What Obama will need to do on health care

Obama says he will introduce a universal health care plan by the end of his first term, if not sooner. The existing private plans will be supplemented by a Medicare-like government option. Everyone is covered, and premiums don’t vary based on health status. Parents must cover their children, but no adults will be required to buy insurance, probably. Some estimates say it will cost $120-160 billion a year, but the money saved should blow that number away: Obama aims to bring premiums down $2500 for the typical family, if you also add in all cost reductions including Medicare and Medicaid. An Emory University study backed up Obama’s proposal and his numbers.

Already, as part of his economic stimulus plan, Obama announced an effort to put state-of-the-art technology, record keeping and internet linkages into hospitals and doctor’s offices, to save money and possibly lives.

Right now we pay more for lousy care: the Obama plan will reverse that, and it will help businesses with their costs and induce more hiring; the automakers in particular really want it. Coverage will improve: the new plan will cover those who are uncovered, help the under-insured, and encourage preventive medicine which benefits everyone who has skin in the game. It cuts out the middleman (the insurer) in many cases and cuts paperwork, both of which save tons of money; it also makes doctors compete for patients, bringing costs down in a way HMO’s can’t.

The start-up costs will be pricey, just when the cupboard is bare; we need to let people know that the costs will come down once it’s set up, and remind people that even though tax requirements may ultimately go up, other costs will go down further. Since many people like their current care, the changes should be kept as transparent as possible. Also, consumers do need to know more in general, to make good decisions not only about lifestyle but also health care itself. We must ensure that health care professionals are well paid so they stay in the game. We must beware of clashes between doctor-patient privacy and government oversight, or the Republicans will go nuts.

Other universal coverage systems are paid for by a combination of taxation and direct payments to the doctor or patient; sometimes employees and employers must kick in some money. Some national health plans mix national-level and local systems, something Romney would support. Many have the private insurance option for extra coverage on cosmetic procedures, private rooms, quicker service, etc. The tricky part comes when, in addition to mixing the methods by which the bills get paid you also mix the types of plans: when you have both private and public plans you can run into “adverse selection”, wherein the private sector tries to maximize the bottom line by dumping the unhealthy, creating a market imbalance between public and private. The Europeans use a risk compensation pool to equalize the risk between plans. The plan with your healthy people pays into the pool, the plan which collects the more unhealthy people takes the money out. In this way, funds compete on a level playing field and there is no advantage to eliminate people with higher risks because they are compensated from the pool. Funds are, in theory, not allowed to pick and choose their policyholders or deny coverage. If anything is guaranteed to cause the insurers to go bananas, it would be the comp pool idea.

Ireland got burned on this issue. They set up a compensation pool but then removed it; foreign insurers swooped in and grabbed the healthy customers, who were no longer kicking into the pool. Then the pool came back.

Even Newt Gingrich, no socialist, said "there is more than enough money in the system. We just are not spending it well." There are many ways to improve efficiency. Tom Daschle has endorsed the concept of comparative effectiveness, analyzing what works and what it costs, and using data to spot gaps such as the UCLA Medical Center which charges almost twice as much for similar care as other facilities. Streamlining paperwork and putting more online with good software could cut $250-300 billion a year in admin costs.

A key element will be health care strategies: coordinating care, researching the best treatments, rewarding performance, encouraging prevention strategies, managing chronic illnesses better, and rejecting the inclination of American patients to ask for expensive but unproven innovations. The MRI machine isn’t the answer to every diagnostic question!

Another key element: how doctors are paid. If there is no incentive to keep a patient out of the hospital, he’s going to the hospital. Lots of pricey tests too. Not long ago, Starbucks had a wave of back problems; their insurer, Aetna, incentivized therapy instead, and soon a lot of guys were going back to work with no MRI’s and no drugs.

Preventive care helps, up to a point. We could accomplish a great deal by taxing alcohol, tobacco and trans-fat into extinction, tackling obesity, cholesterol and heart and artery disease, and focusing on diabetes (which is costing around $10,000 per year per patient). But remember that if you prolong lives that way, you just have more old sick people at the other end. It’s still a worthwhile effort, though – perhaps 450 billion a year even without the taxes.