Jane Galt on Healthcare

I'm been a big fan of Megan McArdle since her Live from the World Trade Center days. She has become my model for not jumping into a discussion without questioning the assumptions. Here are four of her recent blog entries on healthcare, culminating with her suggestion for addressing the problem. I have included excerpts, but this is something that I think deserves a lunchtime read-through of the original entries.

I am going to advocate her approach to my congresscritters.

What's happening on health care?

A few weeks back, I noted that national health care seemed to be the only major policy programme that the left could basically agree upon. Now, I hear the stirrings of a push for national health care rippling through the liberal blogosphere like a rising storm wind.

If this movement actually takes off, I expect that we'll see a great deal of vehement argument between conservatives screaming that the liberals are going to screw up our health care system, and liberals arguing that conservative people are hardhearted bastards who want the poor to die. So before that happens, I thought I'd set down some quasi-reasonable thoughts about what we want from our health care system, what a single-payer US system would probably look like, and what the pro's and con's of such a system would be.

The first point to make is that our health care system is already screwed up. The practice of having your employer pay for your health insurance is lunatic. We should not be surprised at what we get when the person who pays for your health insurance is not the person who consumes it....

Health Care, Part II

Let's think about where the money actually goes:

• 30% of all healthcare expenditures occur in the last six months of life
• 31% of expenditures are on hospital care
• 9% of spending is on nursing homes
• 22% of spending is on physician and clinical services
• 10% of spending is on prescription drugs
• 10% of spending is on dental/other professional care
• 10% of spending is on medical equipment, supplies, and construction
• 7% of spending is on administrative expenses

So how likely are either Health Savings Accounts, which encourage consumers to shop around because they're spending their own money, or single payer, to reduce any of these categories significantly?

In theory, either HSAs or single payer could cut down on many of these expenses. In practice, colour me unconvinced...

Health Care, Part III

It is possible, even likely, that a government-run health care system would be able to batter cost savings out of suppliers of medical equipment, supplies, and pharmaceuticals. But that doesn't strike me as a good thing. The high returns on medical equipment and drugs are what encourage people to invent more such. Get rid of the return, and you get rid of the innovation. Generating cost savings on new technology in order to cover today's uninsured simply privileges one small group of unfortunates over the very much larger group of people, living now or in the future, who have diseases which we can't currently cure. The lucrative American market is currently the only incentive left for medical innovation; I am very much against destroying it.

Single payer advocates retort that pharmaceutical companies spend a lot of money on marketing, which is true, but irrelevant--forcing pharmaceutical companies to price at cost-plus will kill the research along with the marketing. Actually, if I were running a pharma company, and something torched my profits, I'd kill the highly speculative research before the lucrative marketing campaigns. If we want to stop pharmaceutical companies from advertising, or selling directly to doctors, surely outlawing those things is a much more effective way to manage it than slashing their profit margins and hoping that they cut only the things you want them to.

Others argue that the government can take over the research. Perhaps the government is necessary to fund basic research; I haven't studied the question. But looking at the defense industry, where the government is the sole purchaser and major funder of new technology, it's very, very hard to believe that applying a similar model to health care would result in greater value for money. Rather, it seems very likely to me that politically popular diseases would get an even more disproportionate share of funds than they do now. Pharmaceutical companies have to pay attention to things like the size of the market, and the strength of demand. Politicians pay attention to how loud the lobby is, which is why breast cancer and AIDS get research funding all out of proportion to the number of people they kill...

Health Care, Part IV

All that's very nice . . . but how do we bell the cat?

Here is my suggestion. It is simple and elegant enough to be explained in a single sentence, yet powerful enough to meet all the criteria above:

Have the government pay for all health care expenditures above 15% of adjusted gross income, and cover 100% of health care expenditures by people living under 200% of the poverty line.

This preserves the market in most health care services--happy [Health Savings Account] advocates! It is progressive, and provides universal coverage--happy single-payer advocates! It directs coverage to those who really need it--the very sick--without a middle class subsidy--happy Jane! And it preserves market prices for almost everything from hospital beds to surgical procedures, since a significant fraction of the market will be paying their own way. That keeps the government from having to set prices, which as Soviet Russia showed us, is generally a bad idea. Most importantly (from my perspective) it preserves the market for innovations in drugs and medical equipment.

It is certainly not perfect. For one thing, I make no promises that it will control costs; I only allege that it will improve quality.

But you know what? We're rich. We're really, really rich. We're the richest country in the entire history of the world.

We're so rich that we have stores full of nothing but beautifully sculpted plumbing. What do we want to spend our money on that's better than health care?