Health Care Financing Reform: (20) Hard Choices

     We all agree that we are facing a crisis in health care.  Costs are out of control, people are losing their insurance at a frightening rate, while co-pays, deductibles, and lifetime limits are climbing.  We have to do something – but in crafting reform we have to be ready to take the bitter with the sweet.

     I have mentioned the frightening statistics in earlier posts.  Health care costs have more than doubled over the past decade, and are increasing much faster than growth in individual income or our country's gross domestic product.  We are presently paying 17 cents out of every dollar for health care, and that is slated to increase to 25 cents within just a few years.   This both reduces our purchasing power and, because most of us acquire insurance through our employers, American goods are services are more expensive, making them less competitive in the global marketplace.

     Furthermore, as health insurance becomes more expensive, more and more people are uninsured or underinsured, leading them to forego prevention or treatment.  Even those who have health insurance are not fully protected.  Health insurance in America typically does not cover preexisting conditions or pay for preventive care.  As a result, many chronic conditions like diabetes or high blood pressure go untreated.  Every year Americans are less and less healthy as compared to the people of other countries.

     However, everything we do to address these problems has a drawback, that must in turn be addressed.  I don't think that there is a "silver bullet" that can solve all of our problems.  Here are some of the choices we face, as I see them:

1.  If our goal is to make sure that there is universal coverage through private health insurance, then we will have to mandate coverage – every individual and every family will have to purchase insurance.  In addition, every employer will have to provide insurance to its workers.

2.  Poor persons and small employers will need subsidies to purchase insurance.  As the Brookings Institute states, “Extending health insurance to everyone is expensive.”  Three sources have been proposed to pay for these subsidies: a "millionaires tax" on persons earning over $500,000 per year or couples earning over $1,000,000 per year (the House bill to emerge from the Ways and Means Committee); a tax on "Cadillac health plans," that is, insurance policies that cost over $21,0000 per year (the Baucus bill); and fees paid by individuals and employers who fail to obtain or provide insurance (virtually of the bills).

3.  We can't require private insurance companies to cover pre-existing conditions unless we require everybody to purchase insurance.  Otherwise, people will wait to purchase health insurance until they really need it – when they are diagnosed with diabetes or heart disease, when they have an auto accident, or when they become pregnant.

4.  We can't require employers and individuals to purchase insurance unless we take significant steps to hold down costs – otherwise we will actually drive up the cost of health care by increasing demand without increasing supply.

5.   We could try to hold down costs by expanding competition in the marketplace – by creating a national market for health insurance, knocking down barriers to entry, improving the flow of information to consumers, and instituting regulation to guarantee that insurers are fulfilling their obligations to customers.  But there is no guarantee that this will work.  Under our system of employer-supported, tax-exempt, private health insurance, health care costs have risen dramatically for a generation – more than doubled over the past 10 years – and those costs show no signs of slowing.  A system of purely private health insurance may be incapable of reining in the cost of medical care.

6.  We can try to hold down costs by allowing the government to sell health insurance – the so-called "public option."  Under existing proposals the government would sell health insurance to the public at cost – the program would operate like a non-profit company.   Under the Kennedy proposal the government would negotiate prices with hospital providers in the same way that private insurance companies do.  Again, however, this may not work any better than the system of private health insurance has.

7.  We could try to hold down costs by simply instituting price controls – Medicare does that already because the government simply dictates what it will pay doctors and hospitals.  The trouble with this solution is that it is like trying to repeal the laws of supply and demand.

8.  We could simply skip steps 1-7 and move to a system of nationalized health care.  All persons would pay a certain percentage of their income to the government which would either provide (like the V.A.) or pay (like Medicare) for everybody's medical care. 

9.  It may be that the ultimate problem of cost has to do with how health care providers are paid.  Under the traditional "fee for service" model doctors and hospitals are paid for each service rendered – every office visit, every procedure, every hospital stay is separately billed.  This encourages doctors and hospitals to provide unnecessary care, and patients don't care so long as the service is covered by insurance.  We could move away from the "fee for service" model and instead require health care providers to organize in HMO-type provider networks and have public or private insurance reimburse these networks on a "capitation" basis – an annual fee for taking care of all of a person's medical needs.  This would almost certainly reduce the cost of medical care.  The problem with this model is that it can motivate doctors and hospitals to provide less care than is needed, because every additional medical procedure that is performed reduces the network's profits.  No matter whether we retain the fee-for-service model or move to a capitation system of payment, we will need to develop stronger protocols defining appropriate levels of care.

     Note that I have not listed the step of "doing nothing."  It is possible that there is no solution to this problem – that the cost of medical care is the iceberg and we are the Titanic.  But I don't believe that.  Other countries have found ways to provide high quality medical care to all of their people at much lower cost, and we can as well.

     Nor should ideology be a barrier to finding a solution.  Those of you who know me are aware that I am as fond of ideology as anyone, but ultimately I am a pragmatist – I will go with what works no matter what political or philosophical tradition the solution belongs to.

     At one time we were a frontier nation, and much of our national character was forged in that setting.  We are entrepeneurial, individualistic, and independent.  In olden days we and our families were on our own, and when we became sick or were injured we died.  Medical care didn't cost much because there wasn't much that doctors could do.

     Now we have medical devices like CAT scans and MRIs that seem almost magical to lay persons, wonder drugs that work wonders, and medical specialists of every description.  The trouble is that when we need medical care hardly any person can afford to pay for all these miraculous instruments of healing out of his or her own earnings or savings.  If we are going to maintain a system for providing high quality medical care to all persons when they need it, particularly for an aging population, we will have to give up some of that frontier, individualistic mentality.  We are all in this together.

     I hate to do it.  But I don't see any other choice.

     Tomorrow: more analysis of the Baucus bill.

Tagged as: choices, health care financing reform, health care reform, health insurance reform