The Health Care Debate in Wisconsin: Common Sense and Reg Reform

There's a very interesting (and lengthy) paper on health-care financing available from Wisconsin Policy Research which will be of interest to anyone who wants to be an informed player in the upcoming health-care debate in the Wisconsin Legislature. (HT: Random 10, as usual.)

(You really should read the whole thing; this entry will pick a few highlights.)

WPRI is a conservative think tank and as you might expect, the report shows 'conservative' thought-patterns. In general terms, one can sum it up as follows: "1) Consumer-pay/choice, which is based on the common sense of consumers, is better and cheaper. 2) Regulatory reform will decrease costs."

The report is also useful for the history it provides, beginning with the 'real meat' of statistics from the 1920's or so, where the author(s) show that health-care expenditures absorbed 4.7% of family expenses in 1917. That percentage rose to 6.6 by 1960, and has been reduced to 4.0% by the mid-1980's. (Urban family, one wage-earner)

(Also of interest, from the same table: Food went from 41% to 19.4% in the same period, while housing rose from 26.8 to 33.7; transportation rose markedly from 3.1 to 25.7 (!!), and clothing dropped from 17.6 to 5.2%.

One significant omission is the number of people in the household; one suspects that the number of children has dropped significantly from the 1920's to the mid-'80's, which would have an impact on food and clothing expense. The health-care expense numbers, unlike food/clothing, had different governing factors, principally utilization and method of payment, which made family size less relevant.)

The report shows that interest groups such as the American Medical Ass'n and the American Hospital Ass'n were major players in affecting the cost of health-care early on, and it portrays the MD's, hospitals, and their enabling "crusader/reformer" goo-goo types in a somewhat negative light. Summarily, their creation of Blue Cross/Blue Shield and the various "quality/certification" regs and schemes led to a decrease in the number of docs and hospitals, and to increasing costs.

Government(s) played a major role in addition to their willingness to "reform and regulate" health-care, as well. First, by accomodating Big Business with the health-care tax exemption (1942); secondly, through the creation of Medicare/Medicaid (1964, modeled on Blue Cross economics, or "paygo", the least-sound financing vehicle;) and last, through Ted Kennedy's creation of HMO's (1973) which revived "capitation" financing and virtually guaranteed "medicine-on-the-cheap."

But the over-riding change furthered by all these legislative initiatives was from a largely self-pay system to a largely third-party-pay system, and (thus) the "who controls" predicate. The Blues were essentially controlled by MD's and hospitals; Medicare/aid are essentially controlled by the Government (politicians), and HMO's by employers and docs.

It doesn't take a genius to figure out who benefitted from the various control-schemes. (Hint: none of them are spelled "sick" or "consumer.")

From the report:

"By 1980, US hospitals had no incentive to minimize their costs, figure out what hospital care really cost, control capacity expansions, specialize in services in which they were the low-cost producer, or minimize patient stays. They also had no way to gauge how much value patients put on different aspects of their services."

This was largely due to the 1942 action which served to shove private insured plans, self-pay, and private-association plans out of the market; they could not compete with the Blues and Big Business.

The report then goes on to recap some major studies which tend to show that "consumer-choice" plans effectively reduce health-care expense AND increase perceived "quality" of service--notably a Rand study from the early 1980's.

"The results of the study were stunning. The most important result was that per capita expenses on the free plan were 45% higher than those for the 95% cost-sharing plan. Savings primarily came from a reduction in the number of contacts [with MD's and hospitals] rather than in the intensity of services. For average adults, the health of those who spent less appeaared to be just as good as those who spent more."

"...IN all, the Rand ...showed that the average consumer spent far less on medical care when he was spending his own money, and that he chose reductions that were not harmful to health in any measurable fashion."

In the meantime, "out-of-pocket" costs were going down from 33% in 1970 to only 13% in 2004, as one would expect from the legislative actions. Of course, that means less consumer responsibility.

The report also builds an impressive case against Medicare/Medicaid, which are (as you recall) managed by politicians. Naturally, that means that Medicare/aid will benefit politicians, rather than the sick or the elderly.

In brief, get acquainted with the acronyms DRG and APR-DRG--these control the prices paid to docs, hospitals, and nursing homes for various medical conditions in the Medicare/aid programs. Here's how it works:

When one is admitted, the provider determines and affixes a DRG/APR-DRG to one's record, and is paid accordingly. However, when Medicare/aid is determined to be "too costly," the politicians "reduce" the expense by reducing DRG/APR-DRG payments to providers. This ensures that the politicians will get re-elected; but it also has deleterious effects on the sick and elderly and to their health-care providers.

Who cares? Certainly not DarthDoyle (e.g.), who brazenly chose to favor WEAC (the healthy and likely voters) over nursing-home patients and operators (likely non-voters and a distinct minority, respectively) in the last budget cycle. But Darth is merely an icon--a representation--of other politicians in every State capitol and in Washington.

The negative effects hardly stop with the sick, elderly, and their providers. The regulatory mess that ensues, and the accounting/bookkeeping required to keep up with the regulatory Hydra are costs, no? And since Medicare/aid is based on the old Blues "paygo" financing model, rather than a more sound actuarial model, the price gerrymandering simply continues building like an avalanche. Taxes increase to pay for the regulatory spaghetti-pile, and hospitals/docs simply re-arrange charges for NON-Medicare/aid patients to make up the difference.

Watch out below!

In its summary, the report notes:

"In 2002 the cost of health-care regulation was roughly $340 billion, about 20% of total health-care spending. The calculated benefits of regulation were [only] $212 billion..."

...and the report recommends selective de-regulation, "consumer-driven" health-care expenditures (like the Colorado system which, in effect, is a 'food-stamp'-like program) and HSA/high-deductible financing for healthcare. This "consumer-driven" concept is a tribute to common sense of health-care consumers, and is championed by folks like Cong. Ryan (R-WI.) Naturally, the "goo-goo" types, the regulators, and other interest groups (health-leeches) cannot agree with the notion that common sense might be useful...

The summary does not mention "best practices/"lean" practices" for hospitals and docs, except as may be found in de-regulation, which is a sad omission, and indirectly in its reference to the 1980's situation (highlighted above.) This is sad because "best/lean" practices are essentially "common sense" for hospital personnel and management, and for docs.

It also doesn't mention tort-reform, which will be a part of the solution.

Maybe next time.