Wednesday, April 13, 2011
Health Care Debate
The US is undergoing a national debate about health care. This debate tends to be dominated by politics rather than by analysis of evidence. Health care is indeed a complicated issue. I would like to make a few observations and recommendations.
1) The US health care system is not the best. We spend nearly double what other developed countries spend on health care and our health care costs continue to explode. Compared with other developed countries we obtain inferior results in terms of objective outcomes such as longevity, infant mortality, and management of chronic diseases. Some individual health care facilities and practitioners in the US are arguably the best in the world, but as a health care system our results are far from satisfactory. The first step in improving a situation is recognizing that a problem exists.
2) We could as a society decide that only those individuals who can pay for health care, either because they have purchased insurance or because they can pay out-of-pocket, should receive health care. If we made this choice, individuals who could not pay for health care would simply go without it and either recover on their own, get worse, or die. Fortunately, it appears that there is a consensus that as a society we do believe that people who are sick should be cared for even if they do not have means to pay for their care. This consensus is based primarily on empathy. Of course, there are pragmatic reasons as well to keep people healthy and care for the sick. If contagious diseases are not prevented nor treated, all of society is at risk. Also, people who are sick are less likely to be able to work and thus contribute to the economy and care for their dependents. A nation benefits from a healthy population.
3) At the same time, we should recognize that there is no limit to the amount of money that we can spend on health care. New diagnostics and therapies are continually being developed. For many of these one may be able to demonstrate some clinical benefit. If a third party payer, such as Medicare, pays for all such new diagnostics and therapies the cost will continue to spiral upward. In fact, by statute Medicare currently cannot deny coverage for a procedure on the basis of cost as long as the procedure has been demonstrated to provide some clinical benefit.
4) Health care costs are spiraling up for private third party payers as well as for government insurance programs. Physicians and patients have an incentive to consume more health care as long as a third party is paying for it. Insurers, whose profit represents a percentage of their revenues, also have little incentive to control health care costs as long as employers are willing to pay the premiums.
5) If we believe that everyone should have access to health care, but that we cannot afford to provide unlimited health care, then we need to devise a system that achieves a basic level of universal health care with a cap on the expense. If funding is limited, health care - at least that health care provided by taxpayer funds - should be spent in the most efficacious way. I would propose that we eliminate Medicaid and Medicare as separate programs and let the government fix a level of expenditure (perhaps expressed as a percentage of GDP) that it will dedicate to providing basic health care for all. There are several ways that this could be implemented, for example:
a) One option is that we adopt a national health service like the one in England where the government owns the health care facilities and employs the health care providers. Coverage for health care services would be determined on the basis of relative cost-effectiveness in order to keep the expenditures within budget. For example, different treatments for the same condition would be compared on the basis of relative effectiveness and cost, and only the most cost-effective ones would be covered. Even the most cost-effective treatment for a given condition might not be covered if compared to treatments for other conditions it does not meet a cost-effectiveness threshold. For example, a million dollar treatment that is expected to prolong the life of a cancer victim by two weeks would undoubtedly not be covered.
b) A second option is that the government becomes the single payer for all health care services, but the health care services are provided privately (Canada's system). This option is also termed the "Medicare for All" system. Under this option as well, coverage for health care services would need to be determined on the basis of cost-effectiveness in order to control costs.
c) A third option is that the government provides everyone a voucher for basic health care and individuals use it to purchase health care insurance (this is something like the Paul Ryan plan for Medicare). All plans would have to meet certain government standards (e.g. coverage cannot be denied for pre-existing conditions, out-of-pocket caps on co-pays, specified diagnostic procedures and therapies demonstrated to be clearly cost-effective must be covered, etc.) Individuals who do not sign up for a plan would be assigned to one. The voucher payments to the insurers would be adjusted based on the expected health care costs of the individuals they cover (e.g. actuarial adjustments based on age, current illnesses, etc). I would propose (unlike Paul Ryan's plan) that the basic health care plan be fully paid for by the voucher. This would force insurers to come up with basic health care plans that fit within a fixed budget.
6) In principle, I would favor the voucher option because it should allow for greater innovation in health care as a result of competition among insurers and health care providers. For example, it may be that some health care facilities take over the role of insurer and directly provide the benefits thus eliminating the insurance middle man. Some plans may emphasize preventive care and thereby reduce the costs of chronic diseases, etc. The voucher plan also makes it possible for the government to fix its health care expenditures at a predetermined level. This plan, like the other options, separates health care from employment so that individuals do not have to change their health care plan when changing jobs and also frees employers from having to provide health care insurance.
However, I would not be in favor of implementing any plan immediately on a nationwide basis. We should prospectively test candidate plans first in local areas (e.g. cities, counties or states) to see how it performs before implementing it nationwide. Health care is far too complex that anyone can anticipate all the issues that will arise with any specific plan. Prospective testing is needed to obtain evidence regarding performance.
7) The above plans would cover basic health care. Insurers could provide supplemental plans that provide additional coverages or amenities (e.g. private hospital rooms, etc). Individuals would pay privately for the supplemental coverage. We allow individuals to buy yachts, provide private education for their children and we should allow individuals to pay for additional health care services.
8) In summary, I recommend that we should simplify our health care system by providing a basic level of health care for all, fix the taxpayer expenditure that will be dedicated to this goal, spend the available taxpayer funds in the most cost-effective manner, merge the multiple government health care plans into one plan for all, and separate health care from employment. Candidate plans to meet these objectives should be first prospectively tested in local areas prior to being implemented on a national basis.