Friday, February 17, 2006

Superman To The Rescue - In Health Care

Just finished reading Bush's thoughts on health care reform, and I feel like burning the hundreds of books on the economics of medical care I have on my shelves. They were an utter waste of time, it seems, because our Dear Leader has stripped off his presidential suit, and what do we find under it? The leotard with an S on the chest. Superman Explains All.

I have been wrong, all these years. The problem with the medical care system is not in its awkward characteristics that don't comply with those of a desirable market: lack of information, asymmetry of information, large nonprofit component, unpredictable incidence of illness, high monopoly power on the supplier side and considerable externalities. The problem is that we haven't allowed it to be a market!!!! (And don't worry about the terminology in this paragraph. It's just inserted to show that I know what I'm talking about and not meant to impress those who don't care.)

Ok. Now that I have been born again dum and simple-minded, how are we going to put more market into health care? And what will it give us? Well, Superman Bush tells that we need to put the onus back on the consumer, and then the consumer will select carefully and prices will fall and then there will be more goodies for everybody:

But the key thing in a health savings account is you actually put a patient in charge of his or her decisions -- which we think is a vital aspect of making sure the health care system is not only modern, but a health care system in which costs are not running out of control. And part of making sure consumers, if they have a decision to make, can make rational decisions is for there to be transparency in pricing. In other words, how can you make a rational decision unless you fully understand the pricing options or the quality options. When you go buy a car, you know, you're able to shop and compare. And, yet, in health care, that's just not happening in America today.


It must be exciting to be on the leading edge of an interesting innovation and to a -- into health care. It's hard to believe that ours is a market society in which people are able to shop based upon price and quality in almost every aspect of our life, with the exception of health care. And it's no wonder that we're dealing with what appears to be ever increasing costs.

You know, it's really interesting, LASIK surgery is a good example of a procedure that was really -- was not a part of a third-party payer, just came to be. People could choose it if they wanted to choose it, could pay for it if they didn't want to -- would pay for it themselves if they chose to use it. And more doctors started offering LASIK surgery, there was more information about LASIK surgery, and the price came down dramatically over time, and the quality was increasing. And now LASIK surgery is eminently affordable for a lot of people, because the market actually functioned. And I think what Robin is saying is that they're trying to introduce those same kind of forces in Cincinnati.


In order for it to work, there has to be transparency. How can you expect somebody to make rational decisions in the marketplace if they don't see price and quality? It's going to be a very important -- what we're talking here is a very important reform to really fit into a -- making sure the private medicine aspect of our medical system remains the center of medicine.

There's a debate here in Washington about who best to make decisions. Some up here believe the federal government should be making decisions on behalf of people. I believe that consumers should be encouraged to make decisions on behalf of themselves. And health savings accounts and transparency go hand-in-hand.

That's the solution, pretty much: make patients mull over alternative treatments and drugs and their prices. Make them pore over long statistical studies of how many patients each surgeon kills. Make them learn the alternative ways of treating a complex illness and then carefully comparison-shop for the best provider. Just like buying a car, isn't it? Except that you might be in great pain, close to dying, scared and totally uninformed about medical care. Unless you spent years in a medical school, natch. But even then you might be in pain and scared.

The solution has a whip but no carrot, by the way. The solution is that you can get a Health Savings Account (HSA), an account into which you can save money for your medical expenses. The pretend-carrot is that these accounts are not taxed, but this is only a pretend-carrot, because employer-provided health insurance isn't taxed, either. And in the HSA plan you will get less employer-provided health insurance. Neat, isn't it?

The whip is that you must now shepherd this money carefully by going out and comparison-shopping for your next angioplasty. Though there will be some catastrophic coverage included in the proposal, too.

I have written about this before, but it's worth repeating: Medical care markets sell services and products which vary in the circumstances of their purchase from some which you can judge quite well and buy confidently without much advice (aspirin or perhaps LASIK surgery) to others where you have no knowledge of even what you need and no good way of judging the quality of alternative providers (most serious health conditions). A patient going to a physician with some aches and pains or a weird lump doesn't know what he or she needs; that's why the patient needs the physician's advice. Unfortunately, the physician not only sells advice but also the products which the advice recommends. You can see how this might create a conflict of interest, as the doctor is both your supplier and your spokesperson. Traditional institutional constraints try to control for the conflict of interest in various ways (licensing of physicians, malpractice suits and so on), but the most obvious way of solving it is to have third-party coverage of the costs. Then the patient and the doctor can be on the same side, so to speak, whereas the cost control problem is left to the insurers and other third-party payers.

But this solution does cause pressure to raise the costs of health care, as neither the patient nor the doctor will be very cost-conscious. Bush wants to make the patients responsible for the cost-control. Think about it. Out of the patient-doctor pair, who is the most likely not to feel confused and ignorant? Never mind.

Then there is the whole vast question of how exactly consumers are going to be able to judge the quality of medical care when we have awful trouble doing that in professional studies. Bush the Superman simply leaps over this tall obstacle.

And what about the negative health consequences of essentially weakening insurance by introducing HSAs? Won't people start postponing seeking care because it will cost them more? Wait a few more months before showing anyone that mole which changed color or shape, for example?

Finally, most costs of medical care are not caused by people seeking LASIK surgery or picking drugs on the internet. The savings we can achieve in the field of elective or well-person care are fairly small, because the lion's share of all costs are spent on patients in the last years of their life and within hospitals. Patients will not have the ability to compare prices and judge quality in these cases. This I know for a fact.