Health Care In America: How Do We Fix It?

[How to fix health care? When it comes to the current state of heath care services in the United States, there are no easy answers. However, most people I've spoken to — both within and without the industry — agree that the way we are providing health care services in America now just isn't working, and that something must be done. Both Democrat presidential candidates are touting a public/private system of universal health care; the Republican candidate favors tinkering with the current system. Other proposals include getting rid of all government involvement in the health care industry, full-on British/Canadian-style socialized medicine, and the unique quasi-public "social security" mode of healthcare provision as practiced in France. (Ref: Brookings report on the relative merits of the French and U.S. health care service models, and a Business Week article from last year on the French system.)

Which system is right for America? I don't know. It's a complex subject — and one we all need to understand better. Bearing this in mind, I have set out my understanding of how the health care industry in America works, and outlined the most commonly proposed methods of improving it. I urge you all to do your own research on this topic and draw your own conclusions. — BL]

Health care services are expensive. In every country, a static supply of providers has coupled with an exploding demand for services and the constant rise of new technologies available for diagnosis and treatment to drive the cost of health care services into the stratosphere.

Yet health care is different than other high-priced products. In a civilized nation, it is unwise to allow most of the population to go without health care services, lest civil unrest and/or plague result. A nation that allows the sick and injured to "die in a ditch" will not long survive — nor does it deserve to. Therefore, to stay on a "going concern" basis, each civilization must implement some way of forcing those with the means to pay for health care services to cover the costs of those without those means. Historically, this has been accomplished by three institutions: the Church, the State, and the Market.

In Judeo-Christian society, servitude is seen as a duty. In a country with a Judeo-Christian culture, it is unthinkable to allow human beings to suffer illness or injury without caring for them. In pre-modern times, the Church was seen as the guarantor of the human right to health care. To this end, the institution known as the hospital was created by the Church — a charitable organization operated by the Church which provided health care services to those too poor to afford them. This worked so long as the Church was a recognized Estate within the society at large — an Estate with its own lands and other sources of income — and as long as the limitations of pre-industrial food production (and other factors) kept populations small.

Over time, however, the number of poor and indigent patients began to exceed the number than the various religious charities could afford to care for. In modern times, the Church — now stripped of its status and incomes — has neither the resources nor the support to continue in this role. Our world is now secular; the Church has no fixed place among our society's institutions. The Revolution would never tolerate a Church rich and powerful enough to provide for the needs of today's poor.

As the Industrial Age dawned, the State and private industry therefore began to take on this responsibility — the State, with an interest in keeping the peace; private industry, with a eye toward making a profit. Proponents of State-provded "socialized" health care argue that the right to heath care is among the rights of any citizen in a modern society, and that the State should guarantee this right as it guarantees others. In countries with State-run health care systems, the usual form this took was the enactment of some sort of "national insurance" scheme, with the State collecting premiums in the form of taxes or other levies on employers and employees, and rationing health care services to citizens through State-funded (and often State-owned) hospitals and providers. Under national health insurance, the State is generally required by law to provide health care services to all, regardless of their current or potential health status. Sadly, the failure of socialism to guarantee citizens their rights in any form is a matter of historical fact.

The Church no longer has the power and income to provide for the health care of the indigent. State-run health care systems suffer from the same flaws which bedevil all enterprises of the State: mass inefficiencies, thick and cumbersome bureaucracies, impersonal service, and lack of personal vested interest by providers. On the face of things, then, it would seem that the free-market, private-insurance form of health care service is superior. Let us therefore examine how health care services are provided in a market economy.

In a liberal society, servitude is slavery — an intolerable affront to the rights of the atomistic Free Man. In our liberal society, where all forms of coercion are anathema, the free and unregulated exchange of goods and services by independent agents trading in an open market is seen as the only moral form of exchange. Proponents of free-market, cash-and-carry medical care argue that, left to itself, competition between providers in the market for health care services would in time provide everyone services that they could afford. It would therefore seem that the free market should be left to provide health care services the same way it provides soap and toothpaste: by unrestrained competition. Theoretically, medical care providers in a free-market system can compete for customer dollars on a fee-for-service basis until the cost of a given unit of health care service reaches its natural price.

Unfortunately, in the real world, there are costs associated with health care (physicians’ and nurses’ salaries, medical equipment, the costs of providing full-time care to invalid patients, and the ever-increasing price of medicines, et al) that are already at a natural price — a bottom, below which they cannot go. No amount of competition is going to reduce the costs of services, increasingly advanced technology, and new medicines. Due to these fixed costs, the price of medical care has been, is and will continue to be extremely high.

The institution of mutual insurance was extended to the heath care field by private industry as a means of spreading these high costs (and the associated risks) among as many people as possible. In a typical private insurance scheme, the insurer collects money in the form of premiums from subscribers; in return, it pays a certain portion of their health care costs (in the form of claims). Since those who pay premiums without filing claims pay for the care of those who file claims, the insurers must guarantee that those likely to file claims are kept out of the system. By restricting coverage to those groups least likely to file claims, private insurers guarantee that the amount of money gathered from premiums each year exceeds the amount paid out in claims plus operating expenses and taxes; this profit is reinvested, producing income for the owners of the company.

The problem with free-market, private insurance in countries with such a system is that not everyone can get insurance. In the United States, for example, most people are covered by group insurance purchased at bargain-basement group rates through their employer. However, those who are not employed (or who are self-employed) often cannot qualify for insurance coverage at any price — nor can they afford to pay the required premiums.

(Saving for medical care is futile; a person making $50K annually with a realistic savings rate of 20% can save at most $10K per year — the cost of a day or two in a hospital.)

Likewise, many persons who have serious chronic illnesses (e.g. cancer, kidney failure, HIV etc.) or are otherwise high risks (e.g. the aged) cannot get coverage at any price in a private-insurance regime due to the high costs of their care. In the U.S., some people in this situation are provided for by a piecemeal system of socialized medicine (Social Security, Medicare, Medicaid), but not everyone is covered by these programs, and those that are covered often experience lackadaisical care, impersonal treatment, and the other typical problems of socialized medicine when they present for treatment.

For the rest — those outside the world of employer-provided private health insurance and/or the Social Security system — the only health care system to which they have access is the emergency room at the local hospital — an institution spectacularly ill-suited to the task of providing basic health care services. Due to the flood of uninsured patients using the ER as their sole health care provider, the costs of providing emergency room care to the indigent and uninsured — which care is mandated by Federal law — are ballooning out of control, forcing hospitals around the nation into insolvency and closure.

And these problems exist in a society where most people have insurance. What can we expect in a world where most people are without it? As costs rise, the number of employers offering health insurance as a benefit to employees is certain to drop; employers will be faced with the choice of going out of business, eliminating jobs, or cutting insurance benefits. In a situation where most people are without health insurance (whether national or private) to help patients pay these costs, health care would become something like owning a share of a private jet is today — a luxury service available only to those with the means to pay for it. The resulting society would greatly resemble the nineteenth century; like something out of a Charles Dickens novel, top-quality private care would be available for middle-class Lady Estella Havisham, while spotty and inadequate charity care would be the lot of working-class Bob Cratchit and Tiny Tim. Oliver Twist would receive no care at all, and would be reduced to obtaining health care services from unlicensed practitioners, quacks, cuaranderas, and witch doctors. Those with communicable diseases would be imprisoned, quietly murdered, or left to spead their sicknesses among the public; those with chronic illnesses and serious injuries would be left to suffer and/or die in the gutter. A revolution would soon follow, after which Soviet-style State-provided “care” would be implemented by force.

To avoid this grim scenario, therefore, we as a society are going to have to figure out a way to make sure everyone has access to health care services. And, since the private insurance companies have proved themselves unable to do this, it is likely that (barring a revival of Christendom) we as a nation will have to ration health care through some form of private/public national health insurance program.

With this in mind, I think that the only prudent course of action a citizen can take is to make a thorough examination of the various national health insurance systems extant, and compare their various strengths and weaknesses. Only in this way will each of us be able to have an informed opinion on the subject when the time comes for the U.S. to consider such a system of its own.

from world magazine

Here is an interview from the current issue of World that you might be interested in. It is from an author who is discussing other options for health care. As a provider who sees little good in concentrating power into a single payer system it was interesting to me. I have heard many good and bad things about single payer systems but had never heard much about the Swiss system until now.

Books
Healthy competition
Author Regina Herzlinger says consumer choice would cure what ails the U.S. health-care system | Marvin Olasky
We decide which goods and services to purchase from an amazing array offered to us in many areas of our lives. But, for most Americans, two of the most critical areas are exceptions to our national emphasis on consumer choice. One is education, with its public-school system maintained by union power. The other is health care, run by what Regina Herzlinger calls an “iron triangle” of third-party institutions—Congress, health insurers, and hospitals—that stand in the way of consumer-driven health care.
Herzlinger, a Harvard Business School professor and a senior fellow at the Manhattan Institute, succinctly lays out her analysis in Who Killed Health Care? (McGraw-Hill, 2007).
Q: Why do many hospitals and other health-care providers oppose letting the American people know the price of the medical services we use and the results doctors and hospitals achieve?
Sunshine is the best disinfectant. Providers fear that they will be the victims of transparency. After all, the only ones who will benefit are those who achieve higher quality at a better price. And what we do know about U.S. health care is not overwhelmingly positive; we spend 40 percent more as a percentage of GDP, as the next highest-spending country, and yet over 300,000 people are killed by hospital errors every few years.
The problem is that you and I do not control health care. As a result, insurers, service providers, and the government can use our money without being responsible for the results they achieve. All the money spent is ours but we have no accountability for it.
Q: In what ways has Congress acted to suppress competition in order to protect powerful, entrenched status quo health-care institutions?
Congress has not enabled the transparency in health care as it has in the financial sector. It is much more responsive to the status quo providers and insurers, who want to squash transparency, than to you and me. So while the government has enabled us to know quarterly earnings per share through the SEC, we know nothing about the death rate of a surgeon who does open-heart surgeries on people like us. Which statistic is more important?
The U.S. Congress also pays for health care in ways that inhibit competition. It sets the price—not the free market. Perversely, the government pays mostly for surgical and medical interventions. So if doctors develop a new service that will keep sick people healthier, they will lose money.
Last, the U.S. Congress has a thick sheaf of laws that prohibit physicians from owning health-care facilities. These laws are akin to prohibiting Michael Dell and Bill Gates, two subject matter geniuses who are also brilliant business people, from entering the technology sector.
Q: What’s big-is-beautiful health care, and how does consumer-driven health care differ from it?
The status-quo wants to increasingly centralize its powers, through consolidation of hospitals and insurers and increased government micro- management of health-care delivery. They argue that big is beautiful, but the economies of scale and standardization of quality they promise has yet to materialize. Rather, the increased consolidation of hospitals has increased prices and even, at times, diminished quality.
In contrast, consumer-driven health care decentralizes health-care and insurance-purchase decisions to us and gives us the money and information we need to make smart decisions about what we consider value for the money. The Swiss consumer-driven health-care system spends 40 percent less than the U.S., as a percentage of GDP, and achieves universal coverage and world-class quality results.
Q: Aren’t nonprofit hospitals dedicated to public service?
Some are—these safety-net hospitals serve the poor and uninsured. But all too many nonprofit hospitals have sacrificed their charitable mission in the pursuit of market share and profits. Some earn more than $500 million per year in profits while the uninsured are shunted to municipal safety-net hospitals. Sadly, these hospitals use their nonprofit status to inhibit their transparency and to cost the taxpayers forgone tax revenues, yet they do not bring commensurate charitable results.
Q: Are HMOs the problem or the solution?
HMOs are great for those who like them and not great for those who don’t. We need a consumer-driven system so we can select HMOs if we like them and choose other kinds of health insurance policies if we do not.
When human resources tried to stuff managed care insurance policies down the throats of employees, many rebelled. They did not want their money to be used to pay for insurers who sometimes stopped them from accessing health-care services. Who can blame them? We are entitled to as much free choice in health insurance as in every other aspect of our lives.
Q: How can Congress make consumer-driven health care happen—and do you think Congress will?
A simple tax law change will do the job. Right now I permit my employer to take money that would otherwise be my salary and to use it to buy my health insurance. Yet I would not want my bosses to buy my food, clothes, or housing. They simply cannot obtain what I consider value for the money and will likely simplify their lives by offering me a narrow range of choices.
For example, if my boss bought housing for me, I would likely have a much smaller range of choice that I do in the open housing market. Similarly, when my employers buy my health insurance, I have very little choice. Without choice, there is no competition. Without competition, there is no incentive for productivity.
I permit my employer to buy my health insurance only because she can use my pre-tax salary—but if I bought health insurance myself, I could use only after-tax salary. A tax shelter for the purchase of health insurance would dramatically transform this situation and enable consumer-driven health care.
Watch the Swiss
Herzlinger writes that “Switzerland is the only developed country with a long-standing consumer-driven health-care system. In essence, consumers purchase their own insurance and everyone is required to insure themselves. Those in financial need are not simply left out in the cold; there are tax-financed, means-tested subsidies for them. Furthermore, health insurance plan options vary substantially in price and coverage, providing options to the health-care consumers.
“The Swiss model is a good one. There, the price for health insurance is determined by gender and age, not the level of sickness; but the insurers have formed an exchange where they risk-adjust each other. They remove the profits earned by insurers solely by enrolling people who are healthier than the average for their gender and age and redistribute this profit to the insurers who have enrolled those who are sicker than the average.
“These risk-adjusted prices mean that sick people pay the same price for their insurance as everyone else, but providers receive more money for treatment of the sick. This way, health providers are encouraged, rather than dissuaded, to help those who need it most.” —

Consumers in charge
Herzlinger argues that consumer-driven care will lead to lower costs because “consumers will be rewarded by the entrepreneurial innovation that can simultaneously improve quality and control costs. Examples include convenient, inexpensive, ‘you’re sick, we’re quick’ retail medical centers; competition among doctor-owned, specialty hospitals; and integrated teams for the treatment of chronic diseases or disabilities.
“Other examples include global health services in developing countries that offer care to international patients; this enables countries to minimize the capital investment health facilities require. This also helps by reducing waiting times and capacity pressures in single-payer countries—and the services offered are typically cheaper than those in developed countries.” —

from world magazine

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