Sunday, August 16, 2009

An Excellent Article on Health Care

David Goldhill in The Atlantic has an excellent article on the ills of the 'health care' system.
He addresses very early a question I have posed a couple of times - "Why be so fussed about rising costs in the system; Is that necessarily so bad?"
And he answers that it is bad because it is currently driven by the fact that people in general are not making decisions to spend their own money:

Modern group health insurance was introduced in 1929, and employer-based insurance began to blossom during World War II, when wage freezes prompted employers to expand other benefits as a way of attracting workers. Still, as late as 1954, only a minority of Americans had health insurance. That’s when Congress passed a law making employer contributions to employee health plans tax-deductible without making the resulting benefits taxable to employees. This seemingly minor tax benefit not only encouraged the spread of catastrophic insurance, but had the accidental effect of making employer-funded health insurance the most affordable option (after taxes) for financing pretty much any type of health care. There was nothing natural or inevitable about the way our system developed: employer-based, comprehensive insurance crowded out alternative methods of paying for health-care expenses only because of a poorly considered tax benefit passed half a century ago.
In designing Medicare and Medicaid in 1965, the government essentially adopted this comprehensive-insurance model for its own spending, and by the next year had enrolled nearly 12 percent of the population. And it is no coinci­dence that the great inflation in health-care costs began soon after. We all believe we need comprehensive health insurance because the cost of care—even routine care—appears too high to bear on our own. But the use of insurance to fund virtually all care is itself a major cause of health care’s high expense.


Want further evidence of moral hazard? The average insured American and the average uninsured American spend very similar amounts of their own money on health care each year—$654 and $583, respectively. But they spend wildly different amounts of other people’s money—$3,809 and $1,103, respectively.

Canada's government system started out largely covering catastrophic expenses, but crept into a form of comprehensive insurance, and I agree with Goldhill that this is the source of much of the system's problem (ours, like that in the US).
On cost control, something I do not see addressed realistically in any of the US proposals:
Cost control is a feature of decentralized, competitive markets, not of centralized bureaucracy—a matter of incentives, not mandates. What’s more, cost control is dynamic. Even the simplest business faces constant variation in its costs for labor, facilities, and capital; to compete, management must react quickly, efficiently, and, most often, prospectively. By contrast, government bureaucracies set regulations and reimbursement rates through carefully evaluated and broadly applied rules. These bureaucracies first must notice market changes and resource misallocations, and then (sometimes subject to political considerations) issue additional regulations or change reimbursement rates to address each problem retrospectively.

And as for the idea that the various single payer systems succeed so well at this:
Whatever their histories, nearly all developed countries are now struggling with rapidly rising health-care costs, including those with single-payer systems. From 2000 to 2005, per capita health-care spending in Canada grew by 33 percent, in France by 37 percent, in the U.K. by 47 percent—all comparable to the 40 percent growth experienced by the U.S. in that period. Cost control by way of bureaucratic price controls has its limits.

There is a reason a good deal of the medical industry is not opposed to the currrent Democratic direction:
In competitive markets, high profits serve an important social purpose: encouraging capital to flow to the production of a service not adequately supplied. But as long as our government shovels ever-greater resources into health care with one hand, while with the other restricting competition that would ensure those resources are used efficiently, sustained high profits will be the rule.

By the way, one dumb notion many people have is that the uninsured cannot get treatment; of course this comes at a price:
Hospitals are indeed required to provide emergency care to any walk-in patient, and this obligation is a meaningful public service. But how do we know whether the charitable benefit from this requirement justifies the social cost of expensive hospital care and poor quality? We don’t know. Our system of health-care law and regulation has so distorted the functioning of the market that it’s impossible to measure the social costs and benefits of maintaining hospitals’ prominence. And again, the distortions caused by a reluctance to pay directly for health care—in this case, emergency medicine for the poor—are in large part to blame.

In the end he proposes a combination of catastrophic insurance and HSAs, which is actually what my employer is providing me in retirement (modestly, as the government already provides me a comprehensive plan).
What seems likely to happen is a costly series of band-aids to add to the previous errors in taxation, and a past accretion of band-aids in the past that played whack-a-mole with the various symptoms that popped out of the system created largely by failed regulations that distorted any hope for cost discipline.
Goldhill early makes the point that health, medical care, and health insurance are quite different things. Amen.


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