POLICY: The VA as a solution for the uninsured, by Dave Moskowitz

Today there’s a new contributor to THCB. Dave Moskowitz runs a genome company that claims that judicious use of ACE inhibitors can reduce the prevalence of heart disease and cancers. But those of you interested in that must navigate over to his GenoMed web site. Here I’m more interested in his ideas for changing the health care system. Dave has an interesting idea: expand the VA and use it as a basis for public-sector health care service provision to cover the uninsured. He writes:

We both agree that a single-payer system would be a disaster (Editor’s note: I don’t — I think some version of single payer would be better than the current system, but Dave has confused single payer with “government as the only provider”). I don’t think it’s the best answer, with long waiting times and rationed care. There is a need, in my mind, for both a private sector healthcare system, and a state-supported healthcare system. The incentives in both are perverse enough that they need each other to stay honest.

For example, if the private system remains primarily a fee-for-service system, then the incentive is to do unnecessary medicine and run up the bill (the current U.S. system). On the other hand, a capitated or salaried government-run system encourages physicians to do as little as possible for their patients. I’ve seen this at close hand when I worked at the VA for 11 years. The only way to keep the two systems honest is to make them compete on patient outcomes.

Now, we need to discuss the mix of private vs. public healthcare. In the UK, it’s 95+% public, and in the US it’s 95+% private. What would be ideal is an 80% private, 20% public mix, essentially the ratio of public vs. private schooling in the US, inverted.

There would clearly be a dynamic equilibrium between the two systems. If the private system priced itself too high, or continued to spend too much on administrative costs, then it would lose clients to the public system. The lines would get longer at the public clinics, and people would complain. In fact, the distaste people have for long lines would keep most folks in the private system. But people who currently have no medical care at all, the 45 million Americans, would at least get some care, smelly waiting rooms and long lines notwithstanding.

How much would it cost to deliver healthcare for 45 million through the VA? About 6 times what the current VA healthcare budget is. A few years ago, it was $15 billion. It’s probably closer to $20 billion now. Here’s how I figure the ramp-up. Currently, the entire VA infrastructure takes care of 3 million people. It consists of 150 medical centers and some 300 satellite clinics and nursing homes. Not a single new building would need to be built. Instead, staff would need to be expanded.

45 million patients is 15 times more than the VA currently serves. But VA physicians currently have an average of 300 patients in their panel (many subspecialists have only 150). If every VA physician were to take care of 1,000 patients, which would require half-time clinical work, then the number of patients seen could be increased immediately to 9 million. Hire 5 times the number of physicians, and you’re up to 45 million patients.. Throw in an extra 1X of spending for ancillary help, and you’ve multiplied the current budget by a factor of 6, and you’re taking care of the VA’s current 3 million patients plus the 45 million uninsured.

Here’s an unexpected consequence: half of the medical schools won’t have to close. Without this change, the VA will close most of its hospitals, and the 125 medical schools with a VA hospital on campus will have to lay off at least a third of their research and clinical faculty.

Interestingly enough the $100 billion that Dave suggests we should spend on beefing up the VA to cover the uninsured is roughly what many experts think the cost of covering them with a decent insurance coverage would be and double the current $50 billion that gets spent on the uninsured in various places now. This idea has some similarities to Bush’s concept of spending more on community health centers (albeit on a much, much larger scale), and has the advantage that it wouldn’t require a system change, just more money. The current Congress seems happy to spend more money, but unhappy to implement new social programs.

On the other hand, if there was a decent service that was available for free, why would those providing marginal benefits to their employees keep them up? They’re dropping off in droves anyway, and if the employer can point to the VA system and say “go use that”, it’s not much of a stretch to say that many would. So this might accelerate the collapse of employment-based insurance, especially for those on low or middle-income, leading to more demand and more money needed by the repositioned VA.

Still, an interesting idea, and no less likely to pass than the Kerry plan or the Bush plan, given the current deadlock in the Congress!

Meanwhile, veteran health economist Joe Newhouse has a piece in the NEJM on Financing Medicare in the Next Administration. The shorter version? The gap in the increase between Medicare spending and GDP means that we have an upcoming crisis. But neither candidate will admit to it, so we’re screwed.

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