Rescuing the U.S. Health Care System - A Modest Proposal
This 5-page White Paper was originally written in July 2009. Links to updates are given in the paragraph below, including two excellent articles by the consulting firms Bain and McKinsey. This White Paper is not an attempt at thought leadership in the political arena; that is too ambitious a goal for someone not in the field. Rather it was written to support a political candidate who aspired to become the governor of South Carolina.
For an article specifically addressing the role physicians play in facing the relentless Moloch of accelerating health care costs, see "America´s New Cost-Conscious Doctor" by Chuck Farkas and Tim van Biesen, partners at the management consultancy Bain & Company, 2011, "BAIN_BRIEF_Shifting_Physician_Behavior.pdf" In June, 2011 a McKinsey team published a good article "How U.S. Health Care Reform Will Affect Employee Benefits." The author team consisted of Shubham Singhai, Jeris Stueland, Drew Ungerman, with contributions from Erica Hutchins Coe and Gene Kuo. Their focus is on the Afordable Care Act, which was passed in 2010, some of it taking effect in 2014.
A series of White Papers, including ones on online fundraising, crime, education and health, were prepared in draft form. The drafts were originally intended as entertaining forerunners for internal circulation, a kind of brainstorming, before undertaking more serious studies. In the sample paper below, intended for casual reading, considerable sarcasm crept in. The paper was never edited to reduce the sarcasm. No "politically correct" polish was applied.
A separate White Paper was planned to be written in cooperation with a global management consultancy (such as Bain or McKinsey!). The subject of that paper would have been how best to attract foreign direct investment to South Carolina. BMW had set the best-known precedent with its operation in Spartanburg, S.C. (I once wrote a fairly fat Masters thesis (226 p.) about foreign direct investment in the U.S. The subject has remained of interest to me and I therefore have some familiarity with it.) However the follow-on White Papers, subject to the exigencies of party politics, were permanently deferred.
The U.S. is indeed a land of extremes. An indescribably poor, failing at every level, health care system has some of the world´s finest medical centers. The Mayo clinic is world-renowned, but how about a hospital in the mid-West with facilities -- and cuisine -- that rival those of a five-star hotel, and that is set in rolling woods with lush green foliage? That is a fair description of the Henry Ford West Bloomfield Hospital in northern Michigan.
U.S. HEALTH CARE: THE WIDOWMAKER1
(Widow-makers are jobs that regularly defeat competent, dedicated individuals. The etymology, and a modern example, are given in the footnote, which precedes the appendix.)
1) Is this a bad idea?
2) Is this a good idea, but a bad fit for us (wrong place, wrong time)?
3) Is this a good idea, good fit, but costs too much time/money to set up?
Point of Departure
War, Crime, Pestilence, Terrorism and Natural Disasters notwithstanding, the world is slowly becoming a better place. If one reduced the world to 100 people, then there would have been
in 1985 there would be in 2015 (a quarter century ago) (your estimates)
14 from North and South America
80 with substandard housing
70 not (or barely) able to read
6 people would have 59% of the world´s wealth
and all 6 of them would be citizens of the U.S.
2 with at least some university education
1 with a computer
and 0 with a smart phone or on Facebook
One of the more important exceptions to global improvement is, surprisingly, in the one country that fairs so well in the above example, viz. the U.S. The exception is the development of the Health Care System. (The U.S. also has a primitive mobile phone system, and retail banking actually still uses paper checks, remarkable!)
Background – the Health Care Problem
U.S. medical research is world class, as are many of its physicians. However the health care system is not. Nevertheless the U.S. does achieve the number one position in a very important category in any ranking in which it is included, viz. the cost of the health care system. Both in absolute and relative terms, the U.S. has the single most expensive health care system in the world, victory!
The U.S. spends 17% of its GDP on health care, and leaves 46 million people naked, with no insurance at all. Canada spends 9% of its GDP on a health care system that provides universal coverage. , and certainly does not have tens of millions of uninsured people. in terms of GDP percentage are the German and Swiss ones. In both countries the cost is about 11% of GDP to provide universal coverage.
Furthermore the U.S. does not even approach the quality of care delivery of the top twenty or thirty countries. As if all this were not enough, in the U.S. the slope of the cost curve trend is steeply upwards, that of the quality of care trend, compared to Europe, downwards.
Providing health care at the national level in the U.S. seems an insurmountable problem. However it has NOT been accomplished in Europe as a single entity either! Europe is made up of about 50 nations, from Russia, the largest, to the Vatican, the smallest, with a combined population of some 730 million. Parts of Europe, indeed very large parts, such as all of Scandinavia, England, Italy, France, Spain and Germany as well as many small countries have good to excellent health care systems in place. These systems reflect significant differences from country to country. There are different solution sets for different circumstances.
Key Question: Why not break up the health care problem in the U.S. into smaller units to make it more manageable?
The U.S. is not as large as Europe, but economically as significant. California alone is a more powerful economic entity then any of the smaller European countries. Europe has approached providing health care with 50 country-sized units with great success. Why should the U.S. not break up health care into 50 State sized units? Let each State develop its own health insurance program for its residents – with a federal role, certainly, but not one that hamstrings the State’s freedom to act. Specifically, Washington could mandate universal coverage. How the State goes about providing it remains its bailiwick.
Key Concept: Institute universal health coverage for S.C. residents.
My understanding of a central theme to the campaign is wealth creation (in a beautiful, green State). The prerequisite for wealth creation, for starting and running a company or for getting and holding down a job, is HEALTH.
Obama has raised everyone’s consciousness about health care. For any MBA the solution of choice is obvious, in business jargon referred to as “benchmarking.” One takes the best features of systems that work well elsewhere. One seeks to improve upon them as one copies different parts of them. These improved parts are then integrated into a state-of-the-art holistic solution. And there are plenty of functioning health care systems out there in the big, wide world.
However entrenched interests make a solution based on benchmarking virtually impossible to implement in the U.S.
The Big Three of these pernicious influence wielders are the insurance companies, the pharmaceutical industry and the physicians´ lobby. This stonewalling triad is stronger than the proverbial 800 lb. gorilla. Various Obama savings proposals have been immediately stopped dead in their tracks by the triad. Costs will not be cut, no, no. Three examples are: the re-import of cheaper medicines from Canada will not be allowed; the 12-year patent protection for “genetic” medicines will not be shortened; the physicians’ charges to Medicare will not be reduced. All this notwithstanding, benchmarking is elaborated upon below.
Obama would like to call into life a government insurance organization as a new player in the game. Two major objections have been raised. The first was that the (federal) government would be incompetent to do this. Obama answer is, then, so be it. Let the customer get his insurance at the private company that offers a better deal. The outcome is what counted, viz. that people have health coverage.
The second objection is that the insurance companies would not then be competing on a level playing field. The government would have an unfair advantage. In the author´s experience and from an admittedly somewhat cynical, jaundiced viewpoint, the federal government is the employer of last resort. If a company cannot compete against federal employees (some of these rascals, instead of working, are watching the soaps on TVs planted right on their desks – and still can not be fired), then said company should go the way of General Motors, albeit without a bailout.
The Magnet Problem
Problem: A good system attracts too many "iron" (In Really Onerous Neglect) cases. These are unhealthy persons, ones with pre-conditions, obese chain smokers, or ones already seriously ill, desperately seeking better coverage. They might flock to the state with the most attractive system. The system becomes over-loaded, collapses.
Solution: Health premiums are set according to Pareto´s rule, viz. 80% of the costs are caused by 20% of the people (the chain smokers, the alcoholics, the obese, the motorcycle riders without helmets, etc.). Therefore these 20% pay high health insurance premiums, which are taken right out of their paychecks. (One notes that S.C. has the fifth (!) highest rate of obesity in the U.S. Isn’t this approach just a wonderful hidden obesity tax? Would help beautify the State no end.)
Opponents will complain that this approach is unfairly regressive, punishes the poor who have unhealthy live styles. As the alternative is for the poor to risk not being insured at all, this argument is hardly compelling, in fact appears specious. There would be a physical examination to determine one’s insurance class, perhaps every decade. Once every two years the high premium person can request a new physical for a lower rate because of having lost weight, stopped smoking, drinking, etc.
There also would be a low premium special for those who do not smoke and who do exercise, have a history of good health, an exemplary lifestyle and who are free of nasty little defects such as an "Alzheimer's gene."
The last time the World Health Organization ranked health care systems was in 2000. Its ranking system was disputed for having factors in it that had little to do with health care delivery, e.g. “financial fairness." Regardless, the top ten in its study were: 1 France, 2 Italy, 3 San Marino, 4 Andorra, 5 Malta, 6 Singapore, 7 Spain, 8 Oman, 9 Austria and 10 Japan.
There is a more recent study, conducted 2007, by Health Consumer Powerhouse, a Swedish organization headquartered in Stockholm with offices in Brussels. This study ranked the health care systems in the EU nations plus Switzerland and Norway. The top five were: 1 Austria, 2 Netherlands, 3 France, 4 Switzerland and 5 Germany. (In Austria, as an example, the waiting period for beginning radiation or chemotherapy for cancer is under three weeks.)
One could start by benchmarking Austria, population of 8 million, Switzerland, population of 7.6 million and Singapore, population of 4.8 million (versus that of South Carolina’s 4.5 million). Switzerland has been mentioned in the press as a model for the U.S. to emulate. In the 1990s the Swiss adapted the system now in place. The Swiss have a legal requirement that everyone purchase health insurance. Government subsidies are provided for those with low income.
Singapore also warrants examination precisely because it has a complicated mixed private/public system. That makes it difficult to adapt directly, but one can certainly learn from it, as the outcome is one of the best in the world. Further information is in the Appendix.
See what Schwarzenegger thinks of this concept. (Note: 2011, well, his divorce may be distracting him.) Suggest to him that South Carolina run the pilot project and California then adapt it to its own needs. California has serious budget problems, presumably at least in part because of state entitlements. In other words, California’s situation mirrors that of the U.S. as a whole. Go to Obama´s senior health advisor, better to Obama himself, and present something along the following lines:
“As a loyal and staunch Republican I obviously have major differences with the Democratic party in terms of both domestic and foreign policy. However we are all patriots and I share a concern that you have brought to the nation´s attention, health care. There are some interests out there, regardless of party affiliation, which will stonewall you, impede your reaching any solution at all.
I wish to be part of the solution, not of the problem. I want to propose a pilot project for statewide health insurance coverage in South Carolina. The concept is that each state devises its own solution, subject to certain federal criteria, but not subject to federal micro- management. The single most important criterion would be universal coverage, that everyone has insurance. To demonstrate my commitment, I am devoting 15% of my campaign fund raising to a special health care fund, regardless of the election’s outcome. Here is a preliminary plan for your review and input.”
HUGE RISKS are associated with this idea. Powerful national political interests with mega-dollars could easily perceive a dire threat here. They could set their entire machinery into motion to defeat your election. My impression is that Obama did not beat the health insurance drum very hard until after he got elected. If you do decide this issue is a key one for South Carolina, you may well want to defer it until you are in office.
Note that the conference of Governors has vigorously fought against the states making any contribution to national health care. The democratic Governor of Tennessee, Phil Dresden, has stated that Congress is the mother of all underfinanced programs. He is right. The crucial point is that each state provides funding of a health care system for its own residents only.
The danger here is that a health care surplus (like that of Germany in 2008) in a rich state (Alaska) or well-managed one (S.C., one would hope) is jealously looked at by poor or mismanaged states. Public outcry ensues, fueled by the press, that the “surplus” states contribute funds to the health care systems of the “deficit” states. Therefore each state needs to have the bookkeeping for its health care system set up so that at year end it automatically zeros out, can never show a surplus.
If you green light this idea, then:
1) Locate an expert on health care, perhaps a professor at the University of South Carolina, and have him put together a team.
2) Existing reports are reviewed by the team (no point in re-inventing the wheel) on the status of the health care system in S.C., perhaps of California, and of the nation.
3) Make contact with Obama´s team and people who provide input to it. An example is David Cutler, the Harvard economist who apparently is one of the architects of the current health reform proposals.
4) Benchmark selected foreign health care systems. Both secondary and primary research is necessary. Secondary refers to the library and Internet. Primary means someone prominent gets on a plane and visits the respective Ministers of Health and asks for their advice and assistance. (It behooves one to note that in this instance humble works better than arrogant.)
5) Cautiously consider involving a consulting firm to create the State’s pilot health insurance plan with universal coverage. Beware of hidden agenda, including those of any consulting firm you engage, in this gigantic snarled conglomeration of corruption, fraud and special interests.
1 Widowmakers: In the early to middle 1800s in New England some clipper ships became so accident prone that they became known as widowmakers. Even if the ship appeared sound, the owners did not attempt to refurbish it. They took the Draconian solution of breaking up the ship and building a brand new one.
The first Russian ballistic nuclear submarine, the K-19 - launched in 1959, was nicknamed the widow-maker because of the many deaths during its construction. On its maiden voyage, it more than lived up to its name. Captain Alexi Vostrikov, a martinet, replaces the submarine´s radiation officer (for drunkenness), who is considered the best in the fleet, with an officer fresh out of the naval academy. The man had never been at sea!
The reactor cooling system fails. A back-up cooling system turns out not to have been installed. There are no radiation protection suits. Desperate repairs-- the submarine´s thermonuclear warheads could have detonated -- lead to 28 of the crew dying of radiation poisoning. The story was the subject of a good movie, "K-19: The Widowmaker," released in 2002. It was directed by Kathryn Bigelow and starrs Harrison Ford and Liam Nelson. Although the film was not backed by a major Hollywood studio, it still cost $100 million to make. (National Geographic was a major investor.) Unfortunately the aura of "Widowmaker" passed on to the film as it only grossed about $70 million. It deserved to do better.
Appendix I- Singapore´s Health Care System
Singapore is a multiracial city-state that works. Government officials are highly paid, to avoid their being tempted by corruption. Education, technology, and law and order are taken seriously. I believe chewing gum is not sold in Singapore (a prohibition with which any hotel manager would heartily concur). Generally speaking, any political system in place in Singapore functions, and functions well, a legacy of Lee Kuan Yew, the founding father of modern Singapore. Further background information follows from a Wikepedia excerpt (2009):
"Health care in Singapore is mainly under the responsibility of the Singapore Government's Ministry of Health. . Singapore has a universal health care system where government ensures affordability, largely through compulsory savings and price controls, while the private sector provides most care. Overall spending on health care amounts to only 3% of annual GDP. Of that, 66% comes from private sources. Singapore currently has the lowest infant mortality rate in the world (equaled only by Iceland) and among the highest life expectancies from birth, according to the World Health Organization. Singapore has "one of the most successful healthcare systems in the world, in terms of both efficiency in financing and the results achieved in community health outcomes," according to an analysis by global consulting firm Watson Wyatt.
Singapore's system uses a combination of compulsory savings from payroll deductions (funded by both employers and workers) a nationalized catastrophic health insurance plan, and government subsidies, as well as "actively regulating the supply and prices of healthcare services in the country" to keep costs in check; the specific features have been described as potentially a "very difficult system to replicate in many other countries." Many Singaporeans also have supplemental private health insurance (often provided by employers) for services not covered by the government's programs."
Summarizing further information about this city/state from Wikepedia: Singapore became independent in 1965. Its Prime Minister from then until into 1990, the architect of Singapore’s transition from a third world to a developed country, was Lee Kuan Yew. In 1939 Lee sat for the Senior Cambridge Examination and emerged as the top student for the whole of Malaya. (The Malay Peninsula, i.e. Malaysia, capital city Kuala Lumpur, has a population of 27 million. Of course the peninsula’s population in 1939 was much less.) Because of the outbreak of World War II in Europe he did not go to England, but continued his studies in Singapore in economics, English literature and mathematics. After the war, he studied law at Cambridge University, graduating with Double First Class Honors.
Since retiring, he has served as Mentor Prime Minister for Singapore. He has also advised the government of China. His wife, also a graduate of Cambridge University, where she was a Queen’s Scholar, is a partner in their law firm Lee & Lee. (They did not have pesky political opponents executed or jailed. Reputedly, they would instead sue them into bankruptcy or oblivion.) Unfortunately she is at the time of this writing (July 2009) critically ill at the age of 87.
In 2004, Lee Hsien Loong, the eldest son of Lee Kuan Yew, became the third prime minister of Singapore. (Incidentally, the general election of 2006 was characterized by extensive use of the Internet and blogging.)
* © Singapore Skyline at Night - Marina Bay Sands Clark quay, esplanade, floating platform, City Hall and the Supreme Court, Chensiyuan, EGNU-CCASA 3.0, 5 June 2011; Gayan Web Design 2010