Health, Health Care, and Health Insurance

"Democrats think we have too little health insurance. Republicans think we have too much health care." Health care was a critical domestic issue in the 2008 presidential campaign. There are two critical elements in the debate:
 * 1. Knowing the difference between health, health care or health insurance
 * 2. Understanding your data.

If you master both of these, then you will dominate any debate with those who have not. Do not feel you have to know everything. In the land of the blind, the one-eyed man is king.

Health
"Health" should be defined as the much broader concept of "well-being" rather than just the absence of illness. Mental and social well-being are, in their own way, as important as physical health. In this context, health cannot be separated from economics and the larger social context. Prosperity, security and opportunity are critical elements of well-being.

Studies by Brooks at Syracuse University show that after an income of $70,000 per year, greater wealth conveys no greater happiness. The flip-side of that observation, however, is that a family’s sense of well-being can be increased by their income up to the $70,000 per year mark. How do we raise a family’s income? This makes economics and taxation an essential part of the health equation. &lt;ref&gt; Institute of Medicine. Hidden Costs, Values Lost: Uninsurance in America. The National Academies Press. 17 June 2003.&lt;/ref&gt; Next, a sense of personal security derives from one’s sense of risk, both financial and physical. This is an area where fear can triumph over reality and therefore can be manipulated by politicians. Insurance plays an important role in managing the financial risk of illness, but illness is only a part of the larger picture of health.

A positive sense of opportunity is an important component of well being. The wide disparities in income in America consistently generate less resentment than Democrats anticipate because Americans feel that they too can be wealthy, and if not them, certainly their children. They are quite right, as we shall see in the chapter on poverty. America is the land of opportunity, and that makes us healthier.

Prosperity allows us to live safer lives in very direct ways. For example, driving a car is about 45 times more risky than flying. SouthWest Airlines, whose cheap airfares have made flying a mode of mass transit, has undoubtedly saved thousands of lives by decreasing travel by car. Deregulation of the airline industry in 1978, by a Democrat president and Congress of all things, arguably had a greater health benefit than the EPA (1978) has created in its entire history.

An economic policy of growth, with low taxation on personal income, gives individuals the economic power to make safer choices. Politics determines how limited government funds should be allocated. Funds are limited (5), and so trade-offs must be made. If the government funds a neonatal intensive care unit, there will be less money to make highways safer. When government subsidizes ethanol as a fuel, corn prices go up. Corn is an important food stuff. More expensive food gives individuals less money to care for themselves in other ways. No direct link will ever be made between car fuel and the effects of a less healthy diet, but they are, nonetheless, real. The Harvard University Center for Risk Analysis has published a large study of life-saving public initiatives that compare money spent on health care to that spent on residential, transportation, occupational and environmental aspects of society.

Health Care
For the purposes of this discussion, health care will refer to the prevention and treatment of illnesses. Most of the discussion centers on death rates because,
 * 1) The data is easier to collect
 * 2) It is associated with a high fear factor which makes it easy for politicians to demagogue and
 * 3) The academics who publish such data like attention as much as the next person.

The best way to think of disease from a public policy perspective is to measure how many good years of life have been lost. After all, no one is impressed by “saving” the life of a 20 year old in a car crash if she lives the next 60 years in a vegetative state. The measure for this is Quality-Adjusted Life Years (QALY). When one uses QALY as the measure of effectiveness of interventions, it allows us to look for the cost/ benefit ratio of a disease like schizophrenia, which affects young adults for a lifetime, to Alzheimer’s disease, an equally devastating mental disease that affects the elderly

There are four major ways that government can spend money on "health care", i.e. the prevention and treatment of illnesses:


 * 1) Socioeconomic status : This refers to one’s social status but is very subtle in that it is based a complex calculation of money, schooling, family, job, appearance and other parameters. A poor Rabbi could have high social status while a wealthy pornographer would have low social status. SES has profound influence on health. The most commonly cited study is the Whitehall study of social determinants of health, started in 1967 in England. The English civil service has a precise stratification of job grades. The study showed that after controlling for all known risk factors, low social status conveyed a higher risk for disease and premature deaths. The difference was not due to money, as none were poor in an absolute sense. The difference reflected social class.
 * 2) Public Health : This refers to the overall health of community based on population analysis with an emphasis on disease prevention. Make sure you differentiate global public health needs, which are mostly focused on poverty and infectious diseases, from American public health needs where being fat, lazy and stupid (i.e. smoking and drinking) contribute to 35-40% of all deaths. Be careful what you wish for here, because all those saved lives are going to show up later on the Medicare budget and drain resources from saving other lives.
 * 3) Occupational health : As its name suggests, the field is concern with the health of people at work. In 2004, there were 5534 work-related deaths. This is pretty small change when you consider that there were over 200,000 traumatic deaths in railway workers from 1860 to 1940. A sign of just how safe our work places have become is the concern of our federal work safety agency (NIOSH) for work-place anxiety (5659 cases in 2001) and rashes (38,900 in 2001).
 * 4) Conventional medicine : This refers to doctors and hospital, high tech machines and radical new drugs. This area of medicine has so much sex appeal, it is the subject of endless television shows and movies. Ask the engineers how they compare.

Note that the first three are population-based and therefore not obvious to the individual, while the third, conventional medicine, is very evident to the individual. The effect of this difference on politics overwhelms all rational discussion of how best to spend government resources.

Definition
Any understanding of our current political debate on health insurance must first start with an understanding of insurance itself. Insurance is a tool for managing the financial risk of an unlikely, but catastrophic, event. Insurance takes a large group of individuals who share a similar risk and pools a small contribution from each, which, in aggregate, is large enough to cover any single individual’s misfortune.

There are two essential elements of insurance :
 * 1) Those paying the premiums must have the same likelihood of the catastrophe
 * 2) The premiums paid must create a large enough pool of money to cover the losses.

Insurance companies manage two important functions :
 * 1) To understand the risk well enough to charge the right premiums
 * 2) To manage the collection and payment of the money.

History
This should be a straight forward statistical and contractual process. Health insurance, however, triggers deep-seated emotions around illness and death. This environment of deep fears and high hopes offers an unlimited playing field for opportunistic politicians. As we shall see, government involvement has taken the contract for health insurance out of your hands and placed it in the hands of others, the so-called third-party payers.

Our American story starts in 1943, amid war-time labor shortages and the New Deal concept of government taking on more of our personal risk, The IRS ruled that employer provided health benefits would not be considered wages to the employee. Companies were pleased, as this allowed them to offer more income to attract scarce workers, while still deducting the cost as an expense. Employees were pleased as they got their health insurance cheaper on pre-tax dollars. The federal government was out the taxable component of the individual’s health care policy, but the politicians were, after all, the government and they could now take credit for giving people "free" health insurance.

That there were problems with the arrangement would not be obvious for decades, but :
 * 1) The "tax-free" status became a massive subsidy to those who had employment-based health insurance from those who did not, currently estimated at $200 billion.
 * 2) The subsidy was greatest to those with the highest incomes, because the tax-break is worth more to those with the highest taxes
 * 3) The problem of the "third-party payer". The major interest of a company is in keeping costs as low as possible, just above the point of employee dissatisfaction. A second major difficulty for the company is that it is buying insurance for a broad group of individuals with widely varying needs. There is simply no way to be cost efficient when you have to buy insurance that covers a young married couple who want infertility treatment coverage and an older employee who wants state of the art cardiology.

If FDR’s New Deal started government intervention, LBJ’s Great Society took it to a whole new level With the Medicare amendment to the Social Security Act in 1965, the federal government funded medical care for the elderly (Medicare) and the poor (Medicaid), eliminating those groups' need for insurance. Initially, doctors and hospitals simply submitted their bills to the government and were paid. . As any high school economist could predict, costs rose much faster than the general economy. . The addition of a drug benefit (Medicare Part D) in 2006 is expected to increase the government’s overall share of health care expenses from its current 45% to 50% by 2015.

The Insured
So today, 45% of America’s health care is directly paid for by the government. When one compares that to the fact that Canada’s single-payer system pays for 70% of its health care, it is easy to conclude that we are already most of the way towards socialized medicine. Employer-based health care insurance accounts for another 35% of health care payments and as discussed, this is distorted by the tax code.

Health care insurance is regulated by state government, not federal government, and regulate they do. States dictate what insurance companies must offer in their policies, so-called mandatory coverage. It has been estimated that state mandates add $1000-$2000 to the average family health insurance plan of $12,000/year. Massachusetts mandates that all insurance plans cover infertility treatments. It does not matter whether or not the couple even fertile. Minnesota mandates coverage of wigs for chemotherapy patients (their hair falls out for several weeks), but not male baldness. The latter are lobbying to be included in the mandate. Thus, there is no "bare-bones" plan for an individual to buy, because so many special interests have used government to get their disease covered by insurance.

The Uninsured
This leaves us with the 15-20% of Americans who are uninsured. This minor population is the tail wagging the health care dog and it is important to understand who the uninsured are. For all the heat generated in discussing this group, they are surprisingly poorly understood. It starts with the definition of ‘uninsured". With so much health insurance employer-based, many people between jobs go without coverage for 3-6 months. Are they uninsured? The next problem is finding and counting these people, for there is no national registry. Here is a current and representative example of the uninsured in Massachusetts in 2004 :


 * {| width="330"


 * + The Uninsured (Boston Globe 12/6/04)
 * - Medicaid-eligible but not enrolled || 23%
 * Can afford; won’t buy || 37%
 * Short term unemployed || 08%
 * Working poor || 33%
 * }
 * Working poor || 33%
 * }
 * }

Here is some Census Data :


 * {| width="450" cellpadding="1"

!State
 * +Snapshot from the Census Bureau (Boston Globe 10/29/00)
 * Percent
 * Number
 * Earnings over $50,000 per year (Note,one half earn over $75,000 per year)
 * 31%
 * 13 million
 * Medicaid, Eligible but not enrolled
 * 24%
 * 10 million
 * Illegal immigrants
 * 12%
 * 5 million
 * Legal immigrants, lived in country for under 10 years
 * 03%
 * 1.4 million
 * Young adults (18-24 years)
 * 13%
 * 5.5 million
 * Working poor
 * 18%
 * 7.5 million
 * }
 * 5.5 million
 * Working poor
 * 18%
 * 7.5 million
 * }
 * }

The conclusion seems to be that somewhere around 3% (7.5 of 250 million in 2000) of our population cannot obtain affordable health insurance.

This does not mean that these individuals are denied health care. Emergency rooms, by law, provide care to all comers. All non-profit hospitals, 80% of the total, are obligated by law to admit and treat all patients, irrespective of there ability to pay. In 1994, spending for each of the uninsured was about 60% of the amount that was spent on each of the insured.

The "Insurance Crisis"
Yet one cannot help but believe that America has a severe health insurance crisis. Why is this the #1 domestic problem of the 2008 political agenda? There are four major sources :

1. The uninsured
 * Only 20-30% (studies vary) of our 40-45 million uninsured are working poor. While they are important, one can reasonably ask if we should force socialized medicine on the 97% of us who do have insurance for their sake. Perhaps we would be better off making health insurance affordable.

2. Insecurity about loss of insurance coverage
 * One-third of us get our health insurance through our job. If you lose your job, you lose your health insurance. If you have a health problem, you might not now be eligible for health insurance. This is a very serious and real problem. Should we socialize medicine, or ask why do we get our insurance at work? After all, we do not let our employer pick our house insurance, car insurance, life insurance, disability insurance or any other insurance. The only reason we get our health insurance at work is because it is tax-free. It sounds as though the solution lies in fixing the tax code.

3. Health insurance is too expensive
 * Yes, it is. A typical comprehensive, low deductible family plan costs around $12,000 per year. That is not affordable to a typical family with an income of $44,000 per year. What then makes health insurance so expensive?
 * A. Government
 * rules and regulations: health care is the most regulated industry in America. It has been estimated that the regulatory burden is $179 Billion per year. Compliance and reporting to government agencies is a major burden.
 * Federal regulation of insurance would allow bare-bones policies that escape state mandates.


 * B. Cost shifting
 * When hospitals have to provide free care, they pass that cost onto those who do pay, namely the insured.
 * Medicare payments are set at a break-even point for hospitals. This does not allow for enough profit to maintain the facility and buy new technology. That profit comes from the insured.
 * Estimated at $100 Billion per year


 * C. New technology and medications
 * New diagnostic and therapeutic tools are very expensive and are growing exponentially. Nevertheless, they are generally worth the expense.


 * D. Poor information about cost and quality
 * This is part of a complex discussion, but if you gave consumers money to spend on their own care, there is no Consumer’s Reports to advise them on how best to spend it.


 * E. Malpractice
 * The larger problem with malpractice is not the injury payments. Even though they are large, they are affordable relative to the size of the system. The real problem is that it creates a "zero-defect" system . Doctor’s control 80% of medical spending. If they feel that they will be punished every time someone has a bad outcome, they will never take the responsibility managing the system cost-effectively, and yet, they are the only ones who can.

4. Media coverage
 * Although 75% of Americans are convinced there is a health care crisis, they report themselves as "very" or "somewhat" satisfied with their own care. Disasters and crises are much more compelling stories and much easier to report than everyday gradual improvements. Socialized medicine is also much easier to offer as a solution than free market principles, especially for a media already sympathetic to government solutions. How many stories are reported of foreigners coming to America because it has the best care in the world? How many stories have you seen of Americans going to socialist medical systems because of their excellence in care? None. That’s why Americans buy emergency medical flight insurance with which to return home when they travel.

So what would a free market health care system look like in America? We don’t know, free market medicine has never been tried. Here are some things you could expect to see however:
 * 1) You would buy your own insurance, just like you do for your car.
 * 2) You could buy a bare-bones policy with a high deductible and it would be transportable across state lines.
 * 3) You would not be wondering if your doctor was more worried about not being sued than caring for you.
 * 4) Primary care doctors would not feel that paper work was their greatest burden.
 * 5) Government would buy policies for the poor from the market, rather than being the market.
 * 6) Consumers would demand and get information with which to judge the cost and quality of their care.
 * 7) You would pay for much of your care, by check, via your deductible.

Cost Efficiency in Saving Lives for Selected Interventions
Note measurements are in Life-Years not QALYs.


 * {| cellpadding="3"

!Intervention
 * + Intervention Cost per Life-Year in 1993 dollars (Tengs et al, 1993)
 * Cost per Life-Year (1993 Dollars)
 * Federal law for smoke detectors in homes || 0
 * Fire detectors in homes || 0
 * Flammable standard for children’s sleepwear || 0
 * Reduced lead in gasoline || 0
 * Measles, mumps and rubella immunization in children || 0
 * S02 controls in fuel oil || 0
 * Mandatory seat belt laws || 69
 * Sickle cell anemia screening in Blacks || 240
 * Influenza vaccination of high risk populations || 570
 * Mammography for women over age of 50 || 810
 * Pneumonia vaccination for persons over 65 years of age || 2000
 * Pap smear every 2 years instead of every 3 years of persons aged 30-39 || 2300
 * Chlorination of drinking water || 3100
 * Selective traffic enforcement in high risk areas || 5200
 * Smoking cessation counseling || 9800
 * Annual mammography for women aged 35-49 || 10,000
 * Heart transplants for persons over 50 years of age || 10,000
 * Screening blood donors for HIV || 14,000
 * Low cholesterol diet for men aged over 30 years || 19,000
 * Improved basic driver education || 20,000
 * Ban asbestos in brake liners || 29,000
 * Smoke detectors in airplane lavatories || 30,000
 * Regular physical activity for men aged over 35 years || 38,000
 * Child resistant cigarette lighters || 42,000
 * Lights at all railway crossings || 45,000
 * Child-restraint systems in all cars || 73,000
 * Pedestrian and cyclist visibility enhancement || 73,000
 * Lower benzene exposure standard in tire industry || 76,000
 * National 55 mph speed limit || 89,000
 * Annual mammogram for women aged 55-64 || 110,000
 * Air bags in all cars || 120,000
 * First aid training for all drivers || 180,000
 * Front disc brakes in all cars || 240,000
 * Seat belts in school buses || 2,800,000
 * Decrease dioxin standards in pulp mills || 4,500,000
 * Radionuclide control at phosphorous plants || 9,200,000
 * Strengthen buildings in earthquake zones || 18,000,000
 * Lower radiation standards at nuclear power plants || 180,000,000
 * Benzene emission control at rubber manufacturers || 20,000,000,000
 * }
 * Ban asbestos in brake liners || 29,000
 * Smoke detectors in airplane lavatories || 30,000
 * Regular physical activity for men aged over 35 years || 38,000
 * Child resistant cigarette lighters || 42,000
 * Lights at all railway crossings || 45,000
 * Child-restraint systems in all cars || 73,000
 * Pedestrian and cyclist visibility enhancement || 73,000
 * Lower benzene exposure standard in tire industry || 76,000
 * National 55 mph speed limit || 89,000
 * Annual mammogram for women aged 55-64 || 110,000
 * Air bags in all cars || 120,000
 * First aid training for all drivers || 180,000
 * Front disc brakes in all cars || 240,000
 * Seat belts in school buses || 2,800,000
 * Decrease dioxin standards in pulp mills || 4,500,000
 * Radionuclide control at phosphorous plants || 9,200,000
 * Strengthen buildings in earthquake zones || 18,000,000
 * Lower radiation standards at nuclear power plants || 180,000,000
 * Benzene emission control at rubber manufacturers || 20,000,000,000
 * }
 * Air bags in all cars || 120,000
 * First aid training for all drivers || 180,000
 * Front disc brakes in all cars || 240,000
 * Seat belts in school buses || 2,800,000
 * Decrease dioxin standards in pulp mills || 4,500,000
 * Radionuclide control at phosphorous plants || 9,200,000
 * Strengthen buildings in earthquake zones || 18,000,000
 * Lower radiation standards at nuclear power plants || 180,000,000
 * Benzene emission control at rubber manufacturers || 20,000,000,000
 * }
 * Radionuclide control at phosphorous plants || 9,200,000
 * Strengthen buildings in earthquake zones || 18,000,000
 * Lower radiation standards at nuclear power plants || 180,000,000
 * Benzene emission control at rubber manufacturers || 20,000,000,000
 * }
 * Lower radiation standards at nuclear power plants || 180,000,000
 * Benzene emission control at rubber manufacturers || 20,000,000,000
 * }
 * }

Even this table, representing large amounts of painfully gathered statistics, is out of date in 2007. Lead gasoline is no longer made. New studies seem to show that the benefit of giving old people flu vaccine only shows that more healthy people get vaccinated (7). Cervical cancer screening tests are being replaced by tests for the wart virus that causes cervical cancer. Vaccines against this virus are just being administered to adolescent females. There will be no useful data on its effectiveness for at least a decade. Screening blood donors for HIV and Hepatitis viruses has become so successful that infections do not now make the top three causes of fatal blood transfusion complications. As Hayek’s principle of the free market pricing mechanism predicts, central planning can never keep up with the rate of change. Especially note what current risk benefit studies do not measure – how much safer people would be if they can spend their own money on their own safety (9).

Debating The Health Care Issue
You can expect to see the following claims from Democrats repeatedly:

It is wrong for the "richest country in the world" to have 45 million uninsured. The main problem in American health insurance is short periods of time without insurance. This is not caused by too little government or even in the main by poor health. The culprit is that health insurance is too expensive. Over half of the uninsured are well-off or young adults. They quite rightly do not want to spend that much of their money on a product they are unlikely to use. The solution is to let the free market make it affordable, just as it does everything else.

We should have a health care system like Canada, where everyone has coverage. Canada, indeed, has a government-funded health care system that provides the same quality of medical care to everyone. This comes at a cost:
 * 1) There is no private health care alternative; you get what the government gives you. If you want something else, you have to go to the US, just as many other Canadians do. The only other government-run health care systems that have no parallel private system are North Korea and Cuba.
 * 2) Canada rations by access. The current wait to see a specialist is about 9 weeks with another 9 weeks before treatment. If you should happen to die before treatment, why, that is the cheapest solution of all. You can look wait times for yourself: [Fraser Institute]
 * 3) Health care only seems to be free. It is paid for by taxes, which are much higher in Canada. The cost is not free, it's just completely hidden.
 * 4) Canada gets a free research and development ride from the United States. It costs a lot of money to get new drugs and technologies to market, which Canadians do not pay.
 * 5) Canada has a very small malpractice problem.

"We spend way too much on health care."

America spends $2 Trillion of its $ 13 Trillion GDP on healthcare, about 15%. Other western countries with government-run plans spend 8-10% of their GDP on health care. By what standard is that too much? It matters only if I think I am spending my money on you. It certainly isn’t too much to be spent on me. This is the problem with third-party payers. I personally prefer to spend more of my money on top-quality health care. If you would rather drive a more expensive car, that is your business, but please don’t force it on me. How can any government decide what is the right amount of money to spend on health care? This is the heart of Hayek’s principle of the "free market pricing mechanism" in balancing supply and demand. In Canada, the government blindly funds health care based on the level of complaining by the voters. In America, the problem is that we don’t have any mechanism for judging the right amount to spend on health care or the amount of health care needed. That’s why health care spending grows faster than the general economy. We are nearing reality, however, as companies can no longer afford to provide health insurance and there is no free market for individuals to replace what they have lost.

Exercises
This is the health care plan offered by Hillary Clinton (Primaries for 2008). Consider:

-In addition to private health insurance, individuals can buy a government plan similar to Medicare (now available only to those over 65 years).

-Benefits of this plan will be at least as good as the rich plan offered to member of Congress.
 * Costs will be reduced by "removing hidden taxes, stressing prevention and focusing on efficiency".
 * No one will be denied coverage because of an existing illness.
 * Drug companies will be made to offer "fair" prices.
 * Premiums will be limited to a percentage of family income.
 * Spend more on Medicaid and SCHIP (a special children’s plan)
 * Over half the savings will come from increased quality and modernization. There will be less waste.
 * Money for the increased coverage will come from repealing the Bush tax cuts for those over $250,000.
 * Employer tax exclusion of health benefits will be limited for those making over $250,000.
 * Employers will help pay for the system. Large companies: provide insurance or contribute to the cost of coverage. Small companies: offer coverage with the help of a tax break.

[Hillary's Plan]

This is the health care plan offered by Rudy Giuliani. Consdier:

-individuals will get to deduct health care from their taxes just like the employed. Capped at $15,000.
 * Low income Americans will get a health income credit so that they can buy their own health insurance.
 * Government will help create visibility of price, provider qualifications and risk-adjusted procedure outcomes to expand competition.
 * End frivolous malpractice suits without limiting compensation for real economic loss.
 * block grants to states to encourage innovation.
 * Streamline the FDA.
 * Invest in health information technology.
 * improve and expand Health Saving Accounts. These allow individuals to save money pre-tax for medical expenses.
 * Health insurance must include wellness initiative to promote healthy life styles

[Rudy's Plan]