An interesting New York Times editorial sums up the key issues surrounding the soaring costs of health care in America. A number of ideas about possible causes and solutions are mentioned, and their known pros and cons discussed. The notion of consumer directed health care is mentioned, among other subjects, and some possible limitations are illuminated. The conclusion of the editorial is as follows: the cost of health care in America is increasing at a faster rate than other countries relative to the average person’s spending power – there are a number of ideas about how to fix the problem…and purely and simply, we don’t know which ones will work. What I took away from the editorial is this: there are a lot of great ideas out there – let’s try some.
The proposed solutions are:
(1) Geography – adjust behaviors of doctors and patients in high-cost areas to the behaviors of the same actors in low cost areas. This could lower the overall cost of health care dramatically. And because the patients in high-cost areas do not fare any better than those in lost cost areas, we would be removing pointless inefficiencies and saving money. The big problem? How the hell do you do that?
(2) Stick to What Works – less than 50% of what doctors do helps their patients. That 50+% is unnecessary cost. This seems a lot like (1). And again, how the hell do you do it?
(3) Managed Care – HMO’s worked for a while, but the basic money-saving premises failed because people felt restricted and hated the systems. Any system that works in theory but negates itself in practice because it is contrary to natural human behavior – is useless. Like Socialism. The only way to make managed care work is to incentivise people to work within the system without abusing it. Too hard.
(4) Information Technology – This is sort of beside the point. The U.S. has the best IT in the world and still has an inefficient system. However, improved IT would, without a doubt, improve health care and decrease costs…mostly because it can reduce human error and save time.
(5) Prevention – meaning spend money now to prevent chronic disease later. I think this could be a panacea. Chronic disease accounts for most of our health care expense. And while its inevitable that longer life means more chronic disease, if science can tell us what to do today to prevent certain types of common chronic disease later (e.g. Type II Diabetes, Emphysema), only good can come of it.
(6) Disease Management – this one is kind of obvious. Manage diseases better and spend less money. Kind of circular. It’s an outcome posing as a solution.
(7) Drug Prices – this is tough. Drug companies must be able to profit from new drugs because of the billions of dollars spend in research and development. However, costs for the most common drugs must be manageable . This is one of the few times I think the government can step in and help things. Change patent laws to additional protection to new drugs. Increase awareness of generic drugs…
(8) Pay Providers Less. This could backfire, big time. Because the cost of education is so out-of-whack (another huge problem), doctors can’t afford to take pay cuts. We need smart, talented, hard-working health care providers. The only time their pay should be cut is if the market can justify it…and in a free market, that would happen naturally. I think there are plenty of other inefficiencies to remove from the system before you go after doctor salaries.
(9) Emphasize Primary Care. There’s some evidence that many specialities don’t add a lot of value. This is the classic hammer and nail syndrome invented by Mark Twain and expanded upon brilliantly by Charlie Munger. However specialists are an absolute necessity in many cases. You don’t want your family doctor treating your brain cancer. Knowing when to consult a specialist is the tough part. I like the idea of the primary care physician as part doctor, part health care consultant. Helping you manage your well-being and knowing when to refer certain things to specialists. Dr. Jay Parkinson is experimenting with this philosophy.
(10) Consumer Directed Health Care. An experiment done from 1974 to 1982 found that people who had to spend their own money on 100% of their health care expense spent 30% less and had the exact same health outcomes. This is huge. However, it only works if there’s a true market…a true, known, cost of health care. We don’t have that yet, but we’re working on it. The other big downfall is that most health care expense is chronic disease management…and the people who have these diseases are way beyond spending their own money…and well into tapping their insurance. While this may be true, my argument in favor or some form of consumer directed health care is that there are many things a person can do to reduce the risk of these expensive chronic diseases…and getting them to assume their health care risk at the early, preventative stages is where consumer directed health care adds value. You don’t have to be in a position to second guess your doctor…but you do need a financial incentive to lose weight and stop smoking…because clearly, the fear of being sick later or dying young is not enough to overcome your impulses/addiction today. There’s a fasicnating book on why people make bad predictions about future events: Stumbling on Happiness by Daniel Gilbert.
(11) Single-payer system. This is a popular choice among people on the far left-wing of the political spectrum. Yes it would kill the inefficiencies in the insurance industry because it would kill the insurance industry altogether. But then we would have one very inefficient monopoly administering our health care. With no competition and no opportunity for profit you can forget about any innovation. Unless everyone is willing to pay 60% of their income in taxes and wait in a DMV-like line for 9 months to get an MRI. This is not a solution.
The cardinal rule of health care economics seems to be: spending more on health care isn’t necessarily going to achieve better outcomes. And economic studies show that Americans have more wealth than other countries and are willing to blow more money on unnecessary health care processes. Increased demand for health care seems to be a key driver in the health care inflation…which is probably why poor people can’t afford it. If spending more on health care doesn’t improve health outcomes and drives up the cost for everyone, we must figure out a way to get people to spend less…we must change their behaviors by changing their incentives. This is why I believe in allowing more market forces to affect health care…consumer directed health care with price transparency.
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