Category Archives: Health Care Finance

Becker on health care finance reform

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medical%20finance%20011608.jpgGary Becker proposes four common sense reforms for the American health care finance system, one of which is unassailable:

Eliminate the link between employment and the tax advantage of private health insurance. Since much of the spending on health are investments in human capital, there is good reason to exempt these expenditures, along with other investments, from income taxes. However, this employment link is inequitable because it does not provide the same tax advantages to families without employment-based insurance. It also encourages expensive employer health plans that have significant consumption components since the government picks up much of the cost of such coverage.

The People’s Republic of Massachusetts

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massachusetts%20flag.gifThe development of in-store health care centers over the past decade has unquestionably been a positive development for the American health care system. They provide relatively inexpensive primary care and take some of the burden off of over-crowded emergency rooms that are currently required to provide non-emergency care to folks who have no other conduit to the health care system.
So, in the face of this important service that the in-store health centers are providing to people and communities, what does the Mayor of Boston want to do? Stop them from making money! (H/T Radley Balko):

Mayor Thomas M. Menino embarked on a highly public campaign yesterday to block CVS Corp. and other retailers from opening medical clinics inside their stores, . . . Menino blasted state regulators for paving the way Wednesday for the in-store clinics, which are designed to provide treatment for sore throats, poison ivy, and other minor illnesses.
The decision by the state Public Health Council, “jeopardizes patient safety,” Menino said in a written statement. “Limited service medical clinics run by merchants in for-profit corporations will seriously compromise quality of care and hygiene. Allowing retailers to make money off of sick people is wrong.”
In a separate letter, Menino urged members of the city’s Public Health Commission to consider barring the clinics from Boston.

Meanwhile, W$J columnist David Wessel writes “The business model for big U.S. banks is broken. . . . Banks and Wall Street could devise a better business model. But they’d best hurry. If they don’t act, regulators will. And if regulators don’t, House Financial Services Committee Chairman Barney Frank and the other Democrats in Congress will.”
Wessel’s column and Frank’s usual anti-business antics prompted Andrew Morriss to write a letter to the WSJ, which Don Boudreaux passes along over at Cafe Hayek:

Mr. Wessel is correct that most banksí business models are not currently producing profits, but this is not cause for concern for anyone but their shareholders. Markets are a discovery process, with firms and investors learning as they try new ideas and react to changed conditions. What markets need is a stable regulatory environment, in which every dip in the market does not produce a new set of rules.
Unfortunately, there is little evidence that Rep. Frank and his comrades on the House Financial Services Committee understand this, making it virtually certain that they will rush to ìsolveî the banking crisis with new legislation. The best assistance Rep. Frank could offer would be to commit his committee to resolute inaction for an extended period of time, offering both banks and investors the assurance that the rules of the game would remain unchanged and allowing them to learn from their experience in the market place.

That governmental Ponzi scheme

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social%20security.gifAt the end of this common sense post that mostly points out that no useful public policy is served by the government denying grandparents the right to establish Health Savings Accounts for the benefit of their grandchildren, the always entertaining Art DeVany makes the following observation about a common topic on this blog — Social Security reform (previous posts are here):

By the way, there is no such thing as social security. There are only people who are more or less secure against contingencies. They might pool their risks against these contingencies, but there is no effective way for a society to avoid risk. As a program for risk pooling, Social Security is very ineffective. It is not insurance, it is redistribution among generations. It is a Ponzi scheme because the risk pool is allocated from one generation to another. And, it is fraught with demographic risk and political risk. It will eventually go under or have to be modified substantially by disavowing the contract between generations because it is not sustainable.

The government and health care finance reform

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Arnold%20Kling%20120407.jpgEconLog’s Arnold Kling is one of America’s best thinkers on economic issues relating to the U.S. health care finance system (previous posts here), so this recent TCS Daily op-ed is required reading for anyone interested in the proper role of government in a reformed health care finance system. In so doing, Kling summarizes well the current state of stress in the U.S. health care finance system:

All of our health care finance systems are under stress. The government system is completely unsound–the Titanic headed toward the iceberg of unfunded liabilities. Employer-provided health insurance is a questionable concept in theory that is unraveling in practice. The individual insurance market is a disaster, with something like 3/4 of all families who do not get insurance through work or government electing to remain uninsured.

Kling sums up his view of the proper role of governement in reforming the health care finance system in the following manner:

I believe that there are things that government can do to enhance access, improve quality, and lower the cost of health care. However, I believe that we would be best served by having government focus on the policies that I put into the “good” category–clinics in poor neighborhoods, vouchers, high-risk pools, and better information on the effectiveness of services and the performance of providers. If we look to government to take a larger role in running our health care system, then my prediction is that things will get ugly.

An expensive illusion

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Arnold%20Kling%20110707.jpgAs I’ve noted several times previously, EconLog’s Arnold Kling is among the clearest thinkers in the U.S. on reform of the health care finance system. He has been addressing health care finance issues again this week, first in this podcast interview with Russ Roberts, and also in posts here and here addressing issues raised by Greg Mankiw’s NY Times article on the misleading nature of certain statistics that are frequently tossed around in the health care finance debates. But the most insightful Kling health care finance post this week was this Cato-at-Liberty post in which he analogizes the third party payor health care finance system to subsidized prostitution:

Suppose we were 20-year-old guys who hung out together, and one of our friends was down on his luck with women. Heís really depressed about it. We decideñnot necessarily the brightest ideañto hire him a prostitute. We donít want him to know sheís a prostitute, so we all chip in and pay her, tell her to meet our friend at a bar, and make him feel better about himself.
Next morning, we ask him how it went. He says, ìGreat. I really feel better about myself. In fact, Iím going to see her again tonight.î
As friends of the guy, we look at each other and realize that he will be devastated if he learns the truth. So we chip in again and pay the prostitute to make our friend feel better about himself. This keeps happening day after day, and eventually maintaining our friendís illusion about his love life gets to be really expensive.
Similarly, free health care is an attractive illusion. Itís just gotten to be really expensive to maintain the illusion.

Before the blogosphere, discussion and analysis of health care finance — which has become one of the key domestic issues of our time — was largely buried in technical books, economic or medical journals and an occasional op-ed on the editorial pages. As a result, health care finance was largely misunderstood by the public and even a large segment of the medical profession. Now, through the leadership of economic bloggers such as Kling, the important issues relating to health care finance reform are instantly available for the world to review as a virtual cornucopia of economic bloggers has emerged to provide commentary and insight. That’s a wonderful legacy for Kling, and one for which we should all be appreciative.

My concierge health care experience

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mdvip_logo.gifBill Lent is one of Houston’s finest internists. How do I know this? Well, because I know who trained him (my late father) and he has been my personal physician for the past 15 years or so. Having been blessed with good health, the only medical service that I buy from Dr. Lent in most years is my annual physical, which I generally schedule for about this time each year. I always enjoy catching up with Dr. Lent, who provides me with “on the front line” information regarding the horrific cost of health care regulations, which are literally strangling the market for primary care physicians in the U.S.
It’s been particularly interesting watching the evolution over the years of Dr. Lent’s internal medicine practice, from one in which Dr. Lent provided an unusually high level of personal care to his patients (something my father emphasized in his teaching) to a high volume, impersonal practice that virtually all primary care practices have been required to adopt to remain even marginally profitable under the present U.S. health care finance system. Over the past ten years or so, Dr. Lent has continually confided to me during our annual visits that he was uncomfortable with the direction of his practice.
So, I was pleased to learn when I scheduled my physical a couple of weeks ago that Dr. Lent is doing something about it. Starting next month, Dr. Lent is commencing a concierge health care practice, administered by MDVIP out of Boca Raton, in which he is limiting his practice to about 600 patients who will pay Dr. Lent $1,500 annually for the benefit of receiving his personalized style of service. Coincidentally, this Wall Street Journal ($) article earlier this week described the proliferation of pre-paid health care plans, which is sort of a lower-priced form of what Dr. Lent is doing. The WSJ article essentially describes how many primary care physicians are simply dropping out of insurance plans — both public and private — in favor of prepaid plans that offer unlimited access to basic health care for set monthly fees.
Inasmuch as the employer-based health insurance system typically offers low-copays and deductibles for the vast majority of health care services, a substantial amount of the American health care finance system is basically prepaid health care already. In order to maintain profitability in a highly-regulated market, insurance companies compensate for these low usage fees by charging higher monthly premiums, lowballing doctors’ fees, and challenging claims continually. The result has been the evolution of a primary care system that is incredibly bureaucratic (have you ever tried to figure out how your insurance pays claims?) and literally breaking down.
The MDVIP model treats primary care service similar to a health club membership. The model focuses on the delivery of relatively inexpensive, protocol-driven care than can be offered at a relatively low cost while still providing patients more overall access. MDVIP’s model is relatively expensive, so low-income patients will have a difficult time affording the fee. However, providing a tax deduction for individual health insurance would make such pre-paid plans more affordable for low-income patients, while providing Medicaid patients with vouchers for prepaid health care would have a similar impact.
Who will be threatened from the proliferation of these plans under the current health care finance system? Well, it’s a bit early to speculate, but my sense is that insurance companies with big stakes in employer-based health insurance will not enjoy the competition from MDVIP-type practices. Similarly, speciality providers who depend on state regulatory mandates in comprehensive insurance plans to subsidize their practices will also feel the competitive pressure if these types of plans catch on in a big way.
So, I’m going to enjoy learning about how Dr. Lent’s practice changes over the next year under the MDVIP structure. If it is successful, as I suspect it will be, it makes you wonder — if such entrepreneurial spirit can be generated even in the current highly-regulated health care finance system, then imagine what could happen if we unleashed the power of the marketplace to reform the delivery of health care and the health care finance system?

The end of socialized medicine

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ronald-reagan-socialized-medicine-lp2.jpgPeter Huber is a Manhattan Institute senior fellow, an MIT-trained engineer and a lawyer who has authored several books, including Hard Green: Saving the Environment from the Environmentalists and Galileoís Revenge: Junk Science in the Courtroom. In this provocative City Journal article, Huber observes that the complexity of modern diseases virtually assures that a “one-size-fits-all” socialized medical system will fail:

That is the real crisis in health careónot medicine thatís too expensive for the poor but medicine thatís too expensive for the rich, too expensive ever to get to market at all. Human-ity is still waiting for countless more Lipitors to treat incurable cancers, Alzheimerís, arthritis, cystic fibrosis, multiple sclerosis, Parkinsonís, and a heartbreakingly long list of other dreadful but less common afflictions. Each new billion-dollar Lipitor will be deliveredóif at allóby the lure of a multibillion-dollar patent. The only way to get three-cent pills to the poor is first to sell three-dollar pills to the rich.
With almost $30 trillion under management, Wall Street could easily double the couple of trillion it currently has invested in molecular medicine. The fastest way for Washington to deliver more health, more cheaply, to more people would be to unleash that capital by reaffirming patents and stepping out of the way.
On the other side of the pill, molecular medicine can only be propelled by the informed, disciplined consumer. Any scheme to weaken his role will end up doing more harm than good. Foggy promises of one-size, universal care maintain the illusion that the authorities will take good care of everyone. They reaffirm the obsolete and false view that health care begins somewhere out there, not somewhere in here.
Neither Pfizer nor Washington can ever stuff health itself into a one-price uniform, One America boxónot when health is as personal as ice cream, genes, and pregnancy, not when every mother controls her personal consumption of carbs, cholesterol, Flintstones, and Lipitor. But the thought that government authority can get more bodies in better chemical balance than free markets and free people is more preposterous than anything found in Das Kapital. Freedom is now pursuing a pharmacopoeia as varied, ingenious, complex, flexible, fecund, and personal as life itself, and the pursuit will continue for as long as lifestyles change and marriages mix and match. Given time, efficient markets will deliver a glut of cheap Lipitor for every glut of cheap cholesterol. And given time, free people will find their way to a better mix.

Read the entire article here.

The Achilles Heel of Health Care Finance Reform

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medical%20finance%20101207.jpgIn an interview years ago, the late Milton Friedman summed up the basic problem with a nationalized system of health care finance:

There are four ways in which you can spend money. You can spend your own money on yourself. When you do that, why then you really watch out what you’re doing, and you try to get the most for your money.
Then you can spend your own money on somebody else. For example, I buy a birthday present for someone. Well, then I’m not so careful about the content of the present, but I’m very careful about the cost.
Then, I can spend somebody else’s money on myself. And if I spend somebody else’s money on myself, then I’m sure going to have a good lunch!
Finally, I can spend somebody else’s money on somebody else. And if I spend somebody else’s money on somebody else, I’m not concerned about how much it is, and I’m not concerned about what I get. And that’s government. And that’s close to 40% of our national income.

However, even more troublesome than the illusion that A will get top-flight service from B when C is forced by government to pay the bills, who is going to provide the health care under such a system?

House calls making a comeback?

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House-Calls-Logo.gifDespite the drag that America’s highly-regulated health care finance system places on the delivery of medical services, glimmers of entrepreneurial hope still shine through occasionally:

A new kind of medical practice is flourishing nationwide that offers to go to where the patients are ó whether a home, an office or a hotel ó to treat ailments as diverse as a sprained ankle or a bad case of bronchitis. Some services may even wheel in a mobile X-ray machine or an ultrasound machine, depending on the ailment, or perhaps pull out kits to test for strep throat or to draw blood. They may dole out medication on the spot or arrange for pharmacies to deliver prescriptions.
ìWhen you call, you can speak to a doctor in five minutes, and that doctor can be there with you within the hour. Where else do you get that kind of delivery?î said Walter Krause, founder of Inn-House Doctor. The company says it has 40 physicians on call in Boston, Chicago, Dallas, Houston, Las Vegas, Phoenix, Philadelphia and Washington; some of the doctors are in private practice or work in hospitals, and they make house calls during their time off.
The convenience comes at a price. Appointment fees can range from $250 to $450, with additional tests and medication extra. And payment is due at the time of the appointment.

The website for the service is here. Critics will contend that this service amounts to house calls for the rich, but it is nevertheless a good example of how medical service markets will respond to patients controlling the funds that they are willing to spend on medical services. Frankly, my bet is that that this type of service would already be available at a much lower cost but for the fact that most patients have been insulated from the true cost of medical services and the expenditure of their health care dollars for decades now.

Stossel on “Sicko”

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health_care%20091407.jpgABC News investigative reporter John Stossel provides this WSJ ($) op-ed in yesterday’s paper in preparation for his long-awaited ABC special on America’s health care and health care finance system tonight at 9 p.m., CDT:

Mr. [Michael] Moore [in his documentary “Sicko”] claims that because private insurance companies are driven by profit, they will always deny care to deserving patients. For this reason, he argues, profit-making health-insurance companies should be abolished, our health- care dollars turned over to the government, and the U.S. should institute a health-care system like the ones in Canada, Britain or France. [. . .]
Mr. Moore thinks that profit is the enemy and government is the answer. The opposite is true. Profit is what has created the amazing scientific innovations that the U.S. offers to the world. If government takes over, innovation slows, health care is rationed, and spending is controlled by politicians more influenced by the sob story of the moment than by medical science.