Wednesday, October 25, 2006

Healthcare Made Easy

Cleaned up some, but still really boring, and very nearly pointless. (It has an alternate purpose, can you guess it?) You were warned.--K

My wife has been reading Thomas Sowell's pile of assumptions and hearsay about economics and politics (frustrating but forgivable, I started from similar places as I grew interested in the world around me). The information in the book has already led to a spousal, um, spirited discussion, spurred by the Massachusetts gubernatorial debate last week, as the crooks and loons had at the subject of health care.* Sowell offers up the usual conservative bromides against state-sponsored medical programs: people will use services more freely when it's paid by someone else. He also argues, I think contrary to his first point, that R&D isn't supported in state-run systems like Canada's. (This is bullshit, right? If more people are using services, isn't there more money invested into the medical economy?). And of course he rails against malpractice insurance, even though it's a tool to make the system equitable.

As is usual for any think-tank pundit, he's telling only a small part of the story. The government may well have no business planning** the ins and outs of the medical industry, but no one's asking that. State systems instead seek to run the medical insurance industry. Since insurance depends on spreading risks, then it makes sense to spread it to the largest possible pool, namely the entire public. A self-selected pool of people of similar risk is an OK as an economic exercise, but it neglects the social goals of insurance. Some of the economic goals too--you still might catch the flu from a poor person (or smallpox, polio, etc., depending on how "free market" you want to get).

Is state insurance going to break the bank? As I see it, the costs of health care are broadly distributed as follows:

  • Services
    • preventative (including disease control)
    • emergency

  • Development
    • R&D
    • marketing

  • Administrative
    • point of care
    • insurance
    • legal

In America, it's usually argued that costs are dominated by development, which is driven by our collective desire to have a medical industry here in the states. This desire is independent of the manner of payment. Administrative costs are another biggie, and I understand that paper-shuffling and Byzantine payment documentation outweighs the legal fees by a big margin (but again I can be convinced otherwise). I've never been sold that emergency costs outweigh preventative costs in the aggregate. Prevention is cheaper case-by-case but you need more of it. Prevention does lead to a better quality of life, however, as does having as many mechanisms as possible to correct system defects.

But back to the debate, as well as my familial argument: what's the best health insurance model? I've considered four possibilities: (1) no insurance; (2) optional multi-payer insurance (the prevalent model in the U.S.); (3) mandated multi-payer insurance (the new Massachusetts model); and (4) state-administered single payer insurance (as in Canada and Western Europe). They're arranged on the following table, and I make my judgements below.


Non-insurance model:
This is the real free market case, and even though some libertarians prefer to imagine the "country doctor" scenario, in which small independent medical businesses compete locally for my health care dollars, it's more likely that doctors and hospitals would consolidate corporate-style. (The idea of the heart surgery division of McDonald's is dark comedy.) These medical service divisions will still be sensitive to supply and demand, but accountable to shareholders. And it's probably a myth to think this would eliminate very much bureaucracy.

There would be no spread of the risks in this fantasy model. If the wheel stops on you, then hopefully you've saved up. If you're young and healthy, pay up. If you're old, hope for a quick death. Even though it's an economic issue in many ways, you can forget about public health too. No one's going to suggest that your neighbor gets his shots.

I think Sowell's wrong that this fantasy situation will stimulate much R&D however. That's because price minimization fights R&D and infrastructure development. Yes you still want to please your shareholders with growth of new technology (or markets), but the R&D required for corporate growth is less than the R&D demanded by altruistic public goals. That's the problem with the drug industry. That's why corporate R&D in general has slowed so damn much in this country in the last century. Meanwhile, advances will come in areas that people can demand in advance, like plastic surgery, and highly marketed boutique ailments, while basic care maintains bare minimum standards. (This is why there's a shortage of flu vaccine. No money in it.)

Insurance models:
The multi-payer system is basically the current U.S. system--it's admittedly the most expensive on the market. We're pooling risks, but only among select members of the public. We've introduced some measure of centralized planning (less responsive to cost pressures) and a whole raft of paperwork (more expensive). An HMO is going to feel some measure of pressure to reduce costs, but they're far removed from users. It's the worst case of all administration-wise because there are multiple payers for the same care, and these must be sorted and stacked by care providers.

Doesn't the multi-payer system encourage competition between insurers? Only if there's really much of a choice. There are few options for individuals, and employers quickly find that the providers are all damn similar. Furthermore, a diversity of plans shifts costs (on a statistical, not an individual, basis) to the sicker and more risk-prone. I'd prefer that the people engaging in risky behavior paid more, but people who are born that way? Or who were unfortunate enough to get old? Hardly seems fair.

In any of the insurance models, more money is flowing into the system for basic care (and therefore more money overall), because more people are utilizing it, such is Sowell's "free" argument. This distributes the costs of R&D as well as for care. The more inclusive plans distribute the costs wider, and presumably generate more capital overall for this sort of thing.

The optional multi-payer model shifts the costs of the uninsured to people who do pay. The uninsured end up getting treated anyway, and since the costs are distributed, people don't complain so much about absorbing them. The uninsured likewise fall out of the public health net. The state-mandated or -supplied models plug these holes.

The difference between state-mandated insurance and state-provided insurance is that there is less redundant bureacracy in the latter, reducing costs, but the administration is more centralized. I don't think there's much difference in managing the care of 30 million vs. 300 million users, but the effects of corruption or mismanagement would be more damaging, and could only be fixed by state mechanisms--courts or legisltation. And you're as likely to find a well-informed voter as a well informed consumer.

Finally, I want to note that state-backed plans remove the burden of insurance from employers, and instead distribute it among citizens. The same pot, maybe, but it offers corporations more competitive advantage when it comes to dealing with companies overseas, which, as it turns out, typically don't supply insurance to their employees. Tying insurance to employment seems to mung up both enterprises.


*I'll probably vote for the loon.
**if you read the earlier draft, I'd written "regulating," which was not what I meant. I'm all for having, for example, FDA approvals.

7 comments:

august said...

You've convinced me that I remain impossibly ignorant regarding health care.

Without endorsing (at all) your "boring" disclaimer (thinking more of your posts I didn't write post) -- why is it so hard to be interesting about politics/policy?

Keifus said...

Hi august, I'm fairly ignorant too, which is why I do these exercises now and again. As to the boring, I once read a PJ O'Rourke essay who wrote (if I remember correctly) that politics is kept dull on purpose, as one more measure to keep the sheep away from power. A humorous point, maybe true.

There's also bullshit flying from every possible corner, and you have to sift through that.

I think economic theory borders on interesting (but is also dry as dust as a matter of course). But when you get to actual policy, you have to deal with the realities of unintended consequences and an unimaginable level of detail. There are no frictionless, spherical consumers (voters, markets, etc.) and statistical deficiencies of theory are important on someone's individual level.

But it's possible to be interesting. I'm not so much, but over there in Slate's Fray (and sometimes Slate itself), there's a slew of posters who are. Probably that's the place's great strength. I'm really impressed with some of the bloggers on my list, too.

K (thx for your comment below too)

august said...

I have a friend who works in public health. She has long claimed that decisions are made by anecdote. It's like misery poker. In any given debate about a local health policy, several people get together and pull out their most tortured stories. (Er, so my friend claims. But it seems plausible).

So in your "effects of corruption and mismanagement" line would come along with the testimony of hospital workers of their fight to keep alive a class of kindergardners who had accidentally spiked the recess lemonade with hemlock, the sweat on their tender faces, the ways they smiled when the white knight of better coverage was waved before them in the form of "state-provided" insurance and its attendant efficiences. And how the smiles disappeared from their angelic faces as the nasty private coverage plans ripped from them the possibility of recovery, and so they had to writhe in pain for 4 more weeks (oh it chokes me up to think of the pain in their brave voices).

Okay, got a little carried away there. But I think it nicely illustrates the problem for you and me (as writers, as citiizens, and as consumers). One of the things that can make a story more interesting/appealing to people is a sense of its direct impact on their lives. Various advocacy groups know this, and they quickly spout out the most extreme anecdotes possible, designing their tales to maximum effect. Politics and narrative are related.

(And see Gregor's post this week on how the way numbers feel can have more impact than what they mean).

I don't see a lot of interesting political writing in the Fray. I tend to skim even the best posters (Thrasy and Demo, for example). It may be more my problem than theirs, but I just think is is hard. It's hard to make something interesting and immediate, hard to scope out a position that is both original and workable.

(I think I'm reacting here to some exchange I saw between you and ZB about narrative and fray modes. I don't quite remember where it was or what it said, but I found it interesting)

It's hardest to say interesting things before an election, when everything one says is going to be parced into its impact for Asses and Elephants.

Your draft is interesting to me because of the later point. It's thinking through an issue without assuming frames that would automatically point to the outcome.

Keifus said...

I think electoral decisions are made by anecdote too, for what it's worth.

This sort of thing, I like to think of as an opinion synthesis, salted by my own sense of logic, and what passes for my observations of what politicos have done and the consequences. I hate that it's not quantitative, but, man, that's a lot like real work--it's hard enough making a living trying to abuse thermodynamics. And unlike what I do, economic numbers are very difficult to measure, trends are arguable, and causality requires a healthy dose of faith. And it's just filthy with anecdote, as you mention.

I think the better political opinion-slingers have walked (IOZ and Betty the Crow, frex), as there's a market for them on the outside. (There's plenty to be outraged about just now, and a gift for invective can win me.) There are a lot of bad political types too. I read the guys who aren't too tendentious (the ones you mention, a couple others--I like the old moneybox regulars).

I think part of the problem is that the differences are not so myriad that they bear repeating ad infinitum. In the health care post, the consequential differences come down to (a) whether or not we want some social fallback point, and (b) whether the public health is accounted for. But any of the above models would probably float, more or less, if the economy's producing stuff and founder if it's not.

And yeah, nice way to tie the conversations together. Thanks for that.

K

august said...

I didn't mean the anecdote issue to be criticism of your writing here. I think that you, rundeep, (I hope) me, and others are just too damn sober. I can't write like IOZ in part because I'd be backtracking and qualifying every third sentence.

But it's nice to bump into fellow travellers, in whatever guise. You got me thinking, anyway, which is no small accomplishment, given my very short attention span.

Agree regarding the others you mention. The moneybox/bottom line folk are darn interesting, in their own way. At least they speak to each other (generally) which puts them head and shoulders above most other Frays.

Thanks again,

august

hipparchia said...

hi, keifus!

i adore turgid economic discussions, especially about our ailing health care system, but i don't have much to say at the moment -- beyond some ranting, raving anecdotes about my "adventures in health care" that i've posted in the fray on other occasions.

i'm still researching for now...

Keifus said...

Yo, h. Just thinking it out, trying to balance the arguments and inch toward an opinion.

Got another one coming up sooner or later regarding inequality and medians and stuff. I guess if I shut up about it for a year or more, it becomes fair game for "new" discussion.