Wednesday, August 12, 2009

Public option talk, part 3.

To get back to the subject of my last post, anyone who tells you that public health care plans do not ration care or that ObamaCare will not is misinformed.

If someone tells you that health care is currently rationed, he would be right. Under the current system health care is rationed by market exchange. You - whether individually or through your employer through premiums and forgone wages - buy only so much coverage. Your choice is, of course, constrained by a variety of circumstances. You don't have unlimited amounts of money. You have other needs that must be provided for. Regulations require that your coverage be the same as others in your plan (at least within a limited group of largely equivalent choices) - at least if it is to be tax exempt - so you may not be able get precisely what you want.

For those without coverage, care is rationed by the willingness of the state and providers to offer care. The latter choice is, of course, affected by anti-patient dumping laws.

The end result is that whatever rationing exists is the result of a decentralized process that, within a fairly intrusive regulatory framework, responds to choice and ability to pay. Its advantages are that it does not require anyone to be omniscient. It does not set up a single "honest broker" to decide what care is and is not worthwhile. It allows those decisions to be made from the bottom up, rather than the top down. Although it is far from an unfettered market, it provides incentives to innovation and the results, in the development of breakthrough procedures, technology and pharmaceuticals have been spectacular. American medicine is the engine that drives the improvement of care around the world and that fact is not unrelated to the existence of our limited free market for health care.

But we should not be surprised that this comes at a price. We live in a fallen - and therefore - paradoxical world. Sweet and sour tends to be the way of things. Our system is not as egalitarian as we want it to be. Poor people don't get the same quality care. The market agreements that ration care are affected by the distribution of wealth. The provision of care through employment is an historical accident and a source of economic inefficiency.

And - this is the thing that neither side of the debate wants to talk about - it doesn't ration much care. The reason that we pay so much for health care is the very "problem" identified by President Obama and cited in the last post. We spend enormous amounts of money on care for persons in their twilight years and for the chronically ill. You are, to be sure, more likely to receive this care if you are insured or a person of means, but remember the overwhelming majority of Americans are insured and Medicare and Medicaid do the exact same thing, albeit not quite as generously.

It turns out that - given the choice - we want that hip replacement even though we have cancer. We want a pacemaker even if we are 83. We buy coverage - again often through our employers - that provide for it and we pressure government programs to provide the same thing (although they tend to shift the cost to private payers).

This is one of the reasons that statistics tend to show that American health care (measured by the success of medical interventions such as cancer treatment or bypass surgery) is better than what is on offer anywhere else in the world, yet Americans don't have longer (and may have shorter) life expectancies. We are a rich country and we pay an awful lot for a little more - or a little better - life. But, as a statistical matter, this may be overcome by impacts that are not much related to medical care and that may be side effects of our wealth or our relatively individualistic and libertine culture.

The "public option" takes dead aim at this. And that's the subject of the next post.


Anonymous said...

In other words: America has the best health care in the world, but it is rationed according to ability to pay. Those with gold-plated health insurance get gold-plated health care. The 50 plus million Americans who have no health insurance get whatever crumbs patient anti-dumping laws leave them. Which is, in many cases, too little, too late.

Is it possible that the reason the United States has shorter life expectancies, far higher infant mortality, and overall poorer health care outcomes than many other countries, despite the supposed superiority of our health care treatments, is because there are 50 million Americans who have no health care insurance? Of course it is. Every other advanced nation has universal health care. We treat our sick according to ability to pay. Many can't afford to pay.

The fallacy in your argument is that a public option insurer will destroy competition, destroy innovation, and lead to lower quality of care. That argument might have some merit, as applied to single-payer systems. But most countries that enjoy our standard of living, but have universal health care, have a combination of public and private insurance and competitive health care markets. Offering a public option is simply a way to attempt a lower-overhead, lower-cost, competitive form of insurance. The point is to keep costs down, which all want. How subsidies should be structured to enable all Americans to have health insurance is a different issue from whether there should be a public option available to all. What would be wrong, for example, with making Medicare available to everybody, not just the elderly, upon payment of an appropriate premium? Private insurers wouldn't go out of business. As the President says, UPS and FedEx are doing just fine, despite the Post Office.

Dad29 said...

Anony, the UN report that you use is full of holes and statistical lacunae.

OWI/DUI and drug-related violent deaths are a factor in the USA, but not in 90% of the rest of the world, and infant-mortality rates are skewed by rather curious datagathering/categorization.

That report, by the way, tells us that Cuba's health-score is better than that of the USA's. REALLY?

More important, the fact that other countries have single-payer has NOTHING to do with overall health. If it did, then ALL countries with u-health, (save a very few), would have better 'health indexes' than the USA.

It is not logical to postulate that "the presence of u-care causes 'better health.'" Diet, sanitation, self-care, and cultural factors are players, too.

Dad29 said...

Offering a public option is simply a way to attempt a lower-overhead, lower-cost, competitive form of insurance


Are you asserting that a Government-run program is, ipso facto, a "lower-overhead" system?

And are you asserting that establishing such a system using taxpayer money--buying the computers, software, furniture/fixtures, leasing the buildings, (and tax exemption), not to mention hiring the people, is "competitive" with privately-financed companies who must return a profit and pay off bonds used to finance all that capital? I haven't even brought up the question of financing LOSSES in bad years. I hope you understand that losses in a Gummint system WILL be paid by taxpayers, not shareholders--and those losses are putatively very easy to finance with USGummint bonds.

As to 'efficiency,' the 'efficiency' numbers for Medicare have more to do with the sheer numbers of covered people--not with any superhuman abilities of Medicare staffers.

Anonymous said...

Dad: Actually I didn't cite a UN report. But where do you get this stuff, anyway? Like "OWI/DUI and drug-related violent deaths are a factor in the USA, but not in 90% of the rest of the world"? Source for that?

One in fifty deaths worldwide is a traffic fatality -- 1.2 million deaths a year. (Source: the WHO and, so I'm sure you'll think there are statistical lacunae and holes.) South Korea, for example, has 80.33 traffic fatalities a year per 100,000 vehicles, and France has 30.24, compared with 19.97 in the US of A. (Same sources.) Alcohol is a factor in many of these. (Ever hear of Henri Paul? Princess Di's driver?) We are not the only nation that imbibes. Yet both France and South Korea have longer life expectancies than we do here in the US of A. Both of them have universal health care. France's health care system has been much discussed of late. South Korea's has competition among private insurers, a government insurer that covers about 10% of the population (the poorest), and subsidies for those who cannot afford insurance.

How would a public option lower costs? Private insurers spend a high percentage of premium income on G & A rather than paying claims. They tend to pay a lot to people like the salesmen who sell their policies. A public option wouldn't spend as much on such administrative costs. Nor would it pay the kind of salaries some private insurers do (for example, the $125 million United Health Care paid CEO William McGuire one year).

A Gummint option, as you like to call it, is simply one way of trying to keep costs down. For another approach to cost containment that is also part of the pending health reform legislation, see Atul Gawande's article in today's New York Times. Clinics like the Mayo Clinic and the Cleveland Clinic pay doctors salaries, rather than fees for ordering tests. As a result, they provide lower-cost care and better care.

The bills that are in Congress are an effort to address a problem that has been festering for years. The cost of health care has been growing for years. More and more people are unable to afford it. As a result, there will be more rationing by ability to pay. The rich have great health care. The working poor have lousy health care. To me that's morally unacceptable in a nation as wealthy as ours. It's OK to reward effort and accident of birth with material goods. If you work hard, or were born into a rich family, or both, enjoy your McMansion and your Lexus(es). But in a rich and just society, access to health care should not depend on how rich you are.

Rick Esenberg said...


You are conflating measures of public health with measures of the effectiveness of medical care. It is possible that the existence of a sizeable number of chronically uninsured (and I think that population is considerably less than fifty million) does impact aggregate measures of public health, although that's not clear. I rather doubt that the uninsured population of the US receives poorer care than, say, the population of Abania, yet Albanian life expectancy is almost equal to ours. Why is life expectancy in the US roughly equivalent (within six months) to that in advanced countries with universal health care like the UK, Finland, Denmark, Ireland and Portugal? South Korea has had universal health care for twelve years. Has it leapfrogged us in that period of time? Has its life expectancy even changed as a result? Will it? We need to be careful about glib assertions of causation.

But I don't dispute the desireability of universal coverage. What I do ask you to consider is that this "gold plated" coverage is made available to the overwhelming majority of Americans and yields superior outcomes for people who are actually sick. That system produces most of the world's innovation and these other countries that you mention benefit from it.

It is extremely short sighted not to be very careful about harming those aspects of our system.

Your comments about the need for a public option to discipline the profit and G & A expenditures of private companies is something I'll be blogging on, but here are some questions to consider.

Why do insurers incur these costs?

Where do they get the money?

If public provision of goods and services in necessary to discipline competition, why stop at health care?

Finally, if it is better to pay doctors salaries, why don't hospitals simply do it? (Actually, some do.) There is absolutely nothing in our current system to prevent it or even to discourage it.

Anonymous said...

Rick: My point about South Korea was simply to rebut Dad's glib assertion that OWI/DUI is not a factor in 90% of the rest of the world. Too much of the health care debate, especially what's coming from conservatives, is chock full of glib assertions.

But speaking of glib assertions, you've got more than a few in your post. South Korea didn't adopt universal health care twelve years ago. It announced a plan to implement universal health care in 1976, i.e. thirty-three years ago, and the plan was fully implemented by 1988, i.e. twenty-one years ago. (Source: "The South Korean Health Care System," Oklahoma Medical Research Foundation; Google it.) Where did you get this twelve years stuff?

But since you ask, has South Korea leapfrogged over us in terms of life expectancy since it adopted universal health care, I'll answer. Yes. South Korea has had the highest increase in life expectancy among any OECD nation in the last few decades. Average life expectancy in South Korea was 51.1 years for men in 1960 and 53.7 years for women. It has improved dramatically since then. (Source: "South Korea's Life Expectancy Rise Highest Among OECD Members," Dec. 22, 2005, Yonhap News Agency; Google it.) As both you and Dad point out, there are a lot of factors, and causality is hard to establish. The standard of living has improved in South Korea. But the adoption of universal health care bears a correlation with a dramatic increase in life expectancy. Cause and effect? Not the sole cause, undoubtedly. But it sure looks like there was some effect. Give everyone health care, they will live longer.

Speaking of glib assertions, you keep repeating that the "overwhelming majority of Americans" have health insurance. Now you say that the overwhelming majority have gold-plated health insurance. Every reputable source seems to agree that somewhere in the vicinity of 50 million Americans or more do not have health insurance. That's too many. Saying the "overwhelming majority" have health insurance is, as some have recently aptly pointed out, like saying "I've Got Mine, Screw Everybody Else!".

The argument that universal health care will destroy incentives for innovation is the most powerful argument against it. But, as Jonathan Cohn points out in "Creative Destruction" (The New Republic, Nov. 12, 2007), it, too, rests on too many glib assertions. The profit motive is not, in fact, the leading driver of health care innovation in this country. Academic research and Gummint-funded research at the NIH are the leading drivers. Yes, for-profit enterprises help to bring academic discoveries to market. But having a public option in a marketplace of insurers will not destroy the pharmaceutical industry or GE Healthcare. Nations that have universal health care, like Germany, France, and Switzerland, have pharmaceutical industries, health care industries.

Anonymous said...

Correction: Dec. 22, 2004.

Dad29 said...

South Korea's has competition among private insurers, a government insurer that covers about 10% of the population (the poorest), and subsidies for those who cannot afford insurance

Probably something that the US should study, if not emulate.

Yes, WHO, not UN. Sorry.

Druge-related deaths?

By the way, are war casualties measured in the WHO study? How?

Dad29 said...

I'm sure you know, Anony, that WHO is a subsidiary of the UN.

Anonymous said...

Some answers to Rick's questions.

1. Q. Why does an insurer like United Health Care incur a cost of compensation to its CEO of $125 million?

A. It's complicated, but the answer is a systemic failure of corporate governance.

2. Q. Where do they get the money?

A. Premium revenue.

3. Q. If public provision of goods and services is necessary to discipline competition, why stop at health care?

A. Health care is hardly the first sector of the economy with public sector participation. There are public schools, public parks, public roads, public retirement plans, public dispute resolution services, public hospitals, public corrections institutions, public package delivery services, public universities. Scott Walker to the contrary notwithstanding, some of these entities outperform their private sector competitors.

4. Q. If it is better to pay doctors salaries, why don't hospitals simply do it?

A. As Rick notes, some hospitals do. But current law doesn't necessarily create incentives for hospitals to pay doctors salaries. Hospitals may generate more income, now, by ordering more tests. It is a goal of health care reform to create incentives for more cost-effective health care, health care with better outcomes.

Billiam said...

"The 50 plus million Americans who have no health insurance get whatever crumbs patient anti-dumping laws leave them."

I apologize for coming in late, but this always interests me. Has anyone bothered to verify this magical number? How many actually have no insurance because a) they can't afford it and b) they don't know that they'll be treated if they show up at a free clinic or an emergency room. Many of the so-called 50 million could afford it, but choose not to buy it.
Some are 18-25 year olds who, like I did at that time, think they're immortal. Many are illegals. So, I wish someone would givwe us the REAL number, instead of one created to inspire sympathy and horror at the inhumanity of the evil, uncaring U.S.! Years ago, some feminist group said that x number of women were abused every second. It was an outrageous number. Anyone with half a brain, and a calculator could see that, if the number was accurate, within less than a year, EVERY woman on the planet would have been raped or abused. These BS numbers need to be challenged. If this is so important, isn't it important enough to do it right, and do it with accurate numbers? To the left, apparently not.

Dad29 said...

Health care is hardly the first sector of the economy with public sector participation. There are public schools

Public schools!

Great example of 'competition,' there, Anony. Typically costing 2x private-school, delivering less results.

Just what your healthcare REALLY needs!

Anonymous said...

Dad: I'm not saying there should be a public school monopoly any more than there should be a public monopoly on health insurance, i.e. single-payor. But, on the whole, public schools have done a good job over the last several centuries in providing a service, education, with important public benefits. There are a couple of good ones, Brookfield Central and Brookfield East, in your community, and plenty of other good public schools around -- Shorewood, Nicolet, Rufus King, etc. Many big city public schools are failing. Advocates of education reform (I assume you're one) propose vouchers to allow inner city students to attend private schools. Great. Let a hundred flowers bloom. Competition is a good thing.

Few advocates of vouchers would say we shouldn't have any public schools. Proponents of a public health insurance option are advocating choice. Let's keep private health insurance as an option. But let's have a public option. For whatever reason or combination of reasons, private health insurance is becoming costlier and costlier to businesses and individuals, and less available. Maybe, just maybe, the corporate governance problems that cause United Health Care to pay its CEO $125 million a year have something to do with those rising costs. Maybe the high G & A costs of private health care have something to do with those rising costs. What's the harm in allowing a public health insurance option? Competition is a good thing.

On your point about the cost of public school education and its results: Public schools by law have to take all comers, including expensive-to-educate disabled students and discipline problems. Private schools tend not to get these students, and if they do they can kick them out. But allowing private school competition is undoubtedly a good check on the cost of public schools.

If the private sector is so much more cost-effective than the public sector, though, doesn't that tend to refute Rick's point that allowing a public option will result in monopsony that will drive private insurance out of business? The fear of a public option promoted by our blog host is that, because public option insurance doesn't have to generate a profit, it'll just take over the whole market and leave private insurance in the dust, and then we'll soon have only Gummint health insurance, no innovation, and, well, heck, things will pretty much be just like North Korea around here. If the private sector can provide health insurance for half the cost the Gummint could, with better results, aren't fears of a Gummint health insurance monopsony unjustified?

Dad29 said...

public schools have done a good job over the last several centuries

WHAT? There were no "public schools" in Europe until after the USA invented them (as a weapon against Catholics BTW) and those were not established until the early 1800's or so.

That would be TWO centuries, or less.

Second: you seem to think that the "public option" will drop from the sky as the gentle dew, fully formed and operational.

Uhhhhnnnnn..sorry, zero!

It has to be capitalized, and the taxpayer will capitalize it--as well as indemnifying its losses.

Private entities have to raise capital for those purposes. Big Difference #1--and never, ever, mentioned by Obama, for good reason.

Since you brought it up so clearly, however, let's pursue another item.

We agree that public schools are expensive vis-a-vis private schools. So why do they continue to exist? Because they are able to secure financing at the point of a gun. And their employees are able to use that gun, indirectly, to secure FAR better compensation packages than those at private institutions.

You call that "competition"? You call that "saving money"?

So what, in effect, you are saying is both:

1) The extremely expensive publicly-funded institutions called schools are "competitive"; and

2) A Gummint health-carrier will be, by its nature, "less expensive."

Seems to me that you proved the worst of both possibilities.


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