COMMENTARY

Readers Respond to "Beyond a Dying Private Health Insurance Industry: A Hidden Solution in Plain View"

Shaheen E. Lakhan, MS, MEd, AFACB, MICR, PhD, MD (c.); John A. Lanzalotti, MD

Disclosures

December 12, 2008

To the Editor:

The statistics provided by Dr. Geyman in his article "Beyond a Dying Private Health Insurance Industry: A Hidden Solution in Plain View" are quite an eye-opener.[1] With the US healthcare system being the most expensive in the world on both a per-capita basis and as a percentage of the GDP,[2] the falling economy has begun to show effects on the already collapsing healthcare system. The current economic recession is likely to worsen the state of affairs in health insurance as people will be unable to pay for increasing insurance premiums. As healthcare costs continue to increase and the future of the economy remains uncertain, there is no better time than now to formulate a solution to the healthcare crisis.

US House Resolution 676 (HR 676), the "New Expanded Medicare" bill, is one solution that guarantees healthcare for every resident vs simply guaranteeing insurance.[3] HR 676 guarantees that every US resident will be covered from birth to death with no preexisting conditions to be excluded from coverage. There are no deductibles or copays. It covers all prescription medications, dental and eye care, mental health, and substance abuse. Long-term and nursing home services are also covered. All of this coverage allows freedom of choice -- the patient can choose his hospital and his physician with flexibility regardless of his employer.

This new system seems to be a more functional "single-payer" method of paying for medical services. The current medical insurance system is bloated and redundant with excessive administration costs. It is estimated that 30% of US healthcare dollars, or more than $1000 per person per year, are allocated towards administrative costs.[4] This new system can save billions of dollars for the US taxpayer and eliminate redundancy. Moving to this single-payer system would reallocate the money currently spent on the administrative overhead needed to run the hundreds of insurance companies in the United States to provide universal care. With this new payment system in place, people will seek timely care when chronic diseases such as hypertension and diabetes are more treatable, without the fear of costly bills delaying the care. Keeping all of this in focus, HR 676 bill is definitely worth supporting.

Shaheen E. Lakhan, MS, MEd, AFACB, MICR, PhD, MD (c.)
Executive Director
Global Neuroscience Initiative Foundation
Los Angeles, California
slakhan@gnif.org
http://slakhan.gnif.org

References

  1. Geyman JP. Beyond a dying private health insurance industry: a hidden solution in plain view. Medscape Journal of Medicine. 2008;10(10):245. Available at: http://www.medscape.com/viewarticle/582020 Accessed October 31, 2008.

  2. OECD Health Data 2008: Statistics and Indicators for 30 Countries. Organisation for Economic Co-operation and Development. 2008. Available at: http://www.oecd.org/document/30/0,3343,en_2649_34631_12968734_1_1_1_37407,00.html Accessed October 31, 2008.

  3. H. R. 676. 110th Congress, 1st Session. 2007. Available at: http://www.pnhp.org/docs/nhi_bill_final.pdf Accessed October 31, 2008.

  4. Woolhandler S, Campbell T, Himmelstein DU. Costs of health administration in the U.S. and Canada. N Engl J Med. 2003:349:768-775.


To the Editor:

Our problem is out-of-control cost inflation in both the public and private sectors. Medicare makes undermarket value payments and is not a reliable payer. Medicare and private insurance are in market failure. Market failure has nothing to do with whether healthcare is for profit or nonprofit, private or government-administrated, single-payer or multiple payers.

The cause of sky-rocketing costs turns out to be 22 reversible cost drivers, all associated with insurance design in both the private or public sectors. In addition, market failure is due to uncertainty in both the incidence and treatment of disease and asymmetric information which contributes to moral hazard and ineffective risk handling. Arrow (1963) noted that it was only the professional nature of physicians that mitigated against market failure. Unfortunately, the professionalism of physicians has since been destroyed.

The design started with Medicare in 1966 with third-party payment and procedure-driven delivery. These same design features were then adopted by private insurance along with community rating and guaranteed issue. These features, although motivated by laudable social goals, have had unintended consequences.

A universal single-payer system is an overly simplistic recommendation for addressing complicated problems that will not work. A market economy with competition is the most efficient system for producing consumer goods and services. Markets solve problems, bureaucracies do not. Unfortunately, we don't have a market system in healthcare. We have a profit-maximizing mercantile system, a zero-sum game, created by the government. The consumer is not in the equation.

Three areas need reform if we wish to control costs. First, reform insurance design and eliminate third-party payment -- procedure-driven delivery that has created many perverse incentives. Address moral hazard, information asymmetries, and uncertainty. Design a new and efficient way to handle risk and create equitable risk pools that don't exclude the elderly, the poor, and those with chronic illness but subsidize their access in the least expensive, most efficient way.

Second, eliminate domestic mercantilism that has created power imbalances in the marketplace in order to level the playing field. Next, design win-win incentives with checks and balances that will serve as the rules of engagement to regulate a competitive market.

Third, reposition the doctor -- patient relationship as the focal point of the market. Align the financial incentives of the doctor with those of the patient. Have the doctor give the patient various price options within the context of appropriate care that will introduce competition. These demand-side incentives balance protection of the patient from unforeseen medical care expenditures with stimulating cost-conscious consumer choice. On the supply side, regulated care is eliminated and, with it, the distortions and cost inflation it has created.*

John A. Lanzalotti, MD
Policy Director
The Jeffersonian Health Policy Foundation
Williamsburg, Virginia
johnallen1026@cox.net

*Mercantilism: Our current healthcare system resembles domestic mercantilism more than a market system. Mercantilists viewed the economic system as a zero-sum game, in which any gain by one party required a loss by another. Any system of policies that benefited one group would by definition harm the other, and there was no possibility of economics being used to maximize the "commonwealth," or common good. Domestic mercantilism is characterized by monopolies and protectionist (protectionism results in loss to overall welfare that gives no one any benefit, unlike in a free market, where there is no such total loss) laws and policies conferred by government which result in profit maximization for the corporate industry, third-party rationing, and price controls for the patients and doctors. Government benefits, in turn, by corporate payments to government in the form of lobby contributions. This behavior persists because of rent seeking (in economics, rent seeking occurs when an individual, organization, or firm seeks to make money by manipulating the economic and/or legal environment rather than by trade and production of wealth. Rent seeking is often associated with government regulation and misuse of governmental authority (as in our recent financial debacle on Wall Street) by vested interests of the healthcare industry and government who benefit. Mercantilists confuse wealth with money.

Editor's Note:
These letters were shown to the author, who has chosen not to respond.


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