asia healthspace

For those of you interested in capital markets commentary especially relating to the current state of economic affairs in the United States, Karl Denninger writes a serious thought provoking blog at The Market Ticker.

Recently Karl has been pounding the table on issues relating to health care reform. His first article appeared on July 9th titled “Health Reform: Who Are They Trying To Fool?” Since then he has refined his thoughts somewhat and I will address them below. I will cherry-pick his main ideas from his subsequent follow-up two posts, “Fixing Health Care: A Real Solution” posted August 7th and “Health Care: WAKE UP WASHINGTON!” posted September 9th and add some thoughts of my own highlighted in bold. In these posts we are exposed to some fresh ideas and we thank Karl for bringing them into the debate on reform.

Idea 1: If you sell “insurance” to anyone in a given state, you must accept all persons in that state on the same terms and at the same price. If an insurer has a “we accept anyone at the same price” policy for a business, you must be able to buy into their plan for the same amount of money that the employer is charged on a per-person basis. That is, all plans must be “open enrollment” for everyone within the state – period. This immediately gets rid of the “tie” between employment and health “insurance”, and it also removes one of the biggest issues that small business and self-employed people face – the inability to buy insurance at any reasonable price if there has ever been anything wrong with them medically. The solution to the “adverse selection” problem is identical to that which exists in corporations – you typically can only elect out or in of a policy or plan on an annual basis – that is, you’re obligated to participate for a full calendar year. Enforcing the same terms (you can only opt in during one month, and are obligated for the entire year) solves the problem of someone deciding to buy only when they get ill, as you would have to wait for the enrollment window to open. For acute conditions where adverse selection becomes most important this restriction resolves the problem.

All “insurance” companies must offer a true insurance policy covering only unlikely-but-catastrophic events on the same terms as their “full service” policies. These were formerly called “major medical” or “hospitalization” policies, and have become very difficult to find. They’re relatively inexpensive as they do not cover routine doctor’s visits or medications, but do cover catastrophes (e.g. a heart attack, cancer, stroke, etc.) We must provide consumers with a reasonable-cost alternative to HMO/PPO coverage, and this is it. If a company wants to sell “full-featured” policies that are unaffordable to a huge percentage of the population, we must mandate that they also offer affordable catastrophic coverage for those who prefer it (or can’t afford anything else!)

If a firm were to sell auto insurance or life insurance to any and all at same terms and price regardless of risk, they would be out of business pretty soon. Does the individual who has repeated accidents or violations pay the same premium as the good driver? Does the 65 year old pay the same for life insurance as the 25 year old? The whole idea of insurance is not simply for the benefit of humanity, but it’s a business for the benefit of shareholders which happens to provide a service to people; a risk management business. I have no issues with disrupting the tie between employment and health insurance, and I do believe that the rates for the same individual of the same age, gender, and other possible significant risk criteria, whether employed or not, should be the same. Although, there is the counter argument of scale. If as an employer I can bring an insurance company 25 000 employees, I theoretically should get some benefit over an individual walking into the insurance company’s office. However, I think breaking the link is in everyone’s best interest. The second point of refusing to cover pre-existing conditions relates to adverse selection of individuals choosing health insurance only when sick and decide they need it, thereby denying the insurance company the ability to generate reserves during the periods of premium collection while the individual is healthy. Society mandates auto insurance if you drive a car so why not mandate at minimum catastrophic health insurance. That eliminates the adverse selection issue. What about the newly diagnosed diabetic with hypertension and high cholesterol who decides his whole life not to get health insurance and then the day he develops angina (chest pain) decides to wait and sign up during your open enrollment period? This constitutes adverse selection and is not solved by your once a year enrollment option. The only way to avoid adverse selection is to mandate coverage for all and have several choices available with catastrophic being compulsory. And the one rate fits all subject to age and gender also would not allow appropriate risk mitigation; coverage should be separated into three categories with different premium structures: acute catastrophic, long term management of chronic disease, and comprehensive (everything). There also should be a variety of options from prepaid capitation (HMO) to fee for service. And if Medicare and Medicaid are to continue, they can NOT be the price setters. They must be price takers like everyone else in a competitive market. Governments setting prices ceilings is heavily distortionary as you have pointed out. This “one rate” option also goes against your argument of picking and choosing vis a vis the woman who doesn’t want her premium affected by those who wish abortion coverage or men who wish viagra. We could choose many arbitrary criteria. I have no family history of obesity, diabetes, or heart disease so why should my premiums be affected by those who do. I think there must be a sliding scale of premiums with those who have pre-existing conditions paying higher premiums and co-pays as well as increasing co-pays to deter utilization as a consequence of moral hazard.

Idea 2: All health providers must publish a price list and may not bill or accept payment at anything other than that price; doing so becomes a violation of Robinson-Patman and exposes the provider to civil suit for treble damages. This instantly stops the practice of billing the uninsured or privately insured at a higher price than Medicare, for example – a practice that is rampant, particularly among hospitals. Every hospital has a detailed price list for every function and thing in their health care panoply – this enforces even billing and even pricing for everyone, without discrimination. The complaint that health providers cannot make a living at Medicare’s reimbursement rates does not give that provider license to cost shift the expense of government-subsidized care to privately-insured or uninsured patients. That sort of discrimination is outrageous and must be made unlawful. Everyone would raise hell if your car was three times as expensive if you worked for Ford than if you worked for GM, yet it is accepted that if you’re not insured by Kaiser (for example) your heart bypass surgery costs a different amount. If Medicare’s “price schedule” is inadequate the solution is for providers to refuse to provide the service at that price, not cost-shift the care of older Americans onto younger. This is a more than $200 billion dollar a year rip-off of working-age Americans and it must end.

I have no problem with providers publishing a price list and clearly providing the information in advance of providing the service. In fact I think it should be mandatory. The problem today is that information is meaningless. You bill X. Insurance or government pays Y. Of course X>Y. What happens when you published $100 for Grandpa’s glaucoma evaluation and Medicare arbitrarily steps in with the price fix of $65. Or your insurance company states the maximum allowable charge is $65. You have to run a business. Costs are incurred. Like any other business we set prices based on our individual firm’s cost structures and the expectation of profit subject to competitive markets. If Medicare fixes the price of an investigation, procedure or treatment , then lets call a spade a spade. This is not the competitive market you declare you wish for. This is price fixing arbitrarily set by the government. And since you say there is no difference between the economic value of the complex breast reconstruction done regardless of payer (whether cash paying privately, insured, or medicare) then guess what…Medicare rates rule and all will be paid government dictated rates according to your theory. Of course, providers can opt out of Medicare. Maybe if everybody opts out, it will force Medicare rates upward. Or maybe the AARP will complain about resource bottlenecks due to lack of participation. Maybe politicians in search of votes will capitulate and compel providers to participate in the altruistic pursuit of helping the poor old people. Its a no-brainer vote wise and the big bad rich doctor will be an easy target. And again you have created a adverse selection and moral hazard issue. Eligible patients will select Medicare, because of reduced out of pocket costs to them. And since rates are held artificially low at below equilibrium clearance prices, it drives over utilization, in essence INCREASING the burden on taxpayer that you claim to avoid (just ask the Canadians). Anyway hospitals and other organizations are compelled to accept Medicare patients by various carrot and stick policies.

Idea 3: No event caused by the provision of your treatment may be billed to you. Period. Specifically, MRSA infections and similar contracted in a hospital cannot result in billing of that treatment to the consumer. If you call someone to fix your roof and they break a picture window, they have to eat it – they can’t bill you for the roof and the window which they broke! The best incentive for better-quality care, particularly when it comes to controlling in-hospital cross-infection rates, is to make it ruinously expensive for hospitals to fail to prevent these adverse events. Prohibiting by federal law the billing of any amount for a condition caused by the provider of health care (or a health facility) puts in place a very strong free-market disincentive for lax infection and process control.

Sorry Karl but I question your assumptions. What if the MRSA you contracted was sourced from your grandmother who came to visit you? Most if not all medical illness treated in hospitals will be susceptible to complications. Patients are under duress, nutrition is not the finest, immune systems are challenged, patients are taking medications that make them very susceptible to other adverse events; this is all part of the unexpected outcomes you mention below under tort reform. If a patient suffering from severe pneumonia contracts c. difficile enteritis due to the antibiotics he required, or the person in for the routine operation suffers a post operative deep vein thrombosis, well it’s unfortunate but as they say, shit happens. Maybe the only instance I could accept this idea is in the event of gross negligence.

Idea 4: If you show up without insurance or ability to pay with a life-threatening condition, you will be treated, but the hospital cannot cost-shift the bill – it instead bills The Federal Government. We have created an expectation that if you show up needing emergency treatment you will get it, irrespective of ability to pay. This creates a monstrous problem for hospitals and results in the $30 aspirin, among other outrageous distortions. The solution is to have The Federal Government receive all uninsured and unpaid bills, with the debt being immediately paid by the government. Said debt then becomes a collection item against the citizen – a debt to the Treasury, administered by the Internal Revenue Service. If you cannot pay cash, that’s fine – the IRS will be happy to take payments (at interest.) If you’re an illegal alien the Federal Government will be mandated (by statute) to collect from the other nation, and if they refuse to pay, to deduct any such amount from foreign aid of any type and source on a dollar-for-dollar basis.

So currently, hospitals bill Medicare/Medicaid whatever they can (and preferably NOT fraudulently ..but who knows in America these days) and the rest is allocated across those who can pay. You want to have hospitals bill all parties the same rate for the equivalent procedure. So far so good. We are in full agreement. The rest will become a recourse loan from the federal government until death. So no burden to all; only to those who consumed the services and couldn’t pay up. Again I’m with you. But here is an interesting video:

Oh oh. Most people who don’t currently have insurance and which would likely incur this debt to the Fed is Hank. Hank is supposed to be the engine of growth for the U.S. economy. If we saddle Hank with more debt, then Hank can’t invest in his entrepreneurial future.

Idea 5: We must reform the tort system. The trial lawyers will hate it. So what. The simplest proposal is this: you may sue only for gross negligence. If the wrong arm is amputated, you have a lawsuit. But we, as a society, must admit and accept that we call it practicing medicine, and by the very name – “practice” – we therefore admit and accept that outcomes will neither be perfect or predictable. But while we must accept that medicine is not a perfect science and outcomes cannot always be predicted, every person has a right to know their physician’s record.

NO ARGUMENT HERE! However, I believe this is the way the system is supposed to work currently. Capping awards and maybe an alternate venue for arbitration makes more sense than the current jury system subject to compassionate pleas.

Anyway, Karl, I enjoy reading your blog and agree with most of what you say especially in your financial commentary. Health care is a wild beast difficult to tame. China tread cautiously as you implement reform especially with universal coverage as your goal.

Tej Deol, M.D.