Saturday, May 05, 2012

The Ryan Medicare Plan: increased costs, worse outcomes?

Paul Ryan has a plan for controlling Medicare costs. Instead of a public health insurance plan for everyone over the age of 65, senior citizens would get a voucher to buy private health insurance. The value of the coupon would initially approximate the cost of insuring a senior citizen, but would increase more slowly than health care costs in general. Over the long term, this would create pressure on insurers and providers to increase efficiency, as seniors shop around for cheaper plans. Meanwhile, the US Treasury is absolved of its major unfunded liability.

Many critics have questioned whether or not the private market is actually better at controlling costs than a public plan. They point out that the US spends far more per capita than the other major industrialized nations, most of whom have single payer public plans. Studies that compare cost growth (in the USA) of medicare and private spending can be found to support either argument. My understanding is that over the last two decades, cost growth has been roughly equivalent across the rich world (the US started at a higher spending point back then, which explains our current higher spending level).

Cost growth has been equal, but there are other factors to consider. For example, the United States does a lot of research that the world benefits from, both private and public. The US also has higher rates of obesity and violence, which should increase our costs compared to our peers. In the background of these challenges, keeping cost growth parity with other rich nations could be seen as a sign of the superiority of our system. Yet I can find equally compelling arguments for the single-payer side. Many nations elsewhere have aged more than the US, and older patients should be more expensive to treat. Not to mention, most other rich nations have better public health outcomes than we do; longevity, infant mortality, etc. In summary, it seems to me that there is no obvious answer here. If the private market is better at controlling costs than a single payer, it certainly isn't by much. The assumption that Ryan's plan will save money by shifting to a private insurance market seems tenuous at best.

At any rate, I am convinced that the Ryan Plan will lead to higher costs and worse outcomes, but for other reasons. To come to this conclusion, one has to recognize a flawed assumption and remember a simple fact. The flawed assumption: once the medicare privatization is under way, most seniors will be able and be willing to cover their insurance costs over the value of their coupon. The simple fact: it is illegal to not provide emergent care or to unsafely discharge a patient from a hospital (ie patients who cannot take care of themselves must be sent to a facility of some sort).

Imagine the health insurance market when the Ryan plan goes into effect. I understand there will be a delay in impact since the plan won't apply to anyone over the age of 55, but this is irrelevant to the thought exercise. The health insurance coupons will be worth enough to cover insurance costs on the private market for the healthiest seniors. No problem there. Right from the get-go, the price of insurance for the less healthy seniors will probably be significantly more than the price of a voucher. For those unfortunate seniors with the most significant medical history, the ones with major pre-existing conditions, they will literally be uninsurable at any price.

(This concept, of patients with pre-existing conditions being uninsurable at any price, was illustrated in a recent study by grad student at MIT. The entire point of the concept of 'insurance' is to buy hedge against random events. A customer with a pre-existing condition buying health insurance is like a gambler who brings a loaded die to the craps table. The customer has insider knowledge on their condition which causes the market for insurance to break down. No insurer will cover a patient with a major pre-existing condition for the same reason that casinos don't let players use their own dice.)

We will start to see a rise in the number of uninsured Americans; they will be the sickest ones who are over the age of 65. These uninsured patients will still get treated in emergency rooms and in hospitals, because it is illegal to not do so (and because, well, most of us didn't go to medical school to let people die of treatable diseases on the hospital doorstep). The treatments will probably be more expensive, since the seniors without insurance will lack maintenance checkups and clinic visits. Their lack of insurance will give their medical problems the opportunity to fester and become more significant before they are finally addressed in the emergent setting. Providers still have to make ends meet, so to cover the costs of all of this free care to the uninsured, we'll just raise prices for everyone else (as we currently do). This will drive up the cost of health insurance even further, which will drive even more seniors from the pool of insured Americans.

Ever more Americans will find themselves in the ranks of the uninsured, avoiding routine visits and checkups for their major medical issues because they lack the insurance coverage - until the problems become life threatening, at which point they show up in the ER. To grasp where the problem lies, keep these numbers in mind: 5% of Americans consume 50% of its health care resources. 1% of Americans consume 30% of the resources. These are the patients who show up in the hospital with one foot in the grave, so to speak. They're the ones who spend weeks or more in the ICU, with dozens of tests and surgeries. If and when they recover, they end up at rehab for weeks if they're lucky, or at permanent facilities or nursing homes if they are not. These people will be cared for whether or not they have insurance.

The way to save health care dollars is not to make it unaffordable for patients to be followed and routinely managed, its to get them insurance so they don't show up in the ER after their problems have gotten out of hand. The way to save health resources is also to have patients meet with doctors before hand and discuss their long-term prognoses, what their treatment goals are, under which circumstances do they want medical interventions to be performed, et cetera. This is a whole separate topic but its something that I think about when I see uninsured patients come in and receive months of treatments that, honestly, they probably didn't even want but weren't conscious to tell us to not perform.

When I look at the end game of the Paul Ryan health plan, I can't help but see a death spiral of increasing costs, increasing numbers of uninsured, and worse outcomes. Paradoxically, if there was an individual mandate in place with a ban on discriminating based on pre-existing conditions, this cost spiral might be avoided (although many of the fundamental inefficiencies of the system would still remain to be addressed). I wonder if Paul Ryan realized the ACA might be overturned by the Supreme Court when he wrote this bill? The lack of a mandate makes this plan completely untenable. It is a cheap fix, not real reform, and it won't work.

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