare to negotiate for discounts when purchasing pharmaceuticals and, while this may not produce windfall savings, it seems like a no-brainer. The various private insurers which the government subsidizes to compete with Medicare are permitted to negotiate discounts.

In terms of who would "pick up the tab", the Times proposes paying providers less. The Times notes that this will make them unhappy, but seems to take a "but what are they going to do about it" approach to the issue. If we act before things reach a total crisis, we shouldn't have to cut reimbursement rates (save perhaps as adjusted for inflation) - the long-term outcome would likely be the same, but doctor's don't have to take an actual pay cut in order for us to get back on track.

In terms of emphasizing primary care, which the Times endorses, perhaps an alternative would be to compensate all doctors at primary care rates if their services could have been performed by a primary care physician. Specialists could accept the reduced compensation, or could defer that type of treatment to lower-cost providers.

The Times endorses requiring a consumer contribution to health care costs. I agree with that - there should be a means-tested copayment for medical services and pharmaceuticals, perhaps capped on an annual basis, even for those on Medicaid. (The amount may have to be negligible or subject to waiver for some health care recipients, but even if it's 50 cents a copayment can inspire some level of thought as to whether a visit to the doctor is necessary. At low income levels a copayment might also be applied once per course of treatment, so that people are not discouraged from seeking follow-up care.)

To support this, the Times references a study which occurred from 1974 to 1982, tracking health care expenditures by people who received varying subsidies of their medical care (with copayments capped at $1000):

A classic experiment by Rand researchers from 1974 to 1982 found that people who had to pay almost all of their own medical bills spent 30 percent less on health care than those whose insurance covered all their costs, with little or no difference in health outcomes.

The findings must be considered in association with health care costs - my guess is that the same study, conducted today, would find an even greater savings due not to need but due to health care inflation. But it also ties back to what the Times observed earlier - it is difficult to put a value on preventive care. Some of the savings comes from people not seeking care for a cold or flu that gets better by itself - as most illnesses will. Some of the savings is documented as coming from people not being treated for high blood pressure - something that may not result in much cost savings over eight years, but could result in significant long-term savings for treatment of heart attacks and strokes. The study's findings in a bit more detail,

At the end of the experiment, the researchers concluded that the “use of medical services responds unequivocally to changes in the amount paid out of pockets.” Per capita expenses on the free plan were 45 percent higher that those on the 95 percent coinsurance plan. For outpatient services, adults on the 25 percent coinsurance plans spent only 78 percent as much as those on the free plan. For children in that group the figure was 74 percent. On the 95 percent coinsurance plan adults spent 60 percent as much as those on the free plan and children 59 percent as much.

The goal in setting a copayment would be to provide people with an incentive to think before incurring medical costs, but not to create an impediment to their seeking necessary medical care. Short-term cost savings is not so important that people should not be discouraged from having high blood pressure or obstructive sleep apnea diagnosed or treated, or from having their infant examined for an ear infection or acute respiratory illness. Also, as the Times notes, we have to respect the fact that individuals lack the expertise to manage their own medical treatment - they need a doctor's guidance.

The times also correctly notes that individual choice will have little overall impact, because health care costs are not evenly distributed:

Most health care spending is racked up by a small percentage of individuals whose bills are so high they are no longer subject to cost sharing; they will hardly be deterred from expensive care they desperately need.

Right now we have the worst of all worlds - when these people are uninsured or underinsured, we force them to treat at emergency rooms - the most expensive source of medical care. When they are insured, but become disabled from work, we allow their insurance to lapse such that they become uninsured. (Wouldn't an easy short-term fix to this to be to mandate that health insurance policies include a disability provision which will cover a patient's premiums until the person either recovers from or succumbs to a disabling illness?) Then, when the patient is financially ruined, we finally step in with Medicare and Medicaid.

This is exceptionally simplistic:

Deep in their hearts, many liberals yearn for a single-payer system, sometimes called Medicare-for-all, that would have the federal government pay for all care and dictate prices. Such a system would let the government offset the price-setting strength of the medical and pharmaceutical industries, eliminate much of the waste due to a multiplicity of private insurance plans, and greatly cut administrative costs.

But a single-payer system is no panacea for the cost problem — witness Medicare’s own cost troubles — and the approach has limited political support. Private insurers could presumably eliminate some of the waste through uniform billing and payment procedures.

There are many flavors of "single payer" that we could implement, including versions which allow consumers to choose between private insurance plans (much like the present cafeteria of health care plans offered by many employers), and most plans (like Medicare) would also allow private supplemental insurance. To hope that private insurers will suddenly take it upon themselves to implement cost-savings methodology that would either benefit other insurers, or cause them to incur costs which might cause their premiums to briefly be higher than their competitors' before dropping to a lower level due to new efficiencies? A pipe dream.

As previously noted, government-paid health care systems, domestically and internationally, lead in this area. Market purists may wish to ignore the facts, but the same logic applies as with consumers - if the health care provider is forced to absorb the costs, it will seek greater efficiencies - with the primary difference being that providers actually have the power and control necessary to effect change. U.S. health insurers don't - they just increase insurance premiums and pass along the cost.

Health Care Proposals

As the various Republican candidates attempt to invoke the spirit of Reagan and be tougher than ever with terror suspects, the Democratic candidates seem to be pitching health care reform. The proposals so far seem to be cautious, perhaps based on Hillary Clinton's experience with the health insurance lobby and its intensive misinformation campaign during the early days of her husband's presidency. Fear of the major health insurance companies does seem to be at the heart of the candidates' timidity. Proposals to effectively force statewide or national group rates would require a significant population of insureds, so as to spread risk, making it difficult to impossible for small insurance companies, or regional insurance companies operating in more expensive health markets, to compete. Similarly, mandating that a basic set of services be covered would likely take the profit out of the high margin, low service plans many companies currently offer to the self-employed.

I personally believe that individual mandates, where each individual is required to purchase health insurance from a set of approved plans, are foolish. They seem designed primarily to avoid including in the federal budget the actual cost of a national health plan, while adding an unnecessary level of bureaucracy to the system. They would create problems for individuals who suffered cash-flow problems, and thus were unable to pay their premiums - something likely to happen when, for example, when a self-employed persons business dips or a family member suffers a major illness. The continued tie of most health coverage to employment perpetuates the same type of problems in the event of illness or unemployment. Would the plans cut off health benefits if somebody was unable to meet the mandate? Would there be what amounts to insurance to cover health insurance premiums under such circumstances?

What would make more sense would be to offer a set of health care options in the same manner as employers - here are your options, here's what they cover, here's your out-of-pocket cost if you want more than the basic plan offers. Offer annual "open enrollment" for plan switching. Use the existing tax system to collect premiums and to determine eligibility for subsidies, even if you classify any additional payment a "premium" as opposed to a "tax". Ensure continuity of coverage, even if at the basic level, despite job loss or a missed premium - figure out if additional monies are owed at tax time.

Insurers should have to compete with the public plan. If private insurers are as superior as their proponents contend, that shouldn't be a problem. If not, why should working people be forced to subsidize their waste and inefficiency?

One approach not yet suggested by a candidate which, at a national level, is not unreasonable is to announce to the states, "As of Date X, you are to have a health care plan that provides universal coverage to state residents, covering (at a minimum) this specified set of services," tied to various federal grants and subsidies. Let states fashion their own solutions within those parameters, and see what works. Federalism... what a crazy idea.

Opposing Universal Health Care On The Basis That It's A Service?

Over at MedRants, Dr. Centor has posted an essay suggesting that universal health care is wrong because it involves the provision of services as opposed to, for example, guaranteeing a freedom.

The essay first asserts that recognizing a right to services would be a "positive right", with a finite supply of service providers unable to fulfill an unlimited demand. I don't dispute that, but it is no different from any other service we expect from government. For example we expect the government to provide police and fire services, but nobody realistically expects those services to be without limit. The notion that we would not impose any limits whatsoever on health care is a red herring - no nation, no matter how broad their national health plan, provides unlimited health services, and I have yet to see a serious health care proposal which calls for unlimited services.

The essay next asserts that to recognize a right to health care services would depart from traditional notions of morality.

We acknowledge an obligation to help the needy, but that obligation is unconditional only in certain circumstances: with family-members, people we have previously agreed to help, or certain kinds of immediate need that appear in our presence—such as the child drowning in a puddle as we’re passing by. If we had more general obligations to aid strangers that were absolutely unconditional—if we HAD to give our money to the street-person asking for it once we confirmed that he needed it to gain something he had a right to—our own negative rights to choose what to do with what is ours would be nullified; a conclusion most of us could not accept.

This argument is again a red herring, given that we already extend significant benefits to the poor through a wide range of government programs. It also confuses legal duty with moral duty. While we may not have a legal duty to assist anybody with whom we do not have a status relationship, we traditionally have recognized broader moral duties. Consider, for example, the long tradition of provision for the poor as practiced through religious institutions, whether through food aid, shelter, counseling, legal assistance, or (yes) charitable hospitals. My grandparents took considerable pride in the fact that their church would provide food, clothing and shelter to any passing vagrant who made the request, without any further regard for whether that person was "deserving" of the charity.

At its heart, this argument is that the poor are undeserving of medical care - that if you can't get good health insurance coverage from work, and can't afford to pay out of pocket, you should suffer through whatever health consequence comes your way. That's not good public policy given the possibility of contagion, but also because of the fact that if you create a context in which the poor cannot get treatment for disabling, debilatating, degenerative, or disfiguring conditions, you all-but-guarantee that they and their families will remain impoverished.

The author does recognize a "a conditional and limited duty to help" the needy, but in such a way that service providers are unaffected. That is, his greatest fear seems to be that any national health plan "not to endanger production and nullify the negative rights of producers" - which I read as a somewhat nuanced way of saying, "If you do this, make sure my salary doesn't go down." And at its heart, that seems to be author's fear - that a national health care plan will result in lowered physician compensation as one of the mechanisms of broadening supply while containing cost. Our "private" system already does this, as do Medicare and Medicaid - most medical care is provided within the context of that false market, with the insurer negotiating or dictating rates paid for particular services, so apparently the concern is one of degree.

I note that this doctor is silent in regard to the common practice of billing uninsured patients significantly more for the same service than would be paid by an insurance company. Can anybody point me to a similar physician's lament of national health care, which also acknowledges the unfairness of a system in whcih the poor, uninsured and underinsured often pay more for health care than wealthy, insured people "pay" (through their insurance)?