Teaser Appetizer: Health Care Agenda For Barack Obama

Here we go again! The white house contenders are piping seductive music to our ears: the loud techno-heavy metal clatter about the Iraq war and the gospel-soul music for the healthcare. And we know it well — they will play only the doleful blues after the election.

Screenhunter_01_feb_04_2341Barack Obama has promised to provide health coverage for all Americans in next six years, which means 47 million uninsured would get some kind of coverage. Obama is certainly not the first candidate to garner electoral support by espousing liberal health care. In 1883, Otto Bismarck of Germany enticed labor support by passing the health insurance bill for the factory workers and he succeeded in severing the support of labor to the social democrats. On august 6, 1912 Theodore Roosevelt called for compulsory health insurance for the industrial workers, to outwit the liberal platform of Woodrow Wilson.

The health-care-for-all rhetoric tugs your heart — the uninsured suffer unduly from denied care. The truth always lies buried in the details.

The uninsured have extremely limited access to outpatient and preventive care. They rely on the hospital emergency rooms for their needs from where the seriously sick are admitted to the hospital and others go home after treatment. The hospitals shift the cost of their care to the other insured and paying customers. It is not that the uninsured don’t get health care but they are compelled to access it deviously and often in desperation. The ER visit is free but suffused with contempt.

The annual cost of providing the care to the uninsured is approximately 250 billion dollars. The current 1.7 trillion dollar system already carries this load. Obama should not tax and spend extra 250 billion dollars but squeeze it out from the current health care expenditure and make it visible and available. The current system is morbidly obese, with redundant flab. Even the cost of administering the current system sucks up at least 25% and some believe it to be even more. Canada administers its health system at less than half the US cost. And then there are layers of clever businesses cannibalizing the system without adding to consumer health.

Obama should fulfill his promise and also differentiate himself from other candidates. Here is a five-point plan for Obama:

1. Unified Payer System

No, this is not another single payer system attempt, which will again face fierce opposition from the entrenched. In 1993, Clinton health reform exercise collapsed because the American public did not trust a government controlled single payer or a nationalized health insurance, which denied local participation.

In the early 1970s Kennedy and Mills (Chairman of Ways and Means Committee) proposed a bill, which would have created a single national indemnity insurance plan based on fee for service with co-payments. The opposition from all quarters killed the bill in the congress. The medical establishment feared it as ‘socialized medicine”, labor complained of its inadequate benefits; republicans frowned on it as expensive and Wilbur Mills, the cosponsor of the bill found amorous relief in the arms of Fanny Foxe, a night club stripper.

Currently, every insurance payer insists on its own unique processes of fixing rates for medical services, prior authorization process, credentialing health providers, prescription plans and myriad other procedures. Health insurance industry is an inefficient behemoth probably beyond repair. The system is so dysfunctional that one wonders at the wisdom of financing the health care through indemnity coverage.

Obama should propose a unified standardized payment system with multiple payers. While the insurance companies can still sell the individual products, a unified standard payment system is likely to save enormous administrative costs.

This will differentiate him from Hillary Clinton who is likely to rehash the failed 1993 attempt.

2. Health Savings Account

Market system does not work in health care because of insurmountable asymmetry of information between the physician (seller) and the patient (buyer). The seller decides what the patient should buy. Add to this the vulnerability of the ailing consumer at the point of purchase and an assurance that some third party (insurance) will pick up the tab.

The indemnity model has built in flaws: moral hazard and inducement of demand: the consumer considers the insurance a free ride and demands more services, which the economists call, ‘moral hazard.’

In a landmark study by RAND, the investigators analyzed the magnitude of moral hazard over a period of three to five years by the health care utilization behavior of six thousand individuals in six locations. The participant consumers differed in the amount of co-payments they made and were grouped in five categories: one group got completely free care and the other four had varied co-payments from 25% to 95% of the charges. The results were revealing: while co-payments decreased the utilization, free care increased the utilization by 30%; and there was no difference in the outcome health status between groups. Co-payment decreased the threat of moral hazard.

The physician also plays the system. In order to preserve or enhance his income, the physician induces demand for more services. Victor Fuchs studied the correlation between the supply of surgeons and the demand of operations. (Journal of Human Resources, 1961) He found that 10% increase in the number of surgeons in a community would increase the demand of surgeries by 3%.

Hospitals also induce demand. Roemer, an economist, described a hospital in upstate New York, which had 139 beds and average occupancy of 108 beds in 1957.The hospital increased its size to 197 beds in a new building in 1958 and the occupancy increased to 137. Though there was no inappropriate care, yet there was no health enhancing benefit to the community either.

The traditional health insurance has responded to moral hazard and demand inducement by creating managed care, capitation, HMOs and other innovations. These organizations work on the principle of curtailing the seemingly unnecessary care and resource utilization. The proponents of these organizations claim that in 2005 the system spent 300 billion dollars less because of their intervention. But it is unlikely that the whole health system benefits much, because the cost saving shows up in the profit column of these organizations and insurance companies. The previous income of health provider now becomes the revenue of the middle meddlers.

That is why Obama must encourage the ‘Health Savings Account’ where the consumer saves money regularly in this account and pays for her care from the savings. The unspent money belongs to her. Coverage for major medical catastrophe supplements the savings account. The consumer has incentives to spend her money wisely, which may partially curtail moral hazard and the demand inducement.

3. Import Drugs

Every one knows by now, that the drugs are more expensive in the US compared to Canada, Europe and other countries. Obama should create mechanisms of approving, accrediting and inviting a selected few reputed foreign drug manufacturers to sell their products in the US at a negotiated cost similar to their home countries. The USA is in a strong negotiating position as it is the largest market for foreign drug manufacturers. An FDA approved accreditation and licensing process of the manufacturer will eliminate the fear about the quality and efficacy.

Under Mr. Clinton’s global initiative, some reputed foreign pharmaceutical companies are already selling drugs for AIDS in the rest of the world at a fraction of the US cost. There is no reason why it can’t be replicated here.

Obama will win the wrath of the US pharmaceutical industry and the votes of the senior citizens. Both are laudable goals.

4. Health IT

All health care facilities in the nation should be connected on an interoperable Internet platform. Each citizen should have a secure access to her life long health record and should be able to authorize its use to care providers of her choice. The technology is already here; what we need is a legislative push to expedite the process. This single important step will benefit the patients and decrease excessive testing, redundant procedures, length of hospital stay and medical errors. The electronic billing and payment will cut the fraud and abuse.

While considerable progress in this direction has occurred lately, Obama should encourage a time bound plan with an end point in next six years.

5. Liability Reform

It would be good for Obama to suggest caps on punitive damages to differentiate himself from John Edwards who made a fortune as an injury lawyer. He will endear himself to the medical establishment whose support he will need to push other reforms.

Barrack Obama needs neither a magnifying glass to search the glaring faults nor a hearing aid for the screaming inefficiencies of the current system. While some wisdom is desirable, mere common sense will suffice for the most part. His chances of achieving the reform in health are brighter than retreat from Iraq. There is enough money in the current system to cover the uninsured. Let the gospel-soul music play for long this time.

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