Taunter Media

The health care debate is fascinating.  While the bailout and subsequent financial adventures entailed a language most Representatives could not even comprehend, most everyone with a pulse believes he understands the health care industry, and being wrong is no impediment.  Reminds me of the old and undoubtedly apocryphal tale:

Reporter goes to Appalachia in 1964 and asks an elderly woman if she is going to vote for Goldwater.  “No,” she says, “he’s against TV, and that’s all I have.”  The reporter is puzzled for a bit, then thinks he has it figured out.  “He’s not against TV.  He’s against the TVA – the Tennessee Valley Authority.”

“Well, I’m not taking any chances.”

That’s the best explanation I can come up with for the bizarre drama that unfolded in what should have been a sleepy summer.  Old people who receive federally-paid health care screaming at congressmen over the prospect of…people receiving federally-paid health care.

Most of the stuff was not sane.  The whole death panels meme, started by noted parliamentarian Sarah Palin, who determined that for some reason the government was going to use health care reform to kill old people.  Like most conspiracy theories, it was short on logic – the government has endured forty-five years of elderly people tearing a hole in Medicare without complaint, why would it now introduce a public option for young people to try to kill the old folks – but then it was never about logic.  It was about fear:

And it is far easier to have fear when you have ignorance.

There are, however, valid criticisms of the solutions being proposed.  Those of us who have weighed into the debate – my proposals are here and here, and if you are reading this, you probably caught my critique of a particularly nasty industry practice here – should at least take up the challenge.

Cost

The cost debate tends to have two prongs:

• The public option is too expensive;
• Health care is too expensive

The public option argument is a bit silly.  It is made here by Joe Lieberman (weasel):

There are no facts to back up Joe because, well, because the public option saves money.  Its entire reason to exist is to serve as a competitive force against the private insurance industry.  To save more money, we would need a stronger public option – a public option that even someone who was working could opt into.  This would not be terribly difficult; simply amend ERISA to specify that any tax deductible employee health care premium could be directed, at the employee’s sole discretion, to the public plan as well as any private option offered.  ERISA already governs the types of private plans – that’s why there is no rescission in group coverage; this would just be one more constraint.

The more serious critique is that the health care market in the United States has failed.  Individuals are divorced from the cost of health care and therefore elect more – and more expensive – procedures than if they felt the burden of their decisions directly.  Game Show Network CEO David Goldhill has a long discussion of this problem in the Atlantic:

health care will need to become subject to the same forces that have boosted efficiency and value throughout the economy. We will need to reduce, rather than expand, the role of insurance; focus the government’s role exclusively on things that only government can do …overcome our addiction to Ponzi-scheme financing, hidden subsidies, manipulated prices, and undisclosed results; and rely more on ourselves, the consumers, as the ultimate guarantors of good service, reasonable prices, and sensible trade-offs between health-care spending and spending on all the other good things money can buy.

It is a good read, and there is a large element of truth to it: if health care were allowed to behave like other markets, health care costs would be lower.  Breast augmentation is shockingly cheap; all the more so when compared with, say, the cost of various insurance-covered prostate therapies.  I have tended to dwell on the information and fear asymmetries that prevent non-elective health care from behaving like a market, but James Kwak gets the distinction here:

The problem is really very simple: for price signals to work, you have to be willing to let consumers run out of money… And then they die.

The demand destruction we rely upon in other markets – the guy who won’t buy a PC for $2,000 but instead will wait for it to hit $1,500, and who, aggregated across the economy, is the reason the iPhone in my pocket is more sophisticated than a 1950s mainframe that cost ten thousand times as much – means dead people.  It means someone gets an aggressive pneumonia at 7pm but doesn’t want to pay the emergency room bill and decides to wait until regular hours, and dies for the poor investment decision.

Unless we are willing to tolerate that sort of demand destruction – and if any party is, it’s keeping that opinion to itself – we might as well acknowledge that the free market system without it operates as well as a car with a disconnected steering wheel.  Since you can only address costs by either reducing the number of services or reducing the price per service, and we are very leery of having off-site decision-makers second guess the decision of the doctor on the ground (unless the patient is Terry Schaivo, in which case anyone with a Congressional access badge is a neurologist) the primary driver of cost control is reimbursement rates.

Any method of dictating prices without the feedback loop of consumer demand was doomed to be an exercise in socialist central planning.

Under the circumstances, the Medicare pricing team – whose model was later adopted by private insurers, just in case you are reading, Michael Steele – did a pretty good job.  They just solved for the wrong variable:

For example, Hsiao’s team deemed that a hysterectomy required 3.8 times more mental effort and 4.47 times more technical skill than a psychotherapy session… Here’s how it works. Doctors do a job—like placing a coronary artery stent, reading an EKG, or spending an hour examining and diagnosing a patient with a complex problem like insomnia—and earn something called “relative value units.” In 2009, according to Medicare, the stent guy scores about 24 units for his relatively quick procedure, the EKG person gets 0.5 units for the 10 seconds his job requires, and the poor internist gets only 2.5 units for his hour of time. Figuring a doctor’s total take per task is straightforward: Medicare adds up a doctor’s total RVUs, multiplies the total by a fixed amount (roughly $40 right now), and writes the check.

Did you catch it?  I’ll rewind: “required 3.8 times more mental effort and 4.47 times more technical skill.”  They’re not talking about the patient – they’re talking about the doctor.  Let’s take a moment to think about how insane this is.  Suppose you walked into a fancy consumer electronics store and saw a wall of gleaming TVs.  You would probably expect the bigger ones with the most features to cost the most – the one that would give you the most enjoyment.  But suppose some little, crappy TV were in fact the most expensive.  You might ask why.  If the salesman said “you’re right, the bigger one is better in every regard, but it’s made in a few minutes in an automated factory in Taiwan; the smaller one barely works at all, but it’s made by Billy down the street with nothing more than a toothbrush and nail clippers and it takes him months” you would think the world was upside down.  Why would you care how the TV was made; you want the best TV at the best price.

Unfortunately, it is exceptionally difficult to assess outcomes.  Paying a doctor depending on the outcome you receive is a good way to ensure that he stays away from challenging cases, the very cases where you most want his efforts.  Change to a more consumer-based system is necessary, however; it’s the one way to avoid a system where each doctor is incentivized to do things in the most difficult possible fashion.  Hopefully this is the rare case where regional grievances might actually prod the central government to a productive reassessment.  Might.

The logical extreme of all of this would be some form of single payer.  Not single provider, as the National Health Service could be envisioned (even doctors in private practice are obligated to work a certain percentage of their hours for the NHS).  Medicare for all.

Medicare for all would face all the same cost pressures as health care in general.  An aging population that gets sick more often, newer and more expensive therapies, diffusion of knowledge that causes patients to request particular tests and treatments, etc.  But Medicare for all would be much better positioned to fight back, for as something very close to a monopsonist it could dictate prices and amend prices to try to get control over the costs of service.  Insurance companies, which are motivated to cut costs as well, have no such ability to impose their will on doctors and hospitals, because it is too easy to opt out of one specific provider network, and a hospital that opts out is free to gouge the insurance company for emergency care.

Private insurance does have a role in elective procedures, because there the service pricing is market-driven and the customers are free shoppers.  But for traditional care, I’m with Anthony Weiner:

In fact, I can’t resist:

Indulge me.  Matt Taibbi, some follow-up please:

It drives me crazy when people make this argument. Fuck a fancy boutique drug like Erbitux — I have a very expensive private plan and I can’t even go to a doctor, not even to ask a simple question, unless it’s an emergency. I can’t get a routine checkup, can’t find out what that weird lump in my left foot is, can’t have the pleasure of a routine proctological exam unless I want to pay cash for it, and, well, forget about getting a filling replaced… Hell, forget about paying for Erbitux, if I wanted to get a colonoscopy to find out if I needed Erbitux, I wouldn’t be able to — I’d probably have to wait until I was a fully symptomatic cancer patient before I could even have that conversation on my insurer’s dime.

So, to sum up these points and those from my previous posts:

• Medicare for all.  We need some default basic health care plan that everyone has the option of opting into.  It does not need to be free, or for that matter taxpayer-funded!  Right now, Medicare is two things: (a) a giant insurance company that administers payments to doctors on behalf of 44.8 million people, and (b) a transfer payment from the taxpayers to each of these beneficiaries in the amount of $9,500 to cover the cost of the insurance plan.  Giving everyone access to (a) does not require giving everyone (b).  Note that (a) by itself is very similar to saying that there is a public option available to the employed.
• Increase the supply of doctors.  There are approximately 18,000 medical school spots in the United States.  About 44,000 people applied this year.  Some undoubtedly were so incompetent as to have no prospect of healing people.  But a 50% increase in medical school slots to 27,000 would allow for weeding out the clear dangers while introducing some welcome competition to the field.  In the meantime, import.  We should be able to coax every decent doctor out of South Africa and top-flight talent from India.
• Taunter Drug Plan.  No drug can be sold in the US for any price greater than the lowest price at which it is offered for sale in every other OECD country.
• Tax health care benefits.  We tax compensation.  It makes no sense to prefer for someone to receive $12,000 in insurance to $12,000 in cash, much less to kick in $4,000 to the insurance plan in tax benefit.
• Mandate.  If we feel an obligation to pick up the sick and treat them to the best of our ability, we cannot allow free riders.  Since we also cannot allow private insurers to turn the government into collections agents, we need a public option to set the mandate level.
• Tort reform.  I know – the places where it has been tried, such as Texas, have no difference in costs, and settlements are a tiny fraction of health expenditures.  Fine.  But it’s every doctor’s nightmare, and drives defensive medicine throughout the system.  Replace jury awards with payouts from a compensation fund, as is done with vaccine injuries.  And use every data mining tool the Freakanomics team can dream up to root out the relative handful of truly terrible doctors.

Coverage

The public option was not proposed for people with existing insurance because the Obama Administration did not want to declare open war on the insurance industry, and perhaps was getting pressure from business groups who were afraid of government interposition in the decision of which health benefits to award.  One of the staggering developments of the past decade has been the extent to which class loyalty among senior executives has trumped good sense – the auto companies were doomed by health care costs and had plenty of actuaries to tell them so, yet they never lifted a finger to ask for the universal health coverage that would free them from the UAW for fear of betraying the conventional wisdom.

So the public option, far from being the tool to ensure price discipline and service options for the gainfully employed majority, became a charity case.  That’s a shame.

It is particularly unfortunate because a truly available public option would work wonders for access.  At January 1 of every year, each Social Security number would be enrolled in the public option unless an individual or employer filed a substitute coverage number indicating that he was covered by another basic plan.  Absent that other plan filing, the Social Security number owes the public option fee.  Captures the mandate and 100% coverage in one go.

Public assistance would cover the cost of the mandate for people who cannot afford it.  I know, big government making a big benefit.  But the really poor people are not the folks who debate calling 911 if they do not feel well.  Really poor people are going to consume the service and not pay the bill regardless of what is presented to them; the only debate is who, if anyone, cuts them off.  So we might as well accept that we are paying for the poor one way or another and try to deal with their medical needs through the normal medical channels, as opposed to the kabuki dance where the emergency room is part trauma clinic, part indigent primary care facility.  I agree with Goldhill on this:

My sister is an emergency-medicine physician; unlike most other specialists, ER docs usually work on scheduled shifts and are paid fixed salaries that place them in the lower ranks of physician compensation. They have access to the facilities and equipment of the entire hospital, but require very few dedicated resources of their own. They benefit from the group buying power of the entire institution. No expensive art decorates the walls, and the waiting rooms resemble train-station waiting areas. So what exactly makes an ER more expensive than other forms of treatment?

Accounted by an institution not attempting to allocate all of its costs to the segment that is most protected from competition, the ER would probably not be the enormous expense it is today.  But it would still be wildly inefficient.

American Exceptionalism

The spokesman for the great middle, the Dorgans and Nelsons and Liebermans, David Brooks:

We in this country have a distinct sort of society. We Americans work longer hours than any other people on earth. We switch jobs much more frequently than Western Europeans or the Japanese. We have high marriage rates and high divorce rates. We move more, volunteer more and murder each other more.

I have a soft spot for these arguments.  America is different, and we should pick a path that reflects our choices and our riches.  But I’m not sure David and the others making the exceptionalism argument with health care are thinking through the consequences.

We die younger.  We die younger despite being richer, and we die younger despite spending much more on health care.  This hardly seems proof of a dynamic system; quite the contrary, this is evidence of a sclerotic system in denial of its weakness. 

Our white population has a life expectancy at birth of 78.3.  The entire OECD – yes, including Turkey, bastion of prosperity – has an average of 78.6.  Not one single G-7 nation is as low as our white population.  How can this be?  How can a dynamic nation fare so poorly?  Aren’t we supposed to be the problem solvers?

Our black population has a life expectancy at birth of 73.2.  Yes, a black man born in the United States of America has a shorter life expectancy than a Mexican born in Mexico.  Maybe we should post this sobering testament to American racism along the Rio Grande.  Where are the outraged calls from the moderates demanding that we improve black health?  Is it part of our dynamic picture that an eighth of the population is doomed to five fewer years on this earth?

If one of America’s special features is our high murder rate – a bit more than double that of France, ten times that of Japan – then maybe we should do something about it, unless it is a point of pride, like multichannel television and the Grand Canyon.  It may be too late to do anything about the hundreds of millions of firearms in private hands, but why not put a $10 excise tax on every bullet?  There is a couple year supply of ammunition at current rates; while stockpiling and smuggling would begin immediately, we should be able to burn through much of the supply.  An avid hunter shouldn’t need a second shot.

Perhaps the reason we die younger, despite spending more on health care, is that we overestimate the effect of health care.  Perhaps the fact that 72% of American men over the age of 15 have a BMI above 25, versus 63% in the UK, 52% in Sweden, 44% in France, and 25% in Japan, contributes to our earlier demise.  24% of white Americans are fully obese (BMI>30), while 36% of black Americans are obese.  Maybe that is the root of our exceptional mortality.

In this case, however, why isn’t the Village screaming about the importance of diet and exercise?  Why do we tolerate the continued subsidization of row crops?  Why do we allow food stamps to be used for food that is not nutritious, when we already go to the trouble of identifying nutritious foods for nursing mothers and mothers with newborn children?

It is all good and well to identify the factors that make America unique.  But to identify them and then refuse to take actions to address the adverse consequences of our unique situation does not celebrate our exceptionalism.  It merely betrays a deep desire to maintain the status quo.  And there is nothing less exceptional than fear of improvement.