Notes on a Healthcare Talk

Yesterday at the Ross School of Business, there was a panel discussion on health care in the United States. Jonathan Gruber and  Katherine Baicker, two well known health economists, in addition to David Leonhardt, a New York Times reporter who has reported extensively the health care debate, gave their perspectives on health care in the United States.

What I found was quite interesting was how much of a consensus there was among health care economists. Yes, the health care market fails for the 46 million uninsured Americans. No, providing more health care for people doesn't reduce spending on health care. But yes, there are major tax and market reforms that the government can do to increase the value of health care delivered in the United States.

Gruber was the first speaker, and I found his defense of the ACA quite witty. He characterized health care reform as a three legged stool that depends on three parts -- coverage expansion, individual mandate, and subsidies -- to fully function. Because pre-existing conditions can cause people to be kicked off the rolls when they need it most, it's important to reform coverage laws to allow more people to buy insurance. But then if there's no individual mandate, the market is subject to adverse selection. It is, as Gruber joked, "like forcing sports bookies to take bets at half-time". And to make sure that people can afford to purchase insurance, the government has to provide subsidies to increase affordability.

Something else that Gruber emphasized during the talk was that the health care debate is highly nuanced, and that talk of reform shouldn't be on partisan lines. The Affordable Care Act is not a government takeover of health care -- it merely creates a new market in which private insurers can innovate and thrive. Nor is it a federal takeover of health care delivery -- states are allowed large levels of discretion in how they implement their health care exchanges. Something that both Gruber and Baicker seemed excited about was the possible policy innovations the ACA may stimulate. The ACA, while it is certain in the coverage expansion, is much less certain on how to control costs. It is hoped that the variety of reforms -- capping the employer tax deduction, pilot programs for alternative health care delivery, and comparative effectiveness research -- can eventually discover something that the market will find valuable and later deploy.

We already see some of this innovation in the reform of fee-for-service payments. For two years, Blue Cross and Blue Shield of Massachusetts has already been trying out an alternative payment structure that focuses on patient wellness rather than the number of office visits. And then in the past week, Medicare took its first step away from fee-for-service by penalizing readmission and rewarding hospitals that deliver better care with higher payments. Later during the Q and A session, Baicker mentioned other possibilities, such as integrated health care units or even simple emails from your doctor, in order to improve health care effectiveness.

Gruber and Baicker were both optimistic that these kinds of reforms would be critical in bringing costs down. Baicker often mentioned that increasing coverage is easy -- the question is how to control costs. Yet, for both Gruber and Baicker, this ignorance about cost control was just a better reason to expand coverage first. We know how to expand coverage, we don't know how to expand costs. So, as Leonhardt noted, let's expand coverage to save lives now, and use what we learn from the new practices in the health care market to try to reduce costs on a national level.

I find this approach eminently sensible. As mentioned above, reform is critical to creating a larger market for health care, and it seems to be a natural result that the resulting market will have a greater variety of business models and payment structure innovations. Given that ideas can quickly spread, the efficiency of the system will ultimately be determined by the efficiency of the best, not the average. As such, increasing the number of health care consumers seems to be the first step towards discovering a solution to rising health care costs. Gruber also argued that this would help solve the primary care doctor shortage by changing the incentives for medical students. By changing the way insurers reimburse for services, this would reduce the demand for specialty medicine, and thus push more doctors out of specialty disciplines and into primary care.

Baicker made a statement that I feel is very important in framing discussions in health economics: "Health ≠ Health Care ≠ Health Insurance". From all the above analysis, we know this to be true. Just because something is a health care service, such as proton beam therapy, doesn't mean it improves health. And just because something improves health, such as phone calls from a physician, doesn't mean we think of it as "health care". And to properly fund all of this, we need a robust system of insurance that requires incentives and cost structures that are not directly related to a person's biological condition, but nonetheless change the way health care is delivered. The fact that this is true means that when we move forward with the health care system, we need to consider each of those three related, but distinct, parts.