Ron Amundson’s Political Blog

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.