Monday, March 01, 2004
How to think about paying for health care
I followed an Insults Unpunished link to a post over at DB's Medical Rants about health savings accounts. Health savings accounts are one of a number of proposals to give patients a greater financial incentive to save themselves and their employers money, both by seeking out less health care and by being more sensitive to the price of health care that they do purchase.
I ended up posting a lengthy comment over at Insults Unpunished, and then decided that I liked it so much that I would reproduce it here, with a lot of elaboration:
I always find these debates about incrementalist health care initiatives - such as HSAs - frustrating. The ugly truth is that all the various ideas for "controlling" health care costs are very small in their impact, but nevertheless probably harmless and worth trying at the margin. The employer's share of these costs is now so high that virtually anything is worth trying. At my company, health benefit costs for production workers with families -- people who earn less than $40,000 per year -- exceed $9000 per employee per year. These costs have been increasing rapidly, and now are the biggest reason why we would rather have our existing employees work harder than add any new people. Rocketing health benefits expense is at least one reason for the "jobless recovery."
Politicians and policymakers and pundits have understood and wrestled with this problem for twenty years. We have considered and even experimented with one idea after another to restructure our system for paying for health care. While some of these attempts have succeeded at the margins for a short time, no reform has systematically slowed the growth of health care costs as a percentage of GDP. Why has this problem been so difficult for America to deal with?
There are countless interests that have fought to prevent even incrementalist reform. If you are on the left, you blame HMOs, pharmaceutical companies, and the lack of universal coverage, and if you are on the right you blame trial lawyers and the Health Care Financing Administration (now called something Orwellian like the "Centers for Medicare and Medicaid Services"). Nobody much blames doctors, hospitals and patients, but we should.
However, blaming these various interests distracts us from the basic problem: what health care, and for whom, should be available to all regardless of ability to pay, and what health care need only be available to people who can afford to pay? To think clearly about this question, we need, as a country, to remember a single basic point: There are only three ways to allocate health care.
We can allocate health benefits by ability to pay (auction), by queuing (standing in line), or by bureaucratic fiat (HMO coverage decisions or, in a single payor system, health ministry regulation). These are our only alternatives. In this regard health care is no different from anything else -- those are also the only three ways to allocate chocolate bars or Lay-Z-Boy chairs. However, very few people really like the idea that health care should go only to people who can pay for it, or that it should be dolled out on a first-come, first-serve basis, or that a bureaucrat should decide proper treatment based on outcomes data. Unfortunately, there is no fourth alternative other than a mixture of the three.
Of course, in certain cases there is general agreement about the correct allocation method. Most people think that it is appropriate to allocate cosmetic surgery by ability to pay. True, there is occasionally a fine line between correcting a defect (the province of dermatology or plastic and reconstructive surgery) and enhancing a feature (the domain of aesthetic surgeons), but we usually know the difference.
Similarly, we allocate emergency room service by a combination of bureaucratic fiat (triaging rules) and queuing, and nobody much disagrees with that.
Beyond these and a few other examples, however, we haven't done any real thinking about the extent to which specific health care benefits should be allocated by ability to pay, standing in line, or regulation. A "thought experiment" should illustrate how little the average blogger -- or blog reader, or voter, or average Joe -- has thought about this issue.
The "off patent" plan. I have a question: Did you think health care in the United States was pretty decent in 1987? I know that I certainly thought so at the time. Well, we could offer universal free prescription drugs for everybody at remarkably low cost (I don't know the number, but I am sure this is the case), as long as the only drugs in the plan were compounds that first came on the market before roughly 1987. Why? They are all by definition off-patent, and therefore very inexpensive (generally a small fraction of their price before patent expiration). Why has no politician (or anybody else that I know of) proposed this? Because they and others associated with this issue (doctors, pharmaceutical companies, insurance companies) are afraid to argue -- or do not want to argue -- that the newest drugs should only be available to people who can pay for them. However, very few of these same people are willing to make the political or fiscal sacrifices necessary to make on-patent drugs available to everybody regardless of ability to pay, so we are still allocating drugs on the basis of ability to pay!
You don't like drawing the line at patent expiration? How about via a studied examination of particular drugs, medical procedures and services? Ritalin is now generic, and very inexpensive. Alza, which was acquired by Johnson & Johnson a couple of years ago, reformulated ritalin into a timed-release version with a patented mechanism of action in the "caplet." The patented version -- Concerta -- is very convenient for schools and parents because it only has to be administered once a day. The inexpensive generic ritalin, the exact same molecule, has to be taken a couple of times a day. This is a hassle for the student, the school nurse, and the parents, so doctors have been flipping their patients over to the much more expensive -- but much more convenient -- Concerta. Concerta is a great product, but it is the medical equivalent of prepared food: it is much easier to deal with, but it costs a lot more. Does this seem like a benefit that should be allocated without regard to ability to pay?
Questions such as these already permeate health care. A simple comparison of medical practices among wealthy countries reveals differences that reflect preferences rather than true differences in health conditions. Why do most countries with single-payor systems pay for Pap smears only every four or five years? Because they have figured out that the money is better spent elsewhere? Why do American gynecologists recommend that women have a Pap smear every year? A romantic would say that you can't test too often for cervical cancer. A cynic would say that gynecologists are just looking to get their patients in for regular office visits, and besides, hundreds of thousands of false positives every year generates a lot of colposcopies. A Republican would say that doctors are just running from the trial lawyers, who will sue if their patient gets cervical cancer.
When bone growth factors can heal a broken arm more quickly than a plaster cast and the passage of time, who will pay the hundreds or thousands of dollars so that Junior can get back to his snowboarding before the end of winter?
In my opinion, we need a structured mechanism for thinking through these questions. The lost opportunity of the Clinton initiative in 1993 was that he (and she) missed a great chance to re-set the expectations of the American public, which eleven years later still demands health care that is "free" at the margin, available on demand, and supplied in accordance with the decisions of a single particular doctor selected by the patient. Until we change those expectations, health care costs will continue to account for an ever larger share of GDP.
I ended up posting a lengthy comment over at Insults Unpunished, and then decided that I liked it so much that I would reproduce it here, with a lot of elaboration:
I always find these debates about incrementalist health care initiatives - such as HSAs - frustrating. The ugly truth is that all the various ideas for "controlling" health care costs are very small in their impact, but nevertheless probably harmless and worth trying at the margin. The employer's share of these costs is now so high that virtually anything is worth trying. At my company, health benefit costs for production workers with families -- people who earn less than $40,000 per year -- exceed $9000 per employee per year. These costs have been increasing rapidly, and now are the biggest reason why we would rather have our existing employees work harder than add any new people. Rocketing health benefits expense is at least one reason for the "jobless recovery."
Politicians and policymakers and pundits have understood and wrestled with this problem for twenty years. We have considered and even experimented with one idea after another to restructure our system for paying for health care. While some of these attempts have succeeded at the margins for a short time, no reform has systematically slowed the growth of health care costs as a percentage of GDP. Why has this problem been so difficult for America to deal with?
There are countless interests that have fought to prevent even incrementalist reform. If you are on the left, you blame HMOs, pharmaceutical companies, and the lack of universal coverage, and if you are on the right you blame trial lawyers and the Health Care Financing Administration (now called something Orwellian like the "Centers for Medicare and Medicaid Services"). Nobody much blames doctors, hospitals and patients, but we should.
However, blaming these various interests distracts us from the basic problem: what health care, and for whom, should be available to all regardless of ability to pay, and what health care need only be available to people who can afford to pay? To think clearly about this question, we need, as a country, to remember a single basic point: There are only three ways to allocate health care.
We can allocate health benefits by ability to pay (auction), by queuing (standing in line), or by bureaucratic fiat (HMO coverage decisions or, in a single payor system, health ministry regulation). These are our only alternatives. In this regard health care is no different from anything else -- those are also the only three ways to allocate chocolate bars or Lay-Z-Boy chairs. However, very few people really like the idea that health care should go only to people who can pay for it, or that it should be dolled out on a first-come, first-serve basis, or that a bureaucrat should decide proper treatment based on outcomes data. Unfortunately, there is no fourth alternative other than a mixture of the three.
Of course, in certain cases there is general agreement about the correct allocation method. Most people think that it is appropriate to allocate cosmetic surgery by ability to pay. True, there is occasionally a fine line between correcting a defect (the province of dermatology or plastic and reconstructive surgery) and enhancing a feature (the domain of aesthetic surgeons), but we usually know the difference.
Similarly, we allocate emergency room service by a combination of bureaucratic fiat (triaging rules) and queuing, and nobody much disagrees with that.
Beyond these and a few other examples, however, we haven't done any real thinking about the extent to which specific health care benefits should be allocated by ability to pay, standing in line, or regulation. A "thought experiment" should illustrate how little the average blogger -- or blog reader, or voter, or average Joe -- has thought about this issue.
The "off patent" plan. I have a question: Did you think health care in the United States was pretty decent in 1987? I know that I certainly thought so at the time. Well, we could offer universal free prescription drugs for everybody at remarkably low cost (I don't know the number, but I am sure this is the case), as long as the only drugs in the plan were compounds that first came on the market before roughly 1987. Why? They are all by definition off-patent, and therefore very inexpensive (generally a small fraction of their price before patent expiration). Why has no politician (or anybody else that I know of) proposed this? Because they and others associated with this issue (doctors, pharmaceutical companies, insurance companies) are afraid to argue -- or do not want to argue -- that the newest drugs should only be available to people who can pay for them. However, very few of these same people are willing to make the political or fiscal sacrifices necessary to make on-patent drugs available to everybody regardless of ability to pay, so we are still allocating drugs on the basis of ability to pay!
You don't like drawing the line at patent expiration? How about via a studied examination of particular drugs, medical procedures and services? Ritalin is now generic, and very inexpensive. Alza, which was acquired by Johnson & Johnson a couple of years ago, reformulated ritalin into a timed-release version with a patented mechanism of action in the "caplet." The patented version -- Concerta -- is very convenient for schools and parents because it only has to be administered once a day. The inexpensive generic ritalin, the exact same molecule, has to be taken a couple of times a day. This is a hassle for the student, the school nurse, and the parents, so doctors have been flipping their patients over to the much more expensive -- but much more convenient -- Concerta. Concerta is a great product, but it is the medical equivalent of prepared food: it is much easier to deal with, but it costs a lot more. Does this seem like a benefit that should be allocated without regard to ability to pay?
Questions such as these already permeate health care. A simple comparison of medical practices among wealthy countries reveals differences that reflect preferences rather than true differences in health conditions. Why do most countries with single-payor systems pay for Pap smears only every four or five years? Because they have figured out that the money is better spent elsewhere? Why do American gynecologists recommend that women have a Pap smear every year? A romantic would say that you can't test too often for cervical cancer. A cynic would say that gynecologists are just looking to get their patients in for regular office visits, and besides, hundreds of thousands of false positives every year generates a lot of colposcopies. A Republican would say that doctors are just running from the trial lawyers, who will sue if their patient gets cervical cancer.
When bone growth factors can heal a broken arm more quickly than a plaster cast and the passage of time, who will pay the hundreds or thousands of dollars so that Junior can get back to his snowboarding before the end of winter?
In my opinion, we need a structured mechanism for thinking through these questions. The lost opportunity of the Clinton initiative in 1993 was that he (and she) missed a great chance to re-set the expectations of the American public, which eleven years later still demands health care that is "free" at the margin, available on demand, and supplied in accordance with the decisions of a single particular doctor selected by the patient. Until we change those expectations, health care costs will continue to account for an ever larger share of GDP.
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