Tuesday, 13 May 2014

Advice to the chef-in-chief: How to cook the perfect health care system

It's seems ever since President Obama passed his healthcare bill in March 2010, politicians on the right have been loudly protesting about the implications for American freedom. Despite health care costs significantly higher than any other developed nation and nearly 50 million uninsured resulting in 45,000 Americans deaths a year, they have reacted to the President’s attempt to ensure every American can afford treatment as an assault on America's founding principles. Perhaps they are taking Patrick Henry's "give me liberty or give me death" speech a little too literally...
Perhaps unsurprisingly, the anger surrounding the Patient Protection and Affordable Care Act appears to be largely due to misunderstanding of what it contains. Talk of 'death panels' and socialism have created a fear of the unknown. An excellent piece from the Jimmy Kimmel show (you can watch it here) shows Americans first being asked if they agree with ‘Obama Care’. They all say no. They are then asked if they support an alternative bill, the Affordable Health Care bill and describe its principles. They all say yes. They are then shocked to discover that the latter is in fact the dreaded ‘Obama Care’. This is not only an interesting study on the depth partisanship in America, but also highlights how uninformed many Americans are about this issue and how complex healthcare provision is. And indeed Americans have one of the most complicated and expensive systems in the world. Americans spend $8,602 per person annually on health care. Meanwhile, Britain spends only $3,609 per person and the Germans spend $4,495 per person. Even the “socialist” French spend less at only $4,118 per person a year. 
How to unpick this mess? In homage to the Guardian’s ‘How to cook the perfect…’ column by Felicity Cloake, I’ve decided the trick to finding the perfect healthcare recipe is to look at many different versions and see what works best. I’ll be looking at recipes from the Germans, the British, and the Singaporeans, determining what works best and from whom America could borrow.
NB. To stay true to Felicity’s style I’ve dispensed with my usual ingredient list. Please find them scattered through the content of this post.
I'll begin with Germany and their Bismarck model, named after the Prussian Chancellor who implemented their system in the 1880's. It is very similar to what President Obama would like to see in the US. It is mandatory to have health insurance and no one can be excluded based on any pre-existing conditions. Employers and payroll deductions form the basis of funding. However, one of the key differences between the systems is the insurers themselves. 
If the US was working from scratch, this model might not be too difficult to implement. Unfortunately, the President is using some ready-made ingredients. In Germany, compulsory health insurance is provided to 92% of the population through "sickness funds", private non-profit organisations none of which are allowed to deny coverage for a pre-existing condition. In the US, health insurance has traditionally been provided by for-profit behemoths. These companies are very reluctant to accept clients with pre-existing conditions that will hurt their bottom line. They lobbied heavily against the Affordable Care Act. 
The implementation of this system is hindered by an economic condition that plagues the insurance industry; adverse selection, where the propensity to buy insurance is highly correlated with an individual’s level of risk. Simply put, those with a higher risk of requiring medical attention are more likely to buy insurance. If, as the Affordable Care Act ensures, insurers are bound to serve all patients regardless of pre-existing conditions they will suddenly find themselves with a greater number of already sick and injured patients relative to healthy ones, pushing up their costs. To protect profits they will have to raise prices. Of course, if coverage was truly universal, as in Germany's recipe, this would not be an issue. The healthy low risk citizens would bolster the expensive unwell. This is what Obama is hoping to achieve - an influx of the young and fit by penalising those without health insurance. However, achieving this kind of universality will take time. Meanwhile, insurance costs will rise, further putting off the healthy and uncovered. 
If the Bismark model, so effective in Germany, works best when made from scratch are their other recipes which could perhaps guide the United States? Should they perhaps use a different set of ingredients? 
Perhaps if you can't get Americans to buy, you can get them to save? In Singapore healthcare costs are primarily covered by Medisave, a compulsory saving scheme, where Singaporeans and their employers contribute a part of their monthly wages into regulated account to save up for their future medical needs. Singaporeans are expected to use these savings, and, in dire circumstances, Medishield - a low cost catastrophic medical insurance scheme - to foot their medical bills. While healthcare costs are heavily subsidized, they are never free. This helps avoid over utilisation while still providing high quality health care.

And this recipe certainly has succeeded. Singaporeans have one of the most highly ranked healthcare systems in world - Bloomberg puts them 2nd, just behind neighbouring Hong Kong. It also has the world’s lowest infant mortality rate.

Perhaps this is because the Singaporean recipe avoids another pitfall of the traditional insurance systems: moral hazard. Simply put, if an individual feels certain that they will be protected regardless, either by insurance or by the state, they will be encouraged to take greater risks with their health. The rationale is that between using primarily savings and always paying for care, even if the fee is only nominal, Singaporeans will be discouraged from overly relying in the healthcare system and encourages them to focus on prevention. At its crudest the logic runs something like this, if I eat healthily and exercise I am less likely to need expensive healthcare treatments and am more likely to be able to afford braces for my kids. One can only imagine how appealing this recipe would be to American policy makers, where citizens suffer so much from lifestyle diseases such as diabetes or cardiovascular problems. 

But, given conditions in the US kitchen, is this recipe transferable?

Unlike the Singaporeans, Americans do not have a tradition of saving. US citizens have on average $15,191 in credit card debt alone. Contrast this with Medisave which emerged against the backdrop of high savings in Singapore. This meant that enabling a behavioural change in Singapore was not difficult. Encouraging U.S citizens to save the Medisave minimum sum of $40,500 would perhaps be a cultural shock. 

It should also be noted that the American recipe needs to feed a lot more people. Singapore is really a city state with 5.3 million people. The US population is well over 50 times that size. Dishes that work well at a small dinner party are often unfit for serving large numbers of people. 

Who then might the US turn to for culinary inspiration? Why not look at a neighbour closer in size and in heritage? With 63 million people the UK, though still a relatively small island, is more similar in size and complexity to the US. However, their approach to healthcare has been radically different. 

Instead of entrusting healthcare to private providers, the government runs the healthcare system from start to finish. UK citizens pay taxes, a portion of which are allocated to fund the National Health Service (NHS). The state also runs the healthcare infrastructure for the most part, (although there are exceptions) and pays for the doctors and nurses. In this way British citizens using the NHS never see a medical bill and most offerings are free at the point of service. Exceptions include a nominal fee for things such as dentist visits and a standard prescription fee. 

The government, as the sole large employer of healthcare workers in the UK, is something of a monopsonist. That is, it is the only major purchaser of a particular good or service, in this case doctors and nurses, allowing it substantial control in the marketplace. This allows the UK low healthcare costs, especially when compared against the United States. The British government spends only $3,609 per capita or 9.4% of its GDP. The US government spends $8,602 per head or 17.2% of its GDP. 

However, the amount collected from taxes, forms the limit of what can be spent on healthcare by the NHS. As such healthcare in this form must be rationed to some extent. The body charged with this responsibility is, perhaps ironically, entitled NICE (or on more formal occasions the National Institute for Health and Clinical Excellence). They are entrusted with deciding what treatments the NHS will and will not pay for, assessed in terms of QALYs (Quality-adjusted Life Years). Simply put, new treatments are evaluated in terms of how many quality years of life they will provide per pound spent.

As you may imagine, this is not the most PR-friendly of policies - cancer sufferers frequent news channels, explaining why the government won't pay for their treatment. This is the kind of media minefield the US government would certainly want to avoid, especially when talk of "death panels" already abounds on Fox News. Furthermore, it is hard to imagine an America, still so fearful of federal government intervention, willing to experiment in the kitchen with an entirely government run healthcare system. And while it certainly outperforms US's position, of 46th in Bloomberg’s healthcare efficiency ranking, the UK still comes only 14th.

Which recipe should the US borrow from then? I have only shown you three of the world's 40 state run healthcare systems, passing over many excellent recipes. However, what is clear, from a very brief attempt to discern the perfect recipe is that, of course no such thing exists. Each healthcare system is designed to suit the context in which it exists. And the context in which President Obama is working is particularly complicated.

Healthcare reform in America is famously difficult to implement. Nixon planned to introduce healthcare reform, far more radical than anything Obama has implemented, but this was vetoed by 70's Democrats for not being far-reaching enough. Twenty year later Hillary Clinton's attempts at healthcare reforms were also dashed. So the fact that Obama has even managed to implement his Bismarkian reforms is in itself a small miracle. That fact that the scheme has now signed up 8 million mostly poor Americans is further cause for celebration.

Is it a perfect recipe? No. So far the scheme has enrolled only a quarter of those eligible. This is partly due to the chaotic nature of its roll-out. A multitude of technical glitches affecting healthcare insurance exchanges in their first weeks prevented many frustrated American signing up. Outside of federal mismanagement, America's day-to-day government is largely run at a state level, leaving state administrators with a large say in the extent to which they implement President Obama’s healthcare reforms. Democratic Vermont for example has enrolled 85% of those eligible. Republican South Dakota just 11%.

Yet in a country as large and complex as America shooting for perfection is not the best way to get things done. To quote a Republican favourite, Ayn Rand, Republicans dissatisfied with healthcare can continue to “evade reality” but they “cannot evade the consequences of evading reality”. In the world wealthiest country, the deaths of 45,000 uninsured Americans is a travesty. Politicians should stop complaining, roll their sleeves up and focus on giving Americans the healthcare system they deserve.
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