Dispatches From The Health Care Reform Front

On August 11, 2009, I was one of several constituents who met with Mr. Chris White of Rep. Maurice D. Hinchey’s (22d NY) Staff on health care reform, particularly, HR 3200.  Mr. White was very knowledgeable.  His graciousness in dealing with an unexpectedly large group was much appreciated.

The majority of these constituents (I was the exception) supported something closer to a single payor system, as does Rep. Hinchey as a member of the House Progressive Caucus and a co-sponsor of HR 676, the single payor bill.

As when I attended Rep. Murphy’s Town Halls in the 20d NY this weekend, this meeting made me see two things clearly:

  1. almost everyone thinks reform is needed; and
  1. no one is committed in any way to the present version of HR 3200, which seems to be without any natural constituency.

I think the current version of HR 3200 will fail.  The question is:  what can succeed?

One interesting proposal appeared in this month’s Atlantic Monthly.  In David Goldhill’s How American Health Care Killed My Father, (http://www.theatlantic.com/doc/200909/health-care) Mr. Goldhill proposes reducing the amount of health care purchased by both the government and by private insurers, in order to allow consumers to shop for value.

This would cause physicians and institutional providers to compete on price, thus reducing cost, increasing quality and improving access.  While there are some flaws in this, I think this idea has merit.

Mr. Goldhill proposes using Health Savings Accounts (“HSA”), but would have a government-sponsored high deductible insurance for truly catastrophic events kick in at about the $50,000.00-level.  Expenses in between the amount covered by the HSA and this threshold would be financed like any other large purchase, such as a car, a home or higher education: by tapping personal savings or through loans.

This would allow people to shop around for value in health care and would force providers to compete on price.  LASIK is an example Mr. Goldhill uses to demonstrate how quickly prices fall when people, rather than the government or a private payor, pay the piper directly.

This is analogous to the auto insurance industry.  As Mr. Goldhill explains, no one expects their auto insurance to pay for routine maintenance or gasoline: it pays for catastrophic, unexpected events.

I think Mr. Goldhill raises some excellent points and I completely agree with him that market forces are the only things that will ever restrain the explosive growth of medical expenses. However, I think the specific mechanism he proposes may be unworkable as he presents it.

To continue the auto analogy, most people have, in addition to auto insurance, a warranty of some type or another.  In fact, after-market warranties are a growing (and not uncontroversial) business.  These pay for non-catastrophic (but often costly) auto repairs due to natural wear and tear and/or manufacturer’s defects.  While no one expects either their auto insurance or their warranty to pay for oil and gasoline or even tires and windshield wiper blades, no one (even now) expects their health plan to cover food and clothing.  Health insurance, at a certain level, is more like a warranty than auto insurance.

Additionally, from a lender’s prospective, lending money to someone so that they can have major medical treatment is not cost effective.  Lending someone $40,000.00 to have treatment that may reduce their ability to work, and thus repay you, seems like bad business.  Personal savings, given our current low (but increasing) savings rate, seem a slender reed upon which to base these transactions.

Possibly, HSAs could fund routine care (check-ups, sore throats and food poisoning), Co-op based insurance could deal with expenses up to $50,000, and government-sponsored catastrophic coverage could cover expenses above that amount.

Reform should also reduce state law-based barriers to inter-state commerce, such as restrictions on buying insurance across state lines and corporate practice/fee-splitting laws which prevent business corporations from owning health care delivery systems.

In the late 1990s, Physician Practice Management (“PPM”) arrangements, like PhyCor, were briefly seen as a solution to the health care crisis (many things are, usually for about 3 months).

While there were other problems, the productivity of employee physicians (as opposed to self-employed, entrepreneurial physicians) is always a question in the health care industry, the fact that these arrangements were not legal in large states like NY, without abandoning the percentage fee management arrangements they were based on in other states, was a major issue.  You could set an approximate fee in advance, but that mechanism was quite expensive in terms of attorney, accountant and consultant professional fees and you ran the risk of being wrong in your forecast.  These fee-splitting and corporate practice laws in some states materially and unjustifiably negated a potentially positive trend in an important national industry, clearly a result that frustrated the Framers’ intent of fostering integrated, national markets.

Mr. Goldhill mentions the role Wal-Mart is having in reducing pharmacy costs by using its market power.  Wal-Mart could probably also revolutionize the delivery of heath care using their retail stores as platforms, something Mr. Goldhill also alludes to, if these legal barriers were removed.

I suggest that Mr. Goldhill’s article should be carefully considered as Congress goes back to the drawing board on Health Care Reform.