Health care

Aug. 20, 2009

In the last 3 years, I've consumed over $1million worth of American health care services. Most people don't approach this sum except in the last years of their life, if it all. But I've also gotten incredible value for that money. The American health care system, in the form of Children's Memorial Hospital in Chicago, saved both of my kids' lives. I have a rare genetic mutation in a gene that governs heart function. My son, in the first weeks after he was born, had a heart attack which he survived due to the intervention of the cardiology specialists at CMH. My daughter was luckier since they caught the problem before she was even born, but she still remains in the care of expert pediatric cardiologists to ensure no new problems crop up. Both children are doing fine, but their future remains a medical mystery. I've benefited greatly from the US system, but nevertheless I still believe in needs drastic change. I'm not going to quote the statistics that everyone has already heard: 47 million without insurance, 100 million working and underinsured, health care costs rising at 3x the rate of GDP, stagnation in take-home pay due to increased health care costs for businesses, etc. I'm just going to recount some personable anecdotes as someone who is a large consumer of health care services.

My health insurance comes from Blue Cross/Blue Shield of Illinois and last year cost $16k. My employer picks up 70% of this cost which is pretty nice. However, this insurance is over 1/3 of the median household income ($45k) in Illinois. On top of this I always hit the yearly out-of-pocket maximum for each of my kids which comes to another $4k. That doesn't include co-pays for medications or regular visits to the pediatrician. I can afford this because my job pays me ridiculously well compared to most Americans, but it kills me to know that if I was a person with an average earning potential, I would likely be bankrupt paying medical bills. I'm very lucky, but if we're striving for a meritocracy in America, shouldn't we try to eliminate luck from this kind of make-or-break financial situation? If I had started my job a week later, I wouldn't yet been on my employer's plan and would have had to appeal to the Illinois Children's Health Insurance Program. I tried to put my son on this the day he was born but I was told there was a 90-day waiting list. He had his heart attack on day 78. At that point if the State of Illinois hadn't bailed me out, I would currently owe nearly $1million in health care expenses. I was literally 2 weeks from financial ruin.

Even with my awesome insurance and medical care, there are some obvious inefficiencies in the system. Medical records transfers are a huge pain. I get bills from 2-3 clinics or services every time one of my kids goes in for a procedure, usually for low amounts, but confusing to keep track of. For example, I'll get a bill for $23 from the hospital pharmacy, $90 from the cardiology clinic, and another $20 from pediatric faculty foundation (whatever that is). There's no way for me to keep track of all these payments and make sure I or my insurance company aren't being billed for services I didn't use. There was a period in February and March after my daughter was born when I was getting at least one statement from BCBS every day. I just threw them all away without looking.

Looking at these statements makes you realize how divorced from reality the entire system is. The typical line item says "Some procedure: Hospital Billed: $559. Insurance pays: $219. Uncovered balance: $340. You pay: $0" This means that the hospital normally charges $559, but my insurance company has negotiated that price down for their customers to $219. If I didn't have insurance, I'd presumably have to pay the full price. Does anyone every pay that price? Is that same price given to all customers at the hospital? Suppose I was paying from a health care savings account. If I called around to hospitals and asked the price for an MRI, could I get a quote? I also worry about my children's future. They can never be without medical insurance. I almost always spent the summer in college and grad school uninsured to save money (the premiums for 3 months of coverage were usually ~$1000), but my kids can't afford to do that. Under our current system, they'll also probably never be able to get non-group insurance due to their medical history and pre-existing condition. This means they probably can't be self-employed or start their own business.

I've been reading a lot about the various reform proposals on economics blogs, political sites, newspapers, and magazines. I've read about the other systems used around the world, including Canada, France, Switzerland, the UK, Singapore, Spain, China, and the Netherlands. Ours is by far the most expensive, but we do get a lot for it. Most new medical innovations start in America. We have an incredibly diverse system and people can get the care they want in a variety of settings, if they are willing to pay for it. Aside from transplants, there are rarely any waiting lists for procedures. But all these advances are only available to those who can afford to pay for them, and fewer and fewer Americans have that capacity.

Personally, I think Singapore's system has the most going for it. The government provides 80% of the cost of critical care and also covers infectious diseases. Preventive care or exceptional non-essential services are out-of-pocket from mandatory health savings accounts. To help consumers make wise choices, hospitals and providers are required to publish price catalogs for their procedures and hospitals are regularly rated by a government agency for quality. Private insurance is also available to cover the remaining 20% that the government does not cover. The government is also active in promoting healthy environments. These basic, market-based measures give Singapore better health outcomes than the US for a little more than 25% of the cost. (citation).

However, I'm not sure how we could switch to this system from where we are now. It would require a total abandonment of the employer-based health care system, drastically reduce health insurance companies profits, and Americans are resistant to Singapore's "nanny-state" policies such as banning smoking.

More compatible with our current system would be something like the Netherlands'. The Dutch have mandatory private insurance with subsidies to those who are too poor to afford it. In exchange, private insurance companies must fit their plans national standards for health insurance policies. Companies participate in a common risk pool so companies with riskier individuals are compensated by those with less risk. This actually creates an incentive for companies to compete to insure higher risk individuals. Long-term, disability, and elderly care is provided by the government (similar to our Medicare). (citation) Individuals have less incentive to "shop around" in this system than in Singapore's, but that incentive gets pushed off to for-profit insurance companies so it still exists. By requiring everyone to have insurance, they eliminate the free-rider problem and the need for inefficient medical underwriting that plagues our system

We could transition to a similar system in the next 8 years by slowly removing the tax-incentive for employer-based care, mandating individuals buy private insurance, and allow all health insurers to compete nationally with standardized plans. We could then eliminate Medicaid in favor of subsidies for those too poor to buy insurance and extend Medicare to cover the terminally ill (it already covers some specific illnesses). The added national competition would probably push down the costs of insurance.

Luckily, the bills in Congress already push us in this direction. The House bill has a mandate for coverage, requires standardized plans, and sets up a national health insurance exchange. I don't think it provides enough subsidy for the poor or enough penalty for failing to get insurance, but these can be phased in. It also doesn't remove the tax-incentive for employer-based insurance. The most controversial feature of this bill, the optional government-run insurance option doesn't appear to me to have much of an impact on changing the incentives to control cost, especially if we create a truly national market. However, in many states, the health insurance market is basically a monopoly. For example, BCBS controls 90% of the market in North Dakota, and over 70% in Iowa and South Dakota. In this sense, the public option plan is really a trust-busting exercise. I don't see any harm in a public option since it will be just that - an option. Provided it is not given additional subsidies and the health care market is national for all firms, I think of it as an interesting experiment. Can the government provide health insurance more efficiently than a for-profit firm? The success of Medicare suggests yes but the public option lets the market decide.

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Luke Hoersten: 2009-08-22 17:14:53

It seems like the best feature of the Singaporean health care system is the requirement of knowledge dissemination. Our system is based on secrecy. Our employer is essentially paying without being allowed to know what they're paying for. No one has a vested interest in the efficiency of the market. A market where no one knows or cares what the cost of a service is, or what a competitors service costs, is outrageous.

Matt Belcher: 2009-08-24 09:25:56

Unfortunately, I don't think publishing the pricing information would be enough. It isn't hard to price-compare veterinary services in the US, but they've been growing at the same rate as medical services, only starting from a much lower place. The entire system needs to be overhauled comprehensively. I'm not sure small tweaks like that are enough.