Sunday, April 12, 2009

About The Healthcare Debate

The Atlantic has an interesting commentary on US healthcare, and why it's so expensive. The author(s) list(s) three reasons for the costs:
1) We pay more for our medical services. But though the pharma industry is important, the real action is in wages. Our medical personnel cost vastly more than their counterparts abroad in almost every category.

2) We consume more services. Americans get shiny new facilities--my British colleagues once derisively commented that American hospitals are "like hotels". American hospitals don't have open wards for almost anyone. They staff at very high levels. Doctors conduct an inordinate amount of tests. We use an expensive machine rather than watchful waiting. And often, those expensive machines catch conditions that never would have turned into anything, which we then treat. Natasha Richardson probably would have lived if she'd had an accident here, because doctors would have done a cat scan, and there would have been a Medevac helicopter available. That's tens, maybe hundreds of thousands of dollars to save a single life.

3) There are inefficiencies. I don't mean "compared to other systems"--every system has some screwed-up illogicality that costs it money and makes patients worse off. But compared to what we could have. For example, Medicare pays for procedures, not wellness, which means that there's a chronic undersupply of geriatricians, because the specialty isn't particularly well paid even though the nation's largest healthcare provider is specifically designed for old people. This is madness. But every real-world system that has attempted to pay physicians for wellness has ended up giving up in disgust.
I can't disagree with the reasoning within the scope of the argument, but I do think there are factors the article does not consider.

1) External cost factors are not considered. Part of the reason healthcare professionals earn more in the US than elsewhere is that, in comparable economies, there is a stronger social safety net which affords a shield against catastrophe to the worker and more comfortable retirement for those who reach that point. Without that, the uncertainty of living in the US demands of the healthcare professionals (as it does of us all) higher compensation in order to protect themrselves against the unforeseen while in the workforce and poverty once out of it. This in itself is not a bad thing; however, the increasing inability for public sources to keep pace with the costs of living makes that demand all the more imperative.

2) Healthcare professionals in the US face substantially higher insurance rates, particularly for malpractice coverage, than their peers in other industrialised nations. This is anecdotal to those not in the profession or in academia, since resources on specific rates is difficult to find. However, the evidence that is available is staggering: there are multiple reports like this one of physicians leaving the country to find more affordable coverage, for example. And two studies, one by Dartmouth College and one by the advocacy group Americans for Insurance Reform, indicate that premiums in the US have continued to skyrocket in spite of the fact that payouts have either remained constant or declined, and in spite of the fact that state after state has enacted so-called "tort reform" designed to make those premiums lower by reducing the payouts. A telling quote appears here:

"Going into 2007 you're going to see very aggressive pricing as these companies have boatloads of cash. They're going to go out and spend it. That spurs the cyclical market of 'we're back to competition,'" [Richard "Rick" W.] Mortimer [vice president of HealthCare Professionals' Insurance Services] said.
Yet instead of pricing more affordably, the carriers seem to have increased their rates instead. As recently as 2004, those increases were somewhere near 100% as this item shows.

3) The insurance market in the US is a for-profit sector, and those companies offering coverage are doing so to make money for themselves and their shareholders. This is not to say that private, for-profit insurance is a strictly US phenomenon; however, the remainder of the industrialised world relies on public programmes first and retains a for-profit sector as a niche market, while the US takes a nearly inverted approach. As both the AIR and Dartmouth studies indicate, the industry profits from premiums have improved dramatically of late. Both studies imply that the increased premiums are intended to offset bad investments by the companies.

Briefly: a private insurer essentially charges a fee to guarantee that a related loss by the covered will be honoured, and invests that fee speculatively to provide the means with which to honour a claim; as the investments intended to fund claims shrink, premiums should rise proportionally. This is both a strength and weakness of the private model: the private insurer is more likely to have the resources to honour a more substantial claims, but is vulnerable to the markets in which it invests and is more inclined to aggressive pricing than a public or non-profit alternative which would only seek to break even rather than show a profit - a profit that, in the recent Wall Street mindset, should not only remain stable but regularly and predictably increase.

The problems that arise from articles like the one in the Atlantic stem from analysis of the subject in a vacuum. Without the related factors, such as overall costs of living, retirement and safety net investments, and analysis not only of the healthcare industry's own behaviour but that of the individuals and industries that (presumably) serve that industry, and then of the motivations and impediments placed on them, the question cannot be accurately answered, or even truly effectively addressed. The Atlantic article highlights some very valid points about US healthcare - but it misses enough to make its argument far less than convincing overall.

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