The adverse selection problem

A Boston Globe editorial today supports a point I made a few days ago about the conflicting objectives the president and Congress will face as they attempt to provide greater access to health care to Americans. It will be difficult, if not impossible, to provide such access while also controlling costs.

The editorial focuses on President Obama's proposed new, Medicare-like public insurer for consumers younger than 65, saying, "By backing a public alternative, Obama showed he understood the necessity of an affordable option for those who cannot get work-based insurance, either because their employer does not offer it or because they aren't working.

"The need for such a public provider - and yardstick - is vividly evident in Time magazine's March 5 cover story. Reporter Karen Tumulty recounts in heartrending detail her time-consuming effort to get an insurer in Texas to pay for treatments for her brother, who suffers from kidney disease."

Referring to the recent Massachusetts legislation that provided expanded access, the Globe notes: "In Massachusetts, reform won such broad support in part because the bill focused solely on expanding access to the uninsured and did not attempt to control health cost inflation at the same time."

Indeed, Massachusetts ended up being surprised at the cost implications of its access program. Uninsured people who had not had good primary care for years or who had been forced to let health problems mount caused a surge in costs for the system as a whole. This is a variant of the adverse selection process often discussed in the insurance field -- creating a product that tends to recruit the higher risk cohort of society.

The Globe goes on to say, "This could work in a relatively rich state, in which healthcare and medical research are seen as economic mainstays. But evading the difficult choices that cost-cutting requires is not an option for Congress."

The editorial concludes: "Ratcheting back the nation's medical bills while also extending coverage in a way that commands a solid congressional majority is a daunting task."

As I note in my earlier post, cutting Medicare payments -- both for existing products and for the new ones that would arise from expanded access -- is not a way to cut costs. It is simply a way to cut federal appropriations.

Even if you believe that, over time, better access to primary care and other early-stage care will reduce costs, you still face the multi-year problem of a surge in health care costs when access is expanded.

In my view, the only way to control costs in the short run is the one outlined by MIT's Steven Spear, a huge and dedicated focus on process improvements that would eliminate the major bolus of costs in our system -- the harm we cause to patients. The tools for doing that are in the hands of the health care profession. Our failure to use them and demonstrate that point leaves Mr. Obama and Congress with the only alternative they have, lowering payments to providers.