Equity v. Choice
By Daniel Callahan and Angela A. Wasunna
Medicine and the Market
(2006 – The Johns Hopkins University Press)

Some Soft Conclusions (on competition)

Our reading of the literature and data on competition in health care allows only a soft conclusion: it may work here and there in bringing an increase in efficiency and cost control, but most likely only if coupled with strong government regulation designed to make it work. There is no consistent evidence anywhere that an unregulated competitive market can achieve those goals, much less do so while maintaining reasonably equitable access.
Moreover, when looking at the European experience, many countries turned to various competitive strategies to control costs, with mixed success. The most effective means always turn out to be government-imposed supply-side restrictions – with the help of demand-side control imposed by government monopsonistic purchasing clout. To control the availability of expensive technologies, hospital capacity, physician supply, physician fees, or the cost of pharmaceuticals works wonders for cost control. Even relatively successful competition has nowhere had the comparative force of direct government interventions to contain costs.

Here are our summary conclusions (on private health insurance):

On equity. Private health insurance contributes to the regressivity of health care financing in the United States and Switzerland. In Germany and the Netherlands, however, mainly affluent people purchase private insurance, contributing to the progressivity of the financing system. On the delivery side, private health insurance creates access based on willingness and ability to pay, and typically discriminates against the poor, ill, and elderly. Equitable access has also been undermined as a result of greater sophistication in risk-rating, which enables insurers to select preferred risks. The philosopher Allen Buchanan has noted that the conditions necessary for private insurance to be economically viable for those who sell it contradict the necessary ingredients for equitable access, which requires regulation of competition and the availability of generous public funds to fill in gaps in access.

On efficiency. With private insurance, there are no criteria to determine access to care from willingness and ability to pay. In most countries, private insurers compete with or parallel the public system. Private health insurance may cover cost-effective services, which the public sector does not deliver because of mismanagement. Private health insurance may cover more rapid access to services or the costs of amenities, such as private hospital rooms, not covered in public insurance packages. Administrative costs may be systematically higher in a health system with competing private insurers than in a monopsonistic system, because of the costs associated with marketing, promotion, and underwriting. In addition, if private insurers operate on a for-profit basis, further revenue needs to be generated to pay shareholder dividends.

Careful regulation can limit the harm that is a potential result of private insurance, mainly by keeping it at a limited level and working hard to make certain the public system does not require private insurance to guarantee good health for the population. At the systems level, financing health care mainly through private insurance is neither equitable nor efficient, and the United States is a clear example of this. Insurance overheads and a competitive market have made the U.S. system the most costly in the world, yet it still fails to cover the health care needs of millions of its citizens. That much said, a modest degree of private insurance can satisfy some desires for expanded choice, as in the United Kingdom, without harm to the public system.

The Case for Government

One such ingredient (of effective strategies for the provision of health care in the face of growing costs) is that only universal health care systems, government run and financed, or at least governmentally managed and monitored, will be able to cope with those pressures. The market is too much of a wild card to be depended upon to control costs, and is congenitally prone to introduce unfettered efforts to expand choice beyond affordable boundaries and to let individual preferences, regardless of their social or economic implications, rule the day. There are several things that government, and only government, can do. The first is to keep a central eye on the entire health care system and to manage it in a way aiming at the public interest. A good federal government system will decentralize as much as possible, giving regions or states considerable control over their local and regional policy, but it will work to coordinate all of them toward a common end: equitable and high-quality care. A second role of government is that, through its political system, it can find ways to gain the contribution of all citizens in defining the goals of the system; argument and debate will be the rule, but that is as it should be in democratic societies. This will be all the more important if we are correct in projecting cost pressures that will, for earlier specified reasons, just get worse and worse, with little chance of turning back. Those pressures will necessitate rationing and priority setting, sometimes in ways that will deny people the kind and quality of health care they desire, and even on occasion need. It is well understood that unlimited space travel is not possible with limited budgets, and so finite goals are set. It is far less understood that unlimited medical goals will not be possible with finite budgets. But such budgets are necessary and, in the future, will probably allow far less managerial maneuvering than is now possible. The necessity for citizens’ active role in setting priorities and determining limits – their informed consent to being denied treatments they want – will be all the more imperative. But that is only possible with integrated national systems, not fragmented mixtures of public and private health care with no guiding – and visible – hand, which is government’s role.

(Closing comment)

The market is not the way to go as a general panacea for health care, even if it works well in other sectors of society. But possibly it can contribute something. We want to leave that door open, looking carefully before entering.

http://www.press.jhu.edu/books/title_pages/3375.html

For a recent Quote of the Day message on Porter and Teisberg’s Redefining Health Care:
https://pnhp.org/news/2006/june/porter_and_teisberg.php

Comment:

By Don McCanne, M.D.

Callahan and Wasunna, in “Medicine and the Market,” confirm what Porter and Teisberg expressed in “Redefining Health Care”: market competition has failed to provide equity and efficiency in health care. They both acknowledge that the government must play a major role in financing health care, but their concepts of how market principles should be applied are quite different.

Porter and Teisberg, in their unwavering belief that market competition will always provide greater quality at lower cost than would government control, would radically contort the health care delivery system to make it more amenable to market forces. They would shove competition down the gullet of the health care system merely because it’s good for you, even if empirically it makes you regurgitate, threatening your ability to thrive.

In contrast, Callahan and Wasunna demonstrate that government-run universal programs are effective in ensuring equity and efficiency whereas reliance on markets inevitably fall far short. (In their book, they demonstrate that
purer market-based models in the proving grounds of developing nations may be effective as business entities, but a disaster for health care equity.)

Although Callahan and Wasunna make it very clear that universal health care systems must be “government run and financed, or at least governmentally managed and monitored,” they suggest that we should continue looking for
possible contributions that the market might be able to make.

That should lead us to a consideration of how the policy community should allocate its efforts. Do we engage in an intensive, expensive, time-consuming effort to identify market manipulations that might produce a slightly favorable tweak to the system, merely to placate the market ideologues? Or do we move forward immediately with enacting a proven, equitable and efficient system for all?

Every half hour we delay, another person dies for lack of insurance! That’s 3000 every two months (the same number as the tragic one-time loss of 9/11, except that this is repeated over and over). We can let the entrepreneurs work on the periphery with their market solutions. If they can show us something that will improve the system then we’ll take a serious look at it. In the meantime, let’s get busy with adopting a system that immediately will begin to save tens of thousands of lives.

“Free to Choose: A Conversation with Milton Friedman”
Hillsdale College
Imprimis
July 2006

Question: Is there an area here in the United States in which we have not been as aggressive as we should in promoting property rights and free markets?

Milton Friedman: Yes, in the field of medical care. We have a socialist-communist system of distributing medical care. Instead of letting people hire their own physicians and pay them, no one pays his or her own medical bills. Instead, there’s a third party payment system. It is a communist system and it has a communist result.

http://www.hillsdale.edu/imprimis/2006/07/

Comment:

Don McCanne, M.D.

So, outrageous health care cost escalation, impaired access, and impaired health outcomes (including tens of thousands of deaths) are a “communist result” of a “socialist-communist system.”

The way you frame the problem is very important since logical conclusions derive from that framing. Based on Professor Friedman’s observation, we should ferret out and expel all of the communists that have permeated our private insurance industry and our government agencies.

Of course that’s nonsense, but there is a point here. Using an ideological abstraction to frame the problems of our health care system not only defeats consensus, it can never lead to rational reform. A political, social and moral Utopia will always be a fiction.

However the dialogue on reform is framed, it is absolutely essential that every effort be made to objectively define the problems. Then every effort must be made to describe the potential options for reform along with the anticipated outcomes of each option and its variations.

Much of that important work has already been done. We know what the problems are, the options for reform, and the likely results of the various options. If the goals are affordable, high quality, comprehensive health care for everyone, then it is clear that either a national health service model or a single payer national health insurance model would be the most effective means of achieving those goals. The American preference is for the insurance model.

It is difficult to understand why so many are opposed to reform. But many of those who are opposed dump the framing of the problems in objective terms, and substitute the framing as an ideological abstraction of personal
freedom: I’ll take care of my needs and everyone else can take care of theirs. As mentioned, that type of framing prevents consensus and automatically achieves the opponents’ goal of obstructing reform efforts.

But does this ideology of personal freedom or self-interest mean that we should not join together for the common good (something which governments do very well)? Let’s see what Milton Friedman has to say about self-interest:

Question: Do you define self-interest as what the individual wants?

Milton Friedman: Yes, self-interest is what the individual wants. Mother Teresa, to take one example, operated on a completely self-interested basis. Self-interest does not mean narrow self-interest. Self-interest does not mean monetary self-interest. Self-interest means pursuing those things that are valuable to you but which you can also persuade others to value. Such things very often go beyond immediate material interest.

Question: Does that mean self-interest is a synonym for self-sacrifice?

Milton Freidman: If you want to see how pervasive this sort of self-interest is that I’m describing, look at the enormous amount of money contributed after Hurricane Katrina. That was a tremendous display ofself-interest: The self-interest of people in that case was to help others. Self-interest, rightly understood, works for the benefit of society as a whole.

(Professor Friedman seems to prefer Utopia, even if it is a fiction. Charity, as health policy, has been studied extensively. Unfortunately, it is the least effective method of addressing our health care financing problems, having almost no impact at all. 300 million people, each acting as an independent agent, would never contribute the $7000 apiece required to fund our health care system. On the other hand, as reluctant taxpayers, they would collectively fund the $2 trillion health care system, secure in the knowledge that everyone else is paying their equitable portion. Framing this objectively, only government policies can ensure an equitably funded system for everyone.)

Health Care Disconnect: Gaps in Coverage and Care for Minority Adults
By Michelle M. Doty and Alyssa L. Holmgren
The Commonwealth Fund
August 2006

Lack of insurance coverage and instability of coverage are persistent problems for low-income adults and racial and ethnic minorities. The Commonwealth Fund Biennial Health Insurance Survey (2005) documented that Hispanic working-age adults are particularly likely to lack basic access to medical care. This can be attributed in part to their very high uninsured rates, but it is also because of the difficulties Hispanics experience in establishing ongoing care relationships with their doctors. Findings suggest that improving coverage as well as access to a medical home would go a long way toward helping Hispanic adults connect with the health care system, receive the preventive care they need, and successfully manage and control chronic conditions.

Rates of unpaid medical bills and debt, meanwhile, are particularly high among African Americans, a consequence of the high prevalence of chronic disease and high uninsured rates found in this population. Helping to prevent the financial strain associated with unpaid medical bills and accrued debt should be a top priority area for policymakers.

Insurance alone does not ensure equal access and equal care. Having a regular doctor is important as well, in terms of timing and receipt of preventive care. Indeed, findings indicate that on certain measures of preventive care, there are few racial and ethnic disparities among Hispanics, African Americans, and whites once they have a regular doctor.

Whether insured or uninsured, or below or above poverty, people who have a regular provider are significantly more likely to get recommended preventive care, such as blood pressure and cholesterol screenings, and to feel confident about self-managing their chronic conditions. Ensuring that people have a medical home may thus be an important lever for reducing racial and ethnic disparities in care.

http://www.cmwf.org/usr_doc/941_Doty_hlt_care_disconnect_disparities_issue_bri.pdf

Comment:

By Don McCanne, M.D.

No reasonable person disputes that lack of insurance has been a major contributor to racial and ethnic disparities in care. Establishing a program of universal, comprehensive health care coverage may not be the only measure required, but it is absolutely essential. Health care access will always be impaired if there is not in place a system of paying for that care.

This study also demonstrates that lack of a medical home (primary care) also results in racial and ethnic disparities. We are currently witnessing an acceleration in the deterioration of our primary care infrastructure. Our current flawed method of funding health care has shifted financial resources from primary care to more lucrative, higher-tech services. Being able to pay for primary care is not enough if there is no primary care home to turn to.

A single payer national health insurance program not only would ensure that care would be paid for, but it also has the capability of correcting many of the structural defects in our health care system. One of the most important is that it could realign incentives to improve and expand our primary care infrastructure, ensuring that everyone would have access to a medical home.

Single payer is not only an insurance model. It is also a beneficent monopsony: a single purchaser of health care for the public good. As such, it would not only fund health care, but it would also enable much needed structural reforms such as improving the primary care infrastructure, improving pricing, reducing non-beneficial high-tech excesses, and dramatically reducing the profound administrative waste of our current, fragmented system.

The Slowdown in Medicare Spending Growth By Chapin White
Congressional Budget Office
July 2006
Working Paper Series

Abstract

The rate of so-called “excess” growth in Medicare spending per beneficiary has varied widely over the last several decades, and growth has slowed substantially in recent years. (Excess growth is defined as growth beyond the combination of the general rate of economic growth and the rate of change in the age composition among beneficiaries.) The annual rate of excess growth fell from 5.5 percent over the period from 1975 to 1983 to 0.9 percent over the period from 1992 to 2003. Changes in provider payment policies might help explain the observed slowdown. Those changes include the implementation of a prospective payment system for short-stay hospitals, and, more recently, the imposition of mechanisms to control aggregate Medicare physician spending. Possible alternative explanations-increases in managed care enrollment, changes in Medicare cost sharing, and a system-wide spending slowdown-do not account for the slowdown in Medicare spending. The slowdown is of an economically important magnitude and deserves further study.

http://www.cbo.gov/ftpdocs/74xx/doc7453/2006-08.pdf

And…

Medicare eases fee cuts
By Stephen Heuser
The Boston Globe
August 2, 2006

The Centers for Medicare and Medicaid Services, known as CMS, released a massive document dictating how much it will reimburse hospitals for hundreds of medical procedures in 2007. Medicare pays $125 billion to hospitals nationwide each year, making it the single most important payer in the American healthcare system. Changes in its policies can trigger shifts in both the American hospital system and the medical-device industry.

The changes detailed yesterday are far less dramatic than the federal agency first proposed in April, when it said it was considering slashing payments for some heart-repair procedures by one-third, and cutting reimbursement for defibrillator implants by one-fifth.

Hospitals and healthcare companies have been watching Medicare unusually closely this year because the agency has launched a major change to the way it pays hospitals. Medicare pays a fixed amount for each type of procedure, and studies had found that those payments had become highly unbalanced.
Hospitals were profiting on certain cases, such as cardiac procedures and orthopedic surgery, but losing money on others, such as stroke victims and lung patients.

The revision increases the amount Medicare pays overall by $3.4 billion.

But it shifts the money around in an effort to rebalance its payment system and clamp down on a new breed of hospitals that has emerged to take advantage of discrepancies in the system.

So-called “specialty hospitals,” owned by doctors, concentrate on the most profitable procedures, such as coronary angioplasty and orthopedic surgery, leaving the bulk of less profitable medical care to community hospitals.

http://www.boston.com/business/globe/articles/2006/08/02/medicare_eases_fee_cuts____and_boston_scientific_fears/

Comment:

By Don McCanne, M.D.

Everyone is concerned about the affordability of health care. We want the best care available, but we all realize that we cannot allow health care spending to bankrupt us. As a percent of our Gross Domestic Product (GDP), we spend far more than any other nation on health care, currently 16.5 percent. There is a general consensus that we are ever closer to the threshold that can be tolerated.

Over the past few decades, innumerable efforts have been made to attempt to control the “excess” growth in spending, excess being defined as a rate of growth in health care spending in excess of the rate of growth of our GDP (corrected for demographics, etc.). This CBO study of the success of Medicare cost containment provides us with some very important lessons.

Some will be surprised to see what has not been effective. Managed care has had an insignificant impact within the Medicare program, and actually resulted in an increase in spending because of the higher rates paid for a lower-risk sector of patients. Cost sharing, the tool being touted by the consumer-directed health care advocates, also has not had any significant impact in reducing excess spending.

Perhaps the most important theory dispelled by this study is that the slowdown in Medicare spending represents a general slowdown of spending in our entire health care system. This analysis confirms that Medicare spending slowed while system-wide spending continued to increase at an excessive rate.

So what has worked? Adoption and continual refinement of provider payment policies such as the prospective payment system for hospitals and the sustainable growth rate formula for physicians have been effective. These are not perfect systems. Refinements have been made, and further changes are essential. The point is that they are designed specifically to provide value to the taxpayer while ensuring that our health care delivery system is adequately and fairly funded.

The Medicare payment document just released by CMS demonstrates how well this can work. Policies are being adopted that will reduce excess spending in some sectors while shifting funds to important services that were losing money, and further modifications were made based on input during the public comment period. Isn’t that what we should expect from the stewards of our tax funds?

How does the private sector approach excess spending? It uses the blunt instrument of managed care: ratcheting down provider rates, erecting barriers to access, and now shifting often unaffordable costs to patients with needs. What is really ironic is that these mechanisms have failed to slow the increase in excess costs (except for the one-time impact of private-sector price controls).

What do you want: a government program that has a dynamic system of achieving the best value for our finite health care dollars, or a private, fragmented system that provides poor value and isn’t even effective in controlling excess spending?

Private not much quicker for treatment
By Susan Mitchell and Nicole Matthews
The Sunday Business Post (Ireland)
July 30, 2006

Hospital consultants have questioned the benefits of paying for private health insurance. Some claim going private does not necessarily ensure a fast-track to the operating table and that chronically ill patients are often better off in the public system.

Citing the reduction in procedure waiting times under the National Treatment Purchase Fund (NTPF), the private sector’s inability to treat patients and the escalating cost of health insurance, they believe the benefits of having private health insurance are diminishing.

Consultant neurologist Dr. Orla Hardiman, director of neurology at Beaumont, and a medical adviser to the Neurological Alliance of Ireland, said that in some instances her public waiting list is actually shorter than her private waiting list.

“For some neurological conditions people can actually be seen more quickly in the public sector. Most neurologists have small private practices, so the number of private patients we can take is quite small. If someone has a problem that requires ongoing management and multi-disciplinary care they are better off in the public system,” she said.

“There are times when the private sector can offer quicker access for patients looking for specific procedures, but the benefits are not as clear-cut for chronically ill patients. There is no huge advantage in these patients having private cover as the services are not available in private hospitals,” said Hardiman.

Other consultants have had similar experiences. Professor John Crown, consultant oncologist at St Vincent’s Hospital in Dublin, said of patients with cancer: “We have had a much bigger waiting list for patients with private health insurance trying to get chemotherapy in St Vincent’s Private Hospital.

“That has been the case for a number of years. The public waiting list has been a lot shorter.”

Crown said he and his colleagues often move private patients who need urgent treatment into the public system.

In a recent interview with the Irish Medical News, Brendan Healy, orthopaedic surgeon in Sligo and an elected member of the Medical Council, said the NTPF was getting patients off the lengthy outpatient lists.

Established in 2002 to try to tackle long-term waiting lists for surgical procedures, the NTPF finds spare capacity in the system – both public and private – and uses it to arrange operations for patients who have been waiting three months or more before contacting the fund.

Healy said patients were being treated for free in the same private beds as fee-paying insured patients. He stressed that he was not suggesting people shelve their private health insurance, but that they consider their cover needs.

“I’m wondering should people bother having insurance, and having double taxation, unless they have a fast-track.

“Because if you are waiting for three months, you can get into the same hospital under the NTPF and end up in a bed alongside somebody who has paid thousands in extra taxes (subscriptions),” he said.

http://www.sbpost.ie/post/pages/p/story.aspx-qqqt=NEWS%20FEATURES-qqqs=news-qqqid=16048-qqqx=1.asp

Comment:

By Don McCanne, M.D.

The policy lesson is that directing efforts to simple queue management will reduce waiting times, whether in the public or private sector. Those who state that excessive queues are inevitable in publicly funded programs and are eliminated with private funding are flat-out wrong.

Effective queue management is dependent on the diligence of the stewards of the health care system and not on whether the source of funding is private or public.

The infrastructure of a single payer system for the United States would include queue management and is ideally suited to do so, especially when compared to our current fragmented system of funding care. You should emphatically reject the claim of those who state that excessive delays are inevitable in a single payer system and non-existent in the privately insured market.

Monthly Health Insurance Premiums Highest in Spokane, Wash., Among 69 Cities, Survey Finds
kaisernetwork.org
Daily Health Policy Report
July 21, 2006

Health insurance costs the most in Spokane, Wash., and costs the least in Grand Rapids, Mich., according to a survey of 69 cities released on Wednesday by eHealthInsurance, the Miami Herald reports. The survey examined monthly premiums for health insurance for a family of four nonsmokers with a maximum deductible of $2,000 and 20% coinsurance. According to the survey, Spokane had the highest monthly premiums at $962, and Grand Rapids had the lowest at $159.06. The New York City and Boston areas had monthly premiums that ranged from $865 to $916, the survey finds. Bob Hurley, a vice president with eHealthInsurance, said that state health insurance mandates accounted for a large share of the differences in monthly premiums among the cities surveyed. He added, “In very heavily regulated states, prices are horrendous.”

http://www.kaisernetwork.org/daily_reports/rep_index.cfm?DR_ID=38638

The Most Affordable Cities for Children’s & Family Health Insurance
eHealthInsurance
July 19, 2006

Most of the cities surveyed that rank near the bottom are in states with community rating and guaranteed issue laws.

http://www.miami.com/multimedia/miami/news/afford.pdf

Comment:

By Don McCanne, M.D.

eHealthInsurance is frequently cited as the resource that proves that high-deductible policies are very inexpensive. But their own report demonstrates that this is not always true. It is very important to understand why.

Mandated benefits are frequently blamed for the high insurance premiums in some states. But this accounts for only a modest variation between states, and does not explain the variation between cities within a single state. For the healthy young family described, benefits can be quite generous without much impact on premiums.

Regional variations in utilization, especially of non-beneficial high-tech services, account for part of the differences, although much of that is concentrated in the Medicare population and has less impact on the private plans that cover healthy families. But some of the costs of these excess services may be shifted to the private plans.

Neither benefit mandates nor regional variations in utilization can account for a 6-fold difference in premiums in various cities. So what does?

eHealthInsurance provides us with the answer, although they bury it in a marginal comment in their report. Defining the “bottom” as the highest premiums, they state that “most of the cities surveyed that rank near the bottom are in states with community rating and guaranteed issue laws.” In other words, those states that require insurers to provide the insurance function of pooling risk will have much higher premiums because the large health care costs for the sick are shifted to the many who are healthy. That is the fundamental principle of insurance. For the coverage described, lower premiums are possible only in those states that allow private insurers to skim off the healthy and leave the sick behind. But then how would you pay for the sick since they consume about 80 percent of our health care spending?

Another major concern about this report is that the study was of a plan with a high-deductible ($2000) and 20 percent coinsurance (as opposed to nominal copayments). The average family that develops significant medical problems will find that this level of cost-sharing creates a financial barrier to health care access, with resultant impaired health outcomes.

A universal risk pool that eliminates financial barriers to care is the only practical answer. Since the average family cannot afford the premiums that would be required, the pool must be funded equitably through progressive tax policies.

The private insurance industry will never provide coverage that pools all risks, eliminates financial barriers to care, and charges a premium based on ability to pay. Single payer national health insurance is the answer. Why do we keep evading the obvious?