2006 December
Fixing California's Healthcare
==============================
A recent newspaper editorial [1] proposed to fix California's
healthcare system, which is an excellent idea! To set the stage they
compared the US against 5 other countries:
France Japan Switzerland Germany Canada US
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Overall rank 1 10 20 25 30 37
Responsiveness 16 6 2 5 7 1
User Satisfaction 65% na na 58% 46% 40%
Cost per Capita $2903 $2139 $3294 $2996 $3003 $5635
Percent of GDP 10.1% 7.9% 10.4% 11.1% 9.9% 15%
Infant Mortality 4.0 3.0 4.7 4.2 5.4 7.0
Life Expectancy 79.4 81.8 79.0 78.4 79.7 77.2
In summary: The US ranks highest (which is lowest quality) as measured
by the World Health Organization. While the US has superior
responsiveness, the results on other aspects are worst. In addition,
the costs are the highest.
The editorial provided also descriptions of the different ways these
countries have organized their healthcare systems - see the Appendix.
These descriptions were given to inspire the creation of a new system
for California. It is, however, prudent to step back and get a better
grip on the actual problems before venturing solutions.
The topic of restructuring healthcare always brings up the issue of
the uninsured: 7M in California, 46M in the US. To what extend are
they a real problem? It is a mixed group of non-seniors that are
deliberately avoiding paying premiums, that are in between jobs, that
are illegal, etc. Their financial burden on society, as a group,
appears relatively low in comparison with the other groups (2002
data):
Population segment Size Total use Average use per member
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Total population 280M $1400B $5.0K
Medicare & Medicaid 41M $442B $10.7K
Insured 194M $883B $4.3K
Uninsured 45M $125B $2.8K
It helps also to have a closer look at the $2.8K/year consumed by
the uninsured; here the payment sources:
Amount Payer Per Uninsured
------------------------------------------
$51B previous insurer $1100
$33B patient $733
$35B Federal & State $778
$6B ?? $133
This suggests, to us at least, that the issue of the uninsured,
while not negligible, is a second order problem. That is, one can
investigate solutions that addresses major concerns and in a later
stage adjust a candidate solution to deal with the uninsured.
What is the problem?
--------------------
Getting the uninsured problem out of the way clears the table for the
identification of the real problems. Going back to the data in the
international comparison, we see at least three problems:
- quality
- costs
- the combination of quality and cost
The last problem is truly puzzling. Britain devoted in 2000 only 7%
of GDP to healthcare and it realized that its quality was not
satisfactory: low cancer survival rate and not enough preventative
care. They raised their expenditures in 2003 to 8.5% of GDP. Raising
the expenditures in the US to improve the quality is however a
doubtful action given the already exorbitant resources devoted to
healthcare. This suggests having a closer look at what the real
problem is behind quality and costs.
Quality
-------
The quality issue shows clearly at the two end points of life: highest
infant mortality and lowest life expectancy. This suggests that
medical practices are deficient. This conjecture is supported by
recent reports that many patients die due to diagnosis and medication
errors. Still it is premature to blame only the medical
establishment. We cannot rule out that the US gene pool is defective
in comparison with other nations. In addition, US life style can play
a role as witnessed by the obesity epidemic. The higher infant
mortality rate still needs closer scrutiny for its cause.
Whatever the causes for the quality problem, it would be useful to
install in-out performance tracking across the medical "machine".
Here an analogy with the nation's under performing education sector.
Finally, after much resistance, the nation has instituted testing of
students and thereby of schools, school districts, etc. Although this
testing does not include measuring the in-flowing cognitive skills of
children (the native IQ), it is a start to understand what is going on
and it allows measuring the impact of changes. The Netherlands has
made a start in the medical domain: each physician monitors a
colleague. A retired US surgeon plans to publish in his memoir that
during his career no one ever measured the success rate of his
surgeries, which he considers in retrospect unacceptable.
California could, and should, certainly take the initiative to
prescribe performance tracking throughout all medical care delivery
levels. Results should be made available to the public so that
"voting with the feet" becomes possible. At this point the public
learns only after the fact about calamities by reports in the press.
Quality would plausibly increase with performance tracking. If not,
the tracking system would tell us more about what is really going on.
Quality control is crucial and pervasive in most industrial segments.
It is long overdue in the medical establishment.
HMO/PPOs approvals for medical procedures can be slow. Their impact
on the quality of care must be tracked also.
Costs
-----
The cost problem requires careful analysis, as suggested above in the
table that decomposes the yearly consumption rate for the different
constituents in the population. Most remarkable is the consumption
rate for the Medicare & Medicaid category. Candidate explanations
are:
- Exorbitant costs are incurred in the last year of a person's life
due to a lack of guidelines for sensible care, which can lead even to
detrimental care (if a hospital does not provide possible care, they
run the risk to be sued)
- Medicare & Medicaid is an entitlement paid from taxes. Politicians
excel in creating entitlements, but have no aptitude to propose and
install restrictions, hence the expenditures have simply taken off
during the last decades (5% of GDP in 1950, 16% today and some predict
30% in 2050)
Whether or not these explanations are the full story, Medicare &
Medicaid are not California's problem. It can even be argued that
California benefits from the "absurd" reimbursements that Kaiser,
HMO/PPOs, etc. receive from the federal government.
Administrative overhead in healthcare appears a pervasive problem in
the US and thereby also in California. It is rumored that around 30
cent of each healthcare dollar is administrative overhead incurred by
HMO/PPOs. If confirmed, California and the US have a golden
opportunity to squeeze a substantial amount of fat out of the
healthcare sector.
The Appendix has thumbnail descriptions of the organizations of
healthcare in the different nations. Based on the preceding analysis,
the question is whether a system can be installed in California that
substantially reduces total costs by, among others, decreasing
administrative overhead (and that does not decrease the quality of
care). While the other nations have lower costs and higher quality in
common, their organizations appear to have nothing in common (except
covering the whole population). Hence emulating simply the system of
another nation appears unfeasible.
Below we distinguish fixes respectively at the supply and at the
demand side. At the supply side we put the parties that receive money
from healthcare services (including HMO/PPOs). At the demand side we
have the parties that pay money, which due to historical developments
are not only the actual consumers.
Supply side candidate fixes
---------------------------
Since we cannot simply copy a system from another country we must
"concoct" a new system based on a careful analysis of the status quo.
Here some miscellaneous, preliminary considerations:
- Develop guidelines so that physicians need not (or only infrequently
need to) obtain approval for procedures from HMO/PPOs. This would
improve productivity for both parties.
- The current system has typically four parties: employees, employers,
insurance companies, and healthcare providers. This convoluted
arrangement precludes for sure market forces between care providers
and care consumers. Removal of the employer party, a questionable
historical precedent anyway, would reduce the overall complexity and
could open the door for market forces.
- California could prescribe caps on administrative overhead. For
example via pricing limits on what HMO/PPOs can ask for an insured
person. Tightening these limits would translate also in price
pressures on the healthcare providers. Banks were forced to limit how
long they could "sit" on a check. Health Insurance companies could be
arm twisted similarly. [Newt Gingrich entertained his audiences with:
Getting money out of an ATM anywhere in the country may take 3
minutes. Getting money out of an HMO/PPO can take 3 months.]
Instituting pricing limits is easier said than done. HMO/PPOs are
spoiled by the largesse of the federal government; an HMO receives
$9,000/year from the feds for an enrolled Medicare beneficiary in the
Bay Area. HMO/PPOs could fight back by refusing doing business with
non-seniors or even leaving California.
- A tracking system for quality control - as discussed above - can be
used also for measuring productivity and efficiency. California could
and should mandate a range of metrics to be published regarding
price-performance that complement quality metrics. These metrics
would help HMO/PPOs to better negotiate contracts with hospitals,
physicians and physician groups. Similarly California should demand
from HMO/PPOs that they provide a collection of standard programs so
that the public can do better price comparisons.
- The introduction of eHealth records has been discussed now for
several decades. The federal government has demanded that these are
introduced within >ten< years: a great opportunity for California by
insisting they should be in place within, say, three years -
preferable the version that supports machine diagnosis and that
inferfaces properly with billing systems. This would help quality as
well as costs and would give California a lead in eHealth.
Demand side candidate fixes
---------------------------
While supply side is clearly "difficult", the >demand< side is way
more controversial and painful. How to empower consumers so that
market forces create price pressure and push up quality as well?
The US is still ambivalent on whether healthcare is a personal
responsibility (individual version) or whether an individual has a
right to a set of basic services, beyond access to emergency rooms
(social version). An individual having lifestyle choices suggests
that the individual version is appropriate. An individual born with
genes obtained by fate (assuming a compassionate society) suggests the
social version to be appropriate. The Federal Government straddles
these positions:
- Non-seniors have the right to opt-out of being insured
- Seniors obtain basic healthcare services for free (and have the
right to select and pay for additional services)
Whether or not California opts (for the non-seniors) for the
individual version (with no minimum insurance required, while
guaranteeing, for example, no cherry picking by insurance companies)
or alternatively opts for the social version, a key issue is >who< is
going to pay for either system. That is a good question, but we
better ask who >can< pay?
Since healthcare services are consumed by people, the most logical
party is the (non-senior) citizens. This would immediately create
strong market forces. However, this choice gets in trouble right away
with the "social" version: the uninsured have by and large not the
ability to pay. Those uninsured include the low skilled employed,
where the employer simply cannot effort healthcare benefits.
Employers are currently reducing healthcare benefits due to - from
their perspective - absurd increases of premiums: four times the
inflation rate over the last six years. This trend increases the
percentage of the uninsured.
Things are actually way worse. Consider the stats:
- The bottom 50% does not pay federal income taxes
- The bottom 50% owns less than 6% of the nation's assets (after 100
year of progressive taxation)
- The bottom 95% pays only 50% of the federal income taxes
While the US is supposed to be the richest nation - as touted tiredly
by the press - we must, sadly, acknowledge that paying for healthcare
premiums is not realistic for sizably many citizens. In addition,
there are illegal immigrants in California. Their number is anybody's
guess: ranging from 3-6M, hence somewhere between 8-16% of the
population. While they are good consumers of healthcare via the
Medicaid program, obtaining premiums from them is also not very
realistic.
Designing a system where employers are forced to become the major
payers is unlikely to succeed. Small companies would be out of
business. Plus there is a "philosophical" issue. An employer offers
benefits voluntarily, for example as an enticement to attract better
employees. Making healthcare benefits mandatory would open the door
for other entitlements: an employee's need for housing,
transportation, healthy food, entertainment, vacation, etc. An
attempt to force employers to become responsible for the healthcare
premiums of their employees will trigger extensive lawsuits - as we
have seen in Maryland where an attempt to force Walmart into mandatory
healthcare benefits was blocked.
The state of California becoming the paying party (from taxes) would
emulate the role of the federal government for the senior citizens.
The Medicare expenditures being out of control - at least from the
perspective of the comparison with other nations - raises the question
whether California can do better: avoid spiraling costs, politicians
that think up new entitlements, heavy lobbying from HMO/PPOs and
healthcare providers, etc. and whether California has the ability to
say "NO". The federal example suggests that California should >not<
be in charge of the healthcare system.
In short, we cannot find a good party that would pay for a new system.
Hence a mixed solution will have to be found.
A solution should not make the current situation worse in which the
average family is not able to support itself without subsidies.
Consider a typical family of four with two children in the public
schools. Based on the above statistics their healthcare care
consumption is $20K, while the society contributes $14K for their
children in public schools. Obviously this family is not paying at
least $34K in taxes. A recent AARP article calculates that the
average tax payer pays $3K less than what is obtained in services.
The consequence, over time, of well intended, compassionate,
unconditional benefits has been unexpected, negative side effects:
here the lack of self sufficiency of the average population.
Clearly we cannot avoid at this point subsidizing the consumer,
but we should strive increasing the self sufficiency by giving the
customer leverage.
Here a devil's argument proposal for healthcare to radically empower
the public in a draconian way:
Driving without liability insurance is illegal. California could
insist similarly that residing in the state requires a minimal
insurance with a real penalty in case of non-compliance. The state
could offer its own cut rate insurance rates. Those that could not
afford paying premiums would have to apply for assistance, which could
be made unpleasantly tough. Emergency room service would be provided,
but subsequent non-payment would lead to a one way trip to the local
jail. (Additional benefits: illegal immigration would reduce to a
trickle; people would leave thereby alleviating the state's
overpopulation.)
The trick here is that the market works because the public pays
premiums. This extreme, unpalatable proposal still highlights the
nasty problem how to deal with those that, while not insured, require
extensive services. Freeloading is to be blocked, but the total
inability to pay insurance premiums cannot be ignored. It requires
active intervention by the state.
Here a less controversial proposal, although still a difficult sell.
The idea is to give the public leverage via the choice of deductibles,
co-payments, and programs with higher premiums. People with good
lifestyle choices could exploit programs with high deductibles and/or
co-payments, while folks with bad genes would still be covered after
paying the deductibles or paying large co-payments or enroll in
programs with way higher rates. This arrangement would be compatible
with the survival of the fittest principle but could still raise the
ire of extreme compassionates.
In this context we cannot ignore another unpleasant factoid: 20% of
the population consumes 80% of the services. Current premiums
constitute yet another transfer mechanism from the lucky to the
unlucky, which will be frowned upon by those that support the
individual version and will be warmly embraced by those that support
the social version. Negotiating a trade-off for premiums that
reward those with good lifestyle choices and for other premiums that
do not penalize too much those with bad genes into a win-win
compromise will be an outstanding achievement to be rewarded with
highest honors.
Kaiser has actually created programs with varying premiums and varying
deductibles and co-payments, which suggests that the society is
actually moving towards the individual, self responsible version of
healthcare.
Bottom line
-----------
Quality tracking and continuous quality improvement - used everywhere
else - is finally to be instituted at all levels in the medical
universe. Such a tracking system will help also to streamline away
systemic inefficiencies to attack the absurd high level of US
expenditures (16% of GDP versus 7% in Japan).
Proposals to fix the cost side of healthcare at the side where money
is earned are relative easy in comparison with the side where money is
paid. Excessive administrative overhead (by HMO/PPOs) is the
proverbial low hanging fruit where easy savings can be achieved.
The population is currently heavily subsidized, which inhibits simple
market forces. While we should make the population more self
relient for healthcare, the current payers should aggressively demand
accountability from the health maintenance organizations and from the
underlying providers.
California taking the lead in fixing healthcare, with a broad agenda
as outlined here, is indeed to be pursued vigorously. The nation
would benefit as well.
Dennis de Champeaux PhD
President of OntoOO that provides www.HealthCheck4Me.info for people
to help themselves
APPENDIX
This appendix describes how six countries, among which the US, have
organized their healthcare systems.
France: Multi-payer system with mandatory regional "sickness
insurance funds" under joint control of employers and
unions. Within covered services, access to care and
specialists virtually unlimited. Primarily funded by
5.25% tax on income. More than 75% of residents receive
additional private insurance from employers for care not
covered by the national system.
Japan: Network of providers creates universal coverage.
Primarily employer-based, although separate systems
cover the elderly and the unemployed. Private hospitals
and physicians deliver most care and receive identical
fees. Funded through employer contributions and
employee-paid premiums.
Switzerland: Consumer-based. Requires individuals to purchase
insurance from a variety of providers, with government
subsidies for the poor. Providers negotiate fees with
insurers subject to government approval. Insurers
profit mainly by offering supplemental insurance.
Germany: Social insurance network provides compulsory medical
coverage through occupation-based "sickness"
funds. Primarily employer-based. Funded by payroll
deductions and employer contributions. Supplemental
insurance available for care by public or private
physicians. Networks of regional payers and providers
negotiate prices and services.
Canada: Publicly funded, single-payer national health insurance
based on need rather than ability to pay. Costs and
availability of services set nationally. Medical
treatment primarily through private doctors, clinics and
hospitals. Consumers and employers can purchase
supplemental private insurance. System funded by
corporate and personal income taxes.
US: Private system except for poor and elderly. Employers
can purchase insurance and employees can purchase
plans. Government programs provide care to the poor and
the elderly, but many working people lack insurance.
Services provided mainly by private physicians and
hospitals, but public hospitals and clinics provide
emergency care for the uninsured
Note:
[1] San Jose Mercury News editorial (2006 September 10)