American Health Care: Problems & Needed Reforms
Problem of Rising Costs
I am not trying to argue either for or against the new health care bill. Like most Americans, I am not qualified to have strong feelings either way. (I don’t have time to read hundreds of pages of legislation.) Instead, I will point out some simple problems that make it very difficult to implement any effective, meaningful reform. If my simplistic analysis is misguided, I would appreciate any attempt to enlighten me.
There is general agreement that health care costs in the United States are way too high. (It is one of the few things on which everyone can agree.) Roughly 17% of American GDP goes into health care, a number exceeding two trillion dollars. Of course, to the industries that are performing medical services and receiving much of this money - doctors, hospitals, the pharmaceutical industry, and medical technology companies - this high level of spending is not really a problem. After all, what private industry in its right mind would want spending on its services to decrease? It is therefore in the interests of each of these major players in the health care system to make sure that any reform measures do not cut too much into their piece of the pie. To some, this is an inevitable problem with a private health care system in which the various players are motivated by profit. Health care, they would argue, should be provided as a basic right, not as a privilege reserved to those who can pay for it.
To others, however, these notions of health care as a basic right and of the evils of capitalism are classic examples of naïve liberal idealism. Without the opportunity for profits, there would be no incentive to develop medical innovations and provide the best services possible. Like with all industries in a capitalistic economy, real competition between service providers, along with the basic rules of supply and demand, should keep prices in control. Just like any product, consumers have the opportunity to shop for the best price. And if prices get too high, a reduction in demand will lead to decreased profits and a natural price adjustment.
The problem is that health care is not like most products. If the price of the flat screen TV, car, or sweater that I really want is too high, I can settle for a lesser product or just do without for the time being. But if I am suffering from a major medical issue, doing without and/or accepting lower quality care is not a viable option. As time has passed, medical technology has advanced tremendously, keeping people alive who not too long ago would have died much sooner. These services, however, can have a very high price tag. But when a medical situation is serious enough, no cost seems too high. So even if all available medical services are priced out of the practical range of average people, they will still feel compelled to pay it.
Most Americans, however, do not pay these high costs directly. By and large, they don’t even know how much the services cost. This is because their medical insurance companies have the actual responsibility of paying the tab. So unlike the other major industries in the medical “system,” insurance companies have an incentive to keep costs down. On some level, it would seem that they are on the side of the consumer. So why is it that consumers complain so often about insurance companies?
Problems and Inherent Weaknesses of For Profit Health Insurance
The insurance business in general can be extremely profitable, but the circumstances have to be right. First, you need to insure a large pool of people so that you can accurately predict how many of your customers are likely to make a claim over a given period of time. With a large sample size and an accurate set of statistics, you can get this down to a science. Second, you must try to avoid insuring risky people, and if you take on those who are risky, then you must charge higher premiums. By these standards, the most predictable and profitable enterprises seem to be auto and life insurance. Since it is unlikely that a rash of customers are going to die off or have car accidents at the same time, you can easily set things up so that you collect more in premiums than you dish out in claims. The main problem is the competition from those seeking to capitalize on this brilliant business model. Homeowner’s insurance is also a safe bet by and large. You could get in trouble, however, if you insure a bunch of homes in a disaster prone area. (Of course, if the disaster is bad enough, then the government might rush to the rescue.) On average, however, claims by homeowners are relatively rare, so you can rake in far more than you spend.
So how, if at all, is medical insurance any different? Like all forms of insurance, you can predict the likely cost of claims by insuring large numbers of people. However, you are likely to run into a couple of basic problems not faced by other types of insurance companies. First, your customers are likely to be far more demanding. They will often show up to the doctor when they do not have a real problem. Ideally, the doctors in this situation will deal with their patient’s “issues” with limited cost. Others, however, might be happy to perform unnecessary medical procedures in order to keep the patient happy, avoid future lawsuits, or generate revenue. And if heaven forbid a customer actually does get sick, they will demand all of the procedures, pills, and technology available to get them well. So what is an insurance company to do? If you refuse to pay for procedures that you deem unnecessary, too expensive, or possibly even harmful, then you are the bad guy. Unlike other products, the consumer will not get angry at the service providers for charging the enormous costs that few customers even see. When it comes to paying, the consumer only deals with the insurance company. But then again, if you keep the customer happy and dish out the cash too liberally, then you are out of business. And if you decide to pick a fight with the medical establishment in order to reduce the costs of the various procedures, they could get ticked off and become less inclined to continue working with you.
Customers of other types of insurance companies are not so demanding. A life insurance customer can only die once. Average drivers are likely to have a limited number of accidents. Houses don’t burn down very often. And if a company drops a customer, raises premiums so they are out of reach, or refuses to insure those that seem too risky, it is at worst a major inconvenience. Few would argue, after all, that people have a god-given right to life insurance, driving privileges, or home ownership. But if a health insurance company does the same, it might sentence that individual to death. Staying alive seems like a pretty basic right. Even those who insist that medical service is a commodity that must be bought and sold on the open market would be unlikely to let an uninsured, poor person bleed to death just outside the emergency room door. (And since the emergency room is compelled to give care, then they will be forced to eat the costs, passing these on to insurers and consumers.)
This article so far sounds like a defense of insurance companies. I do recognize, however, that insurance companies are as motivated by profit as anyone; sustain bloated, inefficient, sometimes incompetent bureaucracies; lobby governments to protect their interests and limit competition; and have been known to commit outright fraud. But no matter how you look at it, something, or more accurately someone, has got to give. It seems clear that some player(s) in the health care system – consumers, insurance companies, or providers of health care services – will lose out if real reform were to ever occur. But then again, is it possible for everyone to win?
The Costs of the Status Quo
As with any complicated issue, it is easier to point out problems than to offer up solutions, and when in doubt, the safest path is to do nothing. Inaction, however, is not an actual option. Dodging an issue represents an effort to maintain the status quo, a proclamation that the current system is perfectly fine.
Maintaining the status quo can also be the safest path for politicians seeking votes. Change tends to make voters nervous, and the current system, in spite of its weaknesses, can seem more appealing than an uncertain future. And when you are potentially messing with people’s health, these natural fears of change can be even more intense. Fear, however, does not entirely explain the intensity of resistance to health care reform. The simple fact, apparently, is that many Americans are happy with their health care situation. Most Americans have health insurance, and they feel that this provides them with the best doctors and medical technology that the world has to offer. Their contentment with the system, however, is based partly on ignorance. Because the insurance company pays for services, consumers do not see the actual costs of their care, and since many Americans get their insurance through their employer, they are shielded from the actual cost of the insurance premiums. In order to provide this benefit, employers are forced to reduce the salaries that they might otherwise offer. Being shielded from the costs, therefore, can create the illusion that the system is both effective and affordable.
High costs, however, are not the only problem. Unlike other industrialized nations, tens of millions of Americans have no medical insurance. But is this really a problem? This question is at the core of the debate. For some, the fact that millions are uninsured is a moral outrage, and universal health coverage must be the top priority. The big problem, of course, is figuring out how to pay for it, a problem that becomes more daunting as health care costs rise. For others, the idea that the government should aggressively intervene in order to guarantee health coverage is the outrage. This will lead to high taxes, increasing deficits, rationing of care, excessive government control, and deterioration in quality of services. I understand these concerns, but they fail to address the question of what should be done when an uninsured person who cannot afford out of pocket expenses needs health care. In my experience, few of the people who rant and rave about the evils of “socialized medicine” would say that we should let people in need go without health care and potentially die.
So we have two big problems: high costs and a large number of uninsured people. Which problem should take priority? On one extreme, you have people focused on using market forces to bring down costs. In theory, more people will then be able to afford insurance, but you will still have to contend with some uninsured citizens. On the other side, you have those who want government action to guarantee health coverage and force down costs. President Obama and the members of congress who voted for the health care bill seem to be in this category, but most analysts that I have heard argue that the new reform bill is weighted more heavily toward expanding insurance than cutting costs. This is partly because it is easier for government to hand out benefits than to manage complex economic forces. Whatever you believe, one thing seems clear: you cannot choose to tackle only one of these problems. If costs keep rising, it will come out of consumers’ pockets in one way or another, whether it’s in the form of taxes, insurance premiums, lower salaries, or direct payments to service providers. If we do not address the problem of the uninsured, then we have a choice of undesirable, ineffective, and/or inefficient options: let them do without, have government pay for their care, dump the problem on to charities, or have emergency rooms be their primary care facility. High costs make expanded coverage less affordable, and a large number of uninsured citizens can cause costs to rise even more.
Oops. I’ve gone back to listing problems instead of offering solutions. This is partly because I do not have a comprehensive solution to the problem. (I’m just a teacher / self-proclaimed writer after all.) Still, I have heard many ideas over the past several months that could bring some improvements. These ideas, however, are based on an assumption that some Americans will resist. In my view, it is a bad thing for too much of America’s accumulative wealth to be going into the health care sector. All Americans are potential consumers of health care – including health care professionals - and if we are all forced to spend increasing amounts in that area, then the rest of the economy will suffer. Of course, those who work in health care stand to benefit if health care costs continue to rise. To me, however, their interests are secondary. In the end, the interests of the whole must take precedent over those of any particular group. So if you accept this assumption, here are some possible courses of action, listed in no particular order:
1) Enough with the catch phrases and ideological arguments: Too often, political “discussion” is nothing more than arguments over general principles. But politics is ultimately about developing practical policies, not just making effective arguments and winning elections. So if a change seems likely to improve the health care system, I could care less if it came from a liberal or conservative source.
2) Malpractice reform: Many claim that doctors are forced to practice “defensive medicine.” In order to cover themselves and avoid potential lawsuits, they will perform expensive procedures that may not be necessary. Caps on the size of lawsuit payouts may be in order, as well as penalties for lawyers who push for lawsuits that are clearly “frivolous.” It will then be possible for doctors to pay less for malpractice insurance, potentially bringing down overall costs.
3) Move away from employer provided insurance: Relying on an employer for insurance creates all sorts of problems. People stay in jobs that may not be best for them (or the economy) in order to maintain insurance. The fear of losing insurance if you are fired or laid off can also create extra stress, feeding into potential health problems. Businesses may also struggle to compete against foreign companies that do not have this extra expense. The concept of a health insurance exchange that is included in the health care bill may be a good way to go, although I don’t know enough about the details in the recent bill to know if it will be effective.
4) End the system of “cost per service”: Medical specialists are paid on the basis of how many procedures they perform, not on the overall medical result. This creates an incentive to do more, even if these procedures are unnecessary and possibly even harmful. Given the enormous variety in the frequency of procedures performed at different clinics throughout the country, along with the wide range of prices charged by different places for the same services, it is clear that some national standards may be in order. With apologies to the opponents of “socialized medicine,” this may be a job for a government board of medical experts that can determine both the effectiveness and the real costs of standard procedures.
5) Provide government subsidies to help people get insured: Initially, this will lead to increased government spending. But if we accept the notion that the uninsured are not going to be left to die, then it is in all of our interest to improve the efficiency with which they receive care. Waiting for emergencies before one goes to the doctor, and essentially using the emergency room as a primary care facility, drives up costs for everyone. It may seem counterintuitive, but offering high quality basic services – something often referred to as preventative medicine - can ultimately lead to lower costs. Better basic care, by reducing the number of major health problems, ends up being cheaper.
6) States must be opened up to more health insurance competition: Because people throughout the nation often have limited companies to choose from, there is little incentive for insurance companies to reduce premiums, make operations more efficient, or provide better services. So if we are going to maintain this system of for profit, private health insurance, then consumers need the benefit of real competition.
7) Increase the age at which people receive Medicare benefits: This is not popular, and given the fact that the elderly are the most powerful people in the nation, it will be hard to make it happen. But if Medicare is left as it is, it will drive our federal government further into debt and/or force tax hikes. People are living and working longer, and this outdated program needs to reflect this reality.
8) Rethink end of life care: Huge amounts of money are spent on people during their last months of life, and this spending often does little other than extending the process of dying. Sometimes, the best thing that can be done for a person is to withhold care. The side effects of treatment can outweigh any benefits and make those last precious days a nightmare.
9) A lifestyle shift: Americans are often stressed out, overworked, and generally unhealthy people. We can complain all we want about doctors, insurance companies, and the government, but many of our problems are of our own making. Personal responsibility, and the idea that you cannot necessarily have everything that you want, need to make a comeback in our self-indulgent, overly materialistic society.
10) Err on the side of care: Sometimes, the goals of cutting costs and increasing access to health care will seem to be in conflict. Also, there will be times when the fiscal costs of an idea for increasing coverage are uncertain. In my mind, if a choice must be made between potentially improving coverage versus maintaining current costs, I will go with improved coverage. If more Americans are able to see a doctor when necessary, I can live with slightly higher taxes or insurance premiums. You would think that with all of the self-professed Christians on both sides of the political spectrum, they could all agree that we should err on the side of compassion.
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