Right now holding up the legislation are a controversial government insurance option and the total incremental cost of the reforms. It is assumed that the reform proposals will build on the current system of employer provided health insurance and expand coverage to the uninsured. The proposed means to do this is to increase competition in the insurance market through regional insurance exchanges, government subsidized insurance, and close the loopholes of preexisting conditions, in other words almost entirely by fixing what is considered to be a market failure in health insurance. It is assumed that government disrupting the insurance market in this way and regulating "cherry picking" will drive the industry to adapt to the new conditions and become profitable again at a more reasonable price. Another scenario is that over time the government will absorb more and more of the undesirable insurees until it has a near monopoly position. This is why many have seen it as a road to a single payer system.
As Dr. Relman and others have pointed out, this is not the only problem with our system. The delivery of health care has resulted in an inefficient fee for service model throughout the industry which has led to misallocation of resources (overtreatment) and personnel (overspecialization). One of the main drivers of this fee for service model has been the government payer Medicare. If this new public insurance option is modeled on Medicare it will inherit its favorable overhead structure for administrative costs, but it will also perpetuate this fee for service model for care delivery.
Is health care a public good or a private good? Certainly public health is a public good, but individual health is something that each person has the right to purchase more or less of as their circumstances allow. Catastrophic coverage should be the minimum standard so that risks are pooled across the population. Individuals don't control their genetic makeup but they can control behavior, so there must be some built-in incentive for staying healthy for the long term and avoiding chronic disease. Is health care a right according to our constitution? Perhaps it is only to guarantee no discrimination based on race, ethnic group or age, etc., and to keep us safe from severe epidemics or terror attack. Is there a moral right to good health in a wealthy society? The answer here is less clear and depends on the values in the society.
Back to first principles, what do we want the health care system to look like in ten years? What are the scenarios that may play out and what would happen to health care financing and delivery in each of them? What is the ideal role for government to play? What is the ideal role for the consumer to play? and what is the minimum level of health care that should be available to everyone at different ages in their life?
Let's consider what the single payer model means. First of all, it means that the we would pay for health care indirectly through taxation. So we don't exert any market forces at all on the practice of medicine. Decisions about care are made according to government issued guidelines of best practices and allowed treatments which could be on a federal or state basis. But care could still be provided through mostly private and community owned institutions that are familiar. The average amount of care provided per person would be measured against benchmarks of countries that have a similar level of development and GDP per capita. To the extent that health care has a consumer element to it such that consumers may want to purchase more of it, it is unclear how this would work.
In a hybrid system such as ours, where there is a substantial government payer component coexisting with private insurance, there is an issue with pricing because government is setting the floor for pricing for various services and adjusting for inflation every year. So there is not a real price competition in a pure market sense. And also, the purchasers of the services are the insurance companies and not the actual consumer. But as new technology is brought into the marketplace over the next ten years it could change the value networks substantially. First, will be the impact of IT invested over the next five years. And subsequently the impact of genomic technology will be felt in a major way in the next five years. This includes markers for diagnostic purposes to reduce the cost of lab tests to assess disease states, and prediction of drug effectiveness on an individual basis along with prospective risk assessment for chronic diseases.
Somewhere in the financing of the next ten years of health care, we must factor in the cost of sequencing the genomes of all of our citizens which will be on the order of $1000 per person or $300 billion. The return on this investment will be in the form of money more effectively spent on treatments and prevention of chronic disease. But this also leaves a substantial role for individual consumer involvement not only in behavioral change but also in purchasing the services, some of which may be considered life extending rather than life preserving.
Unfortunately there is no option to have a completely private system, because of the accelerating aging of the population and the cost of major illnesses such as cancer. The nearest we could get would be the mandatory catastrophic coverage plus health savings account (HSA) approach, where citizens would be rewarded for staying healthy by growth of principal in the HSA accounts over time. But this is inherently unfair in the sense of requiring lower income individuals to budget contributions into an HSA and subsequent expenditures versus their food budget for example. But it raises the point of whether there should be a tiered health care system where people that have more money can buy more of it. In other words, will a diverse society really be satisfied with "Kaiser for everyone"?
Like all health and welfare issues, there is the tradeoff of states rights versus federal control. Public health is maximized by federal control of medical record information, but individual health may be maximized by taking advantage of local value networks and state funding. Once all of our genomes are sequenced who will own that information? Will each individual own their genome and opt-in to a value network, or will the database be managed federally? Is there information in such a database of strategic importance to the US for example?
Let's try to analyze this by the numbers. What are the major effects and what are the minor effects in the economics of health care? The total annual expenditure is on the order of 17% of GDP and growing (or about $2.4 trillion annually growing at 7% per year). Medicare is about $400 billion (or 3% of GDP) annually. 175 million have private health insurance (57%), 50 million uninsured (16%), 40 million on Medicare (13%), 40 million on Medicaid (13%). Matters such as indemnifying doctors against risks that they now overprescribe to avoid are only on the order of $10 billion, while very important to individual doctors' financial condition -- so much so that the overprescribing has a multiplier effect of up to $80 billion. So they are significant, but not a major factor in the analysis. Fifty million uninsured at a rate of $7500 per person annually (currently the going rate in the US) is $375 billion annual additional cost, with some reduction for eliminating "emergency room medicine" for lower income individuals. This is why the estimates from the CBO are coming in at numbers like $1.6 trillion dollars over 10 years.
Over 10 years other reductions are to come from reduced payments to Medicare and Medicaid ($300 billion) and implementing electronic health records across the system ($150 billion). For Health IT implementation, according a recent article in the Economist "if 90% of hospitals and doctors in America were to adopt HIT over 15 years, the health system could save some $77 billion a year from efficiency gains, ...and double that for health and safety gains." So the recent stimulus investment of $19 billion for HIT regional exchanges and electronic health records implementation should have a reasonable return on investment.
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