Saturday, October 11, 2008

Healthcare and the Art of Motorcycle Maintenance

I used to be in favor of universal healthcare. Now I'm for it in principle (i.e. I am in favor of making changes that would drastically expand the availability of healthcare), but against how most of its supporters propose going about it.

The solution requiring the least thought is to simply mandate that everyone have health insurance. But this presupposes that insurance is the best model for financing healthcare. It isn't. To see why it's not, look at car insurance.

Cars are similar to human bodies in several ways, yet the insurance industries that govern their care react to those shared characteristics very differently. Cars and human bodies both require maintenance for the duration of their operational lives. Cars and human bodies are both vulnerable to accidents and other infrequent, expensive, unforseen sources of damage.

Insurance is a mechanism for blunting the impact of infrequent, expensive, unforseen events. Maintenance is not infrequent, not unforseen, and usually not expensive (at least not in comparison to accidents). Insurance is not a sensible means to finance maintenance.

Car insurance has the correct relationship to automotive care, because it handles only the accidental half -- the infrequent, expensive, unforseen half. It leaves the maintenance half in the hands of the free market. (Imagine if it were otherwise: To get an oil change, you'd have to visit your Primary Care Mechanic, chosen from an insurance-approved directory of mechanics, and hand him your insurance card and a $15 copay. And your car insurance premiums would be at least three times what they are now.)

Insurance works by pooling risk. In order for it to work, the risk must be low enough that most members of the pool will not actually suffer the fruition of that risk. But the "risk" of maintenance is high -- it's guaranteed that every member will suffer from its fruition. Therefore pooling the maintenance risk doesn't help anyone except the insurance company; in theory, the premiums required to finance such pooling are guaranteed to at least equal, if not exceed, the cost that pool member would pay to obtain the same maintenance on the open market.

Here is where the analogy between cars and human bodies breaks down. If the maintenance of human bodies were handled by the free market in the same way as the maintenance of cars, the prices would be extraordinarily higher. This is the only reason the square peg of the insurance model has been pounded into the round hole of healthcare maintenance: the free-market costs of the maintenance are so high that, despite the theory, even exorbitant premiums still end up being cheaper. Releasing health care maintenance to the free market would essentially eliminate that market, as providers priced themselves beyond their prospective consumers' reach.

I believe the correct implementation of universal healthcare is not to expand the inefficient and ill-fitting pooling of "risk" (risk whose likelihood is much closer to 100% than to 0%) offered by insurance, but rather to lower cost to the point that healthcare maintenance can actually survive on the open market.

So, why is the maintenance cost for human bodies so much higher than for cars? Supply and demand. The supply of maintenance expertise is much more plentiful for cars than it is for human bodies. This is because there is no stratification of knowledge for medicine the way there is for car care. Certainly it requires highly paid, highly educated engineers to design cars, but you don't need one of them to rotate your tires or check an air filter. There exists an entire stratum of providers of medium-to-low automotive expertise that suffices for the vast majority of maintenance needs. In medicine, by contrast, even the lowliest neighborhood general practitioner has a college education that was at least as extensive and costly as the education received by the car-designing engineer. The costs of medical education are so high that they must necessarily (a) heighten the medical barrier-to-entry, constricting the flow of new doctors into the market, and (b) be passed on to the patients so the doctors who do make it into the market can hope to make a profit despite the vicious monkey of student loans perched menacingly and omnipresently on their backs.

Not only is medical expertise in shorter supply than automotive expertise, but it is also in higher demand. The owner of a car always has a choice before paying for maintenance. Frequently owners would rather let their car die and purchase another one than undertake some expensive maintenance operation. Such a choice rarely exists for the owners of human bodies. We each get only one body; the decision of whether to seek maintenance for it at all has already been made, in the affirmative, from the getgo. And no one can decide to eschew the whole owning-a-body nonsense by always riding a bike or taking the subway.

In order for healthcare to be made market-ready, steps must be taken to increase the supply of medical expertise and lower its demand.

Insurance companies must be given credit for recognizing the second half of that statement. Many insurance companies now operate incentive plans that attach financial reward (in the form of premium reductions or rebates) to habits that promote good health, like walking more, joining a gym, or quitting smoking. These are a good idea, but they don't go far enough. I believe that the Surgeon General, the Food and Drug Administration, the National Institute of Health, the American Medical Association, and the Center for Disease Control should collaborate to produce a measurable definition of what it means to be healthy, sufficiently rigorous and concise that it can be used as a legal standard. Anyone who wants to can submit to a test administered by their doctor that determines whether they meet this standard, and if they do, the doctor issues them a legal certificate that can be redeemed for a nontrivial income tax break.

Unfortunately, the insurance companies do not seem interested in tackling the other side of the problem, increasing the supply of medical expertise. This is because the insurance companies currently find themselves in a position analogous to the Department of Defense. Both use the legitimate importance of their missions to accumulate way more wealth than even those missions deserve, and inject that money into a tiny market of high-expertise vendors. Doctors and hospitals are the high-priced defense contractors of healthcare, and insurance companies are the bureaucratic, insular Pentagons that pay their exorbitant fees.

I believe the solution to increasing the supply of medical expertise is simple: someone should completely subsidize the cost of all medical education. Tuition, books, housing, everything. Anyone who wants to pursue an M.D. should be able to do so 100% free of charge.

I say "someone" not because I'm a whackjob liberal who likes it when mysterious fairies wave wands that magically take care of real-world concerns. I say it because it wouldn't necessarily have to be the government that does the subsidizing. Even large corporate employers are getting tired of the insurance model of healthcare finance. It might well prove cheaper for them in the long run to jettison their insurance fees in favor of voluntarily contributing to a private nonprofit consortium (that, for tax purposes, would count as a charitable donation) that subsidizes medical education without any government involvement.

It would be hard to maintain the current high price of healthcare if there were ten times as many doctors available as there are now, all equally as competent and qualified as the current population of doctors (and none with student loans). This proliferation of private medical practices would also force down the cost of niche pieces of high-tech medical equipment. MRI machines cost $2 million each not because they run on plutonium or need to withstand atmospheric reentry from space, but because their manufacturers know in advance that they'll have only 1,000 prospective buyers per year. If that market expanded to tens or even hundreds of thousands, manufacturers would gladly lower their prices to ensure dominance of the newly expanded market.

None of this is to say that the insurance model should be dismantled for healthcare "accidents" -- cancer, Alzheimer's, Lou Gehrig's disease, multiple sclerosis, etc. These are all infrequent, expensive, unforseen things that fit well with the pooling of risk. But if those were the only things covered by health insurance, premiums would necessarily go down.

Government intervention is bad for healthy markets, but the healthcare market is anything but healthy. The way to make it well again is by throwing more doctors -- not bureaucrats, either government or corporate -- at the problem.


Anonymous said...

See...Now you're talking like a real economist. Supply and demand dictate the costs of health care just like any other market. If we reduce the barriers to entry for the suppliers of health care and let competition run its course, then insurance could be optional rather than mandated.

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Anonymous said...

There are some efforts to expand expertise in healthcare through stratification like you mentioned - in the form of lower tiers of expertise like the Physicians Assistant and the Nurse Practitioner. But in general I agree with your thesis. Insurance is not the correct way to handle maintenance and the insurance part should remain in the private sector. The maintenance part, because it relates directly to "public health", which is by its nature a public enterprise, should probably be managed by government in order to ensure public compliance for the common good.

Anonymous said...

You get the analogy exactly backwards. Insurers cover preventive health care because it LOWERS the risk of catastrophic loss. If cars were very unreliable (like human bodies), then car insurers would cover oil changes, so that your 40-year-old engine doesn't sieze up on the highway and lead to a massive collision.

What you suggest is a lot like what people without insurance already have: expensive preventive care, but free catastrophic care at the emergency room. The result is less prevention, more expense, and more human suffering from illness before treatment.

In fact, health insurers LOVE paying for preventive care. They liek it so much that they wish it were the ONLY thing they had to cover. The OPPOSITE of what you suggest actually exists: it's called the HMO -- Health Maintenance Organizations cover lots of preventive stuff, but deny a lot of coverage on critical care.

The result is more healthy life years per dollar, and that's the goal of a proper health care system.

Instead of a scam-inviting system of tax breaks for preventive care (you can't PROVE you need, or even received, a checkup, hence the risk of scams), the government funding should be for critical care: critical hospital care should be free of paperwork, with doctors treating as they see medically necessary, with the federal government covering the bills as they see financially prudent.

Owen T. Cunningham said...

Thanks for the comment.

I find it interesting that you judge the reliability of cars as HIGHER than that of human bodies. Are you sure you want to stand by that judgment? Unlike cars, human bodies can repair themselves over time; they can simply degrade their functionality in the face of problems, rather than ceasing to function altogether; and they generally have much longer lifespans than cars.

You claim that my proposal is similar to what the uninsured already experience, i.e. expensive preventive care, but free catastrophic care. But it seems to me that our private-insurance-based healthcare system simply does not offer preventive care to the uninsured, period. You would not be able to get on any normal general practitioner's calendar without being able to provide an insurance card first. That's not expensive, that's nonexistent.

While I understand how, in theory, the "tax breaks for meeting the legal standard of health" could be gamed, in practice I don't think it is any more "scam-inviting" than any other tax deduction aimed at behavior modification. Perhaps, instead of issuing a certificate upon passing the exam, the administering doctor files a form with the IRS that then gets married up with the patient's return on April 15.

Having said all that, I will say that your example about the 40-year-old engine's oil changes being covered by insurance highlights an interesting issue. It seems to me that, when it comes to the link between maintenance neglect and subsequent catastrophe, health care professionals and insurers exhibit a reluctance to call a spade a spade, while their automotive counterparts have no problem with it and in fact are quite matter-of-fact about it.

Statistically, the likelihood of obesity eventually killing you is virtually identical to the likelihood of never changing a car's oil eventually causing its engine to seize on the highway -- yet no emergency room says "Well, no shit, dumbass, sucks to be you" to the 300-pound heart attack sufferer, even though that's exactly what the AAA towtruck driver would say to the owner of the car with the seized engine.

At the beginning of my post I described insurance as being suited to "infrequent, expensive, and unforseen" events, but even that description is too broad. At first blush it might sound like it fits a heart attack, but it is rather disingenuous for a 300-pound person to describe their having a heart attack as being "unforseen" -- even if it wasn't forseen BY THEM, it was certainly forseeABLE, and their failure to forsee it is either simple neglect or wilful recklessness. There is a causal relationship between their maintenance habits and their catastrophic event that does not exist in the case of, say, an otherwise healthy person accidentally grazing his left calf with a chainsaw while working in the yard.

In this respect, the car insurance industry has no problem calling a spade a spade, while the healthcare industry seems locked in this wishy-washy world where they make a lot of unfocused noise about "good habits" and "risk factors" and "the importance of prevention," but still go out of their way to insulate people from the consequences of their obviously moronic and self-destructive habits. Until THAT changes, it won't really matter what the insurers take care of and what they choose to leave to the free market.

I'd also be curious to know your thoughts on the specific proposal regarding subsidizing medical education. That was the main thrust of the post, and you did not address it at all in your comment.

Anonymous said...

Another interesting article on the subject exists here:

Owen T. Cunningham said...

Thanks for posting that link. The fact that I'm seeing this issue the same way as the American Enterprise Institute fills me with the desire to spend the next month taking a scalding hot shower. What's interesting is that they diagnose the problem similarly but prescribe a totally different cure: rather than concluding that free medical education is the answer, he tosses off the line "the American Medical Association must cease restricting the supply of medical doctors" without ever establishing whether, or how, it restricts this supply.