An American Health Care System

After WWII, nearly every European country adopted some kind of socialized health care system. There is much to learn from their experiences since then, though one of the most important lessons is that systems are highly dependent on cultural context -- in other words, what works in one country will not necessarily work in another, and what fails in one country may work fine in another.

The first step the US will need to take is to decide what the goals are of the system. The Netherlands papers on health care commonly refer to equity, quality, and efficiency as the three goals of the Netherlands health care system. Something which delivers one is not acceptable if it compromises the others. It is likely that the US would not adopt these three axes precisely, but they do provide a useful lens with which to view the current US health care system and discuss its shortcomings.

Equity: The US health care system is obviously not equitable. Currently, 18% of Americans are uninsured, many more are underinsured. The quality of coverage/care provided under different insurance plans varies widely, and regulation currently seems to be anti-patient (such as recent laws to prevent a patient from suing their HMO) rather than protective of the patient. Additionally, many care providers refuse to accept Medicare and/or Medicaid patients, resulting in a separate (and probably not equal) set of providers available to patients on these systems.

Quality: It is frequently proclaimed that we have the best health care system on the planet! However, this simply does not appear to be the case. In terms of measures such as expected life span and infant mortality rate the US measures average or below compared to other first-world countries. The primary mechanism for maintaining quality in the US health care system is the malpractice law suit. However, studies on malpractice litigation consistently show that there is a poor correlation between medical errors that cause harm to the patient and malpractice litigation. The problem goes both ways: most law suits decide in favor of the physician (that whatever harm resulted was simply not the physician's fault), and medical record reviews show that most serious medical errors are never seen in court (see the Harvard Medical Practice Study). Clearly, a different mechanism of ensuring quality is needed.

Efficiency: The one way in which the US health care system is the best is that we spend the most money on it. Including private and public spending, we spend twice as much as the average first-world country on our health care. Clearly our system is woefully inefficient

Why is this system not working? I think we can divide that analysis into two categories:

• Assumptions of the free market
• Perverse incentivizing

There are several assumptions that are made in any free market which are clearly untrue for the health care sector.

• A free market assumes that the customer will pay what the product is worth. If the product is overpriced, the customer will not buy it.
  

  How much would you pay to save your life? If your net worth is, say, 1000 MegaBux (and that's your net worth alone - if you're married, probably your spouse has 1000 MB of their own) how much would you pay to save your life? How about both your legs? Your genitals? Your brain? How about your spouse's life? Odds are that most of us would be willing to donate a considerable part of our 1000 MB to save our loved ones. What if you had 100,000 MB?

  In health care, market price is more determined by the individual's ability to pay than the value of the product. In fact, most of us would be willing to give up some of our share to help another, or go into debt to save ourselves. This means that the total market value of the health care system is, by this mechanism, greater than the GNP. No wonder we have the most expensive health care system on the planet!

  If we *can* pay for a needed health service, we probably will pay it - no matter what the price.

• A free market assumes competition.

  Those of you who drank Friedman's kool aid will be thinking, Yes, but you could say the same thing about water or food. True, and if you know the history of the water riots in Bolivia and India you can see that this can be a problem. However, in the US, we still have sufficient competition or regulation in these areas to keep prices reasonable. If the price on flour is too high, you can always buy cornmeal. Health care isn't like that. If you need a corneal transplant, a kidney transplant will not do in its place. Drug prices don't come down until the patents expire, and specialist care costs approximately the same no matter who you see to get it.

• A free market assumes that the customer knows the price of a product.

  When's the last time you went to the doctor for something, and he said, Well, we ought to screen you for Dutch Elm Disease. That screening will cost you $80 out of pocket, your insurance will pay $150, unless you have not yet reached your deductible. Nope, doesn't happen. Doctors (and consequently patients) have no idea what stuff costs nor what your particular insurance will cover.

  However, there is a second customer which *does* know how much stuff costs, but isn't present at the medical consultation. After you have received your care, the insurance company will tell you if the price is one they are willing to pay. If it is not, you are stuck with the bill. This is usually couched as Your care was not provided by one of our Preferred Care Providers.

• A free market assumes that the customer is able to judge the quality and value of one product over another.

  How do you know if your surgeon is the best or the worst? Furthermore, if your physician recommends a procedure, do you ever ask, Gee, Doc, is there anything that's much cheaper that would be nearly as good? The first is a VERY sticky problem -- attempts to create accountability for physicians have generally resulted in witch hunts, bad blood, and bad information rather than any useful information for the patient (see previous post on outcome based things). The second is not something that the patient is in the position to judge... and perhaps more importantly, neither is the insurance company. Sure, maybe in general Cheaploxx is equally safe and cheaper than Costsaloxx, but maybe it's not so safe if you mess up the dosing schedule, and Costsaloxx is going to be more reliable in the face of old Mrs. Smith's fading memory. We've all heard horror stories of the insurance only being willing to pay for the second best care. However, the opposite problem occurs too: in the face of the threat of malpractice, doctors will generally prescribe Costsaloxx for every patient, even if it's really no better in the majority of cases.

  Attempts to regulate the cost of care by introducing shared costs, such as co-pays and deductibles, DO reduce the number of medical visits, but DO NOT reduce the percentage of unneeded medical visits. It turns out that people go to the doctor when they feel they need to, not because they think it's fun. Such measures result in a delay of needed care. While I have not seen an economic analysis of the effect, my suspicion is that if you consider the true costs, such a program either breaks even or comes out costing more than simply letting people go to the doctor whenever they feel they need it.

Perverse incentivizing:

The term showed up in a Dutch article on health care systems, and I've grown fond of it. What it basically means is follow the money: what behaviors are rewarded, which are discouraged? To analyze this thoroughly we'd have to look at each of the many players in the health care system: patients, physicians, hospital departments, hospitals, insurances (and the different kids of insurances: Medicaid, HMO's, etc.), customers of insurances (sometimes individuals but usually businesses), etc. Think about it for a while, but I'll highlight some of the bigger problems.

We've already touched on some of them. Doctors are generally incentivized to CYA, with the exception of HMO's which simply give doctors a list of things they aren't allowed to do, rather than encourage actual cost-consciousness. Patients are incentivized to avoid getting care, and treat themselves with OTC medicines if possible.

Hospitals are generally for-profit. True, they are run by people who probably are compassionate, but what is rewarded is profit. Thus hospitals are incentivized to charge as much as they can until the insurance won't pay any more, then boot you out as quickly as possible. If you don't have insurance, they are incentivized to do the minimum allowable by law and then boot you out... or simply refuse to accept uninsured patients except on emergency, which is what a lot of hospitals do. Patients are then incentivized to only come in on emergency service, creating delays in the emergency room.

Insurance companies are for-profit as well. Thus, the ideal for an insurance company is to charge as high of a premium as possible and never pay anything out. From the market viewpoint the only force that should limit this is the customer's willingness to pay the premium: obviously, if the insurance really pays for *nothing*, no one will buy it. However, anyone who's ended up in the cogs of the insurance machinery lately will likely have observed that the insurance companies seem to try everything they can to weasel out of paying. It's not in our preferred provider plan, you didn't get the service pre-approved, it's a pre-existing condition, that treatment is not covered in your plan: see sub-sub-subsection 113 on page 4223 of your plan. And believe me, the picture isn't any rosier from the viewpoint of a business trying to negotiate insurance coverage for its employees. The prices keep going up every year (they went up 25% in one year I was working for the veterinary hospital) and offering less coverage for the money. Large corporations can often negotiate better deals, which means that you're better off working for a big business than a small one... which is another perversity that I won't discuss here.

The idea behind the market forces movement here in Europe is to align financial incentives with the values of equity, quality, and efficiency. One expert even said, If you start paying doctors based on their outcomes, you'll see outcomes improve (he was wrong, they don't). Aligning the market forces is a very tricky business, and I'm not convinced it will work... but eliminating market forces that are working against you is essential.

What can we learn from the European experience? Here are some examples:

• You get exactly what you measure. Hello, Nurse! The British were having trouble with long waiting times in their emergency rooms. They decided to measure time until the patient sees a nurse. The hospitals scrambled to comply with the requirements (which were unfortunately bereft of any plan or support for instituting them) and came up with a nurse who would see the patient immediately upon arrival, but not actually help them.
• If you pay per visit, you will get more visits per doctor. The Netherlands long had a system where specialists were paid on a fee-per-service level. They went through a several year cycle of cutting the fees paid for each service, but the total charges tended to remain the same - each doctor just provided more services. Finally they put all the specialists on salary. The number of patients seen per specialist went through the floor, waiting times went through the roof, and the entire system ended up on the reform slab. Which brings us to:
• If the supply of a service is insufficient, a two-tiered system will develop. As soon as waiting times began to increase, a system of informal payments developed, where specialists began to see patients sooner (usually after-hours) for an additional out-of-pocket fee. This inequity of care is what ultimately brought the system under the knife. Importantly for the US: we can expect the same thing to happen if the case load for all medical services suddenly rises by 18%. We must plan for this effect and take measures to counter it.
• If there is more than one payer, low-risk patients and high-risk patients will tend to aggregate with different payers, reducing the benefit of shared risk. The basic mechanism is kind of obvious: payers will charge at least enough to cover their costs. If a payer ends up with a higher proportion of high-risk patients, they'll increase their premiums. No one wants to pay those premiums but the low-risk patients can get a better deal, while the high-risk patients cannot. Even if the insurance companies are forced to accept these high-risk patients, they can drive them off by not covering certain kinds of care commonly needed by these high risk groups or by just giving them lousy service. If there is a government plan these patients will naturally aggregate in the government plan, concentrating the high-risk patients in this plan and increasing profits for the private insurance. If there is not a government plan, these patients will aggregate in the least worst of the private insurance, and probably get lousy coverage and lousy service on top of it all.
• Long term health insurance is a bad risk. If you do the math, the odds of any young healthy person ending up in long-term care are quite low. It isn't worth hardly any money for a young person to insure himself against the risk of long-term care. However, for older and unhealthy people the risk is quite high. No insurer would insure them against this risk for any kind of money that they could afford, because the costs of such long-term care are much too high. Yet, precisely because of these high costs, it is very important that such people are insured against that risk. The only solution is to pool the risk: everyone pays into the system, anyone who needs its services will be cared for as long as necessary. Private insurances generally cannot provide enough risk pooling to make their costs predictable, so the risk pooling should be done on a regional (bigger than State) or national scale.
• Administrative costs increase with the complexity of the system The most efficient European system in terms of administrative costs is the NHS in Britain, with one payer (the government) for all services. The least efficient is the US, with its multitude of payers and intermediaries. Of course there are costs other than administrative, but administrative costs of a system must be counted when deciding which system is more efficient overall.
• All countries have eventually decided that cost-control measures are needed. With a budget in the billions of pounds, dollars, or euros, it's hard to believe that there's any kind of health care that we can't afford... but every European country has eventually decided that cost control measures are necessary, so they're probably right. This offers an ugly set of choices:
  • We can reduce the number of services offered to everyone, not offering the least-cost-effective services (this is what HMOs do, with care determined by statisticians rather than physicians).
  • We can reduce the number of patients treated (this is the system the US has opted for).
  • We can try to make the existing services more efficient (this is what all of Europe is trying to do).

What things are peculiar to the American system?

• Most obviously, the for-profit insurance industry is omnipresent and powerful, and won't just go away. Realistically, any American health care plan must give this industry a seat at the table. The real challenge for an American health care plan is to keep this monster from eating everything on the table, the table itself, and several of the other dinner guests.
• More subtly, there is the pervasive belief in the American Dream: that you can pull yourself up by your bootstraps, that inequity is somehow justified, that the poor did something to deserve their poverty. It's not that Americans aren't generous, but they only want to give when they feel the recipient somehow has earned it. The European value of equitable care may simply not float in the US, especially when the health care plan hits some growing pains and the conservatives start pointing fingers at those who benefit from the system more than they pay for it.
• Likewise, our society is litigious. As a group we feel that someone should be responsible for everything, and it offends our sense of justice if something goes wrong and no heads roll. We have a hard time accepting that everyone makes mistakes and some bad things are just plain bad luck. Everyone makes mistakes at work, and when doctors do it people die, and that doesn't make them a bad person or a bad doctor. If we are to truly improve the quality of our system, we're going to have to put a glove over the blame finger.
• Employers are used to paying for insurance, and people are used to their insurance being tied to their employer. If you give people a raise of 100MB and offer to sell them insurance for 90MB, lots of people will still bitch that they're getting a raw deal. Likewise, employers are used to using insurance plans as a bargaining chip with employees and will probably move to find ways to continue to do that, or find some other way to regain that lost power.
• People in the US generally don't trust the government. We have been told over and over that government-run programs are inherently less efficient than privatized programs. Our interactions with the government (police, IRS, etc) are generally unpleasant and we associate government programs with the worst of all possible customer service. Any government-centered plan will need to be significantly better than its for-profit cousins in order to be accepted as equal. Luckily, in terms of health insurance, that's a pretty low bar, but in a few years when the for-profit companies have shifted to compensate for their new competitor, Americans will be predisposed to scrap the government system and go back to a privatized system.
• The AMA. Recently, they've started to warm up to the idea of a nationalized health care system, but they are generally conservative and quite powerful.

Then, at last, the question: what should we do? The first thing any realistic liberal should do is assemble a think tank to think about the problem. Preferably with a few representatives from other country's health care systems, or at least some well traveled Americans. They should spend at least six months learning everything they can about what has gone before (I've spent about six days on it, as part of my current Master's program, but I've barely scratched the surface) and then set to work designing an equitable, effective, efficient, and sustainable health care system. It won't be perfect, but it'll be a hell of a lot better than pretending we have nothing to learn from other countries' successes and mistakes.

Given my six days of information, I'd propose something like this:

• Convert all for-profit insurance to not-for-profit, or more specifically to a fixed profit, fixed at a level that should not send their investors fleeing. Employees from insurance companies that collapse anyway due to fleeing shareholders will be scooped up and placed in the new...
• Government run insurance system. Anyone who wishes can participate in the government insurance scheme rather than the private. Anyone who is not otherwise covered will automatically be covered by this system. Anyone who is currently covered by the government (military, Medicare, Medicaid, government employees, etc) will be transitioned to the government system, at a rate that will not cause the private insurers who covered them previously to go out of business. Funding through a combination of fees and taxes. Basic preventative, acute, and dental care will be covered. Long-term care will be covered by...
• National long-term care insurance system. A portion of everyone's taxes goes into the system, anyone who needs it can use it. Ideally this should be integrated with a system for finding and treating mentally ill persons, particularly the homeless.
• Hospitals are required to set up a quality assurance division (most have one already) with guidance from a national body on how to achieve quality care. The specifics of what they should advise are the topic of another day. Malpractice law suits would still be possible but patients would be advised to first consult with an NGO, created for the purpose of reviewing records and advising on whether any malpractice took place. This NGO would have the dual purpose of gathering qualitative data for improving quality of care. The front-line staff of this NGO should have a background in social work or psychology, as statistically their main purpose will be to explain to patients why whatever horrible thing has happened is not, in fact, anyone's fault.
• Programs to ensure sharing of risk, equitable coverage, and otherwise prevent nastiness from both the government and private insurances.
• Surveying and, where necessary, restructuring availability of services to prepare for a massive influx of new patients. Consider programs such as training nursing staff to take over some of the doctor's duties. Prepare for both a peak shortly after the new system is introduced (as people seek care for conditions that should have seen a doctor ages ago) and a sustained increase. Temporarily shift doctors from wealthy areas to poorer areas in expectation that the biggest spikes will be in those areas.
• Incentivize health education at all levels. Educated patients don't make as many unnecessary doctor visits and go to the doctor sooner when they need to. Ultimately more doctors, nurses, etc. will be needed to care for the increased case load.
• Begin reforms in drug development, testing, and sales. This is also a topic unto itself.
• Institute plans for cost control that involve educating physicians about cost-effectiveness and cost-consciousness. Veterinarians manage to practice medicine in a cost-conscious environment, physicians can do it too. In fact, physicians (in cooperation with their patients) are the only ones who can decide what care is needed. Trading quality of care for efficiency is not an acceptable option. Many patients today feel they are over-treated by their doctors. There is plenty of room for more caring and less care.