Since Obama’s health care reform was passed, the right has made repeal their major talking point.  As the right wing candidate for president, Mitt Romney promises to end Obama care as soon as he takes office.  After repeal (and if he wins, repeal should come easy) he promises that instead of Obamacare, all we need is a few tweaks as well as more market competition.  

His bullet point goes:“Competition drives improvements in efficiency and effectiveness, offering consumers higher quality goods and services at lower cost.  It can have the same effect in the health care system, if given the chance to work.” 

Given a chance to work? 

Competition failed.  Health insurance as a product failed.  Once offered by most of the large life insurance companies, since the mid 1980s most (all?) have dropped out.  The reason is not state meddling, but simply that health insurance costs are not predictable in the manner that other losses are.  If state meddling was the problem, then insurers would have simply kept themselves out of the difficult states – they do this now - especially in property casualty insurance.  The big insurers deal with state variation all the time – nope, state meddling, as annoying as it is, is not the big issue that is solved will improve costs.  The problem was the inability to predict costs and set profitable rates.

So Mitt (and conservatives as a whole) are ignoring history.  As one learns in a basic economics class, not all goods are services respond the same way to price changes.  With most goods, the lower the price, the more you sell, if prices go higher, you sell less .   But prices for goods like cigarettes are less elastic; that is, those who smoke will buy almost as many even after a large price increase.  Water is similarly price inelastic.  In the advanced economies, water is subsidized, but to see how the market works when it is not, note that in the developing world, poor people in dry areas will spend much of the day walking to and from a water source – their day of walking for water is the equivalent of paying any price for water.  Medical care is probably the least elastic of any service or product.   There are exceptions, but we will mortgage our homes for the hope of saving the life of our child (for example).

Another matter that makes competition problematical is the different knowledge from seller to buyer. For most products, we are the expert.  An example is with TVs.  I’ve owned many and used more.  When large flat screen TVs came out, I was interested.  After some research, my wife and I elected to buy a Sony (expensive, but it appeared to be just what we wanted).  After using it for two months, we bought a second.  After a year or so, my son bought one of his own, and a Sony like ours.  We knew all the ramification of our purchase and chose as informed consumers.  Similar knowledge inform my purchases of mundane items like food.  I buy Lays potato chips – never Wise.  I buy Barry’s (Irish) teas, not Tetley.  And so on.  

Even with a purchase as expensive as buying a car, I have fair knowledge both of price and value.  Having owned cars ranging from a 1965 Chevy Nova to a 1978 Nissan, I have settled on Subarus.  My son still uses the 1993 Subaru we bought for him in 1999. 

But what about medical care? 

Examine the following real scenario.  You have a sick heart and are told you can try diet and exercise (with the exercise being guided cardiac rehabilitation) or… instead implant a defibrillator.  The device is far more expensive than diet and exercise and – for your level of disease - the outcomes are essentially the same.  One real customer was Dick Cheney and he picked having the defibrillator implanted.  Eventually the device failed anyway, and his heart pumping mechanism was replaced with an impeller.  Eventually, he moved on to a heart transplant.   What would you do?

Even less drastic matters are complicated.  Do you need regular mammograms?  Pap tests?  PSAs (for the guys).  If yes, starting when?    And what next if the results are equivocal?

Our imperfect knowledge leaves us relying on the specialist.  By the way, a similar imbalance in knowledge between buyers and sellers fueled the financial collapse of the last few years.    (This is a complex issue, but it seems that sellers of mortgage-backed securities knew that the assets were riskier than the AAA ratings they were given.) 

Then we have the issue of high cost medications.  Patents protect drugs in their early years, but even if patents may be reasonable, they lead to abuses (and by the way, patents are not a right, they are a privilege).  Let’s use the example of Avastin.  Formulated for cancer treatment, it costs $50 per dose.  Reformulated to treat macular degeneration, the cost is $1500.  The drug is tricky to produce, but the price difference is also the result of its patent (so protected price) and the desperation of patients who will do almost anything to save their eyesight. 

Hmmm, so given our imperfect knowledge and the abuses of patent price protection, what does Mitt want to do?

Rely on the market. 

He also adds on a bunch of other bullet points, some reasonable and some worthless.  But big picture, he offers nothing.

Any better ideas?

And remember, lots of the easy stuff has already done.  For those too young to remember, decades ago a woman stayed in the hospital for a week when she delivered a baby.  And if you needed tests (even a simple blood test) you went to a hospital.  Same with x-rays or ECGs or pretty much anything.  As costs rose, insurers pushed to cut hospital stays, also to make many procedures out-patient.  And as for tests, all but the most complex are done outpatient.

Conservative believe that if we shared more of the cost, that we would consume health care more carefully, but for the big drivers of health care – technology, expensive new drugs, or complex procedures, I don’t see how.  (If you do, post a comment!)

By the way, medical costs have stabilized a bit during the downturn.  A few conservatives think this is the result of wiser spending driven by new high deductible insurance plans.  I don’t agree – see above.  Remember, medical spending skews with income (trust me on this one). The more you earn, the more medical care you consume.  Thus, since incomes are down with the economy (fewer raises, less overtime, lower bonuses) it makes sense that medical expenses are flattening. So much for thinking cost sharing will improve expenses.

Here are a few suggestions for controlling costs.

Again, remembering that we have already picked the low hanging fruit, the next step is using more evidenced based medicine.  For the average insured patient, we need to return to something like the 1990’s HMO model.  HMOs may have been a pain in the neck, but they started to work, before the politicians and talking heads ganged up to make us believe that we could pay for care in some other way. 

Under an HMO, treatment of hypertension starts with tried and true medications.  If borderline, you might even start with diet and exercise.  For elevated cholesterol, a similar approach is tried.  The big drug manufacturers don’t like this, but the new medications rarely outperform the old.  Also no specialist without a referral (emergencies excepted).  If a non surgical approach exists – as it does for minor knee pain for example, try that first.

After the challenge to HMOs, what insurance companies did was to except the inevitability of higher costs – they simply kept raising premiums.   Oh, if you think health insurers make a lot of money, ask yourself, why did most insurers leave the industry?  (Yes, most of the old-line insurers stopped offering coverage.)   Health insurance is a risky business.  If you are a bank or holder of assets and want to add insurance to your stable of offering, you will do far better by adding a life insurance subsidiary than by trying to offer health insurance.  (In fact, no one is going into the health insurance business.) 

The largest chunk of our health care dollars are spent on the sickest patients.  These include the disabled poor and the elderly.  A consensus is forming that for these, we need to replace fee for service with case management, and payment for outcomes. 

For the poor especially, there are ample examples of using patient education to improve the patient’s health.  For example, an obese diabetic can be encouraged to take walks.  A mother with an asthmatic child can be taught to remove carpets and drapes.  These simple ideas have been shown to reduce the need for care on chronically ill patients.  It does not always work, but overall it reduces costs and improves care.   For the elderly the cost savings comes from accepting the inevitability of death.  So for a 84 year old, do we really need to do a colonoscopy?  Unless we have major symptoms?  Or when a 90 year old has a stroke, just how much rehabilitation is effective?  (Often very little!)

The conservative alternative of replacing Medicaid with block grants to states, and Medicare with vouchers may reduce federal spending, but we simply do less, and do that poorly. 

Is that is? 

No.  We need a national plan and one with government protections against litigation.  For example, if Medicare denies payment, the alternative is not to bring in a high priced lawyer to fight the insurer (this is how Jon Edwards made his money).  The federal government has the power to make decisions that are essentially final.   Private insurers do not. 

By the way, turning matter over to states means that we will need 50 state battles over the rights of insurance consumers.  Sorry, this will only continue the madness we have now. 

So, improve Obama care, or abandon it in favor of a failed marketplace? 

How you answer depends on where you are in the continuum.  If you are wealthy and likely never to need help, or young, have a job and still think yourself invulnerable, you may delude yourself into believing that the system works – and that your good health or good fortune is the result of your hard work.

For the rest of us, many have learned of our own vulnerabilities.  We did after our son was born.  We eventually defaulted on the balance of his hospital bill.  We went into debt collection, and later on settled with the collector.  Oh well.  Few of us have not had some event in our lives that showed us why we must work together as a society.  No, we can’t “solve” poverty.  But we can come together to make sure that most of us have food, a roof over our heads and get medical care when needed.  This was the lesson of the progressive era, and one amplified during the New Deal.  That there are sometimes excesses should only make us try harder. 

 The market too has had its excesses.