Health Reform: Part II: Keeping Your Eye On The Ball

The American health care system has three fundamental problems: cost, quality and access.

Problem of Cost: Health care spending per capita is growing at twice the rate of growth of national income.  If that trend continues, health care will crowd out every other form of consumption by the time today's college students retire.

Problem of Quality: RAND researchers find that patients get recommended care only about half the time; and the type of insurance, or whether you even have insurance, doesn't seem to matter.  An Institute of Medicine study found that as many as 98,000 people die every year because of medical errors.  Other studies have shown that an appallingly low percentage of doctors and hospitals have patient records in electronic form, thereby missing opportunities to use error-reducing software.

Problem of Access: Low-income people in particular – whether are not they are enrolled in Medicaid or S-CHIP – face barriers to care.  They have access to a limited range of doctors and clinics, and they often face rationing by waiting when they are not facing rationing by price.

Reform Plans From Hillary to Arnold: Now close your eyes and imagine every major health reform you've heard about in the past decade and a half, beginning with Hillary Clinton's plan right up through Arnold Schwarzenegger's plan for California.  Do any of these plans promise to even put a serious dent in any of our three major problems?

I would argue they do not.  Here's why:

Failing to Control Cost: If you agree with me that you cannot control costs unless someone is forced to choose between (useful) health care and other uses of money, there is no plan in sight that proposes any serious cost control.  Even the managed care folks deny that they ever block access to useful medical care.  The physicians for socialism in medical care (or something like that) favor Canada's solution, but they deny that there would be any serious rationing in the U.S.

A lot of groups want to shift costs.  For example, the physicians group (ironically enough) wants to shift costs from taxpayers to physicians and other health care personnel.  But shifting costs is not the same thing as controlling costs.

Failing to Raise Quality:  If you agree with me that you cannot improve quality by telling doctors how to practice medicine, there is no plan that would cause any significant increase in the quality of care.  Providers will not improve quality unless they compete on quality.  Yet they will not compete on quality unless they also compete on price.  There is no reform plan yet offered that will cause providers to compete on price.  [Managed competition encourages competition among health plans (insurers) but not providers, and the incentives to compete are perverse: encouraging plans to actually lower the quality of care to the sickest patients.]

Failing to Increase Access: If you agree with me that moving people from uninsured status into Medicaid and S-CHIP does not improve access, there is no plan on the table that will significantly increase access to care for low-income patients.  Health policy wonks often overlook the fact that Medicaid patients and the uninsured frequent the same clinics and hospital emergency rooms and basically have access to the same care.  How else can you explain the fact that one in four uninsured could enroll in Medicaid but chooses not to.  The chief barrier to care for both groups is rationing by waiting. RAND found that once they see a doctor, the uninsured and Medicaid patients get roughly the same care.

Moreover, expansion of free, public insurance crowds out private insurance.  John Gruber at MIT estimates that every extra $1 of Medicaid spending causes the private sector to contract by as much as 75¢.  For S-CHIP, the crowd out is 60¢.  In general, moving from private insurance to Medicaid or S-CHIP makes access worse, not better.

I realize there are those who will question the three assumptions behind these conclusions.  Okay, but the burden of proof is on them, not me. (The person who proposes a change has the burden of convincing us the change is worthwhile.)

In the meantime, think about the scope of all the grandiose schemes for health care reform.  It is amazing how little confidence any of us can have that these reforms will actually solve any of our three most important problems.

Despair not.  We will propose some workable reforms in the coming weeks.

Link to Handbook on State Health Care Reform:

Comments (10)

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  1. Although cost, quality and access are major issues, the National Center for Policy Distortions (or something like that) has it wrong once again.

    Excessive queues are easily controlled by simple queue management and minor, inexpensive adjustments of capacity when required. The OECD has demonstrated that many nations spending far less than the United States on health care do not have excessive queues.

    Your claim that we wish to shift costs from taxpayers to physicians is certainly a reach that lacks any credibility since we support equitable, progressive tax funding of our health care system.

    We do propose greatly reducing unnecessary spending by reducing the administrative waste of our inefficient, fragmented system of financing care, and by realigning incentives to reinforce our primary care infrastructure, which would provide less costly but higher quality health care services. We would also negotiate lower pharmaceutical prices by refusing to pay for inappropriate and wasteful DTC marketing, and by limiting research funding to innovative approaches that promise benefit, rather than continuing to fund the perverse research that is designed merely to restart the patent clocks that perpetuate excessive prices.

    Price competition might work for a single, non-urgent office visit, but price algorithms for complex, major acute and chronic disorders can never be determined in advance, yet this is where most health care spending occurs. Price shopping through CDHC can never impact more than a miniscule portion of total health care spending.

    When patients have free choice of physicians and hospitals, as they would once again under a national health insurance program, they will be able to select their care based on quality as we improve our ability to identify appropriate parameters.

    Access for low-income patients can be dramatically improved by eliminating the chronically-underfunded Medicaid program and by providing comprehensive coverage for everyone. Using a program of national health insurance to fully fund the community clinics and other safety-net institutions will give them the resources they need to ensure access to care for those living in currently under-served areas.

    These comments are based on sound principles well supported by the health policy literature. NCPA still has the burden of demonstrating that unfunded or depleted HSAs along with HDHPs (with the fiction of 100 percent coverage after the deductible) would somehow provide affordable access to high-quality care. Talk about myths.

    Don McCanne, M.D.
    Senior Health Policy Fellow
    Physicians for a National Health Program

  2. Roger Beauchamp says:

    A competitive marketplace requires that all have to compete on the perceived quality of care received for the fee or cost entailed. Those who choose to compete on quality will be able to justify a better fee to the patient. Those who choose to compete on price will be looking to lower the price by working more efficiently. Society will see a wider range of fees charged for the same service, thus increasing access to care for those of lesser means.

    The money has to flow more directly to the providers of care, doctors, nurses, Physician assistants, LPN’s, physical therapists, pharmacists and hospitals. Too much going into the
    third party payment system permitting cost shifting and the high costs of paying someone else to pay your bills. I believe that Arnold Kling’s generalization is correct. In a truly competitive system, about one half of medical costs would be paid in cash and one half with insurance benefit dollars, with all earned dollars dedicated to health care receiving exactly the same tax treatment.

    Medical errors are more common when the provider is insulated from the payer by a third party who is paying the bill. This is because all providers are paid about the same fee for the same procedure. The only way to do better economically is to do it faster. More time reflecting or consulting on the proper diagnosis is not rewarded by the third party payer.

    “…appallingly low percentage of doctors and hospitals have patient records in electronic form, thereby missing opportunities to use error-reducing software.” This is probably true. My take is it is because they are not required to compete with one another and duplicate insurance coverage does not permit efficient payment of claims submitted. My internist entered everything on the computer.

    In order to have cost effective primary care, individuals who earn the money need to
    control its spending for health care needs. More cash in the hands of those who earn it will provide an incentive for more physicians to not sign contracts and compete with one another on a cost effective cash basis.

    Studies also have shown that only about 5% of patients with an HD plan ever reach their deductible in a given year. I have read that there also it not a significant difference between the health needs of the rich and poor. Thus if only 5% of the lower 20% reach their deductible, we are talking about 1% needing significant help. I would not like to see any proposal that compromises the rights of those who accept responsibility in order to dictate a solution. I believe private charity would be capable of addressing those truly in need.

  3. Peggy Mast says:

    What you say makes good sense. Thanks for the input. We will do our best.

  4. Dr. Bob says:

    Well stated, John.

  5. Linda Gorman says:

    Dr. McCanne says that “Excessive queues are easily controlled by simple queue management and minor, inexpensive adjustments of capacity when required. The OECD has demonstrated that many nations spending far less than the United States on health care do not have excessive queues.”

    In fact, there is an entire literature devoted to queue management. It is not simple and is a major problem in countries like Sweden, Canada, and Britain where government controls access. People in those countries die waiting for care. They are members of OECD and whether you think their queues are excessive probably depends on whether your wife, mother, or father dies in a queue after waiting 6 months for CABG.

    If adjustment is simple and inexpensive, one wonders why agreement is even lacking about how to measure waiting times.

  6. Cliff Cloonan says:

    As an emergency physician I have made the observation that there is a strong correlation between the method of payment (or likelihood of non-payment) and the probability that a patient presenting with a possible fracture will, in fact, be found to have a fracture on x-ray. For Menonites who self pay the likelihood is very, very high; for State-insured patients or patients unlikely to either incur a bill or pay a bill the likelihood of fracture is very low. Furthermore patients in the latter category often come to the ED within 1 – 2 hr after injury having taken no OTC pain medications and having done nothing to self treat, e.g. apply ice, elevate extremity. And why should they — it doesn’t cost them anything to go to the ED. The problem is not with their behavior, which is rational given the current state of affairs, but rather with the system that has disconnected cost from the service provided.

    Cliff Cloonan MD

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  9. […] — someone, somewhere) is forced to choose between health care and other uses of money. And if patients are the ones making choices, providers will respond by competing based on […]

  10. Sara Mackey says:

    We just need to go back to the free market with this. It’s really sad it’s gotten this bad. The US used to be in the words of Reagan- “a shining city upon a hill”. Now… what is it?