Because most philosophies that frown on reproduction don't survive.

Friday, February 15, 2008

How to Pay for Health Care, a Conservative Answer

When one expresses skepticism at instituting government run health care in the US, one is pretty quickly asked: "Well the current system is obviously broken. What do you think we should do about it?"

There is a temptation, for someone like me, to reply that the whole world is broken, and what is anyone going to do about that other than trying to treat those around him as well as he can? But questions are seldom totally without answers, so the question stuck in my head and simmered there for a while.

The result is not necessarily intended to be an enactable answer -- which is fine since no one has made me king. But it is intended to provide some sense of the sort of characteristics a good solution ought to move towards, at least according to the principles that I have in mind.

General Principles
  • Little though we enjoy it, it seems to me important that people pay for what they get. This can be done according to their means, and perhaps their means may be very small, but I think that our human dignity and our sense of responsibility for what we do both requires that we achieve things, as the story of Adam and Eve puts it: "with the sweat of our brows".

  • Big organizations almost always seem to turn into slow, beaurocratic, unresponsive organizations eventually.

  • If we have a moral duty to make sure that our fellow humans receive all reasonable medical treatment that they need in order to preserve life and dignity, it seems to me that moral duties are best carried out by small groups and individuals, not massive impersonal organizations.


Current Difficulties
  • Going to a government-run system creates the ultimate set of hidden costs. With paycheck witholding, we often have little visibility to how much we pay in taxes anyway. The same criticism can, to an extent, be leveled against employer-provided medical insurance, though at least there we have options.

  • In a world where people's behaviors can often be predicted by models that assume selfishness, it seems likely that a government paid system would result in a slowing in R&D and investments in new facilities. Assuming what I've read to be correct, the UK has a serious problem with aging medical infrastructure, and Canada's approach to keeping costs under control has been to announce to doctors that they are now paying less for the same work than they used to.

  • By its nature, employer provided actuarial insurance makes it the most expensive to get coverage for the people whose need is greatest, and makes it most difficult of all to insure those who cannot work through age or infirmity -- who often are also people who need medical care. Currently we deal with this through a government run system -- which is slated to become impossibly expensive very soon as the baby boom generation retires.

  • Compated to other elements, this is a rather pragmatic issue, but it seems to me that our malpractice lawsuit/insurance mess must add a huge additional load to our system, not only because some doctors have to pay over a quarter of a million dollars a year (per doctor) in malpractice insurance (and then pass that cost on to their patients in the form of higher fees) but also because the fear of malpractice suits results in lots of additional tests and procedures being done "just in case". I assume that any government-run healthcare system would shut down the malpractice industry (or at least cap it) and so it seems only fair to assume that the same should be done in any non-governmental solution.

Solution
It seems to me there has to be some sort of system for having the community as a whole help those who cannot afford all the medical care they need, yet at the same time a human and practical need to keep said community down to a small enough group that it remains a personal and human institution with minimal overhead. What I would thus propose is that households (probably defined in roughly the same way as they all for income tax) organize into independant groups -- let's call it a "medical community" if that doesn't sound too Orwellian. You'd need a minimum size of about 1000 households in a group and a maximum size of perhaps 5000. If a group got over that size, it would be required to split.

The medical community would charge a monthly fee per household (perhaps with a couple of levels for single vs. multi-person) which would go into the community pot to cover medical expenses. When you went to the doctor, got a presciption, etc. -- you would provide the information for your medical community and might also pay some sort of co-pay. (It seems to me that co-pays are important to incent behavior. For instance, in our current insurance we pay $25 at the doctor's office, $50 at the after hours care, and $250 at the emergency room. However little one may want to pay the $25 at the doctors office, the incentive to take care of things in a timely fashion rather than waiting and landing in the emergency room.) The rest would be covered entirely by the medical community.

Membership in a medical community would be mandatory, and communities would not be allowed to exclude members because of age or medical condition. Each community would have one or more full time administrators whose job would be to oversee the bill paying and provide reporting to the community memebers on a monthly basis. Each community would be able to formulate its own rules on what was covered and to what extent. In most ways it would work best if communities were regional, but I think it might also be important to have them based around culture or belief system as well. For instance, a specifically Catholic community might refuse to pay for abortions, sterilizations, birth control, etc. Being in a like-minded community would also help people from being under pressure that related to their beliefs -- say pressure not to have "too many kids".

At the end of the year, if there was money above a certain threshold left in the community coffers, each member would recieve a refund check. When there were unusually large expenses to help a certain member, others would be kept appraised, especially if an extra assessment were required. However, even with only 2000 families, some pretty expensive care becomes affordable. (Say two kids out of the community need special medical care that runs to a million dollars each -- that works out to $83/household/month for 12 months.)

There would be a difficult balance to maintaining a proper ownership sensibility. On the one hand, you want people not to get care they don't need, get generic drugs when possible, etc. in order to have money left and get a refund at the end of the year. On the other hand, you don't want people so hounded on these issues that they forgo needed care.

For those who are truly poor, I think the best approach (rather than throwing them into a vast government paid system) would be to have the government provide a credit to the community equal the to monthly dues for families unable to pay. There might also be a provision where if the head-of-household (or one of several) loses his/her job, that families fees are waved until they regain employment, and the community is able to get a credit from the government.

Another thing that might be a positive would be having "excessive cost" insurance that a community could buy from an insurance company, so that if one household in the community had medical costs of over a certain very large amount (say $250k) in one year, the excessive cost insurance would pay the rest. The rules on excessive cost insurance would have to state that the only factor in the rates would be number of people in the community.

Problems With The Solution
In many ways, I think a community-type solution like this would provide the most humane approach to making sure that all were able to receive needed medical care, while not centralizing health care so much that it stiffled competition and took the positive aspects of market forces out of American health care.

However, community also has downsides. While feeling like you own your money tends to make you more responsible with it, there are always those who take advantage of others and also those who week to keep others from getting what they need.

Also, while I think it's important to have a small enough institution so that you know where costs are going ("The Jones family was in a terrible car crash. Keep them in your prayers and have someone organize bringing meals to them for the next week." "Samir's son has been diagnosed with Leukemia -- we're going to see if we can get him into Children's hospital and we'll keep everyone up to date on how it's going.") small entities are often in danger of being badly run. Each community would need a competant board, and one or more competant (read well paid and professional) administrators -- despite anyone's instinct to cut costs by doing it themselves on the side.

I'm sure there are other things that I'm not thinking of as well which will jump right out to readers.

I'm curious as to the reaction to this kind of idea both from those who favor government health care and those who (like myself) are very much against it.

11 comments:

Steven said...

Darwin-

I generally like where you're going there. The biggest issue I would see is actually a question of membership. The way the world is, most people would want to join a group with young, healthy people. Obviously the "best" solution would be if there was a even cross-section of society in every group. I fear that there would be a lot of moving around in order to get into a younger, healthier, CHEAPER, group. A young healthy person/family might think that it is only fair for them to be in a cheaper group. An older person might feel it their only financial option, etc.
Of course, a lot of people move into a group that is cheaper (either because of superior management or healthier membership) and the group eventually splits. How do you decide where to split it? Especially difficult if one household has a particularly high cost associated with it. Who gets "stuck" with that household? Who gets to keep the experienced manager?
I don't think that these are insurmountable. For example, I'd give preference for those who have not switched groups for the longest (being split wouldn't count). You move around a lot, and you are the first one to get "bumped" from the main group into the split off group with a new manager.

TS said...

Interesting idea. It's a shame think tanks like the Heritage Foundation have come up so empty on the issue. I guess it's up to us bloggers!! :-)

People constantly move, which would cause them to move to new groups... Might be a lot of red tape involved. I suppose the basic template could be borrowed by most communities and tweaked slightly but I'm trying to think if we have anything similar to what you are proposing now.

The enforcement mechanism I assume would be wage garnishment, which involves gov't and the court system (for disputes). I also wonder if you'd still get the "good deals" on drugs and health care such that occurs with large economies of scale. I guess these neighborhood groups aren't replacing HMOs? I also thought the bigger the group, the cheaper to insure because each one takes on significantly less risk than he or she would take on otherwise. By having groups of 500 or 1000 I don't know what that would do to the premiums.

I don't know that much about how the health care system actually operates so some of my comments are probably wrongheaded.

Rick Lugari said...

I agree that we must first make sure that anything we do is that we're heading in the right direction - like you, I don't believe the proposed "corrections" by Hillary and the others are steps in the right direction.

What I like about the ideas you're floating is that they are more in tune with the family and the community, and that they attempt to efficiently utilize the principle of pooling funds while being fairly true to the principles of subsidiarity. All well and good there.

However, not that it might not add pressure to keep health care costs down (like what insurance companies do negotiating certain prices procedures, etc.) and that it *might* also help foster a different attitude within the health care community, but I don't really see it addressing the overall cost of health care in a meaningful way. [I'm getting back to all the stuff I mentioned in the previous thread - and assuming my thoughts and concerns are valid. I just don't see how a mere change in payer will result in a genuine reduction cost - i.e. the $100,000 procedure that the Danes can do for $27,000. I mean all things aside - if all our medical/insurance bills were one quarter of what they are now, I doubt we'd be having this conversation.

j. christian said...

Steven hits the nail on the head. Anything other than randomization into one of these pools leads to an adverse selection problem, but then randomization eliminates the effect of it being a "community." I'm not sure how to surmount that problem, although it's a very interesting proposal. (It's really the the same principle behind all insurance, in a way.)

Darwin said...

Steven,

Yeah, it seems to me that you'd need to have drastic limitations on what groups you could join, to avoid chaos and to avoid low expense people congregating too much. Ideally, membership would be long term as well. One approach would be to have only certain membership criteria allowed, perhaps: your region (like a public school district), your church, and your occupation. Perhaps each one of those plus an ability to bring in other households of family members within one degree of separation: siblings, parents, children, perhaps aunts, uncles and cousins.

If you make it against the rules to deny someone entry or kick them out (or charge them higher dues) due to age and medical condition, I would assume that if you limit churn you would eventually work out to equalibrium. But that would definately be a concern.

TS,

I hadn't thought about enforcement, but that's certainly a potential problem area. One could take the, "You don't pay, you don't get benefits" approach, but that defeats the idea of everyone having to be in a group, so I think there would probably have to be potential government enforcement. (Universal solutions to anything are always such a mess.)

On big versus small groups, I think it would probably start to get statistically dangerous to have groups under 1000 households. I'm not sure that you need them to be much larger, though. The big advantage of size beyond that is negotiating lower costs. I wonder if it would be possible to flip that around by requiring that medical providers publish "list prices" which groups could then compare and select based on, rather than having the 800lb Gorilla approach where the biggest insurance companies get the best deals. Perhaps making medical providers compete by changing the price they offer everyone would keep the competitive aspect but change it to vendor selection rather than insurer selection.

Rick,

I would hope the way you could then get costs driven down would be via opening a more transactional marketplace rather than a relationship market place. At least with the products I price, transactional marketplaces are often lower margin in the long run. But I don't know if it would really work. The big thing is, I'd hope that having it in your head that if you're a savvy healthcare shopper you'll get a big refund at the end of the year would encourage better consumer awareness and optimize what people choose to do and for how much. But it might prove that people have too hard a time being sufficiently educated about that marketplace.

j. christian,

I was basically thinking of some of the early precursors to insurance, the mutual benefit and fraternal societies that filled much the same niche back in the late 1800s.

M.Z. Forrest said...

Like HSAs, one of your primary drivers for reducing cost is eliminating over-utilization. Addressing mal-practice and preventive medicine is one area you mention. You also mention a health dividend. If indeed over-utilization is a driver, then I think your plan would offer benefits. The one whole I see is that your copay model covers what would more fall under primary care versus hospitalization. The latter is admittedly more unavoidable, but it is the area that will add cost quicker. The other caution I would add is that the theory of over-utilization was the primary driver behind the creation of HMOs. I don't say that to bring up a bogeyman though. I say it, because the anticipated savings due to over-utilization never materialized.

Fundamentally once you compel coverage, you are basically offering a public sector solution. For example, if I drive on a toll road that happens to be owned by Cintra, I'm using the public infrastructure. This is not a bad thing necessarily, but there is nothing intrinsic that differenciates it from government really.

Overall this is pretty decent first effort. I made a similar first effort, and I ended up having to make a lot of revisions. If I were to try and utilize the private sector signicantly, I would probably use property taxes to subsidize or own actual facilities. So if a resident of Geopolis goes to the hospital, they pay for their care but not the room. Going up a level, I think could offer a very heavily subsidized chronic care reinsurance pool. There are bits and pieces one can do, but I think the greater probably in health care is the inability of many people to cash flow it, even with insurance.

Darwin said...

MZ,

Yeah, a bit like a much less individualistic approach to HSAs.

I'm not sure how much over-utilization is a problem. I do think that having people more aware of the costs involved in healthcare (as in anything) would be a good thing. One thing that I think would be very good is if we managed to get routine and extreme care more segmented in this country. From what I've read, one of the main problems with HMOs is that they imagined that they could create better health by eliminating the costs associated with preventative and routine care while limiting ones ability to access more expensive care quickly. However, it didn't work, in part because when routine and preventative care became free, people gobbled up a lot more of it without actually behaving in a more healthy fashion. In this case, I'm not sure that I'd see the advantage as preventing over-utilization so much as simply creating ownership and awareness.

On hospitalization, I guess I would envision either a per-day flat copay (with a at 500-1000 per event) or perhaps certain event-based copays: i.e. $500 for all pre-natal and delivery expenses.

Something I should probably be clear on is that although it seems to me that a model like this might reduce costs, that's not necessarily my main motivation. I mostly would like to see something which is more permanent (as in whole life rather than just working life), much smaller, and provides a sense of communal ownership and responsibility. My biggest objection to the idea of government healthcare is not pragmatic (though I have pragmatic objections to it) but principled. I think it's generally bad for individuals and for society as a whole to have things given to them "free" by the government. And I think that systems which force people to act as a small community and look out for each other are generally good for us.

Kyle R. Cupp said...

Good for you Darwin for offering a solution to our healthcare woes. I like where you’re going and sympathize with your aim to keep the system decentralized, local, and communal. Personally, I lean towards a single-payer not-for-profit system, but the limited-government conservative in me is skeptical of its uses and abuses.

What I definitely don’t want is a centralized, unaccountable, red-tape infested government controlled healthcare program, especially in our society in which abortion and other crimes are seen as legitimate medical procedures. What I’d like to see is a publicly funded system that is federally funded but locally managed, and one that empowers and trusts doctors and patients.

What I struggle with is how to increase quantity without sacrificing quality. How do we keep the spirit of innovation and creativity in the medical field while making sure that everyone, and I mean everyone, has access to adequate care?

Our healthcare problem is also tied in with other social ills, such as our litigiousness, our corporatism, our nihilistic preference for profit over people, our unhealthy diets, and the fact that our politicians don’t listen to smart bloggers. We won't solve heathcare problems by treating them as if they exist in a vacuum.

Jayson said...

A medical "frankpledge"?
Hmm....

BTW, something of possible interest for you (albeit a bit old):

http://bitpig.livejournal.com/106242.html#cutid1

Anonymous said...

The Prescription Laws create a "monopoly" that adds considerably to the cost of care. For many people, especially senior citizens, if you are on "life-time" medications, (blood pressure, statins), a considerable saving would be possible without having to make (expensive) regular visits to your doctor for prescription refills.

Jerome

Katherine said...

This proposal is not all that incompatable with what has been proposed by Senators Clinton and Obama (once you start reading their plans rather than listening to Rush). Both of them cite FEHBP as a model. FEHBP has hundreds of invidual plans a particpant selects from. They are not all of the small, local, community based model that you reference, but nothing stops such an option from forming and becoming part of FEHBP.