Liberals and conservatives on healthcare reform

March 23, 2009

stephen-davidson

– Stephen M. Davidson, a professor at Boston University’s School of Management, is author of “In Urgent Need of Reform: Saving the U.S. Healthcare System,” to be published later this year. The views expressed are his own. –

Stories about healthcare reform often contain opposing statements from liberals and conservatives. Liberals would use government; conservatives, a market in which private insurers would compete for subscribers. Liberals say a big public-sector role is needed to rein in costs and achieve universal coverage; conservatives say that approach would face opposition from most, if not all, Republicans.

Perhaps unwittingly, that kind of juxtaposition creates the impression that there are two equally viable paths to the three main goals of healthcare reform – financial access to care for all; reduction in the rate of increase of healthcare spending; and more reliable quality of care. But the notion that these are two paths to the same end is false. In fact, competition among private insurers will always produce large numbers of uninsured people –- now at 47 million and climbing — and always produce higher spending than necessary. Here’s why.

To get employers to choose their policies for employees, insurers offer lower premiums, which vary mostly because the policies differ. Covered services usually vary as do charges subscribers must pay (in addition to their share of the premium) when they actually use services. Insurers’ profits are determined not by the number of policies they sell but by the share of revenues paid out when policyholders use covered services. And that figure becomes known only at year’s end when bills for the services policyholders used are added up and deducted from total revenues.

So what can insurers do to increase the probability they’ll finish the year in the black? The fact is they have few tools. Revenues are determined when policies are sold, but most costs represent payments for covered services used by subscribers, so insurers need to keep those payments down. To do that, insurance innovation has taken two main tacks. The surest approach is segmenting the market to induce disproportionate numbers of healthy people to buy policies and, more importantly, to discourage unhealthy ones from buying. The other is setting rules and procedures making it harder both for subscribers to use services and providers to furnish them.

This isn’t the kind of innovation that produces better, faster, and cheaper computers (or other products) for which American ingenuity is justifiably esteemed. It may benefit shareholders, but it doesn’t provide enough benefit to the public to justify a struggle to preserve it.

Moreover, the size of the insurance bill discourages many employers from even offering coverage, their share of the premium discourages many employees from buying insurance when it is offered, and the out-of-pocket costs at the point of service discourage many who have insurance from actually using services. Finally, such a competitive, fragmented system requires higher administrative costs to support it — and higher public-sector costs for people left out of the private market.

In contrast, Congress can achieve the first goal (assuring financial access to care) simply by passing a law requiring everyone to have coverage, then creating mechanisms and rules to make it happen — including ones that will contain future spending. So the key question is not whether to use government or a competitive market, but what goals do we really want to achieve.

The market cannot be the chosen approach to achieve those three main goals. If those are the objectives, government must play a significant role. But different people may have different preferences on a range of other related issues.

Do we want a single-payer option in which everyone has public coverage and a government agency pays providers directly for care? (If so, we could expand Medicare to all Americans.) Another alternative is to create a government-funded program providing vouchers that entitle everyone to sign up with a private health plan which, in turn, would provide the services. If private health plans are used, more decisions would be needed, like requiring them to accept anyone who wanted to enroll and paying them risk-adjusted amounts so they would not be disadvantaged if a disproportionate number of high-risk, high-cost people signed up. And, of course, how to finance the program.

Bottom line: When Republicans say they oppose any government solution and insist on using the market, what they are really saying (whether they realize it or not) is that they don’t want to guarantee financial access to care to everyone or to contain healthcare spending. Competition has a long and honored place in the American economy, but in this sector it won’t serve us well.

53 comments

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A system in which the provision of medical care and the funding of medical care is provided by different organisations will inevitably lead to conflict of interests.

Posted by Joel Furze | Report as abusive

When there is a schmuck (the public) to be exploited, there is a plenty of ways to do it. In that game legality always wins over morality! Hey, we always want to insure (milk) the healthy ones. They do not burden the insurer. The sick, well, … . In the end insurance busines is busines and not a charity.

Posted by DeSegnac | Report as abusive

Great analysis. Universal access to quality healthcare is not a profitable venture for insurance companies – they must avoid those who really need it in order to maintain profits and therefore become a negative impact on the overall health of the nation. If the overall health of our citizens is an important national goal then the federal government must be involved.

Every time some conservative/Republican says the answer to the healthcare mess is competition and the “free market” they should be slapped in the face. As many other comments have noted there simply is no market for life and death. It is profoundly immoral and delusional to imply that the problem is that sick and dying human beings do not “shop around” enough to get a “bargain” heart operation or chemotherapy. – Posted by mike tar

Every time some liberal/Democrat says the answer to the healthcare mess is socialization of health care they should be issued a one way ticket to N.Korea. OK, this is cruel and unusual, so let it be Cuba, the Caribbean paradise of public health care – too bad there’s no way to send them back in time to USSR.
Life and death decisions made by a bureaucrat are not a single bit fairer than market based solutions.
Since the health care in a socialized system is inevitably rationed, someone who does that rationing may decide that for people older than X years the costs of – let’s say hip replacement surgery – are not warranted by the benefit, which may be defined as projected length of life or projected length of _productive_ life. The resources may be better spent on someone with many productive years ahead. Sounds fair to you, doesn’t it? Now imagine your elderly mom bedridden with broken hip for the rest of her life – that’s unless she gets that broken hip replaced. Is it still fair? Now think you don’t have enough $ to pay for that surgery in a private facility, but just enough to make that bureaucrat change his mind – will you hesitate to offer? But because of your offering, someone else (who either doesn’t have enough $ to offer a bribe, or isn’t smart enough to do that) will be pushed back to the end of waiting list – still fair?
Or how about that little example from Soviet dentistry of mid-1980s? There were shots of Lidocaine available, but in limited quantities, so they were reserved for extractions and people with unusually high pain sensitivity. All others had to endure drilling – even into the tooth cavity – without anesthesia. However a smile and a box of chocolates (very hard to get then and there, therefore very desirable item) would make almost any dentist agree with you that you have that unusually high pain sensitivity. A smile alone wouldn’t.
Or how about the separate health care systems for high level Communist officials and everyone else. In a regular city hospital you would likely get a bed in a corridor – until a bed in a room is freed. And the room would be probably as large as a public school classroom, with at least a dozen beds. The meals smelled so badly they’d turn your stomach inside out even if you were 100% healthy. Permanent lack of equipment and medicines, shortage in staffing, especially on nursing level. And that was in the City of Leningrad, other less important cities were much worse off, not even speaking of rural areas. On the other hand, there was Sverdlov Hospital, technically a part of the same Leningrad public health system. Single and double occupancy (you choose) airy rooms with color TV, gourmet meals, fresh cut flowers daily, latest equipment, Western meds, personalized service. Not necessarily best doctors though – they were hired based on CV details more important than skills. Too bad it was available only to a few select customers – so called “Nomenklatura” and their family members. The Kremlin Hospital in Moscow was even more impressive. Yet for treating really serious conditions of really senior (both age and position) leadership, they were either traveling to the West, or inviting Western star doctors for treatment in place, Yeltsin being the last example. All paid for from the same health care budget.
Was it fair? Is that the kind of health care system you want to see in the USA? I don’t. Nor do my parents, current holders of Medicaid and Medicare coverage (yes, combined – they didn’t earn here pensions high enough to be considered not poor). I’ll take my current coverage, with all its per-paycheck costs, deficiencies, copays, deductibles, whatnot any time over free universal health care advocated by the liberals like “mike tar”. Besides, it would never be free, Uncle Sam can’t just print the money, so inevitably the taxes will go up.

Posted by Immigrant from USSR | Report as abusive

Oh my heavens! KD has figured it out! The problem with America having nearly 50 million uninsured and double the costs per capita of other comparable countries is that so many Americans are just too lazy to buy insurance until they are sick. I just knew it was really a bitter personal war between KD and her lazy neighbor who doesn’t work as hard as KD and still expects not to be left for dead.

Sadly America is chuck full of KDs with their smug answer to every problem being the laziness of others. It is all to easy for the conservative/Republican preachers of greed to rally this ignorance into doing nothing to correct the massive imbalance of what Americans pay and what outcomes we are stuck with. I honestly do not believe we will overcome this exploitation of the rubes and the greedy anytime soon.

Posted by mike tar | Report as abusive

Why is health care so expensive? If 47 million people said they couldn’t afford to buy food so the government gave them a card so they could go to any grocery store and buy anything they wanted, what do you think would happen to the cost of food?

Posted by KD | Report as abusive

The purpose of government is to “promote the general welfare” of all of us, “we the people”. Universal, single health care for all of us is cost effective because it increases the risk pull, streamlines the administration of health care claims, includes everybody and doesn’t deny claims or try to discourge the use of appropriate treatment, diagnosis, disease management, healthy lifestyles and pay for by equitably sharing the costs by all taxpayers and putting the for profit health insurance industry out of business. Why have a “middleman” wasting users and taxpayer money for private profit? The invisible hand of the unregulated free mkarket never has and never will provide universal, single payer health care for all. The status quo ante is not acceptable or competing private health and public insurance. Being ranked 37th in the world for health and spending the highest amount is not acceptable. Pass the Nation Healthcare Act, HR 676 now! Medicare for all. Healthcare not health insurance! Healthcare not warfare!

Posted by Paul Rloden | Report as abusive

KD, so are you implying that the government is saying to those 47 millions that they can get any medical treatment and drugs they want? And that we’re paying for those 47 millions? Every other nation in the world manages to keep the medical cost down and therefore keep the insurance cost down. Thereby reducing the number of uninsured. What you’re saying is what US medical industry wants us to believe so we can continue to pay. Like some here said, only schmucks would believe that excuse.

Elizabeth Beutler is spot on about over-usage. People make different choices if they have to bear the costs directly. Costly procedures are done routinely if insurance foots the bill. This is especially true for people of advanced age on Medicare.

The Kettering Institute & National Issues Forum recently assessed the results from public forums in 39 states. They discussed 3 approaches to paying for health care: (1) require minimal coverage for all to reduce the threat of financial ruin, (2) restrain costs in the insurance and pharmaceutical industries, and (3) provide universal health care coverage as a right.

Verdict? Public has not yet come to grips with costs of making health care a universal right.
People struggle with trade-offs & see others\’ behavior that increase health care costs, but not their own, nor adjustments necessary for better health or end of life.

Health Care: People Struggle with Trade-Offs
Article & Video: http://www.kettering.org/readingroom/foc us_detail.aspx?catID=2&itemID=4202

Paul R – there are a few problems with your theory…

“streamlines the administration of health care claims” – What you are suggesting (which is not what Obama outlined) is that you would have government “employees” do the jobs of insurance company employees. Oh that would be great! They’ve done so well improving efficiencies in all the other jobs they do! And, I’m sorry, your solution would be to get rid of a private “taxpaying” citizen’s job paid for by a private “profitable” company and replace it with another government employee paid for by …who? EXCELLENT!

“increases the risk pull” . The only time more people in a “risk pool” can reduce the risk is when everyone in the pool, “contributes” to the pool! As you mentioned, you would have all “taxpayers” contributing, what about all the people in the pool who don’t pay income taxes? How many people is that again? So basically, you are just redefining “uninsureds” with risk pool “non-contributors”, what is the difference? GREAT!

“doesn’t deny claims or try to discourge the use of appropriate treatment” – Are you kidding? After the government finds out that they can’t manage the cost of health care by doing the job of the insurance company themselves, what do you think they will start cutting? Services, expensive treatments, tests, (just read comments by USSR).

“middleman” wasting users and taxpayer money for private profit? The only way to remove the “middle man” is to have patients pay their doctors directly. Anyone can do that right now if they want!!! And oh yeah, our government would NEVER WASTE TAXPAYER MONEY!

Also, the last time I looked, health care providers et. all, don’t work for free! Without the evil insurance companies around to pick on, people like you will be looking at the doctors, nurses, hospitals, etc. and complaining that they are “wasting taxpayer money”, that they shouldn’t be profiting from the misfortune and sickness of others. Maybe congress will pass a bill tax 90% of their income! Who knows?

Posted by KD | Report as abusive

Until people realize that the increasing cost of health insurance is the AFFECT of the skyrocketing costs of medical care and over regulation, this problem will never be resolved. Do you blame grocery stores for the cost of food or gas stations for the cost of gas? You can regulate the insurance industry to death and the cost will only get higher. You can get rid of health insurance and it won’t solve the problem. To solve the problem, the focus should be on the CAUSE not the AFFECT.

Posted by KD | Report as abusive

“…After the government finds out that they can’t manage the cost of health care by doing the job of the insurance company themselves, what do you think they will start cutting? Services, expensive treatments, tests, (just read comments by USSR)”
Posted by KD

_________________________

If government officials get to distribute a valuable and scarce public resource, guess what criteria they would apply? Yep you guessed it right – their own interest. Even if that resource has no monetary value tag attached – it’s supposed to be free and used to maximize the public benefit – it has an intrinsic value that with certain effort can be translated into very material benefits for whoever controls it. Unfortunately the human nature is such that if they can extract these benefits they would. From that Soviet dentist of long ago that converted the dose of anesthetic, which is of no material value to him/her personally, into a very material box of chocolates of a value that’s quite material and absolutely personal. And all the way to the Democratic Governor that very recently tried to monetize for his personal gain the Senate seat still warm from Obama.
Medicare and Medicaid are already riddled with corruption and fraud. If these coverages are to be expanded population-wide, corruption will expand proportionally. Or maybe disproportionally – the bigger the system, the bigger the opportunities to game it.

Posted by Anonymous | Report as abusive

People complain all they can about offshoring and outsourcing without acknowledge their benefits. And now just watch the only industry which has not been outsourced or offshored (even indirectly). How stupid..

Yes, many people are smart here. The cost is at the doctors and hospital. Bring in outsourced medicines, doctors and nurses and the cost will just go down. Easy and simple.

Right now, we need the insurance companies or there will be no one preventing the doctors and their hospitals from issuing ridiculous charges.

Posted by Trevor H | Report as abusive