In the purest sense, health insurance should be burden sharing. Everyone pays the same amount for coverage, and everyone receives appropriate care, regardless of individual cost. It is pure and simple "socialism", and the objective is that everyone gets that appropriate care while the burden of cost is "shared" equally or proportionately based upon ability to pay. For such burden sharing to be truly a "social program", membership in the population receiving the care and paying for the benefit must be mandatory for everyone in the society.
In many areas of what might be considered "social programs" in the US, however, the cost burden and/or delivery burden is administered and collected by competing entities. And sometimes, the competing entities are really the right and left hand of the same organism. In this environment, we find "burden shifting". That is where the cost and/or delivery of social services is shifted from one subset of the population or entity to another. I would offer two examples:
A while back, the commander of a Naval Hospital received an award for the cost saving to the regional Naval budget realized by closing the hospital's emergency room and directing the sailors, dependents and retirees to the nearby civilian hospital some 20 miles away. For active service members, of course, the cost of civilian emergency room care would be borne by the regional budget, at a per patient rate higher than at the Naval hospital. But for the dependents and retirees, the cost would be shifted to TRICARE, and these potential patients outnumbered the active duty sailors by about 5 to 1. Thus, a net saving to the Naval Hospital. The decision was made on budgetary terms alone, and with no coordination with the local hospital or ambulance service, who saw the population they were to serve for emergency services more than double. Lost in the joy the regional medical command expressed over this exercise in creative accounting was that the true payer of the bill for this care was the US taxpayer, who would ultimately pay more for civilian care than that at the Naval hospital. I won't even begin to try to evaluate the effect on overall quality of care to the residents of family housing who's emergency room services just moved 15 to 25 miles further away. The end result is that the Captain got an MSM, the taxpayer had to pay more for less and patients had to travel further for care.
The second example is more recent. Miami Charity hospital found that it could no longer afford to provide free scheduled dialysis services to the indigent. However, these same patients could, when their medical state reached a sufficiently high level of danger, go to the emergency room for dialysis, which would be paid for by the State, at a rate much higher than for the cost routine treatment. So, by putting the patients at constant and recurring medical risk/danger, Miami Charity could shift the burden of indigent dialysis from their benefactors to Medicaid, and even pick up some extra bucks doing so.
In the main, the US health care industry is based on burden shifting, not burden sharing. Since there are multiple insurers and multiple populations in the pool, it is "sound business practice" to shift burden to keep the costs for any specific population pool down. Since insurers could terminate someone's coverage, that burden could be shifted to public assistance and/or the patient. Since employer provided insurance is based on a pretty well defined population, actuarial data could tailor premiums for that population and only that population, without regard to the cost of care for the general population from which the insured were drawn. Since some populations could afford higher priced care than others, providers could raise prices for health care to what the market could bear, and it would be spread . Of course, once an appendectomy, for example, is bench marked to a new higher price, pressure comes to bear for all appendectomies to carry the same price.
But burden shifting isn't just the domain of government entities. Employers include the cost of health care insurance in their operating expenses, passing that cost on to their customers. Remember all the bruhaha about the embedded cost of the "Gold Plated Health Insurance" in the price of a US union-made car when Detroit went down the tubes? Well, the consumer began to bitch about their fellow Americans shifting the burden of their health care to their fellow American. Why? Because it became visible, for one reason. My neighbors here in Greece were puzzled over how health insurance can be "Gold Plated", as to them, you are either insured and receive health care or you aren't. Try to explain deductibles to someone in Europe, and their eyes glass over.
Health care isn't the only arena where burden shifting takes place in the US. It is not uncommon for states to rely on ear marks and pork to ease their internal tax burdens. Let the folks in all the other states help pay for our roads and schools in MS. Get a state or federal grant to bring our sewers up to decent sanitary standards in our town in NY. And the burden gets shifted from one sub-population to the other. But the fact is, we are all paying for it, and sooner or later the piper has to be paid, and when that happens, it's typically a catastrophe, as is the impending case with health care. We have run out of sub-populations to shift the burden to.
What's really insane about paying for health care through burden shifting is that when it's included in the commercial price of goods and services, we not only pay the direct cost, but the enterprise's desired profit goal throughout the chain of distribution. So if health care costs $1,000 per vehicle for GM, as so often cited, GM will add X% to it's total cost to meet their profit goal, and the consumer will pay $1,000 plus X% to fund GM insurance beneficiaries. Why $1,000? Because GM can only shift that burden to buyers of their cars. Buy a Mercedes, and you may very well be getting a car made by a beneficiary of national health care and a much more efficient health system, and much less of the burden is shifted to you.
And all of this so that we can fool ourselves into thinking that we are not paying for someone else's benefits!
WASF
"It is pure and simple "socialism", and the objective is that everyone gets that appropriate care while the burden of cost is "shared" equally or proportionately based upon ability to pay."
ReplyDeleteNo, it's actually pure counter-socialism (in its public form).
It was introduced for the first time by a 19th century archconservative royalist chancellor of the German Empire. Bismarck introduced it explicitly to counter socialists by decimating their nutrient medium: social unrest.
The non-public health insurances pre-date Bismarck's public health insurance. These earlier insurances were essentially labour union or church-managed clubs. See? CHURCH.
Many labour unions of that time were furthermore non-socialist, some were indeed outright conservative.
Bismarck wrestled against the churches for secularity and primacy of the state and against the socialists for the majority in elections (relevant for budgets and laws). That's in part why he created the first social insurance system, the German health insurance system. He used it as a counter-socialist and counter-clerical tool.
Americans never cease to irritate me with their distorted idea of what constitutes socialism and what not. Seriously. We invented that stuff. We defined it. Stop trying to re-define it, please.
Risk-sharing is not socialism.
Oh, and finally; "burden-sharing" is not the optimal choice of words. Economic science emphasizes the risk-sharing aspect of insurances instead. Insurance = risk sharing by definition.
A focus on "burden" doesn't help nearly as much as the one on risk.
Hmm, I seem to remember a slogan somewhere...
ReplyDeleteAh yes: "From each according to his ability, to each according to his need."
Although, I will admit that socialism and small c christianity overlap to a considerable degree.
So it is no surprise that church groups and marxists might approach some things similarly.
Sven-
ReplyDeleteI think you missed the point. When the burden is shared across the entire population as a single "risk pool" (to use the insurance term), the system functions quite reasonably. Each player is doing his/her part as a member of the risk pool. When the burden is shifted to people outside the risk pool, things can and do get dysfunctional. And, one major problem with medical costs in the US is the intentional manipulation of risk pools and shifting of burdens for those risk pools to as many outside populations as possible. The disconnect is that in all actuality, medical care ultimately addresses the entire population, and the burden shifting is simply a very expensive shell game.
I am not denigrating socialism. I am simply stating that a proper medical insurance program should be socialist in nature. The US does not enjoy such a system. Health care access is not universal, and much of that is due to the escalating costs of a fragmented system in which costs have not been contained. I offer that significant enabler of that cost explosion has resulted from pure and simple burden shifting - making it so that someone else, outside your specific risk pool is actually paying the costs, at least in the short run. Ultimately the bill has to be paid, and with sub-populations shifting the burden to each other, in the final analysis, everyone is paying, just excessively more so. Since risk pools overlap and share common providers, you don't get any savings via economy of scale. etc. Just chaos.
"When the burden is shifted to people outside the risk pool, things can and do get dysfunctional."
ReplyDeleteAn external entity carrying part of the burden is called subsidization and is not uncommon for social insurances. The German unemployment social insurance gets subsidies all the time.
Insurances have two theoretical major flaws; moral hazard and adverse selection.
Your "burden shifting" is either about subsidies or distantly related to the adverse selection problem.
Basic regulation should easily solve the problem.
Sven-
ReplyDeleteThe burden shifting can be subsidies, excluding individuals after the fact from the insured pool, "passing the cost on to customers" or selective selection of pools to be insured. Since insurance rates and sources of funding are from a plethora of sources, it's a nightmare. And, all of these "pools" are selectively drawn from the general population, but are not necessarily representative of the general population in risk and health care cost experience. Many of these "pools" share the same private care providers, but often contract for different prices based upon purchasing power. However, the providers base their "asking price" based upon ofsetting lower contract prices. As I posted elsewhere, a hospital may accept $1 for an aspirin from your insurance company, but if you pay the bill out of your own pocket, the payment demanded could very well be $2.
You keep expecting precise German rationality in a system that has become totally irrational over the past 50 years. As I keep pointing out to my German neighbors here on Paros, for all your claims of rationality, your expectations of the rest of the world's cultures to embrace German rationality is irrational in itself and undermines your claim of perfect German rationality. Why would everyone want to boringly rational?
WASF, Excellent posting! Well researched and well written.
ReplyDeleteThanks.
Jay in N.C.
Al,
ReplyDeleteGood post. Personally, I don't think the "insurance" model works very well with health care for a number of reasons. So I stay away from calling it "insurance" to begin with.
Your post does a good job, I think, of highlighting an important aspect of the balkanization that defines our system. One might argue it's not a "system" at all, but systems within systems within systems.
Andy-
ReplyDeleteInsurance works in other countries, but they are either single payer systems or mixed national health care/private care with very regulated insurance and mandated universal care. In a mixed national/private system, the private sector pricing is constrained by the competition from the public sector system. Consequently, the other industrialized nations spend at least half per capita on health care, not because it is inferior, but because their systems actually function in a rational manner.
And, I have met very few Americans who have lived where there is national health care that prefer the US non-system. The interior decorating may not be as pretty, but the health care is excellent. All the stories about "rationing" and "life threatening waits" are just that - stories. A 75 year old fellow from the UK who has a summer place down the road had heart valve replacement and a pacemaker done last year. The need was diagnosed as moderately urgent, so he wasn't scheduled for surgery for four months. Never at risk, and only needed to avoid strenuous exercise while waiting for the surgery. Was impeccably monitored during recovery and rehab and is now his old self. He's a retired flooring installer, so the care wasn't due to clout. He said that anyone who claims that there are UK "death panels" ruling out care for the elderly can call him.
Most folks we talk to say the claims about health care outside the US made during the health care battle royal were more ludicrous than GWB's claims about Iraqi WMD.
Al,
ReplyDeleteI'm quite aware of how much better most other health care systems are and what's quite striking is how different they all are yet still superior in most respects to our system.
My understanding is that competition doesn't play much of a role in most health care systems including ours. I don't think private insurance is cheaper in other countries because of competition with public coverage since private systems usually don't compete directly (though not always) with the public systems - private insurance is usually used to buy extra or premium services on top of whatever the public system provides.
Besides, our public sector system is still way more expensive than elsewhere and its costs are currently growing even faster than private sector insurance; hence my skepticism that health care finance reform (ie. changing who pays the bills) is going to do much of anything.
Frankly, I'm quite skeptical of competition as a cost-reduction measure in health care, especially here in the US. We might be able to get insurance competition if all providers had to accept all insurance at similar rates, but they don't. Providers are not even required to accept Medicare (though some states are trying to change that).
If there is any competition in our system, it's between insurers and providers. As it stands, the large insurers have the clout to negotiate lower rates with providers, who are also frequently large corporations with a lot of clout. The current system strongly incentivizes consolidation of both providers and private insurers. If you're a little insurer, you cannot hope to get the rates a big insurer can, so you can't compete. Big providers can push the other way to ensure rates stay high. The little insurers and the little private practice doctors can't compete in that rate competition game.
Also, since most people in this country get coverage from their employers, there is no competition there either - you are stuck with whatever your employer offers.
I think competition might work, but we'd need a completely different system from what we have now and those kind of changes don't look likely anytime soon.
Having a plethora of players in the "market place" is not necessarily "competition", unless one of them is setting a baseline that holds prices down.
ReplyDeleteActually, here in Greece we have head on choice between public and private. We can see a private GP, for example, or go to the NHS center. Generally, office visits to a private practioner are 25 Euro. I went to see a private dermatologist (small basal cell carcinoma) rather than wait for the NHS visiting dermatologist (every two weeks), and the office visit was 25 Euro and a referral to a general surgeon. Probably could have seen the NHS GP, but the private practice dermatologist is widely respected and rather well published, so we simply went there.
The point is that the private competes with the public here for patients, not who pays the bill. Everyone contributes to the public system costs. Private insurance picks up some costs of care at a public hospital (supplies, meals) plus anything extra the plan allows. Public health care offers no vanity care (tummy tucks, liposuction, nose jobs), but does have excellent reconstructive surgeons for accident and congenital work. Thus, the base overhead for truly vanity treatment is missing from the equation. But even people with private insurance that provides for 100% private care still pay their share of the public system costs as well. You cannot withdraw from the primary risk pool. You can move into and out of or between private risk pools, but you are always a full participant (payment and eligibility for treatment) in the national risk pool.
The point I was making about "burden shifting" is that:
There are indeed many cases where the actual cost of care (or insurance) is shifted away from the population receiving that care, so that neither the provider nor the recipient has a vested interest in containing costs.
The various sub-populations receiving care often receive it from the same providers, who can play loose and free with the "list price" of a given service while offering discounts to draw business. Since each sub-population is having their care paid for by different insurers or government entities, many of which are engaged in burden shifting, there are really no rational "market forces" at play other than a seller's market - until the bubble begins to approach bursting point.
Continued in Part 2
Part 2
ReplyDeleteThe Naval Hospital emergency room is a prime example. The total cost (to the taxpayers) for emergency room care (via TRICARE) for the effected sailors, dependents and retirees will be more at the civilian facility than the savings at the Naval Hospital. In fact, when the grand announcement was made, and the regional commander fawned all over the hospital commander, they had no idea of what the TRICARE costs would be as a result of shifting the burden. Further, they were totally unaware that the hospital in question was on the verge of refusing TRICARE direct payments due to low reimbursal rates. The TRICARE patients would have to pay out of pocket and seek reimbursal. (The hospital and TRICARE ultimate agreed on a higher reimbursal formula) The shift of the load had never been discussed with the hospital, but the MSM award cited this as a "model for other Naval Hospitals in the region".
In the final analysis, the Naval Hospital shifted the emergency room care for several thousand people, at an annual cost of $X per year to the Navy's regional medical budget to the civilian hospital at an annual cost of $X + Y%. The per capita annual cost of emergency room care footed by the tax payer increased by Y% as a result, yet no better care was provided, and for some, moving the point of delivery 25 miles further away was most surely a degradation in care.
If the above were an isolated incident in the total irrationality of health care delivery in the US, it would just be a humorous anecdote. Unfortunately, balkanization and burden shifting are commonplace and often seen as a "business necessity" and all it does is drive costs up, because for a temporary period of time, the entity that shifts the costs can allow higher costs. Since next week is as far as most Americans want to labor to see ahead, such short sighted financing of health care seemed to work.
Another difference between the US and countries with National Health Care or single payer health insurance is that everyone remains in the national health care risk pool in terms of paying in and eligibility for care. Even if they opt for a private option, it does not effect the public option in cost or benefits. In fact, it can make the public option even better, as there are fewer claims against a system funded by everyone. In the US, people tend to move from one risk pool to another as their insurance changes or goes away, yet there is no risk poll representing the full population. Massachusetts may have changed that at the state level, but there are still cross border insurers (Medicare and TRICARE) for example that can skew the risk pool.
Al,
ReplyDeleteThose are all good points about burden shifting. I agree that's a problem - one of many sadly.
Andy-
ReplyDeleteI honestly think that it is one of the major reasons that costs rose so dramatically over the years. With the ability to shift burden and manipulate the risk pool, cost containment was not "necessary" for many players until costs had just gotten too high to avoid and came back to haunt those who had previously been able to effectively shift cost burdens.
If, for example, an insurer or payer is able to avoid paying the full costs of services from its own resources, but these costs still get paid by someone else, the "perceived" cost will be lower, at least for a while. Meanwhile, the accepted "market prices" of the services grow until that begins to cause pain for everyone. There is no question that the per capita costs for the overall US population grew wildly, while the rate on individual, "felt in the pocket", cost lagged somewhat. It was just a "Slinky effect" of immense magnitude.
Al,
ReplyDeleteI agree that the "someone else's money" problem is a big cost driver. Fee-for-service is the other IMO. Together bad synergies are created.