Health Care Fantasia

by Will Wilkinson on March 19, 2006

Megan McCardle has some sane thoughts about health care. This isn’t my area, but I’ve given it some thoughts. They are not necessarily sane or feasible. But I think it is interesting to compare your inuition of what would work well in a better world with the menu of policies that actually get offered. So here’s my crazy (not Cato-approved!) plan.

  • Decartelization.

This is bigger than people understand. Without recourse to any actual data, I believe that the state’s grant of monopoly privelege to certain official certifying agencies has a lot do do with the high cost of health care. Besides creating artificial scarcity (and therefore huge rents for M.D.s), the certification cartel violates our natural liberty to cooperate. The more I think about this, the more it ticks me off. You don’t need a Ph.D. in mechanical engineering to change a muffler any more than you need a M.D. to set a broken arm. You just need to know how to change a muffler or how to set a broken arm. Here comes an arumentum ad maternum… My mom was a nurse for twenty-odd years. And my mom knew what she was doing. There is no reason she should not have been able to diagnose basic illnesses, prescribe drugs, set bones, etc. etc. No reason. At all. My sister is just starting her M.S. in nursing courses (she’s a BSN). And, of course, the AMA is trying to strictly limit what services nurse practioners can offer under the law. So, the AMA is evil! And I would think so even if it was no skin off my sister’s back. There ought to be a guy, Manny, say, who does stitches. You cut your arm and you go to Manny’s stitches joint, which flourishes because Manny is the best at stitches. Manny leaves no scar! Ever! Moreover, he’s cheaper that some guy who spend years learning about the biochemistry of the human body. What does that have to do with stitches!? Why isn’t there a Manny’s Stitches Joint! You should be able to get a degree from the University of Phoenix in knee replacements. Just knee replacements! Why can’t you?! Because the AMA is evil. M.D.s are monopolists and welfare queens, and preventing a huge infusion of high-quality low-cost health care providers from coming to market. SHAME! If anyone attempts to say that our current system resembles a “free market,” point out that in a free market you wouldn’t have to buy a massively expensive indulgence from the Church of Medicine in order to sell health services.

  • Abolish the FDA

Of course!

  • Real insurance markets!

I don’t understand what passes as “insurance.” I complained last year that social security isn’t really insurance. Well, by and large, health insurance isn’t insurance, either. I want a real, very very lightly regulated market, that charges each person based on their real expected cost of coverage. Family history, ethnicity, weight, job, what you eat, whether you smoke, whether you live in a city or in the country, excercise, etc. all goes into the actuarial hopper. Mormons should pay less for insurance. They should! Deregulate. Yes, it sucks to be an overweight black male smoking underwater welder!

  • Health Care Ideas Future Markets

A source of free, highly reliable information about the most effective treatements. If you want to know if a treatment A, which costs half as much, works as well as treatment B, check the ideas markets.

  • Google (or whomever) Diagnostic Services

“Statistical prediction rules” [pdf] generally do a better job than real doctors at diagnosis (just by curve-fitting). Enter your symptoms, and the computer will ask you a few more questions, and then will tell you what you have with greater accuracy than some jackass with a God complex who spent $200,000 to get a blessing from Johns Hopkins. A quick search of the ideas markets and open insurance company databases will provide a menu of drugs and treatments by price, probability of curing or ameliorating your symptoms, alongside a map showing where in your area these are offered with user satisfaction scores of all these establishments (“Gash on your arm? You need disinfection and stiches. Try Manny’s! Avg. 4 3/4 stars from 26,734 users”) If we had a real market in health services, it would be possible to make huge amounts of money providing people with this kind of service. Which is a good reason to have a real market in health services.

  • Big HSA

Allow people to save lots of tax exempt money that they can spend on health care, which will be a lot cheaper in a competitive market for services. If you are poor, a percentage of your negative income tax payment is automatically deposited in your HSA.

  • Force people to have a catastrophic insurance plan.

I don’t love it, but in general I think systems that make people internalize costs are better than ones that allow them to foist them off on other people. Our choice seems to be forced internalization vs. forced externalization of responsibility. So I choose the former.

OK. Now here we go into the fun stuff. If we have real, risk-sensitive insurance markets, and we’re forcing people to buy catastrophic health, like we force drivers to have collision, we’re going to end up in the following situation: a non-trivial portion of the population will not be able to afford insurance, and a non-trivial portion of the population will be uninsurable.

So, you can’t afford insurance. What then? There are two reasons you can’t: (1) You’re plain poor; (2) Your policy is super-expensive. I haven’t thought this through yet. But the rough idea is:

  • If you’re poor, the government buys you a policy in the normal cost range. If you’re not necessarily poor, but you can’t afford your policy, because you’re risky to insure, you become, from the point of view of the state, uninsurable. Or you pay the premium for the most expensive policy you can afford, and the state tops you off. It depends.

The uninsurable people are the most interesting problem. The premium for a burning house is the cost of the house. When the price of your premium equals your actual medical bills, there’s no point in having insurance. Now, remember, we’re imagining a beautiful world in which medical services are decartelized and the costs are lower, and insurance premiums reflect the real expected cost of medical services on a competive, non-monopolistic market. Our prices convey real information, which is what prices are for. Inability to qualify for insurance puts you in a new legal category: insurance exempt. If you are insurance exempt, you have two choices for financing your health care. One, pay for it yourself. Lots of people who are uninsurable will be wealthy enough to simply pay for health care out of their own pocket. Two:

  • The Federal Medical Rationing Service

You’re insurance exempt, and you can’t afford to pay for health care out of pocket. Sorry! But don’t worry, we’re the government and we’re here to help. Unfortunately, we’re the safety net, and the safety net simply is not as good as things get. Here at the rationing service, we’re clear about what it is that we do: rationing. The Rationing service is funded by annual appropriations in the general budget from Congress. Since the 2009 Balanced Budget Amendment passed, Congress can’t appropriate more than next year’s projected revenues (except with a 2/3 plurality in both houses, and an OK from more than half the state legislatures.) So what the Rationing Service has to work with is a function of (1) our budget, which is a function of political trade-offs sensitive to the size of next years projected revenues (is it more important to subsidize ethanol or give more to the Rationing Service? Choose!), and (2) the number of people falling under the aegis of the Rationing Service.

What we do here is examine your case, examine the treatment options available to you on the roiling competitive market for healthcare services, or at your nearestl HRS facility, and offer you a voucher for an amount that will buy you the best treatment you can get relative to the Rationing Service’s budget constraints and principles of prioritization. With the voucher you will be given a menu of qualified treatments. We will include on the menu some qualified treatments that cost more than the voucher. If you are able raise funds from other sources (family, church bake sale, jar at the local McDonald’s), then you should feel free add those funds to your voucher to by a pricier approved treatment. You will not get a voucher for the most expensive treatment. But because there is a real market, you also will not have to wait in line (unless you choose to use a HRS facility). And you can use Google Diagnostic Services yourself (which, to tell you the truth, is mostly what we do), and you will often be able to find excellent qualified treatment for less than your voucher. You are free to put the savings in your HSA.

Rationing is less of a burden in the context of a real market. Our limited funds go a lot further. And you will not feel as bad not getting the very latest, most expensive treatments because the market will generate information that will make it quite clear just how little additional value you would get for the extra cost. You don’t feel like a second class citizen driving a ten year old Honda when it still looks pretty good and can get you from A to B just as well, and in almost as much comfort, as this year’s Mercedes. We give you vouchers for the health equivalent of ten year old Hondas. But they work. The crazy thing about the old system is that you couldn’t buy the health equivalent of a ten year old honda even if you wanted to! New Mercedes or nothing! How foolish we were then. There would simply be no way we would have a big enough budget to help all the insurance exempt in a world of nothing but new Mercedes. Either people would die waiting in line, or the debt would detroy us! Here at the HRS, we’re proud to part of a system that is both high-quality and sustainable.

And that’s pretty much it! For most of the population, this system gives them all the blessings of genuine market: high quality at low prices, an insurance market with prices that convey real information about risk (providing a real incentive to become healthier in order to decrease your risk and premiums), plentiful cheap drugs (your insurance company will require you to tell them when you start taking a drug, since drugs could make you sick, and the way they adjust your premium will tell you whether it is safe to take it), cheap, extremely accurate diagnostic and treatment information. And for the rest of the population, the market makes a rationing system in which the uninsurable receive quality care possible. Our problem with health care is, at one level, the same as our problem with education. We don’t have enough imagination to see that a system that unleashes the power of imagination would have a huge payoff. It is “too important” to be “left to the market.” So important that we leave it to a system sure to fail instead. Oh well. May the enlightenment one day arrive.

  • Nice article, this article was jam packed with some good health care information.
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  • Good stuff, this article will really help us specially health concerns.
  • goprivate
    How do you deal with a senior whose income is constant, but insurance premium will probably rise exponentially in the open market as he gets older and older? ("the premium for the burning house...")
  • They are not necessarily sane or feasible.But they are the best supplements of the bodies
  • An interesting point of view. Taken to its logical conclusion, of course, it could mean the dissolution of most professional standards sanctified by law, such as the practice of architecture (for which one must seek NCARB registration, administered and legally sanctioned by law in each state). Outside of being very good at what one does so that one may compete and win in a marketplace, implementing a regime of state approval and certification and then raising standards for approval and certification to extreme levels (so as to reduce the number of applicants who will be certified) is a good way to ensure that prices for services are kept higher---often much higher---than would otherwise be the case sans either certification or high standards. Certification is generally proposed to prevent competition in certain fields where it is felt that a certain minimum quality of service be maintained (and naturally, in light of a lack of incentive to do otherwise, be maintained ubiquitously without much positive deviation) instead of a distribution of quality of services as might occur within a market environment. The pegging of service quality in health care to some specific point along that natural distribution results in a disconnect between the people who are below that level in terms of what they could command in the marketplace based on their own positions within the socioeconomic distribution (arranged per income, say). Thus, it becomes incumbent upon the state, if it is to impose a minimum (and thus, generally, a maximum) standard of care, to acquire and redistribute productive surplus from those who create and collect more of it relative to the health care standard as correlated to the income distribution, such that those below such standard may gain access that would otherwise be denied them in such a state-controlled market.

    However, we see above that the problem with provision of health care services to 'all Americans' say, lies firstly in the imposition of a minimum standard of care by the state. Thus, Mr. Wilkinson's implication of a return to little or no certification is an alternative option to health care provision augmentation among the lower end of the socioeconomic spectrum, to the present proposals of federalized insurance for all. The most salient economic question, in my view, would be which alternative will render the largest growth in productive activity, which does not mean material productivity per se (and mind you), but simply more time and energy spent providing services by individuals for others (could be a mom having more time to spend with her children for example, on account of not being sick as often).
  • Don
    Is The Individual Medical Investment Account a step in the right direction?
  • James Morgan
    Consider the parallel with the architecture cartel. The history is similar: Brunelleschi (a goldsmith) and Wren (a mathematician) had no restrictive licensing regulations to prevent their entry into the field, but toward the end of the nineteenth century associations like the AIA and the RIBA began to lobby for exclusive control of the practice of architecture. They were less successful than their counterparts in law and medicine and in many States and in the U.K. there are (somewhat)limited practice options available for totally unlicensed individuals. Liability insurance does not seem to be a problem: most unlicensed practitioners have none, their clients know it and therefore do not bother to sue - the "man of straw" defense. Furthermore the actual damage that they can cause is generally pretty limited. Here in North Carolina unlicensed practice is mostly limited to single-family residential and minor commercial projects (less than 80K construction value). There are some weird anomalies: projects outside of this limit can be designed by accountants, engineers, contractors or building owners - almost anyone except an unlicensed design professional. It's as if Manny were not permitted to perform an appendectomy, but you could do your own, or your lawyer could do it for you.

    Other than that, it's caveat emptor.
  • Actuarial analysis is useful where variables are reasonably finite and some measure of the law of big numbers is at play. Take a look at the variance in claims outcomes in the field of malpractice, and you'll quickly just how little use actuarial analysis is on an individual risk basis. The most it can tell you appropriate aggregate premium should be, and how overall rates need to change from year to year. From that, you'll make adjustments for specialty and based on state-level data, or, in states with territorial rating, in a given territory. You might also makes individual rate adjustments based on other criteria, such as whether a person is working part time, or is new to practice coming out of medical school.

    But while large medical groups often are loss- or experience-rated, whereby the insurer's statewide experience is matched up against the group's own experience to determine how much variance that group should be granted from statewide rate levels, an individual doctor's own historical experience level generally isn't considered enough of an actuarially credible factor to support substantial deviation from a standard rate.

    At most, you might build some parameters into the rate structure to recognize the individual risk characteristics of an individual insured to allow for some variation around the statewide rate, so that rate can be adjusted up or down based on objective criteria — such as the absence or presence of previous losses. For instance, if a person went an extended period of time claim-free, they would earn a credit off of their rates. But if a person had a $100,000 paid claim or a $200,000 paid claim, you're going to treat those in a similar fashion.

    Contributing to the futility of rating individual doctors based on their claims experience is the fact that the vast majority of doctors will be sued at some point during their careers, and most on multiple occasions. While a majority of the cases are dropped or dismissed, defense costs will be paid by means of claims against a doctor's policy. That doesn't mean that all doctors are bad, but it means that even good doctors are going to pay like they're bad doctors in the current environment.

    Hence, as with all forms of insurance, the first determination to be made is whether a particular doctor, hospital or medical group represents an acceptable risk to underwrite at all.

    If the only thing you have to segregate acceptable risks from unacceptable risks is a four-year medical degree, then you can bet dollars to donuts that Manny's going to get the short end of that stick.
  • L
    I agree that the cartel is terrible, but I don't think it's as big a deal as you make it out to be. Obviously it makes doctors more expensive, but they're only a small part of the cost of medecine. Yes, it prevents Manny, but I think there are bigger things preventing Manny. It's not so much the legal monopoly as the psychological monopoly you called "the Church of Medicine."

    Without the cartel, there'd be more competition, but lack of competition doesn't explain everything. Isn't there enough competition already that we should at least do diagnosis by computer? McCardle says that cartels and unions "resist productivity-enhancing change," but I don't believe that's the explanation. The God Complex you mention is certainly a problem (that would be solved by eliminating the cartel), but I think a bigger one is that the Church discourages people from assessing doctors.

    RJ Lehmann: (re: insuring Manny) but why is insurance so conservative? Why don't actuaries exist?
  • Why isn’t there a Manny’s Stitches Joint!

    Actully, various "Mannys" and his ilk DO exist in the black market. Visit certain immigrant communities, and you can find them.

    But if the question is why there isn't a legally-sanctioned Manny's Stictches Joint, I'd break down the causal factors thusly:

    26% -- Rent-seeking exercise of monopoly priviledge by the AMA
    25% -- Legitimate concerns of policymakers about the ability of lay public to make ex ante evaluations of the minimum basic competency of doctors
    9% -- Reluctance of consumers to use less thoroughly-trained medical staff
    Remaining 40% -- Because NO ONE would choose to cover Manny's liability
  • we’re forcing people to buy catastrophic health, like we force drivers to have collision

    By and large, we DON'T force drivers to have collision. We force drivers to carry third-party liability. Collision covers property damage done to your own car in an accident. Third party liability covers the property damage and bodily injury that an at-fault driver inflicts on OTHER people.

    It's not a trivial distinction. The idea of requiring TPL (or personal injury protection, PIP, in no fault states) is to force the driver to internalize costs that he might otherwise be tempted to ignore. But even in the current highly regulated insurance markets, we still generally recognize that individuals ought be able to decide for themselves how to handle risks whose impact only they would bear. A lender could require that a driver carry enough collision to cover the outstanding principle on the car, but the overwhelming majority of states have no such requirement as a matter of law or regulation.

    Requiring it in health insurance would represent a fundamental break from established insurance law, and would likely have a non-trivial impact on the prices health insurers could extract.
  • Chris
    When you work for a company, isn't part of the point of group insurance to reduce the risk by having a group policy? That way, if one of you happens to come down with an expensive ailment, the group will insure the costs. Seems like a sensible way to spread risk to me. From what you say above, it sounds like you'd like it to be all individually based.
  • Tracy W
    Josh, there are a hell of a lot of cases where M.D.s fail to diagnose health problems.

    I personally wound up in hospital having an operation because the first doctor we saw assumed that the pain in my foot was a form of growing pains that would go away in 10 days or so. When in fact it was an infection, and by the time another doctor got me on antibiotics the infection was too deep-seated for them to kill it all. (My parents took me back to another doctor 3 days after the first consultation, as the pain was so much worse, imagine the mess I'd be in if we'd gone the whole 10 days).

    Or the doctor who missed that my friend's placenta had died in the last month of her pregnancy. (Well, I guess it's really the baby's placenta. She's fine, but very small.)

    I don't particularly blame doctors. I make mistakes in my job all the time (though the consequences are less). But it does mean that I'm not impressed by claims about risking patient safety - it's already massively at risk.
  • On the one hand:

    "Every profession is a conspiracy against the laity." -- George Bernard Shaw

    On the other hand:

    It is the hallmark of the gifted practitioner that he makes it look easy, even when it isn't.
  • Javier
    Some fantastic ideas. I agree with Austen that maybe one day this should be your area.

    Also, I'm reminded of when Robert Kuttner said "The hardest job for a liberal is to defend the D.C. public school system. The hardest job for a conservative is to defend free-market health care." To which Tyler Cowen responded: "Yes, but the D.C. public school system actually exists."
  • Brilliant stuff. What do you think would be the most effective ways to make your fantasy reality?
  • Will Wilkinson
    I'm reminded of a fantastic story I read last year about a black South African guy who was a prodigy and innovator in certain transplant surgeries. But he could not get licensed in apartheid SA. So, officially, he was a "janitor," but he would do liver transplants (or something like that) on the sly, because he was better than anybody at the hospital. I recall that he had no formal medical training.
  • Will Wilkinson
    Keep believing it Josh! How long did it take you to learn that, Josh? You think Manny is stupid. He's not! He's Manny! He's the best! Manny's seen it all. Putting a routine cast on a forearm with a persisting median artery is the last thing Manny would do. He knows when a case goes beyond his abilities, and refers his patients to the appropriate provider. That's one of the reasons Manny's customer satisfaction is so high.

    Tell me, seriously, how much time in medical school is spent on setting bones and the possible complications? Not much, right, unless it has something to do with your specialization? As far as explicit knowledge goes, knowing everything you could possibly need to know about setting broken bones would take what, a week? Two weeks? A month? Six months? There simply can't be that much to know. And the knowledge imparted in medical school about practical medicine is not esoteric or especially complicated. I could look it up myself, right now. So why not a University of Phoenix certificate in bone-setting?

    I saw a show last night in which a doctor replaced a guy's thumb bone (which had rotted out due to a bone infection) with a segment of his fibula (along with accompanying artery). It was incredibly delicate work, and just isn't the sort of thing you could do without a lot of advanced training.

    Then I watched one of those shows where guys build amazing (and beautiful) customized motorcycles from scratch. This is also incredibly delicate work, and is also not the sort of thing you can do without a lot of advanced training. Of course, if you screw up, your motorcycle won't DIE. Important difference! But the point is, guys with high school degrees are capable of not only functional but beautiful works of creative practical engineering with nothing but on-the-job training.
  • Josh
    Clearly this is not your area. If you knew how many possible factors go into making a diagnosis, how different each individual and case is and how many possible complications there are, you wouldn't want to put your own health into the hands of a computer. Nor would you entrust your health to "Manny's". To use your broken arm example, say Manny received a patient who had a broken forearm, but had a persisting median artery. placing a routine cast can possibly stenose the artery. only someone who has studied embryology (like in med school) would be to check for complications. The Human body is an interplay of many systems, for your idea to work, you would have to teach Manny 4 years of medical school.

    -Josh
    Medical Student
  • Nathan T. Freeman
    "Google (or whomever) Diagnostic Services"

    Actually, Will, I'm building exactly this here in South Africa. It's doctors-only at this point, but based on symptomatic and examination data, it drills down possible diagnoses based both on an MD-designed matrix and statistical learning as individual doctors override. It'll be at least a year before we're done with the first cut, but rapid- and even self-diagnosis is exactly the goal.

    You're absolutely correct in your first point about the priesthood of doctors.
  • penner
    You forgot outsourcing - India, we're looking your way. I heard somewhere a few weeks ago that the cost of a bone marrow transplant(?) in the US is about $2.5 million and in India in the tens of thousands range. Moreover, I think this solution is something that actually will happen.
  • Look what you've done now will, setting free-market hearts all atwitter with visions of a sane health care policy that is never to be. You're such a big tease.

    Your first three points are the really important ones and would be enough to bring down health care costs dramatically. Consequently, they're going to be the most difficult to accomplish. Everything else is just gravy.
  • Joel
    While we're at it, can we abolish the state bar associations, and fix the legal profession?
  • Reading your post makes me sad. I am looking into the future and I don't see this ever happening. But it makes so much sense.
  • Austen
    Man, why not ~make~ it your area. Or one of your many areas. Not many fantasies are as downright sensible as this one. Cato-disapproval notwithstanding!
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