Treatment Options

In his new book, The Healthcare Fix: Universal Insurance for All Americans (MIT Press, 2007), Laurence J. Kotlikoff demonstrates that at some point between 2035 and 2050, the costs of Medicare and Medicaid (two health-care programs that serve only a minority of the population), combined with the costs of Social Security, will approximate the total current cost of the entire federal government as a percentage of GDP. Medicare and Medicaid, without Social Security, will surpass the current cost of government by 2082. To cover the deepening long-term deficits of those two programs would require raising roughly $70-trillion and putting it in the bank today. Alternatively, the federal government could raise personal and corporate income taxes by 70 percent, or payroll taxes by 109 percent -- and hope that didn't tank the economy.

Sadly, a tanking economy is what is likely to happen anyway in the absence of serious health-care reform. The U.S. health-care system has been routinely described as in "crisis" since 1970, and it has been. Yet now we are entering a new phase when it not only spells bad medicine, poor access, and rising costs, but it also threatens the American Dream itself.

So far, global investors have yet to take much notice of the liabilities looming in our health-care system. They've bid down the stock of individual companies stuck with ruinous health-care bills, such as General Motors. Yet they continue to lend to the government, U.S. companies, and consumers at historically low rates of interest. This, says Kotlikoff, a well-respected economist at Boston University, won't last long.

As health-care spending accelerates across the board because of the aging of the baby-boom generation and adoption of expensive new technology, global investors will start punishing the U.S. economy as a whole. Already we're seeing a drastically weakened dollar. What's coming next, unless we turn around the cost of health care, is a financial breakdown far worse than that threatened by the current housing bust. Because of the way markets anticipate the future, the meltdown could happen well before baby boomers actually start retiring in large numbers.

So what to do? I'm amazed at the contortions some American economists will go through to avoid government-provided health care despite its demonstrable success in other countries. Kotlikoff would abolish Medicare and Medicaid. Simultaneously he would provide all Americans with a voucher to buy a basic health-insurance policy. The value of the voucher would be different for each person. It would depend on an annual government audit of every American's complete electronic medical records and a resulting government estimate of the cost of his or her care over the next year. Private health-care providers accepting these vouchers would have to provide the coverage spelled out in the plan. If the cost of treating the patients exceeded the value of the vouchers, providers would have to swallow the loss. By government fiat, growth in the value of all vouchers could not exceed growth in average per-capita income.

Apparently, Kotlikoff believes that preserving a role for markets in medicine, however small, is so important that it's worth any cost in privacy. Conservatives would do well to notice that trade-off, since their biggest objection to "socialized medicine" -- indeed, to any expansion of government -- is the perceived threat to individual liberty. Yet to improve the efficiency of health-insurance markets, we are all supposed to submit to annual government audits of our individual health-care records?

Today, to be sure, government researchers are making great strides in discovering what medical protocols actually work best, and which are flat-out dangerous, by studying the outcomes data contained within a given population's electronic medical records. The Department of Veterans Affairs, for example, which is a pioneer in the use of such records and the evidence-based medicine they make possible, discovered the hazards of Vioxx long before anyone else just by looking at its population-level data. Such work is done without researchers' being able to know the identity of any patient whose records they study. The threat to privacy is minimal.

In addition to the Orwellian features of Kotlikoff's proposed individual health audits, imagine the gaming and lawsuits the policy would inspire. Health-care providers would have every incentive to fill up your medical records with all sorts of pseudodiseases and exaggerated conditions in the hope of pushing up the value of your voucher after your next health-care audit.

Another new book, Rx for Health Care Reform (Vanderbilt University Press, 2007), is far more empirical. Written by Ken Terry, an editor for the trade journal Medical Economics, it provides a useful look at the business and practice of medicine. The book is not terribly well organized. But I recommend it, along with my colleague Shannon Brownlee's recent title, Overtreated: Why Too Much Medicine Is Making Us Sicker and Poorer (Bloomsbury Press, 2007), to anyone trying to get beyond the superficialities of today's political debates over health-care reform.

Terry has talked to nearly all the country's leading experts on patient safety and health-care quality, and he does a good job of popularizing their peculiar findings. Those include two core paradoxes of medical economics. Researchers at Dartmouth Medical School and elsewhere have found, for example, that the more specialists there are per person in a region, the busier they are. Thus the first paradox: In market-driven medicine, supply creates its own demand.

Researchers have also found that the higher the concentration of specialists in a region, the more likely patients are to receive poorly coordinated care and flat-out overtreatment. High-cost, prestigious hospitals filled with highly credentialed specialists generally sink to the bottom of rankings in patient safety, use of evidence-based medicine, effective disease management, risk-adjusted mortality, and patient satisfaction. Thus the second paradox: In market-driven medicine, quality usually declines as spending per patient rises.

It gets stranger. A large and growing literature, which Terry also popularizes, documents the superior quality of care provided by large group practices and true, staff-model HMO's, such as Kaiser Permanente and Utah's Intermountain Healthcare. Indeed, although Terry strangely doesn't mention it, the health-care system that consistently beats all others in its quality and patient satisfaction is the largest HMO of all: the Veterans Administration. The best most of us can do in choosing fee-for-service doctors is rely on reputation and credentials. And yet it turns out that renowned, highly specialized doctors are actually the ones most likely to commit medical errors and engage in overtreatment.

If that is what science tells us, what should we do? Terry rolls out a plan based on data rather than ideology. Unfortunately, it gives little consideration to politics. Inspired by, and more complex than, the original "HillaryCare" proposal, Terry's plan would not only manage competition, it would fundamentally change the practice of medicine for everyone -- almost all at once. Specifically, he would require all the country's primary-care physicians to join group practices within three years and accept a fixed fee per patient rather than fee for service. And while he's at it, he simply does away with the private health-insurance business, although he allows that a few, government-selected companies might find work in processing paperwork.

The plan has technical merits. But politically it means taking on, and all at once, the majority of doctors who don't like group practice (let alone managed care) as well as the entire health-insurance industry -- as well as unknown millions of American voters who simply favor the status quo. Tough sell.

A third book, Health Care at Risk: A Critique of the Consumer-Driven Movement (Duke University Press, 2007), by the Washington and Lee law professor Timothy Stoltzfus Jost, suggests a more politically feasible approach that I have stressed in my own writing as well. It starts with the observation that market competition doesn't exist just between businesses. It often exists between the public and private sectors as well. FedEx, for example, competes against the Postal Service and is a better company for it. Private universities compete against public universities, and this too promotes quality. In the same way, government can promote quality in the health-care sector by competing in it.

Jost would do this by having the government sell comprehensive health-care policies to those who want to purchase them. I'd go him one further: Let the government sell not just health insurance, but health care itself.

We already have one bright shining example of this: the VA. No one compels veterans to use it. Instead, it has to compete for its patients. Once it had a hard time doing so because it was poorly managed, but not anymore. Even while bringing down cost per patient year after year and collecting significant co-pays, the VA has the highest rate of patient satisfaction of any provider in the nation.

So here's a proposal: Let all veterans and their families buy into the VA health system, while simultaneously rolling out a parallel civilian health-care system built on the VA model. That wouldn't be "socialized" medicine any more than land-grant colleges are socialized education. But it would be a politically feasible way of fostering more competition in both cost and quality, thereby beginning to resolve a crisis we can no longer ignore.

Books reviewed in this article

Timothy Stoltzfus Jost, Health Care at Risk: A Critique of the Consumer-Driven Movement, 265pp., Duke University Press.

Laurence J. Kotlikoff, The Healthcare Fix: Universal Insurance for All Americans, 96pp., MIT Press.

Ken Terry, Rx for Health Care Reform, 344pp., Vanderbilt University Press.