A Perspective on America’s Healthcare System
The fundamental pursuit of any health care policy is achieving the optimal balance of affordability, access, and efficacy.
The public discourse surrounding American healthcare policy is predominantly marked by a struggle between two competing visions for the ideal system on opposite ends of a spectrum. The left’s vision entails a single-payer apparatus in which the government bears the cost of medical care. The right’s vision glorifies a free-market system with private health insurance companies providing coverage for those who choose it. The current system under the Affordable Care Act (ACA), attempts to merge the best qualities of both visions while mitigating their flaws, yet fails in instructive ways.
Health care policymakers generally agree that the strength of a single-payer system is its affordability (at the consumer level), while the advantages of a privatized health care system are its relative quality and accessibility. The ACA seeks to provide the affordability of a single-payer system by subsidizing the physically and mentally ill as well as those unable to afford private health care and who do not qualify for Medicare or Medicaid. Yet by retaining the private health insurance market, it preserves the interplay of supply and demand in a free market between insurance companies and health care providers as opposed to the government capping spending for medical care and forcing medical worker pay cuts to compensate for reduced revenue.
The above-mentioned reforms might seem unpalatable to those seeking more ambitious or transformative changes to the health care status quo, but they build on the best qualities of America’s healthcare system.
In the interest of persevering in the spirit of the ACA’s ambition to meld the best aspects of single-payer and private health care systems, some modifications that might salvage the continually besieged ACA by improving performance on the three pillars. An effective approach to increasing affordability while maintaining access (i.e. not generating longer waiting periods for medical services) would include creating a supply and demand market equilibrium. While our current system better approximates this outcome than single-payer or universal health care systems by enabling a semblance of market forces to act, a major encumbrance to an equilibrium in our public-private health care hybrid is its widespread failure to convey price signals to patients. If someone in the United States has just moved and needs a new primary care physician, there is a marketplace in which he or she can compare the out-of-pocket costs of doctors in the area. If the federal government required physicians to provide up-front prices for standardized care such as routine check-ups, then primary care physicians would begin competing to reduce costs and thereby lower the prices of primary care visits throughout the country. With prices coupled to patient ratings available on the Internet, consumers could choose their ideal ratio of efficacy, based on reputation and ratings, to affordability. This would improve the affordability pillar without any substantive costs to accessibility or efficacy. In fact, physicians would likely feel more pressure to improve their performance metrics to justify a higher appointment price.
Affordability in the Medicare system could be improved with modifications to what Richard Thaler and Cass Sunstein in their influential book “Nudge,” term “choice architecture.” Medicare currently provides what’s called a “Part D” option for coverage of many prescription drugs for those who qualify (Americans aged 65+ or who suffer from disability, ALS or terminal renal disease). Unlike other Medicare programs (i.e. Parts A, B & C), one must select a private coverage plan which is pre-approved by the federal government and offers myriad options for enrollees. Unfortunately, the process of comparing deductibles and coverage for different prescriptions is labyrinthine and ultimately bewildering to many beneficiaries, which results in unnecessary spending on the part of Medicare recipients. Thaler and Sunstein suggest that if the federal government required private insurers to electronically send a complete, itemized list of prescription drug spending over the previous year in addition to a complete list of their pricing schedule, Medicare recipients could use this information to enroll in cheaper private coverage plans. This process could be expedited and simplified by providing an import function on the Medicare Web site when using the plan finder service. Including a tab or link to private comparison pricing programs such as Massachusetts-based Experion, on the Medicare Web site would also enable users to choose alternative services, to compare prices and identify the ideal plan. A study in Wisconsin has already predicted cost savings from Medicare Part D enrollees of around $500 from enrollees moving to their current coverage plan to the lowest cost offer which meets their needs.
What health insurance plan would be able to guarantee coverage of the cost of care which is three and a half times the amount paid by the consumer?
Apart from reducing the cost of medical care, the affordability of our health care system might be reduced by improving the efficacy of health insurance plans. This could be done by introducing a kind of “rainy day” fund which is tied to the stock market as a public health insurance option in the Obamacare marketplace. Much like a privatized Social Security system, where payroll taxes are allocated to shares in a diversified stock portfolio, one could apply a similar system to a public health insurance plan. Considering the high cost of diminished health care coverage from a stock market crash, it would be prudent to supplement this with monthly payments toward a low-cost, bare-bones, high-deductible plan for emergency use. Given the long-run rise in stock market indices such as the S&P 500 or the NASDAQ, beneficiaries of this plan would almost certainly reap disproportionately high benefits as compared to other plans at a fraction of the cost. As an example, $10,000 invested in the Dow Jones Industrial Average in 1970 would have yielded $35,710 after inflation–a 357.1% return. What health insurance plan would be able to guarantee coverage of the cost of care which is three and a half times the amount paid by the consumer? Any health insurance company which did so would quickly become bankrupt. Rather than compelling private insurance providers on the ACA marketplace to provide this option, a public option would rapidly spur private insurers to adopt a similar–even superior–service to remain competitive.
Finally, despite the comparative strength of America’s health care industry in the pillar of efficacy, as demonstrated by the preponderance of breakthrough medical research occurring in the United States: 51% of Nobel Prizes in Physiology or Medicine were awarded to Americans or researchers working at American institutions, a majority of global pharmaceutical R&D occurs in the U.S. most new medicines are developed in the U.S., and 32 of the 46 billion-dollar medical technology companies are American–there is still room for improvement. Much of the medical treatment R&D which occurs in the U.S. and across the globe originates from the private sector, where profit incentives steer resources toward lucrative innovations as opposed to those which may save the most lives. For example, the annual death toll of antibiotic-resistant bacteria often referred to as “superbugs” is projected to reach 10 million people in 2050, more than cancer kills today. However, R&D allocated to antibiotics in the private sector has declined due to the low rates of success and approval following clinical trials. The cost to develop a new antibiotic is in the hundreds of millions while its potential to garner profits is low relative to other pharmaceuticals. This market disincentive is exacerbated by the reality that prescription drug patents are only effective for 20 years–ten of which are often necessary for clinical trials and FDA approval. Once a pharmaceutical company’s patent rights disappear, generics will enter the market and diminish profit margins for the drug’s original developer. Extending patent rights for antimicrobial medications and other crucial, yet under-researched medical treatments would incentivize more R&D by increasing potential long-term investment returns for pharmaceutical companies.
Perhaps even more striking is the finding that, according to the Brookings Institution, an estimated 64-78% of pharmaceutical profits derive from the U.S. market.
The above-mentioned reforms might seem unpalatable to those seeking more ambitious or transformative changes to the health care status quo, but they build on the best qualities of America’s health care system. To those seeking some form of universal health care in the United States, such as a single-payer system, a note of caution: a severely disproportionate fraction of medical innovation occurs in the United States as a result of the higher profit margins afforded to companies in a (somewhat) private health care market. 40% of the global demand for medical treatments stems from the U.S. despite accounting for roughly a quarter of global GDP. This is primarily a virtue of Americans’ higher demand for the newest, state-of-the-art treatments, many of which would be restricted by budgetary constraints, as is the case in other developed countries where some form of universal health care has been implemented. Perhaps even more striking is that, according to the Brookings Institution, an estimated 64-78% of pharmaceutical profits derive from the U.S. market. Many proponents of universal health care in the U.S. also propose government negotiation of drug prices, as is the case in universal health care systems across the developed world. This would slash pharmaceutical profits and severely undercut the profit motive to develop new medications, thereby stunting biotech innovation.
By contrast, the substantial reforms necessary to realize the vision of a fully privatized health care industry must reckon with the insuperable and perverse problem of medical care remaining underutilized by those which it could best serve: the economically disadvantaged and chronically ill–two segments with considerable overlap–will confront the excruciating choice of life-saving medical treatment or financial ruin.
In recognition of these glaring drawbacks, I would argue that the piecemeal reforms recommended here represent a better prescription for the ailments of our current healthcare system.