Healthcare Still to Come…

Last August, I boldly announced that I would begin blogging more about healthcare.  Like most such announcements here, it didn’t work out. I had figured the big story for the next administration would be healthcare, but just days later the economy blew up.

The story of the Obama administration is turning back toward healthcare now, and I’d still like to learn about healthcare issues, so I’m finally getting around to starting some research.  (My recent experiences with the healthcare system probably have something to do with it.)

Before I actually learn anything, I thought I’d document some of my thoughts and intuitions about healthcare and ideas for reform, so that I can compare my current biases with my more informed opinions in the future.

So, in no particular order, here’s what I believe or suspect right now:

• I’m not entirely convinced we have skyrocketing out-of-control healthcare costs.  Our total healthcare expenditures are rising, but that’s because (1) our population is getting older on average so we need more healthcare, and (2) healthcare technology is getting better, so there’s greater value in buying it (kind of like the reason most households have higher computer expenses today than they did 25 years ago). This is normal.
• The only healthcare externalities are infectious diseases.
• The reason some people can’t get healthcare is because it’s a scarce commodity: There aren’t enough doctors, hospitals, nurses, drugs, and medical equipment to give everyone the care they want.  That some people can’t afford healthcare is merely a symptom of its scarcity.
• Any healthcare reform plan that does not increase the supply of healthcare—more doctors, hospitals, nurses, drugs, and medical equipment—cannot possibly provide more care.  It can only change who gets the care.
• Lots of people say you can make healthcare cheaper with more efficient handling of medical and billing data.  I believe this is true, but that the overall saving will be small compared to the total for healthcare.
• Some of the cost is due to protective barriers to entry in the medical profession.  Many routine tasks performed by doctors could be performed by less skilled people.  The emergence of low-cost clinics staffed by nurse practitioners is a step in the right direction.  If more efficient data processing is going to have a serious effect on medical costs, it will be by enabling more care to be provided by less-expensive labor.
• As long as healthcare remains scarce, we will have to ration it somehow, either by price or by insurance claims processing or by government rules.  There will always be people who can’t get what they want.
• The diseases you get are somewhat random, the accuracy with which you’re diagnosed is somewhat random, and the outcome of your treatment is somewhat random.
• All that randomness amounts to risk, and the presence of risk means that insurance—private or public—will be an unavoidable part of healthcare for the foreseeable future.
• The health insurance market is perverse in that the assymetry of knowledge runs opposite to the usual direction of most markets:  The person buying health insurance almost always knows more about their health than the seller of insurance.
• Under the wrong conditions, that can cause massive adverse selection—where only those most at risk bother to buy insurance.
• Medical care is very complicated, so healthcare buyers—patients—don’t usually know much about what they’re buying.
• Much of what we call health insurance—especially coverage for routine medical procedures that people can pay for themselves—is really a legal way to dodge taxes:  Our employers pay for medical insurance with pre-tax dollars, but if we had to pay those fees ourselves, we’d pay with post-tax dollars.  This distorts and obscures the insurance market.
• If not for the tax advantages, most people wouldn’t buy non-catastrophic health insurance.
• The problem of pre-existing conditions is a particularly ugly feature.  If you have a chronic $25,000/year disease, nobody will want to insure you for less than $25,000/year.
• One solution to the problem of pre-existing conditions is to make health insurance companies responsible for the lifetime costs of any condition discovered during the period of coverage.  This is like medical malpractice insurance, where a lawsuit many years later will still be covered by the company that held the policy at the time of the doctor’s mistake.
• A robust system of post-discovery specialized re-insurance may make the process more efficient.  For example, if a covered person is diagnosed with lung cancer, their insurance company could pay a lump-sum premium to a company that specializes in lung cancer to cover all future treatment.  These companies would have strong incentives to improve patient care in order to cut costs.
• Private insurance should probably be backed up by the government so that failed insurance companies do not leave people uncovered—perhaps policy blocks could be bid out to other companies.
• Any government insurance should be at least partially re-insured on the private market to establish realistic pricing.

Some of this must be wrong, much of it could be wrong, but I doubt it’s all wrong. We’ll see.