Wednesday, December 24, 2014

Four Things That Almost Nobody Is Talking About That Need Fixing In Medicine

Obamacare is a farce, but its proponents frequently pull out the fact that it was, in large strokes, derived from a 1993 Heritage Foundation proposal. Significant in that Politifact piece is the following graf:
"The Chafee plan did not spell out how increased coverage would be financed," [Clinton adviser Paul] Starr said. "It was more of a symbolic bill than an actual piece of legislation."
This confirms a sense I've had of the Heritage plan: it always seemed like a half-baked idea that was intended more as a negotiating counter to Hillarycare, i.e. a delaying tactic, rather than a serious proposal. The Heritage plan was always a thing-on-a-thing, scaffolding erecting the next story on an already ungainly building. And of course, therein lay the trouble; its flaws were the flaws of ad hoc tax law manipulations that originated in World War II as a consequence of wartime pay restrictions.

All of which is to say, of course, that the solution for such problems has nothing to do with adding more mandates or subtracting restrictions on insurance, as Avik Roy sadly did, or more recently, John C. Goodman's proposal. Both retain the deep ties to the insurance industry that have done so much to degrade health care in this country, a reality limned by David Goldhill in The Atlantic, an article he later expanded into a book, Catastrophic Care. As I mentioned the other day, the most frequently mentioned repair for Obamacare from the Democratic side is single-payer, which for the reasons Megan McArdle recently outlined, is an economic non-starter (and with the Vermont failure, politically dead). Instead, I want to focus on four things that few people are currently discussing that need repair in medicine that could materially reduce costs. They all have in common the market, the one way we know best that works to reduce actual costs, not apparent costs.
  1. End low-deductible insuranceGoldhill outlines the problems with low-deductible insurance: by shielding prices from consumers, it saps power from and accountability to the patient, and eliminates meaningful cost comparison. This has all kinds of bad consequences, from steady cost inflation, deteriorating service, and adverse outcomes (even including death). The solution is to remove insurers from most transactions, and let people purchase directly their own medical care. The first step should be extending the medical income tax credit as a first-dollar deduction for individuals, rather than making the deduction so high that few ever qualify. The next would be to limit insurance to those things it truly does well: management of extraordinary expenses, i.e. risk.
  2. Break the American Medical Association's cartel. It's a rare day when you'll see me agree with anything appearing on the pages of Mother Jones, but their analysis of why US physicians have such high compensation is both simple and spot on: because the US is in roughly the bottom third of OECD countries by physicians per 10,000 population. Their non-solution to this problem is to say, suck it, docs, which won't work; the real answer is that the AMA's ability to limit medical school slots and internships must end. Similarly, the AMA has succeeded in gaining a monopoly on the prescription pad and otherwise limiting practice options by registered nurses (who must attach themselves to a physician or practice for various legal reasons). California came very close to nurse practitioner liberalization just last year, only to have the AMA kill the idea.
  3. Limit patents to 17 years, period. As it stands now, devices patented in the 1970's are still getting repatented for various uses that have the net effect of creating long-running monopolies counter to the interests of patients and consumers. An excellent example is the Epi-pen; created by the military for field use, it should have had no patent issued, ever. Instead, its 1977 patent continues to be renewed by various kinds of chicanery; this has the result of making the product in the US cost more than three times that in Canada, and that doesn't include the cost of getting the doctor's prescription.
  4. Remove anticompetitive Certificate of Need state laws. Remember the Texas car dealers who bought a law in Austin to keep Tesla out of their state thanks to a business model that dispenses with independent car dealers? Something very like that is in play with Certificate of Need laws, which amount to a "government permission slip" for new competition. By creating a moat around existing hospitals and other medical facilities, governments retard actual competition and thus raise prices:
  5. Studies of the COPN system around the country have confirmed what seems intuitively obvious. A joint examination by the Justice Department and the Federal Trade Commission found that COPN regulations hurt competition, fail to contain costs, and “can actually lead to price increases.” Restricting supply raises prices? Imagine that.
I do not claim this list is complete or even exhaustive. It does seem to me, however, that all are obvious flaws of the current system. Some will require cage-match fights to the death — patent reform particularly is unlikely without it — but all address actual, underlying costs, unlike Obamacare or even the Republican repair proposals.

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