Thursday, July 09, 2009


1.) Q: Why does healthcare need reform?
A: Because a disproportionate amount of healthcare services are consumed by people who do not contribute goods and services to the economy.

2.) Q: Why does it matter if a healthcare consumer contributes to the economy?
A: Because the use of healthcare resources becomes decoupled from the revenues that pay for them. The healthcare system consists not of different tiers, but of two different patient populations. The first population consists of the employed who pay for their healthcare services as they go along, typically through the payment of health insurance premiums.Call this population the "self-sufficient population." The second group consists of everyone else: the retired, unemployed and those who cannot devote a sufficient amount of their own resources to their healthcare needs. Call this group the "non-self sufficient population."In a system where healthcare consumers pay as they go, these consumers can direct their money toward the system attributes that are most important to them, in effect allowing true market mechanisms to shape the healthcare system according to the preferences expressed in the market. As healthcare costs increase, the employed and insured have some elasticity in their allocation of income to healthcare needs. Those not paying for healthcare from current income do not have this flexibility. They either have to pay for their care from accumulated resources, have someone else, typically the governement, pay for them, or a combination of the two.

3.) Q: What are the practical differences between the self sufficient and non-self sufficient populations?
A: The non-self sufficient population by definition must have its healthcare subsidized, and the government has assumed the obligation of doing so. Members of this population have their healthcare directly limited by political concerns and the inherent constraints of public financing. "Health insurance" does not insure health; it insures the assets of the person responsible for paying for healthcare services against significant health-related expenses. It is a way of protecting against having to go into debt or bankruptcy on account of illness.It makes little sense to go into significant debt to pay for health insurance, because avoiding ruinous debt is one of the rationales of health insurance to begin with. Health insurance companies are regulated to ensure that they do not assume too much debt, and therefore do not go into debt paying for healthcare costs. This system works well as a pay-as-you go model. Health insurance premiums are paid from current income and insurance benefits are paid from current premiums. The one population that this model does not apply to is the non-self sufficient population described above. Their healthcare is largely, and necessarily financed by public debt, and the debt will increase as long as their healthcare expenses exceed the actuarial value of resources that they contributed (e.g. "paid into" medicare) while working. This is the reason why the government needs to reform healthcare: The government has obligated itself to pay the healthcare costs of the non-self sufficient population, and can only do it by taking money from those that are self-sufficient. One way or the other, the employed and those otherwise producing wealth will pay the healthcare costs of everyone. The question is whether the healthcare system will lose valuable characteristics as a result.

4.) Q: What sort of cost pressures do the insured population exert on the healthcare system?
A: The healthcare system consists of more than just raw payments for clinical services and medicines. There are several other attributes of the system that affect its expense such as innovation, access, choice, ease of use, familiarity, quality and respect for individual patient values. These are the attributes most likely to be affected by healthcare reform, because each of these involves costs beyond a basic, "good enough" package of healthcare services. Insured patients have at least some measure of influence over their care by seeking out providers and insurance carriers that emphasize those attributes most important to them. As insurance mandates become more comprehensive and insurance policies more expensive, thus pricing some patients out of a competetive market, the inusred population has less influence over its care. This is another reason why healthcare reform is necessary.

5.) Q: Why is healthcare so expensive?
A: American healthcare is very expensive, to a significant degree because it accommodates a number of American values. The most influential factor however is that Americans have expressed a preference for state of the art healthcare over good-enough healthcare.There is a reason why a fighter jet costs hundreds of times more than a Cessna 172, or why a Lamborghini costs 20 times that of a Dodge Omni. The relationship between cost and performance is not linear, and high performance systems are associated with costs out of proportion to the incremental benefit. A Lamborghini does not go twenty times faster than a Dodge. To see how this principle applies to healthcare, consider a common condition like pneumonia. Most pneumonias can be treated simply for a few dollars worth of oral antibiotics. We could cut heathcare expenditures immediately by decreeing that oral antibiotics are "good enough" care, and drastically slash the associated costs, in exchange for a few more deaths among the sickest patients. As patients get sicker and sicker however, state of the art care becomes exponentially more expensive, paradoxically in the patient population where the outcomes will be poorer despite the interventions. Ventilators, dialysis machines, intensive care units and cutting-edge drugs deliver the same marginal performance benefits that the additional cost of a Ferrari Testarossa delivers over a Honda Civic. We in the United States tolerate these expenses and inefficiencies as a matter of societal values. Healthcare is not expensive in the United States because "they" are greedy. Healthcare is expensive because "we" value care beyond what is "good enough."

6.) Q: Is healthcare a right?
A: It is not a right in the sense that anyone is entitled to have if provided for them. Part of the rationale for healthcare reform is that the amount of healthcare is limited. As a practical matter, everyone cannot claim as a right something that not everyone can have. Furthermore healthcare is a service that must be provided by skilled practitioners, and no one has a claim of right to compel the performance of services against the consent of the service provider. The United States Supreme Court has already observed that states are not obligated to pay for the healthcare expenses of indigent patients.If the phrase "healthcare is a right" is taken to mean anything, it is that the government cannot prohibit a patient from accessing those diagnostic and therapeutic interventions that are potentially beneficial to him.

7.) Q: If healthcare is not a right, then what is it?
A: Healthcare is a limited resource that must be allocated prudently, developed carefully and delivered effectively. This understates the complexity in dealing with healthcare decisions because it assumes that there are definite answers to such basic questions as "what is healthcare?" Most people think they know what healthcare is, but there is a significant lack of consensus regarding the point. Some people think that chiropractic care is healthcare, while others do not. Some people think that chiropractic is legitimate for some things, such a musculoskeletal pain, but not for others, such as cancer therapy or treatment for infertility. The list of potential healthcare modalities engendering some controversy is long: therapeutic touch, aroma therapy, naturopathy, chelation therapy, faith healing, sham surgery, magnet therapy, antidepressant therapy for adolescent behavior issues, etc. Even if there is no controversy as to whether a particular type of therapy constitutes healthcare, there are disputes as to whether they should be included in healthcare reform discussions. Examples include lasik eye surgery and cosmetic surgery.Viewing healthcare as a limited resource, and of limited scope, is a step toward ensuring that healthcare reform does not degenerate into a formless miasma of special pleading, political opportunism and fraudulent waste.

8.) Q: Why don't doctors do more to control healthcare costs?
A: In theory doctors are the ideal stewards for limited healthcare resources. They have an understanding of the potential and limitations of various diagnostic and therapeutic interventions. They consider the unique clinical characteristics and subjective values of the individual patient, and have the authority to affect the amount of resources expended to treat a given complaint. In practice however, the American healthcare system has gradually imposed a tangle of competing and conflicting interests on the management of individual patients. The ideal of the physician-patient realtionship has drifted farther from reality as more interests compete for a say in healthcare decisions.

9.) Q: Is government involvement in healthcare necessary?
A: Yes. Even if healthcare services were to be confined to transactions in a fair market, there must be some regulation to ensure that the market in fact operated fairly. Government is the appropriate institution to monitor and ensure quality and protect the population from the harmful activities of the incompetent, malicious and unscrupulous. Furthermore, the non-self sufficient population must have its healthcare subsidized, and government is seen as the most reliable entity for attending to the needs of this population.

10.) Q: Why do current healthcare reform proposals rely so heavily on government involvement?
A: The government has several attributes that private enterprise does not. The government may use force and coersion to accomplish its objectives, within prescribed Constitutional limits.It can force unpopular policies on unwilling populations. In addition the government is viewed as the ultimate deep pocket, the financier of last resort. It can compel support for programs from persons who would otherwise have no interest in them. In addition, because government has assumed the obligation to provide healthcare to a significant portion of the population, it has a stake in ensuring that reform is advantageous to government interests. Because the private payer population increases the cost of healthcare by supporting innovation, access, patient choice, etc., and because the government has undertaken to pay these costs for the non-self sufficient population, the only way the government can effectively control costs in the public systems is to constrain the costs in the private system. Ironically, government mandates on private insurers to pay for services that would not otherwise be supported in a fair market increases costs for both systems.

11.) Q: Why do government systems seem to work out okay in Canada and Great Britain?
A: The healthcare systems of Great Britain and Canada are designed to achieve different objectives than that of the United States. This is a reflection of differing values, societal expectations, and the relationship between government and citizens. Canada and Great Britain undertook to provide universal coverage by recognizing that "good enough" healthcare was significantly cheaper and adequate to meet the vast majority of healthcare needs. There is currently vigorous debate as to whether the government systems in Great Britain and Canada are working out well.

12.) Q: Why didn't a Canadian-style single payer system develop here?
A: The United States accepted the increased costs associated with limiting waiting times for various therapies, underwriting medical innovations that benefit other countries as well as our own, and allow for individual patient values to influence that patient's care. In Canada, a woman with breast cancer will get treatment. It might not be state of the art treatment, but for a majority of women, it will be good enough. Some Canadian provinces balked at providing the stunningly effective drug herceptin for economic reasons. Canadian hospitals did not provide state of the art nipple-sparing surgery for breast cancer patients, deciding that the nipple-sacrificing version was good enough for their population. This is why Belinda Stronach, a member of the Canadian Parliament and staunch defender of the Canadian single-payer model, came to the United States for nipple sparing surgery at UCLA. "Good enough" wasn't apparently good enough for her, and because the U.S. aspires to better care, Ms. Stronach had an option. There would be trade-offs involved with adopting a Canadian -style system in terms of access, rationing, waiting times and innovation. These are things that Americans have so far preferred to the benefits of a Canadian-style single payer system.

13.) Q: Do other countries have better healthcare systems than the United States?
A: It depends on whether the attributes that make the American healthcare system so expensive are included in the definition of "better." Systems that provide "good enough" healthcare will always compare favorably with the United States on the issue of cost, because the vast majority of patients could derive some benefit from much less expensive rudimentary or dated services. Most of the objective measures of a healthcare system's function are affected by factors other than health insurance, and the care that passes between a particular patient and his physician. It makes little difference in the long run if the majority of patients are treated with expensive brand name cholesterol medicines or their generic equivalents, but it may make significant difference to an individual patient. Outcomes such as life expectancy are influences more by public health measures, lifestyle factors and demographics than the financing model of the healthcare system. There are many things that the American healthcare system does better than any other in the world; those things are also very expensive. The underlying question involved in healthcare reform is whether or not those things are worth the expense.

14.) Q: Wouldn't it be more efficient to just have the government administer the healthcare system?
A: No. It is a well accepted economic principle that specialization increases efficiency. The most efficient systems are those in which the various components of the system focus on those activities that they perform best. A consequence of this is that the more competing constraints that a system has to accommodate, the less efficient that it is. We would expect that if the fire department were also made responsible for road repair, there would be a deterioration in both firefighting performance and road maintenance. Inefficiency results when a system has to accommodate multiple criteria and address multiple goals. A single payer system would theoretically have a more streamlined, and thus efficient administration, but in reality, it would have to accommodate competing interests, i.e. political interests, economic interests, legal interests, research interests, educational interests, commercial interests, charitable interests, etc., and be much less efficient at actually delivering healthcare than a decentralized, more specialized network.

15.) Q: What benefits do free market principles contribute to our healthcare system?
A: Markets allow consumers to directly influence the type and quality of goods and services being provided. Since consumers, being left to their own choices, will favor those services and products most reflective of those consumer's values and preferences, the market is an effective mechanism for expressing the social values inherent in providing healthcare throughout the society. In addition, markets are inherently competetive, and the natural consequence of competition is efficiency. It is an observable fact of biology, economics and history, that those entities that are more efficient with regard to some necessary function have a competetive advantage and will prosper at the expense of the less efficient. Markets have an inherent optimizing mechanism, in that those items that provide the best value will eventually be preferred over those that do not. The government alternative to optimization by market competition is attempted optimization by planning. One shortcoming of the latter approach is that even the most careful plans include unintended consequences (which free markets would eventually reject), and rather than reflecting the diverse values and interests of consumers, are subject to political influence by narrow interests. It takes a symphony of poor judgment by a diverse population of consumers to wreck a fair market, but only a few misjudgments by influential officials to destroy a centrally planned system.

16.) Q: Why don't market principles hold down the cost of healthcare in the private-payer system?
A: There is no true fair market for healthcare in the United States because of government mandates, the association of health insurance with employment and the nature of healthcare services. A properly functioning market is information dependent; the market participants must have enough information about the transactions in which they participate to judge whether they are advantageous or not. Healthcare on the other hand is fraught with uncertainty, and uncertainty can be very expensive. Consumers may not have the sophistication necessary to evaluate complex medical products and services; insurance companies may be prohibited from considering relevant information about individual patients when deciding whether to offer particular insurance products. Hospitals face uncertainty regarding the payer mix of patients that come through their emergency rooms; pharmaceutical companies may face uncertainty regarding potential side effects, regulatory approval of and liability for a given drug. Diagnoses are uncertain, prognoses are uncertain and complications are unpredictable. There is uncertainty as to whether a given strain of influenza will be especially virulent, or spark a pandemic. It is often mere speculation whether science discovers treatment for diseases like AIDS, which were once considered universally fatal, but could possibly be managed at a cost of tens of thousands of dollars per life-year saved. The uncertainty associated with healthcare is a challenge for market principles, but is even more of an impediment to centrally planned or government administered systems. Rationing, constraints on provider reimbursement, and limiting access to advanced therapies may make for poor healthcare policy, but they reflect the government impulse to address the cost pressures of healthcare, including uncertainty, by brute force.

17.) Q: Why doesn't the government just pay for treatments that are cost effective?
A: Because the determination of whether a particular treatment is cost effective ultimately depends on the value of the treatment to the particular patient. There is no objective measure by which to decide whether the final three weeks of a cancer patient's life are more or less valuable than the three weeks that a surgery patients spends in a rehabilitation facility. It is up to the individual patient to decide if the side effects of a particular therapy are tolerable. To similarly situated patiens may have vastly different opinions as to whether limb amputation is an acceptable therapeutic option. "Cost effectiveness" implies that there is sufficient benefit per amount of resources expended, and there is no true objective measure of this because "benefit" is unalterably subjective.

18.) Q: Would a single payer system provide universal access?
A: No, not even close. Any system that actively tries to control costs must do so by limiting services. The fact that those services are limited means that not everyone has access to them, and therefore such access is not universal. If a system, for denied dialysis treatment to severely demented patients, that particular cost savings measure, regardless of how rational, means that part of the population has no access to services that are available to others. Many services, to one degree or another would be unavailable to certain patients meaning that access would be selective, rather than universal.