I recently read a very interesting book by John Goodman titled “Priceless: Curing the Healthcare Crisis“. Whereas President Obama’s Health Reform plan focuses on increasing access to medical services by expanding the government’s role in the medical marketplace, Goodman advocates reducing regulation and adding flexibility to the health insurance and medical markets. The book is interesting throughout.
In this book, Goodman–who has been called the “Father of Health Savings Accounts”–points out THE major problem with public insurance programs: the prices paid from services are incorrect. Special interests (e.g., PhARMA, physician specialty groups, patient advocate groups) have a significant influence over the relative prices paid for medical services. These prices typically do not reflect the true cost to treat a patient. These imprecise prices leads to distortionary behavior and an inefficient allocation of resources. Not only does overinsurnace lead to a moral harzard problem, but providers shift the services they provide patients based on rent-seeking behavior rather than competitions for patients.
The book discusses that Health Reform’s expansion of the number of individuals eligilbe for Medicaid may not actually increase access. The book cites a Health Affairs paper by Enthoven and Schaeffer that discusses what people encounter when they try to sign up for free Medi-Cal (California Medicaid) health insurance in San Diego.
Of the 50 calls made over a three-month period, only 15 calls were answered and addressed. The remaining 35 calls were met by a recording that stated, “Due to an unexpected volume of callers, all of our representatives are currently helping other people. Please try your call again later,” followed by a busy signal and the inability to leave a voice message. For the 15 answered calls, the average hold time was 22 minutes with the longest hold time being 32 minutes.
Goodman proposes a three-pronged solution.
- Goodman would shift a larger share of cost to the patient. The services for which each individual would be totally response would include “primary care, most diagnostic tests, and most outpatient care.
- Insurers, however, would be responsible for care related to patient’s chronic conditions. Although patients would be responsible for paying for cancer screening, once the patient is diagnosed with cancer, the insurer will take over financial responsibility.Goodman would shift a larger share of cost to the patient
- Health insurance will follow a casualty insurance model. The insurance company would pay a fixed fee to cover the cost of an illness and the beneficiary would be responsible for providing additional care.
Currently, many health insurers are in the business of insuring risk and providing health care services (e.g., Kaiser). Under the casualty insurance model, insurers only managed risk. One could easily compare insurance companies side by side by seeing how much they are willing to pay for certain diseases. The monitoring costs of the casualty insurance model, however, are high as patients may have an incentive fraudulently appear sick or exaggerate the extent of their illness to gain benefits. Thus, the casualty insurance model likely would not result in cash payments to patients but some type of voucher for medical services.
Other provisions Goodman advocates:
- Allow portable insurance that employees can take with them when they change jobs.
- Allow special needs health insurance where insurers will specialize in the treatment of certain types of care.
- Give individuals the same tax break employees get.
- Remove regulations that require insurers to provide minimum benefit levels.
- Create a national market for health insurance.
- Allow individuals eligible for Medicaid the option of receiving a lump sum voucher (set equal to the government’s average cost per Medicaid beneficiary) that they can use to purchase private health insurance.
The most unique aspect of Goodman’s proposal is his advocating for health status insurance. Health status insurance pays you a lump-sum sufficient to pay the higher medical insurance premiums which would occur after you have an adverse health event. To deter fraud, the payment would likely go into a special account that can only be used for medical insurance premiums.
Healthcare Economist’s Take
There has been much praise for this book. My impression is that provides a new vision for how health insurance would work. The current approach where the government funds a larger and larger share of healthcare costs is not fiscally sustainable. I don’t agree with all of Goodman’s points, but his market-driven, deregulated approach does offer an appealing option to the current status quo. I agree most with Peter Orzag’s review of this book:
“There’s no question that today’s healthcare system is littered with distorted incentives and what John Goodman calls dysfunctionality. This book is a call to arms to do something about it. Even if you don’t agree with all of Goodman’s ideas—and there are plenty I disagree with—you should read this book if you want to be an informed participant in the debate over the future of healthcare in this country.”
—Peter R. Orszag, Former Director, Congressional Budget Office.
Quotations from the Book
- Under the conventional approach, every doctor, every nurse, every hospital administrator will get up every morning and ask, “How can I squeeze more money out of the payment formulas today.”
- Take Medicare, which has a list of some 7,500 separate tasks it pays physicians to perform. For each task, there is a price that varies according to location and other factors…Medicare is potentially setting about 6 billion physician fees across the country at any one time. Is there any chance that Medicare can set fees and approve transactions a way that does not cause serious problems? Not likely.”
- In 2008, 1 percent of the population accounted for about one-fifth of all healthcare spending. Yet the following year, 80 percent of these patients dropped out of the top 1 percent category.
- …a recent study finds little relationship between the inputs Medicare wants to pay for and such outputs as patient survival, and even the latest pilot programs show that paying doctors for performance doesn’t improve quality.
- In fact, the US system is actually more egalitarian than the systems in many other developed countries with the uninsured in the United States, for example, getting more preventive care than the insured in Canada.