Thursday, May 20, 2004

Healthcare Watch: The Scope of the Problem

As the oldman blogged about a while back while commenting on Mankiw's assertion that market forces would solve the healthcare problem, as it turns out this is dead wrong. The market forces are verifiably failing!

Brad Delong makes a cogent comment about how we can't have everything that we want. This is a good place to start, realizing that there are going to have to be some hard choices. What are we going to have to choose between? Listen to what Brad has to say:

The fundamental dilemmas are that we want (a) sick people to be treated, (b) rapid technological progress in health care, (c) to spend an increasing share--15% and rising--of our incomes on health care (for if you don't have your health, what use is anything else?), (d) an efficient health care system--with little waste, fraud, and abuse--in a setting in which patients (e) are uninformed and (f) have an enormous desire to spare no expense once they have learned that they are the ones who are sick. Not even in the New Jerusalem will the health care financing system be capable of supporting all these goals. And we need to decide which of these goals are the most important. [emphasis added]

Well how bad is the problem? What Brad was dicussing was mostly anecdotal. What is the real scale of the problem? To understand that we need to turn to the US Census Bureau's 2002 National Health Insurance Summary:

The number of people with health insurance rose by 1.5 million between
2001 and 2002, to 242.4 million, and the number of uninsured rose by 2.4
million, to 43.6 million, the U.S. Census Bureau reported today.

An estimated 15.2 percent of the population had no health insurance
coverage during all of 2002, up from 14.6 percent in 2001, according to
the report, Health Insurance Coverage in the United States: 2002.

The proportion of insured children did not change in 2002, remaining at
64.8 million, or 88.4 percent of all children.

For the second year in a row, the overall decrease in coverage was
attributed to a drop in the percentage (62.6 percent to 61.3 percent) of
people covered by employment-based health insurance.

The percentage of people covered by government health insurance programs
rose in 2002, from 25.3 percent to 25.7 percent, largely as the result of
an increase in Medicaid coverage.

Okay did you hear that? About 15% have no health insurance, that's slightly less than one in six. The only reason that about one in four have health insurance, 25%, is that they're on a government Medicaid program.

So look around you at work, at school, at church, walking down the street, in the grocery store - that's one in four on average that has to have government help to get health insurance.

Now I'm not going to try to blame everything on greedy HMO's, excess regulation, etc. Let's look at the real problem and how it can be solved.

(A) Get people informed:
We can cut down on medical costs by simply making basic health decision making a subject in High School. It strikes me as relevant a discussion and lesson today to be having as balancing a check book is in Home Economics. Call it second semester Home Economics. If the population is informed, they'll file less scurilous lawsuits and make better health care decisions - and pressure doctors less to do unnecessary tests or procedures.

(B) Form a Medical comittee of physicians and medical experts in order to rate and discuss treatment options and publish the results:
Part of the problem is that we don't have widely known and available for public dissemination about available treatments, simple summaries of their clinical success rates, and the medically informed opinion about the appropriate time and conditions for the use of such treatments. Right now this sort of information is something that patients have to dig up on their own or quiz their own doctors about who may have individual biases or may be to being overworked simply not up to the state of the art. We can cut down on medical costs just by making people aware of what should be done when, so they won't pressure their medical care providers for extreme solutions based on ignorance and desperation.

(C) Create on a state by state basis randomly selected insurance pools of citizens with medical insurance companies bidding for coverage offerings and employers paying into the system.
The problem is not that many uninsured people are not fit for coverage, it's that no insurance company wants to cover people on a case by case basis. That's why they sell insurance to employers, so that "somebody" is liable for the premiums. Otherwise the companies would be already in the business of selling private insurance. What state government can do is simply put out "cattle calls" of people who would like insurance but don't have any, statistically randomly jumble them up so that the sick people should be spread out evenly, and put out a call for insurance companies to offer bids on premium rates that participants would pay in return for fixed benefits and co-pays.
The shortfalls could be made up by a uninsured fee to employers, somewhat like unemployment insurance. This would actually be a benefit to many small businesses since they could voluntarily participate to drop their rates. It's simple business sense, large pools of people with statistically calibrated populations that you can use actuarial tables on are something predictable that insurance companies can calculate what they would offer a reasonable rate for. If successful enough, it could absorb or replace the current Medicaid system or the Medicaid system could be scaled back to the truly poverty-stricken.

(D) Increase patent lifetimes and fight for more international intellectual property rights standards
We can help lower costs of new medical technology by offering voluntary programs of prolonged patent life-times in exchange for agreed restrictions in prices of technology. Also we can lower medical costs by streamlining international intellectual property rights standards so that an invention made and produced by one company can obtain larger markets without fearing loss of technological secrets.

Personally I think that HMO's and private insurance companies do have a role. We simply cannot spend an ever expanding portion of our income on healthcare. There have to be some sort of price controls. In addition, the long-cherished Republican notion of tort-reform should probably be looked at in a bi-partisan and serious fashion. I am not a legal tort expert, but it seems to me that the present system is unnecessarily adversarial and cut-throat competitive. Strange as it sounds, by simply reducing the amount of conflict and legal fighting we should be able to reduce overall costs and begin to keep them in line.

Some of the increases in medical costs are going to be permanent and are due to the changing demographics that we are experiencing - people are living longer to experience more medical problems. Others are profoundly political, such as the struggle over Canadian drug imports:

A fierce momentum began building this week to legalize the importation of prescription drugs from Canada to the United States, and even those who oppose the move now admit they may not be able to stop it.

The sea change comes in the wake of surprise remarks by the top U.S. health official earlier this week. Tommy Thompson, Secretary of the U.S. Department of Health and Human Services (HHS), said Tuesday that legislation allowing the importation of prescription drugs was inevitable.

On Wednesday, attorneys general from 18 states sent Thompson a letter asking that he let states import low-cost prescription drugs from Canada.

Also Wednesday, Thomas Ryan, chairman and chief executive officer of the pharmacy giant CVS, called for a temporary legalization of imports -- another sign that Thompson's remarks could signal the beginning of an irreversible shift...

The attorneys general, in their letter, urged Thompson to "act immediately to help provide our citizens with affordable prescription drugs while ensuring drug safety," according to news wire reports. The attorneys general come from Arizona, California, Colorado, Connecticut, Illinois, Iowa, Maine, Maryland, Massachusetts, Mississippi, New Hampshire, New Mexico, New York, Ohio, Oregon, Rhode Island, Vermont and Wisconsin.

Under their proposal, all of the imported drugs would be manufactured at facilities sanctioned by the U.S. Food and Drug Administration. Sophisticated tracking devices would be used to thwart counterfeiters, the letter said.

The Bush Administration, however, remains staunchly -- and aggressively -- adamant in its opposition to legalizing the importation of drugs from Canada. The administration and the pharmaceutical industry cite safety concerns as the key to their opposition.

This is fundamentally a political issue and will be fought out on a political level. For my money it's probably inevitable that Canadian drug imports or increased Federal level collective bargaining for drug prices - Medicaid has sought such permission from Congress several times (unsuccessfully)- will occur. This by itself won't solve the health insurance problem.

The problem in health insurance is no longer a problem that people can reasonably claim that HMO's or market related forces will solve. We need to take steps to control the rise in health care costs and expand it to as many citizens as possible. I am for one not in favor of nationalized health care. However I've proposed several options above that in combination should create an "umbrella" of coverage that should catch the vast majority of citizens. If Washington wants to subsidize health care, I'd rather they do so with block grants to state level programs - Alaska might for instance need help - on a state by state basis rather than creating a new level of Federal Bureacracy or expanding Medicaid which I think truly should be limited to the most poverty-stricken parts of our society.

This is not only compassionate conservation it's smart conservatism. The less people worry about health care they more they can plan for the future and work productively toward making the entire society more prosperous.


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