What’s Wrong With the Republican Alternative for Healthcare

One Republican alternative for healthcare reform, presented today by Louisiana Gov. Bobby Jindal in the Wall Street Journal, has the following components:

  • Greater transparency in pricing and outcomes, electronic recordkeeping
  • Medical lawsuit reform
  • Insurance reform via mandated reinsurance and high-risk pools for those with pre-existing conditions.
  • Pools for small employers and the self-employed.
  • “Pay for performance”
  • Refundable healthcare tax credits for the working poor

There’s also this cryptic statement:

Consumers should be financially invested in better health decisions through health-savings accounts, lower premiums and reduced cost sharing. If they seek care in cost-effective settings, comply with medical regimens, preventative care, and lifestyles that reduce the likelihood of chronic disease, they should share in the savings.

I have no idea what that means, especially in the context of the spirited defense elsewhere in the op-ed of employer-based health insurance. Most of the consumption of healthcare is done by people whose healthcare is subsidized by Medicare, Medicaid, or the Veterans Administration or by people whose healthcare insurance is part of their total compensation. As long as that’s the case, how can these measures have any notable effect on prices?

On the subject of legal reform, I recognize that medical lawsuit reform is an evergreen among Republicans as a target for criticism. However, malpractice suits account for a vanishingly small proportion of total healthcare spending (low single digits) and even if they were to be eliminated entirely wouldn’t do much to change the trends in healthcare costs. The assumption that freedom from fear of lawsuit will result in less of what’s called “defensive medicine” does not stand up to scrutiny, cf. here.

As I’ve noted here repeatedly before, the impact of pay for performance, usually interpreted as capitation, will not be cost benefits unless you believe that healthcare providers will take a pay cut voluntarily but a transfer of adverse selection from insurance companies to healthcare providers.

With respect to the efficiencies that can be realized through electronic recordkeeping, this is a subject about which I should write at length some day. I can only say that the problems with it are formidable, there are substantial barriers to acceptance that I don’t believe are surmountable, and that the cost benefits are being overstated.

The fundamental problem with Gov. Jindal’s proposal is that it rides on the assumption that the current unsustainable trends in the cost of healthcare can be stopped or reversed by changes on the consumption side of the equation alone in a manner consistent with good public health. It is not self-evident. I know of no evidence that it is the case. I do know of studies that demonstrate the obvious: that people consume less healthcare when the cost falls directly on them. But I know of no evidence that the reductions in spending that occur are such that they result in lower overall costs. People defer needed healthcare spending as well as unneeded healthcare spending.

Reforms in healthcare consumption are necessary but not sufficient to reverse the unsustainable path we’re on.

There is an impasse in healthcare reform today caused by the immovable object of Republicans who won’t stand for anything but propping up the current defective system and the irresistible force of Democrats who are determined to increase total demand in a system in which there’s already excessive demand. Something’s gotta give and right now it looks like it will be taxpayers.

13 comments… add one
  • PD Shaw Link

    I’m not quite sure of your confusion over health savings accounts. Our office looked at sponsoring one. My thoughts were:

    I was surprised that the cost savings of switching to a high deductible plan wasn’t more.

    The importance of personal savings had very different effects on people at different compensation rates.

    Creating a system for employer contributions into HSAs was doable, but created a lot of logistical problems and issues.

    Jindal assumes all of the good outcomes of HSAs, but I think they are primarily attractive to people who want an extra-retirement savings vehicle, and as much as a few thousand dollars may be to an average wage-earner, it’s probably not where the big problems exist.

  • The part that baffles me is the equating of “financially invested in better health decisions” and health savings accounts. The incentives just aren’t high enough to consider holders of HSA’s as really financially invested. Further, healthcare consumers have too poor a basis for making informed decisions.

  • PD Shaw Link

    I agree that the “financially invested” language is a bit of political doublespeak. The holder is “at risk” for bills that fall below the insurance deductible — he is invested in whatever money he puts in the savings account. The few people I know with HSAs seek out competitive investments for their savings account money; they change nothing in their other behavior.

  • PD Shaw Link

    Jindal’s malpractice claims are based of study published in 1996 of data collected from 1984-90. We’ve had almost two decades experience with malpractice tort reform since then. That well has about run dry.

  • Drew Link

    I have to say I was very disappointed to see the New Yorker article offered as proof that malpractice was a “vanishingly small” part of the problem. From where I sit, it was irrelevant to the issue.

    First, real live doctors paying $200K a year in malpractice premiums is hardly a “vanishingly small” issue. Second, as anyone who is aware of medical issues in Illinois knows, the malpractice cabal down in East St. Louis have practically run the neuros and OBGY’ns out of the state.

    But to the New Yorker article. I found it weak wrt its intended point. The McAllen doctors are simply schmucks, who have lost their moral way and taken advantage of what I’ve pointed out forever – the flaws of the third party payer system. Excess testing? Physician owned testing centers etc??? Way way back in the 70’s my Dad predicted this would be an immoral and an outlandish development. The article makes a fair point here, but it has nothing to do with malpractice, or third party payors. Rather, its an obvious lesson in the evils of self dealing.

    The single weakest part of the article comes on page 7. Juxtaposing the problems with the public vs private payers, the author then simply ropes in by association “the economists” and gives no real argument about the merits of a one on one decision between patient and doctor. Then, on page 8, in the closing, the red herring comes out: the author gives the anecdote with the surgeon about who should make catastrophic disease decisions.

    As I have pointed out until exhausted – we need to have real insurance: CATASTROPHIC EVENT insurance. This takes the – I can’t help it, I found the author to be just plainly a sophist here – expert vs patient issue out of it. Positing life and death considerations as the author did is just plain crappola propaganda. When it comes to life or death, we would have an insurance system in place.

    However, as so much of the earlier themes in the article pointed out, routine non-life threatening issues: XS testing, doctor self dealing etc that add to costs all would be addressed if the price decision was prominant, and not with some impersonal third party. It makes the point. We need health insurance, not health maintenance. When the Instant Oil Lube monkey asks if you want new windshield wipers/air filter/etc every time you go do you just mindlessly pay………or not?? Of course, not, you don’t have Oil Lube Monkey “insurance.”

    I really find myself asking. Does anyone really want a well performing, efficient health care provision system? Or just to impose their personal biases?

  • Unfortunately, Drew, the schmucks rule the world.

    I’m not opposed in principle to the idea of mandatory catastrophic insurance but I’m also not convinced that it’s quite as practical a suggestion as you’re intimating. The median age in the United States is 37. 50% of the people are 35-64. How many of them couldn’t qualify for catastrophic insurance at all? I’ll need to do the research. It would certainly be the acid test for whether the system can be successfully fixed on the basis of consumption reform alone.

    As you know while I believe that consumption reform is a necessary part of the mix, I think that consumption reform alone will accomplish nothing. The rates will just get raised to compensate. Like I said, the schmucks rule the world.

  • PD Shaw Link

    I don’t know that East St. Louis is run by a malpractice cabal — it’s a plaintiff’s forum for asbestos and products liability class action lawsuits around the country. Different animals. And while it’s true that doctors are practicing less and less in East St. Louis, or moving across the river, St. Louis is almost always on the list of Judicial Hell Holes, so I think there is a different reason doctors want to practice in St. Louis than East St. Louis.

  • PD Shaw Link

    As I see it, malpractice rates are primarily driven by medical costs. Here’s an example of what I’m talking about:

    A few years ago a young 25 year old man is at his job when a truck accidentally backs into him. He goes to the hospital for x-rays, and is back at his job by the end of the day.

    Two years later I’m talking to a plaintiff’s attorney, whose smacking his lips, and telling me this is the kind of injury that brings in the money. He wants $4 million, $2 million for medical expenses and $2 million for pain and suffering. If he finds any dirt, he’ll ask for punitive damages as well.

    I talk to the insurance company’s lawyer, and ask him if that $2 million is for real. “If you’re asking whether he’ll be able to introduce the annuity into evidence, the answer is ‘yes.'” The plaintiff’s lawyer had gotten a medical diagnosis for a life-long disability and a medical opinion of the treatment that would be needed during his life. He then got a quote for an annuity based upon current expenses, life expectancy and [drum roll] projected rate of increase in medical charges. I see a small feedback loop here.

    I don’t remember if it was this p.i. lawyer who told me this, or another, but one told me once that “Death is for dupes, medical expenses is where the action is.”

  • I agree with that assessment, PD. It’s a case of something being simultaneously an effect and a cause although I think the cause component is enormously overstated.

  • Drew Link

    PD –

    East St. Louis has been the cauldron because its where sympathetic (read:dumb) jury pools can be assembled. You know the rest.

    Dave – I don’t know that schmucks rule the world. (And yer talkin’ to cynic!) They pollute the world and impose costs, but run it?

    The very nature of the New Yorker article was that these were outliers, abusing the system vis a vis, say El Paso. Dishonestly, IMHO, the author waited to page 8 to imply this was the core problem in US medical expense escalation. Rubbish.

    Mandatory imposition of catastrophic insurance not possible? Well, so we cannot pare back current maintenance to just catastrophic insurance? And all government-centric programs I have seen are mandatory systems.

    Further, you query how many 35-65 aged people could qualify? So how do they qualify for all-encompassing maintenance “insurance”?

    You seem to be implying that if insurance practices migrated from maintenance to real insurance that insurance companies (and perhaps health care providers) would simply raise prices/rates to cover their decline in revenues. Do you have evidence for this? In the absence of monopoly I know of no commercial enterprise whose behavior would support this assertion. In my personal experience with medical practice this assertion is simply not supportable.

  • Healthcare is a cartel, Drew.

  • Drew Link

    One of the ongoing fascinations for me is the obviously very different experiences each of us has obviously had as we utilize the health care system. That ver fact is worthy of pondering.

    In any event, cartel?

    The actual price paid to my neuro for taking out cervical discs, placing bone grafts and then screwing it together was far lower after the insurance company got through with him. Clumsy cartel, there.

    And I’m still a bit flummoxed by the assertion that an appointment with a doctor can take 6 weeks, and said doctor is comparable to a vet. Yet the trip to Glen Ellyn, or Naperville – wher my experience is far superior – is only 35 – 40 minutes. Are we talking cartel here, or consumer choice?

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