All of the actors in health care—from doctors to insurers to pharmaceutical companies—work in a heavily regulated, massively subsidized industry full of structural distortions. They all want to serve patients well. But they also all behave rationally in response to the economic incentives those distortions create. Accidentally, but relentlessly, America has built a health-care system with incentives that inexorably generate terrible and perverse results. Incentives that emphasize health care over any other aspect of health and well-being. That emphasize treatment over prevention. That disguise true costs. That favor complexity, and discourage transparent competition based on price or quality. That result in a generational pyramid scheme rather than sustainable financing.
So far so good. I'm pretty convinced that we have too much medical treatment and that there are some foundational problems causing that. But Goldhill thinks these problems all come down to one thing: Lack of market pressure. It's an interesting point, but one that I think has some problems. But before I get to his proposal, here's one more interesting critique:
Consider the oft-quoted “statistic” that emergency-room care is the most expensive form of treatment. Has anyone who believes this ever actually been to an emergency room? My sister is an emergency-medicine physician; unlike most other specialists, ER docs usually work on scheduled shifts and are paid fixed salaries that place them in the lower ranks of physician compensation. The doctors and other workers are hardly underemployed: typically, ERs are unbelievably crowded. They have access to the facilities and equipment of the entire hospital, but require very few dedicated resources of their own. They benefit from the group buying power of the entire institution. No expensive art decorates the walls, and the waiting rooms resemble train-station waiting areas. So what exactly makes an ER more expensive than other forms of treatment?
Perhaps it’s the accounting. Since charity care, which is often performed in the ER, is one justification for hospitals’ protected place in law and regulation, it’s in hospitals’ interest to shift costs from overhead and other parts of the hospital to the ER, so that the costs of charity care—the public service that hospitals are providing—will appear to be high. Hospitals certainly lose money on their ERs; after all, many of their customers pay nothing. But to argue that ERs are costly compared with other treatment options, hospitals need to claim expenses well beyond the marginal (or incremental) cost of serving ER patients.Huh. Fascinating. Though I'd love to get a hospital administrator's response. But Goldhill doesn't have time for that. Here's what he's thinking: We all pay into a national catastrophic insurance fund and we can get money if our expenses go above $50,000. We pay for everything lower by putting money away in health savings accounts and by getting financing if we don't have enough. Basically - taking out the insurance companies and trying to make health care like any other market. You should be able to pay because (he says) right now taxes and lost wages and higher prices - all indirectly due to health care are costing every one of us $1.77 million over the course of our lives. For the very poor? Well we abolish Medicade and give them $3,000 a year for their HSAs (plus the universal catastrophic insurance). Finally - everyone gets a government voucher for a free checkup every two years.
Here's what I like: I'm all for medical transparency - it infuriates me that hospitals won't tell you how much something will cost before they perform the procedure. I like the fact that it puts consumers in charge - I think it would help recenter service to us patients and do a lot to get rid of perverse incentives, create competition and bring down costs.
Here are the big problems:
1. Medical treatment is not a commodity: In many cases it is - but in emergencies you don't have the ability to shop around or bargain.
2. We believe in solving problems with medicine: Sure there are foundational problems in the economics - but the original reason those were built in had a lot to do with the foundational problems that exist in our heads. As Goldhill notes, we conflate health with health care (and health care with insurance). But he doesn't make the next logical step and conclude that people are not rational actors in this. If you are depressed, or sleepy, or lonely (or oftentimes even hurt) there are usually better ways to address the problem than going to the doctor. Yet we go. And demand the priciest treatment - after all, what's more valuable than our health? The problem here is that we've set up science as the only legitimate source to turn to in solving our problems. But when it comes down to everyday human life, science actually doesn't have very good answers. We are way too complex. So part of the solution (and my interest in this blog) has to be looking for other paths to health and the good life.
3. I don't see how this proposal would work for people like my friend Catherine Price, The Reluctant Diabetic, who has a chronic, expensive condition.
Update - Catherine and I have had an interesting exchange about this. I'll post below. She goes to doctors a lot. I think that's a bad idea. Yet we agree that there's a lot to like in Goldhill's ideas.
I did actually read that piece -- actually, it was some night where I was waiting for my blood sugar to come down and wasn't able to go to bed till like 2. I think I made it through the Atlantic *and* the Economist.
I actually found his piece really revelatory. I think it completely makes sense -- that is, that it will be impossible to do anything that really cuts costs/doesn't further bankrupt our country until we make a stronger financial connection between consumers and providers. I thought one of his salient points was the part where he compared our current approach to "insurance" with the idea of asking Geico to pay every time we fill up our tank with gas. I mean, unless you've just got a catastrophic plan, you're expecting your insurance company to subsidize -- or pick up the cost of -- visits that really are just routine.
Also, to address your thought on how we all go to the doctor too much anyway, I think that his approach would actually help solve that problem. I mean, dude, I go to the doctor ALL THE TIME. I've seen three separate dermatologists/allergists and three orthopedists this year alone, none of which had anything to do with diabetes. If I were paying for it out of pocket, I probably would have been more selective -- done more research online, shopped around, etc. I also know for a fact I would have gotten fewer prescriptions -- I'm trying to stock up on everything I can right now before Jan 1st, when the $6,000 deductible for peter's work plan kicks in again. (They pick up 80 % of it, so it's not so bad, but still.) I think the problem is that once you assume something should be free, people are going to want more of it. And until we reconnect consumers to providers -- in a financial sense, like Goldhill proposes -- we are never going to be able to control costs. It's just human nature.
And I also think that we should put a little more faith in consumers' ability to shop around and make informed choices. Consider all the tools that already exist when you're trying to say, pick a restaurant or buy a digital camera or hell, even pick a doctor. You go to yelp, you read reviews on amazon and cnet, you pull up "google shopping," and you make a smart choice. If people were paying things out of pocket, they'd be motivated to do the research -- and more tools would emerge that would help them.
Anyway. All this is not actually addressing your question about my particular condition. Goldberg mentions situations like diabetes, but only in a parenthetical on p. 53 -- "(Chronic conditions with expected annual costs above some lower threshold [than $50,000] would also be covered.)" As I'm remembering it, he's proposing that the main catastrophic plan would be government-run, which means that the government would also have a separate pool of money to help out in cases like mine.
I think that in theory this sounds great and makes sense -- you prove you have a chronic disease, your threshold is lowered and you're entered into a special pool. The problem, however, would be that if this catastrophic plan were the only way to get healthcare, it would also have a monopoly on what kind of treatment and medication were available. For example, just this year I got Blue Shield to approve a continuous glucometer, a device that I wear on my arm that tells me my blood sugar every single minute. (It replaces finger sticks, which are less convenient and give a far less nuanced picture.) I'm thrilled that they're covering it, because the supplies and device are really expensive -- if you don't count the blue shield discounts, the bills have totalled some $12,000 this year so far. (I can't remember what it was after the discount but it's definitely been above $6,000.) If the government were the only insurance option (or, rather, if ANY company were the only insurance option) and they decided not to cover this device -- which is a no-brainer in terms of whether it improves control and reduces risk of diabetic emergencies -- I'd be out of luck (especially since freelancers don't really ever have that $1.7 million pool of leftover cash he's talking about). I mean, seriously, this machine has changed my life. Likewise, I'm about to try a new drug called Symlin, which is uncommonly used but very promising for smoothing out blood sugar (and thus lessening the risk of expensive complications like blindness and kidney failure down the line). A three-month supply, without needles, is over $500. Why would anyone want to cover that when insulin, which you *definitely* need to stay alive, gets 80% of the job done?
You get what I'm saying: reduce the number of providers and you risk having one company or government-run entity in charge of making coverage decisions and you may not be able to get a treatment that is expensive, yes, but which is truly valuable -- and which, by preventing complications, would save the provider money down the line.
So in short, I completely agree with Goldhill's underlying principle, and I would support the type of reform that he suggests -- I really do think that it's the only way to control costs (i.e. a bottom-up, consumer-driven approach to cost-cutting rather than top-down government control) and to steer the country off our current path to medicare/aid-driven financial ruin (for a terrifying look at this, read "The Coming Generational Storm," a book that came out a couple years ago about our path to financial disaster). But before I could really assess how it would impact say, diabetes, I'd need to find out more about how they were going to establish that lower threshold, and how decisions on coverage were going to be made.
(Oh, also, as a side note -- till Peter and I were married I was on a gov't subsidized plan called major risk medical insurance pool -- or "Mr. Mip" -- which was funded through the tobacco tax. It was a blue cross plan (shield?) and was the only way I was ever going to get covered as a self-employed diabetic. It worked well and appeared to have a sustainable source of funding, which was great. But then again, you can't really get smokers to subsidize the entire healthcare system -- and Mr. Mip did nothing to connect me to the cost of my care.)
That's probably more than you were looking for . . . but I found that article really interesting and wish more people would read it!C
Atlantic and the Economist - so you're saying that if I want to be well informed all I need to do is get diabetes?
It was a really clearly thought out piece - that was nice. Lots of stuff so far has been confused or myopic - focused on insurance companies v drug companies etc. The part about the hospitals refusing to tell him how much the MRI's would cost made me so mad. And the LASIK example was really interesting.
I totally agree that we should put more faith in the patient's ability to shop around and make informed choices. Right now the patient is almost incidental - if the doctor were a tailor the patient would be the ripped shirt and the insurance company would be the person bringing it in (and more importantly, paying). That's not a good system if you want to respect the patient and really find out what's best for us.
It's interesting that you as a go-to-the-doctor-all-the-time person would be in favor of a system that would encourage you to go less. I would think that people who equate health with health care and get lots of it would be in favor of other people picking up the bill as much as possible. Is it just that you are reasoned enough to know that those two things are not the same? My thinking was that in order to get something like this passed we'd have to convince people who think that going-to-the-doctor-all-the-
The final thing I worry about with the Goldhill plan is that, indeed, freelancers aren't really going to have an extra $1.7 M at the end of the day. And day-laborers are going to have even less. But maybe media and technology executives like David Goldhill will. My point is that right now the way we pay for health care redistributes wealth. Granted - it's ridiculously inefficient (it's like steal from the rich and give to the poor while handing an 80% share to the medico/insure/pharma complex) - but it still helps even things out a little bit. Right? I mean, he says the cost of worker's health insurance comes out of their paycheck. But if the business gets to stop paying, do you really think 100 percent of that windfall would go to raises? I'm guessing owners would skim at least a little off in profits.
Re: Government only option - I see no reason why insurance should be illegal. If people want to buy private insurance - and companies can set up competitive options that address those needs you point out.
I'll have to answer this quickly because guess what? I'm going to the doctor! But a few thoughts --
Your last point first -- I agree there should be no ban on secondary insurance -- if you want to pay more, you should be able to get additional coverage. Problem is that in cases like mine, we're not a "risk" -- we're a definite liability. I've got diabetes, I'm never going to not have it (unless they figure out a cure) and it would take a really stupid company to sell me a plan that would help pay for it. I like to compare myself to a broken car -- why would you buy me when I am GUARANTEED to lose you money, year after year? There's no way I would not cost you money -- so you wouldn't be "insuring" me -- you'd be subsidizing me.
As for the question of why I, as a doctor-lover, would advocate a system where we're encouraged to go less -- yeah, I love going to the doctor, but one of the reasons I go so much is that it's (superficially) free. I also love expensive dinners, but I limit those because they come out of my own wallet. I think the best way to get people to go to the doctor less is not to try to tell them that it's making them sicker -- that's going to be a tough argument to sell -- but to make them responsible for the cost and then promote less expensive alternatives. In other words, if my choice is to go to a therapist and spend X amount of money per week -- but I've also heard that taking a meditation class or reading a book might be helpful and costs far less -- I might try the second option. But if the first option is free and easy, I'l just go with that instead.
As for redistributing wealth. . . I'm wary of that concept in general, but I'm not sure if the current system would qualify. I mean, basically people with good jobs also get good health insurance. People with crappy jobs don't have (as good if any) health insurance. But at the same time, we're ALL getting screwed by under-funded entitlement programs -- a situation that's going to hurt everyone in the long run. I think my primary concern about our whole country right now is our financial situation and thus i'm very very wary of expanding any kind of entitlement program -- because let's face it: when are you ever going to get re-elected by promising people that you'll take things away from them? Once that stuff gets out there and established, there's no taking it back.
Oh, and lastly, about the question about whether employers would really step up and give pay raises -- I completely share your concern. I doubt they'd be like, hey, guess what? You're getting a 30% raise! But at the same time, I do think that if health insurance were no longer employer-provided, employers would have to find another bargaining chip/incentive to lure people to their companies. And the main incentive left would be pay raises. So in other words, you probably wouldn't recoup the whole $1.7 million, but companies compete with each other, and if they can't compete by offering better health benefits, they'd have to find some other way to make themselves seem more appealing than their competitors. Not that that would help the lowly freelancer. But still.
(Actually, this makes sense historically: employer-based coverage sprang up as a result of wage controls in the 30s and 40s, right? In other words, employers could no longer use straight-up money as an incentive, so they turned to health insurance and other benefits to lure workers. Take away health insurance, and wouldn't it make sense for the opposite to happen?)
Off to the doctor!C
So how do we get health care reform reshaped to this?
I still think there's a problem with the way it's sometimes a distorted market (people have no choice in emergencies) but overall I like it. And if this can get you and I on the same page (and I think we have very different ideas about medicine - I haven't been to the doctor since 2006) then there might be some hope for it.