Wednesday, November 15, 2006

What would an American nationalized healthcare system look like? 

Glenn Reynolds links to a post by Megan McArdle that asks the question, "What would nationalised health care look like here?" She suggests that notwithstanding the ambition of progressives, it could not be sold unless it (i) guaranteed a baseline level of service comparable to that which insured Americans can get today ("In what other country would my eighty-eight year old grandmother have had her hip replaced two weeks after the doctor decided it was time?"), (ii) sustained the relatively high salaries of medical workers, (iii) did not ration end-of-life care ("The AARP is the most powerful lobby in America"), and (iv) did not cover immigrants, who will therefore still get their healthcare from emergency rooms. Read the whole thing, and then take a look at Ezra Klein's response, Ezra being the smartest liberal blogger I know of on matters of healthcare policy. Ezra comforts us with the idea that there could be no abolition of private healthcare in the United States, which means that (according to Ezra) Megan is arguing against a straw man.

Still, accepting Megan's premise for the fun of it, I would add to her list a fifth constraint: no American healthcare system can repeal the First Amendment. Free speech, which does not exist in health information in most countries, has a huge impact on the cost of American medicine.

New drugs and devices are one of the main contributors to cost in the American system. Old technologies are far cheaper. Wal-Mart is now selling more than 300 generic prescription drugs for only $4, a price that even uninsured people can afford (Wal-Mart is abusing the pharmaceutical companies! Which side does a "progressive" root for?). Drugs become "generic" when the patent that covers them expires, ending the patentee's monopoly. All drugs that were on the market in 1989 and many that were not introduced until well into the 1990s are now generic.

Were you happy with your healthcare in 1990? It would be inexpensive for the government or most insurers to provide free prescription drugs, but only for drugs available 17 years ago. Hey, that doesn't sound too bad! Unfortunately though, such a program would not provide any drug introduced in the last decade or so, including those that you learned about because you saw them advertised on television. Do you still want that deal? I don't. My wife has MS, and the recent advances in drugs for that disease have made all the difference for her.

Single-payor systems save money by preventing or delaying the introduction of new, patented technologies that cost a lot of money. They can do this without succumbing to political pressure because the governments in charge of those systems have simply banned the direct-to-consumer advertising that would otherwise inform patients of new treatments that can save their lives or make them worth living. The First Amendment permits that advertising in the United States, so American consumers are far more likely to punish elected officials if a nationalized healthcare system denies them reimbursement for or access to the newest drugs and devices.

The ugly truth is that there are only three ways to allocate healthcare: auction (ability to pay), queuing (standing in line), and bureaucratic fiat (an "expert" deciding who gets what healthcare). All healthcare systems use some mixture of these three methods, with the proportions varying according to political demand, the history of local institutions, and national income. There is no a priori virtue to any one of these three allocation methods, and there is widespread consensus about the best method for many procedures. Almost everybody agrees that we should allocate breast augmentation surgery by auction, emergency care by queuing, and flu vaccination in times of shortage by bureaucratic fiat. The arguments about allocating the treatment of chronic conditions that diminish the quality of life without immediately threatening it are far more difficult. Which should come first, advanced drugs for my wife's MS, or surgery for your brother's debilitating chronic back pain? Now there's a toughie.


By Anonymous Anonymous, at Wed Nov 15, 03:15:00 AM:

A nitpick - emergency care isn't allocated by queuing, it's allocated by triage: most serious, lifethreatening condition first. When resources are strained that means long waits for less serious conditions, and when resources are critically strained (such as in disasters) it can mean sacrificing a few difficult-to-save critcally injured people in order to save the lives of many others.

You can call it "bureaucratic fiat" if you like, but when a doctor triages cases, it is very much an expert deciding who gets what healthcare how soon -- and in the extreme case, who lives and who dies.  

By Blogger TigerHawk, at Wed Nov 15, 06:47:00 AM:

Agreed. I would say that it is a blend of bureaucratic fiat and queuing, but within any triage category you still have queuing.  

By Blogger K. Pablo, at Wed Nov 15, 09:13:00 AM:

Given how much turmoil ONE reformer can cause within ONE institution by driving uncomfortable changes (I'm speaking about Rumsfeld, here), I would frankly be surprised if anyone or any group would be able to catalyze the kind of changes contemplated for the U.S. medical system.

Initiatives would have to generate a majority to support interventions for which responsibility could be plausibly denied in the event of failure. Consensus regarding sweeping regulations affecting Big Pharma, Universities, Hospitals, Insurance, Biotech entities (huge ones like GE and Siemens), etc. If politics is the "art of the possible", I don't think such a top-down solution could be achieved even under the "art of the plausible."

In any case, the jury is still out on the most recent macro-intervention undertaken by the Feds: the Medicare Part D drug benefit. Any such large intervention is destined to change the dynamics of the market such that central planning would be risky before the impact of this intervention can be assessed. And this is a limitation inherent in central planning.

I don't have any solutions. I will just note in passing that Hillsborough County in Florida, where I live and work, which has an area larger than Rhode Island, is able to do a good job providing indigent care with the sales-tax based (7%) Hillsborough County Health Care Plan.  

By Blogger skipsailing, at Wed Nov 15, 10:08:00 AM:

K.Pablo, permit me to return your earlier compliment. Your analysis is spot on.

One of the reasons hillary care failed is that she purposely excluded members of the healthcare industry from her deliberations. Many of us who work in the industry have a clear insight into what's wrong and how to change it. I doubt that many really thoughtful providers are completely satisfied with the status quo.

As for part D one of the early effects I'm seeing here is a migration to medicare HMO's that are bundling the pharmacy benefit in with the regular medicare HMO stuff. The gamble here is pretty clear, the HMO's can control expenses well enough to meet the benefits for less than the AAPC rates.

Further, it is my belief that with a major program such as this those who enter early make some money. Once the feds figure out where the leakage is they ratchet it down and the early adopters often bow out.

so my prediction is a wave of HMO enrollment that will crest in about two years, then recede as the next big change, whatever it might be, hits us.  

By Anonymous Anonymous, at Wed Nov 15, 10:08:00 AM:

Universal health coverage is a well-intentioned, very bad idea. I believe it would lead to an increase in costs, a lowering of quality, and general harm to the system.

One interesting thing that is generally left out of comparisons with Europe is that Europeans generally don't consume the same way we do. What I mean to say is that we in America look to products and services to solve our problems more than in other countries and correspondingly put more demand on our health care system.

If the costs of health care were further disguised, I believe we'd put yet more strain on the system, which goes back to the point TigerHawk was making about hampering advancement.  

By Blogger Cardinalpark, at Wed Nov 15, 12:20:00 PM:

One of the hidden bits of genius in Medicare Part D was the creation of the Health Savings Account. It effectively will convert healthcare from a defined benefit plan structure to largely a defined contribution plan, and move it into private, individual hands and away from a bureaucracy (which in theory could be nationalized more easily).

This will make nationalization a virtual impossibility. And it will serve as the basis for social security and medicare restructuring.

So don't fret Hillary care. I don't think it's coming. Naturally, it would be disastrous. And since I am an optimist, I don't think it will happen.

But I bet your company is starting to adopt HSAs...


By Blogger skipsailing, at Wed Nov 15, 01:14:00 PM:

Yes, we think quite abit about what a consumer driven healthcare industry would look like.

right now the primary purchasers of healthcare are the insurance companies and the government. When the consumer steps in and directs the purchasing process many good things will result.

I for one am looking forward to it. Even though Hillary care would make a healthcare finance geek like me a rich man, I'd still prefer the consumer driven model.  

By Anonymous Anonymous, at Wed Nov 15, 02:47:00 PM:

Go Hawks!

Hillbilly healthcare had a lot of problems, most of which ignore economic facts.

Investment chases return, and the govt. will find this out quickly in terms of dealing with drug prices. Has everyone forgotten about the Flu shot shortage? One supplier loses a plant and the US faced shortages. Why did that happen? Because vaccine prices are limited (course, the liability is too) so there are fewer manufacturers. Bird Flu got people thinking this might be an area to invest in, but they wouldn't be in the typical vaccine market.

Spot on in terms of limiting drugs, does the government really want its citizens to be forced to buy generics only? That's one way to kill the pharmaceutical industry. Why would anyone invest in R&D if there will be no market for new drugs? Hello????

As for HSA's, they don't really solve the problem. HSA's are a good thing if you have money to put away, but they don't do too much for the person that can't afford insurance today.

2/3rd of the hospitals in America are either breaking even or losing money. Universal healthcare would take care of the rest. A baseline of healthcare? What does that mean? You can't have a national plan, yet still allow people with money to step outside of the system and pay for it themselves. Part of that "good care" would include good doctors. Why would any good doctor submit themselves to a national system? The good ones would only accept those willing to pay for their services. You pull the good doctors out of the national system and what are you left with?

Lets face it, a high percentage of healthcare dollars are spent in the last few months of life. Who is going to tell you that grandpa has to die because the treatment is too expensive for only 1 more year of life. Who tells the couple that their baby will die because the treatment will only work 10% of the time, and its just too expensive.

Healthcare has to be rationed, not everyone can get the best doctors, you either ration it by time (and long waits) or you ration it by price. There is no silver bullet out there. Other countries have nationalized healthcare plans, but none of them are the same. Germany's is much different than the UK's. There is no one single good healthcare plan, just what people will accept.

Can healthcare be improved? Of course, but are politicians the one to do it?  

By Blogger K. Pablo, at Wed Nov 15, 03:50:00 PM:

There is one other dimension to consider, and I was just now reminded of it by the last patient I saw. He's a 75 year-old guy with a recurrent carcinoma of the ear inadequately treated by his referring doc, and since surgery and after radiation he has suffered a small stroke. When I told him he likely has a recurrence (I just biopsied him today) he looked at me with resignation, as if the world was closing in on him. He said, "well, heck, Doc, I AM 75 years old...."

He's kind of young to be counted as one of the Greatest Generation, but his attitude reflects a significant generational difference which will undoubtedly play into future healthcare costs. I speak of this expectation I've noticed in the Boomers that they are entitled to live forever. Whether it's Ray Singularity Kurzweil, or the latest plastic surgery casualty, or the latest 40-something professional woman undergoing IVF, this is an unprecedented demographic expectation which will put a huge strain on healthcare delivery. I frankly cannot imagine some of my Boomer patients ever understanding their mortality with the maturity of my guy from today.

Mark Steyn, in America Alone has a chapter about the imminent perdition of the European social service models, and observes that years of government largesse and unsustainable government support of leisurely work weeks have had the effect of infantilizing society. I greatly fear the synergistic effects of combining an already robust infantilization process here in the U.S. with some creative left-wing legislation designed to make us more like those sophisticated Europeans.  

By Blogger N.MURALI, at Wed Nov 15, 04:11:00 PM:

By all means provide the most expensive drug but with a hefty 60% patient-40% insurance cost to the consumer who demands needless care or unnecessarily expensive options. Except in rare cases sticking to a generic formulary would be the first step in reducing runaway cost of prescription drugs. Most Doctors do not understand the statistical jargon in papers presented in NEJM or the ACP journal. This is particularly true of drug company sponsored trials with a positive outcome bias toward their own product. The accompanying editorials are sometimes, but not always helpful in making sense of these papers. Unfortunately very few medical journals insist on understandable presentation of statistical data. For example few papers present "Number needed to treat" to achieve a "particular improvement in outcome" When you look at such hard data and apply it to every day practice, generic Pravachol when used in the correct dosage for example, will be just as good as Lipitor. A generic ACE inhibitor will be as good as a newer product or placebo. By the way Walmart does not have 400 generic drugs at its $4 price. It has just a few drugs but it counts different formulations of the same drug as a different drug. (Walmart Style!)  

By Anonymous Anonymous, at Wed Nov 15, 05:41:00 PM:

"You can't have a national plan, yet still allow people with money to step outside of the system and pay for it themselves."

Actually you can. Australia has just this system.

Getting back to the main point, does the "free speech means Euro style socialized medicine can't work" argument mean that an underground ad campaign could break up the Euro health system and greatly increase Pharma profits?

If so, why isn't it done in today's world of unstoppable information?

Wouldn't this be greatly desirable from both the viewpoints of the Pharma companies and the US government (someone else to help carry the R&D burden of modern medicine.)

Indeed the USA could use this as a diplomatic threat. "Support our UN vote or we'll use our media to rip open your health care budget. The same way we did to France." (You have to do it once to prove you're serious. France is as good a target as any.)  

By Anonymous Anonymous, at Wed Nov 15, 10:20:00 PM:

Considering pharmaceutical sales only make up less than 15% of all healthcare dollars, only a politician would state that price controls on RX drugs will fix healthcare.  

By Blogger TigerHawk, at Wed Nov 15, 11:33:00 PM:

The direct-to-consumer advertising drives hospital and procedural costs as well, in addition to the underlying costs of the drugs and devices. Orthopedics companies are advertising total hip replacements, for example -- the advertised device is only a small part of the cost of the procedure required to implant it. At a more basic level, every time a patient takes up the suggestion to "ask your doctor," he generates an office visit.  

By Blogger Johnny Nobody, at Thu Nov 16, 09:54:00 AM:

What about a hybrid system? I've been doing a lot of thinking on the subject, and I'm having trouble thinking of large downsides to this analysis (so I hope you all can find some):

The problems in the health care industry are 1) many are involuntarily uninsured, 2) catastrophic care is really expensive and occurs in a way that is largely uncorrelated with behavior, and 3) costs are rising across the board.

In large part, 3 is caused by health care being paid for by someone other than the consumer, i.e. the employer, usually, so there is an incentive to consume as much health care as allowed, rather than strike a balance between consumption and cost. Therefore, to control 3, the cost must be shifted to consumers.

In order to accomplish this without exacerbating 1 and 2, my idea for government involvement is to provide a small amount of care free of charge. This would amount to a full physical and 1-2 other visits per year (since a lot of health care dollars could be saved by catching diseases earlier and by investing in preventitive care). The government would reimburse the doctors at a rate so that most doctors would be affordable, say 70%, so doctor choice is preserved.

Other care would be covered by private insurance. If someone didn't have insurance or coverage for catastrophic care, then there would be a default high-deductible catastrophic benefit provided by the government.

All this would be on top HSAs, which are also a good option.

As far as prescription drugs go, the law ought to be changed to facilitate the negotiation of purchasing large quantities of drugs, generic or not. Insurance companies, collectives and governments providing benefits could get volume discounts, but the price would reflect the true cost.

What say you?  

By Blogger skipsailing, at Thu Nov 16, 02:43:00 PM:

K Pablo I remember how angry my brother was at my dad. My dad, God rest his restless soul, basically figured that something was going to get him and if it wasn't "this" it would be something else. My Bro wanted Dad to fight, and while I don't think Dad exactly wanted to die, he was after all close to eighty and he knew it.

I pray for that kind of courage.

as to baby boomer demand, we're talking the silver bullet syndrome here. Its both scary and expensive.

Johnny, there is much to like in your offering. Just a few points. First, the government already provides free emergency care to the uninsured. Laws such as COBRA and TEFRA were designed at first to prevent patient dumping but as usual blossomed into unfunded mandates.

Essentially YOU pay for this care since it is built into the costs the hospital must cover when it sits down with the local HMO's to haggle about price.

I am fond of the high deductable catastrophic approach for a few reasons, but mostly because it would make the consumer the ultimate decider. Rationing based on consumer preference is just too attractive, IMHO to ignore. We've tried all the others with dismal results. It seems to me that every market the consumer drives provides us with high quality and low cost. Will what works for TV and cell phones work in health care? yeah, probably.

first dollar coverage leads to waste imho and itty bitty co pays are just a nuisance that the plans use to disguise a shift of financial burden back to the insured.

its a complex industry and for that I'm grateful. I tell my frustrated co workers my motto: If it were fun and easy a volunteer would be doing it.  

By Anonymous Anonymous, at Thu Nov 16, 03:06:00 PM:

Tigerhawk, the last time I was in my doctors office we were talking about advertising. She said anything that gets people into the doctors office is a good thing. We don'have a problem with the general population going to the doctor too often, more like not enough.

There is a cost benefit for perscription drugs. Its cheaper to pay for Lipitor than it is for an emergency room visit after a heart attack. Course, that ignores the fact that some people never have healthcare costs, then has a heart attack and dies with no medical costs associated with it.

Not sure this is where we want to go.  

By Anonymous Anonymous, at Thu Nov 16, 10:20:00 PM:


By Blogger Gordon Smith, at Fri Nov 17, 10:36:00 AM:

Thanks for posting on this topic, Hawk, most righties avoid it.

The WHO ranked the U.S. Health Care system 37th in the world, right between Costa Rica and Slovenia. Approx. 40 million Americans don't have/can't afford health insurance. Young families pay upwards of $500/month for insurance. Businesses big and small are yoked with health insurance costs of their own. Imagine having a single payor model available for all Americans, while employers seeking to incentivize workers could continue to offer boutique health plans if they chose.

The current system is unsustainable, what with all the boomers ready to milk it, and the free market isn't in the business of helping the 40 million uninsured folks or lowering costs for the rest of us. The venom spewed against HRC's health care plan ought not prevent the 21st century dwellers among us from looking again at some sort of govt. administered health security for every American.

Medicare Part D? Phff. Boondoggle for Big Pharma. How about some real solutions?  

By Anonymous Anonymous, at Fri Nov 17, 02:21:00 PM:

Many laugh at Part D, but in fact, it is the first time Medicare covered perscription drugs. The first time!

Fixing health care is something that is fun or easy. I give GWB credit for doing what he did. He managed to annoy both parties, which means it was probably a good attempt.

I still am not convinced you can have a opt out system, where people with money can go outside of the system to receive treatement they can afford. If I were a good or great doctor, why would I choose to work in the government system? I know that Dr. Saulk gave his vaccine away, but I don't see many scientists doing that much anymore.

How to fix healthcare? Until personal responsibility comes into play, I don't think you can.  

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