Potential Reforms of American Health Care-Becker

As Posner indicates, American health care generally gets poor grades in international comparisons of health care systems. Although major reforms are needed in the American approach, international comparisons underrate American health care. This is partly because these comparisons give insufficient weight to the fact that most of the new drugs to treat major diseases originated in the US, along with many of the new surgical procedures, and insights about the importance of lifestyles in good health. This helps explain why many Canadians and those from other countries come to the US to treat serious diseases rather than visa versa. The US is also much more generous than other countries, such as Great Britain and France, in making expensive surgeries and drugs available to older persons through Medicare and private insurance. This too significantly raises the cost of health care. Moreover, the American health system is decentralized and "messy", and many health evaluators prefer a single payer (i.e., government) centralized approach to health care as opposed to any market-based approach. This is not to deny that the American health care system has serious defects. If I were running for president, and allowed only four reforms, I would emphasize the following (assuming I do not worry about getting enough votes to be elected!): 1) Eliminate the link between employment and the tax advantage of private health insurance. Since much of the spending on health are investments in human capital, there is good reason to exempt these expenditures, along with other investments, from income taxes. However, this employment link is inequitable because it does not provide the same tax advantages to families without employment-based insurance. It also encourages expensive employer health plans that have significant consumption components since the government picks up much of the cost of such coverage. President Bush has proposed a reasonable alternative; give every family a flat $15,000 standard deduction (and half that amount for individuals), whether or not their health insurance is obtained through their employer. They would still get this deduction if they spend less on their insurance, so they have incentives to economize on their health care (but by my reform number 4, everyone would have to take out catastrophic coverage). Consumers would have to pay for any coverage in excess of $15,000, so they would only choose such coverage if they were willing to spend their own money, not taxpayers. 2) Encourage the spread of Health Savings Accounts (see my discussion on Feb. 5, 2006) that encourage consumers to economize on unnecessary medical expenditures. Present law allows tax-free contributions to these Accounts of up to about $2700 for individuals and double that amount to $5450 for families, as long as these contributions are not greater than the deductibles on their health insurance. Contributions to HSAs that are not spent in any year can be carried over to future years without any tax liabilities, and even into retirement income. So HSAs are an efficient way to save as well as to spend on non-catastrophic medical care. Health Savings Accounts have spread since they were introduced several years ago, but might need greater encouragement, such as higher limits. 3) Medicare spending amounts to about $350 billion a year, it constitutes about 12 percent of federal spending, and it is one of the most rapidly growing entitlements. It is projected to continue to grow as a fraction of GDP from its present 2.7 percent level to over 11 percent in 2080. The source of the growth is the continued aging of the population, and the increased per capita medical spending on older person as new medical technologies and drugs are developed. Projections made by Medicare Actuaries indicate that the Medicare HI Trust Fund will be exhausted by the year 2018-only a decade away. Reform of Medicare is probably among the most challenging not only because of the elderly's political clout, but also because Americans have come to expect access to expensive medical treatments as they age. Still, the prescription drug coverage introduced into Medicare in 2003 was an important step in the right direction, despite the flaws in the program (see my discussion on February 3, 2005). Drugs are not only increasingly available to fight many diseases of old age, but drugs, once developed, are relatively cheap to extend to large numbers of users. Even when drugs provide only small benefits as they are extended to groups that can benefit less from the drugs, the costs are far less than would be required to provide expensive surgeries or hospitalizations to older persons with few years of life remaining. This is why I would greatly increase the generosity of Medicare drug coverage, and compensate for the additional expense by cutting down on allowances for lengthy hospital stays, and raising other co-pays. 4) I do not believe the problem of the uninsured in the US is as serious as usually claimed since most of those without health insurance are young and do not have major medical expenses. When they do, they can use emergency room service at major hospitals, although studies show that they do not even use emergency room care more often than others. Still, it may be desirable to require that everyone must contract for private catastrophic health care since the uninsured tend to use taxpayer and philanthropic funded medical care facilities to pay for the costs of any major illnesses. Medicaid should be extended to cover anyone who cannot afford such catastrophic insurance. Compulsory coverage would integrate the 45 million or so uninsured Americans into an overall health care system while still preserving the desirable decentralized private system of health care.

Comments

[jeff]

We also need to create a better market for health care. doctors should be able to post prices, just like hot dog stands. There is woeful price information available. Doctors charge different rates to different customers; negotiated insurance rates, group rates etc. If you are a self employed individual, you always pay the highest cost. (I know this from experience)

Insurance companies should also be allowed to compete across state lines. greater competition should bring down insurance rates.

Information about doctors and hospitals should be available online, so that customers can research the market to find where they want to "buy" their care.

There is much we can do to improve the market for health care without socializing medicine. From conversations I have had with people from places like Australia (have to carry extra insurance so you can get care when you need it) Canada (nurse shortage), Singapore (problems getting a doctor), socialized medicine is inefficient and would not work in America.

[Eli]

I agree with all four points, but I would add a fifth. I believe there should be a Pigovian tax on low-deductible health insurance. Low-deductible insurance pollutes the price system by insulating consumers from the cost of health care. Providers are able to raise prices because consumers are not price-sensitive. If a tax were able to dissuade a critical mass of consumers into buying catastrophic coverage, the cost for all consumers would decrease sharply.

[RonPaulForNow]

^ Or change point #1 to tax all insurance while keeping HSA's tax-free (contingent on an annual check-up).

[Phil Atio]

Sensible advice -- it's too bad the presidential candidates are wasting our time concocting unworkable schemes. And I chuckled at the amusing typo involving the word "visa" in:

"This helps explain why many Canadians and those from other countries come to the US to treat serious diseases rather than visa versa."

[jimbino]

What do you propose to do about Americans who retire or otherwise live overseas? As it is now, they are subject to tax in their income wherever they live, but do not benefit from Medicaid, Medicare A,B or D and would not benefit from your compulsory system either. If they could spend their insurance proceeds on care and drugs in the foreign country where they reside, many would save the taxpayer lots of money, as drugs can be had cheaply and without prescription and medical care itself, in India, Thailand, Brazil and Mexico costs a fraction of what it costs in the USA.

Or do you propose to put them on a plane at taxpayer expense and fly them back to the USA so they can get catastrophic care or a prescription filled?

[David]

I'd also add a 5th item, as opposed to 'allowing' doctors to publish prices (they won't because they're incented not to; as insurance companies will use those published rates to negotiate an even lower rate for themselves); I'd make it mandatory that doctors publish the pricers for their top 20-30 revenue earning procedures/services (limited to control burden on doctors). Additionally, the Federal Government should publish their negotiated Medicare pricing in an easy to understand format.

[Floccina]

IMHO People should be allowed to fund HSAs with any amount on money per year up until the amount in HSA is over $1,000,000 letting the deductible rise with the amount of money in HSA. Much of the excess spending is after the $5000 dollar mark has been reached in one year. So a young person might contribute $1,000 to an HAS to start a policy with $1,000 deductable but during the year they might contribute $5,000 to the HSA (assuming they used no medical care is the year). . So in year 2 the insurance premium would fall as the deductable would go to $6,000. Then they might then add $10,000 and the next year the deductable would be $16,000 etc.

[Jeff]

Some other things I would suggest to control costs:

1. Universal Coding and Electronic Health Records

2. Health Courts

3. National Medical Licensing for doctors so they can practice across state lines.

4. More drugs available over the counter and behind the counter.

5. More Physical Education in public schools not less.

[Yasha]

Not only should there be 50-state availability of plans, but such plans should be allowed to ignore state mandates about coverage. Every now and again the WSJ points out the difference in rates between NY & CT due to the former's large number of mandated coverages, and the difference is hundreds of $, iirc. Have a 50-state plan with a high deductible that doesn't cover (e.g.) sex change operations, and let's see how premiums fall.

[Chris]

Professor Becker --

HSA contributions are now no longer limited by the deduction in the high deductible health plan. I point you to the IRS: http://www.treas.gov/offices/public-affairs/hsa/faq_contributing.shtml#hsa1

[Viktor]

The PV of Medicare is roughly $28 trillion, according to this link. http://www.econbrowser.com/archives/2006/01/fiscal_exposure.html

That is annuity of over $1 trillion assuming a 5% discount rate. Meanwhile, the budget for 2007 is roughly $2.8 trillion. That suggests that the Medicare liability is closer to 33% of the federal budget.

[Iraj Seyf]

Dear Professor Becker:
I vaguely remember reading a paper by you! a few year back, in which you discussed polygamy. Now that I want one of my own student to read it as part of her research, I do not remember where it was published! To be honest with you, I am not even sure now if you have such a paper or because most if not all the excellent papers on the economics of family carry your name, I am just assuming that the author must have been you! I know you are very busy, but could you kindly please help to clarify this for me!
Kind regards

[SS]

The one rule I would add would be to require drug companies to sell prescription drugs to Medicare/Medicaid patients at the same price that as the lowest ‘one payer systems’ like Britain, France, or Canada pays.

Currently the US market is where drug/medical device companies try to make a return on their investments and one payer systems are considered icing on the cake as the marginal cost of these items is so small they can give big discounts. Acceptance in one payer systems is entire depended on government officials and can’t be counted on for calculating return.

If the US government demanded lowest price guarantee insurance companies would follow suit. This might reduce costs, it could help spread ROI over more companies, and it would certainly help make the system seem fairer when compared on country level and for individuals in the US system

[David Drake]

One other thing that would go a long way to bringing costs down: better education on and implementation of living wills and durable powers of attorney for health care, together with some mechanism for discouraging hospitals from making heroic efforts to extend the lives of older people. A very large percentage of lifetime health care expenditures occur in the last six months or so of life, to little or no purpose. Teach us all that dying is inevitable and that Mom or Dad probably does not want to be kept alive for a few months--at a cost of tens of thousands of dollars--so that she or he can lie in a bed in a hospital or a nursing home.

[Illya Kuryakin]

How many potential entrepreneurs, innovators, or the like don't take advantage of their talents and skills because they feel trapped in a dead-end job that they can't quit without loosing their benefits?

[Jon]

Another--Require healthcare providers to offer the same discounts to all players, thus ended the current system by which a provider tries to collect 2-5 times as much for a procedure from an uninsured person as they do from an insurance company. The only reason this practice exists is the lack of pricing transparancy and lack of negotiation power of individuals. Mandating the posting of prices is not sufficient, because often people need health care (e.g. in emergencies) when they are in no position to shop.

[M. Ledoux]

A FAUSTIAN BARGAIN

American medical advances may have a dark side. I believe that the old people in this country receive excellent medical care at end of life because the elderly are used as practice subjects in teaching hospitals and as lab rats in research hospitals. I am not saying that this is wrong. It is, however something we cannot talk about in public.

A close relative of mine had a decade of living with a serious medical problem. Our family developed a tight relationship with a world-class specialty surgeon at a world-class teaching hospital. The quality of the care was phenomenal. After one serious life threatening, life saving surgery we chanced to learn that a whole team of enthusiastic talented young docs had participated in our relative’s case. Our family got an extra decade of time with our relative, a gift from the surgeon and the teaching hospital.

When our relative was 79 things got real serious. During those days our GP was difficult to reach on the telephone. Our trusted surgeon was very easy to reach. He said "It's time for the amputation." We knew this doctor and trusted him. And I will not tell you how much suffering was involved after the amputation. Our relative had very poor circulation and became depressed. The incision would not heal. Our trusted surgeon said the "The stump needs revision." We assumed that meant he would take off the dead tissue near the incision and sew our relative back-up, not a big deal. In the hospital immediately after the surgery our relative’s eyes were wild, like a terrified animal. Our relative whispered about having heard people talking, that our trusted surgeon had not even done the surgery. They had removed the entire joint, a good14+ additional inches of limb. Our relative stealthily opened the sheet to show me.

A couple of weeks later our relative was in another hospital being treated for a staph infection by our GP. The day our relative died our GP said to me "Why did you do those amputations? Your relative was throwing blood clots like crazy, no way was it worth it." Two hours later our relative died chanting "Let me go. Let me go."

I am still thankful to the surgeon for the 10 good years we had together. However - if we had been told we would get 10 decent years and then our relative would have to pay the price by being used as a living surgery practice doll, our relative may have chosen an earlier death. Not having actually had the choice, who know what decisions our relative would have made. In Faust at least the person knows they are making a deal with the devil.

Society and it's moral choices. Things that cannot be talked about. US government out-sourcing torture. Slave labor in the third world manufacturing toys and clothing for us. Slaughter houses located where we can all forget that we kill millions of animals for food, animals that have never seen the sky. The British empire and the sugar plantation. Exploitation is part of the history of civilization. Things are in fact getting better and easier for more people every day.

I just wanted to point out that there may well be a hidden cost for our excellent health care. Generous medical treatment for the elderly may be for reasons that serve the system, rather than for generosity.

Perhaps we have a healthy life style movement in this country because many people such as myself are terrified, not of dying, but of hospitals and what happens to people at the end of life. And, no - drugs do not make being experimented on okay. Our relative always had drug induced nightmares during the post surgery period.

There was an article in the New Yorker awhile back on a related topic - the life work of Dr. Francis Moore, a man who as he approached retirement, regretted having caused so much suffering in his zeal to advance medicine. www.newyorker.com/archive/2003/05/05/030505fa_fact_gawande

[SS]

As a previous post says: “better education on and implementation of living wills and durable powers of attorney for health care” is a good idea. I might suggest taking it one step further.

Legalize euthanasia for those who don’t want to go on. An additional question is would companies or the government be allowed to buy a person out of their insurance obligations? From an insurance provider view there is a profit incentive if some chooses euthanasia and some patients might like the option to leave some additional money to their family. It makes economic sense but paying people to die is even more taboo than allowing them to end their lives.

[Jack]

Comments on Becker's reforms:

#1 He mostly "get it" however "Bush's reasonable offer" of a $15k "deduction" is as all Repub offers; of significant benefit to the high earners and of little to NO use to those of median or lower income.

#2 HSA are simply silly. Again they may be of some use to those with surplus income but are not feasible for median and lower wage folk. Worse? It gives an incentive not to spend the small money on preventive care and annual check-ups. Also, health care just is not "shopped" in a "saving money manner". For example one MIGHT look for a bargain basement primary care fee, but what does one do when he tells you to go down the hall and have a scan or other test? Argue with the guy? Run around price shopping for bargain tests?

THE means of lowering costs is global price pressure......... applied to the entire system. Perhaps the Mayo Clinic model? or a fixed price voucher which large providers vie for in terms of service and reputation.

Becker sez:
Medicare:
It is projected to continue to grow as a fraction of GDP from its present 2.7 percent level to over 11 percent in 2080. The source of the growth is the continued aging of the population, and the increased per capita medical spending on older person as new medical technologies and drugs are developed

............ But the increased numbers of patients is only a small amount of the increase. What is and will break the system is the increased costs much of which is simply inflation of the current costs and there is no rational cost containment model in the system. BTW I can't think of a way to pay specialists a million bucks a year and not break the system.

#4 General agreement, but WHY force folks into the maws of "insurance companies?" That whole cabal should be relegated to our past and replaced by providers. The Aetnas and Blue have plenty of capital and instead of being parasites and impediments to the practice of medical care should turn themselves into providers. With what we ARE spending today, were that amount a universal voucher providers could compete for members on best practices and service. I'm sure Consumer Reports, blogs and medical reviews would pop up to guide us as to the best provider. At 18% of US GDP they should all be first class by comparison to any in the world including whatever France provides for 11% of France's GDP

[Corey]

The missing component in this excellent discussion is why healthcare costs are so high in the first place. Demographics cannot even begin to explain the many years of high healthcare inflation (far beyond CPI) in recent years. In other industries, technological advances have improved quality and reduced costs. In Healthcare, technological advances appear to increase costs. Healthcare is so distorted by regulations, subsidies, and 3rd party payors that it does not function normally. There are no price or quality signals. In most cases, buyers are not even free to choose the quantity of healthcare they would like to purchase. They are forced to buy the insurance policies that regulators have defined for them. The marketplace is broken. Policymakers tend to decry the current Healthcare system as a "free market failure", when it is really among the most distorted markets ever to exist.

[Tiffany Bonds]

I agree that many different people come to America to live and "have a better life." The thing I disagree on is how advance in Medican our country really is. I recently read that the United States is in the lower percental in medical knowledge, in the world. I agree that we have developed and improved a lot but not as much as other countries. I also agree with Bush's idea on the 1,500 to everyone. This seems far! I mean if you go over then pay it yourself. that seems far to me!

[Jack]

Corey....... exactly. It's as if we combined the worst of socialism and the worst of "free markets". In the truly free market arena their is the example of Lasik eye surgery, not typically covered by insurance in which the prices have been steadily falling though for "some reason" they are still nearly double the prices in Vancouver B.C.

I don't think medical care lends itself to individual "shopping" as folks just don't go looking for a bargain on a serious operation when they are sick. Instead it will have to be some system that has a global effect of increasing efficiency and limiting price increases.

Tiffany, Bush is not "giving" the $15,000, instead it is only a tax deduction worth $5,000 to high earners and next to nothing for those of median or lower incomes. Watch out for such shell games!

Also there is NO "pay it yourself" as catastrophic medical costs are so high only a few people can write a check. Instead, he, they, are talking of buying "catastrophic insurance" (IF one does not already have uninsurable "pre-existing conditions". IF they want to drive all or most of us into insurance pools, why not one big pool called Singlepayer?

[Jack]

Lastly, what sort of an economic system is it that goes to great lengths to allocate the costs to the third party pool of the recipient, and then if there is no such pool then allocates the costs to the overall pool, taxpayers et al? And does any one think such a system is at all workable in terms of serving our citizens or "containing costs?"

[corey]

Jack,

Which actors in the current healthcare system have incentive to contain costs? With an "all you can eat" buffet system, the consumers and suppliers both want more stuff on the buffet table. Consumers have incentive to get more than their premium payments back in services. Suppliers obviously have incentive to sell more products and services at the highest possible price (and they do not have to compete on price). Both conspire with politicians to mandate that more things get added to the buffet. The private payors don't care, because their margins are protected by their ability to raise premiums. The public payors don't care because they have no profit incentive, and they can just raise taxes. Private companies paying premiums complain, but mostly they just cut wage growth accordingly, hire fewer people, or hire more overseas. This is where the incidence takes place, going largely "unseen". People see the symptoms, but fail to appreciate the root cause. Healthcare inflation is destroying our economy.

[Anonymous]

مركز تحميل