Healthcare incentives - $640 Billion problem
The New England Journal of Medicine just published another one of its excellent brief perspective pieces that looks at the incentives in health care and why cost improvements realized in one place don't propigate through the industry, like they do in others.
The $640 Billion Question — Why Does Cost-Effective Care Diffuse So Slowly?
"There are, however, individual U.S. physicians and health care organizations that deliver high-quality care at a cost roughly 20% lower than the average. If the rest of the U.S. health care industry followed their example, health care spending would drop from 17% of the gross domestic product to 13%. Though that would still be well above the spending level in other high-income countries, $640 billion would become available for addressing other important public- and private-sector needs. Why don’t cost-effective models diffuse rapidly in health care, as they do in other industries? The answers to this $640 billion question lie in the perceptions and behaviors of the major participants in health care."
The article goes on to discuss many of the conflicting incentives that all tend to drive care up in cost or at least work against driving it down. Here they do well. However the article concludes with some (well, really one) suggestion:
"Do these barriers condemn the United States to financial Armageddon or diminished health care for less-affluent Americans? One escape route is tax-supported universal coverage, the finance method that works best in most other high-income countries. Another is disciplined managed competition among health insurers, enhanced by national harmonization of the way in which commercial insurers, the Centers for Medicare and Medicaid Services, and other payers compare providers on value and of the weight they place on value when tiering network providers and paying them. Both solutions require payment reform. Neither solution is politically feasible without robust physician support ..."
Tax supported universal coverage is a non-starter in the US, as it should be in my opinion, though I would not be opposed to a default government option. Disciplined competition wouldn't solve some of the issues laid out in the article, primarily the lack of incentive of employers to communicate cost importance to individuals.
In my opinion (not often welcome), we need to move from an employer sponsored health care system to an employer reimbursed one. The government only has one incentive string to pull (or push) and that is tax code, so such a program would have to be based on tax incentives. To engage consumers into the costs of care, they have to be aware of them, and an annual letter letting them know how much their employer is paying for the service is far from engaging. This means the health-care benefit should become taxable (yes controversial and a tough sell), but with a generous offset deduction. The consumer has to be aware they bear the cost of healthcare, as they do now invisibly. Employers too need to have an incentive, probably in the form of a reduced tax rate, to reimburse for health-care costs (probably through payroll deduction for offered or any plans). Opting out to receive additional income should not be an option i.e. if you don't pick a plan, you don't get the reimbursement from your employer, and the income deduction isn't available to you either. The consumer psychology of healthcare costs has to move from an impression that 'it’s a free benefit' to one of 'I'm leaving money on the table if I don't have basic care'.
Home Coverage Fool