Wednesday, October 21, 2009

The Continued Saga of Health Care Reform 2009

Many of us or at least some of us watchers of the health care reform debate are pondering the question: will it ever end? Or put differently, when will it end?
During the presidential debate health care reform was at the top of the domestic agenda and with the democratic party wining both the White House and majorities in both houses, the expectation was that, the reform bill should have a clear sailing. The president even thought that he would be signing the reform bill by the end of August or early September.
Here we are at the end of the month of October and no Bill in sight. One could argue that we are almost there. But are we?
From the news account one needs to ask: Are we or are we not serious about reforming the health care system?
Without addressing the specifics of the Senate Finance Committee bill now before the Congress (that will have to wait until a bill garners a majority in both houses—a Herculean task), let me begin with defining the term reform. In doing so, one may perhaps be able to judge the essential character of the bill if not the expectation of what the bill is likely to achieve.
The Merriam Webster Dictionary defines the term reform as: “to make better or improve by removal of fault”, alternatively, “to correct, rectify, emend, remedy, redress and revise”.
If the health care bill is to reform the existing system, then legislators and their constituents (we the people) should be inspecting the bill to see that it meets the criteria set forth to earn the reform label. The first step then is to identify the shortcomings of the existing health care system and in light of these shortcomings look for improvements, redress, corrections the reform bill legislates.
The debate, at least in the media, in my view, is misguided in that it focuses on the “private” rather than the “public” good. Moreover it fails to address the fundamentals of reforms: The principles upon which reform is based.
Our legislators, if not the media should have sought to fathom the debate along the lines used in debating tax reform. Back in the 1960’s, the 1970’s and the 1980’s no discussion of reforming the federal income tax system was deemed “legitimate” without setting forth the principles that should guide tax reform. Before getting into the “Nitty-Gritty” of specific provisions, the principles had to be agreed upon first. Since then it has become the standard for any change proposed or enacted. The well known principles were: equity, efficiency and simplicity.
So what are the principles that ought to guide the reform of the US health care system?
From my readings (albeit not too carefully) of the 259 pages of Chairman’s Mark: America’s Healthy Future Act of 2009, I cannot discern those principles.
Title I (84 pages) deals with: Health Care Coverage. It spells out the proposed insurance market reforms. It goes into details about a wide range of issues from the current insurance system’s shortcomings to setting up new procedures that would replace or amend some of the existing provisions in insurance policies as well as outlining the role of the federal government in addressing these shortcomings. Title II: Promoting Disease Prevention and Wellness (86-96 pages) deals with Medicare and Medicaid. The objective is to insure that Medicare beneficiaries have “access to comprehensive health risk assessment”. For Medicaid recipients, this section outlines the requirement for “improving access to preventive services for eligible adults”. Title III: is about Improving the Quality and Efficiency of Health Care (pages 96-135). Titles IV and V deal with transparency and program integrity, frauds, waste and abuse. Title VI (pp. 231-258) spells out changes in the revenue items like fees, tax credits and itemized tax deductions.
The “meat” of the bill and controversies surrounding the bill is found in Title I and Title VI.
Before getting into controversies surrounding provisions in Titles I and VI, one needs to ask: What are the criteria that underline these provisions?
Title I, subtitle A spells out the proposed reforms to the insurance market. These perhaps are the most straight forward reforms and well understood, having defined reform as “correcting or rectifying” what is there, then one infers that the existing health care system is deficient in meeting either the criterion of “equity” or “efficiency” or both. The corrections deal with pre-existing conditions and guaranteed renewability of policies. No controversy there. What is debatable is the specifics about premiums, rating rules in individual markets to insure compliance with the new directives. If I were to choose a criterion for these reforms the one that is applicable is “equity”. The individual cases put before us during the Town Hall meetings on health care clearly documented the need for action to stave off either bankruptcy of afflicted individuals or families whose insurance was cancelled because of pre-existing conditions or denied coverage for same reason. To providers of insurance, the new regulations give rise to cost that has to be either absorbed by those insured or recouped from them through cost shifting—a rise in insurance premium.
It will come to no one’s surprise to learn that cost shifting is the rule rather than the exception whenever a “tax” is imposed on a product. The shift may occur over time and in many instances may be hidden. Even if cost shifting does occur the insured will not bear the full cost of being integrated in the insurance pool which was denied to him previously. On equity ground as well as efficiency (spreading the cost) this provision meets the definition of reform—redressing a need.
Subtitle B: State Exchanges and Coverage Assistance and Subtitle C: Making Coverage Affordable deserve a great deal of scrutiny. In this regard the on and off “public option” need to be integrated. In my next Blog I will examine these two in light of the criteria of reform set forth above. These need to be examined in conjunction with Title VI where the revenue implications of the reform provisions are spelled out.
For the moment, it suffices to say that the state of “America’s Healthy Future Act of 2009” is in jeopardy. Unless and until the competing interests of the various players in the market are reconciled—the public option in the exchange market, state rights (whether they can or cannot opt out), Private insurers and employers as well as health care providers (physicians and hospitals), the chances for a robust bill, a bill that would meet not only the equity and efficiency of the health care market but also the criterion of simplicity is but an elusive dream.
If I were to design a “Health Care Reform Bill”, I would begin with the following questions: Does the existing system meet the standards of equity, efficiency and simplicity? To answer this question, the system has to be reduced to its components: Access, affordability and efficiency. The three components must then be ranked in terms of priority and trade off made when conflicts occur. Legislators guided by their constituents must rank the three elements. For example should access take precedent over efficiency of delivery? Should affordability be the overriding criterion, or is it the efficiency of delivery. As an economist these are the questions which have to be addressed before a “blueprint for health care reform” is developed. This may be an easy task for an economist but a difficult one for a legislator.

Thursday, October 8, 2009

Health Care Outcomes: Is Our System All that Bad?

An article in the Washington Post: “U.S. Losing Ground on Preventable Deaths: Despite High Medical Spending, Results Trail Other Wealthy Countries”, (Ceci Connolly, Tuesday, Oct 6, 2009). Quoting a study by Common Wealth Fund the writer states:
“Although the Unites States now spends $2.4 trillion a year on medical care—vastly more per capita than comparable countries—the nation ranks near the bottom on premature deaths caused by illness such as diabetes, epilepsy, stroke, influenza, ulcers and pneumonia”. Comparing costs and outcomes may not be all that relevant unless everything else is held constant.
The U.S. health care system has always been costlier than other systems in the developed world. Ever since OECD (Organization for Economic Development and Cooperation) has been compiling data on comparative health care, we have been put on notice that as percent of per capita GDP, the U.S. spends more and consumers of health care do not fare better, perhaps worse. This means one of two things, maybe both: The American population are either sicker than the “comparative” population hence the low return of investment on their medical care or that health care providers in the U.S. are “greedier”, “less efficient” in the delivery of health care than providers in other countries.
Let us, for a moment, accept the proposition that our providers are less efficient. The question that arises is why are they? Given the innovation that emanates from the U.S. not only on the diagnostic front but also in the drug therapy, it is worth a moment of reflection to contemplate the failure of the system to meet the efficiency standards of other European health care systems. Such reflection invariably leads us to an assessment of the disease-specific cost of intervention and there lies an ocean of difference between the U.S. system and European Systems.
Economists, rightly or wrongly, when discerning the effect of an increase in the price of good X on the demand for good X, will always tell you, “everything else remains constant”. That may sound foolish since nothing ever remains constant, or at least not for long, when good X’s price rises. We do that to ascertain the direction of effect and not necessarily the exact change in the demand. The same logic should apply to the demand for health services and hence the cost. Comparing the “comparative” cost per service delivered in one country viz a viz another in relation to the corresponding outcomes make good statistics but unfortunately masks a great deal of differences between systems. I tried to emphasize, “everything else remains constant”. That translates into comparing “like” with “like”. How can one judge life/death outcome of a diabetic patient in the U.S. compared to a diabetic patient say in France? The statistics says, a “premature death” for the U.S. patient compared to the one in France. But is this information really telling? To compare outcomes, given cost one first of all need to keep constant the profile of the patient, the environment of the patient, and a host of other issues that frame the comparison. Or take the cost comparison: It may be true that our providers are “greedy” , it may also be true that pharmaceutical pay providers to over prescribe or prescribe expensive drugs, but it is also true that the patient in the U.S. expects and demands to receive the best available medical care.
The U.S. system promotes patient’s right to choose the medical care he/she is to receive. To so many in the U.S. this right is worth the cost society has to bear. To make the cost comparison worth while patients here and there have to hold similar expectations. To make health outcome comparisons, one needs to compare like with like. Neither of these two elements hold in the U.S., European comparison.
Having said that, one should not shrug aside the three critical issues that impact costs and outcome the Post article alluded to. These are:
· The “efficiency” of the delivery of medical services;
· Access to health services , and
· Patients’ expectations
I shall address these issues in conjunction with some of the Senate bill provisions for Health Care reform 2009. Once the bills gets out of the Senate Finance Committee as the bill provisions touches on the issues raised in the Post article.