Monday, July 27, 2009

Dipping my toe in the health care debate

[Edited to reflect a below comment from Doctor Baloney]

I've had many conversations with folks recently about whether Obama's public health care proposal is a good idea or not, and I have no conviction yet of which side to support.

That said I do have an observation and a question.

Let us agree that the "burning platform" of US health care is the large, sustained increases in health care costs. Fundamentally, that increase is driven by three factors - one demand-side, one supply-side, and one structural. The only way to really contain costs is to reverse one or more of these levers.

Demand Driver: We're fat and lazy, compared to the rest of the world, which lead to chronic health problems.

Supply Driver: There is a large selection of expensive treatments to help people with chronic health problems keep on living.

Structural Driver:The organizations in the health care system operate inefficient operational structures.
Question: In the Obama plan, which one of these three cost drivers is getting reversed?
I fail to see the logic that the government will be more efficient at building operational structures than the private sector.


Anonymous said...

Could you clarify what you mean with the 'supply driver'?

I'm seeing two phrases describing it: 'large selection' and 'expensive'. But reducing the number of choices doesn't necessarily solve the problem of "large, sustained increases in health care costs" and it seems like the "expensive" part is really the problem itself.

Am I missing something?

p.s. I do enjoy the implication that the solution is just to stop solving the chronic health problems of the fat and lazy.

Consultant Ninja said...


"large selection of expensive treatments" means a broad array of advanced treatments that are brought to bear against chronic diseases like lung cancer, COPD, diabetes, etc.

There are thousands of different advanced treatment options that are quite good. They also happen to be expensive, not because some greedy fat cat is out there, but because that high price justifies the ROI for the R&D in that product in the first place. Mandate low prices and those treatment options go away.

My implication is that the second driver is also an option - stop paying for advanced treatments. That's a way that health care costs will go down.

Hammerspace said...

Problems are never solved unless properly defined.

I think the opening post frames the issue too simply; it is missing other important forms of waste such as defensive medicine (excessive testing/work performed to avoid malpractice suits), overinvestment in medical equipment/practices, crazy adminstrative systems, smoking, misuse of emergency services, insurance fraud, poor record keeping, suboptimal allocation of research resources in pharma, etc. I feel that all of these would need to be mapped more explicitly as demand or supply drivers, along with their associated costs and potential savings to make this feel like a real discussion. Seems to me that many of these things reinforce each other in perverse ways.

At any rate, I have little hope for the Obama plan, and have to say that (if I am reading the tone your opening post correctly) I agree--it won't address any of the drivers, except possibly increasing demand. In fact, I can't discern any coherent intent, so I'm not even sure how to comment on it specifically.

For my part, I'd like to make a modest proposal that we take all the sick, poor, fat, and old (40+) people and kick them out of the county so that they stop gumming up the system with their unreasonable desires for undeserved life and comfort. No need to worry about supply side; a free market consisting of only young, healthy, rich people basically runs itself.

Joseph Greiner said...

Tax free health savings account up to 10% of your income - who is with me?

doctor baloney said...

Hi - you also seem to miss the importance of the structure of the problem in driving up costs and lowering quality.

In the US, you have a number of unique structural issues that increase costs (e.g. overlapping administration costs of insurance companies; advertising costs of new drugs) and decrease the quality of delivery (e.g. the ability for insurers to deny insured individuals healthcare).

There are other models around the world that avoid these structural problems and deliver superior healthcare with lower costs and better results.

There's an excellent article in last week's Economist on this.

Consultant Ninja said...

Doctor Baloney-

Good point - I modified my post to include the structural lever. However, I'm puzzled by the logic that government will be able to design an industry organizational structure that is more efficient than the private sector.

Coca-cola and pepsi have dual distributions systems to deliver the same type of product to market, yes no one would argue that the government should take over soft drinks to eliminate that duplication.

Hammerspace said...


Agreed--I think this is what many of us are waiting to hear about, and indications are not positive. Instead of vague promises, I would almost rather see an initial specific plan for something smaller like tort reform. Removing the temptation of frivolous lawsuits will probably be a necessary part of any reform, and it would be interesting to see how far that would get us before ripping down a poor system to put up a non-functioning one.

Not sure about the Pepsi/Coke comparison. It's an insufficiently similar business, but even worse, you're gonna plant the idea of a soda tax in somebody's mind! Don't laugh--I heard there was talk of a video game hc tax, the logic being that video games make kids fat and lead to poor health. Your public officials at work.

Consultant Ninja said...


My point is that many private sector markets have duplicative, overlapping functions. That doesn't make them inefficient.

Frankly, I think a calorie tax is eminently logical.

Hammerspace said...

Calorie tax. In theory, I agree--and for something that can be targeted specifically, perhaps in practice as well. For example, cigarettes represent a large percentage of the smoking hc problem (at least, most people believe that) and the product can be targeted efficiently. Smoking hc cost will linger as long as significant numbers of smokers/past smokers are alive and in the system, but the country can probably work it out.

However, food is a complex issue, and I don't trust our leaders on this slippery slope. What do we tax and how far do we go? Soda, juice, chips, red meat? Do we do a sliding tax based on calories (Red Bull vs. Diet Coke; 28 oz. porterhouse vs. 6 oz filet)? Maybe we can monitor individual consumption, and each of us will pay a tax for any item or serving size of an item that is consumed beyond dietary restrictions set by the Federal Government, based on our medical records and the results of our most recent government physical. Or perhaps cap and trade: we can promote desirable lifestyles by monetizing the selection of a healthy diet through a DSA (Dietary Savings Account). Vegans will finally receive the recognition that they deserve, and the DSA will provide for their much-deserved golden years in a manner that the Vegan lifestyle currently does not provide.

OK--I'm laying on the hyperbole too heavily, but we need a practical solution that directly addresses the root problems. (I'd bet you're right--duplicative functions in the supply channel would probably not be a large concern. There are many poor practices in delivery, however.)

Anonymous said...

From the discussion looks like I took the post a bit too lightly - apologies for that.

About the supply driver though - is reducing the range of available treatments really an effective solution? At first glance, it feels like this would be sacrificing both quality of care and innovation in favor of cost.

Maybe you're suggesting that the government run portion of the healthcare system should only cover very basic needs (like routine checkups) that are useful to the entire population and are additionally beneficial as preventative steps to lower costs down the line.

Private insurers would then still have a competitive advantage in providing more thorough coverage plans or supplementary plans. But I wonder if they'd still be able to make a profit?

Anonymous said...

With regard to Coke and Pepsi, couldn't we also think of it as a scale issue? Yes, they have dual distributions systems that deliver the same product but they also deliver them Nationwide (actually globally). There aren't any insurance companies that I can think of that have that kind of customer base. Wouldn't a nationwide market place where consumers could choose among all available health insurers might raise the level of competition in a manner that could foster lower costs?

Consultant Ninja said...


Coke & Pepsi actually have a global network of independent bottlers and distributors (notwithstanding Pepsi recently tried to buy the largest operator, Pepsi Bottling Group).

Pepsi ships out the concentrate to bottlers, who handle local distribution.

Monday, July 27, 2009