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April 30, 2007

A Review, In Which Your Guest Blogger Reads Sick So That You Might Too

by Nicholas Beaudrot of Electoral Math

When I first picked up Jonathan Cohn's Sick: The Untold Story of America's Health Care Crisis—and the People Who Pay the Price (catch the author in your neck of the woods), I wasn't sure what it was, other than a book about health care. What it's not, certainly, is a policy white paper in book form. That is fine; there are plenty of books and white papers out there that make the case for substantial overhaul of America's health care delivery and financing.

What it is, instead, is a set of anecdotes detailing cases where the American hospital system, public health system, or private insurance has fallen down on the job. A former nun can't find insurance, so she goes to a hospital that suggests she might qualify for charity care, only to find the hospital suing her for unpaid bills. A self-employed diabetic falls victim to a fradulent insurer. The stories go on for eight chapters. Within each anecdote, Mr. Cohn cleverly interweaves a broader explanation of the root causes of the sob story. At it's core, though, all these anecdotes go have a common thread: "health insurance" is no longer able to spread risk. Even those with coverage find themselves making drastic cuts in other living expenses, turning down needed health care service, or facing huge financial burdens in the face of catastrophically expensive sickness.

It is clear to Mr. Cohn that private allocation of health care simply doesn't work. In the age of modern information technology and massive databses detailing patient and doctor history [and in the future, Mr. Cohn omniously warns, genetic data] the easiest way for insurers to enhance shareholder value is to reduce benefits, or deny payment of care to specific beneficiaries. What's more, health care costs suffer from a power-law distribution; the top 1% of patients account for 20% of all health care expenses, the top 5% account for 50%, and so on. Thus, insurers have enourmous incentive to determine which customers are likely to get extremely sick. Then deny them coverage. [Step 3: Profit!!!]. The consequences are straightforward. While the community-rated pools and hospital-based cooperatives of an earlier era spread both risks and costs uniformly across a population, Mr. Cohn notes that today "evolution is running in reverse", as insurers and hospitals shift an ever greater share of costs onto the sick, all while the overall reduction in insurance-provided benefits accelerates.

Mr. Cohn makes is a point that needs to be made, and made repeatedly. The health care system is in dire need of reform because it insurance is increasingly no longer able to protect the insured from financial ruin, nor provision health care. As King County (Washington) executive Ron Sims says, "there are no market forces in health care". If private insurance companies are, properly, first accountable to their shareholders, they will face tremendous pressure to reduce costs by fiat rather than improve services. Mr. Cohn cites data showing the percentage of revenue spent on reimbursements—the "medical loss ratio", a disturbing term in and of itself—hovers around 90% for non-profit insurance plans, but 75-80% for private insurance plans. John Kerry's campaign proposal to provide reinsurance for the most expensive cases might have eliminated the perverse incentive to deny coverage to the sickest of the sick, which would have helped, but it's difficult to forecast whether it would have done enough to eliminate the perverse incentives that make private health insurance so problematic.

Mr. Cohn strives to cover a wide array of demographics to emphasize that difficulties with the health care system transcend race, class, and job security; an upper-middle-class mother whose husband has good insurance through a bank goes through tremendous difficulty for her children handicapped since birth; a slaughterhouse worker whose company pulled the retirement benefits out from underneath him; a Puerto Rican small business owner finds his medicications removed from the "approved" list for Tennessee's state-funded but HMO-dominated low-cost insurance plan.

Dissapointingly, Sick doesn't take the next step of inviting the reader to put himself in the shoes of the unfortunates. While economic anxiety has increased over the past half-decade, complacency and a lack of self-interest remain barriers to increased universal health care. Indeed, in his conclusion Mr. Cohn concedes that "public opinion about health care in America remains as ambivalent as it was at the end of the Clinton health care fight ... [t]hey know that millions of Americans aren't so lucky, but, according to polls, they have a hard time believing themselves in that situation". But Sick makes no attempt to push readers to imagine that this could happen to you, too, despite impressively showing that the health care industry's problems cross class boundaries. Readers who are diabetic, or self-employed, or have friends and family with severe mental illness will undoubtedly sympathize with the stories that Cohn tells. But these readers already have some self-interest in advancing the cause of universal health care. Increasing the number of people who see nationwide coverage as in their personal interest seems key to increasing political support for further expansion of the health care safety net. Mr. Cohn makes very little effort to emphasize that medically-induced financial calamity can strike anyone, nor to emphasize the pro-business case for cost control through greater government intervention.

As for policy remedies, Sick makes an effort to debunk the critque that further market intervention in health care will lead to rationing, waiting lines, or stifle innovation. Mr. Cohn points out that Europe and Japan manage to cover all their citizens (and travelers too!) without stifling innovation or increasing waiting times [An article by Big Media Ezra in the most recent Prospect (Subscribe today!) makes the same case with more data-driven evidence)]. Further policy specifics can wait for another day; the first step to recovery is to admit that there is a problem. At the very least, we must realize that the current configuration of health care delivery and finance neither controls costs, nor provides health care for those who need it most, nor insulates the public from income shocks. The second part of the conversation—what to do about it—can wait for another book.

April 30, 2007 | Permalink

Comments

Somewhat OT, but last weekend, IIRC it was one of the Marketplace family of shows that had somebody on to talk about HSAs. The question was asked: why the high deductibles? The answer was essentially "if people are spending more of their own money, it'll encourage them to be better consumers of health care". Hunh? AFAIK, the point of HSAs was to save money for emergency and other sorts of major, sudden health needs. Under those circumstances, how can one be an effective "good consumer of health care"? What -- if the ambulance takes you to a hospital that doesn't look like it'll give you enough value for your money, you'll have them rush you someplace else?

Posted by: DAS | Apr 30, 2007 5:27:56 PM

I made this exact point in a thread of Ezra's last week. Insurance isn't "broken", it's gone completely off track. It's not shared risk and that is what the vast majority of American want. They don't want better return for insurance company shareholders because, guess what, there are lot more Americans out there hoping for better heatlhcare for a better price than there are shareholders looking for the next dividend.

Posted by: ice weasel | Apr 30, 2007 5:29:50 PM

You might be interested in this post I just made in Pennsylvania:

The notion that medical malpractice premiums are a huge problem is correct--but capping them is no solution--in fact it is a red herring for the very serious health care crisis we have in America and thus diverts time and resources away from the real problem.

That real problem is that we have a bizzare and wasteful system built largely on the private model--and lack a universal single payer national health care system, i.e., 'Medicare for all', but one that is actuarially advance funded.

The former will save more than $300 billion a year, enough to actuarially advance fund both Social Security and this national health care system, pay for the 47 million uninsured, and still have plenty left over.

And the advance funding for both systems will save two-thirds of the balance due to the investment returns, and have major league positive effects on our economy too--and wouldn't that be a nice bonus for Pennsylvanians, who have so many towns eaten out by bad economic policies.

We can then also set up a major league pc-based information system that gives us prices and quality information for every medical procedure and illness, so that end-users of the system--the public--can make better choices, and providers--doctors and hospitals--can improve their performance and weed out those who are doing all that malpractice.

Afterwards we can deal much more effectivley with the plan design issues--important but impossible to do without the right substructure and without this information system. In other words, set up the design as best we can and then modify it as we get more information. (The latter is exactly how most large insurers do their group business.)

These changes will lower medical malpractice premiums a great deal-and of course lower costs of the entire system a great deal too.

We currently pay around 2.1 trillion dollars a year for this system, & get poor quality care too.

That is more than double what anyone else pays on a per capita basis. Doing these things will save enormous sums of money for both Social Security and medical care.

The medical insurance companies are indeed the problem, just as Hillary Clinton said recently, along with the drug companies and the crooks in Congress--mostly Republicans--who aid and abet them.

I'm a retired health care and pension consulting actuary and an expert on these systems.

I have been saying this as far back as 43 years ago when I was a young hotshot actuarial student at the NY Life Insurance Company, got the job of finding out 'why we were losing so much damn money in the group business', as the new Chairman of the Borad put it to me, and then afterwards, also took an actuarial exam on Social Security and found it is was not being funded properly.

The only person in Washington who ever listened to me on Social Security was Bill Clinton in 1998. He then said how to fix Social Security in his 1998 State of The Union Address, but Richard Mellon Scaiffe, the billionaire extreme right wing wingnut from Pittsburgh, father of the Vast Right Wing conspiracy, and many top Republican leaders were very busy trying to impeach him, so it never got done.

Interesting that R. M. Scaiffe now says that on balance and in retrospect, the Clinton Presidency was not so bad at all, especially compared to the guy who is our Decider and Commander in Chief right now.

Posted by: Andy Lang | May 1, 2007 11:28:02 AM

Fancy running into you here, Andy "Rise up, you mushrooms and sheep" Lang.

It sounds like Sick is a good book.

My thought is that there is no way to fix the problem with health care except to allow opt-in rationing of some sort. Quite simply, most people do not have $3500 per family member to spend on health care; no re-jiggering of funding sources will fix that problem.

Posted by: SamChevre | May 1, 2007 12:36:12 PM

Well done - I enjoyed the read. I was researching information for a firefighters newsletter and got some great info from you guys. Thanks.
Wellcome to my page http://www.amateur-job.com/medic Thanks. Andru

Posted by: Andru | Jun 1, 2007 9:03:13 PM

To show just how easy it is to fix Social Security, all you have to is put $50 billion a year for 40 years additional into the Trust Fund and invest it in a low-cost stock index fund (such as Vanguard's 500 Stock Index Fund).

If you earn the annual compound rate of return that such stocks have had for 150 years--that is 10% per year--you will have the entire current $2.7 trillion unfunded obligation completely paid and have some pin money left over for a few improvements, especially for women who often have their careers interrupted to raise children and then to make it worse, get paid 20% less for the same work men do, thus earning less Social Security credits.

The figure is my estimate using the Entry Age Normal Cost Actuarial Cost Method (EANC ACM) instead of the ‘open group’ way we erroneously do forecasts at the Social Security administration, which was banned by Treasury and the IRS for private defined benefit pension plans back in the 80’s on the grounds that it would be too easy to manipulate the results!

And you can do this with no tax increase also, if you simply

a. Put a Universal Single Payer National Health Care system in place, and then

b. Actuarially Advance Fund it using the Entry Age Normal Cost Actuarial Cost Method.

a. will save at least 800 billion a year every year while b. will save an additional 2/3rds of the balance.

We currently pay $2 trillion a year for our wasteful and dumb health care system, with these costs going up at double regular inflation.

So change a. will bring this down to $1.2 trillion annually--or close to what other developed nations with national health care systems pay on a per capita basis, while b. will reduce this further to $400 billion.

You need to do the first over about a decade since

1. It involves some difficulty and detail and also because

2. You want to phase the necessary changes in sync with also reducing the combined employee-employer payroll tax to become the Entry Age Normal Cost for both Trust Funds--around 3% of total pay for Social Security and maybe the same or less for this medical care system.

As all the necessary changes and medical cost reductions are phased in, you then increase the general account which is how you pay off the Initial Unfunded Past Service Liabilities (IUPSL) for both systems--just as your home mortgage is paid off, and just as all defined benefit pension plans had their IUPSL amortized before the Republicans, the pension consulting actuaries and their corporate clients, and their allies, the life insurers and the stock brokerage firms brought that once mighty system to it's knees--all at the same time as the attempt to privatize Social Security and Medicare began.

For more details as to the kind of changes necessary for medical care, go to Hillary Clinton’s website, http://clinton.senate.gov/issues/health/, or the Mckinsey Report,
http://www.mckinsey.com/mgi/rp/healthcare/accounting_cost_healthcare.asp

Doing these things will also have enormously positive effects on the economy in many areas also, which is why the book that I am working on has the title, Fixing Social Security & Medical Care…And by so doing also Fixing Capitalism & Saving Democracy.

Any questions?

Posted by: Andy Lang | Aug 16, 2007 4:32:25 PM

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