I never thought I would enjoy a book about the U.S. health care system so much, but David Goldhill writes really well. In Catastrophic Care (2013), he explains why the system is so screwed up and then offers some ideas on how to fix it. He isn’t an economist or doctor, in fact he works in the cable business, but in 2007 his father died as a result of mistakes made while being treated in a NY hospital. This book is his attempt to do something about it. As with the John Goodman book that I wrote about previously, I’m not operating with a knowledge base that allows me to challenge the nuances that Goldhill goes through, but a lot of what he says sounds pretty familiar and intuitively makes a lot of sense. So, without further ado, what follows is a random assortment of Goldhill’s most salient observations:
-The basic problem is not a lack of access to insurance, but insurance itself, which drives overtreatment, cost inflation and mistakes. Health care is not the same thing as health insurance.
-Most of the cost to individuals is disguised. The contribution you make goes beyond premiums. For starters, often an employer is responsible for paying much of an employee’s coverage, meaning the employer will pay a lower salary. Furthermore, everyone with a paycheck pays the Medicare Part A tax; in addition, 20% of the federal budget (and 10% for the states) is health care related, so a large chunk of income taxes goes towards those costs.
-The health care system is one where patients largely expect someone else to pay, so the typical dynamics operating in the market and which compel service providers to offer better quality at lower prices just don’t exist. And as insurance companies are on the hook, they simply turn around and charge higher premiums to compensate for the overtesting and cost inflation that exists.
-With someone else paying, consumers are less apt to question whether a test is really needed and to shop around. Moreover, doctors (and consequently insurers who will charge higher premiums) are only too happy for yet another condition to emerge (think erectile dysfunction) where a new treatment is discovered. Goldhill calls it the growth of chronic conditions and the reclassification of medical definitions. Under these circumstances, eventually everyone gets hit with the diagnosis of some chronic condition that requires treatment – even, if historically, it was something that people just lived with.
-With Medicare, even though seniors only pay a small percentage of costs, the explosion in medical services overall has led to a greater burden as a percentage of total income.
-One criticism of private insurance (versus Medicare or Medicaid) is that administrative costs are much higher. But, by virtue of having lower costs, these public insurers have far less oversight and the degree of fraud is meaningfully greater.
-Medicare is funded in three ways: the payroll tax, monthly premiums paid by seniors, and general government revenues. It is often mentioned that Part A pays for itself through the payroll tax (and in fact generates a surplus). But, since 2007, each year that surplus has been lent out to the rest of the government to pay for our huge deficits – the trust fund is now filled with IOUs. Now, question whether you really think that means public health care has sound financing and is self-sustaining. In 2009, the Medicare trustee estimated the future shortfall to be $36 trillion, and then subsequently acknowledged that it is likely understating what the true cost will be. The mistake, as Goldhill notes, is that the government continually assumes that there is some fixed amount of health care needed, but “need” just keeps growing. And a third party payer system is largely at fault.
-The system has this funky way of paying specialists more than general practitioners, which means the more personalized area of medicine, where there possibly exists an intermediary best placed to correlate all the various symptoms, is paid less and thus finds fewer new doctors entering its ranks.
-The uninsured are usually those most likely to shop around and demand lower pricing for services rendered. Under Obamacare, and the mandate that everyone has to have insurance, these discounted people are suddenly going to be full-priced customers, creating even more health care inflation.
-Obamacare mistakenly assumes that an increase in preventive care will lower overall costs. Except what probably happens is that healthy people, who aren’t at risk in the first place, will end up getting more tests, driving up the expense.
-When pundits talk about it, don’t be misled. Costs in other countries only seem under control when compared with the United States. Globally, no system has managed to keep expenses in check, other than perhaps Singapore which has far less in the way of subsidies.
-Obamacare could very well lead to fewer people with insurance. First off, the penalties on individuals for not buying insurance are de minimis enough to go without until insurance is needed; especially since once you need it, a preexisting condition can no longer be the basis for a denial. Similarly, the penalty on employers for not providing insurance is small enough that the arithmetic makes it cost-efficient to pay a slightly higher salary and to send employees to the health care exchanges. From the standpoint of the private insurers, since they are now blindly bidding on these exchanges for new beneficiaries, without being able to assess risk profiles, they certainly have no incentive to be competitive on what sorts of premiums they offer. How does that bring costs down?
Now on to his suggestions for change. Trying to insure everything makes it much more difficult and expensive to protect against true catastrophes. Goldhill proposes a system where individuals have to pay more out of pocket for the anticipated expenses. If everyone had health savings accounts to pay for preventive care, which receive the same tax advantaged status of employer insurance, people would be cognizant of cost and quality. In addition, insurance’s role would be limited to the truly unforeseen, meaning a higher deductible and lower premiums. In this scenario, we remove the passive third party payer and market forces are allowed to work. There’s more to it, but I guess you’ll have to read the book to find out.
Anyway, a really important work that everyone should read.
