Op-Ed: A Social Democrat Weighs in on a Government Health Plan

David hansen 09

I was born into a Berkeley family of Social Democrats—my father studied Swedish economic  policies—then I trained in social-democratic Economics in Scandinavia, before cutting my career teeth in a Norwegian Labor Party think tank. I thereby personify the threat trumpeted by Republicans: the sinister spread of Social Democracy.

So I am cheering wildly for establishing a federally owned health plan, right? Wrong.

Not that I’m particular opposed, either: It’s just not a big deal. Either way, new government-run plan or not, there won’t be much impact on our nation’s enormous health care problems.  Our health care dilemmas—high costs, poor access, and mediocre outcomes–stem from much more fundamental issues than who sits on the board of yet another insurance plan.

These include the perverse incentive structures for key decision makers in the industry, including insurers, providers and patients. Insurers earn money by serving the well rather than the ill who need their assistance most, providers don’t become rich by managing care over time but by medically over-treating the critically sick, and consumers are incented to both stay out of the insurance pool until they’re sick and to seek medical help late.

Many health insurance executives I know would like to act more in keeping with the public good, but they can’t. If they did, they’d be driven out of business. Wherever there are large financial tradeoffs, the margins aren’t sufficient to allow choices other than prioritizing the organization’s cash flow. The same would apply to a publicly owned insurance company, as also its executives won’t be immune to the economic forces compelling antisocial decisions. Instead, economic realities in our poorly designed health care market would force behaviors similar to those by executives in for-profit, not-for-profit, and local/state government-owned health plans currently.  Unless, of course, we were to see a highly implausible scenario unfold with hundreds of billions in ongoing subsidies, something that in turn necessitates either improbable tax increases or unimaginable charity from Chinese government.

The government’s main role in any sector, a Scandinavian economist would claim, is ensuring that the sector’s “framing conditions” promote both each organization’s viability and the public good simultaneously. Establishing proper framing conditions does not mean attempting to micromanage a sector with hundreds of thousands of critical decision makers. Rather it means shaping incentives at a macro level such that the hundreds of thousands make decisions in line with interests of the whole. Make it so insurers, physicians, hospitals, and patients do good for society in order to do well themselves. Framing conditions and incentives matter regardless of the payer system chosen, whether based on private insurers or a single-payer government entity.

Establishing a new government-run health plan, or not, changes little or nothing of the health care industry’s incentive structures and framing conditions. Thus, the debate about it is a distraction. Having political distractions can be good, of course, if populist rabble-rousers on the left and right thereby are kept from messing negatively with truly critical issues. However, I beseech those of you central to forming policy for the pending reform: Please keep your eyes on more important matters. There is too much at stake if also you ignore the fundamentals.

David Hansen has aided organizations with health care strategy, IT planning, and new venture development for a couple decades, both in Norway and in the USA. He holds graduate degrees in Economics and Business Administration, the latter from within the People’s Republic of Berkeley.

23 replies »

  1. While there are certainly a number of issues that require correction and improvement in the arena of health insurance and health care costs, I am utterly amazed (and frankly quite appalled) by the engrossing arrogance of the house leadership (aka the Democratic Party, which is not democratic in their actions at all).
    Not only are members of Congress not involved in the ‘public health care option” because of their false sense of entitlement and priviledge, but it is because their personal benefits (which are in fact much better than the average Joe or Jane will EVER experience) are so much better than the plan they are pushing down the taxpayers throats.
    I wholeheartedly agree that if Members of Congress believe so strongly that government-run health care is the best solution for hard working American families, then it is not only fitting that Americans see them lead the way, but that we require them to fully participate in this mythical and ‘wonderful plan’.
    I also agree that public servants should ALWAYS be accountable and responsible for what they are advocating, and I challenge the American people to demand this from their representatives. Frankly if we had the same approval ratings that Congress receives from the American Public, our employers would have to fire us…
    If the American People don’t start reminding the politicians on a regular, frequent basis that they work for US (and not the other way around), then no one can grumble about the inherent results we receive from our “leaders”…

  2. We need more in Congress who think like this…John Flemming…….
    Under the current draft of the Democrat healthcare legislation, members of Congress are curiously exempt from the government-run health care option, keeping their existing health plans and services on Capitol Hill. If Members of Congress believe so strongly that government-run health care is the best solution for hard working American families, I think it only fitting that Americans see them lead the way. Public servants should always be accountable and responsible for what they are advocating, and I challenge the American people to demand this from their representatives.

  3. The one factor that influences costs more than anything else (my opinion and my son’s who is an MD) is the liability system in the U.S. Access to the legal system is incredibly easy in this country because lawyers know they have little risk in most lawsuits. Insurers charge enormous premiums to doctors to cover their risks, and the unintended consequences of this is to lose doctors to many specialties and to less risky professions. The best option for the remaining doctors is to cover their potential liabilities by performing redundant tests to ensure mistakes aren’t made. Much of this results in progressive costing that multiplies the expense of treating even low risk illnesses.
    These liabilities are not duplicated in other countries, so comparisons of access, outcomes and costs are distorted. Get rid of the tort liability system by limiting maximum awards and costs will change dramatically. Until that happens, there is no government solution to compare with a free market medical care option.

  4. “you would then agree that if the public plan were being run by people immune to short-term political pressures (like getting certain politicians reelected or serving special interests) then it could be “incredibly effective.” I think you will reflexively disagree, but you’re going to have to do some awfully hard twisting to be able to say a government run plan will necessarily be run badly and the military is often run well.”
    JD is it correct to assume you don’t know anyone in the military? You don’t have politicians sitting with each unit micromanaging it. You don’t have politicians sitting at the bases macromanaging it. How often do you see congress pass laws effecting the operation of the military? Besides dont as dont tell when have they? Outside of appropriations, which almost everyone agrees is a complete mess, you don’t have political involvement. Compare that to Medicare, Medicaid, or healthcare reform in general. Politicians have inserted themselves into every level of delivery in every system. Every single day you are dealing wih, reporting, compling with political micromanagement. If politicians regulated our military like they did healthcare we couldn’t win a battle against girl scouts. You do see this and thus can see the results, waiting for approval to take out Osama!
    If a public plan was completly free of politicial influence it would be the most efficient delivery system possible, but it is a fairy tale, it never has and never could happen. Medicare is a perfect of how intrusive a non intrusive plan can get.

  5. I don’t know if this is the place for this, but I’ll take everyone’s silence to mean that I’m in the wrong forum. I’ve been reading THCB for a couple months now, mostly on the topic of reform (like most of us I think). I am currently entering my 13th and final year of training and in another year I will be a boarded sub-specialty surgeon.
    There has been little discussion here or elsewhere (please re-direct me if I’m wrong) about how we are going to continue to have access to medical and surgical specialties that are in low supply (and increasing the supply of say, orthopedic foot surgeons will take many years if it’s feasible at all).
    Simply put, it is quite likely that I and others in similar situations will not take medicare and medicaid if reimbursements go down (which they will) and I doubt very much that any “public option” will be any more attractive for providers who are not coerced into accepting it.
    Imagine a clinical scenario in which we have to look at the patient’s chart to see his/her insurance status even more than we do now for fear of seeing one of the dreaded government-funded options and the attendant paperwork and poor reimbursement. I don’t think it will take long for providers with long waiting times to conclude that they just don’t need the hassle and reduced payments of medicare/medicaid/Obamacare.
    I’d like to tell you that I just want to help people and that these issues don’t matter, but the costs that doctors have are real too, and more importantly, we can’t have a system that relies on people acting charitably (without the tax deduction) as a mainstay of incentive if we want long-term good outcomes from that system.
    Thanks. I enjoy your blog.

  6. Clearly the reason they have not expanded Medicaid for all the uninsured is because it is a terribly wasteful and expensive program. Expanding it unchanged would cause every state to go bankrupt immediately. That leaves the President’s goal; commandeer ALL the premiums for healthcare and cram everyone into the same system. This hardly seems politically feasable. Thank God.
    There is not enough unused capacity in American healthcare to allow everyone to show up at the ER all at once. There are not half-empty schedules in doctors’ offices just begging for more patients. Increase the demand for MD services and they immediately become more expensive to see. Or they become more difficult to see.
    Money was invented to determine who gets what. President Borg Obama wants to assimilate all the people and all the money. Resistance is not futile.

  7. “Our military is incredibly effective when free of politics. It’s biggest failures have come when it was being ran by the government.”
    Oh, man.
    First, the military is always run by the government and its employees are government employees. The Commander in Chief is, you know, the President.
    Second, fine, when political pressures intrude, military considerations can be outweighed by the need to placate constituencies and that can create problems. No one disagrees, just as no one disagrees that political pressures and interests can make any branch of government be badly run.
    Third, following what I think is your logic about when the military is run well, you would then agree that if the public plan were being run by people immune to short-term political pressures (like getting certain politicians reelected or serving special interests) then it could be “incredibly effective.” I think you will reflexively disagree, but you’re going to have to do some awfully hard twisting to be able to say a government run plan will necessarily be run badly and the military is often run well.
    And I say that as someone who doesn’t believe the public plan by itself solves anything.

  8. Nate,
    You raise an interesting point. You are correct that relying on the doctor regarding preventive services is inefficient. However, physician organizations have lobbied to ensure that patients cannot get these services unless a physician orders them. So, if a diabetic wanted to check their LDL cholesterol yearly like the guidelines state, nobody would run the test for them without a physician’s order. Since we pay physicians for their time rather for what they accomplish, the physician only gets paid for the office visit, whether the patient gets the test or not.
    I read recently a comparison describing the US health care system as a Nash Equilibrium. Who ever moves unilaterally to make the system better does worse than if they fight to hold on to the status quo.
    I am coming to believe that either half the country will lose insurance before we change the system, or that a large force will impose change to break the logjam. In my least fuzzy crystal ball, the democrats will balk at using procedural methods to avoid the filibuster. The republicans will balk at significant change that would hurt the payers, hospitals or docs. We will get superficial change that ends up costing more and everyone will claim victory until we reach that 50% without insurance.

  9. George;
    1. They would have purchased insurance that wouldn’t allow them 31K in out of pocket cost
    2. Hopefully none it’s not their job to deliver care they are suppose to reimburse you for expenses you had, it sounds like they did this. What where your expectations of the insurance company?
    3. I would disagree with your macro assumption. Our military is incredibly effective when free of politics. It’s biggest failures have come when it was being ran by the government. Iraq before the Army surged like it wanted to. Somolia with it’s minimial force and inbigious equipment. Vietnam. Our military soliders fighting for causes they beleive in are second to none. Forced to fight wars with their hands tied behind their back and letting politicians call the shots they struggle. I would say proof that government is incapable of running just about anything.
    4. No
    Over what period are these companies supposedly making hundreds of billions of dollars. What I fine perplexing is people complaing about carrier profits that don’t even know what those profits are. I’ll bet your also including profits from Life, disabilty, P&C and other non health lines of business. Further I think your not taking into account that the federal government has advocated large national carriers meaning the few remiaining companies have large profits in absolute dollars that are no higher as a percentage then the fragmented systems. If there was 10 times as many carriers splitting these profits you would never read about then in the paper and wouldn’t even be discussing the issue. Personally I don’t think we are served well with 3 uber carriers, I don’t think any carrier should control more then 20-30% of a market. Congress disagrees with me. What where we saying about government not working?
    I think a lot of people are not receiving the care they need not becuase of physician underservice but lack of personal responsibility and effort. A doctor can’t be expected to educate everyone on everything, patients need to put effort into asking the right questions and learning what they need to. A patient should not need to pay a office visit fee to learn what preventive care they should have, this is available online and from other sources for free, relying on a doctor is ineffiicent. I’ll read the study and get back to you.

  10. george,
    To answer your questions:
    1: They would take out a loan, sell something or make payments to the hospitals and doctors for a long time at no interest.
    2. Insurance companies do not pay willingly or easily. Someone has to haggle.
    3. Who says we have a great military establishment? I am hopleful that other militaries around the world are at least as screwed up as ours.
    4. Did you have bad healthcare in the US? It sounds like your daughter did well. Should you have taken her to France for superior care?
    The only ways to cut Medicare costs are to have tort reform and to restructure end of life care to be cheaper for the govenrment and more expensive for the patient and family.
    Why have the young subsidize the old?

  11. Hi Nate,
    Sorry for not providing more focused direction. The report is not mine, it’s from the NCQA. Pages 19-88 provide tables showing the percentage of patients who get various treatments. The table of contents on page 3 will allow you to go to specific clinical metrics. As you review the data you will find that many insured patients don’t get appropriate testing or reach beneficial clinical targets. The Institute of Medicine reports that on average, it takes 10-15 years from the time a medical intervention is proven effective to the time it is ubiquitous at the bedside.
    Note that I am not criticizing my peers. The New England Journal of Medicine reported in August 2006, “Primary Care: Will It Survive”, that the time required for the average primary care physician to deliver all the preventive and chronic illness care that their patients should get would take 18 hours per day. We were trained to do everything in an era when you could. It is no longer possible. The Chronic Care Model and Patient Centered Medical Home have shown promise, but will probably require additional payment models and physician training to gain traction.
    Fifty thousand Americans die of colon cancer each year. Only half of the insured population gets adequate screening. Just one example of how our system doesn’t serve the needs of patients, insured or not.

  12. Tom, how will tax credits reduce the spiraling cost of healthcare? It’s also interesting that you call your ideas “market based” when they require government to do the funding. And what different options do people need in healthcare other than – when sick get treated. A public plan would/should not restrict your doctor or hospital of choice.

  13. Nate and everyone that agrees with you,
    I can see you have some strong convictions and ideas about this stuff. Before I give you my point of view I would like to give you a little context. I’m an engineer with an advance degree in Mathematics I make over 280K a year. In a way I know neither I nor anyone in my immediate family we’ll ever go with healthcare. I’ll be able to afford it in almost any environment.
    Last year my young daughter had an accident, I won’t go into the details of the accident since they really are of no consequence to my point. After all was set and done we had spent 31K dollars in healthcare that year. You might say so what, you make a lot of money you can afford it… and you would be right. It really wasn’t an issue for us. We paid; she fine and now we have moved on. So I have 4 questions for you and folks like you:
    1- How would a family making 50K a year be able to afford survive and not collapse economically under these conditions?
    2- After my ordeal with my daughter what service would you say the insurance company provided other than pain for some of the bills (after my wife haggling with then for months)?
    3- You argue the government of the United States can’t run anything, how is it that we have such great military establishment? Its government run, you know?
    4- I lived in France for 5 years and found their healthcare system to be incredibly efficient and well run (not perfect but very impressive). Have you ever lived anywhere the healthcare was provided by the government?
    Just a comment: if the French can do it we can do it better, it is just that simple.
    My thoughts:
    What folks like me fine a bit perplexing is some of the quarterly profits that almost all insurance company posts year after year? When we talk about profits we are not talking about operating cost and all other costs associated with running any business. We are talking about PROFIT. I wonder what would happen to our healthcare system if we took all that money, hundreds of billions of dollars, and used it for actual care of people. By the way please don’t answer that since none of us know. But it sure would be interesting thing to see.

  14. Nate, the “corruption and greed are 3-5 times higher in public plans then private” all come from providers not government. Government may be at fault for not spending more/enough on fraud investigation/prevention. But I will tell you that as soon as Medicare/Medicaid start agressive fraud investigations the providers will be on the phone to their congressman complaining of over reaching government.

  15. once again peter your complete lack of understnading on healthcare leads to silly comments. How do you not know by now that corruption and greed are 3-5 times higher in public plans then private? Medicare and Medicaid have 10% fraud rates compared to 1-2% in private insurance.
    Medicare nor Medicaid have reasonable cost
    10-20% of private premium is cost shifting from public plans. Public plans don’t pay state premium tax. What cost shifting are you talking about?
    Medicare providers lobby just as much if not more then private insurance.
    I think you managed the holy grail of inaccurate commenting, everything you said was 100% incorrect, gold star for Peter!

  16. Any public/government plan won’t work unless it includes universal budget and cost/price/sane exec compensation controls. With a two tier system, one private (for greed/profit/corruption) and one public (for reasonable costs and universal access) the public plan will fail as money flows to the private side while the public plan gets diminishing funding from politicians who benefit from private plan lobby/corporate money.

  17. Hello friends, my name is Frederick, I am a person addicted to Vicodin, as it is a very powerful painkiller for the constant pain I have for the disease, is painful to see how my life is finished and I lose sensitivity, time and Many people do not understand what they feel, I hope you can find a cure for my illness, and thus fail to suffer and also stop making many people suffer that I want, why they said they understand people like me because some times lose track of time and where more support is needed ..

  18. Yes, I am severely annoyed that the “govmint” is behaving so predictably by trying to address only the access part of the problem, instead of including the completely broken health care delivery component. This point has been discussed ad nauseum since well before the election by all of us on all of these blogs, so why don’t “they” get it??
    My only consolation is my suspicion that this is a Machiavellian government plot to allow the CBO’s astronomical price tag to slowly make it obvious to everyone that the delivery system must also be reformed, without having to come out and say so explicitly. Actually, that just might work…..

  19. Yokum, if I am dumb for my spelling errors then what does that say about you and your grammer in a post commenting on my spelling? I think you meant to say learn to spell? Only a person with a simple mind would ignore the content of a message due to the asthetics of it.
    Dr. Fuller what exacty in your 131 page study would you like me to look at? I don’t mind doing some reading to further a discussion but can you keep it to a specific chapter or couple dozen pages?

  20. Thank you for this post. It’s dead-on and much needed saying. The only significant qualification I’d make is that in some circumstances plans make their money by bringing in the healthy and in others they make money by bringing in the sick (Medicaid Special Needs plans, the new Medicare payment system) and in still others (experience-rated groups) they make money by bringing in the healthy and the sick together. If you have a large group consisting of only the healthy, you can’t charge as much premium (thus your 5% is a small amount as well).
    But I agree with pretty much everything else you say. I second your appeal for people to keep their eyes on the ball, though that presumes that people had their eyes on the ball in the first place. How about: get your eyes on the ball!

  21. “Our health care dilemmas—high costs, poor access, and mediocre outcomes–stem from much more fundamental issues than who sits on the board of yet another insurance plan.”
    This should actually say our High Average Cost, Average poor access, and Average medicore outcomes. THose with insurance generally have incredible access, to much actually, and excelent outcomes as good or better then anywhere in the world.
    THis is why 80%+ of people with insurance like it and don’t want to lose it.
    On the other side we have roughly 5 million uninsured that want insurance and 30 million or so in Medicaid with terrible access and terrible outcomes. Throw in Medicare and it’s horendous cost then average that with all we do right for the insured and you have your results people bemoun.
    The question is why does government continue to screw up the couple hundred million that are working to fixed the 35 million plus Medicare cost that is not?
    If government would fix the over regualtion, stop the cost shifting, and learn how to properly right a law private premiums could drop 20%+ overnight and drastically reduce the uninsured. Then if they balanced the budget on the public plans and stopped cost shifting almost all the problems would be solved, we would only have a couple million uninsured that needed help.
    “Insurers earn money by serving the well rather than the ill who need their assistance most”
    Actually they make their money serving anyone they can charge a fair premium to. They prefer the sick becuase the sick have higher premium so their 6% profit is thus greater. What they don’t like is someone not paying premium untiil they are sick then trying to stick them with the claims.