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Health Is Forever

Why is the American health care system so inefficient? Well, there are a lot of reasons. But one important reason, which is especially important because it's also related to bad health outcomes, is that the horizon-line for incentives is messed up. Oftentimes, spending $X on a patient in one year will allow the patient to not get sick in a way that requires spending $3X or $4X some years down the road. From a holistic point of view, you want to spend the $X. But that requires the person who's deciding whether or not it's a good idea to spend the $X to be the same person as the one who's responsible for the $3X or $4X down the road. There are a few ways you could get that result. One would be to have a genuinely libertarian health care system where I need to pay my bill no matter what. This means making sure that if I don't spend the $X and then wind up being unable to afford $4X later in life, that we stand idly by and watch me die. As in, if I haul myself into the emergency room and the doctor is sitting there with free time on his hands, and knows how to cure me, but I don't have the cash, I just die. Right there in the waiting room. If the doctors wants to treat me for free during his time off without using hospital facilities, that's fine, but otherwise I've got to die. It's necessary to make the incentive structure work.

Alternatively, you need the entity providing me with insurance to be the same throughout my life. This is basically how the Veterans Health Administration works and it works well. Employer-based insurance could reap the same kind of efficiencies if almost everyone worked for very large firms and could be expected to have life-tenure in their jobs. We could even, John Kenneth Galbraith-style, try to deliberately engineer this result where the private sector is dominated by huge, highly regulated, oligopolies. Or, rather, if there were an independent reason to think this was a good idea, then tax-subsidies for empoyer-sponsored insurance pools would be a good idea to add to it. But it isn't actually a good idea.

The last alternative would be to create a pool so large -- United States-sized -- that very few of its members would ever leave. Technically, of course, people do emigrate from the United States. But it's a small number of people. Basically, a nationwide health care system would have the right incentives to make sure investments were made at treating people when doing so would cost the least rather than waiting until the situation was so dire that it's morally (or legally) unacceptable not to provide treatment, but the treatment may be hugely expensive. You don't even need to do this European-style where the government pays for basically everything that's a bona fide medical expense. Free provision of catastrophic care combined with free provision of preventative care (including an appropriate number of check-ups and tests as determined by family history and lifecycle position) would do the trick. I think this is what they do in Australia -- people buy private insurance or pay out of pocket for mid-range medical expenses, and the state pays for the rest. Now that wouldn't begin to tackle America's exhorbitant end-of-life spending, but it'd be a good start on getting a handle on the situation.

April 15, 2005 | Permalink

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Comments

What you're saying makes sense, but it would have been nice if you'd actually provided evidence. For example, what are these situations in which Americans routinely forgo routine treatment and end up with very expensive treatment, whereas, for example, the Swiss get routine, cheaper treatment? Forgoing mammograms and then finding later than they have advanced breast cancer? Forgoing asking about angina while it's still reasonably treatable and waiting until it become congestive heart failure or something?

Posted by: Julian Elson | Apr 15, 2005 12:35:54 PM

This is a point I've been making repeatedly. When looking at an investment in your health most employers will do an analysis of whether they will recoup the amount they have to spend over the time you are likely to remain employed by them.

This is one reason that retailers and other employers with high turnover have such crappy benefits.

Just to make the conversation more concrete here is the example I frequently use. Employees can now get Lasik surgery on both eyes for about $2,000 in my area. If they are wearing contacts, they're probably costing their employer about $300 per year. Add to that the cost of cleaning supplies and the Lasik pays for itself within 8 years.

However, very few employers cover Lasik because very few people will stay employed with them for the full 8 years that will make their investment pay off.

So, employment-based health insurance (coupled with an increasingly mobile workforce) is CAUSING the healthcare market to be inefficient.

Posted by: storwino | Apr 15, 2005 12:37:16 PM

For example, what are these situations in which Americans routinely forgo routine treatment and end up with very expensive treatment, whereas, for example, the Swiss get routine, cheaper treatment?

Take, as hypothetical example, the person who has no insurance and little money. That person has chest pains, or headaches, or whatever. Now me, I have insurance, I go to the doctor, pay my $20 co-pay, he checks me out, and catches my problem early. The person who can't afford the doctor waits until the collapse from the heart attack (or whatever, as his untreated condition has become worse over time) and now the state (thus, all of us) winds up eating the cost of that person's emergency care.

We all would have been better off (as in, we'd need less tax dollars to care for this person) if we'd just payed for the doctor's visit in the first place.

Posted by: cwk | Apr 15, 2005 12:47:39 PM

For example, what are these situations in which Americans routinely forgo routine treatment and end up with very expensive treatment, whereas, for example, the Swiss get routine, cheaper treatment?

Take, as hypothetical example, the person who has no insurance and little money. That person has chest pains, or headaches, or whatever. Now me, I have insurance, I go to the doctor, pay my $20 co-pay, he checks me out, and catches my problem early. The person who can't afford the doctor waits until the collapse from the heart attack (or whatever, as his untreated condition has become worse over time) and now the state (thus, all of us) winds up eating the cost of that person's emergency care.

We all would have been better off (as in, we'd need less tax dollars to care for this person) if we'd just payed for the doctor's visit in the first place.

Posted by: cwk | Apr 15, 2005 12:48:36 PM

There are also huge inefficiencies in the system due to duplicative or overlapping coverages. I say this as somebody who has spent about 20 years litigating priority disputes between health insurance and no-fault autombile insurance.

Posted by: rea | Apr 15, 2005 12:50:56 PM

I'd be more convinced if I saw some statistics comparing preventable-problems in the US and other countries with mroe nationalized systems. I'm really unaware of to what degree (if any) the US system actually inhibits prevenative care, and am tempted to believe it's just a leftist tactic to convince the public that national healthcare is cheaper (and as much as I wish for those tactics to work, that doesn't mean they are factually correct).

Posted by: Tony Vila | Apr 15, 2005 12:55:21 PM

There's yet another option: mandate all individuals carry their own health insurance, just as we mandate all drivers carry auto insurance.

As far as getting incentives right, we still have to grapple with Moral Hazard. Insured people have less incentive to adopt healthy lifestyles (I rank this as medium-important) and no incentives to conserve on costs (I rank this more important).

Some sort of system where, by choosing to conserve costs, individuals could bank money to pay future insurance premiums or copays would seem like a good thing.

Posted by: DeadHorseBeater | Apr 15, 2005 1:23:31 PM

One way a national system could help would be to centralize information about each patient. I read about a pilot program (in Oregon?) that created an electronic file on patients with chronic problems so that when they showed up in the emergency room the doctors attending them had immediate access to information on their ongoing problems, what medications they were on, etc rather than relying on the often faulty memory of the patients. The system produced much better outcomes for the patients and reduced costs.

The problem was that the system was paid for by the primary care physicians for the patients. So, these doctors had to spend money to enroll a patient, and then when that patient generated lower costs the doctor had a reduced profit from that patient. The incentives were all backwards. As I recall, the doctors were mostly general practitioners serving largely low-income folks, so they couldn't afford to spend the money on their patients.

Posted by: Emily | Apr 15, 2005 1:27:51 PM

Evidence!? This a blog post fellas.

The other related item is the very strong incentive that is placed on insures to avoid paying out large amounts. Instead of spending time being productive, they are actually using up that productive time figuring out ways to avoid getting stuck wiwth the very expensive bills. I do not have a handle on the actual tactics, but theoretically it would work something like:
Cancer X is extemely expensive to treat.
If we make our service for that treatment as annoying as possible, a nontrivial amount of people who know they will be treated for cancer X will choose another carrier. In response, the govt regulates how everything must covered, but there is still room at the margins to provide perverse incentives.
Again, not an acctual case, just illustrate the strange incentives related to the post.

Posted by: theCoach | Apr 15, 2005 1:30:43 PM

OK, I doubt very much that people really think about this in terms of future costs. People aren't thinking that in the future they might need to spend $3X, but that in the future they might get sick and die!

Assuming that "preventive medicine" really is effective, which isn't proven.

Posted by: Half Sigma | Apr 15, 2005 1:47:18 PM

Half Sigma,
It is the insurance providers, not the patients who think about this kind of thing. Additionally, you seem to be usnig a definition of 'preventive medicine' that is just wrong. Perhaps you think it means homeopathic -- actually think more a long the lines of breast exams for breast cancer, or cholestoral testing and/or medication.

Posted by: theCoach | Apr 15, 2005 1:51:50 PM

Insured people have less incentive to adopt healthy lifestyles (I rank this as medium-important) and no incentives to conserve on costs (I rank this more important).

I think that you will find that those without insurance are, by and large, less concerned about their health than those with insurance. If people were concerned about "living healthy," then they would have health insurance. Cost conservation can be accomplished via the judicious use of co-payments and preventative maintanence.

Posted by: Constantine | Apr 15, 2005 2:35:49 PM

Re: We all would have been better off (as in, we'd need less tax dollars to care for this person) if we'd just payed for the doctor's visit in the first place.

But there’s another issue underlying this and that is the fact that lots of people don’t go to the doctor even if they are well-insured. They may be in denial about a developing problem, or maybe they’re just over-optimistic that whatever it is will just go away on its own (like many health problems in fact do). This happened with my mother, and cost was not an issue at all (my dad had a good union job and this was 1976 before the huge run up in healthcare costs). She thought she was having menopause issues (common to the women in her family) and did nothing until it was way too late (she had a fast-progressing liver cancer). How common is this sort of thing? I suspect fairly common. Most people do have reasonable (though not excellent) insurance and can afford a $20 dollar copay, and lots of people still put off the doctor’s visit when they shouldn’t. I've done that with dental care, with no excuse except I really hate having dental work done.


Re: I'm really unaware of to what degree (if any) the US system actually inhibits prevenative care, and am tempted to believe it's just a leftist tactic to convince the public that national healthcare is cheaper (and as much as I wish for those tactics to work, that doesn't mean they are factually correct).

Single-payor systems ARE cheaper. The numbers are out there and speak for themselves.

Re: Insured people have less incentive to adopt healthy lifestyles

One would think the fact that serious illness and/or injury are unpleasant-to-ghastly experiences in and of the themselves would count for something as an incentive. The real problem is that people’s time horizons are very limited and they cannot connect their behavior today with something that might happen twenty years down the road.

Posted by: JonF | Apr 15, 2005 2:55:14 PM

theCoach said: "think more a long the lines of breast exams for breast cancer, or cholestoral testing and/or medication."

Being a guy, I won't think about the breast exams. But regarding cholesterol, large scale studies have NOT shown that reducint cholesterol actually increases life expectancy.

I strongly suspect that cholesterol is a big scam by drug companies that make billions of dollars selling Statins.

We'd probably save a lot of money and be healthier if people DIDN'T get their blood cholesterol tested.

Of course, some people are too fat for their health, but if someone needs to go to the doctor to find out they are fat, there's no hope for them anyway.

Posted by: Half Sigma | Apr 15, 2005 3:26:37 PM

One of the best examples of how preventive care can save healthcare dollars later on is with diabetes. Studies have shown pretty convincingly that tight control of blood glucose reduces the likelihood and severity of longterm complications, including kidney failure, heart disease, retinal damage, etc. This appears to be true for both type 1 and type 2 diabetics.

How do you achieve tight control? Mostly by behavioral changes, many of which take some some instruction to really get. A person who's just been diagnosed with diabetes has a lot to learn. And one thing that is often not covered by insurance is health education. Paying for education for the newly diagnosed, and for continuing education as well, would be a good investment in longterm health of people with diabetes.

Posted by: janet | Apr 15, 2005 4:32:41 PM

Of course, some people are too fat for their health, but if someone needs to go to the doctor to find out they are fat, there's no hope for them anyway.

OTOH, people who are overweight in part because of, say, glandular problems would be better off going to a doctor and getting those diagnosed than trying out a series of fad diets.

Posted by: cmdicely | Apr 15, 2005 4:45:08 PM

I'm really unaware of to what degree (if any) the US system actually inhibits prevenative care
The US "system" doesn't so much inhibit preventative care (after all, it's a free country) but it certainly doesn't reward it. You make money by doing procedures here, not by talking to patients. You can't get paid for programs to make sure they're taking their blood pressure or diabetes meds.large scale studies have NOT shown that reducint cholesterol actually increases life expectancy.
Not so much. A bunch of studies have shown this for statins in patients with coronary disease. Other outcomes might be important to some people, as well. I like the idea of preventing heart attacks and strokes.

Posted by: tinman | Apr 15, 2005 6:33:38 PM

Half Sigma: men can and do get breast cancer.

Posted by: Ted | Apr 15, 2005 8:42:37 PM

Ted -- very true. That's why my grandfather once palpated Cary Grant's breast.

Posted by: janet | Apr 15, 2005 11:27:06 PM

Keep going on this. Just so long as whatever you and Krugman end up recommending is not a single provider system, like the NHS. Even worse than what you have now. The French system is pretty good....but might not fly in the US. Less generous (ie higher co-pays) than current Medicare/Medicaid.

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