A Three-Part Plan for State Health Care Reform

Published February 1, 2008

The first in a series of excerpts from The Handbook on State Health Care Reform, by John C. Goodman, Michael Bond, Devon M. Herrick, and Pamela Villarreal.

The U.S. health care system faces three fundamental problems: cost, quality, and access.

Problem of Cost

Health care spending per capita is growing twice as fast as national income. If this trend continues, health care will crowd out every other form of consumption by the time today’s college students retire.

Some proposals focus on one-time changes in behaviors or systems, such as encouraging everyone to exercise more and eat right. Other proposals would introduce cost-reducing computer technology. While these measures may be worthwhile, they all would cause a one-time reduction in costs instead of permanently changing the rate of growth of health care spending.

Other proposals urge us to do what other developed countries have done–lower fees paid to doctors, nurses, and other health personnel. However, these measures do not lower costs, they merely shift costs from patients and taxpayers to providers.

Real reform means someone must choose between spending on health care and other uses of money. That is, someone must decide when the value of one more MRI scan is not worth the money it costs; or that the value of one more knee replacement is not worth the money it costs; or that spending one-third of Medicare dollars on patients in the last year of their lives is not worth the expense.

Problem of Quality

A RAND Corporation study found on average patients get appropriate care only about half the time. An Institute of Medicine report concluded 4 million to 5 million hospitalized patients nationwide are harmed by medical errors each year. Other surveys show the medical community is not taking advantage of computer software that would greatly reduce errors and improve quality.

One set of proposals would have insurance companies and government pay doctors more when patient care meets certain objectively verifiable standards, and pay less if those standards are not met.

Unfortunately, this system is flawed because it’s based on buyers of care telling providers how to practice medicine. This runs the risk of encouraging doctors to focus on some tasks (those that are highly compensated) while ignoring others (those that are meagerly compensated), irrespective of what is best for patients.

Real reform means correcting the source of the problem. In the current system, health care providers do not compete for patients based on quality. As a rule, quality improvements do not increase their profits and quality reductions do not reduce them. Moreover, the primary reason providers do not compete on quality is that they do not compete on price.

Problem of Access

Although low-income, uninsured families in the United States get a considerable amount of free medical care, there are problems with access. All too often when they do not face the barriers of rationing by price, they face barriers of rationing by waiting.

A common assumption is that access to care would improve if the uninsured were enrolled in Medicaid or the State Children’s Health Insurance Program (SCHIP), the federal/state program that provides insurance for children in near-poor families who earn too much income to qualify for Medicaid. What this view overlooks is that uninsured and Medicaid and SCHIP patients tend to get their care at the same places regardless of insurance status.

The only real solution to the problem of access is to allow low-income patients access to the same range of doctors and facilities as those who are privately insured. In general, this will be possible only if they are enrolled in the same health plans.

Real Reform

It is impossible to solve the three most important health care problems in a short period of time. Nonetheless, we can judge incremental reform efforts by three criteria:

1. Does the policy force anyone to choose between health care and other uses of money?

2. Does it force any provider of care to compete for patients based on price and/or quality of care?

3. Does it give low-income and uninsured patients access to the same services as those who are privately insured?

Health care may be the most complex of any social system, and complex systems cannot be effectively managed, planned, or controlled from above. They can function only if decision making is decentralized and the people making the myriad individual decisions have good incentives to make good decisions.

John C. Goodman ([email protected]) is president of the National Center for Policy Analysis. His health care blog is at http://www.john-goodman-blog.com/.

For more information …

The State Health Care Handbook: http://www.ncpa.org/pub/special/20071112-sp.html