Saturday, August 08, 2009

Paradoxes, and not, in health care finance 

This, I think, gets to the heart of the public skepticism over President Obama's health care reform effort:

There are two basic points about health-care reform that President Obama wants to convey. The first is that, as he put it in an ABC special in June, "the status quo is untenable." Our health-care system is rife with "skewed incentives." It gives us "a whole bunch of care" that "may not be making us healthier." It generates too many specialists and not enough primary-care physicians. It is "bankrupting families," "bankrupting businesses" and "bankrupting our government at the state and federal level. So we know things are going to have to change."

Obama's second major point is that--to quote from the same broadcast--"if you are happy with your plan and you are happy with your doctor, then we don't want you to have to change ... So what we're saying is, If you are happy with your plan and your doctor, you stick with it."

So the system is an unsustainable disaster, but you can keep your piece of it if you want. And the Democrats wonder why selling health-care reform to the public has been so hard?


It is certainly possible to craft a plan that would expand coverage and cut costs, but it would include some or all of the following elements:

  • In order to treat patients more efficiently at lower cost, physicians would lose considerable autonomy in the making of decisions. A patient with back pain, for example, would have to lose weight and go through physical therapy before being referred for surgery.

  • Certain specialists would make less money because they would do fewer procedures and, perhaps, because payments to physicians for certain procedures would decline. Over the long term, this would mean that specialized medicine would attract fewer of our best and brightest. That may be a perfectly reasonable outcome from a public health perspective -- do we really need so many of our top people becoming specialized surgeons? -- but if you or a loved one suffers from a condition that only a top shelf specialist can treat, you will be worse off.

  • Medicine may become less satisfying; reformists claim that physicians will enjoy relief from bureaucracy if payment mechanisms are streamlined, but that may be offset by the loss of professional autonomy, which would lower satisfaction for many prospective doctors. It is possible that less capable people would enter medicine even on the small chance that financial rewards do not decline.

  • Such a plan would almost certainly lower the rate of return on investment for pharmaceutical, device, and diagnostics companies, either by lowering the prices paid for their products (allowing the government to "negotiate" for cheaper drugs, for instance) or their utilization. Of course, if you lower the rate of return on investment you will inevitably get less innovation that will improve or save lives in the future. It is another form of transferring wealth -- and in this case, quality of life or actual lives -- from our progeny to us. Our political class seems to have a particular genius for that.

  • You can reduce costs by improving capacity utilization -- use the space and equipment more efficiently. Capital spending in health care, which has declined as a result of the credit crunch and remained paralyzed because of the legislative uncertainty, would settle to permanently lower levels relative to the size of the patient population. Ultimately, this would mean that hospitals will be more crowded and important medical technology would not necessarily be available on a moment's notice. Again, that is not necessarily a bad result from a public health perspective, but it can sure hurt if you are a patient on the edge.

  • Patients would have less ability to dial in their own tolerance for risk. Most systems that achieve comparable or better results than ours at lower cost do so by cutting spending on the "worried well" -- educated people with a lot to live for who insist on regular visits to the doctor and lots of screening and diagnostic work whether or not they need them or there are data to justify them.

  • The government would have all the justification it would ever need to regulate any activity, meaning every activity, that has a statistical bearing on the public health. That bacon cheeseburger you're eating is suddenly everybody's business.

  • With some version of most or all of these features we could cover more people and cut costs. The problem, of course, is that the vast majority of Americans who are actually happy with their health care would have to give something up. Worse, we would hurt the world's only real engine for health technology innovation -- the wide-open rocking and rolling American market.

    Here's another way to think of the choice, which is decidedly different than the promises of the president: Pick any two of widespread or universal coverage, lower or at least stable costs as a function of national income, and a wide-open system with plenty of capacity and rapid innovation. All three are not genuinely possible, at least not in this lifetime. If we want a diluted version of all three, we should concentrate on incremental improvements at the margin within our current system. There is much that could be done to save money without changing its essential character or returns to technological innovation, and we should do those things first.


    By Anonymous Anonymous, at Sat Aug 08, 12:30:00 PM:

    ... cutting spending on the "worried well" -- educated people with a lot to live for ...

    This is what I'm most worried about. My wife has regular mammograms due to a family history, but my life was probably saved by a colonoscopy several years ago. It wasn't required by my physician, nor is there a family history of colon cancer, but my daughter insisted and nagged me to have one, since the father of her college roommate had just died from colon cancer. A precancerous polyp that would have been causing me non-trivial problems right about now was found and removed. Under Obamacare, I would now be very sick.  

    By Anonymous Anonymous, at Sat Aug 08, 01:53:00 PM:

    How is it possible, when no one is taking anything away, to claim that "Obamacare" would make anything worse???
    If you can afford insurance today, anyone can choose to continue that plan. The odds are it will be cheaper! Greater numbers of users of healthcare will lower unit-costs, and a government-company would help ensure there was real competition to the consumer! Win-win!!! [There is little real competition in US healthcare today.] As a European I feel sorry for most Americans - a few people have ridiculously high incomes, while most Middle Class struggle to have a reasonable health-insurance, savings for kids college, etc...
    The average level of education is much better in Europe, the crime-rate is much lower (fenced communities almost don't exist!), my kids have almost free entrance to the top colleges in Europe, my family has proper healtcare coverage, and I have a great almost worryfree life here. It is a mixture of "free-markets reigned in", and a healthy touch of the dreaded "socialism" some US-people seem to mistakenly mix up with pure communism! Wake up!!!
    Reform your society to make life better for all citizens, not just the richest few (In the US, 18% live UNDER outright poverty!) - the way you are going against "change for the better", you'll soon be as defunct as your US-car industry... US poverty is greater, the rich are even richer, middle-class is smaller - and has less spendable income now - than 20 years ago.
    Wake up, join the evolved parts of the modern world - a minimum is "healthcare for all citizens"!  

    By Anonymous Anonymous, at Sat Aug 08, 02:46:00 PM:

    Dear Mr or Ms Anonymous, as an American I feel sorry for most Europeans or should that be most EuroPeons. You've lived under your system for so long you really think it would work everywhere including in the US. Sorry but we aren't toadies to a certain system.
    In America we have the possibility to be whatever we want.
    It really doesn't work that way in most European countries. I worked for 2 Swiss textile machinery companies for 24 years, so I'm reasonably sure I know how their country works.
    In this country, the poor as you call them own at least one vehicle,
    one or 2 color tv's and thier own home. Can you compare?
    I doubt it.
    When I need a doctor's appointment I can have one in a matter of days. Can you do that in your country.
    I doubt it.
    Before you start feeling sorry for we Americans you need to look around your own country.
    I also noticed you failed to mention yopur country.  

    By Anonymous Mr. Ed, at Sat Aug 08, 02:47:00 PM:

    Anon 1:53:00 is either just spewing mindless talking points or very thick with satire.

    It seems to me that the Democrats do not want people to talk about (so says the President himself) and consider thoughtfully the choices at hand. That is disgusting.

    In my field, a form of design, which is essentially a custom service like healthcare, we say you can optimize for only two of the three desirable and critical goals.


    I think TH is right to point out that there are trade-offs and I think the public debate should see those clearly stated.


    By Blogger JPMcT, at Sat Aug 08, 03:54:00 PM:

    I read Anon's comments on EuroUtopia with hilarity. The poorest in our dountry live bette than the middle class in Europe, and our "poor" still retain the ability to make whatever they want with their lives.

    I will make an outrageous statement: In America, you have to go out of your way to be poor. It is an act of WILL! I invite debate.

    In Europe, you pretty much are what you're told to be.

    As far as American healthcare goes...what subject requires MORE analysis, discussion and reflection than this? I think that most Americans are HORRIFIED that the dolts in Congress feel that this needs to be railroaded through the House without debate.

    I think we have had enough of Chairman MaObama's attitude of "My Way or the highway!"

    When I applied for medical school, there were 100 positions and well over 3500 applicants. At my interview I was asked to describe in one word why I was attracted to medicine. My answer was "Autonomy".

    Don't look for the same quality of physician if this abortion passes the Congress. Look for a not-so-bright man with a white coat and a checklist.  

    By Blogger Diogenes, at Sat Aug 08, 04:16:00 PM:

    A great philosopher once said: "if it ain't broke, don't fix it."

    Coverage is not a real issue. We are told 40 Million are uninsured in any one year. Well, 15 Million are between jobs. Portability of insurance coverage would cure that group. 15 Million don't have insurance because they chose not to, too young to worry about health, don't want to spend their money for insurance even though earning more than $70,000 or could receive Medicaid. The remaining 10 million are illegal aliens.

    Cost is not an issue either. In a free society, you pay for what you you want, either with catastrophic insurance coverage or directly shopping and paying for medical maintenance and prevention services as needed. Uninsured people seeking medical care in emergency rooms will be required to pay by credit card or be denied services.

    A free market will lower medical costs without expanding the government bureaucracy or destroying choice. The market will determine if insurance companies survive and the services that can be collectively paid for in advance.

    Otherwise, the great equalizer, nature, takes its course.  

    By Blogger Kelly, at Sat Aug 08, 05:35:00 PM:

    I've always thought that the trade-offs for public goods were these:


    Choose any two.

    I think everyone understands that effectiveness will be the first, necessary, casualty of Obamacare. The threat of rationing only makes things affordable by sneaking in non-universality through the back door.

    Perhaps when the government gets heavily involved we should say Choose at most two.  

    By Blogger Neil Sinhababu, at Sat Aug 08, 09:04:00 PM:

    "There is much that could be done to save money without changing its essential character or returns to technological innovation, and we should do those things first."

    I think this is right. And that's what the Obama plan is. It's not a dramatic change to the current system -- it mostly tinkers around the edges. Most people's insurance situation doesn't change in any dramatic way.

    I think the plan will acccelerate technological innovation. With more people covered, there'll be more demand for innovative medicines. The cuts in spending will mostly come from eliminating ineffective medicines and procedures that don't add value. (Orszag's comparative effectiveness review stuff basically runs in this direction.)  

    By Anonymous Mr. Ed, at Sat Aug 08, 09:58:00 PM:

    The puffery of hope.


    By Anonymous Anonymous, at Sun Aug 09, 12:13:00 AM:

    Neil, how does a doctor know a treatment is "ineffective" until it is tried and found to be so?

    Per Tigerhawk's example above, I would perhaps be in sorry shape today. Four years ago, I herniated a disk in my back. The first course of treatment was anti-inflammatories (prednisone-good) and physical therapy (bad-it made the problem worse), because the doctor didn't really know why I had the pain, just suspected.
    After a "costly" MRI, the spinal specialist knew EXACTLY what was wrong, and I was treated accordingly.
    Fortunately, my herniated disk healed on its own, although I still suffer some affects of that damaged disk.
    Second guessing a good doctor is a pretty good way of
    1) driving the doctor out of the business
    2) encouraging bad medical practices that conform to "procedure"
    Kind of like the medical equivalent to "mandatory sentencing", isn't it?

    By Anonymous Anonymous, at Sun Aug 09, 10:00:00 AM:

    "ObamaCare: If It Ain't Good Enough For My Congressman And My Mailman, It Ain't Good Enough For Me!"
    This is a deal breaker for me; any new plan must, repeat, must cover members of Congress and ALL federal employees!! Hell, with all the non-military federal employees, covering them would SAVE billions every year!  

    By Blogger joy, at Sun Aug 09, 08:46:00 PM:

    The following chart from Carpe Diem shows that lesser qualified people are being admitted to medical school.


    By Anonymous Anonymous, at Mon Aug 10, 01:15:00 AM:

    Obama presents a socialist nightmare for our health care system:


    By Anonymous Anonymous, at Mon Aug 10, 01:51:00 AM:


    So, we have an affirmative action president! Which of you wants to have an affirmative action doctor?

    Sorry, I just am not going to give these blogger my google info.  

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