Thursday, April 17, 2008

Our health care delivery system

Those who live in Southern California are familiar with the 105 freeway, and may also know that this freeway is sinking because of underground water (well, sort of..). Fortunately, our tax dollars are at work, and the government agency responsible for Highway upkeep is aware of this problem. They pump the water out from under the freeway, thereby ensuring that the freeway does not sink like the Titanic.

Regular readers of LA Times may recall an incident reported in 1998 (I think) where the Highway department noticed that the water table under the freeway was rising, so they deployed additional pumps to remove water faster and faster. But the water table kept rising, so they had to deploy even more pumps. Finally, after many rounds of adding more pumps, they were able to stabilize the water table at a "safe" level. The furious pumping went on for months ~ and then they got suspicious: Where was all the water coming from ?

Well, as it turns out, there was another government agency (the water board) tasked with maintaing the water table, and they were worried that the water table was falling. So they were pumping water into the ground. And when the highway department added more pumps to remove water, the water board noticed a decrease in the water table, and added more pumps to bring the water table back up.

Both sets of pumps were working furiously, but all the effort was wasted. A government led by Robert Mugabe, which would probably have totally ignored the problem, would have accomplished the same with 100% less effort.

That, in a nutshell, is the problem with our health care delivery system.

There are 3 parties in this: the consumer (you and me), the noble Doctor (who is never to blame), and the insurance companies (evil). All three of us work very hard to pass on the cost of health care to the other two parties. Consequently, we spend a lot of energy arguing about who should pay for the healt care. And in the end, the energy that we spend arguing about who should pay, also adds to the cost of the health care delivery system, and is paid for by the consumer... in one form or another.

Consider the insurance companies Their main objective is to make money. They do this by transferring some of the cost of health care from the "insured-sick" to the "insured-healthy", and by pocketing some of the money being transferred as a transaction fee of sorts. If they can increase their transaction fee, then they make a higher profit. They can increase the transaction fee by increasing the money they take from the "healthy-insured" and reducing the money they give to the "sick-insured". They can accomplish this only if they setup an elaborate buerocracy that disputes and contests all the payments they have to make.

Let us now consider the Doctors Their main objective is also to make money. They do this by treating their patients, and charging the insurance company for that service. They can make more money if they can charge more for their services. Since the insurance company likes to dispute and contest all claims, and have setup an elaborate buerocracy to do so, the Doctors are forced to respond with their own layer of buerocracy. Thus, we have no setup a duelling layer of buerocrats to contest all the charges.

Now let us consider the consumer (you and I) Our main objective is to pay as little as possible for adequate health care. Since that is not possible, we have settled on the secondary objective: we would like a system where we have the appearance of paying as little as possible, even if we actually pay a lot. We do this by taking out the cheapest form of health insurance (if at all), or by insisting that employers pay for it, or by being uninsured and taking our chances. Since we have the appearance of paying very little, we have no incentive to reduce costs ~ we do not shop around for cheaper Doctors, for instance. This makes the Doctors and the insurance company happy ~ they can make more money.

Thus, the system works for all concerned:
(a) For those that are insured, and get sick, health care appears to be cheap.... for the most part, we do not have to pay for it out of pocket.
(b) For those that are insurced, and never get sick, health care is free because the cost of insurance is paid by the employer
(c) For the insurance company and their employees, this system creates a lot of jobs, and the possibilities of decent profits.
(d) For the Doctor, the system rewards those who can spend as little time as possible with each patient, and charge the same amount of money. Since the customer does not make the payment (which is unlike any other goods/service in the world), there can a dichotomy between the level of service, and the amount of money they can make.

Congratulations, we have created the worst possible health care delivery system.

Consider the alternatives:

(a) The free market system This system would eliminate the insurance company (and any other agency that would serve a similar purpose). Customers (you and I) would directly pay the Doctors for the services they provide to us. This would, inevitably, lead to extreme situations where the rich would get better health care and the poor die for want of prescription medication, for instance. The rich always get more, but a free market system would really bring that to the fore. The advantage of a free market system is that it would reduce the overall cost of the health care delivery system by eliminating several layers of buerocracy, and by incentivizing the customer to shop for "cheaper" Doctors.

(b) The single payer system This system would reduce costs by eliminating the uninsured ~ everybody would pay a little bit, thereby reducing the costs for those who was currently paying. It would also ensure that everyone is guaranteed a basic level of health care ~ fewer people would die because they could not afford health care. However, you would still have those dueling layers of buerocracy (Doctor, consumer, and the "single payer").

The Republican proposal is headed towards a free market solution, and the Democratic proposals are headed towards a single payer system. My personal preference is for the single payer system.

But anything (even the free market approach) would be better than the current system ~ the current system combines the worst aspects of both worlds.

My $0.02

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