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What to do about healthcare

What works well in American health care:

  1. Innovation: Medicine is a major source of foreign exchange as people from all over the world come to America for treatment. 30 years ago, the Harvard hospitals had at least three large hotels for patients and their families. I would bet they have more today. Only Switzerland is our current equal at punching above its weight; and not coincidentally they also have private health care. If the world has to depend on tiny Switzerland for most medical advances, advances will crawl. Joseph Lister doesn’t live in England anymore.

  2. Disease outcomes: Basically if you pick any disease, Americans will fare better than virtually any other country

  3. Contentment: Most people (polls say 68%) are happy with their medical insurance.

  4. Everybody has access to good medical care, whether through insurance, cash, the ER, Medicaid, the VA, the BIA, or Medicare.

What works poorly in American medical care:

  1. Cost: 16% of GDP is an enormous cost. However, medical care is a preferred good; i.e. when people have more money, they will spend a greater proportion of it on medical care. Food is opposite.

  2. Life expectancy: Life expectancy is mediocre in America for such a wealthy country. I find this an interesting conundrum. Is it possible that because the UK spends relatively little on the elderly (they have closed all of their geriatric practices), that they gain superior life expectancy by spending medical resources preferentially upon the young?

  3. Over-reliance on emergency rooms: Many people, particularly the poor and illegal aliens, get primary care from the highly-trained experts at the ER. This is a waste of a valuable resource.
    Malpractice: There is far too much malpractice in America. Would a single-payer system allow better monitoring of doctors, nurses, hospitals and their results?

  4. Malpractice suits: Doctors are sued far too often. They win about 7 of 8 suits, which implies that 6 of 8 should never have been filed. Some estimates suggest that malpractice suits create 10% of total medical costs – mostly through the practice of defensive medicine (which BTW is itself malpractice, but no doctor will ever get sued for it). Every major insurance company in the country has abandoned the writing of med mal; all coverage now comes from bed pan mutuals.

  5. Data: Because of HIPA and inertia, doctors have attenuated access to the medical histories of patients. I am substantially certain that this costs lives in ERs where each patient arrives as a tabula rasa..

  6. Lack of access to insurance: In many states, it is impossible to get coverage for pre-existing conditions. Others simply cannot afford it.

  7. Bickering with insurance companies over whether a procedure is covered.

  8. The dread Medicaid spend down: Everybody in America has access to Medicaid if poor enough. If you become seriously ill, you have to spend all of your assets to become eligible for Medicaid. As might be expected, people cheat enthusiastically. People hate the idea that they must forfeit the accomplishments of a lifetime for access to Medicaid just because they happen to fall ill.

  9. An extremely expensive and time-consuming process for new drug approval: This inflates drug prices and prevents many people from receiving the best medicine in existence. As I understand it, the FDA basically never turns down a drug, but just asks for more tests. At some point, the pharmaceutical decides not to put more resources into a drug. I presume this course of action prevents litigation for the FDA.

  10. Admin costs for routine care: I have read that clerical costs generate 30-40% of the cost of routine visits to a physician. My internist’s group practice has greater clerical than medical staff. And of course the insurance companies have still more clerical staff paid for by my fees.

There is another odd feature of American medical care: access is inchoate. In the UK or Canada, access is rationed, and the only way to get better care than others is political pull. In the third world, the only way to get higher quality care is money, which frequently means flying to the great medical centers of the U.S. In America, some people get superior care through pull (I once did for two sons when my FIL ran cancer treatment at Harvard); some people do so through money – the very wealthy check into clinics for two day physicals each year; some people get superior care through luck where they happen upon a superior doctor. The randomness of this process creates anxiety, but I would contend it a virtue.

By sheer numbers, the current system seems to need serious change – 11 listed faults to 4 listed virtues, although value-weighting might vary the result a bit.


It is probably a misnomer to call it Obamacare. He has just laid out broad parameters and asked Congress to fill in the structure. However, he probably should have given some thought to whether his promises were possible:
No rationing
Everybody can keep their plan.
But lots more people get insured.
There may or may not be a government option.
No more money spent.

Self-evidently a unicorn.

Obamacare is substantially modeled upon Romneycare in MA, which is a financial disaster. The incentives line up such that it doesn’t make financial sense to purchase insurance until you are sick. Increasing numbers of Baystaters do just that; and the system gets fewer healthy insureds and more sick insureds; and costs sky. Obamacare deals with this problem by requiring people to purchase insurance.

IMO (and not so humble), this requirement is unconstitutional under the 10th amendment as well as the third through the 5th. Such requirement exceeds enumerated federal powers. The Supreme Court has repeatedly held that insurance is not interstate commerce. Litigation will tell.

Enforcement comes via the IRS who will make a judgment as to whether you have adequate insurance each year. Since the IRS currently only considers the top half of the population and only carefully considers the top tenth, such an effort will strain the already stretched revenue-collecting capacity. I am sure that the rest of us will find conversations with revenue agents about our insurance wildly amusing.

Obamacare has some cost-cutting. They claim there is a half-trillion in Medicare waste. This number boggles. The government administers Medicare on the cheap – iirc only 6% goes to admin. I am certain that if the President pours more money into claims-handling, savings will outstrip costs. But they cannot get anywhere near a half trillion by cutting out fraud and waste.

Before Sarah Palin spoke of death panels, the bill clearly intended to have the government choose to cut off some care to the elderly (and others of lesser social worth). If Obamacare passes, such rationing looms inevitable in a few years, as it exists today in the UK (Brits name their death panels NICE).

Forcing healthy uninsureds into the system will pay for some of this. While some middle class families choose to omit insurance, the biggest group of insurance slackers is men in their 20’s. Men in their 20’s consume almost no medical care (because of the complexities of the female reproductive system, the same is not true of young women). When I was 22, I went in for a physical because I hadn’t seen a doctor in six years. The doc inquired as to why I had come in, heard my answer, told me I had wasted my time and money, and instructed me to return in a decade. Because of community rating where no account is taken of age or sex, young men are materially overcharged for health insurance. It is no wonder so many choose not to purchase. Young men provide vigor and creativity, win essentially all Nobel Prizes (although not awarded until later in life), fight our wars, misbehave outrageously, fill our prisons, and swell the poverty rolls. As a group, they have little in material resources – the joys of youth are adequate recompense. Obamacare envisions extracting large resources from this group. I do not believe, especially given social security taxes, that the world will be fairer if we extract still more resources from the young to cushion the elderly. I would prefer that 20-somethings were pouring their resources into babies.

Advocates of Obamacare have pointed to preventive care – a healthier country will cost less. Unfortunately, preventive care costs far more money than it saves. I do not deny the usefulness of preventive care, but the payoff comes entirely from better health and not from cash.

Electronic medical record-keeping is also touted as cost-saving after start-up. The Republicans have poo-pooed this, and savings in clerical costs will only be a trickle – largely offset by the clerical cost of forcing more people into the insurance rolls. (later I will discuss why I feel the Republicans underestimate the advantages here.).

I believe that our President felt that he could promise broadly, ram it through Congress, and provide the bad news later. He felt he had co-opted the Republican party by lining up big pharma and the health insurers behind Obamacare. He apparently didn’t realize that the Republican party has never been the party of big business. The larger the business, the more it resembles and becomes an arm of the government. Incidentally the bill includes a $10 billion giveaway to shore up under-funded union health plans – the Comgress apparently felt that a little something for everybody important would make the sausage palatable.

When the ordinary people of America looked into the provisions of Obamacare (and an amazing number of people have actually read the thousand odd pages—- not I), they became alarmed. Santa Clause stories have lost their impact.

Senator Baucus has thrown out the idea of a tax on Cadillac plans. I currently pay about 16k per year and would have to pay an additional tax of about $3500 under the Baucus plan. I would obviously drop the insurance if it were to pass. The revenue is fantasy. Senator Rockefeller has pointed out in high dudgeon that health insurance for coal miners will inevitably fall into the Cadillac category because of the inherent health hazards. I presume firemen too. I hope this idea fails to start.


The Republicans have put forth an alternative for years. The basic pieces are:
Allow purchase of insurance across state lines. I could cut my costs by 75% if I didn’t have to insure for chiropractics, acupuncture( I believe), sex-mutilation surgery, drying-out facilities, and any other idiocy from the New York legislature.

Tort Reform
Also include community-rating, insurance of pre-existing conditions, Medicare efficiencies and electronic medical records.
Encourage Health Savings Account where people pay routine expenses and only consult insurance for major difficulties.
Something like health stamps to assist the poor.

This proposal has major merits. It is clearly constitutional. The interstate commerce clause will allow Congress to permit cross-state-line insurance purchase.

The Republicans have however not really discussed the major problems. The state regulatory system and particularly New York’s has admirably prevented insurance insolvencies and ensured that claims are paid in the event of insolvency. If I purchase Montana insurance, will the New York state guaranty fund be obliged to pay my claims if my insurer folds? We can solve this problem by allowing New York to regulate for solvency but no further.

You can make money in insurance in several ways. You can have lower sales and underwriting costs than the competition. You can have superior investment results. You can have lower losses. You can charge higher premiums for the risk. As the proposal essentially bans underwriting, there will be no major cost-savings here. As insurers pay medical insurance losses within the year, there can be no investment windfall – particularly as insurance capital must take a truncated return by sitting in short safe investments. Higher premiums will be throat-cutting as people flock to cheaper carriers. Insurers must pay their losses—our medical bills. Where then can the genius of the free enterprise system assert itself?

Tort reform will not happen with a Congress and Presidency of Democrats. Elections matter.


Electronic record-keeping could come. While some clerical savings might eventuate, the big savings would come from better medical data. Assume each person had a website with his full medical records included. People would no longer write out their medical history for each appointment with a new doctor (and at my age and infirmity, the history is long and numbingly boring) – but simply provide a link. The histories would excel, because they would not be captive to peoples’ memories. And ER doctors could look not just at test levels but at current tests taken in extremis as compared to prior tests in good health for clues as to sources of problems.

But the big payoff could come on the aggregate level. The data would live anonymously in a huge database of all medical treatments and results.

Medical costs have funny shapes. In the 1940’s, the extrapolation showed that TB would bankrupt the country from the cost of sanitaria. Antibiotics brought this cost to near-zero. Pictures of children in iron lungs break one’s heart – and also cost deeply. Drs. Salk and Sabin drove this cost and suffering to near-nothing. Malaria drained some of America’s people of vitality or life; we eradicated it. Smallpox is no longer even vaccinated for.

Costs for an illness steadily increase and then fall off the table when the remedy appears. Believe in the human mind.

If this data were aggregated, it could be culled. Perhaps (to be absurd), athlete’s foot cures gonorrhea. We could find these correlations. Medicine is practiced differently regionally. I once read of a procedure (probably the c-section) which was resorted to three times as frequently in Minnesota as in Texas. Now, either the Texas doctors are correct, the Minnesota doctors are correct, or both are correct (or in). This last could occur because of the genetic and behavioral differences between a largely Scandinavian population (primitive, phlegmatic, and a troll at heart) as compared to the generic white, Black, and Hispanic population of Texas. Gold can be found.

The costs of new drugs could plummet with fewer tests. If data existed on the population effects of a drug (as compared to gathered test populations), researchers could omit current late-stage, and very expensive tests. If a drug for a relatively harmless condition – say the runny nose – kills 0.05% of its recipients this drug is not worthwhile. Such effect would not be discovered in clinical trials of a few hundred people – but pharmaceuticals and the FDA could see it quickly on a population basis. It cannot be seen now until the lawsuits pile up. Both research costs and harms would fall.

Advocates have raised privacy questions – why should my dentist see my gynecologist’s findings? I would allow limitations by each person as to who could see what. I would also note that I would place no such limitations upon my own medical information – infections in one part of the body affect others; and gynecological information could indeed inform a dentist’s treatment and vice-versa. This system would provide far better information than the privacy walls of today – and information trumps.

While the medical research community has substantial statistical expertise, the insurance business has far more – particularly when looking at broad swaths of data. This would prove the competitive edge between insurers – locating the more effective treatment. The most successful workers comp insurers concentrate on getting people healthy and back to work rather than nickel and diming them. It could even lure traditional insurers back to health insurance or med mal. It would certainly allow far quicker pinpointing and curing of incompetent doctors. And the free market system will work more intelligently and humanely than any committee of experts; i.e. the death panels.

I cannot reasonably value this effect; I believe it gargantuan.

In some states (and most certainly not New York), malls have set up kiosks manned by nurse-practitioners for cash on the barrelhead routine consultations. These omit the admin costs (30 to 40% for insurance) of small dollar medicine. Nurse-practitioners have attenuated expertise, but enough for the routine. As Lady of Shalott has pointed out, 45% of doctors will consider retiring if Obamacare passes. Ignoring this inflated figure, each year we admit a larger proportion of women to our medical schools. Women as a group are far less willing to work the insane hours which male physicians as a group work. From whichever cause, our supply of medical expertise will likely shrink in the future.

Pulling admin costs out of routine care could make a material dent in medical costs. Shifting routine care to persons of lesser but adequate expertise could also help.

If people could purchase major medical insurance and maintain a Health Savings Account on a tax-preferred basis for the routine, we could save. Note that this is the precise opposite premise from Obamacare where all medical care, no matter how trivial, will involve passing papers from Cheyenne to Washington. This savings could reach a few per cent of GDP.

I envision people choosing to purchase catastrophic coverage with health savings accounts sopping the extra dollars paid now. These dollars can pay for routine care or be saved for later in life when the body fails. I would also allow the insurers to pay no-claims bonuses under some circumstances. One circumstance might be a healthy lifestyle where the most dangerous pleasures are foregone – obviously obesity, perhaps smoking although there is a cost to the blood test; lack of drug and alcohol abuse could also generate a bonus. Bonuses would be paid to the HSA.

I would further permit insurers to differentiate a no-claims bonus by age or sex; such that most young men could receive in the form of the bonus some fraction of their overcharge. Suppose the market average charge is equal to the charge for a man of 55, a man of 22’s market charge might be a tenth of that. I would allow the insurers to pay a fraction (half?) of that overcharge to the HSAs of all those who are overcharged.

In lieu of a tax, I would set penalties for acquiring insurance upon sickness. After a short (6 month?) period for all to acquire insurance, failure to do so would generate future penalty. I would mandate that insurers increase their deductibles by the premiums not paid (accreted for the time value of money) plus a penalty for each uninsured year – say $1,000 for the first year $2,000 for the second etc. I believe this carrot and stick would lure healthy people to purchase health insurance.

If people understand the costs of their medical treatment, they will in the aggregate purchase more wisely than when they do not understand and bear those costs.

Some sort of subsidy – health stamps – for the poor could be added.

Note that this proposal connotes decoupling health insurance from employment. HR departments (the devil’s spawn) would have less to do.

We should put more money into administering Medicare such as to lower costs.

We could perhaps ameliorate the dread Medicaid spend-down by placing a lien on assets instead of requiring their liquidation. The lien would allow people to use their assets for living but would forbid them transferring those assets to others. The assets would be collected at death. I have no clear picture of the costs of such a change – they might be prohibitive.

Posted by guest author: levi from queens on Sep 21, 2009 7:00 am

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