Health Care - The Answer :!*)

OK. I’ve been thinking about your health care challenge over the last week or so. I definitely view this as a work in process, to be improved by our mutual contributions. Let me lay out a framework for how I’m thinking about this, then work up to a policy solution and a way to package it.

The landscape on this issue is not as politicized as some. To the extent that it is, the groundwork is laid along the usual lines of the Dems as the mommy/big government party - wanting to make sure that everyone is covered and healthier and eager to see the government expand deeper into all of our lives to accomplish this - and the GOP is the daddy/small government party - wanting to see people take responsibility for their own health, trusting the free enterprise system to solve social problems, and wanting a relaxation of the government's role in the sector.

Currently, I'd say most Americans feel about health care similarly to how they feel about education. Everyone says it’s a crisis, so it must be, but my school (or coverage) seems to be pretty good. To the extent that there is a problem, people would describe it differently. Some point to 50 million uninsured, some point to the hassles of those with insurance and the evils of HMOs, some point to the toll that health care spending is putting on American companies, some point to the wasteful spending, with primary subproblems within that being too little spent on prevention, too much spent on insurance and unnecessary procedures, too much spent on paperwork and processing, too much spent on pharma, too much spent on the last 3 months of life.

One issue with taking the lead in trying to solve health care is that no one can agree on what the problem is. So, first you've got to convince the majority of the American people that what you say is a problem is really an important problem, then you've got to deal with everyone trying to tear down your solution.

There are a few traps for the Democrats to avoid. First, they have to avoid single payer. The entrenched interests against it are too many, it’s too easy to parody as socialist (or worse, French) and there is not enough of a sense of crisis for people to support a revolution in our health care delivery and payment system. Second, you have to avoid anything that would restrict or ration care at the top end, for the same reason. Third, you have to avoidance making 'universal coverage' your rallying cry. The middle class doesn't care, many uncovered people could afford coverage but choose not to buy it, and the working poor are outnumbered and under-registered.

So, what do you do? First, you focus on the issues of the middle class and the economy. Then you focus on cost and quality. We’re not getting what we pay for. Increasing technology is decreasing costs in computing, home electronics and telecommunications. Why is it increasing costs in health care? And why aren’t we healthier when we are paying so much?

To step back, why do people buy insurance? Typically, it's to avoid risk. Maybe there is only a 1/1000 chance of your house burning down this year, but that outcome is so catastrophic that it is worth paying 1/500th of the value of your house each year for fire insurance. So, it's worth paying $5000/year for health insurance to avoid the 1% chance of having to pay $250,000 in health costs which would be bankrupting. For health insurance, there is another, somewhat paradoxical reason to buy it. Humans are notoriously poor at making trade-offs between the present and the future. Even while we know that eating fatty foods will clog our arteries in the future, we often don't pass up the KFC for the big salad. In terms of health, that means that people will put off that check-up at their doctor and stay home to watch Big Brother instead. So, it makes sense to have pre-paid insurance so the check-up is free and more people would go than if they paid the actual price. The downside of insurance is what's called moral hazard. If I know that I have collision insurance in my rental car, I may drive a bit more recklessly than if I knew I was liable for any scratches. (The health care world is filled with enough other economic inefficiencies to fill about a dozen PhD theses.)

So, here are some attractive principles to start with that make sense and would appeal to the American public. I’ll build my policy and packaging suggestions from these:

1) People need catastrophic insurance. They want it and need the security of knowing that they are not one illness away from bankruptcy
2) People need choices. You only can go to this one doctor and have to pay huge to go out of network is a non-starter
3) Squeezing cost out of the system is good, if it doesn't hurt quality or personal choice.
4) Americans like technology and they like progress. Any system has got to encourage technological advances
5) Health care should be affordable for the average American
6) Single payer is a non-starter
7) The focus of reform efforts should be on things that make life better for the middle class
8) There is lots of room for quality improvement in American health care
9) You shouldn’t have to pay a lot to get high quality. People get it with Toyota and Target.

So here are some components of a solution that should be sellable. I'll think about the packaging of this a little later.

1) Implement voluntary, industry based standards organizations with incentives to join. Government imposed standards are easy to attack. Industry driven standards work very well in the technology/telecommunications fields and are harder to criticize from the right. There should be standards of care for say the 10-20 most common/expensive complaints/procedures/ conditions. The AMA and hospital associations, etc. should get together to agree on these standards of care, convened by the government. Health care providers should be judged based on how well they meet these, and there should be a financial incentive (but no requirement) to do so.

2) Tort reform. This is an issue to take away from the GOP and it reinforces the message of controlling costs (even though it’s probably not a big component of that.) A couple of things I’d suggest. First, all MDs or HMOs should be exempt from liability when they follow the standard of care guidelines above. Second, there should be a declining, sliding scale for legal fees. Third, punitive damages above a certain amount go to a central fund not to the plaintive.

3) There should be differential Medicare reimbursement rates based on efficacy. Providers meeting the standards of care above should be reimbursed at a higher rate. New drug reimbursement rates should be keyed to how much of an improvement the drug is over the previous therapies. Perhaps MD’s or hospitals should receive some kind of incentive based on how often they prescribe generics when they are available.

4) Tax advantages should be available for companies and individuals that follow these “more effective” plans. This should help lift the burden on companies facing foreign competition and make it easier for uninsured Americans to buy plans.

5) There should be an industry based standard for electronic medical records. Not a standard software, but a standard dataset and flows. This is a huge savings opportunity and a great way to use standards to help a whole community. (It's like defining a standard rail track gauge in the olden days.)

6) Cover all kids. This is just a no brainer. (I'm not up on the details of the current proposals for this.)

7) Create attractive national policies for individuals not covered from work to buy into. These should be offered by private companies, and giving people a choice of different tiers. The baseline ones should be low cost, cover preventative care for free, give $ back for healthy behaviors, have high deductible but good catastrophic coverage.

In terms of messaging, I think these are the kind of messages we should use:

• Health care is becoming unaffordable for the average American
• We need to make sure health care is affordable for everyone
• We can get higher quality at lower cost
• We will use market based solutions to fix market failures
• American ingenuity will help us make sure that all Americans have the best health care in the world

Also, to drive the cost point home, we need to find our $800 screwdriver -- the sticky example of just how broken the system is. And we should make the point that these changes will be revenue neutral at all levels of government. The federal government will spend more on tax breaks for these “approved” plans, but it will reap savings in Medicare and Medicaid spending, and the state and local governments will save a lot in these two areas.

To wrap up this mega-post and return to its political possibilities, the left wouldn’t like this plan because it doesn’t provide universal coverage. The right wouldn’t like it because it will increase federal spending and also injects these standards organizations into the marketplace. The pharmas won’t like it because they will have to show greater efficacy for their drugs to get maximum reimbursement. I’m not sure how the AMA and hospital groups would react. Getting them inside the tent on the standards of care setting is key. (But that process will be hellacious.) Individual doctors may object, saying that the government is telling them how to practice medicine. (In reality, the government is just setting different reimbursement rates based on the scientific recommendations for standards of care.) Insurance companies should like the electronic medical records and the additional tax incentives, but may have issues with selected standards of care.

For middle class consumers, I think this issue is winnable in this presentation. They would be told that their own health care costs will start to decline and that the government is reining in costs overall. Not exactly the most powerful rallying cry, but I think it is still a compelling message for how they benefit and how the country benefits, which is what was missing in the compromise immigration bill.

Your thoughts?