A Radical Solution for Healthcare: Kill the Hybrid 19 comments
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We have spent the larger part of the last year focusing on how to fix health care, but no plan on the table actually fixes it. What’s the underlying problem or more appropriately, what’s the underlying disease we are fighting? Are we sure we know what has gone wrong and where?
To figure out what’s wrong with healthcare in America, it might be helpful to diagnose the problem just like a doctor does. One of the first things a doctor does when he diagnoses a disease is he looks at the symptoms the patient is demonstrating. Why not approach it the way a doctor would? What are the symptoms we can take note of to identify the cause of the disease?
Costs and hidden taxes
The first symptom is spiraling and seemingly out of control costs. At 17% of GDP, compared to 11% in Switzerland and 8% in the UK with inferior results and only a fraction of the population covered. We spend over twice what other countries spend for a system that doesn’t even cover all of our citizens. How did we get to this point exactly? We also get inferior outcomes in many studies of procedures performed and overall we die a lot sooner than in other countries (some of this is higher mortality due to other causes). Within a few years our spending may reach 1 out of every 5 dollars of income produced. It could get even worse then that.
Second. We have large pricing distortions. If you have a strep throat, it's not as if you can log on to the web and see 20 prices for doctors in your area and pick the best price for treatment. Doctors and insurance companies hide the numbers. You can do that in almost any other good or service, why not here? If you are uninsured, you are going to pay a higher price than others for the same treatment and you won't have any idea that's occurring. Even if you are insured, you'll pay less for the same procedure than someone in Medicare.
Medicare often pays far less for procedures than the private insurers pay because the government can set prices by fiat. This distortion “cost shifts” prices from one system, the “public system” to the private one”. This often results in big price increase in private premiums as hospitals with their 19th century accounts shift cost increases to the only place they legally can—private insurance plans.
According to Milliman, an independent actuarial firm, Medicare—and to an even greater extent, Medicaid—underpays doctors and hospitals, shifting costs to private insurers. Milliman estimates that the average family in a private PPO health plan pays an additional $1,788 a year to compensate for underpayments by Medicare and Medicaid, representing a "hidden tax" on commercial payers totaling $89 billion a year.
Volume
We also notice in this “disease” that because public prices are set artificially low, those in the public systems have a tendency to over consume, and doctors needing to make up for low margins by over prescribing procedures to “make it up on volume”. It's a services industry--costs don't decrease with increased scale, in fact they increase drastically. While the procedure are often marginally profitable for doctors they are often disastrous for the system overall and costs for “private” spiral upward.
The Mayo clinic which is heralded as one of the best examples of efficient systems in the world turns away Medicare patients. Only 5% of their patients are in Medicare compared to 29% in other local hospitals.
Why? Mayo calls this a “business” decision and “not a reflection of the current legislative debate”. i.e. They are not stupid. They keep private costs low because they refuse public patients who underpay. They can’t raise prices for these Medicare patients because the prices are set by law. If they take those patients they are forced to pass the costs on the private insurance. It's a microcosm for what is happening throughout the economy.
In short, the artificial barrier between the public and private systems needs to end.
Opting out
Third. These rising private costs encourage younger healthier citizens to opt out of insurance. This “symptom” is easy to recognize and most people are aware of this problem. Since people are uninsured, they don’t get basic preventative care that stops chronic illness before it can develop. By law hospitals are required to treat you and so these costs are eventually socialized typically at emergency room rates which are far more expensive. If you can’t pay these costs are “socialized” and passed on to private insures and the government.
Swiss efficiency
Luckily, we’ve got examples of other health care systems and cost structures to learn how to improve our own, or in some cases avoid similar mistakes.
So lets look at my favorite which is the Swiss system. It's the most expensive system after ours and it’s the most “privatized” system. The Swiss system costs a relatively cheap 11% of GDP. The government provides a subsidy for its citizens to purchase health plans from a system of 85 private insurers. Costs are a bit higher, but innovation is higher and consumers have more control over their own health care. To make this system work in the US you would have to transition all government programs into this “subsidy” system. While the system has attractive benefits, it seems politically impractical. Nobody wants to scare senior citizens and some sort of fold up of Medicare would cause a political firestorm. As panicked as the electorate it is, this kind of a change is probably too drastic. At least for now.
On the other end of the spectrum, you have the purely socialized system in the UK and France with spending at about 8% of GDP. The way to do this in the United States is simply to remove the age limit for Medicare and extend health care to everyone.
'Hybrid disease'
As someone who has greatly benefited from the “free market” and innovation, I’m a strong advocate of the free market example set by Switzerland. I think it would be best for the country and we’d get much better health care in terms of quality and innovation. I think if we give entrepreneurs an incentive to compete and innovate they will figure out how to deliver much better care at a much lower cost. Right now, most entrepreneurs that enter the health care business usually get clobbered by entrenched interests or regulation. There are some notable exceptions to that who I've sent a copy of this piece.
In America we appear to be suffering from this “hybrid” disease, not just in health care but in every major industry. We have systems that mix the worst incentives of public and private to avoid making any real choice as to what kind of system we want to have. This has led to embarrassingly high costs that with the advent of the financial crisis are unsustainable.
This “hybrid disease” has infected major US industries such as telecommunications and financial services. Look at our financial system and disaster we’ve just experienced there and see the parallels in health care:
· We had “quasi” private agencies Fannie Mae (FNM) and Freddie Mac (FRE) receiving government guarantees that allowed them to underwrite massive amounts of debt that induced a massive bubble in real estate. Home ownership was considered a policy priority so the idea of subsidies and aggressive bank lending to subprime was encouraged.
Meanwhile, no real private sector alternative to Fannie and Freddie ever emerged because nobody could compete with the government guarantee. It lowered the cost of capital so much for Fannie that private competition could not enter. Are there areas of health care that private companies won’t compete in now because they can’t?
Medicare mortgages
While many parts of the financial system including banking and insurance were heavily regulated, many circumvented these gaps in the rules. Like in health, you had segments CDO which was essentially “debt insurance” was issued so that banks could issue even more debt and increase profits. This resulted in risky mortgages being even more prevalent and a massive amount of over consumption in real estate. Huge price differences in what Medicare charges, vs state regulations that prevent competition force many of these same inefficiencies?
Somewhere along the way in the last 20 years America has lost the ability to be practical and live within our means. We need to pick one of these two systems as the current hybrid is a fiscal disaster that will bankrupt the country.
America right now is facing it's greatest fiscal challenge. If we make a choice and bring our costs even down to levels of the Swiss system at 11% of GDP we would save almost $840 billion a year. That’s $840 billion that can be spent on tax cuts, health care subsidies for low income earners, infrastructure or energy independence. This challenge is politically difficult but the rewards of fixing this gaping fiscal hole are huge as well. Time for us to make a choice in either a public system or a private one—the hybrid choice of “we’ll take both” is killing us fiscally and literally. We need to make this choice, not just in health care but in many of our most important industries and return to America's practical roots.
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It is almost safe to say that any system is better than the one we have today. The author's belief that the hybrid system is at fault is largely true. Our doctors and medical staff are subjected to legal suits, forced free labor under long hors and stressful conditions, and some are underpaid and saddled with ridiculous education bills while the medical insurance companies and lawyers find any and all ways to deny medical coverage and operations to those that need them. Scrapping the existing system hurts medical practitioners a lot less (if at all) than the leeches connected to medical services. That's why a majority of doctors are rooting for heath system reform.
Personally, I tend to follow the doctor's reccomendations. It's usually in my best interest.
On Oct 14 08:14 AM Moon Kil Woong wrote:
> The simple fact is, if businesses didn't shoulder a lot if not most
> of the cost there would have been health care reform a long time
> ago. Healthcare costs in the US are astronomical, inefficient, filled
> with bureaucracy, with tons of people who are not medical expects
> feeding off of the system from insurance companies, HMO's, and lawyers.
> It is shameful that the best medical professionals have to watch
> as their patients are subjected to a system that is injurious to
> everyone.
>
> It is almost safe to say that any system is better than the one we
> have today. The author's belief that the hybrid system is at fault
> is largely true. Our doctors and medical staff are subjected to legal
> suits, forced free labor under long hors and stressful conditions,
> and some are underpaid and saddled with ridiculous education bills
> while the medical insurance companies and lawyers find any and all
> ways to deny medical coverage and operations to those that need them.
> Scrapping the existing system hurts medical practitioners a lot less
> (if at all) than the leeches connected to medical services. That's
> why a majority of doctors are rooting for heath system reform.<br/>
>
> Personally, I tend to follow the doctor's reccomendations. It's usually
> in my best interest.
This is wrong and points to a flaw in your argument. In both the UK and France, there is extensive use of private health insurance. In the UK this is about 18% of the total and in France 22% of the total. They both have "hybrid" health systems and both end up spending massively less than us on healthcare.
The US system is a farce, but that's not because it's a hybrid.
- Henry VI Part 2, Act 4, scene 2
So to fix the "hybrid" disaster a single payer is the way to go. All the right wingers will go wild but if you want it fixed this is the way to go. We must understand in the U.S. that these "hybrids" be they health insurance, mortgage financing or commercial/investment banking are killing us as a country.
With this clear understanding, then we can make intelligent decisions about which industries or activities are better suited for a public structure or a private structure. In my mind, private - free market's should be the default decision. However, if an industry/activity becomes: A) too big and/or privileged or, B) is provided by government out of economic necessity - then it should be provided by the public.
OR, we can continue these ridiculous HYBRID ideology arguments forever and continue to suffer the pain.
Until the government is more afraid of us than we are of them, we'll keep getting mega-cost, mega-expensive, mega-complex, Alice In Wonderland, Marie Antoinette "solutions" which only insure our future and permanent enslavement and bondage.
Well, it's not really a "free market" when the government subsidizes it.
The reason why "healthcare" is so expensive in the US is because people over-use it. A rise in demand holding supply constant creates an increase in price. Why is the demand high? Because if the insurance provider (and/or gov't) "pays" for it, then people don't worry about paying for it when they use it. But you do pay for it, sooner or later. It's the same principle behind credit cards.
You want to lower "healthcare" costs in the US? Start by getting the government out of it. Uncle Sam is like the movie character "Beetlejuice." You don't want his help.
Opt out? Insurance is not some type of obligation. Most choose to opt in. But a truly free people should not be forced to. The true issue is that group plans are just another form of socialism!! Why should the healthy be forced to pay the bills of the sick? Forced altruism is not altruism. That is not freedom. And there is no merit where the choice to be generous is not a free choice. Also, I may not be able to afford helping the next guy. And lastly -- there are far too many people with large health costs that were self-induced by poor choices: poor diet, lack of exercise, sure...but also excessive alcohol...drug use...illicit sexual behavior. Why should I be made to pay for their actions!?!
Group plans...and co-ops...are part of the PROBLEM. Not a solution!!!
Likely the cart is before the horse in Health Care Reform. With $53 Trillion of unfunded liabilities in Medicaid, Medicare, and Social Security, these areas need reformed first.
First fix the bigger problem of $53 Trillion, then we can talk about other subjects.
I agree with your point that almost any system is better than what we have now. If we took virtually any health care system from any democracy, it would more than likely be better than what we have now. Especially from a cost perspective.
On Oct 14 08:14 AM Moon Kil Woong wrote:
> The simple fact is, if businesses didn't shoulder a lot if not most
> of the cost there would have been health care reform a long time
> ago. Healthcare costs in the US are astronomical, inefficient, filled
> with bureaucracy, with tons of people who are not medical expects
> feeding off of the system from insurance companies, HMO's, and lawyers.
> It is shameful that the best medical professionals have to watch
> as their patients are subjected to a system that is injurious to
> everyone.
>
> It is almost safe to say that any system is better than the one we
> have today. The author's belief that the hybrid system is at fault
> is largely true. Our doctors and medical staff are subjected to legal
> suits, forced free labor under long hors and stressful conditions,
> and some are underpaid and saddled with ridiculous education bills
> while the medical insurance companies and lawyers find any and all
> ways to deny medical coverage and operations to those that need them.
> Scrapping the existing system hurts medical practitioners a lot less
> (if at all) than the leeches connected to medical services. That's
> why a majority of doctors are rooting for heath system reform.<br/>
>
> Personally, I tend to follow the doctor's reccomendations. It's usually
> in my best interest.
thanks for the comment.
On Oct 14 08:59 AM chap08 wrote:
> "On the other end of the spectrum, you have the purely socialized
> system in the UK and France with spending at about 8% of GDP"
>
> This is wrong and points to a flaw in your argument. In both the
> UK and France, there is extensive use of private health insurance.
> In the UK this is about 18% of the total and in France 22% of the
> total. They both have "hybrid" health systems and both end up spending
> massively less than us on healthcare.
>
> The US system is a farce, but that's not because it's a hybrid.
However--I do think the government has to have some sort of subsidy to make sure all citizens have both 1) preventative care and 2) emergency stabilizaton care?
Why? Because we require it by law anyway. Even if you are not a citizen the courts require emergency care and sometimes a bit more than that if you show up at a hospital. You either have to get rid of that law, or you need to subsidize preventive care? It's a measure of practicality since it ends up costing the government a lot less in the long run if everyone has basic preventative care.
Hope that makes sense.
On Oct 14 04:39 PM Gedankonomist wrote:
> "As someone who has greatly benefited from the “free market” and
> innovation, I’m a strong advocate of the free market example set
> by Switzerland."
>
> Well, it's not really a "free market" when the government subsidizes
> it.
>
> The reason why "healthcare" is so expensive in the US is because
> people over-use it. A rise in demand holding supply constant creates
> an increase in price. Why is the demand high? Because if the insurance
> provider (and/or gov't) "pays" for it, then people don't worry about
> paying for it when they use it. But you do pay for it, sooner or
> later. It's the same principle behind credit cards.
>
> You want to lower "healthcare" costs in the US? Start by getting
> the government out of it. Uncle Sam is like the movie character
> "Beetlejuice." You don't want his help.
CAN IT BE ACCOMPLISHED IF THE KEY PEOPLE IN HEALTHCARE-MEDICAL DOCTORS ARE PAID BY THE VISITS AND NUMBERS OF MEDICAL PROCEDURES? IS IT NOT AN OBVIOUS CONFLICT OF INTERESTS? DOCTOR WHO MAKE HIS LIVING GETTING PAID ON A QUANTITY BASIS DOES NOT WANT YOU HEALTHY-HE WANTS YOU SICK!!!
ONLY THE SALARY PAID DOCTOR COULD BE INTERESTED IN HEALTH OF H/H PATIENTS AND ACTUAL RESULTS.
HEALTHCARE IN GENERAL SHOULD NOT HAVE BEEN A SUPER PROFITABLE INDUSTRY WITH ALL THOSE PARASITES, SOCKING THE BLOOD OUT OF THE ENTIRE NATION. IT SHOULD HAVE BEEN A GOVERNMENTAL DEPARTMENT OF THE SAME IMPORTANCE AS A POLICE, THOROUGHLY TAKING CARE OF THE CORE TREASURE OF THE COUNTRY-THE HEALTH AND WELLNESS OF ITS CITIZENS.
ONLY BECAUSE OF THOSE PARASITES (I AM NOT GOING TO LIST THEM, ONLY BECAUSE EVERYBODY KNOWS IT), WHO GETS PROSPEROUS ON OTHER PEOPLE MISFORTUNE AND CONSCIOUSLY MAKE ALL THINGS WORTH, WE ARE IN THIS POINT OF HISTORY.
THAT IS WHY USA IS AN UNIQUE COUNTRY WITH ENORMOUS SPENDING ON SO-CALLED HEALTHCARE WITH THE WORST RESULTS COMPARE TO ANY RELATIVELY CIVILIZED COUNTRY IN THE WORLD.
everyone agrees there has been a massive market failure of healthcare. other ideas how the government can stimulate competition and innovation in health care:
(1) smarter triage. i would be willing to bet that a high % of cases could be rapidly addressed by cheap nurses that do not require the expense or expertise of a highly qualified doctor.
(2) invest in self service. companies have dropped costs dramatically thru the IT revolution by pushing customers to online self service tools instead of long waits in call centers.
(3) dramatically increase the supply of health care providers. would not cost a lot of money to train an army of nurses and doctors or import slews of trained immigrants. raise the supply and drop costs.
really it depends whether you believe Americans have an inalienable right to reasonable medical care. in our age of technology i think the founding fathers would have made it so.
Hi Ed,
I hear what you are saying but in the US--even if you have private insurance you can still have your claim denied.
I think the system the US has now really can't be called a free market and is "socialized". The amount you put in terms of premiums does not correspond to the amount you get out in benefits. Especially if you don't have insurance at all. i.e. It's socialist already. My point is--move either to the Swiss approach for a more leaner system or go for the 100% public option. No matter what, someone will be making cost benefit decisions like those that you described, either the government or insurance cos.
Thanks for the comment.
On Oct 17 01:33 PM ed233 wrote:
> I live in Canada. I dare say Canadians would if polled vote in the
> majority for a private insurance program as opposed to a single payer
> Medicare system. Let me give you something to think about. Most of
> Americans I believe are approaching retirement age. Likewise it is
> the same in Canada. A few years ago, I reached 65 years of age. I
> was actively engaged in the construction business, self employed.
> I performed a lot of physical work which caused severe pain with
> my rotator cuff. A scan confirmed that I truly suffered damage. I
> also like to play golf but this has become very difficult given my
> type of physical deficiency. I approached my doctor about having
> an operation which would allow me to function more efficiently and
> continue with my golf . My doctor told me that Medicare wouldn't
> approve of this because I'm too old. He suggested using a Medicare
> approved drug to camouflage my pain. When you think about this you
> have to weigh the common sense of such a solution. How much would
> drugs cost over my expected life span? I thought to myself that if
> I have to go that route I'll simply put up with the pain or discontinue
> playing golf. When Mr.Obama gets his sort of universal(staged in)
> health care into place, that's the type of thing you'll confront
> not to mention excessive delays. This my dilemma going forward, what
> happens if I need a more expensive operation(life saving) should
> I reach the ripe old age of 80 years? An old gentlemen was recently
> turned out of his subsidized apartment and shortly thereafter died
> homeless on the streets of Toronto recently. That's what socialism
> means in my country. Nobody ever wants medical coverage denied to
> anybody. But given my circumstances I'll choose a private plan any
> day that isn't too outrageous as far as premiums are concerned as
> opposed to our Canadian Medicare system given the opportunity. But
> they will not let me opt out. If you don't want the same predicament
> you might consider writing to your local representative to express
> your views before it's too late. Failure could lead you to be saddled
> with an eventual bankrupt payer system that suggests it treats all
> people equally. But, of course, if you're a celebrity, famous sports
> person or a politician there are always exceptions. LOL Looking after
> your money.
I think the government should reward communities that are taking care of their own, providing free health care to the poor and the old. These communities deserve TAX breaks and incentives.
The easiest way to deal with the health insurance problem is to provide a government run hospital in every major city where people can use the services as needed. A place people can go in willingly-sign up for insurance that they can afford.
Rates could be based on a sliding scale or age group. The government run hospitals in every state wound charge the same prices,get approval when procedures and medicines prices go up. Provide a hospital network across the USA.
Just look at all the prisons the government run,why can't they run a low or no income hospital,provide health insurance for patients that are interested in coverage?