Wednesday, May 21, 2008

Don't Pull a Massachusetts

“The real problem in health care is the way the tax code and third-party payment system distort incentives.” —The Wall Street Journal Editors

I have often asserted that Mitt Romney’s plan for universal health insurance coverage in Massachusetts was exactly the wrong way to go about reforming health care. I have noted that costs have turned out to be dramatically higher than projected. Now the Wall Street Journal reports that over “the coming decade, the expected overruns float in as much as $4 billion over budget.” Yes, that’s billion with a “B.”

“One lesson here,” write the WSJ Editors “is that while pledging "universal" coverage is easy, the harder problem is paying for it.” This is something that we should pay attention to as we debate government involvement in health care in Utah (and nationally as well).

Achieving universal coverage is a wonderful feel-good issue. It violates our sense of fairness to think that some might be excluded from what many have come to consider to be a basic human right. But the Massachusetts plan has proven not to achieve universal coverage. And instead of controlling costs, as was promised, costs have soared at many times the national rate of increase.

How do MA lawmakers plan to deal with these cost overruns? Schemes include “reductions in state payments to doctors and hospitals, enlarged business penalties, an increase in the state tobacco tax, and more restrictions on drug companies and insurers.” Cutting payments to health care providers and creating new restrictions will result in shortages, reduced quality, and (ironically) still higher costs.

Tobacco use increases some health care costs, but some studies show that tobacco use actually lowers lifetime medical costs due to reduced lifespan. Using increased tobacco taxes to fund health care necessarily means making health care reliant on people smoking. If fewer people smoke — which would be a good thing — health care funding decreases. Besides, states with high tobacco taxes have spawned a black market tobacco industry that avoids paying those taxes, meaning that revenues are never as high as projected.

“Mr. Romney's fundamental mistake,” claim the WSJ Editors “was focusing on making health insurance "universal" without first reforming the private insurance market.” The entire third-party payment system needs to be examined. While many hail it as a way of making costly procedures affordable, it has resulted in significantly higher costs overall and treatments that don’t meet patients’ needs.

High quality, cost effective health care does not require heavy government involvement or massive third-party payment structures. Indeed, these represent the antithesis of such goals. Instead, government and third parties need to quit distorting system incentives.

The Utah Association of Health Underwriters recommends moving to health care consumerism one procedure at a time. There will, of course, be a handful of procedures that are not conducive to consumerism. But for the most part, patients and providers will be far better off under consumerism. They will spend less and will get much better quality. Patients will get treatment better suited to their needs. Check out all of the links on the UAHU website under the heading “Consumerism: Market Based Reform” for more information.

The WSJ Editors say that the Bay State has at least provided a public service to the rest of the nation: “showing everyone how not to reform health care.” So, as we debate reforming health care in Utah and at the national level, let’s make sure we don’t pull a Massachusetts.


Anonymous said...

I knew you would pick up on that WSJ article and do a better job than I could of evaluating their findings and applying it to Utah's push for reform.

Charles D said...

Of course, Romney's plan failed. It was doomed from the beginning.

You simply cannot provide health care to everyone when private insurance companies are involved. Whoever pays the price - employers, government, or sick citizens - a large portion of it (25-30%) goes either to the insurance companies or the battery of administrators and clerks every provider must hire to get paid.

The system is distorted by the profit motive, not by government intrusion. All you have to do is compare the US infant mortality rate, life expectancy, or general health with that of any other first world nation and you will find we are dead last. All the others have government paid universal care and no one goes bankrupt, or without needed medication, or fails to get good follow-up care because they can't afford to pay premiums.

We do not need to cut payments to providers, nor do we need to create new restrictions or reduce quality. We need simply to eliminate the middleman.

y-intercept said...

You can't provide all the health care people want with a socialized system either. The only thing that is different in a socialized system is that the left starts harping on the inherent limitations to create the illusion to create an illusion of improvement.

Socialized medicine does nothing more than create a politically correct mechanism for rationing health care.

I worked in government health care for many years and found that they were far worse at preventing health care for politically motivated reasons that the private firms.

The press only reports on people being denied care when it fits their political agenda.

I mentioned in a post that a true free market never completely denies health care. It is only when you have bureaucrats in place that you actually see a deliberate denial of health care.

Charles D said...

The only way we can arrive at any improvement in our nation is for people to stop responding by citing their ideology and start responding based on our moral commitment to one another and to the nation and being practical rather than idealistic.

A market system, properly regulated, is an excellent system for distribution of goods and services, but it has limitations. It is simply not possible to make a profit supplying expensive services to people who cannot pay for them. That is the case with health care.

If government intervenes minimally to simply provide money to assist the most destitute by paying for some level of insurance, we are merely transferring tax dollars into the hands of the insurance industry.

When you look at all the other major industrialized nations and find that they all spend a fraction of what we pay on health care and their outcomes (infant mortality rate, life expectancy, etc.) are far better than those in the US, the conclusion is obvious - we need some form of universal access to health care. The only question that should remain is how to structure it.

It is difficult to make the case that government bureaucracy stifles the provision of health care when the data clearly show the opposite.

It's time we stop blindly following so-called "free market" ideologies and determine how we can improve the health of all Americans while lowering the cost and retaining or improving the quality. There is no market solution.

Bradley Ross said...

DL, without a profit motive, I'm nervous that we'll see a decline in the rate of medical advancement. How do you continue to incentivize innovation under a government health plan that limits profits?

I'm not saying the pharmaceutical industry has been universally virtuous, but I'm sure grateful for the anti-nausea medicine they created that has made my wife's current pregnancy a bit easier (at least on that front) than the last three.

Charles D said...

First of all, innovation in medicine is not a function of insurance companies. Innovation usually occurs in medical schools, teaching hospitals, and pharmaceutical companies. The first two are already recipients of significant government funding.

While there are certainly important innovations in the pharmaceutical industry, many are simply copycat drugs to snatch market share away from competitors, others are repackaging of existing drugs, and the industry clearly focuses on drugs that will sell rather than on those that are needed. Also, the industry is spending billions advertising and marketing their wares - money they could easily divert to research.

There are also other motivators beyond profit. Instead of handing the drug companies billions in high prices (only to see them make more TV commercials and favor "restless leg syndrome" over malaria), why not provide them specific subsidies to research and market drugs to combat key health concerns?

Scott Hinrichs said...

DL's claims of superior socialized systems are wildly overblown. The oft-cited infant mortality rate is an inaccurate comparison due to extreme variations in reporting methodologies. The U.S. engages in heroic efforts to save what would be considered unviable babies in other countries. The demise of 'unviable' births in other countries are not reported as mortalities, as they are in the U.S. Other claims of the wonders of socialism are equally disingenuous.

The fact is that incentives exist in any system, despite what Marxists would have you believe. In market systems the incentives are transparent. In socialized systems the incentives are perversely disguised.

In the U.S. we currently have a socialized health care system. Part of it is government run and part of it is privately run. But that does not mean it is not socialized. Simply shifting to a single administrator will not resolve the inherent problems in the socialized system.

One of our major problems is that the costs of medical treatment are not exposed. Thus, we accept the myth of heroic medicine because no consumer has the information to compare the marginal utility of additional costs. Once a basic threshhold is reached, any additional cost IN GENERAL causes as much problem as it resolves, meaning that the actual overall outcomes are static no matter how much is spent over that threshhold.

This is not resolved by an administrator saying, "We will pay for this but not for that." This is resolved by consumers having true information. Prices include in them all of the market information that no person or entity (no matter how wise or sprawling they may be) is able to factor.

For an applied view of the how and why of prices, see this culinary discussion about what happens when we ignore prices in the name of good intentions.

Charles D said...

First of all, your attempt to explain away the comparative failure of the US health system is just not supportable. There are any number of studies using the same methodologies that show how our health outcomes are worse than other industrialized nations.

Those who push for a single-payer system are not attempting to hide the costs of medical care - quite the opposite. In a government-run system the compensation plans for doctors and hospitals would be a matter of public record. By eliminating the unproductive costs (insurance profits, administrative chaos, unnecessary marketing, etc.), the exchange becomes much more rational and open.

The incentives in our current system are often masked. Insurers and HMO's must provide incentives to cut costs, not provide care. They have to cut payments to providers to the bone to increase profits, which makes providers increase the number of patients and decrease the time spent with each of them in order to maintain their income level. The incentives are skewed toward profit, not provision of care. A socialized system would correct this - as it has in numerous other countries.

Lastly the idea of an informed health care consumer is a myth. When you are confronted with a debilitating or life-threatening illness or have been in an accident, you are not in a position to comparison-shop between hospitals or doctors. Even if you were, you would have no basic facts available to help you make a selection since outcomes data is not publicly available in any meaningful form.

When you need medical care, you don't want to be a "consumer", you want to be a patient - you want the appropriate providers whose quality is assured to provide care to you because you need it and with your interest paramount. Under our present system, achieving that would be a fluke.

Scott Hinrichs said...

And there are just as many objective studies that show the folly of socialized health care systems. It simply matters who slices and dices the data.

As I said in my original post, some procedures do not lend themselves well to consumerism. That would be the cases where comparison shopping simply can't happen. But it makes no sense to destroy the entire health care market simply to deal with the outliers. Deal with the outliers on their own.

DL's faith in a political system, where incentives are assumed to only be the wellbeing of individuals, is bizarre when the actual functioning of political systems is considered. We don't need politicians or bureaucrats deciding what kind of treatment we "need."

Charles D said...

There is a significant difference between the way our nation's political system used to operate (say from the mid-1930's to the 1970's) and the way it operates now.

Our lawmakers and political parties have abdicated their responsibility to the people and sworn fealty to the corporate special interests. The last 3 Republican administrations have chopped money from government programs, repealed the laws that allowed those programs to work, and appointed agency heads who were diametrically opposed to the mission of their agency. It is rather hypocritical of them to now complain that government doesn't work.