Ron Amundson’s Political Blog

I had an interesting thought… influenced greatly by Dr Laffer’s paper. What if the entire medical sector, pharma, hospitals, insurance, and other providers were to be de-regulated, and truly operate on a much more free market basis. Ie, only the bare minimums as concerns safety and contract law were left in place, could this work?

Would we see, just as in the airline world, prices fall by 80% or more? Would we see the big players in the insurance and healthcare industry start going bankrupt like flies? Would we see provider salaries drop by 50% or more? Would we see a more fair and transparent system? Would we see websites offering the best deal on a gall bladder operation? Would consumers embrace true choice of many options?

The consumer rules in the airline business, the $100 ticket is the prime driver. Governments role is to provide for a minimal amount of safety, protect against scams, and provide for some level of parity. Ie, FAA inspectors check the airlines for discrepancies, and hold them to a minimum level of safety. Market forces go beyond that, and ensure a greater amount of safety than the FAA minimums, at least for the non regionals. Govt agencies watch for price fixing, monopolies, ticket scams etc. Ie, if as an airline, you pull a few too many fast ones, you will have attorney generals asking tough questions, which might even lead to jail time. In the airline world government assures equal access to the basic services such as air traffic control, weather, crash fire rescue etc, from the airliner to the farmer in an old Piper cub (albeit with a radio).

If the market were free, individuals could shop for the best deal. Ie look at all the factors, and buy a plan which meets their needs, rather than being limited to what their employer has to offer, what private plans are available in their state, or even what type of health care insurance they may want. Ie, want alt-med coverage? if a profitable market is there, someone will see a need, and create coverage for it.

Regulation
Initially, medicare would remain much as it is today, in part as politically change is near impossible, but also due to societal values. First society doesn’t want grandma thrown under the bus. Secondly, an element of fairness is needed. Folks paid into it for years, to pull it out from under the rug would be uncool. Apart from that, the care of the old benefits all as it fosters research into prevention, cure, and diagnostics, thus providing benefits even for those outside its direct scope. One parallel is tech transfer from NASA and the military world to the commercial aviation sector. Another parallel is crash, fire, and rescue. Hopefully as pilots non of us would ever have to use it, but just as no one expects to become disabled or subject to chronic illness, the safety net is there if we need it.

By the same token, recision, cancellation for usage, pre-existing condition limitations, would need to be regulated, just as maintenance for ETOPS is regulated. Ie, if you want ETOPS in order to save fuel in the airline world, you need to uphold stricter standards. If you want to provide medicare supplement insurance, or another carrot which leads to huge source of revenue, you must comply with stricter regulations, ie no recision no gaming, no pre-existing care limitations in the rest of your business offerings.

In addition, there would need to be subsidies and regs for those unable to afford even the most modest care. Ie, when you buy fuel, the aviation trust fund provides benefits for all airports from the biggest to the smallest. ATC services, and CFR services are available to all as well, irrespective of financial standing.

Innovation and savings
What a free market might do, is provide for upstart low cost carriers, new markets, new methods, newer ways to save money, and still provide good service at a good price.

Lets say you start a new clinic, perhaps you can have 1 credentialled doctor, and a bunch of support people, such as is common in outsourced maintenance ops, where they have one guy with an inspection authorization, who may supervise a number of repairman, or even those without credentials.

Or, lets say you figure out a way to outsource specialties via telemedicine to third world countries for a fraction of the cost, just as is done with maintenance.

HSA’s have potential, and a free market approach might make them incredibly valuable. Only an insane individual would come up with a business model which provide services, but doesnt give the customer any idea of what the price was until months after the service is provided, yet thats the way it is today. Only an insane individual would put limits on the amount one can set aside for potential future needs. Yet HSA regs on limits pretty much preclude anyone from having more than a few thousand dollars set aside for “just in case”. Only an insane individual would think they can woo customers by limiting choices. Ie todays HSA’s are only allowed to cover very narrow needs, plus they have specific limits upon what goods and services can be purchased, in order to protect the status quo and pseudo monopolies. Imagine what consumer demand could do to medicine, if the consumer were in charge of the HSA instead of the lobbyists.

The Savings
The potential savings from the masses would be amazing, and no doubt would more than cover the cost of a voucher to provider type deal to cover those unable to afford even the minimal plan, same deal with those with chronic illness and the disabled, albeit with greater coverage as need be.

In effect, such an approach would make medicine a commodity for the masses. For a few, if they could afford it, they could go premium, ie just like helicopters or netjets in the aviation world. The masses would still enjoy decent care, great availability, and great freedom.

The downsides…
1. There is an element of unfairness… only a few might be able to see top specialists, but supply and demand would level it out over time.
2. Its unfair to the younger folks, as Medicare would be kept untouched, its now the carrot the carriers want to make money, thus seniors might well have better care than the rest of us. Otoh, they are the primary spenders, so it makes sense… and the efficiency gains, by going free market may well solve the medicare reimbursement disaster of today.
3. The declining wages of medical professionals would be an issue. One would go into doctoring because its what you love, not to get rich, just as pilots do. Of course there is the issue of going too far, and paying new doctors less than they could make at a fast food joint.
4. During the interim, quality of care would likely suffer, but this is where regulation, or even transition funding can play a role.
5. Quality delivery would drop multifold, as would costs as medicine becomes a commodity. Some would yearn for the old days, yet at the same time appreciate the freedom, the availability, and the incredibly lower cost of such a system.
6. The loss of legacy carriers and providers as they find themselves unable to compete without government mandated monopoly provisions would be a sad deal. Multitudes of people would be out of work either by bankruptcy or merger. This is not unlike the loss of PanAm, Braniff, TWA, Eastern, and as of late Northwest.
7. For those who have an employer sponsored plan or are self insured, it is likely such would go the way of the dodo bird, short of “key man” positions. While such plans often provide for top notch care, when an employees cashflow is on the line, the healthy will leave for a better deal elsewhere. Those who need care will stay, thus shifting the employer plans to a much riskier, and much more expensive pool, where before too long, the employer will determine such an approach is not cost effective.
8. Healthcare for the young might be compromised, in that larger revenues are seen in the older sectors. Otoh, if the market presents a need, and is willing to pay it might well rectify itself over time.
9. Its a pipe dream, the status quo doesn’t want competition, nor really do many consumers want to have their skin in the game, and thus be responsible for their own destiny, whether it be business success, or personal well being. They want the other guy, whether it be an employer, the govt, or a third party carrier of whom they have no control to be the bad guy.

In effect, a free market solution like the airline model would minimize harm for all, and provide for a significant element of fairness. Yet, it would decimate ingroup and hierarchy issues for nearly all, and the overall effect of commoditization might well be anathama to many. On the other hand the fact that it bolsters a massive capitalist ideology and freedom could be a huge selling point.

What I fear happening, is the market wont be really free… legislation under a free market label, is more likely to bolster the big players pocketbook, by prohibiting or limiting meaninful competition via lobbyists. Tax codes and such could be modified to provide an equal playing field, yet such would kill off employer plans as few could compete on an open market. Next, the medical and insurance field do not want to see their salaries cut, such as what happened in aviation, when consumers were given real power and freedom. Investors want to see less risk, not more, especially so in the insurance market. The consumer, while valuing freedom, also knows with such comes great responsibility. Few if any want to take that on, because if they do, then they are the ones in charge, instead of a faceless bureaucrat of whom they can throw darts at.

Why all the outrage? Do some not see the problem with the status quo, and the major crash and burn we are looking towards? Short of the most isolated individual, I dont see how anyone can view todays practices as sustainable.

I think what it comes down to is morality. Even the folks who say ethics and morality have no place in the healthcare debate, actually are ascribing to a set or moral values, albeit differently than others.

Some guys at the University of Virginia proceded to break down morality into 5 areas, harm, reciprocity, ingroup, hierarchy, and purity and then see where liberals and conservatives lined up. Upon initial observation, as well as discussion with a number of others, I think they nailed it.

There premise is that liberals uphold 2 of the 5 areas, where as conservatives balance out all 5. Granted, no liberal just holds to 2, nor does a conservative view all as 5 equal but the statistical groupings are very strong.

Now, when you put a liberal and a conservative in the same room, they assume a similar reference frame common to all when they start to discuss… but thats not the case. In short order, they end up thinking each other is on another planet and could well be delusional. Things often spiral downward, and from there, what might have been good ideas from both sides, end up buried in noise and overly simplistic sound bites.

Some statements demonstrating this:

Liberals say, what about the least of these?
Conservative say, why should i pay more in taxes to help out someone else. they need to be responsible, plus they already can get emergency room care if need be.

Liberals say, what about Joe who lost his shirt in the market, his pension, his insurance, and his job in the autoworld?
Conservatives say, thats very sad, but what about my family, what if they dont get as good a care as they could have, being I’m taxed to pay for someone else?

Liberals say, what about grandma who has cancer, and cant afford a cadillac medicare supplement plan, and thus many life saving treatments are not affordable?
Conservatives say, thats sad, but she does have a low cost option available. What about my nation, what if we dont have as much investment available to make progress in curing cancer.

Liberals say a single payer solution would solve much of the problem.
Conservatives say, what about the loss of jobs in insurance, and medical administration areas. What about the loss of investment power when you politically kill off the insurance industry. What about the massive wealth behind the insurance industry that would be destroyed.

Liberals say, what about the homeless man on the street who needs dental work
Conservatives say, why should I help out a guy who cusses and spits at me?

The end result, the liberal thinks sacrifice, both personally, and nationally is acceptable in order to help the least of these and often views the conservative as greedy and selfish. The conservative, while compassionate for the poor, admits some sacrifice will be needed, but views the liberal as bankrupting the nation, and lowering the standard of care for his family, plus finds it anathama to help out folks who wont help themselves.

The end result, liberals focus on minimizing harm and fairness. Conservatives balance harm, fairness, ingroup, heirarchy, and purity, which in health care often leads to an economic focus, more so than the narrower focus of harm and fairness. Both proceed to dig in their claws, and instead of working towards a solution, bash on each other.

In Dr Laffer’s paper, he explains of the health care wedge, where patients often dont have a financial interest in their care because its hidden from them. A situation this weekend came to light that presents another yet wedge. Its probably not an isolated deal either, as I sort of predicted it would occur due to issues with Medicare Part D legislation, and its yet another uncomfortable discussion that no one wants to talk about.

The insurance/taxpayer wedge… informed insurance buyers evaluate different policies during open enrollment. With medicare part D, most will take a very close look at the published formulary to make sure the drugs they are taking are covered. In most cases, there are a range of pharmaceuticals, as one size doesnt fit all. Ie, out of 10 heart meds, one may work well, another somewhat, and eight probably cause more problems than they are designed to help.

What medicare part D legislation provides for, is insurance companies to publish a formulary during open enrollment, and then change it, after enrollment closes. On the surface, this is a bait and switch type of thing, and a insurance companies dream. Ie state you will provide for ABCD, lock in your customer base, and then dont do so… and you get to reap the rewards of premiums without having to pay out until the next open enrollment. A less cynical view would suggest the approach is to provide for mid term change. Ie if a new  less costly drug comes on the market, formulary changes mid term would provide for less costly coverage, or even the approval of new life saving meds could necessitate a change.

The issue of course, is that as long as removing one drug, and replacing it with another works… Or that one drug is found not to be as effective, and another better one already on the formulary replaces it. There in lies the problem. Such changes may not work for all people. Granted, there are provisions such that one can jump hoops and potentially get an exception, but how many seniors are going to be able to do so, and even more how long it could take to accomplish. Far too many seniors accept they got hosed, and either A try to buy meds on their own if they can afford it, or B end up not taking their meds, at least until they see their doctor, or C until something goes massively wrong, either while waiting for the doctor, or just being resigned to be hosed over.

And C is going to happen. Some meds cannot be stopped arbitrarily, in other cases, a specific medicine may be keeping someone alive, even if they dont know it. I heard a story this weekend, where a man got hosed over. He could not afford to buy his meds being they were recently removed from the formulary. Without the meds, he ended up in the hospital.  Being a Medicare patient, this shifts the cost to the taxpayer… and the insurance company wins again, subject to what they may pay out on part B, which is tiny compared to the savings achieved by removing drugs from the formulary.

This is yet another wedge. The insurance company is isolated from the costs of their decisions. It leaves the taxpayer to pick up the tab for the expenses, and even if causality could be determined at a reasonable cost, there is no provision to recover damages from the insurance company.

By the same token, not to allow formulary changes may prevent new and lower cost methods from coming on the market, or worse, it might prevent life saving treatments from being available until the next contract period. To only allow expansion of the formulary while the contract is in force is another option, but its a more expensive solution, which obviously the insurance companies will lobby against… but I think its a must, from the point of view of contracts, morality, conservation of medical resources, and a savings to the taxpayer.

Another solution, is to provide consumers freedom and choice at any time a formulary or coverage change is made. Ie, if insurance company A drops coverage, you are now free to change carriers. Of course such could be pretty intensive from a overhead point of view, and it could also serve to prevent innovation, but over time, the market would self correct, short of every carrier changing their formulary at once.

No matter what, the status quo is not an option. Sooner or later, if it hasnt occurred already patients will die, medical resources will be over used to the point of invailability, and the taxpayer will have a bird over the exponentially rising costs… The insurance industry must be reigned in one way or another. Their free ride at hidden taxpayer expense cannot continue.

I’ve been perusing Laffer’s paper as of the last few days. His views often lean quite conservative, and while I have often disagreed with any number of positions he chooses, he is well spoken, articulate, and appears to disdain rhetoric as much as I do. He presents a number of well researched issues, and follows up with some potential solutions. I think its a must read for folks on both sides of the debate.

The first thing he brings up, is that the health care system as we currently have is broken, and is not sustainable. I think thats something that everyone can agree with, despite many folks being happy with their current plan or method of care. They realize costs are out of control, and the status quo, no matter how much they personally like it cannot be maintained.

He then attributes much of the problem due to government intervention distorting the market place, with the biggest factor being patients being isolated from the cost. While I disagree that government is the biggest problem, he is correct about the isolation aspect. It sort of parallels my post on a lack of skin in the game, albeit at this point, he is only looking at the patient aspect, rather than a total system approach.

He next brings up a couple of key points. First, ill advised reform could be worse than no reform, and secondly that the 85% of folks happy with their healthcare arrangement should not be put in a worse position than they are. Well, I agree with the first premise, as it could cause the current declining spiral to increase rather than to reverse. The second one… its pretty much impossible, as someone has to pay, and if one follows his paper through to the end, his conclusions will make it much worse for many of the 85% who are happy with the status quo. They will either pay much more, or have much less care, there are no free lunches… Which is sort of surprising, being so much of his paper is focused on reducing free lunches. My guess is, he is looking at specific demographics to make his point, where as I am looking at other ones. In addition, he is viewing free market effects to happen over a short period of time, where as I see them taking many many years.

Overall, he tends to think that reducing the isolation between patients expenditures, and the care received is the solution. I too think its part of the solution, and its one of the issues that is sadly missing in the proposed legislation. The difference, is I see the isolation aspect as one small part, because unlike many other factors, many of the largest users of healthcare resources are those who are financially constrained.

For example, those in their last years of life, and those who suffer with serious chronic or life threatening illness, are those for the most part who have minimal if any resources available to pay for their care, or even buy insurance which would provide coverage for such. By the same token… being aware of treatment costs and the probability of a successful outcome does make sense. For example, few folks would think spending $50,000 on pharma in order to gain 2.5 weeks of life makes sense. Some, for any number of reasons may still wish to do so would go ahead, but the vast majority of folks if faced with such a decision would choose not to go down that path, even if it did not come directly from their pocketbook. At least that my thinking, albeit I’m often accused of being too much of an idealist.

He then goes on to discuss the issue of sharing comparitive effectiveness studies, and presents the case that government regs create more of a barrier, than does competition, albeit under the narrow PGP model. His argument does seem to hold up… but the narrowness of the model, whether it be due to government confinement, or competition is problematic. If, one were to remove the patient/care wedge though, he is likely correct, in that patients would demand it… but imho, 1000:1 it would be hidden away in so much corp speak, it would have little value, and it would also take years for such a market correction. No business willingly gives away key data which might help a competitor, it will be obscured, no matter the market demand.

He then brings up a parallel with auto insurance, ie it pays for catastrophic damage, not routine maintenance, where as health insurance does take care of the routine… and the associated divergence. I think such a analysis is in error, as unlike a car which has a short lifespan by design, and the failure of routine maintenance for many does not play a major role in how long they keep a car, health is a different matter. Ie, in the past most folks changed vehicles every 3.5 years. Even forgoing most maintenance (excluding oil changes, etc) for that period is unlikely to have a great impact, as the car is no longer theirs in 3.5 years. Health issues otoh, if left unchecked tend to multiply and accumulate, and the resulting costs later on, often dwarf the costs of routine care upfront. The exception being, drastic changes in life expectancy. Ie, if folks kicked the bucket at retirement, the total costs of lifetime health care would be less, than if they lived to 110, but I know of no-one who would suggest such a draconian model.

He then goes into a detailed analysis of the wedge (isolation between patient costs, and healthcare costs). There are some significant points made, and a fair amount of data to present his argument. Again, I agree, but only to a point, being the highest consumers of care, are those who are the ones unable to pay. He presents an interesting analogy of health care costs being driven by counterproductive regulations, as contrasted with eye glasses, which typically are not so heavily regulated… and it makes a profound point. Otoh, technology advances have served to keep costs low, plus getting a bad set of glasses is not life threatening, just an aggravation, so while its interesting to note, I dont buy into the analogy.

He then presents some data, which is why I disagree with his premise.

Five percent of the population accounts for almost half (49 percent) of total health care expenses.

The 15 most expensive health conditions account for 44 percent of total health care expenses.

Patients with multiple chronic conditions cost up to seven times as much as patients with only one chronic condition.

and then presents the following summary of the data.

Controlling spending, therefore, requires controlling the spending by the 5 percent of the population spending one-half of all health care expenditures.

To me, this is where the rubber hits the road, and is the source of disagreement. To limit the care of the 65-85 set & those with chronic diseases to what they can pay is morally wrong. Granted, spending $50K for 3 weeks of life is pretty far out there, otoh to reduce care to those least able to afford it is just wrong in so many ways. Life is more than just financial contribution to society. Even the most die hard conservative is not going to tell the hospital to pull the plug on an old grandma because they dont want to pay… yet, when they suggest she pay, and if she or her family can’t, well she is out of luck, thats not very helpful either.

This is not to say that controlling costs isnt important, it is, and I think it can be done without throwing grandma out in the cold. He thinks it can be done too, albeit that his thinking is that insurance companies will do so because of competition, ie market demand. Grandma will force the issue by being unable to afford insurance, and thus the insurance company will reduce rates via further cost controls, such that grandma can afford it. And that said cost controls will also affect the healthcare providers, such that they wont offer a $50,000 treatment to extend grandma’s life by 4 weeks… but what if grandma needed that time, and what if, over time that $50K treatment became $5K, or even $500, or instead of 4 weeks, its 4 years? There are lots of what ifs involved here, that are well beyond the scope of the insurance company bureaucrats.

There is a lot more to read, and its pretty informative, and many of his arguments do make a significant amount of sense. His conclusions and proposed solutions on the other hand seem problematic in a number of ways, or need some tweeks.

Individual ownership of insurance policies

I think this makes some sense, it gets rid of the lack of portability aspect. He sees that it should be an individual tax deduction, rather than a business one. Whether its deductible or not is up for debate, but the individual aspect does make sense. By the same token… limits on pre-existing conditions, recision, excessive premiums on risk, and exclusion of high risk individuals would have to go away… otherwise, even more would end up under/uninsured. We’d end up with 5 massive insurance companies insuring the masses of folks who spend 3% of the health care dollars… and no one willing to cover those who need massive amouns of care, being said policies would exclude said care, or be beyond the scope of folks ability to buy coverage.

Leverage HSA’s

I agree with this as well, bearing in mind they need deregulation. Ie, insurance companies lobbyists should not dictate what is customary through IRS regs. Ie, if someone chooses concierge care, off shore care, telemedicne, or alt medicine, and wishes to use an HSA, they should be able to make the call, not the lobbyists. I’m 100% for a free market approach in this area, not the careful fostering of a monopoly and good old boys market grab for the insurance industry.

Allow interstate purchasing of insurance

I think this too has potential, bearing in mind, it doesnt become a way of selecting low risk pools for the insurance business, such as in the first proposed solution.

Reduce the number of mandated benefits

One way to save would be to exclude coverage for cancer, and it would save billions… but I dont think its wise. Same with mental health. Societal costs would skyrocket. A federal set of minimum mandated benefits otoh might be the solution, and let the free market run from that as a baseline. There is also the aspect, of sales guys selling folks bogus insurance, especially to those who are uninformed. Ie, you now have insurance for a song… but it really covers nothing, but because the coverage limits are hidden in jargon and fine print, you wont know until its too late.

Reallocate Medicaid spending to vouchers for folks to buy their own insurance.

Most assuredly it would reduce administration costs, and a ton of headaches. By the same token, having the elderly and those with chronic illness, some of which may not have their full facalties to make such calls, just seems a disaster waiting to happen. Otoh, the status quo, where each state makes a mess of such is not good either.

Eliminate unneccesary scope of practice laws

Roger this, its a great idea… I cant think of how many times an old nurse has saved a young residents bacon. An experienced PA, FNP, or even RN is far less costly than a MD, and in many cases will provide much better care than a fresh MD. Granted, newbie MD’s need to get their feet wet, as do others in all professions… but pay for quality of care over quantity and credentials could be a huge deal… but not if it bankrupts young docs due to the inability to cover excessive loan payments. I’d go so far to to also include interstate practice, and off shore telemedicine as well. A system wide approach would be needed to do this, as there exists tons of entrenchment.

Liability reform

This is often a scape goat, by the same token, it can take a very high toll. Being the DOT sets the value of human life at $5.8 million, does it make sense that malpractice awards should be higher? In some cases, absolutely, as a lifetime of care may dwarf $5.8 million… yet if death occurs, it seems crazy that awards can be multiple times that amount, even for high earners, being thats what they have life insurance for, etc.

Ulimately, Laffers overt focus on deregulated insurance companies saving healthcare, and that government regulation is the big problem is imho far too idealistic. In many ways, as far too idealistic those who portray a total government plan is the ultimate solution. Neither is really the solution, all parties need to get their skin in the game for a really effective solution… and that is the problem, as each wants their own to the exception of the other.