Sunday, January 27, 2008

Is there a doctor in the house?

The health care crisis has stepped to center stage in the political debate in the U.S., with every serious candidate in the presidential campaign offering his or her menu of solutions. This has been a political minefield, or third rail if you prefer, since Hillary Clinton found out in 1994 that “socialized medicine” is the most potent slur since “communist” in American political culture.

All of the candidates propose some solution resting on the private insurance market. Nobody’s going to get very far advocating a government-run single-payer system in the United States. Whatever its merits, it’s just not going to fly politically in this country. Proponents of a single-payer system think this means that we are hopelessly backward or brainwashed by evil special interests. They seethe with frustration at the inability of the political class to come up with anything to solve the problem of 47 million people without health insurance of any kind.

Our political class makes me seethe, too, but I’m not sure a single-payer system is the answer. To start with, let’s look at the problem. In fact, we have plenty of health care. The United States is by far the world leader in medical innovation and availability of advanced care. The problem, of course, is paying for it. Almost nobody can afford to pay for that fancy health care directly, and a lot of people can’t even afford insurance to cover their medical expenses. What we really have is a health care affordability crisis.

So how do we make health care affordable? Most advanced countries have implemented some kind of single-payer system, in which the government, using tax revenues, either provides health care directly by making health care providers government employees, as in Britain, or pays private sector medical providers for the procedures they perform, acting essentially as a big monopoly insurance company, as in Canada. In most places this public care can be supplemented by private insurance, resulting in a mixed system. France has an excellent mixed system which by all accounts scores well on patient satisfaction and outcomes; the only problem with France’s system is that it’s very expensive. It’s been running in deficit for years, and the Sarkozy government has promised to find ways of cutting its heavy costs.

All health care systems are expensive, of course; here in the U.S. we pay more for health care than anybody else in the world. Health care is intrinsically expensive because it involves a lot of fancy equipment and infrastructure, and doctors and nurses require a lot of training. And they don’t work for free. (That’s the problem with declaring health care a “right”—you have no inalienable right to somebody else’s labor. You have to pay them for it.) So all health care systems face the problem of making health care affordable.

How do you make something very expensive affordable? By sharing out the load, somehow, so that individuals don’t have to bear the full cost. This makes particular sense in areas in which great costs may arise unexpectedly and due to no fault of the consumer’s. There’s no reason to make other people pay for your SUV or your vacation in the Bahamas, because you can live without those things. But if you get hit by a truck and require multiple surgeries and months of hospitalization, it hardly seems fair to condemn you to bankruptcy because the truck driver was watching a pretty girl instead of the road. So nearly everyone agrees that there should be a mechanism for pooling resources and relieving individuals of the full cost of the care they need, at least for catastrophic care.

Traditionally we did this by insurance, which is a pretty good idea, despite all of the problems and complications involved. An insurance company pools resources and spreads risks. It also controls costs, because it has to make a profit, and it can’t afford to pay for everything, no questions asked. So insurance companies are stingy. But that stinginess is limited by competition—if an insurance company is too stingy, its customers seek a better deal elsewhere. So in a competitive market, insurance companies are going to have to give consumers a reasonable level of protection, or they’ll go out of business. And for most people, most of the time, private insurance companies do a reasonably good job of protecting them against catastrophic expenses.

However, there are always people who can’t afford insurance, because they can’t afford anything else, either, like food. What to do about the destitute is a perennial problem, and has traditionally been dealt with by private charity or a government safety net. In theory, insurance and charity (whether private or government-supplied) ought to cover everybody’s needs.

However, in real life there are always people who slip through the cracks—they fail to buy insurance, they lose their job and their insurance coverage along with it, and so forth. And getting caught without medical insurance can bankrupt you. There are a lot of horror stories out there. So many people argue that the government should simply take over the business of providing health care and make sure everyone gets what they need.

Unfortunately, that doesn’t make all the problems go away. Even assuming that government is competent enough to organize efficient delivery of health care (not an open and shut case), government programs still have to pay for all that care somehow; the doctors and nurses still deserve to get paid. And if you tell people that something is now free, you will find that suddenly everyone wants as much of it as they can get, and the amount people want you to spend skyrockets. Even the most benevolent government has to find a way to limit costs.

Now, there are two ways of limiting the amount of money spent on something: you can put a price on it, in which case the limits of people’s ability to pay control the costs, or you can declare that it is free and have bureaucrats decide how much of it is going to be provided, and to whom. A system like Britain’s tries to do the latter. When something is free, there are no limits on demand other than whatever the system can bear. That’s why Britain has long waiting times for operations you can have tomorrow here in the States.

Most countries that have government-provided health care also allow people who can afford it to pay for private care out of their own pockets or from private insurance. These mixed systems may be the best compromise; France’s system works along these lines. In other countries there is strong opposition to allowing the wealthy to pay for extra care, on ideological, egalitarian grounds. (This is an issue in Canada to some extent.) But there seems to be a consensus in most places that it’s fine to let the rich buy extra care if they can afford it, as this can ease stress on the public system.

Here in the United States we have a Frankenstein’s monster of a mixed system that nobody sane could have designed, which provides terrific health care to those who can afford it while leaving large numbers of people out in the cold and creaking under enormous administrative costs that suck money out of our pockets without giving us improved care in return. Starting with private provision of health care and insurance, we have set up a handful of expensive government programs that do for slices of the population (the elderly, the poor, veterans) more or less what the state health systems of other countries do, while encumbering the private insurance market with countless mandates, no doubt well-intentioned, that significantly raise the cost of insurance. Further, the decision to give tax privileges to employer-provided health insurance has welded health care to employment, which means that losing a job, changing jobs or just being self-employed exposes people to disaster. Our system, in short, has lots of health care to offer but is extraordinarily inefficient at getting it to people who need it.

So what’s the answer? A lot of people point to Canada’s system, in which the provincial governments play the role of insurer. Paul Krugman argues forcefully for the Canadian option in an article in the New York Review of Books. There is no question that the Canadian system would be much simpler and cheaper than ours, while covering more people with basic care. The doubts about the Canadian system have to do with the fact that, like any government-run system, it limits costs by queuing, making people wait for non-emergency care. Some claim that this problem is exaggerated, but it seems to be real, as discussed in David Gratzer’s article in City Journal.

Another concern is innovation: it’s no accident that the U.S. leads the world in medical technology, as it’s possible to get rich here by inventing new drugs, devices and medical procedures. The profit motive may be unwholesome, but it works. A system that made all medical personnel government employees or limited the amount of money they could make from inventions would dry up innovation in short order.

So I think the best system is always going to rely primarily on private provision of health care and insurance. But that leaves a lot of room for argument. You don’t have to declare health care a right to recognize a legitimate government role in insuring that as many people as possible have access to health care. But that doesn’t necessarily mean that the government should be in the health care business. It might mean that the government merely assumes the costs of adverse selection resulting from freeing up the insurance market to make insurance more affordable for most people. (See Krugman’s discussion of adverse selection in the article cited above.) A government-backed insurer of last resort supplementing a freer insurance market and tax reforms uncoupling insurance from employment might make more sense than blanket government coverage.

The simple fact is that any system to provide health care will have to accept limits and trade-offs. You cannot simply declare something to be free and expect it to be produced spontaneously. Anything that involves material resources and people’s labor will be subject to the laws of economics even if you think that it shouldn’t. Only a system driven by profit will sustain high levels of innovation and flexibility. And somebody’s always going to have to pay.

Beyond these principles, I’m open to suggestions.

Sam Reaves

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