Stripping the Insulation from Healthcare

First, a shameless plug for my suggestion to reform Medicare first before asking the American people for more responsibility: Peggy Noonan, an editorial writer for the Wall Street Journal makes the same suggestion,in the ghostly form of FDR, in her weekly Declarations column on August 1, 2009. Maybe I'm not crazy after all!? Link here.

So, in my previous blog entries, I wrote that by making consumers and providers more aware of the real cost of care, we would take a step towards reforming the system. In this entry I will walk through a very simplified ripple effect of how it might work.

• People know the cost of their care (e.g., my angioplasty costs $7500)
• People pay more up-front for their care with Medicare's new high deductables (e.g., I pay $5000 out of pocket for that angioplasty. Ouch!)
• More physicians get paid more directly, and more quickly (claims have a lot of friction, cash is immediate and transparent)
• More physicians want to take Medicare patients into their practice (now Medicare pays well, and quickly)
• Brief tangent: as a whole, reimbursement rates for healthcare professionals usually do not cover the cost of care. For example, the doctor incurs 100% of the cost of your checkup, and your insurance company decided that 60% of that amount is "reasonable". This leads physicians to be tempted to "cost shift" and perform services that have higher reimbursement rates in order to cover what they should have been paid in the first place. How would you feel if the government declared that you were being paid 40% too much for your job?
• Over time, more med students and RNs go into primary care to get paid Medicare's higher reimbursements instead of the current trend of more students and RNs fleeing into higher-paid specialties.
• As supply of primary care physicians increases, prices decline, quality increases (simple elasticity of supply)
• As Americans realize cost of care, they proactively take better care of themselves, use services less, pay smaller premiums and copays (simple elasticity of demand)

In the end we have more docs, willing to provide more care, at lower cost, higher quality, and healthier Americans. No, this is not a silver bullet (this is) and there are many other pieces to the puzzle, such as policy changes in subsidies that make unhealthy food cheaper than healthy food, and the inevitable cultural angst we will feel with changing from conspicuous consumption to consumption with integrity. In other words, if you exercise your freedom to engage in unhealthy behavior, you have the integrity to exercise your freedom to pay for it.

And as an old friend of mine mentioned, this plan should not include people with congenital illnesses or genetic causes to what ails them. I do believe we are a fair, generous, and compassionate nation, but if we are to take good care of the people who truly need it, we must take better care of ourselves first with better information and better choices. We are insulated from the cost of care, and strippling that insulation away might yield some unexpectedly positive results.