Health Care Policy Review

OK, let’s try to tackle what to me is the thorniest of all the major political issues: health care reform.

The Problem
First, let me try to state the problem as succinctly as I can. The American health care system in general does provide quality care to us, and people are usually able to in some manner get care when they need it. However, the overall price tag of our health care system per capita is the most expensive in the world. And the complexity of our system can be brutally daunting.

We also need to understand something about health care as a “market” or “commodity.” Health care is a different animal than your basic commodity. Most things I can purchase are not essential to my life. I may find them desirable to have, but they are not essential. There are a very few buy-able things that I think we would all agree are essential to us. Having enough food and water to live on, having enough shelter to not die of exposure, and so forth. These items, however, are at least at their minimal requirement not particularly expensive in the grand scheme of things.

Of those buy-able things that are essential to our lives, there is only one that can “break the bank” due to its cost -- health care. For example, take a person making $250,000 per year. This is a higher income than the vast majority of Americans have. But if that person is without insurance and all the costs fall to him/her personally, and they develop diabetes and associated medical problems and has a heart attack as a consequence that leaves them crippled, I can guarantee you that between the costs of all the tests and medications and treatments, it would break that person financially, even if they can continue in their regular employment, and even more so if they can’t.

The idea of protecting oneself against potentially financial-disaster-inducing costs is the idea of “insurance.” It is essentially pooling everyone’s money together so that when some of them have these kinds of things, it can be paid for and not destroy them financially. It works fairly well for things like home owners insurance or auto insurance. And it has been helpful to a point with trying to protect oneself against high health care costs. But there are problems.

One is that even for relatively healthy people, just routine medical care and checks or basic illnesses and so forth can be pricey. Which means insurance premiums are bound to be high - and we all know they are. So even for healthy people with every advantage, it takes a chunk out of the wallet.

And for “high utilizers” of health care services, whether a diabetic with complications, or patients with emphysema or congestive heart failure, or cancer, or chronic low back pain, the costs are outrageously high. So high, in fact, that profit-conscious administrators of health insurance companies do everything they are legally allowed to do to dump those high utilizers from their rolls, or not add them in the first place.

To complicate things further, medical information and technology is always advancing, and the “new stuff” is almost always expensive. And yet, while I said above that health care is an “essential” for life - that is true I think when considered broadly - if you look at individual aspects of health care (is a particular surgery for sure “necessary” or is a particular medication for rheumatoid arthritis “necessary”), it becomes more murky. On some things, there is strong general agreement within the medical/scientific community, on others not so much.

So we have issues of what medical tests, evaluations, treatments, and so forth are “covered” or not. And because not all tests and treatments are clearly “necessary” there is the issue of incentives...how much should an individual be expected to pay for themselves, i.e. co-pays and deductibles, etc.

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Policy Options
So, having laid this groundwork, let’s talk policy and we can get to what kinds of things McCain and Obama say they want to do in this area.

Since I know many of you (and I’m in this group as well) feel that we ought to be very careful about what government is involved in, let me comment on that first.

Let’s just accept that health care is the kind of thing that government simply is involved in these days. That’s not going to change, so I say let’s not argue that point. And there is a good rationale for government involvement in health care: namely that without it, it is hard to see how market forces without any restraints are going to lead to an acceptable system that serves all from the least to the most needy.

If I can oversimplify for a moment, there are three main options for health care policy. The first is to keep government out of it entirely. Again, I think the nature of the need for healthcare, and the high cost and high variability of cost make this an untenable option, and in any case it is an unrealistic one in our society today. 100 years ago, sure, when it was more having the doctor give an opinion and maybe provide a few chemicals or simple procedures. But not in an era where a potentially life-saving surgery could cost $10,000 or more, and a potentially joint-sparing arthritis medication can cost over $1,000 per month.

The second option is government run health care, where the government pays for and controls everything. This would be your Hillary-care or Canada/European type option, if you will. I could go on and on about the many problems I see with this option, but it comes down to this. If the government pays, the government controls. And if the government controls, then it will determine what things it will and won’t pay for. And when budgetary pressures come to bear, as they always do, then they simply stop paying for some things, or make it more difficult to get, or they limit your options, and pretty much always they will limit what doctors and all those who provide health related services, make. And I can tell you from personal experience that as challenging a job as it is being a physician, if you take away financial incentive, you will simply end up with less capable people overall in the field. Those with great knowledge and ability will go into other professions. Bottom line: if you take competition out of the system, you pay a heavy price in the long run. So, there you have just a small sampling of my problems with this option.

Finally, there is the “somewhere in between” option. Basically this would keep health insurance as an essentially private function (along with current government programs like Medicare, Medicaid), but would place regulations on how insurers are required to operate in the U.S. and would help look for solutions to specific problems with the overall healthcare system. Let’s call this the Private-Public option.

The first two options, in the current political climate, are off the table. So let’s look at the options for the Private-Public system.

The biggest problems with what we think of as the “typical” private insurance systems are:
If you change jobs or situations, there is no guarantee you can keep your insurance or even roll into another option.
If you become “less healthy” for any reason, the incentive for the insurance company covering you is to try to dump you from their rolls. They can’t legally do so for just wanting to, but as we all know they look for opportunities to do so.
The high variability of health care costs means that 5% of patients use the vast majority of total health care dollars. These are the patients most likely to end up not covered by insurance, because they “break the bank” of the insurance companies.

So, what we want from proposals from McCain or Obama is solutions to these problems. We need portability of insurance, we need insurers to be required in some way to not dump expensive patients or deny them in the first place, and to do this we may need some kind of way “insure the insurers” or in other words help pool resources so that the most expensive patients can be paid for without placing the entire burden on one company.

Let me try to boil down McCain and Obama’s proposals to what I see as their principle points.

McCain
John McCain’s principle goal with insurance reform would be: (1) work with the states on programs that may receive federal funding that have the goal of having all citizens covered by health insurance, (2) help create a non-profit organization that will essentially pool resources from insurance companies, and I presume also government and private sources, with the purpose of helping cover the cost of the high-utilizers of health care resources. The idea would be that by helping insurance companies with these costs, they can require that the insurers bring these individuals into their plans, (3) make the health insurance marketplace more national and less local/regional. The idea would be that this would make it possible for an individual or family to choose from a broad range of national options - not tied strictly to their employer, for example, and (4) provide tax credits that will help Americans pay for their health insurance premiums, making it possible for many not currently covered to get that health insurance they need.

Obama
Barak Obama also would create a system to help insurers with high-cost patients, but his principle center-piece proposal is this: he would greatly expand an existing insurance program operated by the federal government. He would allow any American to obtain the same insurance that is used by federal employees now. He says he would pay for this by taxing big businesses who do not offer an equivalent level of insurance to their employees. The idea would be to “encourage” these big businesses to cover their employees, while still offering affordable health insurance to essentially all Americans even if their employer does not give it to them.

In some ways, I like his proposals. However, as I look at what the effect of this would be down the road, I have serious concerns. The principle one is this: I think there are a number of features that would push many people into the “government-run insurance” option. What’s the problem with that? Well, if this increasingly becomes the “norm” then in terms of the effect on the overall system, government will increasingly be in charge. And that has many, many downsides. For one thing, there is no “level above the government” to appeal to with problems/issues. And the democratic process we all know is notoriously slow and inefficient in reigning in government efforts gone awry or working poorly.

With the current system, insurance companies may try in different ways to increase revenue and decrease costs, but in the end they also know government (both executive and judicial) has an eye on them, which affects their decision making. Not to mention the market itself, where if they don’t take care of their patients and another company does, people will migrate to the one that does a better job.

However, if it is the government itself that is making these final decisions about what will and won’t be covered and what the charges are allowed to be, etc. then there is little recourse, and what there is is slow. And it potentially pushes the costs not only onto the taxpayer, but in tight parts of the budget cycle, onto the national debt. Is that really where we want it?

I can tell you already that even the Medicare program has a massive effect on the entire industry, and it is much more of a negative effect than a positive in my judgment. For example, many insurers just follow the lead of Medicare and Medicaid, particularly when it serves their needs (such as lower payments to health care providers), and they basically just “blame the government” for these moves when complaints are made. Moving things over more and more to government control I think will lead to similar outcomes but on an ever larger scale.

Other Ideas?
There are a couple of what I think are good ideas that I have not yet heard from either candidate. One is the idea that government provide a new set of “rules of the road” for companies that want to provide health insurance to Americans. Basically rule number one is that they cannot deny anyone applying for insurance, and they have to treat individual applicants similarly to corporate/employee applicants. There would also be some kind of a cap on upper limits for premiums (it does not need to be a “hard cap” but may be calculated such as a percentage difference between their highest and lowest rates, etc.). This would still need to leave room for discretion for the insurers, and it should be accompanied by a program like the one described under McCain above, where high-utilizing patients are paid for in part by a non-profit organization that can also receive some government funds, etc. Then all of a sudden most Americans can get and afford health insurance and can’t be denied as long as they can pay reasonable premiums, and if not, then that’s where Medicaid and other state programs can step in to help.

Cost Reduction Strategies
Then there are a few things that can be done to reduce “overall” health care costs, to some degree independent of what government policy toward insurers turns out to be. I’ve heard some talk of these things from both candidates.

Safe re-importation of drugs
To me, this is a fairly easy one. Because many nations have nationalized/government-run health care system, those nations when they negotiate with drug companies can basically say “hey, we are only going to pay for one med in this class, so who will give us the lowest cost?” and they can basically get it. To capture these markets, pharmaceutical companies will sometimes sell the meds to these nations at a loss, with the idea that they will make up the revenue/profits when they sell to the U.S. In other words, we end up with jacked-up prices and subsidize much of the rest of the world.

The idea is that normally, our FDA has its own system for making sure that drugs imported into the US are safe and that there are good quality assurance systems in place.

But, if the US were to create a list of nations who we trust to have similar high standards, then allow “re-importation” of medications from those nations to the US, then all of a sudden the drug companies can’t play this game, because if they try to charge us a lot more, we can just buy in Canada and ship it here, for example.

That will at least force drug companies to level the pricing and make the system more fair. And for Americans, our drug costs should go down significantly.

Better use of information technology
Another area where we can, through policy, reduce health care costs, is in developing standards across the industry for secure communication of medical information. This could lead to, for example, not having duplicate or unnecessary testing done, or may allow a physician with good information at their fingertips to accomplish more at a first visit, rather than needing a follow up one. And these are just the cost benefits; it also helps prevent medical errors, and improve the quality of patient care.

Tort Reform
Just briefly: there are significant costs when physicians feel the need to practice “defensive medicine” in other words order tests not likely to show a problem but ordered “just in case” by physicians worried about lawsuits. Also, dollars spent on medical malpractice insurance just adds additional dollars to the overall health care bill. Patients do need a means of recourse when needed, but there are effective ways to do this without excessive cost.

Summary
This may well be (I think is) the single most complex policy issue of them all. There is no simple, easy solution that I think we would be happy with.

That said, something needs to be done - for various reasons the current system is inadequate.

Both candidates have some good ideas as to lowering overall costs, improving health care overall nationally, and getting more Americans covered by insurance.

Where they particularly differ is in their approach to increasing the number of Americans covered by insurance, and in what portion of the overall health care system would be paid for and managed by the government.

Obama would still leave current options basically in place but would open up the government run insurance company to all Americans (currently just for federal employees).

McCain would basically work through the states on programs (currently operating fairly effectively in several) that would insure all Americans eventually, and would give people who are applying as individuals for insurance a tax credit/rebate to help pay for premiums.

McCain’s program is more decentralized (coordinating with the states) and likely would take some time to work out, but in its essentials I think would ultimately work.

Obama’s program I think sets some important standards and gives new options for getting insurance, but I believe will lead us in the direction where the government pays for and directly controls more and more of the overall health care system, which I think would have very negative consequences down the road.

My overall opinion: both have some good ideas, but I fear any policy that significantly expands the direct government involvement in determining and paying for health care benefits.

Update: It may be that the current expenditures being decided on to stabilize the financial system make it impossible to have a very large increase in expenditures on health care, which would impact plans for both candidates, but more so for Obama since his proposals are much more costly.