Sunday, March 15, 2009

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.


Anonymous said...

History shows that lowering payments to providers "parodoxically" increases the volume of service...(providers don't want to go bankrupt). So, increasing access to healthcare, lowering payor costs, sustaining primary + specialty necessary care = raised copayments for those who receive care.

Anonymous said...

Raise co-payments. People don't want to throw away their own money. They might even go looking for bargains and doctors might be required to compete on cost.

I would like to know why people in healthcare require incentives to do anything, surely witholding payments (the stick) would be equally effective. Too many providers have gotten fat on "carrots".

Of course it's impossible to tell doctors anything because that would be "folks practicing medicine without a license".

Anonymous said...

I agree with your assessment on what is needed to reduce costs in healthcare. IHI is about to publish a white paper on tools to measure process waste and some methods for eliminating costly complexity while improving care outcomes for patients. It's not a matter of coverage or not...we must cover all and do it efficiently. Thanks for leading on this issue.
Maureen Bisognano

Unknown said...

I just discovered your site two days ago and have a lot of back reading to do, but two thoughts come to mind--
The amount of costs in Emergency Rooms where a bulk of the care(and squad runs) required is essentially primary care. Additionally, the emergent cases or those requiring critical care can easily get lost in the melee if their symptoms are more subtle(sepsis, some head bleeds,etc).
Secondly, it seems as a working bedside RN the amount of new procedures being put into place to appease JCAHO and intended to decrease mistakes simply creates more burden, more confusion, and less time to provide hands-on care. It seems like we're trying to prove improvements in care by paperwork alone and documenting care at the expense of actually providing the care. Sorry if this is off topic--it was a long 3 day weekend at work.

Anonymous said...


I read Boston Globe's article about the tough decisions being made at your hospital, and wanted to thank you and everyone at the hospital for teaming up together to avoid layoffs.

While, on occasions, they are inevitable, they are often avoidable. Your staff embraced a tough decision! I'm hoping that my startup will enable more companies to make changes (through telework) and preserve jobs.

Thanks for realizing that all people count! Find me on Twitter: @telesaur

Anonymous said...

Clay Christensen's new book, The Innovator's Prescription, outlines ways we can increase access while lowering costs.

Unknown said...

The Massachusetts example supports that uninsurance is only a part of the problem. I think that the nation has a lot to learn from Oregon's example in which explicit rationing of care takes a central role as a part of the solution. In addition to focusing on insurance and services delivered, Oregon's newest legislative efforts (the Oregon Health Fund Board) focus on changes and improvements in financing, delivery, equity, and access to insurance for all Oregonians.
Thanks for bringing raising these important issues on the blog.

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