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The Healthcare Solution: A Proposal   (March 19, 2007)

Long-time readers have seen this chart before, for it perfectly captures the pressing need for true, long-term reform of the U.S. "healthcare" system. (Long-term readers know the quotation marks indicate my view that it is actually a system which profits not from preventive medicine but from ill-health.)

New contributor Peter sent in a cogent summary of the possible solutions which I encourage you to read all the way through. This is perhaps the best analysis I've read of national healthcare systems:

There are actually three models of health care used in the developed world: the HMO model, of which the UK model is a variant, the US model, and the European model or social health insurance. They fall neatly onto a two by two matrix, like surprisingly many things in life. One dimension is who provides insurance, the other who provides the actual care.

In the HMO model, you pay a fee to the HMO, and they do their best with this income to look after their population, delivering care in facilities they run. In the UK variant of this, subscription to the state HMO is obligatory, the delivering organisation is your local Strategic Health Authority, which is also your insurer, and what they consider to be the best varies from region to region. In this model all care delivered is included in the premium, but the interesting twist is that you cannot always get the included care delivered. And there is an all-or-none condition. You cannot take out supplementary insurance for treatment the state cannot or will not deliver, nor can you pay a supplement. And you cannot be treated by anyone else.

This model actually combines two functions. There is an insurance function, and a delivery function. The UK variant ties them together. It is a bit like a car insurance company with a chain of garages. The only people it will allow to work on cars it insures are its own mechanics.

In the UK variant, the SHA spend budget is fixed. Since the level of illness and demand is not, this means that if too many people present with the wrong kind of illness, they don't get treated. Thus we have in the UK random denial of drugs, both by region and by time of the fiscal year, postponement of procedures, frantic efforts to achieve 100% bed occupancy which leads to one of the highest rates of hospital infections in the OECD, and the use of waiting lists as a means of rationing care. It has emerged recently, for instance, that most SHAs have minimum wait times for common surgery such as hip operations. Yes, it seems incredible that a compulsory membership HMO could really have minimum, not maximum, wait times, but it does. A hospital in Ipswich was refused funding by its SHA because it was doing too many operations too fast, in defiance of the minimum wait time.

You may wonder whether in such a case you could just pay for the surgery or the drug. The answer is no. You can pay for private medical treatment, but then you have to switch to total private provision. If your local SHA, for instance, has stopped providing Herceptin as a budgetary measure, you cannot just pay for a course. You have to leave the State system, find a doctor, pay him/her privately again for consultation and tests that you have already had, and then pay for the drug. A doctor in the State system is not permitted to prescribe drugs or deliver surgery other than when funded by the State, and if the State has money for consultation but not for treatment, that is what you will get. In the same way, if a drug or procedure is not carried by the State system, you cannot get it while being treated by the State.

In short, the UK health care system can be characterised as a form of insurance fraud, in which the contribution is compulsory and defined, but the benefit is discretionary, and you can never know in advance whether you will be covered for a given illness and treatment. The risk of financially catastrophic illness is transferred back onto the insured party. So we have large numbers of people in the UK having paid once to the National Health Service for health coverage, then either taking out additional medical insurance, or in some cases taking out second mortgages on their homes to pay for surgery. Old ladies confronted with pain and disability and multi year waits for hip operations often do this. In private industry people go to jail for running schemes like this, but the UK Government tells everyone this scheme is the envy of the world.

In the US model, insurance and provider are both generally private sector and independent (Medicare excepted of course). You find your insurance provider, and if you require treatment, you have a defined range of treatments that are covered, and you select a provider to deliver them. The difficulty with this method is that the health insurance is very expensive, and the relative pricing power of the health care providers very high. The health insurance is very expensive partly because it costs more to deliver, because of the great efforts the providers have to make to screen out bad risks - people with expensive conditions. The result is that in the US health insurance has become unaffordable for large sections of the population, and those for whom it is affordable often only get it as a benefit of employment, so that it vanishes on layoff. Healthcare costs are therefore, not surprisingly, one of the leading causes of personal insolvency in the US.

The European model is probably the best and most rational. Unlike the UK model it splits the insurance and provision functions. It consists of compulsory insurance operated by the state, with a defined set of illnesses and treatments which are covered. This insurance costs very little to administer because it makes no efforts to screen. The insurance typically does not cover 100% of all conditions and treatments. There is a scale of what is covered to what percentage. Some things, such as private rooms, are covered to zero percent. It is possible to pay privately or to buy supplementary insurance to be covered to 100%. In Belgium there are Mutualities, some of which are state funded, and they will give discounted supplementary coverage on a means-tested basis.

In the UK model, health care provision is operated by the State, and the British health service is the largest employer in the OECD. I think only the Chinese and Indian Armies are larger, in the entire world. The consequence is that it is has one of the strongest unions, and consequently basic discipline is totally lacking. Successive campaigns have failed ever to persuade nurses to wash their hands between treating patients. This lack of discipline accounts in large part for the infection rate.

In the European model, by contrast, patients take the state insurance to the provider of their choice, and there is great diversity of supply. The consequence is more control of facilities by clinicians, higher hygiene standards, and far lower infection rates. The providers have no reason not to treat everyone who presents as promptly as they can, so there are almost no waiting lists. Everyone knows in advance what he or she is covered for, and the risk of too many of the wrong kinds of illness happening is not borne by the last people to get ill, but by the State insurer. As is normal in insurance. And if something is not fully covered, you can still get it by paying or drawing on supplementary insurance.

This is, in short, a health care system which works. It has the State doing the only part of the process where it has comparitive advantage - the provision of insurance. It ensures a competitive and varied provision sector. In Belgium, for instance, hospitals are run by religious foundations, universities, charities, corporations, municipalities. But one with UK infection rates, or US charging rates, would go bust in a month, because patients have to choose to be treated there. It also meets the basic goal of social acceptibility. No-one is denied care because they cannot afford health insurance.

The recent reforms in Britain have only illustrated more clearly than ever the benefits of the European model. The UK used to be able to claim that their model was enormously cheaper to run, even if it did suffer from long waiting lists and rationing. However, the effect of the recent reforms has been to raise costs to or above European levels, while not lowering the waiting lists, and not allowing people to know what they are covered for, or giving them entitlement to any particular treatment. The money has basically gone into an army of unionized adminstrators.

It is important to think systematically about this issue, because both in the US and the UK, we frequently find people talking as if there were only two choices, the US or the UK models. People maybe have an excuse for this in the US. But in the UK, the National Health Service model is commonly defended by the argument that we should not go to the US system, as if there were no other way. But there is.

There are two ways that don't work. One is fully private sector health care provision and insurance. The other is health care and insurance as a nationalised State industry. There is one other model which does work, and can be inspected whenever you like anywhere in Northern Europe. It consists of State insurance and private care provision.

Peter added this note in a later email:

Patients miss out as NHS cash floods in; Salaries soaked up new funds, reveals damning report

By a curious coincidence, this appeared today in the Guardian/Observer - a report of a Kings Fund study, showing that indeed almost all of the recent increased funding has gone on administrative salaries, not on patient care. The classic result of throwing money at an organisation too big to be managed properly, too unionized to be accountable, and too powerful to be changed - because its government. Those in the US who wish for 'socialized medicine' should beware. If they got their wish, they would like it even less than what they have now.
Thank you, Peter, for the careful analysis of various healthcare models.

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