Friday, March 15, 2013

Goodman's "Priceless"

John Goodman is known as the father of Medical/Health Savings Accounts (MSA's/HSA's). He co-authored a huge book with Gerald Musgrave in the mid-1990s (in response to the Clinton health care plan) called Patient Power (large or small version), which ably described the same sort of problems we have in health care (HC) and health insurance (HI) today. They proposed HSA's as part of a politically-attractive solution to the problems we faced and still face. Good/bad news: HSA's have been embraced in DC, but slowly and only partially. Even so, they have been somewhat helpful-- most notably, by helping to change the culture of consumer and producer behaviors in the market for HC and HI.

Goodman is also the editor of the NCPA's Health Blog-- a daily-updated must-read for those interested in public policy, particularly health care. 

Now, Goodman has written Priceless: Curing the Healthcare Crisis. I'd say his primary thesis is that the supply side of HC must be unleashed to make progress in this arena. It doesn't take a PhD to understand this: if one tries to increase "access" and enhance demand-- without increasing supply or even, working to reduce it-- the results will not be an increase in HC, but rather an increase in the money costs of HI and an increase in at least the non-money costs of HC.

As Goodman notes, "In other sectors, needs to be met and problems to be solved are the fertile ground from which entrepreneurs emerge...There are literally thousands of entrepreneurs in HC...[But] they run into three major barriers: insurance companies, employers, and government." (6) Beyond that, government activism tries to replace supply-side market activity with demand-side regulations and bureaucracy: "Successful innovations are produced by entrepreneurs, challenging conventional thinking-- not by bureaucrats trying to implement conventional thinking." (74) Goodman seriously considered "Doctor Power" for the title of this book-- and fittingly, along the way, Goodman tells the stories of some of these entrepreneurs (e.g., 6-9). 

Putting it another way: "Under the conventional approach, [providers] ask 'How can I squeeze more money out of the payment formulas today?' My answer is just the opposite. Under the approach I recommend, all these people will [ask] 'How can I make my service better, less costly, and more accessible to patients" (5)

Another key theme is the distinction between price and non-price "rationing" costs of HC. "The orthodox approach to health policy is obsessively focused on the burdens of price barriers to care, and at the same time, inordinately oblivious to the burdens of non-price barriers." (22) From another angle, Goodman notes that improved "access" to HC through HI is not necessarily equivalent to receiving more HC (especially in light of the point above). 

If non-price rationing costs increase, the first thought would be that this should be advantageous-- at least relatively speaking-- for the relatively poor, given their lower opportunity cost of time. But there are two problems with this. First, improved HC access is not meant for the poor (who already have access through Medicaid), but for those the lower-middle and middle classes-- whose op costs of time can actually be higher (given the prevalence of single-parent and dual-income households). Second, Goodman notes that those with more resources are usually able to navigate complex/jacked-up systems more effectively. He relays data from the recession as a natural experiment which underline these concerns (107-108).

Goodman spends a lot of time on medical tourism-- both within and between countries-- given what it says about allowing markets/entrepreneurs to carry a lot more weight and to indicate whether the market is "going". For example, he asks some questions related to tourism (15): Why does a Canadian get an American knee replacement for half of the price paid by Americans? Why do fees paid by insurance vary by three-fold for knee replacements for Americans? Why is the price of a knee replacement for dogs-- requiring the same skills/technology-- one-sixth of the cost? (He expands on this by discussing non-surgical hospital amenities for humans v. dogs-- p. 15-17.) Goodman also talks about MediBid which allows domestic tourism for relatively inexpensive medical procedures, for those willing to pay out-of-pocket (17-19)-- and covers another set of examples later (104-105).

Goodman also deals with two comparisons that get a lot of press.

First, on Canada, Goodman notes that it is has one of three single-payer HC systems in the world, along with N. Korea and Cuba (48). What Canadians "have is not insurance in any real sense of the word. What they have is an imperfect system of free care." (121) He also notes that uninsured Americans get as much or more preventative care as insured Canadians; low-income whites in America are in better health than those in Canada; minorities are "treated better" in America than in Canada; and people in our ER's get treated more quickly with better results (48). What's the big deal? Proponents "do not like it because of any particular result it achieves. They like it because they like the process." (48) Sounds like statists and people who lack policy imagination. (See also: K-12 education.)

Goodman asserts that the differences between Canada and the U.S. are less than both proponents and opponents perceive-- he estimates it at 20%, since third-party payers pay the vast majority; pay by task; it's free vs. nearly free to consumers. People typically focus on the 20% and ignore the 80%. "In both countries, normal market forces have been completely suppressed. HC in both places, therefore, is bureaucratic, cumbersome, wasteful, inefficient and unresponsive to consumer needs" (91). People believe there are larger differences because the private sector is more involved with the money in the U.S., but given the market power, third-party involvement, and government overlord, it's a distinction without much of a difference. "Differences in health outcomes are far more related to lifestyle, culture, and personal behavior." (93)

Second, on the frequent claim that Medicare has lower admin costs than private insurers-- 2% vs. 10-15% (p. 82):

--Much of Medicare is administered by the private sector; and all private sector activity is heavily regulated and subsidized by the govt. So, the distinction is not nearly as impressive as it sounds.

--When such distinctions are made: Private includes the cost of marketing and selling; public does not include the cost of tax collection.

--From studies and Medicare's own accounting-- with all costs included, Medicare costs more. They are only lower when expressed as a percentage, but since Medicare deals with the elderly, a far larger denominator makes the Medicare number look more impressive than it would in an appropriate comparison.

--Ironically, Medicare may spend too little on admin, given the pervasiveness of (difficult to measure) fraud.

Some miscellaneous points: 

1.) Goodman provides some interesting numbers from 2008, in support of the "dynamics" of health care spending-- that it tends to be relatively few people doing the vast bulk of the spending over relatively short periods of time (33-34): 1% account for 20% of spending, but the next year, 80% of those drop out of this category. 5% account for nearly 50%; 62% dropped out of this category the next year. 10% account for 64%; more than half dropped.

2.) On the controversial contraception mandate issue, Goodman notes that the government could provide services for the few who cannot afford them-- adding to what it spends already; making them available OTC; or allow pharmacists to prescribe them (41). The desire to mandate it stems from bullying/statism or a lack of policy imagination-- neither of which is admirable.

3.) Goodman notes the double standards applied to public/private insurance (41-42): If a private insurance company denies treatment, it's a moral outrage; if done by public insurance, it's an unfortunate budget issue. (Watch for more of this, going forward.)

4.)  I've often used the famous analogy between HI and other forms of (true) insurance. HI is more akin to prepaid HC-- and thus, "not fundamentally about a relationship between the insurer and the insured. It's about a relationship between the insurer and the HC providers." (125). Then, he draws out other analogies: "Home insurers are not in the roofing business. Auto insurers are not in the car repair business...[Imagine] choosing an auto insurer so you can have your car repaired at a particular auto repair shop." (125, 128)


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