This is part of a broad series of posts continuing to examine the issues remaining before us on healthcare. Regardless of how you feel about PPACA (HIR), I believe strongly it is a beginning to this wave of reform, not an end. There are some fundamental issues which we have left unaddressed. You can read the introduction to this series here and a piece on risk here.
Have you given much thought to how American healthcare works? Not ideologically or theoretically, but what actually happens in our system? I think it's fascinating.
If you don't think about it much, that's cool. But hear me out.
Underneath the failures and politicization of economics, there is a lot of useful information. When we have outcomes we want to achieve, it's helpful to have frameworks for analyzing the best mechanisms toward that end. The related concepts of scale, scope, and standardizationexplore ways of cooperating such that the total resources necessary to deliver the outcome are minimized.
In other words, how do we get what we want at the lowest possible cost.
Not everything gets cheaper as you do more of it. But the neat thing is that some things do. Not everything works better when processes are standardized. But some things do. Healthcare in particular is one of those areas with a lot of components that are done best on a large scale in standardized procedures.
Take the example of creating a provider network. Right now, when you want to buy a TV, you go buy a TV. If you decide none of the TVs are worth the cost, you don't buy any. As a consumer, you do your research, you gather information, you decide where you want to shop, you go shopping, and you buy the TV. But when you want a physical exam from a primary care physician, you don't do this. Instead of shopping for the exam, you shop for health insurance. This insurance company goes out and does its research, collects its information, and decides where its customers should shop. We call these shops provider networks. Where economies of scale come into play is in the observation that multiple health insurance companies are doing the same thing; in fact, it's quite common for doctors' offices to have to juggle several different provider networks. The staff time at both the health insurer and the doctor's office dealing with the provider network is time not spent actually delivering healthcare.
Or take the example of paying for the exam. When you go get that physical, you have to pay something (called a co-pay; you may also owe a deductible). But you don't pay the bulk of the cost. Instead, the doctor's office bills the insurer. Then the insurer pays the bill for the exam. Each insurance company has different paperwork. This lack of standardization means more time is spent shuffling papers. Time spent shuffling papers is time not spent actually delivering healthcare.
And then what happens when your doctor prescribes a medication for you to take? Well, manufacturing drugs is actually very inexpensive; the marginal cost of one more pill is virtually zip. That's why the government prohibits Medicare from negotiating volume discounts and gives massive intellectual property rights to drug makers. Otherwise, the pharmaceutical companies couldn't charge so much for executive compensation and marketing and profits. The economics of scale and scope wouldn't allow it; outsized profits require political cover.
Or look simply at the task of picking a health insurance company. Have you actually shopped for health insurance? If you're like most Americans under 65, you get it from work or you don't have it at all, so you may not have much personal experience actually shopping for coverage. For work plans, somebody at your work has to spend time talking to brokers and researching plans and training staff about how the plans work and so forth. That's obviously time not spent delivering healthcare (or running the business).
And if you think the government system works great (FEHB), I would highly encourage you to investigate the matter. Here are the plans for my state. The packet for GEHA Benefit Plan Nationwide alone is 106 pages [PDF warning]! Then you have to compare that against 21 other plans that are available, of course, making sure you choose an appropriate one given your geographic, employment, and other criteria. Just being a Missouri resident falling under OPM's FEHB doesn't render all the Missouri plans suitable for you. Oh, and you have to do this every year - what's called open enrollment - to remain on top of your health insurance options. Let me emphasize, the Fed system is the gold standard when it comes to employer-based benefits; things just get worse as you take into account challenges faced by private employers.
As you examine more and more of these kinds of activities in healthcare, two things become apparent.
- To detail each of them would require a whole book, boring about 99.99% of the population.
- It would be more efficient* to have a centralized, streamlined system. There are several economies to be gained through scale, scope, and standardization. There's a lot of talk about bending cost curves and similar ideas floating around, but what's important to understand is that the major economic inefficiencies of our healthcare system continue in the face of PPACA.
So the next time somebody talks about budget deficits and skyrocketing healthcare costs, ask them why we don't simply have one national, universal health insurance system. If there is a philosophical opposition to government, that's actually okay. It suggests we should simply eliminate health insurance and end the excesses of drug patents - that would save government and consumers a lot of money. That way, we can turn shopping for heart surgery into something more like shopping for an HDTV.
My hunch is, that's not what the majority of Americans would prefer. But it sure helps clarify the options.
*I would emphasize, efficiency is certainly not the only concern. What I think is valuable is the perspective that national health insurance makes sense from a solely economic perspective. It's not a tradeoff between the moral argument and the economic argument; there's no tension between idealism and pragmatism. They actually are quite synergistic precisely because the morality of universality and the economics of scale, scope, and standardization reveal very similar observations when it comes to providing healthcare. If government has a unique interest in affordable healthcare, then single payer is a critical mechanism - if not 'VA for all'. If government's role is more like in setting the rules for HDTV, then we should simply dismantle Medicare, Medicaid, CHIP, and the VA and have everyone buy from private firms like most economic transactions in our society.
Crossposted at The Seminal at FDL.