Friday, August 21, 2009

Rationing and other issues in US health care reforms debate

Like counterpart health insurance schemes across Europe, the Obama health care reform proposals call for a basic health insurance plan, consisting of a minimum package of health care benefits, and available at a flat rate to all citizens.

Conservative opponents have seized on this, claiming that by targeting to eliminate "high cost, low-value treatments", the new health care plan would lead to "rationing" of health care. Critics point to the Comparative Effectiveness Research (CER) proposal in the reform proposals and argue that this would "morph over time into a cost-control mechanism" and the "vehicle for deciding whether each method of treatment provides enough of an improvement in health care to justify its cost". It would, they say, end up denying Americans all expensive and life-saving health care.

As Uwe Reinhardt has argued brilliantly, the rationing logic is a red herring, reflecting "either woeful ignorance or utter cynicism". Illustrating how markets ration health care with much less fairness than governments, he nails down the standard Republican arguement against cost-effectiveness analysis and a public health plan for the non-elderly,

"When a government insurance program refuses to pay for procedures that the managers of those insurance pools do not consider worth the taxpayer’s money, these critics immediately trot out the R-word... On the other hand, these same people believe that when, for similar reasons, a private health insurer refuses to pay for a particular procedure or has a price-tiered formulary for drugs – e.g., asking the insured to pay a 35 percent coinsurance rate on highly expensive biologic specialty drugs that effectively put that drug out of the patient’s reach — the insurer is not rationing health care. Instead, the insurer is merely allowing "consumers" (formerly "patients") to use their discretion on how to use their own money. The insurers are said to be managing prudently and efficiently, forcing patients to trade off the benefits of health care against their other budget priorities."

He goes on to give numerous examples of how the existing market-based rationing of health care imposes unaffordable costs on the uninsured and those with high deductibles, and rations health care by "price and ability to pay". Mark Thoma has this excellent explanation of how government insurance programs can ration health care and lower costs without sacrificing the quality of care. See also Thoma again and Free Exchange.

Martin Feldstein, Gary Becker, Richard Posner and others have argued that the attempts to keep down the ballooning health care costs should not be by resorting to rationing, but by raising the existing Medicare and Medicaid deductibles, co-insurance (by the employee too, in addition to the employer) and eliminating the tax exclusion (on the employees income of the employers contribution to his/her health insurance) from employer sponsored health insurance. Even the more liberal health economists like Jonathan Gruber support elimination of the tax exclusion and argue in favor of taxing health care.

In a superb article in the Post, Ezra Klein examined the controversial claim of supporters of private health insurance in the US that high reimbursement rates for pharmaceuticals is the most efficient and cost-effective way to spur further innovation. He points attention to noted MIT health economist, Amy Finkelstein, who says,

"My prior belief would be the opposite. If you cover people with insurance it increases their demand for health care and that will create a larger market for innovations. That's certainly what I found happened with Medicare... One can imagine if one somehow reduced demand you could have the opposite effect. But it's a bit hard for me to understand how going from less insurance to more insurance would reduce demand... The two main things that people talk about are funding a lot of basic research - push strategies - and then pull strategies, where governments get together and define a prize for innovation on a particular disease."

Klein also points to Dr. Jerry Avorn, a noted expert on pharmaceuticals and the pharmaceutical industry, who strongly fels that much of the fundamental research is conducted by the public sector, and the existing pharamaceutical industry business model expends a lot of energy on high-return but low-innovation activities like advertising "the purple pill" or building me-too drugs, and who says, "If we want innovation and scientific discovery we should fund innovation and scientific discovery, not go after it backwards by paying too much for overpriced drugs and hoping that some of the excess profit will trickle down into innovative research."

In his bi-weekly Times column Paul Krugman feels that a Swiss style universal health insurance system using a combination of regulation and subsidies would be a "vast improvement on what we have now". Under ths Swiss model, everyone is required to buy insurance, insurers can’t discriminate based on medical history or pre-existing conditions, and lower-income citizens get government help in paying for their policies.

Though he favors a true socialized medicine approach (like Medicare, where government pays the insurance while actual delivery of health care is in private hands, unlike in the UK with its government run NHS) with a true public option competing with private insurers, given the deeply polarized nature of the debate, even a Swiss style system (like the one in Massachusetts) would be a major achievement.

Update 1
Excellent commentary by TR Reid dispelling commonly held myths about health care around the world.

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