Thursday, March 29, 2012

On Health Care Reform

At the time of writing this paper, the constitutionality of the 2010 health care reform package is being considered by the Supreme Court. It is an opportune time to pause and reflect on the issues involved.

Many Democrats feel obligated to defend the Patient Protection and Affordable Care Act (PPACA, aka “Obamacare”) in all its particulars. This sense of obligation arises from Democratic voters’ deeply held conviction that a more ideal health care reform package would have no chance of succeeding in Congress. Even though the provisions of PPACA will produce a health care system that is demonstrably worse than the health care systems of every other Western industrialized nation, many Democrats have convinced themselves to become enthusiastic supporters of it. 

On what basis may PPACA be considered deficient?  Before answering this question, consider the “Iron Triangle” of health care, described by an eminent professor of medicine named William Kissick. The three points of this triangle correspond to the most highly prized and interdependent aspects of health care: affordability, quality, and access. The goal of affordability conflicts with the goals of quality and access, because quality and access are expensive. Therefore, access to health care and quality of health care both depend on the effectiveness of cost-controls and the ingenuity of medical professionals in finding less expensive ways of delivering high quality care. 

Logically, then, if PPACA does not guarantee cost-effective health care, quality and access will suffer as a result. If the cost that consumers are required to pay in order to receive health care – the unpopular “individual mandate” – is too high, consumers will have less money to spend. Consumers who have little money to spend, but are not sufficiently poor to qualify for government subsidies, will discover that they have less money on hand to buy food or heat their homes. They will delay necessary health care rather than take time out of work. They may wonder why they are paying high monthly premiums and are still asked for co-pays at the doctor’s office. 

Now, it is necessary to defend the position that PPACA does not do enough to address cost. President Obama’s assertion that the act will “bend the cost curve” is based on optimistic projections.[1] If one examines the particulars of PPACA, the emphasis is not on controlling costs. Instead, the emphasis is on increasing access to care. It achieves this by expanding Medicaid eligibility, allowing children to remain on their parents’ health plans until age 26, ending exclusions for pre-existing conditions and other provisions. 

A medical device which costs $100,000 in the U.S. may only cost $10,000 in China or India. The device is in no way inferior because of its reduced cost. The price differential is the result of Asian nations’ culture of frugality.[2] Because frugality is highly prized, the Asian people support their governments in insisting on low prices. Medical device manufacturers find ways to cut costs, maintain quality, and still earn a profit. 

At this Houston hospital, harpists perform for newborns. Source.
In contrast, Americans are inclined to be enamored by luxury. Oscar Wilde’s quote applies: Americans, it may be said, “know the price of everything and the value of nothing.” Costly items are assumed to be of higher quality. As a practical consequence of this love of luxury, Americans are not predisposed to insist on low prices, particularly not when it comes to healthcare. A courageous healthcare reformer will show sufficient faith in the American people to believe, first, that Americans can be educated about the hidden, unnecessary costs of healthcare and secondly, that properly informed Americans will make wise decisions. The healthcare reformer who values expediency will not take the chance of relying on the wisdom of the American people. 
In Houston, the average waiting time in an Emergency Department is over 4 hours. Source
Observers believe that the focus on access was the result of a strategic decision made by the Obama administration. The goal of expanding access to care is less controversial than the goal of reducing costs.[3] Cost control means a relentless effort to achieve the best possible value for the dollar. It means increased government involvement in physicians’ decisions about which treatments to select. It may also mean the use of waiting lists to deter consumers from seeking treatment for non-urgent medical conditions. Cost control means end of life counseling. So, in taking the more politically expedient path of focusing on access, the Obama administration has handed the American people an individual mandate that is more expensive than it needed to be.

After all of the provisions of PPACA take effect, for-profit health insurance companies will continue to operate very much the way they operate now. Insurance companies may try to negotiate lower prices with hospitals, but as it happens, insurance companies have little leverage over hospitals in the wake of a string of mergers and partnerships that have given hospitals monopolistic control over regions of the country. The CEO’s of companies like Wellpoint will continue to earn over ten million dollars per year. The health insurance lobby will continue to pour money into political campaigns. This will invite corruption. A politician may decide that increasing the amount of money he or she receives as campaign contributions from the insurance lobby is a more important consideration than ensuring that ordinary Americans receive the best value on each health care dollar they spend.

Having said that, it is important to consider the extent to which private insurers are guilty of profiteering. Private insurers regard healthcare payments as a “loss” and the term “medical loss ratio” refers to the amount of money they spend on healthcare. PPACA mandates that 80 to 85% of the health care dollar will be used to pay medical expenses. To put this in perspective, in 1993, private insurers spent an average of 95% of consumer premiums on reimbursing medical expenses.[4]
The question of how that remaining 15 or 20% is spent is germane to understanding what sort of value Americans are receiving for their health care dollar. Within this percentage are profit and administrative costs. It includes the cost of advertising, hiring insurance brokers to sell their product, lobbying, paying the salaries of “government relations” specialists, and supporting the costs of multiple private bureaucracies. The taxpayer should chafe at the idea that his or her health care dollar subsidizes the lobbying activity of the insurance activity, since the results of lobbying are often to the detriment of the taxpayer. Using the administrative costs of other Western nations as a basis for comparison, the amount of excess administration in the private insurance industry is about 24% of total revenue.[5]
Given the fact that they are inefficient at controlling administrative costs, it is curious that private insurance companies are being contracted by the federal government to administer programs such as Medicaid and Medicare Advantage. Under these agreements, private insurers will contribute nothing toward the payment of medical expenses; their task will consist of disbursing taxpayer money to reimburse healthcare providers. In part because of these lucrative federal contracts, private insurers have enjoyed increasing revenues and profits since PPACA was passed in 2010.[6]
Obviously, voters can still take the position, “if it weren’t for compromises with private corporations, PPACA could not have become law.” This view is regrettable. Choosing to appease private corporations does not serve the public interest. It merely allows these corporations a greater degree of control in setting the cost of health care. Vague promises have been made, to the effect that completion among health insurers will in time lead to reduced costs. The skeptical voter will recall that the insurance industry is exempt from anti-trust regulations, and recognize the discouraging parallels that may be drawn to banking deregulation. 

On the larger question of whether the United States ought to be actively involved in healthcare delivery, it is worth noting that John Locke sometimes included “health” alongside “life, liberty, and property” as the most important natural rights of a free people. Locke provides a touchstone when seeking to understand the Founders’ philosophy of government. One of the Founders was also a physician. He was a man named Benjamin Rush, and he warned us, “Unless we put medical freedom into the Constitution the time will come when medicine will organize itself into an undercover dictatorship … [allowing this to happen would be] un-American and despotic.”

Recommended Reading:
On Swiss Healthcare

[1]Dougherty. The Certitudes and Uncertainties of Health Care Reform. Annals of Internal Medicine.

[3] Marmor et al. The Obama Administration's Options for Health Care Cost Control: Hope Versus Reality. Annals of Internal Medicine.

[4] Potter. Deadly Spin.

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