Healthcare. If ever there were an area where America needs a different mindset it is healthcare. This post will focus on two areas: 1) how government administered health insurance can be more cost effective than for-profit private health insurance; and 2) that there are perverse financial incentives inherent in our current system which do not necessarily promote healthier outcomes.
Ever since the ascendancy of conservatism and the election of Ronald Reagan we have been told that government is the problem and the free-market is the solution. If nothing else, the Bush Administration has turned that paradigm on it’s head. Bush campaigned for small government, but what he delivered was bad governance. I suppose it was inevitable that if you hold the idea of governing in contempt, you will govern poorly.
This “government bad, free-market good” mindset must change if we are to make any progress regarding the woeful state of healthcare. Two stories in the news last week perfectly illustrated the perils inherent in our free-market healthcare system.
The first one is straightforward. The Medicare plans administered by private insurance companies are performing both poorly and expensively. Courtesy of the New York Times, the details are here. On average, these private plans cost taxpayers 19% more than the traditional Medicare plan. Medicare recipients of the private plans were worse off, too, with higher out-of-pocket expenses and fewer doctors to choose from. All in all, a disaster. And not an insignificant one either, since almost one fifth of the 43 million Medicare beneficiaries are in a private plan. Here is real world evidence that the government system (with 2%administrative expenses) outperforms the free-market (with for-profit private insurance administrative expenses 20- 30%).
The second story has to do with the perverse financial incentives which are inevitable in our system. Read the story here. Cancer and kidney doctors received, legally, millions of dollars from the two pharmaceutical companies which make injectable medications to treat anemia. The perversion is that the more medication the doctors prescribed, the more money they received. Nowhere in this financial equation are healthy outcomes even measured, much less rewarded. Inevitably, it appears that in some practices the medications were overprescribed and may have actually adversely affected the patient’s health. As always, the pharmaceutical companies laugh all the way to the bank.
Herein lies one of the dirty, little secrets of medicine. In every medical specialty (including my own, Internal Medicine) with every patient encounter your doctor is faced with a series of questionable financial incentives. There are many temptations to provide more care; few incentives to provide better care. Mostly, my colleagues behave in a professional manner and these two positions are not mutually exclusive (i.e. often, more care is better care). Not uncommonly, however, the doctor succumbs to temptation. Like an unscrupulous stockbroker churning accounts in his portfolio, doctors will order tests, procedures, or treatments which provide financial gain but may not advance health outcomes.
Believe me when I tell you that it is a slippery slope to provide thorough care that is cost efficient, all the while practicing “defensively” so as to reduce your risk from lawsuits. These are the calculations going on inside your doctor’s head while you describe your symptoms. Not a pretty picture, is it?
So what we have is a very costly, inefficient healthcare system; with perverse financial incentives that do not always improve health outcomes. We need to make fundamental changes. I believe a national government health insurance is the best vehicle to trigger the necessary changes. We need a system that promotes and rewards healthier outcomes, especially those based on the best available medical evidence.
Addendum: This won’t be popular on these pages, but a simple “Medicare-for-all” approach may not be financially viable given the poor reimbursement to physicians and hospitals. I’ll post soon on Medical Economics 101 and you will realize why healthcare reform is such a many-headed monster.
Addendum 2: I would be remiss if I did not mention that the longer I look at the Edwards healthcare plan, the more I like it. It’s most clever feature is that it allows a government program to compete against the private insurance programs. For those who believe we must ease incrementally into a universal government insurance, Edwards’ plan has a mechanism whereby this can be done.