Saturday, September 5, 2009
Public Health Care
This blog is dedicated to discussion of public health care. It arose from an off topic thread on the REIT discussion group at the Motely Fool. Here is the thread from The Motely Fool
Please feel free to add a comment. I only ask that you be civil and show the utmost respect to those who disagree with you.I think I have the ability to edit or delete comments and I will do so if I think they are offensive.
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Previous posts can be found in the archive on the left of this post
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Unfortunately I have not found a way for readers to start a new topic of discussion. So, a kludge. If a reader wants to start a new thread, place the material in a comment on this posting and when I visit this blog I can copy the comment into a new thread.
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The following are a list of articles that I found interesting. They provide food for thought but each one, standing alone, may be misleading because they don't look at all aspects of what I call public health care.
How American Health Care Killed my Father Atlantic, Sept 2009
The Cost Conundrum New Yorker, Sept 7, 2009
An Anestheiologist's take on Heath-Care reform Wall Street Journal , Aug 19, '09
Let's go Dutch Weekly Standard, Aug 18, '09
My Drug Problem Atlantic, March 2009
On ratio ning health care part 1
On ratio ning health care part 2
HR 3200 This is the Health Care reform bill from the House of Representatives.
Monday, August 31, 2009
A proposal for public Health care
In the below posts I have commented or criticized some of the arguments regarding some proposals for reforming health care. We do have a problem with health care, and the following are proposed principles that I think should guide any plan.
1. Government should strongly encourage people to obtain non-cancelable catastrophic health insurance. By catastrophic health insurance I mean insurance that covers very expensive health care expenses like cancer treatment, kidney dialysis, and the like. It excludes routine doctor's office visits for colds. The insurance premium should increase with age.
We do not ask life insurance to pay for food and shelter which are necessary for life. When we buy auto insurance we do not ask the insurance company to pay for oil changes and other normal maintenance. Why must we health insurance to pay for many health care expenses that most people can paid with savings or income? Catastrophic health insurance is intended to pay for medical expenses for truly catastrophic expenses, like life and auto insurance. Currently everyone pays for the common inexpensive doctor's visits. The person pays with savings or current income, or can pay the insurance company to pay for the doctor's visits, or accepts lower cash income from an employer that pays for insurance. The advantage of people paying directly for one's health care expenses is that a person would look for the most inexpensive form of health care. For example there are urgent care centers or in-store clinics (e.g. at Walmart) that can handle colds, cuts, burns. They are probably more efficient than a doctor's appointment and may be less expensive. Here is more information on walk-in clinics. A walk-in clinic may not always mean inferior medical service. College campuses normally have walk-in clinics for their students and I do not believe they provide inferior minor medical services. In the U.S., where people change jobis and move more often than other countries the combination of catastrophic insurance and using clinics may be attractive alternative for healthy people without family. People should be free to choose how to pay for minor medical expenses. Employers can always provide expanded insurance or the individual can purchase additional insurance to cover non-catastrophic medical expenses.
When consumers directly pay expenses they will less likely waste money. Let me give a couple of examples. A year ago I realized that I could see better with cataract surgery. I could still see pretty well but not very well. If the cost of the surgery was less than $5000, I would be willing to pay for it out of my pocket; if over $5000 I would think about it more. But I'm covered under Medicare, it would cost nothing, so I had the surgery.
The optometrist noticed that my eyelids partially covered the iris of my eyes. He suggested that I have eyelid surgery. I went online and investigated eyelid surgery. There were many websites (by optometristsI think) that advocated eyelid surgery for cosmetic reasons; it makes you look younger or better. There were a few that discussed the medical benefits of eyelid surgery. If I were paying for the surgery and the cost was over $2000, I would probably have undergone the operation. But Medicare paid for it so I had it done for medical reasons. But I suspect there may be a few people who ask for the eyelid surgery for cosmetic reasons.
When we buy life insurance generally the life insurance company cannot cancel the insurance policy when we get sick. It stays in force until one stops paying the premiums. The same is true with health insurance (usually). It stays in force until someone stops paying the premium. But if someone has insurance through his employer and leaves or is laid off, the employer may stop paying the premiums. The former employee may have difficulty in getting new insurance for understandable reasons. The crux of the problem is that the health insurance is attached with the employer rather than the person and payment stops when the employer changes. The major difference between health care delivery in the U.S. and other industrialized countries is that health care is attached person rather than the employer.
The catastrophic insurance should stay in force for the life of the patient or as long as premiums are paid. There would be no possibility of cancellation due to preexisting conditions. If the employed has health benefits, the employer can take over the payments of the catastrophic insurance as well as offering additional insurance. The catastrophic insurance for the child could be paid by the parent's employer or the parents themselves. When the child grows up and gets a job the catastrophic insurance could be paid by the new employer or employee. In any event as long as premiums are paid there would be no danger of exclusion of preexisting conditions. Presently people willingly pay for life insurance and there I think that would just as willing pay for catastrophic health insurance.
The health care insurance premiums should increase with age to reflect the medical needs of each age cohort. Since health care expenses increase sharply with age this would mean that that insurance premiums for younger people are much less than for older people. This, IMHO, is fair. Younger people start with lower incomes when they first enter the job market, then they may want to buy a house, have children, send the children to college. The retired people do not have all these expenses. For most people income tends to rise as one gets older, wealth increases (homes may become paid off) and some important expenses (home mortgage paid off, children finish college) decreases as we get older.
2. Health care should be provided to poor and low income people by the government.
Currently Medicaid provides health care for the poor. Medicaid can be made more efficient, but there iare many people, the illiterate, the homeless, and others who have not signed up for Medicaid and use emergency room for their health care needs (for a glimpse of the people I'm talking about see the quasi novel The Corner: a life in the an Inner-City Neighborhood by Simon and Burns ). It seems probably that the people who do not even sign up for medicaid would not sign up for insurance. For these people I would propose that in some inner cities that free clinics be established for the poor.
3. Every effort should be made to make our health care system less wasteful
Instead of trying to expand health care insurance that covers everyone, the emphasis should be on decreasing the cost of health care. The present trajectory of health care costs is not sustainable and it is hard to argue that expanding insurance coverage will not increase health care costs more. Providing health care and health care costs are two separate issues; both should be addressed.
One obvious, IMHO, place to start is tort reform. It is my firm conviction that there will be less waste if the people making the decisions on health care are affected by the cost of the health care. The decision to visit a doctor or a walk-in clinic should be left to the individual. I think the drug Viagra is covered under Medicare part D. The cost benefit of that drug is best determined by the user. Consider the case where there is an expensive procedure that can quickly cure an ailment, and a less expensive treatment that takes longer to cure. The cost benefit again is best made by the individual involved who pays at least a substantial part of the cost. The government, if desired, may help the needy not by paying call the cost but part of the cost. I do not think that it would be efficient to negotiate lower prices with hospitals and/or doctors. The government program are huge, and they can use their size to negotiate lower prices. But with lower prices you might get lower quality also and force the private insurers, who do not have as much clout as the government, to subsidize government expenditures. See the blog on on government setting prices below.
klee12
1. Government should strongly encourage people to obtain non-cancelable catastrophic health insurance. By catastrophic health insurance I mean insurance that covers very expensive health care expenses like cancer treatment, kidney dialysis, and the like. It excludes routine doctor's office visits for colds. The insurance premium should increase with age.
We do not ask life insurance to pay for food and shelter which are necessary for life. When we buy auto insurance we do not ask the insurance company to pay for oil changes and other normal maintenance. Why must we health insurance to pay for many health care expenses that most people can paid with savings or income? Catastrophic health insurance is intended to pay for medical expenses for truly catastrophic expenses, like life and auto insurance. Currently everyone pays for the common inexpensive doctor's visits. The person pays with savings or current income, or can pay the insurance company to pay for the doctor's visits, or accepts lower cash income from an employer that pays for insurance. The advantage of people paying directly for one's health care expenses is that a person would look for the most inexpensive form of health care. For example there are urgent care centers or in-store clinics (e.g. at Walmart) that can handle colds, cuts, burns. They are probably more efficient than a doctor's appointment and may be less expensive. Here is more information on walk-in clinics. A walk-in clinic may not always mean inferior medical service. College campuses normally have walk-in clinics for their students and I do not believe they provide inferior minor medical services. In the U.S., where people change jobis and move more often than other countries the combination of catastrophic insurance and using clinics may be attractive alternative for healthy people without family. People should be free to choose how to pay for minor medical expenses. Employers can always provide expanded insurance or the individual can purchase additional insurance to cover non-catastrophic medical expenses.
When consumers directly pay expenses they will less likely waste money. Let me give a couple of examples. A year ago I realized that I could see better with cataract surgery. I could still see pretty well but not very well. If the cost of the surgery was less than $5000, I would be willing to pay for it out of my pocket; if over $5000 I would think about it more. But I'm covered under Medicare, it would cost nothing, so I had the surgery.
The optometrist noticed that my eyelids partially covered the iris of my eyes. He suggested that I have eyelid surgery. I went online and investigated eyelid surgery. There were many websites (by optometristsI think) that advocated eyelid surgery for cosmetic reasons; it makes you look younger or better. There were a few that discussed the medical benefits of eyelid surgery. If I were paying for the surgery and the cost was over $2000, I would probably have undergone the operation. But Medicare paid for it so I had it done for medical reasons. But I suspect there may be a few people who ask for the eyelid surgery for cosmetic reasons.
When we buy life insurance generally the life insurance company cannot cancel the insurance policy when we get sick. It stays in force until one stops paying the premiums. The same is true with health insurance (usually). It stays in force until someone stops paying the premium. But if someone has insurance through his employer and leaves or is laid off, the employer may stop paying the premiums. The former employee may have difficulty in getting new insurance for understandable reasons. The crux of the problem is that the health insurance is attached with the employer rather than the person and payment stops when the employer changes. The major difference between health care delivery in the U.S. and other industrialized countries is that health care is attached person rather than the employer.
The catastrophic insurance should stay in force for the life of the patient or as long as premiums are paid. There would be no possibility of cancellation due to preexisting conditions. If the employed has health benefits, the employer can take over the payments of the catastrophic insurance as well as offering additional insurance. The catastrophic insurance for the child could be paid by the parent's employer or the parents themselves. When the child grows up and gets a job the catastrophic insurance could be paid by the new employer or employee. In any event as long as premiums are paid there would be no danger of exclusion of preexisting conditions. Presently people willingly pay for life insurance and there I think that would just as willing pay for catastrophic health insurance.
The health care insurance premiums should increase with age to reflect the medical needs of each age cohort. Since health care expenses increase sharply with age this would mean that that insurance premiums for younger people are much less than for older people. This, IMHO, is fair. Younger people start with lower incomes when they first enter the job market, then they may want to buy a house, have children, send the children to college. The retired people do not have all these expenses. For most people income tends to rise as one gets older, wealth increases (homes may become paid off) and some important expenses (home mortgage paid off, children finish college) decreases as we get older.
2. Health care should be provided to poor and low income people by the government.
Currently Medicaid provides health care for the poor. Medicaid can be made more efficient, but there iare many people, the illiterate, the homeless, and others who have not signed up for Medicaid and use emergency room for their health care needs (for a glimpse of the people I'm talking about see the quasi novel The Corner: a life in the an Inner-City Neighborhood by Simon and Burns ). It seems probably that the people who do not even sign up for medicaid would not sign up for insurance. For these people I would propose that in some inner cities that free clinics be established for the poor.
3. Every effort should be made to make our health care system less wasteful
Instead of trying to expand health care insurance that covers everyone, the emphasis should be on decreasing the cost of health care. The present trajectory of health care costs is not sustainable and it is hard to argue that expanding insurance coverage will not increase health care costs more. Providing health care and health care costs are two separate issues; both should be addressed.
One obvious, IMHO, place to start is tort reform. It is my firm conviction that there will be less waste if the people making the decisions on health care are affected by the cost of the health care. The decision to visit a doctor or a walk-in clinic should be left to the individual. I think the drug Viagra is covered under Medicare part D. The cost benefit of that drug is best determined by the user. Consider the case where there is an expensive procedure that can quickly cure an ailment, and a less expensive treatment that takes longer to cure. The cost benefit again is best made by the individual involved who pays at least a substantial part of the cost. The government, if desired, may help the needy not by paying call the cost but part of the cost. I do not think that it would be efficient to negotiate lower prices with hospitals and/or doctors. The government program are huge, and they can use their size to negotiate lower prices. But with lower prices you might get lower quality also and force the private insurers, who do not have as much clout as the government, to subsidize government expenditures. See the blog on on government setting prices below.
klee12
Thursday, August 27, 2009
On the future health care bill
Below are some of arguments made in favor of the Health Care bill HR 32000 and contains my comments on the arguments in favor of this bill. It seems now (Sept 24, 2009) that that bill will not be passed but the arguments are still relevant.
1. A large part of the cost of the bill (HR 3200) will be made up by savings from Medicare by making it more efficient But Medicare is running or will run a huge deficit. It seems more appropriate to apply the savings in Medicare to cutting the deficit in Medicare rather than some other program. Will the plan have provisions for these savings? What are the tentative provisions if they have any? The bill is sure to cost money (the CBO estimated a trillion dollars over 10 years for one version of the bill) but the savings in Medicare are hypothetical at this point.
2. Medicare is much more efficient than insurance companies. Their expense ratio is only 2% (or whatever) wherease insurance companies have a much higher expense ratio But Medicare will run a very large deficit in the future. Social security also has a lower expense ration than any pension plan, but they also have a large deficit. I conjecture that somehow the low expense ratio and large deficits are releated. Anyway, as mentioned above, the CBO scored a proposal an said it would cost close to a trillion dollars so the new bill will probably be very expensive even if efficient.
3. A public insurance company will provide competition for private insurance companies and lower costs But will the public company at least break even? Usually when one tries to raise money for a new company that will be listed on the stock exchanges, there is always a detailed prospectus that describes in detail the business plan of the company. Large investors carefully read the prospectus before investion. Lacking details on the public company one has to take it on faith that the public insurance company will not add greatly to the deficit. Let me point out Social Security and Medicare costs are or will be much greater that what was envisioned when the programs were started.
The idea of a public insurance company seems to have been replaced by co-ops. Still missing is any prospectus and the arguments against the public insurance companies applies to co-ops.
Effects of goverments setting prices
Drug prices
It has been argued that the government can provide cheaper drug prices through economies of scale. Maybe everyone should order their drugs from Canada. But that won't work for long. The drug companies will stop selling drugs at a discount if that happens. Let's see why.
The cost of developing a drug (including the cost of clinical trials) is very large, especially if one takes into account of drugs that don't pan out. The marginal cost of actually producing the drug may be relatively small.
Canada, for example, may threaten to use a cheaper but less effective drug whereas this might not be an option in the U.S. So the drug compainies, to maximize profits by selling drugs more cheaply to Canada (and other foreign governments) than to patients in the U.S. Canada is getting a free ride. This practice is, I think, charging what the traffic will bear. But drug companies cannot give a free ride to everyone. Drug companies will simply limit the amount of drugs they sell to Canada at a discount.
Charging what the market will bear is, of course, not limited to drugs. Airlines, hotels, software companies and many other industry use it. The point is that not every
Now if the U.S. government, using its monopoly position, demanded the same discount as Canada, profits may disappear and drug innovation may disappear with the profits. I think that U.S. drug companies have been responsible for a disproportionate number of the major new drugs in recent years.
Charging what the market will bear is, of course, not limited to drugs. Airlines, hotels, software companies and many other industry use it. The point is that not everyone can get the best price. Those who pay more subsidize those who pay less.
I have heard (perhaps mistakenly but I think not) that there are some diseases that drug companies do not attempt to find medicine for because it wouldn't be profitable. Either the people are too poor (as in a third world country) or the disease is rare so that there won't be a large number of users.Drugs are expensive to develop and you can't get around the fact that someone has to pay for the development.
It may be argued that drug companies are making excessive profits. To take one example a large U.S. drug company Merck has indeed outperformed than the S&P indices but the moderate outperformance may be justified on risks that Merck takes.
I know that drug companies may engage in questionable practice. They may reformulate old drugs as new drugs and try to get a patent on the reformulation. But the dangers of government regulations may inhibit drug innovation and the questionable practices can be dealt with on an individual basis.
Medicare prices
Medicare and Medicaid sets a price they will pay for hospital stays. Generally hospitals charge the the highest rates to private payers, the next highest rates to insurance companies and lowest rates to Medicare and Medicaid. Therefore those not under Medicare (insurance companies and private pay patients) subsidize those under government programs. It is not possible for everyone to pay the same price at hospitals without the hospitals decreasing quality unless one assumes that hospitals are making very large profits at Medicare and Medicaid rates
Currently Medicare sets the prices they will pay for physician services. By so doing they affect the supply of different type of physicians. Currently it is said that general practitioners are underpaid but specialsts in other fields are overpaid. The result is that fewer doctors are studying to become general practitioner and more people enter the richly paid specialties. This is, in my opinion, a very serious indictment of the present system. I would rather let the market determine the number of people in each specialty. If there is shortage of a particular type of surgery, let those surgeons charge more. The supply of that type os surgeons should increase and eventually prices should come down.
On comparing health care sytems in other countries
It has been said that other industrialized countries provide better health care at lower cost than the U.S. because the government pays the health care costs of the individuals. The situation is much more complicated.
First let us consider whether other industrialized countries do provide better health care than the U.S. How do you measure the quality of health care, or phrased differently what metric do you use? Life expectancy is one metric and in most industrialized nations the life expectancy is greater than the U.S and it is argued that people in other countries therefore receive better health care. Comparisons are not valid unless you hold other variables equal. The fact is that the obesity rate is much higher in the U.S. than in most other industrialized countries. That may be a factor in why life expectancy in the U.S. is lower.
But life expectancy is not the only metric one can use. One can also use the 5 year survival rates of cancer patients. Using that metric do better than other industrial countries (see this paper). Maybe one could argue that if you are going to get cancer, you're better off in the U.S. but if you're going to break a leg, you get better care in other countries.
As to costs, it may be that other industrialized country spend less on health care because they ration health care, in other words the other countries may not pay for some medical procedures that patients want. Suppose someone is 80 years old and can benefit from an expensive hip surgery. It's been asserted (sorry I don't have the sources) that she wouldn't get that surgery in Britain, but Medicare would pay for it in the U.S. I'm not criticizing Britain; they voted for that system, and they're happy with it. Health care is not a right in the sense that free speech is a right. A right to a hip surgery implies that someone else has the obligation to pay for it. Free speech does not imply an obligation on another party. In the U.S. we ration health care, to some extent, by the ability to pay. Every country rations health care some way. The cost of health care can be high or low depending on what you get for it.
In summary the assertion that other industrialized countries provide better health care at a lower cost is neither true or false. It is meaningless unless there is agreement on what it means to have better health care and unless one examines how health care is rationed.
First let us consider whether other industrialized countries do provide better health care than the U.S. How do you measure the quality of health care, or phrased differently what metric do you use? Life expectancy is one metric and in most industrialized nations the life expectancy is greater than the U.S and it is argued that people in other countries therefore receive better health care. Comparisons are not valid unless you hold other variables equal. The fact is that the obesity rate is much higher in the U.S. than in most other industrialized countries. That may be a factor in why life expectancy in the U.S. is lower.
But life expectancy is not the only metric one can use. One can also use the 5 year survival rates of cancer patients. Using that metric do better than other industrial countries (see this paper). Maybe one could argue that if you are going to get cancer, you're better off in the U.S. but if you're going to break a leg, you get better care in other countries.
As to costs, it may be that other industrialized country spend less on health care because they ration health care, in other words the other countries may not pay for some medical procedures that patients want. Suppose someone is 80 years old and can benefit from an expensive hip surgery. It's been asserted (sorry I don't have the sources) that she wouldn't get that surgery in Britain, but Medicare would pay for it in the U.S. I'm not criticizing Britain; they voted for that system, and they're happy with it. Health care is not a right in the sense that free speech is a right. A right to a hip surgery implies that someone else has the obligation to pay for it. Free speech does not imply an obligation on another party. In the U.S. we ration health care, to some extent, by the ability to pay. Every country rations health care some way. The cost of health care can be high or low depending on what you get for it.
In summary the assertion that other industrialized countries provide better health care at a lower cost is neither true or false. It is meaningless unless there is agreement on what it means to have better health care and unless one examines how health care is rationed.
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