First, let me add my voice to the chorus of “thank you’s” to Frank and Glenn for organizing this forum.
Second, I must admit that, even though I specialize in health law, I am overwhelmed by the complexity of the discussion on fragmentation (let alone the fragmentation itself). Just in this forum there has been discussion of fragmentation of financing and then fragmentation of delivery. The proposed solutions to these (variously: single payer, accountable care orgs, and medical homes) seem also quite complicated, often requiring their own set of complicated regulations and controls (such as certification). On top of this there are concerns about irrational consumers (which raises the question of whether providers or regulators are any more rational) and public health issues (e.g., externalities, fiscal and epidemiological). What I really want – and I suspect others do too – is a simple way to think about the problem and thus about solutions. The problem is that I haven’t seen one. And I suspect others do not have one. Moreover, people who do advertise simple solutions (single payer, free markets) don’t have a way to transition to those solutions from where we are now. And so it is not surprising to me that our health care system is fragmented.
But I do not want to end on such a dour note, so let me offer some discrete and hopefully constructive thoughts on the problem.
1) There is a hilarious (and scary) youtube video, available at http://www.youtube.com/watch?v=5J67xJKpB6c, that imagines what air travel would be like if airlines worked like health care. I think it is meant to make us cringe at how dysfunctional health care is. But instead it got me wondering, how did airlines make air travel so easy? Or how did automakers and auto insurance companies make owning a car so easy? My first instinct is to say, free competition. But airlines for a long time were regulated. And so are car makers and insurance companies. But regulation cannot be the answer either. Airlines deregulated in the late 1970s, early 1980s. Automakers were never seriously regulated (except in the way that drug company products are regulated for safety). I think the lesson is that competition is not incompatible with integration and relatively efficient delivery of complex goods, but regulation may be required to address some safety problems. Interestingly, note that beyond regulation of how much you have to be paid when you are bumped from a flight or the (lax) regulation of auto insurance rates by state insurance commissioners, there is not much regulation of internal pricing, as there is in health care insurance and delivery.
2) I suspect that health insurance coverage begets regulation, and thus complexity. There are two reasons. First, moral hazard on the part of patients and on the part of docs. This moral hazard creates demand for regulation of patients and providers. This regulation contributes to complexity. The question is why this complexity is greater in the health insurance context than the auto insurance context. If the answer is that health care is a more complicated product to monitor, we’re unlikely to have much simplification of the health care system. (We can hide it within organizations through integration, but it will still be there, in the form of internal firm rules.) Second, insurance solves the problem of health consumption risk by putting people in a common risk pool. But this pool creates externalities across insureds. This is solved either by low risk types exiting, which is the familiar adverse selection problem that unravels insurance. Or – and this is important – if we solve adverse selection by things like insurance mandates, high risk types impose financial costs on low risk types. This is either because high risk types are inherently risky (think genetic ailments) or because they engage in risky behaviors (think smoking). If it’s genetic, the problem with insurance is that it is redistributive. And that redistribution is not compensated. If it is behavior, there will be demand for regulation of risk behavior. All of this adds complexity. (Note: the usual retort is the people do not know their risk level. But that is plainly false. A lot of us have private information that we’re more or less at risk than others. I don’t know what fraction of variance in risk is private information, but enough that there is adverse selection and demand for regulation of others’ risk behaviors.)
My point is not to say health insurance is bad. It is to say that health insurance may require complexity. And when there are multiple actors involved, e.g., private insurer and government, or single payer with different branches of government, complexity yields fragmentation.
3) I think the ACA gets an A for coverage and C or D for fragmentation. I tried to teach the ACA last spring and found it incredibly complicated and open ended. E.g., there are tons of experiments but no clear mechanism for picking the ones that will work and making sure they are uniformly implemented. E.g., there are often fixes for problems that the ACA itself creates, such as subsidies for medical education to offset cuts in physician reimbursement. E.g., the bill tackles all sorts of problems without any sense of coordination among them. There are provisions for expanding preventative care, for improving nursing homes, for fixing health insurance markets, etc. But these all affect each other.
If the ACA is that complicated to teach, I strongly suspect it will worsen fragmentation rather than reduce it. I wonder if life would have been easier if the ACA simply expanded Medicaid and gave some tax breaks and left the rest of the system alone. Certainly it would have made for a much smaller and less complicated piece of legislation. Worse, if you support single payer, I am not sure the bill makes it easier to get there. It creates a whole new set of vested interests that would prefer the new status quo to a reform that simplifies the world.
4) I wonder if it would be too crazy to suggest that we should have used the states to perform a federally controlled experiment with different models of health care financing and delivery. E.g., the US government could set up 3 models. In one, which we can call the health insurance exchange and coverage subsidies model, we have a Clinton/Obama type model of state exchanges + subsidies for poorer folks to purchase insurance. In another, which we call the McCain model, we allow free markets across states (or at least states that follow the McCain model) in insurance + give some subsidies to the poor. And in the third, we have a single payer along the lines of Canada. Let states choose one of the three models (or perhaps allow them to stick with the status quo). (The feds would pay for expanded coverage and all the plans except the status quo address the main uninsured problem.) Then let the experiment run for 10-15 years. Whichever works best, we extend to the rest of the country. If there is no obvious winner, then let states continue to choose the best option for them.
I know this proposal is unrealistic. But once we condition on solving the coverage problem, I am honestly not sure which system yields more efficient production of health. I have read enough empirical work in health care to strongly suspect that no one else does either. In fact, I would not be surprised if there are multiple equally reasonable solutions to the problem of efficient delivery of health. Because the solutions can be judged along a large number of dimensions, no one solution may strictly dominate the others.