As everyone knows who has ever eaten at an “all you can eat” buffet, once someone has paid the bill (or premium), they feel that they are “entitled” to get their money’s worth, and maybe more. By the same token, people will also come to feel that they are “entitled” to health insurance, and rightly so, if, 1) they have paid a premium for their health insurance, either in cash or via taxation, or 2) they qualify for taxpayer-funded health care as a social welfare benefit.
And, once someone begins to feel “entitled” to health care at no cost (beyond a small co-pay), they are likely to ask for any and all services and/or treatments that they believe will confer a health benefit, with no regard to any cost/benefit analysis. This systemic incentive to over-consume creates what economists call a “moral hazard”, and I believe it is one of the largest factors in the long-term escalation of health care costs in the United States.
So, if we may permit ourselves to contemplate the repeal of the Patient Protection and Affordable Care Act (in 2017, with Republicans in control of the Congress and the White House), what should the conservative substitute look like?
For decades, my view has been that there are a few reform elements that are crucial, and the most crucial of all is the elimination of the third party payer, at least in terms of the role they now play. Only when our health care system is changed to force each of us to evaluate health care services with respect to cost/benefit ratios (in much the same way that we evaluate other things that we purchase) will competition come into play, eventually forcing down costs. Health Savings Accounts were a good start, but the concept would need to be expanded greatly, and employer-provided health insurance plans would need to be eliminated by rescinded their corporate tax deductibility. The point of these steps would be enable everyone to have ownership over the funds used to pay for his health care, thereby incentivizing the conservation of those funds. Health Insurance should be relegated to the role it played a half-century or so ago, that of protecting against catastrophic health care expenses.
Recently I came across another scheme that has some appeal. Russell Korobkin is a Law Professor at UCLA, where he writes and teaches in the fields of Negotiation, Behavioral Law and Economics, Contracts, and Health Care Law. He advocates for what he calls Relative Value Health Insurance (RVHI), and he recently had THIS article published in the Michigan Law Review explaining his plan in detail. A shorter treatment was also posted earlier this week at the Volokh Conspiracy. An excerpt:
The basic idea of RVHI is that insurance policies should be available that would cover medical care that satisfies a higher or lower cost-effectiveness standard, thus enabling customers to determine, through their purchasing decisions, just how much of their resources they wish to devote to health insurance as opposed to other goods and services.
One example I use to illustrate how RVHI would work is the new drug Procysbi, which treats juvenile kidney disease more conveniently and with fewer serious side effects than the current treatment but, according an article in the New York Times, retails for $250,000 per year — far more than the $8,000 per year cost of the current treatment.
It is impossible to say in any objective way whether the benefits of Procysbi are “worth” the addition cost. It depends on the value each individual places on the marginal benefits of the drug. RVHI would enable customers to determine (before becoming ill) whether they wish to purchase what I call a “deep” insurance policy, which would cover treatments that offer even relatively little marginal health benefit compared to its cost, or a “shallow” insurance policy, which would only cover treatment options that offer substantial expected benefits relative to their cost. A deep policy would cover Procysbi, and other medical treatments with a similar cost-effectiveness profile. A shallow policy would cover the established treatment, but not Procysbi. Deeper policies would cost more, of course, than shallower policies. The market would determine the precise difference in price.
How would customers decide what depth of policy they would prefer? After all, before the customer or a dependent contracted kidney diseases, they would have little reason to even know what treatments are available for different conditions.
My proposal is for the government to provide ratings of different available treatments for different medical conditions on a 1-10 scale based on their relative cost-effectiveness. The most cost-effective treatments would earn a score of “1,” and treatments that provide very marginal benefits at a high cost would earn a score of “10.” The benefit scores would be based on QALY (quality adjusted life year) ratings; the cost scores would be based on retail charged for the drugs, devices, or services in question. Notice that these ratings would in no way prescribe what level of coverage could be bought or sold; it would only provide a relative measure of what medical treatments are more or less cost effective. Insurance companies then could sell policies that cover treatments rated “3 or better,” “5 or better,” “9 or better,” etc.
For the full article at the Volokh Conspiracy blog, click HERE.
