Monday, September 17, 2007

Hillary Coughs Up a Health Plan

Here's the rosy PowerPoint-like version. Commentary by Ezra here.

I think I could live with this. It isn't perfect but it's unlikely that perfection is achievable when trying to satisfy the diverse set of interests and gored oxen that touch on US healthcare today.

I'm not sure that healthcare in the US is actually broken but it certainly is suboptimal. If I had my druthers, the perfect system would achieve the following goals:

  • It would put downward pressure on prices.

  • It would put upward pressure on innovation and supply of services by ensuring that medical research, drug discovery/development, and clinical practice remain economically attractive fields to enter.

  • It would disentangle the insurance business from the business of bundling and pricing medical services.

  • It would provide an insurer of last resort for people with preexisting conditions or other situations that limited their insurability.

  • It would maximize public health metrics.

  • It would ensure that children get medical treatment whenever they need it. Period.

In the past, Ezra has argued (variously here, here, here, and here, no doubt among others--read this stuff; it's cogent) that the main problem with free-market insurance is that the young and healthy will skimp on insurance, preventing the old and sick from having a big enough resource pool to get the coverage they need. I buy that argument to some extent but I don't think that it's a good idea to convolve risk-spreading and income redistribution into a single institution. While the end results share many common characteristics, the motivations (and hence the potential for abuse) are vastly different. Some income redistribution is warranted to provide for health care for the poor. It should be provided through taxation, not through insurance policy.

There are a few obvious levers on the healthcare system that can be used to great advantage. First, you can separate routine care, catastrophic care, and end-of-life care into three different buckets. Using the time-honored techniques of numerical rectal extraction, I'd guess that routine care is about 60% of the total expenditure, catastrophic care maybe 15%, and end-of-life care the remaining 25%. (If anybody actually knows these numbers, I'd love to hear from them.) It is difficult but possible to divide the space of CPT codes between these three buckets (although you have to duplicate a few of them here and there) and treat them separately. They have different policy goals: You want near-universal coverage for routine care. You want to handle catastrophic care with high-deductible insurance, possibly subsidized for the poor. And you want to ration the bejeezus out of end-of-life care, lest it grow to be 75% of expenditures. When you complete this segregation, you can have a much more productive policy discussion.

The other major lever that affords lots of bang for the buck is insurance regulation. Medical insurance companies today have huge latitude to cherry-pick their subscriber base. Obviously, everybody wants the healthy people, which forces the sick people out of the system. In the lending and property insurance industries, this technique is called "red-lining," and it's illegal. It was made illegal on the public policy grounds that equal access to services promoted the general welfare. The same argument can be made for medical insurance. (Yes, I know, that sounds a might redistributive, doesn't it? It's worth it.)

Finally, we turn to mechanisms for cost containment. Let's split this roughly into drugs and services.

First, let's note that the cost of drugs varies based on how new they are and what sorts of alternatives are available. A quick browse of a couple of online drug-buying sites shows prices for Paxil (an anitdepressant) of $3.00 a dose, Avandia (a type II diabetes medication) for $3.70 a dose, and Tamiflu (an influenza antiviral) of a whopping $5.40 a dose. Need a boner? You'll be paying $6.60 a dose for Viagra.

On the other hand, some of the most important drugs are dirt cheap. A dose of amoxicillin will run you $.17 a dose. For Coreg (a beta blocker used in congestive heart failure), you'll pay $.78 a dose. Even Focalin (an ADD medication), you'll only pay $.69 a dose.

Drugs are expensive to develop and expensive to insure against product liability. But there's a huge public good served by the continuing development of new drugs. Those new drugs have to have their costs amortized and make enough profit to more than cover the opportunity cost of their development capital. If that can't happen, the drugs won't be developed.

So price controls are an amazingly stupid idea. Demonizing drug companies is an amazingly stupid idea. On the other hand, bargaining for huge bulk quantities is OK, as long as you don't restrict the supplier's ability to take his bat and go home. Want to have some future government system buy a billion doses of Coreg from its manufacturer? Knock yourself out and make a deal so that the manufacturer makes scads of money and you save the public a major expense. But if the manufacturer won't meet your price, he ought to be free to go sell the stuff on the open market, and doctors that rub elbows with the federal health system ought to be free to prescribe it.

As for medical services, personally I'd like to go to a smart doctor who got into medicine because he could make a buttload of money, rather than somebody for whom medicine was his third pick when he couldn't get into law school or business school. If you have a free market, prices will take care of themselves as long as people know what they're paying for. The problem today is that the insurance companies are almost totally opaque and are shielding consumers from understanding the cost of their care.

Again, this is an area where high deductibles, back-stopped by government subsidies for the poor, might be very instructive. Another alternative is federally-mandated transparency, although the task of figuring out your treatment is daunting even for the well-educated.

The healthcare swamp is broad and pretty deep, with pointy sticks on the bottom. It'd be nice for most of the American populace not to be terrified of getting sick. It would be even nicer for healthcare not to be an issue when workers change jobs to go do something exciting, important, and/or productive. But when they do get sick, they want a system that can make them well, not one that's inexpensive and socially just but otherwise mediocre. Inexpensive and just are nice, too, but they must take a back seat to quality of care and innovation. We should proceed with extreme caution. It's possible to do much better, but it's also possible to do a lot worse with bad policy.

Update 10/08/07: I don't know what I was thinking when I provided the percentages in this post. The numbers I actually computed are in this more recent post.

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