Saturday, November 13, 2010

So What Should We Do About Health Care?

The last few posts left it unclear exactly where I think we should go with health care.  The honest answer is that I don't think it matters that much as long as we get universal coverage.  Once that is in place I think the various actors in the debate will have their incentives lined up in a way that will over time lead to cost controls.  The problem is essentially structural in that it has to do with the power, and diversity, of the various groups involved far more than it has to do with the technical aspects of providing care.

That said, I think there are some clear areas where there are real possibilities for reform that would save costs.  The first of these is to debate whether we want to move to fairly comprehensive health care as the norm, or if we want more limited access.  In either model, catastrophic coverage must be given, and have it clear who is providing it (having the government as a backstop for insurers is the problem, this exists today) for the system to work.  Beyond this, we can have a reasonable debate about how much we are willing to pay to increase access.  Given the disparity between low and high cost patients it is also essential to understand that expanding access is unlikely to do much to increase costs, between Medicare and Medicaid we are already paying for the most expensive conditions.  But there is a real debate to be had over whether we should be paying for routine payments out of pocket, or through individually purchased health care, or if the advantages of early detection and consistent follow up for more cost sensitive patients are worth the additional costs to the system

The second major issue is what limits we wish to impose on care provided from universal insurers.  Right now, it seems pretty easy to continue to get treatment well after the possibilities of success are low.  Should people really have the option of having the government pay for 2nd and 3rd line cancer treatment or is it reasonable to limit the publicly provided funds to the treatment with the highest chance of success, to give one example.  At some point a line will have to be drawn, the question is where.  My take is that everyone deserves at least one shot at treatment, after that I don't think there is a public responsibility to continue to provide public treatment for the same condition (I'd also hedge this with numerous exceptions, such as cost benefit analysis.  If a second treatment isn't expensive no reason to stop it.  Also if its a chronic condition and there is a high long run payoff to successful treatment it should also be paid for; some form of expert panel to weigh these issues, with feedback from the public, is necessary.).  Though a responsibility for hospice remains.

The third question regards supplementary insurance.  This being America, I think the answer is easy.  Whatever the minimum level of insurance required we should always have the option of purchasing more.  This should not bar us from getting the public version as well to prevent perverse incentives.  This should be a less regulated market but if we're not going to cover 2nd and 3rd line cancer treatments, or cover routine doctors visits from the other side, we certainly should allow a market in supplementary benefits.  Those that favor high degrees of equality are not infrequently against this, I ran into it often enough in Canada, but here I think there is a very strong argument that whatever the government offers those that want a Cadillac plan should be able to buy it.  I certainly don't think this should be subsidized, however.

At the end of this, I will admit that I simply don't know enough about the system to make specific recommendations.  I do think there are compelling reasons to approach the problem from a more systemic approach of how health care needs to look in the long run to fulfill its purpose.  Without doing this as well as looking at specific reforms that are possible today I don't think its possible to carry the public along with reform proposals or to deal with the perverse incentives that got us to where we are today.  Its not just a matter of specific flaws in the current system, it's also about fundamental problems with the system itself.

The Essential Problem with Health Care

I tend to believe that the primary systemic issue driving US health care costs is the interaction between the very concentrated nature of health care needs and the very fractured system of paying for it.  This gives every individual payer a massive incentive to attempt to pass on those with high health care needs to another payer rather than to seek ways to reduce costs for those people with high needs.  I'm not saying that fixing this problem will do anything on its own to reduce health care costs.  What I am suggesting is that this problem creates incentives that prevent fixes from being made.  Unless these incentives can be fixed health care reform to lower costs will be impossible. 

The only tested way to fix this problem is universal health care.  Reform proposals that avoid this don't appear to me to address this structural issue.  The essential reason for this is that without universal health care uncertainty as to whether a procedure will be payed for enters the system.  If there was a reasonable certainty that those without coverage that need treatment wouldn't be treated than it would be reasonable to expect that a non-universal system could work.  But as long as needed treatment can still be expected to be received whether or not someone can pay it is reasonable to expect that there is no real possibility of a proper market ever functioning in a way that will control costs (though it can function to raise capital and expand the system, the only part that seems to be malfunctioning is cost control, which seems to me predictable as a result of needed treatments being covered anyway).

With the payment system how it is, any individual entity can best achieve cost control by maximizing its responsibility for the 50% of people with low costs and minimizing its coverage of the 5% responsible for almost half the costs.  This is simply a much bigger reduction in costs than trying to deliver care most efficiently for a given mix of patients would be.  This problem has led to a vast array of ad hoc laws seeking to plug various gaps in the system.  I know that in New York one passed over the past year that would prevent health insurers from canceling entire insurance policies to avoid covering individuals with very high costs.  Laws such as this exist in every state and massively increase the complexity of regulation (and in my opinion, the size of the state) and thus the inefficiency of our health care system.

Public opinion on these issues unsurprisingly displays a high degree of cognitive dissonance.  We get extremely upset over individual instances of insurance company abuse, such as rescinding entire policies to deny one person coverage, yet get very upset over the high cost of insurance due to covering people that actually cost significant amounts of money to treat, like the kid whose insurance coverage got rescinded by the insurer.  At the same time, we expect to be covered ourselves if something ever goes horribly wrong.  The costs we face day to day in health care are just so disconnected from the high costs of treating serious conditions that it is difficult to keep the message focused on paying for complex medical needs rather than how much it costs to get a bottle of penicillin.  Which provides those that profit from expensive health care plenty of room to muddy the debate by taking the focus off the high cost sections of the system to instead focus on the low cost sections we experience day to day that are the source of all their profits.

Concentration of Health Care Expenses in the US

It took me a little longer to get to this post than I expected, it's been a busy week.

I was looking for a report covering the issue in some detail that was not behind a pay wall.  The High Concentration of U.S. Health Care Expenditures by MW Stanton* fits the bill nicely.  I've seen this data in various places and it is all fairly similar, all the facts below will be taken from this report.  I believe the essential problem driving US health care problems, and really problems throughout the western world, is that health care costs are so concentrated that there is a serious disconnect between people's experiences and the actual costs of the system.  There is a basic distrust rooted in the fact that we don't see where the dollars are going to in our own lives.  This disparity comes clearly in the statistics.

  • 5% of the population accounts for 49% of expenses (2002)
  • 34% of those in the top 5% of spenders in 2002 where also in the top 5% for 2003 
  • Those over 65 were 43% of the top 5% of spenders, this isn't a solely age related phenomenon
  • The 15 most expensive conditions account for 44% of expenses
  • The lower 50% of spenders account for only 3% of expenditures
While this data doesn't lead us to particulars about how to fix our current system it does tell us what some of the systemic issues are.  Mostly, it tells us that what people need insurance against is becoming part of the top 5% (or top 10% which isn't much better).  It also tells us that insurance needs to cover us for several years in the top part of the distribution. Further, for an individual insurer costs are always controlled most effectively by seeking to insure the lower 50% of spenders which still represent a very large pool.  For the insured however, we never know if we're going to be part of that 5% tomorrow, which is what we're trying to insure against.

It should also be noted that with costs so disparate there are differences in what each of us needs the health care system to do for us.  A system that is most efficient for paying the health care expenses of the 50% of the population that only spends 3% of the health care dollars isn't going to be the same as that which pools the resources of the other 95% to pay for the unlucky 5%.  For most of us, the most efficient system is likely no system at all, or health savings accounts or other mechanisms that can be used to pay the low day to day expenses.  However, if something goes wrong than we will quickly become very worried about how the system works for the upper 5%.

This does of course leave open the possibility that separate systems for basic and costly care could be constructed, perhaps with the government, or government regulated insurers, providing mandatory catastrophic coverage with an lightly regulated system for the rest of our health expenditures.  I haven't heard this proposed though so won't spend time on it.  I'll take up some more issues related to this in the next post.

*Stanton MW. The High Concentration of U.S. Health Care Expenditures. Research in Action, Issue 19. AHRQ Publication No. 06-0060, June 2006. Agency for Healthcare Research and Quality, Rockville, MD. http://www.ahrq.gov/research/ria19/expendria.htm

Monday, November 8, 2010

A Necessary Correction to Slow Legal Decisions on Housing

The NY Times has an interesting article on adverse possession.  This is where someone occupies long abandoned property for a long period of time and gains ownership.  There are obviously all kinds of problems with this and a few upsides.  My take on it though is that if the legal system is so screwed up that these properties are sitting empty for this long these laws represent a necessary correction.  This wouldn't be happening if the system were working.  Since it's not, at least there's an alternative.  So Florida should either fix how it handles foreclosures or learn to put up with this sort of thing.

Health Care vs. the Health Care System

I think it can be conceptually useful when discussing the problems that we have with health care in the US to distinguish between health care and the health care system.

Health care has been around as long as recorded human history and likely far longer.  No particular system was required for health care for most of our history, the market or other naturally occurring institutions were sufficient for providing most primitive health services.  The small exceptions would be the simple hospice care provided by early hospitals or institutions such as leper colonies.  But for the most part, little was required beyond the skill of the individual physician and some participation from the local community.

A great deal of modern health care is similar.  Delivering primary care and many health services, such as hospice and a range of simple surgical procedures, probably could be delivered effectively outside of a broader health system.  There are of course advantages to embedding these services in a broader system, and drawbacks, but for this rather broad (and here ill-defined) range of services there is no need for some overall health care system.

However, modern medicine has also developed a number of interventions that are very resource intensive and require some kind of dedicated system to keep running.  I don't have the knowledge to give an exhaustive list of these interventions but it is difficult for me to see how medical issues such as emergency care, especially when emergency treatment leads to a need for intensive care, could possibly function without a system in place to make sure that the hospital can almost always recoup its expenses without necessarily knowing if a given patient will in fact be able to pay.  While this system doesn't (theoretically) necessarily require government intervention, in practice existing systems have always involved the state. 

I believe this distinction is necessary to make because of how it effects the political discussion.  Most of our interaction with the health care system is with the parts of the system that don't really require a system at all.  This gives a massive political advantage to those that want to keep the system as weak as possible.  It isn't hard to think of reforms that can improve access and there is a quite wide array of ways to make it easier for someone to see a doctor and to easily pay for something simple like antibiotics, setting a broken bone, child birth, or simple outpatient surgeries.  These areas can no doubt be improved by reforms such as improved access or could be easily paid for by greater use of health savings accounts or other free market oriented reforms.

The hard choices all lie in the areas where a health care system is required that most of us have little to no interaction with through most of our lives.  How do we build a system that can pay for treating autism?  How can we pay for cancer treatment or organ transplants?  How can our system create the right mix of specialists and general physicians when years of education can be a decade or more?  This is where we need to focus our attention if we want to build a working system.  People are afraid of the possibility that a medical condition may bankrupt them or that they can't provide a newborn child with the care it needs.  However, dealing with this is difficult because they are angry about the day to day costs of the medical system and the frustrations and delays they run into with the general health care needs that are part of their daily lives.  Solving this requires acknowledging that people's fear and anger are pulling in different directions and that all the hard choices have to be made regarding the systemic issues that are the source of their fears.  Going after the little stuff that causes anger just derails the conversation and prevents us from moving forward.

I'll expand on this idea a bit more tomorrow with some numbers to back it up.

Thursday, November 4, 2010

Health Care: Some Background Reading

I was intending to do a post on health care today but no longer seem to have the time.  I came across a great link on Free Exchange though so I thought I'd recommend a couple of posts from the Incidental Economist blog as background reading before I get into my own take on the issues.  The first series is on cost, the second on quality.  Both show the US doing poorly on most measures.

On the cost piece, I think underspending on home health care services is likely at least a partial contributor to higher costs elsewhere.  Overall, I found the administration, red herrings, and underspending sections most interesting but I'd certainly recommend reading them all.

Starting this weekend I'll begin with a few posts trying to untangle what the problems with how we look at health care are and at how to fix this.  I've been wanting to do some graph with longer run numbers but I'm not sure I've got the time to commit, these may or may not appear.  I'd like something stretching back to before US health care costs diverge, which was before the 90s.  If someone knows of an existing blog, or other data source that already does this I'd love to hear about it.

Tuesday, November 2, 2010

The Scylla and Charybdis of Human Societies

I was meaning to post this as a preliminary to getting into specific issues but it somehow got lost.

I think among other ways, there is a basic unresolvable trade off that has the potential to destroy any human society.  That is the trade off of control by the powerful and control by the weak.

It's not a terribly unique proposition but I think often in today's rhetoric people seem to have forgotten just how destructive rule by the powerful can be (except if the powerful are narrowly defined as Wall Street and university professors).  Aristocratic societies frequently succeeded in exempting most of their interests from taxation by the government (pre-revolutionary France had the activities of its strongest members exempted from taxation, certain groups in Spain achieved similar concessions, late Roman estates were frequently free of taxation, etc.).  This didn't exactly lead to broad based economic prosperity.  A key sign of the health of society is that the wealthiest classes bear a burden proportional to their relative place in society.  If they bear a smaller burden they can wreck the ship of state within a few generations.  The advantages they gain from low taxation, and the relatively larger burden of taxation felt by those who must bear the taxes not imposed on the rich, lead to them being able to gain an ever greater share of the productive assets of society.  The narrowing of the tax base renders the state unable to fulfill its obligations and the relative advantages gained by the powerful make it extremely difficult for those not powerful to improve their position.  This both chokes out entrepreneurship except among the powerful and renders the state illegitimate and subject to revolt (this is the rather more common kind of stagnation.  Medieval Europe fits the bill, as does the Roman Empire, China for much of its history.  This kind of society tends to be static and in slow decline, convulsed occasionally by populist revolts)

On the other hand, a society that seeks to ruin the rich and redistribute wealth finds itself with no one able to organize many of the economic and social activities that are necessary but fall outside the scope of the state.  Without the strong there is too little scope for economic growth or for innovation.   Heavily state run economies have never been successful in the long run and policies meant to wreck the successful in society (whether Alcibiades, the Marian revolts, the French Revolution, the Bolsheviks, or others) have never been successful in the long run.  The disruption caused by these sort of populist revolts have also been incredibly destructive.

The solution is of course relatively simple, though extremely difficult for a society to institute over long periods of time.  That solution is to simply make sure that society is able to tax and regulate the powerful so that they stay within bounds without imposing burdens on them so heavy that they are brought down to the level of the weak.  This is difficult because the powerful have consistently been successful at promoting ideologies and concepts that argue that they should be left free of restrictions by society (whether medieval ideas of a divine order of society, ideas of meritocratic selection, or ideas about the outsize economic contributions of the rich).  Overcoming these ideologies is extremely difficult to do without falling into the kind of destructive populism that brought down Athens, the Roman Republic, the ancien regime in France, and the Russian Empire.  I think this difficulty is fairly widely recognized but too little talked about.  Reigning in the powerful so that their talents, and the structural benefits of their social position ( for instance bankers fill a needed role whether or not the individuals possessing the money actually have any merit as individuals, which isn't to say that many don't possess merit just that they'll still make huge profits simply by value of possessing capital whatever their merit as individuals), contribute to society without tipping over into socially destructive populism is the careful, and fragile, balance that all societies must make to remain successful.  I tend to believe the best way to do this is through something of a system of checks and balances by keeping revenue streams diverse and not favoring any specific type of income or specific areas of development and investment.  Also types of power need to be distributed and kept distinct, those with power through wealth should not have too much influence on politics and those with political power should face obstacles in transferring this power into wealth.  Regarding all power as essentially similar is a major danger sign and a red flag that society may be heading in a direction that will either weaken in its ability to curb the powerful or that it will impose restrictions that will ruin the powerful and eventually the state.

[To put this entire post in a much simpler and more concise saying; the powerful in any society will argue that they fulfill a role so essential to society that they should receive favorable treatment and the weak in any society will argue that the basic unfairness of their weakness means the powerful should be brought down and they should be granted the spoils.  Societies must tell both groups to go to hell if they wish to survive.  It's not enough but it's a minimal condition.]