Put A Fork In It

Uwe Reinhardt, professor of health economics at Princeton, published a piece recently in the New York Times entitled "The Fork in the Road for Health Care" (http://economix.blogs.nytimes.com/2012/05/25/the-fork-in-the-road-for-he...). Excerpts:

Milliman, the global actuarial and employee benefit consulting firm, released its annual Milliman Medical Index for 2012 on May 15. Based on a large, nationwide sample of families with employment-based health insurance, the index tracks the total cost of spending on health for a typical family of four under age 65 that is covered by an employment-based, preferred-provider health insurance plan.

The virtue of this index lies in its inclusion of out-of-pocket spending in total health spending. Just tracking premiums for employment-based health can be misleading, if employers shift more and more of the cost of health care out of their benefit package into deductibles or coinsurance paid by employees, exclude certain benefits altogether or otherwise limit coverage.

For 2012, the nationwide average of the total health spending for a typical family of four was estimated by Milliman to be $20,728.

A just-released study by the Health Care Cost Institute shows that much of these spending increases are the result of rising prices and not of rising use. Reporting on the study, Julie Appleby of Kaiser Health News notes,

Higher prices charged by hospitals, outpatient centers and other providers drove up health-care spending at double the rate of inflation during the economic downturn – even as patients consumed less medical care over all.

Health care has come to chew up American household budgets like Pacman.

It is illuminating as well as alarming to juxtapose the Milliman data with data on the distribution of money income among households in the United States. The next chart exhibits that distribution for 2010, taken from the Annual Social and Economic Supplement of the Current Population Survey of the Bureau of the Census.

Americans are fond of the idea that individuals and families should be self-reliant. But a question confronting the American public and their political representatives is how they imagine households with money income of, say, $30,000 to $50,000 will tolerate the ever-larger bites the health care Pacman seeks to take out of their budgets.

I see two answers at the crossroads at which we find ourselves.

First, if we wish to continue with even the semblance of the idea that our health care system offers rich and poor patients roughly the same kind of health care experience in case of illness – that is, that we do not ration health care by income class in this country – then we will have to enlist government somehow to impose on total health spending an annual budget that cannot grow faster than ability to pay – say, the rate of growth of gross domestic product per capita.

That the private sector might accomplish this on its own is belied by the available data, although hope in that direction springs eternal.

Alternatively, on the second fork in the road, we can segregate health care into tiers, by income class, as follows:

For higher-income groups we might have self-financed, boutique medicine in which the sky is the limit. Ideally that tier should not enjoy the huge public subsidies toward health care that now are channeled to higher-income groups through the tax preference accorded employment-based health insurance.

For the broad middle class, we would have a wide set of arrangements characterized by “reference pricing” all around, or health insurance policies with very high deductibles and coinsurance. Either way, consumers would have more “skin in the game,” in health policy jargon.

By “reference pricing” is meant an insurance regime under which, for every type of health care (and not only for pharmaceuticals), the insurer would reimburse the insured only at the prices of low-cost producers in a market area, leaving the insured to pay out of pocket the entire difference between that low-cost price (the reference price) and whatever a particular higher-priced provider might charge. In this tier there might emerge, over time, a rationing of health care by income class.

Finally, for publicly insured low-income families, including the elderly, there would emerge a separate, purely public health care delivery system that can be tightly budgeted. There would be budgeted public clinics for ambulatory care and budgeted public hospitals for inpatient care – an analog of the Veterans Department health system. In such a tier, politicians could effectively ration health care without ever acknowledging that that was what they were doing.

My comment:

Many Americans believe that the private sector, through 'market' forces, will discipline health care costs and thereby provide us all with higher quality at a cheaper price. As Dr. Reinhardt points out, that hope is belied by the available data. We can not simply go on believing that somehow, someday, if we just tweak the system one more time, American patients will finally benefit from the world's largest private sector health economy and receive the best care in the world, even if we pay the most. In fact, this market pretense has led us to having both the most profitable health care system and the first world's lowest quality health care system. You can not have both good profits and good patient care.

So Prof. Reinhardt urges us to finally make a choice (choose a fork in the road) in health care. Either provide the same health care services to all or let the market (and one's own pocketbook) determine the level of service available to each family. He outlines the two choices as he sees it, but does so with an economist's bland analysis, as if it really does not matter which choice is made.

But it does matter. In fact, choice two would be the death knell of American health care. This is not a choice between two options at a fork in the road for health care. This is a choice between whether we will have best quality health care for all (which is always less expensive) or whether we will put a fork in our health care system and declare it dead.

It is the nature of health care that highest quality is cheapest. This is because high quality care delivers to every patient timely, clinically proven care, but only that care. High quality care eliminates inappropriate care and reduces preventable patient injury to the minimum rate. All of us need our neighbors to receive that kind of care if we are to benefit thereby. That is easy to see with communicable diseases, such as tuberculosis. If we fail to deliver best quality care to the TB patient, he or she will end up sitting on the same airplane with us someday and we will suffer the consequences. But we need to deliver the best trauma care to our neighbors as well, so that the trauma system is always well practiced, financed, and prepared should there come a day when we need that system. The wealthiest American will not be served well by a trauma system (or cardiac care, or perinatal care, or, etc.) that is infrequently used and isolated to service only those that can 'afford' it. When it comes to health care systems, we are all in this together. We either do it well for everyone, or we relegate ourselves to second class (or lesser) care. And second class care costs more, lots more. The truth is, we can not afford the devolution of our health care system into second class status. The health care PacMan that is eating the American family budget is caused by the poor quality care which characterizes the business as usual American health care delivery system.

If we want best quality care for any of us, we must arrange it for all of us. As it happens, that is also the way we will make it sustainably affordable for our families and our nation.

Dr. Joe Jarvis