(2009-09-16) Goldhill Healthcare Reform

David Goldhill wants real Healthcare Reform based on Medical Error (sepsis) killing his father last year. All of the actors in health care--from doctors to insurers to pharmaceutical companies--work in a heavily regulated, massively subsidized industry full of structural distortions. They all want to serve patients well. But they also all behave rationally in response to the economic incentives those distortions create. Accidentally, but relentlessly, America has built a health-care system with incentives that inexorably generate terrible and perverse results... The problems I've explored in the past year hardly count as breakthrough discoveries--health-care experts undoubtedly view all of them as old news. But some experts, it seems, have come to see many of these problems as inevitable in any health-care system--as conditions to be patched up, papered over, or worked around, but not problems to be solved. That's the premise behind today's incremental approach to Healthcare Reform... I'm a Democrat, and have long been concerned about America's lack of a health safety net. But based on my own work experience, I also believe that unless we fix the problems at the foundation of our health system--largely problems of incentives--our reforms won't do much good, and may do harm.

Insurance is probably the most complex, costly, and distortional method of financing any activity; that's why it is otherwise used to fund only rare, unexpected, and large costs. Imagine sending your weekly grocery bill to an insurance clerk for review, and having the grocer reimbursed by the insurer to whom you've paid your share. An expensive and wasteful absurdity, no? (Health Insurance)

Of course the health system could benefit from better use of IT.... But in what other industry would an investment with such a massive annual return not be funded by the industry itself? (And while $50 billion may sound like a big investment, it's only about 2 percent of the health-care industry's annual revenues.) Technology is effective only when it's properly applied. Since most physicians and health-care companies haven't adopted electronic medical records (EMR) on their own, what makes us think they will appropriately use all this new IT? Most of the benefits of the technology (record portability, a reduction in costly and dangerous clinical errors) would likely accrue to patients, not providers. In a consumer-facing industry, this alone would drive companies to make the investments to stay competitive. But of course, we patients aren't the real customers; government funding of electronic records wouldn't change that.

First, we should replace our current web of employer- and government-based insurance with a single program of Catastrophic insurance open to all Americans--indeed, all Americans should be required to buy it--with fixed premiums based solely on age. This program would be best run as a single national pool, without underwriting for specific risk factors, and would ultimately replace Medicare, Medicaid, and private insurance. All Americans would be insured against catastrophic illness, throughout their lives. Proposals for true catastrophic insurance usually founder on the definition of catastrophe. So much of the amount we now spend is dedicated to problems that are considered catastrophic, the argument goes, that a separate catastrophic system is pointless. A typical catastrophic insurance policy today might cover any expenses above, say, $2,000. That threshold is far too low; ultimately, a threshold of $50,000 or more would be better.

How would we pay for most of our health care? The same way we pay for everything else--out of our income and savings. Medicare itself is, in a sense, a form of forced savings, as is commercial insurance. In place of these programs and the premiums we now contribute to them, and along with catastrophic insurance, the government should create a new form of health savings account (HSA).

Some experts worry that requiring people to pay directly for routine care would cause some to put off regular checkups. So here's a solution: the government could provide vouchers to all Americans for a free checkup every two years. If everyone participated, the annual cost would be about $30 billion--a small fraction of the government's current spending on care.

Qliance Medical Group, for instance, now operates clinics serving some 3,000 patients in the Seattle and Tacoma, Washington, areas, charging $49 to $79 a month for unlimited primary care, defined expansively.

I believe my proposed approach passes two meaningful tests. It will do a better job than our current system of controlling prices, allocating resources, expanding access, and safeguarding quality. And it will do a better job than a more government-driven approach of harnessing medicine's dynamism to develop and spread the new knowledge, technologies, and techniques that improve the quality of life. We won't be perfect consumers, but we're more likely than large bureaucracies to encourage better medicine over time.