Sunday, October 25, 2009

Who Wins in the Health Care Overhaul: Patients, Hospitals, or Insurers

Evaluating Republican and Democrat health care proposals can be boiled down to how the plans impact the Three Interests of Hospitals, Insurers, and Patients. It doesn't seem like you can have your cake and eat it too when it comes to our health care market. I argue that the Republican plan most supports Insurers and Patients but does little to stem health care costs and puts the majority of bargaining power in the hands of Insurers. The Democrats' plan, broken down into those with a strong or weak/no public option, supports Patients. Ultimately, Patients win in the Democratic proposal, with mild benefit to Hospitals and mild or adverse outcomes for Insurers. These proposals however miss the fundamental problem with the health care economy - the existence of an adversely incentivized arbiter between patient and doctor known as the insurer.

Right now, Insurers and wealthy-treating, research-oriented Hospitals are the winners. In our liberal system, market regulations allow, and industry practices take advantage of, the relative health and wealth of middle and upper class populations to offer high quality plans and care because the wealthy can afford them. Those who can't afford the newest treatments or drugs or become too costly (i.e. sick or disabled) are the uninsurable and underfunded in research. By excluding the poor and unhealthy, our current system is allowed to operate on largess for the wealthy and parasitic accumulation of debt and disease on the poor.

The under-publicized Republican plan provides a range of incentives to patients, businesses, and hospitals to participate in the current insurance industry. Basically, the plan allows more people to have the kind of insurance we have now without any strings attached to Insurers. The cornerstones of the Republican plan are tax credits to the uninsured to pay for health insurance, limitations on medical liability, and insurance pools for individuals, small businesses and other groups (, Rep Roy Blunt's summary) . There are other, more ambiguous and less ambitions proposals in the Republican Plan. I focus on these three and mention some of the other highlights in saying that Insurers are the winners here.

Insurers win because the Republican plan is built on making it easier for people to get private insurance without changing the insurance industry. Ironically enough, what is asserted as lowering the cost of health care are the insurance pools and tax credits that make insurance more affordable. Affordable health insurance is not cheaper health care. To put a price on these subsidies, the Congressional Budget Office puts the additional cost for just a quarter of the uninsured at $1 trillion over the 10 years. In addition, there is language in the Republican House Bill to incentivize Medicare and SCHIP (children's insurance) patients to move to private insurance. While these proposals would add to the health care roles, they in fact do not reduce the cost of health care.

The real cost-cutting measures for Republicans are in medical liability claims (House Bill), "increased competition," and efficiency savings. First, by capping how much and who you can sue for, say, dying from getting the wrong heart in a transplant, doctors and hospitals can reduce their costs by having to pay less in their own insurance, reduce their defensive mechanisms (like quality assurance procedures), and paying less in the case of a lawsuit. Now, while I'm not sure what the difference between a $20 million and $200 million legal suit means for the plaintiffs, the logic of price reduction is sound. Such savings however are not a panacea. The beneficiaries here are Hospitals and Insurers and (indirectly directly, around the elbow to the knees) Patients (maybe).

Second, asserts that their plan would increase competition by allow patients to get insurance from any state and comparing coverage and rates through an online portal. The actual Patients' Choice bill does not mention inter-state plans but Insurance Exchanges at the state level. This is the only market restructuring proposal in the Republican Plan. While such an exchange would make insurance shopping easier, it is unclear whether or not it would actually increase market competition. As we all know from buying cars, televisions, appliances, and other products from mature industries; competition often produces fewer, bigger firms and less product diversity (not to mention an ambiguous relationship with the quality of the product).

By subsidizing and incentivizing private insurance with minimal changes in the insurance industry itself, the Republican plan looks to expand private insurance's customer base without interfering with business as usual. More people would be insured (though how many poor folks the Republicans would be willing to hand money out to is historically laughable), but through the same kinds of insurance that we have now and which have not proven to reduce medical costs or properly incentivize treatment and research. The biggest winners would be Insurers and maybe the poorer hospitals and those receiving the tax deductions depending on how much is actually spent subsidizing private insurance. When it comes to market bargaining power, who gets to enforce cuts on whom, private Insurers win out hands down. Hospitals and the current cost structures inflating our Health bills would be relatively untouched.

The loose ends of the Republican plan are where both parties' plans come together to benefit hosptials. They include a number of government oversight mechanisms for improving hospital efficiency, rewards for evidence-based medicine, and a focus on lower-cost prevention and treatment approaches. These proposals are not game-changers or world-makers in terms of policy. These oversight proposals cannot change our overall health care economy because they do not internalize the motive to cut costs, reduce the economic drag of the uninsured (by insuring them, covering their procedures, or otherwise eliminating the burden of their health debt), or guarantee adequate health care to meet our standard of living.

The Democratic Plan, depending on whether or not and to what extent there is a government run insurance company, benefits Patients most. (I use "Patients" instead of "people" because insurance agents, doctors, nurses, and officials are people too.) Patients benefit through subsidies and the elimination of rejections based on pre-existing conditions (a guarantee made in the Republican plan, but remains highly ambigious in that it's supposed to be implimented through increasing or creating new (unspecified) programs for those with pre-existing conditions). On the subsidy front, both Republicans and Democrats are on the same general page.

The game changer, as it always is, is the extent to which government will be involved in paying for health care. The bigger the public plan, the more dangerous it is to Insurers. The weaker the plan, the less effective the bill will be in changing the underlying economics of health care. As I said above, without a change in the market structure, there will be no stopping health care inflation, better incentivizing research and development, or adequatly supporting the health of poor and rural populations.

This gets to the heart of why you cannot make all three Poles of health care happy and actually improve the American health care system. Health insurance is an arbiter between patient and care. The current free market nature of that barrier means that the bureaucrat mediating my relationship with my doctor is in it to make money from both of us. In a government run program, the bureaucrat between my doctor and me is in to provide a service within his budget. Neither are, at bottom, in it to make sure I get the best care or that the doctor and hospital offer the best care at a sustainable pay structure. The public option replaces the doctor-greed-patient relationship with the doctor-administrator-patient relationship.

There's an economic wall disconnecting producer and buyer and, in both cases, the middle man has the most leverage to make patients pay more and receive less and hospitals provide more for less without quality of care entering into the patient-hospital relationship. Hospitals don't compete with one another on price and it is extremely difficult to know what a patients' care would have been like at another hospital. To improve the hospital-insurer relationships (paying hospitals more and getting better care for the dollar), you have to increase prices on patients to fund the added expense. To reduce costs for the patient, the insurer must force hospitals to cut costs and shed unprofitable practices like prevention programs. There is another option for health care economics.

Let's imagine that insurers had no market bargaining power, meaning consumers can choose any hospital and insurance plan they want at any moment and hospitals can treat anyone regardless of whether and what form of payment. (This would be much like the world of a single payer which works on a administrator-hospital-patient traid). The connection between patient and hospital is effectively immediate and the health care economy is driven by hospital competition and the balance between quality of care and cost of care. Insurance then is an administrative task of making sure the hospital can cover its costs while patients get maximized quality. In this case, insurers make no profit and have no bargaining power, but hospitals and patients find a free market balance between demand for and availability of services.

Where bargaining power is concentrated in the hands of the insurer, only a maximum of two of the three players can win. In the Democratic plan, patients win because the government can negotiate lower prices with hospitals, drug companies, and other health care providers; out-compete private insurers; and subsidize below market-value plans. Think of the U.S. Postal Service. In the Republican plan, Insurers win through more consumers, government funded hospital cost-cutting, and government-absorbed high-risk/high cost patients. Imagine the Cash for Clunkers program without rules about mileage. In both plans, the middle man's leverage ensures that patient and hospital are detached from one another.

In neither plan are we really addressing this fundamental problem with the economics of health care.


Ragoth said...

Thanks Jason,

I always appreciate having your posts on here. As an aside, have you heard anything from the Booth School yet, or the other interview you had?

Get back to me when you can, on here or by phone, whatever works better.


Ragoth said...

Also, perhaps this is revealing of my wallowing in progressive ignorance, but I'm hopeful that we can get, at first, a public option, which admittedly will not change the fundamentals of the system, but it is the beginning of a shift. It's every conservative's nightmare, but, I would like to think that a public option would be the first step towards some single-payer or two-tiered system with basic single-payer coverage and additional private insurance purchased if wanted. Historical evidence? Hm...I'll go with the recent takeover of school loans. While I'm sure that caused some hubbub, if the private insurance companies weren't capable of paying their debts and loaning to students...well, what are you going to do? Tell kids they can't go to university because the economy collapsed and lenders don't have money? Maybe, but it's a pretty crappy option.