Monday, November 07, 2005

Playing Doctor

I have been quite disturbed by the whole healthcare issue, mainly because I hadn't formed an opinion of it. Today, however, I have formed an opinion, and, as usual, it is long and involved.

I began by defining the problem. Medical prices are too dang high. High prices means one of three things, high demand, low supply, or both. The American lifestyle, of course, increases demand for healthcare, but the fact that we import doctors from abroad demonstrates that the American economy is not producing enough medical personnel on its own. Thus the answer is both.

The Demand for Healthcare

How can we change American's lifestyle? Making McDonalds kowtow before the gods of more healthful living is not terribly effective, since those who do not want to be healthful flock to Burger King or simply order the least healthful items on the menu. Furthermore, any attempt to mandate certain levels of nutrition involves an excessively intrusive form of governance, doesn't stop home cooking, and doesn't stop people from eating massive quantities of the healthful foods. In short, one must find some incentive to make Americans eat less, exercise more, etc.

With rare exceptions, such as smoking, poor health habits do not raise the immediate cost of healthcare for those who maintain such habits. A large portion of this is the consequence of employer sponsored healthcare, and other forms of group health insurance. It reduces the insurance companies' risk to enroll entire groups, since the healthier members of that group will subsidize the disease-ridden outliers. An ideal situation, therefore, would be to eliminate all employer health insurance. Sell health insurance to individuals, and then link their premiums to their health habits.

This immediately raises red flags, as people are horribly concerned about (a) the cost of insurance, (b) the people with chronic diseases whom no one will want to insure, and (c) the personal information that health insurance companies will have to get to create accurate risk scenarios.

To answer objection A, private insurance seems costly now for three reasons: a large portion of the cost of employer sponsored healthcare is hidden, there is currently little competition, and the market is poorly designed.

First, employer sponsored insurance is just that, employer sponsored. There is a large chunk of money being spent by the company that its employees never see. If employer sponsored healthcare were eliminated, competition would force that money to be redirected to wages.

Second, the market for private insurance is not terribly competitive, as that is not where the money is. Insurance companies make larger amounts of money by pitching their wares to volume purchasers, a.k.a., companies, rather than seeking out individuals.
Third, those who currently purchase private health insurance tend to be those who do not receive it from their employers, and are thus on the lower end of societies economic scale, and, as a related factor, have poorer health than the population at large.

Thus private insurance in a low-income, high-cost, non-competitive market seems expensive compared to subsidized healthcare. Duh.

To answer the second objection, I propose that the insurance laws be rewritten. The new rewrite would have the principle of responsiblity included. Who bears responsibility for the medical expense?

If no one is responsible, for things such as genetic diseases or the catching of random contagious diseases, the insurance company would cover the costs--it's the risk of the business they are in (thus the chronic disease people cannot be discriminated against).

If the medical expense can be linked to the behavior of the policy holder, for example, cracking your head while skydiving, or getting lung cancer from smoking, then (a) those behaviors would raise the person's premium (thereby discouraging jumping out of perfectly good airplanes), and (b) the person can be required to pay for some of the costs (and yes, deductibles can still be applied, at the discretion of the insurance company).

However, and this is probably the part with the most impact, if others bear some responsibility for the problem the insurance company can sue to recoup their losses. This would not contribute to litigiousness, as the insurance company can decide whether their potential gains are worth the cost, since the damage is limited only to the insurance company's expenses. However, those times when suing to recoup losses does happen, it would force other companies to improve environmental and safety standards--and it would do so far better than the EPA and OSHA ever could. For example, where I work we have a machine among whose printable nicknames is "the arm-breaker." If my employer knew that, should an employ break their arm, or other parts, on that machine, they could be sued for all the medical expenses, they would promptly modify it to make it safer--even though it is already within OSHA's safety requirements. Similarly, if a company is spewing pollutants into the atmosphere, sickening the people around them (even if they were in concentrations not deemed "harmful" by the EPA) they could still be sued for their measure of responsiblity. The main reason why this arrangement would lead to tighter standards than those of the EPA and OSHA is that insurance companies are much less prone to political lobbying. They have an incentive to keep the standard high, and the companies have an incentive to agree with them.

Third, no one is better at creating accurate risk scenarios than insurance companies. That is their job. They can decide exactly what behaviors contribute to what risks of what costs, and price appropriately, but not when they are not allowed to gain access to that information. How could an insurance company gain such information? Probably by providing annual health inventories, screenings, and physicals. While this might seem to be an invasion of privacy, one's medical records are all processed by the insurance companies anyway, as claims come due, so it's not likely to be much more invasive than current practice, and, if one doesn't wish to reveal such information I'm sure an insurance company will offer that option--but you'll have to pay for it, of course, due to the increased risk the company is taking on. An added benefit to this arrangement is it would allow us to identify problems as they're developing, rather than waiting for someone to develop full-blown whatever first.

Thus, to decrease the demand for healthcare, we need to link it to the individual's behavior. To accomplish this we need to eliminate employer sponsored healthcare. To protect against abuses of the private market, liability depends on the responsibility, the measure of control, that an actor has over the medical problem. Side benefits include creating a more efficient private market, rather than the government/corporate/private chimera we have now, creating higher environmental and safety standards, and catching problems early.

The Supply of Healthcare

Why don't we have the number of doctors and nurses that we need? Why does American medicine rely so heavily on drugs and technology? The answer to both of these questions is the same: the U.S. medical system is based on an arrangement belonging to the Middle Ages' guilds. It has been entirely bypassed by concepts of mass production, mass specialization, and the service economy. Healthcare practitioners are essentially still artisans. They have devoted themselves entirely to their craft, devoting enormous amounts of time to learning all parts of it. Even our "specialists" are not true specialists, but those who have mastered all of the previous knowledge, and moved on to greater things.

What if, for example, we divided a doctors responsiblities among 15 or 20 people, each focusing on one aspect of what a doctor does? What if you went to an assembly line hospital, in which you were first met by a health inventory technician, who gathered general information about all parts of your health, then a general diagnostician, who narrowed the problem to one set of factors, for example, skin problems, and you were then directed to a skin disorder diagnostician, who identified precisely which skin disorder you had and its cause. You were shuffled off to a dermatological treatment specialist who performed the surgery, provided the prescription, or did whatever was necessary (all of which could be separate jobs). You were then released, and another person did follow up work to assess the effects of the treatment. Every medical personnel would have to learn only one area, and would thus learn it very, very well. They would require far less training to become far more efficient at what they do. If you don't think this would work, go read about Jaipur Foot, which does precisely this. The result of the decreased training would be vastly decreased costs. An additional benefit is that the mistake made by one person may very well be caught by the next person up the line.

Medical costs are so high because the healthcare system is entirely out of whack with the rest of the economy. A traditional doctor cannot see many more patients than doctors have, though technology has made treatments far less time consuming. Productivity has scarcely risen, yet the rest of the economy has made enormous strides in productivity. Why America's healthcare system is so dependent on technology and drugs is because it increases the productivity of our doctors, who are trying to do mass production work with the economic arrangments of a trade guild.

Therefore, to decrease medical costs we need to abandon the whole concept of "doctors". The generalist who oversees the entire health of an individual is an idea best returned to the Middle Ages, or places where such generalists are needed, such as unclear cases, or areas too small to achieve economies of scale. Rather, true "specialists" who are trained in only one small field, and gain an extreme level of expertise in that field, can produce the good of healthcare at a significantly lower cost, all by raising productivity.


Anonymous NicholaiRostov said...

You are cold-hearted Larry. And so am I. I prefer socialization of medicine. Do we really need to have THAT good of medicine? I think medical costs are so high because we are too advanced. Lets crank back the advancement wheel and collectivize medical care. I am willing to grease the wheels of universal healthcare coverage with a few deaths here and there. I prefer this to your Darwinian approach. Generally those people who are not very good at making decisions about their health are also those who are not very good with money. Go take a look at the people who eat at McDonalds and see which bracket of society they fit into. I doubt that many of them fit into the 100,000 plus category (or even 35,000 plus!?). It is the same with cigarettes. Poor people smoke. Let's not make them more poor by taxing the crap out of them and then making the pay ridiculous amounts for health insurance. Pay more, sure. Penalize, no. I believe that your approach would further increase the wealth gap in America, and I kind of like it the way it is.

10:46 AM  
Blogger Noumenon said...

Check Tyler Cowen's avian flu post for a good way to present a big philosophy in a bloglike space. Of course it means a lot more work, which is worth it for him because he has many readers and is potentially influential.

2:10 PM  
Blogger Octavo Dia said...

You are cold-hearted Larry.

Probably. I try to view (most) political differences with the understanding that we're all seeking the same ends, with disagreements over the means. I tend to seek non-governmental solutions to problems, because those with political power will necessarily rearrange things to their advantage. I remember an article in the Economist in which they argued that progressive tax systems end up as flat taxes anyway, once all the loopholes are introduced, so we might as well establish a flat tax and get rid of the paperwork.

I prefer the socialization of medicine.

Adding more government control will surely not reduce the total cost of healthcare. Therefore the net result of socialized medicine would be the redistribution of costs. Rather than socialize medicine, with all the attendant bureaucracy (and the restriction of free market competition, which will further increase costs), take the mandatory health insurance idea and subsidize it. To cut the paperwork further, make the subsidy universally available and of a standard size. By making it the same size for everyone, the proportional benefit will naturally fall towards the poor.

Do we really need to have THAT good of medicine?

That's another thing that distorts the relative costs of socialized v. privatized medicine. The U.S. market is the only viable one for making profits out of medicine. Thus almost all of the improvements in medical technology come out of the U.S., meaning that the U.S. economy also bears the burden of R&D for the world.

Why hasn't improved technology brought improvements in costs and efficiency, as has technology in every other field?

Generally those people who are not very good with money.

I am unsure why poor people smoke, but you're right, it is far more prevalent in the lower classes than in the upper.

Neverthless, with regards to McDonalds, much of the purchasing behavior is a result of economics. I recommend C.K. Prahalad's The Fortune at the Bottom of the Pyramid, for a thorough discussion of the economics of being poor. One of the aspects of being poor is that they tend to live in high-cost areas. For example, by not having access to traditional sources of credit, the poor are forced to pay exhorbitant sums to loan sharks. Or they have to do their shopping at high-cost convenience stores, because the cheap, essentially zero-margin grocery stores can't survive in poor areas. McDonalds is a lower class restaurant because it is a cheap source of calories, though not of nutrition. The result is obesity, which, in effect, is trading short terms costs (which people are good at calculating) for long term costs (which people are notoriously bad at). In short, by linking health costs with behavior, we're increasing the short term costs to save much larger long term costs. The change is, at the least, revenue neutral.

3:46 AM  

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