Tuesday, December 05, 2006

Health care and capitalism

A while back I listened to this podcast interview from the Glenn & Helen Show, about health care. They spoke to Dr. David Gratzer, who is the author of The Cure: How Capitalism Can Save American Health Care. I thought it sounded interesting, so I bought the book and it just arrived in the mail. Some of the author's arguments are summarised in an editorial he wrote for the Washington Post:
How to employ market reforms? Here are five simple steps.
  • Make health insurance more like other types of insurance. Health savings accounts, which passed as part of the Medicare reforms of 2003, were an important first step, separating smaller expenses from high-deductible insurance, for catastrophic events. However, the legislation is overly rigid. Congress must expand and revise the structure of HSAs, and level the tax playing field for those not covered by an employer plan.
  • Foster competition. American health care is the most regulated sector in the economy. The result? A health insurance policy for a 30-year old man costs four times more in New York than in neighboring Connecticut because of the multitude of regulations in the Empire State. Americans can shop out-of-state for a mortgage; they should be able to do so for health insurance. Likewise, many laws intended to promote fairness end up reducing competition and thus innovation. Congress should reconsider such laws, beginning with the federal Emergency Medical Treatment and Active Labor Act (EMTALA).
  • Reform Medicaid, using welfare reform as the template. Medicaid spending is spiraling up, now consuming more dollars at the state level than K-12 education. Like the old Aid to Families with Dependent Children, part of the problem stems from the fact that the program is shared between both the federal and state government -- and is thus owned by neither. Congress should fund Medicaid with block grants to the states, and let them innovate.
  • Revisit Medicare. Back in the late 1990s, a bipartisan commission approved a reasonable starting point for Medicare -- junking the price controls, and using the Federal Employees Health Benefits Plan as a model. Elderly Americans would then have a choice among competing private plans. Given that the unfunded liability of Medicare is four times greater than that of social security, the time is right to experiment with this idea.
  • Address prescription drug prices by pruning the size and scope of the FDA. It costs nearly a billion dollars for a prescription drug to reach the market, and roughly 40% of that is due to safety requirements. This is effectively a massive tax on pharmaceuticals. With new technology and focus, it would be possible to update the FDA, drawing from President George H. W. Bush's experiments with contracting out certain approval steps to private organizations, which boasted lower costs and faster approval times.
None of these steps would be dramatic but all are important. Congress also slowly needs to weigh bigger issues: how to shore up Medicare, create portability of health insurance, and foster a market for medical innovation.
I highly recommend the podcast. During the interview Helen makes an interesting point: most sick people would prefer the timeliness and quality of treatment available in the US, so it almost seems that state-run systems are popular mostly because a strong majority of people are healthy (and it gives them a fuzzy feeling that "everyone gets taken care of"). In other words, in most Western countries the healthy majority imposes socialized medicine - which is notably fraught with rationing and forcing old and sick people to wait for even the most basic care - on everyone (other than those who can afford to sidestep the sometimes fatal queues: see here, for instance).
Another point Dr. Gratzer makes in the podcast (and I presume in the book) is that health care (which in the US is often part of the benefits offered by one's employer) should be decoupled from employment. In this regard, I recently saw an interesting article in Fortune which proposes a way to underline the problem:
In 2003, back when Continental Airlines (Charts) was losing its shirt, Gordon Bethune, its salty CEO, got sick of hearing that upstarts like JetBlue had created a new business model that would bury the industry's dinosaurs. So he had his CFO recompute Continental's earnings assuming the company had (like JetBlue) a much younger workforce - and thus much lower health, pension and related costs.
Presto: Earnings went from a reported $388 million loss to a $420 million profit, a swing of $800 million. "It was all bull," Bethune says now of the idea that the economic laws of air travel had been repealed. "If we could fire all our workers every five years, we'd look good too." Though Bethune cooked up what I call "age-adjusted earnings" simply to fend off attacks on Continental, the mammoth profit swing his analysis unearthed has big policy implications.
To most of us, the idea that a firm's success could depend so greatly on the youth of its employees feels crazy. Yes, GM and its ilk may have gotten themselves into trouble with generous giveaways when the good times rolled. But a sane nation would assess business performance separately from some socially determined sense of what makes for decent health and pension coverage for citizens.
A small but surprisingly powerful way to enlist business in this conversation would be for the Dems to turn Bethune's creative bookkeeping into a new rule for public companies: In addition to the usual earnings reports, require firms to issue an "age-adjusted" income statement that shows what earnings would be if the company had, say, average-aged workers.
Why would this break through the clutter? Unlike (sensible) new accounting rules that will force firms to put health and pension liabilities on their balance sheets, age-adjusted earnings would create a media hook that becomes part of every quarterly release. Imagine if TV anchors were saying things like "Today search giant Google reported fourth-quarter earnings of $600 million - though on an age-adjusted basis it was $150 million less."
The columnist's goal is actually to generate the necessary political capital to implement state-run health care, but it seems like a useful tool to me regardless of what the intended goal is: maybe it would even help to instigate more market-oriented reforms.
For further reading on health care, see this series of posts at Asymmetrical Information.

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