Healthcare

Once again, my life has conspired to give me a real-world example of how consumer-driven healthcare saves money.

At five o'clock on a sunny spring Friday afternoon, my six-year-old begged me to go outside and ride Razor scooters. We went to the top of our enormous hill (wearing helmets and biking gloves, or course) and came speeding down again. Right at the end of the ride, as I was stepping on the brakes to come to a stop, I found the scooter wasn't slowing down. I pressed down harder, and suddenly the whole scooter kicked out from under me to the side. I flopped sidewise and landed smack on the pavement. I sat up, feeling a little stunned but not too bad. "Am I hurt?" I ask Malcolm. "You're bleeding!" he shouts. I looked down and saw quarter-size drops of blood on my jeans and gloves. I walked about twenty yards into the house and look in the bathroom mirror. My left cheek is covered with blood. After gently wiping it away, though, I find I have only one injury: a cut under my left eye, about an inch long. Later on I figured out that the cut had come from the edge of my rimless glasses.

I wrapped ice in a wet washcloth and held it on my face while I contemplated what to do. My wife Janet, juggling an infant and two other sons, called a neighbor to drive me into the emergency room. I briefly considered going to an urgent care clinic, but at that point I wasn't quite sure what I was going to need. I figured I'd be better off going to the emergency room, in case the cut called for a plastic surgeon.

I sat for three hours in various waiting rooms at UNC Hospital, ice clutched to my face. After the first two hours I decided that I wasn't concussed and hadn't broken anything, and I started to wonder if I'd made the right decision to come here. After a few text messages to my wife, I found out I didn't have any other option; all the urgent care clinics closed at 8 pm. I paged my regular physician, who advised me to stay put; "Since it's your face, you're probably in the best possible place." Ok. Fine.

After another hour in the examining room, the doctor finally arrived: a young, calm, conscientious resident. I had had lots of time to prepare my speech. "Hi!" I said. "I'm really, really glad to see you. Before we get started, though, I have one small request. I have a high-deductible insurance plan. That means everything you do for me tonight, I will be paying for entirely out-of-pocket. So, as you do your work, I would appreciate it if you tell me what services I can expect to be billed for, and what they might cost, if you know." The doctor was very sympathetic: "To be honest, I know absolutely nothing about what you will be charged. I just write down what I do, and someone else figures out the charges. But I will keep that in mind as we discuss your options for treatment."

I was very glad we started with that conversation, because here's what the doctor said next after examining me: "Because you have a laceration on your face, ordinarily we would call in the 'face team,' which would include a plastic surgeon as well as an experienced EMD. However, looking at that cut, I can tell it's really clean and would come together with just two or three sutures. I could do that for you right now."

"In your professional opinion," I asked, "How much difference would there be between you doing the stitching, and what the 'face team' would do?"

The doctor shrugged. "Not much . . . none, really."

"Ok, then! Stitch me up!" It only took about 20 minutes for him to do the job. There was no mirror in the examining room, but he led me to a bathroom around the corner so I could look at his work. As promised, the wound was closed completely, with three sutures. A nurse gave me a tentanus shot and I walked out, a satisfied customer.

*

What are the morals of this story?

1. Always wear a helmet when you're on wheels. I wasn't going fast, I wasn't doing anything daring. I just fell, and that was enough to seriously mess me up if I wasn't wearing the right safety equipment.
2. Healthcare costs go down when consumers have an incentive to spend wisely. Were I covered by Obamacare-mandated insurance, I would have said, "Sure! Bring in the face team? Why not? I've already paid my deductible." But because I was spending my own money, I asked more questions about treatment options and probably saved $1,000. (I paid $190 for my treatment that night.)
3. Conversely, healthcare costs will continue to rise as long as patients and doctors have no incentives to contain costs. My ER doctor had no idea what his actions were costing . . . is it any wonder that costs are high? Nor would he make any effort to economize, unless I (the patient) ask him. This is why healthcare costs are rising – it's not the uninsured, not technology, not evil pharmaceutical or insurance companies. This is why I oppose the Democrats' healthcare bill: the one proven means of controlling healthcare costs (consumer-driven HSAs) will be rendered illegal under the new legislation, while the greatest cause of rising costs (disconnecting patients and doctors from the financial consequences of their decisions) will be mandated for all.

Now that the health care reform debate has gone into overtime, I feel like I need to make one more last-ditch argument. Fortunately, at least one person has made all my arguments for me: David Goldhill's cover story in the September 2009 issue of The Atlantic ("How American Healthcare Killed My Father") says practically everything that needs to be said.

Goldhill is extremely forthright with his motivations, which I especially like – he lets you know right away that his study of healthcare is the result of seeing his father die of a preventable hospital-borne infection. But despite the personal tragedy, his article is remarkably free of emotional charge. He doesn't attack anyone, or blame anyone, but rather lets his critique rush unerringly to the glaring absurdities of the business structure of American medicine:

• Paying for all healthcare with insurance is patently absurd. The whole nature of insurance is to spread out the risk for unusual disasters, not to provide for day-to-day, predictable expenses. He writes: "Imagine sending your weekly grocery bill to an insurance clerk for review, and having the grocer reimbursed by the insurer to whom you've paid your share. An expensive and wasteful absurdity, no?" By making someone other than the consumer responsible for healthcare costs, we systematically create a "moral hazard" in which neither doctors nor patients have an incentive to limit costs, as well as using an extremely expensive, inefficient system for payment.
• America got its current system of employer-provided health insurance by accident. It was the result of a wage freeze during World War II that encouraged companies to offer non-wage benefits. But having someone else pay for all your healthcare was not a conscious goal of American policy . . . at least, not until people got used to the idea that "someone else" should pay for their health care.
• The consumer is the ultimate protector of quality and value. Is it any wonder that we get poor customer service, poor quality, and astronomical cost when we have removed ourselves as the primary purchasers of health care? Doctors, hospitals and drug companies all serve their customers as well as they can – it's just that we, the patients, stopped being their customers long ago. Now the insurance companies and the government are their customers.
• Competition is the most natural, responsive way to lower costs. In a competitive environment, technology tends to make things cheaper; in a non-competitive environment like our current healthcare system, it only makes things more expensive.
• The cure for American healthcare: mandate cheap high-deductible health insurance to cover medical emergencies, and then use Health Savings Accounts to cover day-to-day medical care. Make the patient the primary payer of medical costs again, and they will naturally seek the best balance of quality, value, and cost. Fund the care of the poor directly. Use government power to mandate visibility into the cost and outcome of care.

Goldhill's entire analysis would fit nicely into one of the Freakonomics books, since he is merely pointing out what Levitt and Dubner took as the central thesis of their pop-econ books: "People respond to incentives." Everything that has happened to American healthcare is clearly the consequence of distorted economic incentives. From this perspective, it should be clear that ObamaCare will only give us more of the same distorted incentives, cementing in place the illusion that "someone else" is paying for our healthcare, while letting the healthcare beast continue to devour our national economy.

Goldhill's article is refreshingly full of common sense, especially when you compare it to other popular studies of American healthcare, like Atul Gawande's high-profile article in the New Yorker ("The Cost Conundrum", June 1, 2009) which Obama publically praised. Gawande confronted overwhelming evidence that high costs of health care were driven by doctors' and hospitals' financial incentives to overtreat and overcharge . . . and still he is utterly dismissive of the power of competition. "Any plan that relies on the sheep to negotiate with the wolves is doomed to failure," he quotes one doctor. I see it as a sign of doctors' arrogance that they find it impossible to think of themselves as a commodity that can be shopped. Consumers might not "haggle over the price as if he were selling a rug in a souk," as Gawande puts it . . . but if a hospital down the road offers the same surgery for $20,000 less, don't you think that's going to influence the patient's choice? Especially if it's $20,000 of the patient's own money?

Gawande had another New Yorker article ("Testing, Testing", December 14, 2009) that compared the healthcare industry to agriculture, and suggested that healthcare might undergo a revolutionary change similar to the "green revolution" through government sponsored experimentation similar to what the USDA did for farms. The article was a lengthy apology for the Democratic health reform proposal, which did not have a clear plan for cutting costs but did have lots of pilot programs that would hopefully find new ways to cut costs. I find it utterly disingenuous to suggest ObamaCare is a set of experiments, when the core elements of the plan – guaranteed issue, mandated levels of coverage, wimpy personal mandates – have already been tried in several states, and were colossal failures in every instance, driving up costs and exhausting state budgets, while hardly making a dent in the number of uninsured. You can't position yourself as an experimenter when you ignore the results of the experiments.

Speaking of experiments, I have run the high-deductible insurance and Health Savings Account experiment for myself and my family . . . and it works. I protect myself from debilitating debt from medical emergencies, but I also function as a smart consumer. I spend half of what I used to on insurance, and lower overall medical costs by at least 20% by questioning bills, tests, and procedures. And all of it – insurance and medical costs – could be entirely covered by my FICA taxes, if the government only let me keep that money.

In response to my rant about government-run health insurance being positioned as a "competitor" to private health plans, Kenny writes:

Obama was asked in Virginia yesterday by a liberal audience if he would consider a real single-payer system. "We're talking about 1/6 of the economy here," he shot back, emphatically rejecting total nationalization. It is very important to him to introduce a government alternative without gutting the existing private system.

I suppose I should be comforted by the fact that Obama's rhetoric is rigorously moderate. But actually the opposite is happening; it is only making me more cynical. Obama made some very moderate statements about the auto industry, as well. Here was his position on March 30:

We cannot make the survival of our auto industry dependent on an unending flow of taxpayer dollars. These companies — and this industry — must ultimately stand on their own, not as wards of the state . . .  Let me be clear: The United States government has no interest in running GM. We have no intention of running GM.

Ah, good. Sounds very moderate and responsible. But, a few months later, the government winds up acquiring a 60% stake in General Motors. I guess the United States government was interested in running GM.

When Obama was running for president, he was widely lauded as the sign of a "post-racial America." His "more perfect union" speech on race was an eloquent statement of how we can move past identity politics and embrace a common good. But then his first Supreme Court nominee is Sonya Sotomayor, who, no matter what you think of her relative merits, is not winning any prizes for being a "post-racial" icon. Were she not a Latina woman, would she have gotten that nomination? The best that people can say of her is that she is merely competent.

Then there's the banking bailout. On February 20 White House press secretary Robert Gibbs, when asked if the Obama administration would seek to nationalize CitiGroup and Bank of America, he responded that the administration continues to "strongly believe that a privately held banking system is the correct way to go."  But in the following months, the administration proceeded to put the banks in a headlock, forcing them to take aid that is worth more than double the banks' own capitalization, whether they want it or not, regulating their compensation, secretly pressuring executives to make certain acquisitions and not complain about it, either.  Now most pundits seem to agree that CitiGroup and BofA are essentially nationalized in effect if not in name.

Do you see the pattern here? Moderate rhetoric, followed by extremely liberal action. Some people on the left see this as merely masterful politics -- after all, the winning strategy has always been to make your own position appear to be the middle of the road. But how much longer can you say one thing, and do another, before it stops being politics and starts being hypocrisy?

On the big call-out quotes page in Newsweek this week, I saw the following quote :

 "Why is it that the government, which they say can't run anything, suddenly is going to drive them out of business?"

-- Barack Obama, responding to private insurers' criticism of a "public option"

Normally, I can stay calm about politics. But this sort of flagrant attack on common sense makes me angry. The president is insulting my intelligence.

Here's an analogy for you:

Let's say all the umpires in Major League Baseball got together and decided that they would form their own baseball team, and compete against the other Major League teams. They are going to play -- AND officiate -- all the games. Who do you think is going to win in a match-up between the Yankees and the Umpires?  The Umpires can't hit 90 mph fastballs . . . but they don't have to. They just call them balls, and every single player up gets a walk to first. The Umpires can't pitch a ball over the plate to save their life . . . but that won't stop them from calling them strikes anyway. Every game is no-hitter, and the Umpires cruise to a World Series victory.

Does anyone have the audacity to call this a "competition?" If the Yankees give up in disgust, does that mean the Umpires are a better baseball team?

The federal "public option" for health care does not have to worry about making a profit . . . unlike every other insurance provider. It's easy to win market share on price, when you can give the product away. The government does not have to persuade people to pay for its products -- they compel payment, through taxes. Or just print more money. The government does not have to persuade doctors to participate in their insurance plan -- they can mandate that they do, or not practice medicine at all. The government does not have to negotiate with pharmaceutical companies -- they mandate drug prices, regardless of market value. Oh, yeah, and they can't get sued.

Let's get this straight. The Obama administration does not intend to fix healthcare by "competing" with private companies, in any meaningful sense of the world. They are doing just the opposite: using monopolist power to kill all competition.  If they want to nationalize the healthcare industry, fine, I can understand why they might want to do that. But don't try to dress it up as a "competitor" in a free marketplace.

I just read a great New Yorker article on factors that influence medical system costs ("The Cost Conundrum," by Atul Gawande, June 1, 2009") I have written about health care finance in the past, largely because I'm a participant and enthusiastic fan of one of the alternatives currently available, Health Savings Accounts.

In the article, Gawande examines a particular small town in Texas in which Medicare costs are nearly twice the national average, to see if it gives any indications of what causes health care costs to grow. He systematically rules out various popular explanations – people are sicker, care is better, malpractice suits are driving up costs, etc. – and hones in on the motives of the doctors themselves. Hospitals that have the highest level of care (and, surprisingly, the lowest costs) are those which make improving patient care the number one priority, and deliberately structure the financial and social incentives for doctors to stay focused on patient care. The costliest hospitals (which, ironically, often have the lowest quality of care) are those in which doctors focus on maximizing their profits rather than making people well.

I'm glad that someone has named the elephant in the parlor. You would think that it would be obvious that health care providers have every incentive to inflate costs, at least until someone puts on the brakes and refuses to pay. I was disappointed, though, in how quickly the author dismisses the notion that changing who pays for the system (private insurers, the government, or the individual) would change the dynamic in spiraling costs. He quotes a doctor who contemptuously dismisses the thought that an individual could control the costs of their health care: "They discuss the blockages in her heart, the operation, the risks. And now they're supposed to haggle over price as if he were selling a rug in souk?"

Well, no, they probably won't haggle. But don't you think that if hospitals had to publish their price lists, and a well-rated hospital offered to do the same procedure at half the price, that an individual might decide to go to another provider? The internet has empowered patients more than ever to be informed about their conditions, their options, and (if the health-care system allowed it) the costs.

I have lots of first-hand experience of this sort of thing. When I was a young man, unemployed and uninsured and doing my Walden thing in West Virginia, I found a suspicious lump on my testicle. I saw a GP, who said it was 95% not cancerous, but referred me to a urologist to check it out. The urologist did an ultrasound, and confirmed it was a spermatocoel, a mostly-harmless blockage, which wouldn't be a problem unless it caused me pain. So far, so good. But then the urologist tried to schedule me for another ultrasound a month later. "Why do you need to do that?" I asked. "Well, it's good if we can keep an eye on these things," he said. "What do you expect might be different in a month's time? And why do we need an ultrasound to know if it's a problem?" The urologist, blustering, just kept repeating himself. "It's good to keep an eye on these things." I did not make another appointment. I didn't feel like spending $250 just to "keep an eye on things." I also noticed that I the bill had a charge for a urinalysis lab work-up, which I knew had not been done because I never gave them a urine sample. I paid my bill, minus the bogus lab fee.

This is not an isolated incident. I have had things like this come up with nearly every single health-care provider I've ever used . . . even the ones who I loved dearly and thought were the best doctors in the world. I've been asked to make an extra appointment, just to have the doctor read lab results to me, and give me the same diet advice he gave me the first time. (He could have done the same thing over the phone, or even just put it in the mail with a pre-printed explanation of the results, but then he wouldn't have been able to charge $80 for an appointment.) I have had emergency rooms and doctors try to charge me for the exactly the same service. In most instances, I have challenged the unnecessary or bogus costs and paid less . . . all because I'm the one paying for them.

If we want to control health care costs, somebody has to have a stake in controlling costs. We have a magic way of doing that. It's called a market economy. I'm perfectly happy to let the physicians have a profit motive . . . as long as I get to exercise my profit motive, too.