Thursday, February 25th, 2010

Returning to Health Care

A few months ago, I began these blogs with a discussion on health care.  As I mentioned in that article, both Jewish sacred texts and the New Testament highlight the importance of healing and health. Despite the US being the wealthiest nation in the world, its health care system is a mess.  Large numbers of the population do not receive adequate health care, and the health care that is available to the majority is ridiculously expensive. The Obama administration, in fulfillment of campaign promises, made reforming the US health care system a priority.  At the time the legislation was being considered in the Congress, I cautioned that the approaches taken, while well intended, only will make a bad situation worse.  A seemingly unstoppable reform plan, passed by both houses of Congress, collapsed under the weight of a Massachusetts Senatorial election when the Democratic majority in the Senate lost its ability to break Republican filibusters of the legislation.  In a sense, we are back to square one where the President seeks to persuade both the public and an increasingly wary Congress to pass legislation. 

Health care legislation has interested me for over 30 years.  When I first began serving in Congress in the late 1970’s, one of my responsibilities was to oversee the Federal Employee Health Benefits Program, which covers federal employees, Members of Congress and retired federal employees.  Often, the federal program has been viewed as a model for national insurance (the current Senate bill actually utilizes this approach) because every employee is covered and each employee has multiple choices among differing health plans, supposedly holding down health care costs.  But beginning in the early 1980’s the costs of this federal program began escalating, and we wrestled with a variety of approaches to hold down these costs - one of them was actually applied to the Medicare program with marginal success. 

Sadly, the approaches being considered today are recipes for far more problems, and the costs of health care will continue to escalate, further pushing the country towards bankruptcy.  The real problem with the provision of health care is the insurance system.  It is inefficient and unfair.  As I pointed out in my earlier blog, insurance insulates the consumer/patient from the real cost of health care.  Unlike almost anything else in American experience, the consumer is removed from decision making with respect to the supply and cost of health care.  Decisions for provision of health care essentially are delegated to providers (doctors/hospitals) and insurance companies.  As an example, how many times do we check the cost of a doctor’s service or compare hospital rates before being admitted?  Yet, in all other purchases, comparative benefits and costs are examined prior to the purchase.  This is the basis of a capitalistic or free market economy, which has helped the US economy to be the richest and fairest in world history.

As an analogy, let’s examine the American food industry.  As a percentage of income the American consumer spends less money on food than any other nation.  The problem in America is not lack of access to food but almost too much food.  Even the poor have access to an adequate food supply through the very successful food stamp program. Why?  Because of fierce competition at every level of the food supply chain.  I visited the former Soviet Union shortly after Communism’s collapse.  The difference in what grocery stores provided there and here was shocking.  Because the government regulated prices and production, farmers and other suppliers had little incentive or were prohibited from providing new and different products.  Consequently, there was little.  What if the American health care system was revolutionized to empower the consumers/patients to make their own health care decisions? 

I know this is a radical view because it’s so different than what we have.  But this was reality until the initiation of health insurance in the 1930’s and 40’s.  Insurance, which is simply the idea of shared risk, works extremely well for both auto and life policies.  Life insurance is the simplest concept.  The consumer pays a premium to provide benefits to a beneficiary if and when the person dies.  Using actuarial tables, the insurance company sets a premium for the consumer based on age and health.  In other words, the consumer shares a risk with the insurance company of a premature death by paying a certain sum to ensure adequate provision for beneficiaries.  The only two involved in the transaction are the consumer and the insurance company.  The beneficiaries become a substitute for the consumer in simply receiving the benefits but don’t add to supply or cost. 

Health insurance is completely different.  Rather than the consumer sharing risks, the consumer is transferring decision-making about health care to others.  Furthermore, the consumer is completely insulated from direct costs of health care, creating a nightmarish situation when the consumer is denied benefits by the third party insurer, often leaving the consumer frustrated and in the dark about the decision.  As a bizarre analogy, assume the same system controlled food supply and purchases.  Instead of buying food, you grab items off the grocery shelves and then find at the checkout counter that the computer system controlling the dispense of food items inexplicably disallows some of your choices. 

Can a free market system actually work for health care?  I believe so.  Let’s begin with primary physicians or what we call family doctors.  First, we abolish all insurance for primary physicians.  This action reduces health insurance premiums to those who carry insurance.  For the poor health care stamps are made available, similar to food stamps.  For physicians’ offices, costs are sharply reduced because they no longer need to process insurance claims.  Now, consumers choose physicians based, in part, on price of service.  Physicians, realizing that price now determines demand for services, reduce fees.  When the physician suggests a battery of tests, the consumer, knowing he has limited funds, demands to know the cost and benefits of each test.  This puts health care into the same category with every other purchase Americans make. 

Second, hospital emergency room care is limited to true emergencies.  Many with no insurance or a family physician go to hospital emergency rooms for essentially basic medical care.  Instead, under a new plan, emergency rooms are limited to those referred by other physicians or to rescue squad services who are satisfied that the situation is an actual emergency.  Others are directed to medical clinics, such as Patient First or family physicians, where costs are lower, and insurance is not a factor. 

Third, insurance is limited to catastrophic situations.  For example, insurance is not applied until an individual has paid, let’s say, $5000.  It seems like a lot, but for those with insurance, insurance premiums would drop precipitously.  Often, insurance for families runs around $1000/month.  Employer based insurance costs would also drop, thereby allowing higher pay rates to employees to compensate.  Finally, again health care stamps could be granted to the poor.  Before entering a hospital, consumers could compare hospital rates for admissions or tests, something unknown today since insurance insulates the consumer from direct costs.

Fourth, insurance for catastrophic situations is paid for by a tax, similar to Medicare.  The insurer would be the government.  The government would set rates for care and limit unneeded procedures.  Having one insurer eliminates insurance companies from “skimming the cream” of healthy individuals, leaving the unhealthy to a few or one plan.  These situations unbalance the insurance system and defeat the purpose for insurance.  In addition, catastrophic insurance is closer to the concept of true insurance, i.e., shared risks.

Fifth, malpractice claims and awards would be limited, thereby eliminating what is commonly referred to as defensive medicine, i.e., extra medical procedures that are done to avoid malpractice claims, even when such procedures are unlikely to change outcomes.  . 

Sixth and probably most controversial, prohibit insurance from covering expensive procedures when patients have less than six months or a year to live where the procedure itself does not significantly add to life expectancy.  As life expectancy has increased so has medical costs.  Statistics show that 30-40% of health care costs in the US occur in the last year of one’s life.  Often, extraordinary procedures are performed that grant an individual just a few more months of life while the costs are astronomical.  Yes, this suggestion raises the specter of the “death panels” similar to allegations made against earlier health proposals.  But what Americans fail to comprehend is that the current system with few cost controls will bankrupt the country.  If health insurance was non-existent, then the only ones who could pay for extraordinary procedures would be the wealthy, and overall life expectancy would drop, obviously a grossly unfair and, in my view, unbiblical situation.  On the other hand, the current system so insulates consumers from real costs that most consumers are faced with wildly disproportionate premiums to their own health care.  To make the system affordable and workable, trade-offs are required.   

I have no illusions regarding the likelihood of my suggestions being adopted.  The reality is, however, that the current health care system is in disrepair, and needs a complete overhaul.  Patching up holes and covering everyone under a mandatory insurance program will only exacerbate the failures of a disastrous system.  Massive reform is necessary.