LAST TUESDAY, the Center for Politics at the University hosted a panel on health care reform. Considering the number of Americans who either don't have insurance or don't have enough, moderator Wyatt Andrews understated the case when he said "this is an extraordinarily important topic." In fact, an August 2007 Kaiser Poll puts health care as second only to Iraq in importance to voters. And it's easy to see why. Businesses are saddled with ever-rising costs forcing them to scale back benefits which directly hurts voters' pocketbooks.
It's an intractable problem to say the least, but Republicans and Democrats seem to be talking past each other. If the presidential contenders actually want to make any headway, they will have to compromise.
First up are costs. For years health care costs have risen faster than inflation. The question is why. The Bush administration blames frivolous medical treatment. The argument goes like this: Medicaid and various state programs heavily subsidize health care, at times offering it free. These types of programs have steadily expanded for years and they cover an ever greater number of Americans who are increasingly further from the poverty line. Since these citizens do not bear the full cost of the medical care they receive, they are induced to go to the doctor for every little ache and pain. This forces doctors and nurses to spend more and more of their time -- a very scarce resource -- treating patients who do not truly need care. This effective decrease in the supply of medical expertise is what's pushing up health care costs.
This is not a foolish argument -- there is solid academic evidence to support it. A particularly famous study is the California "copayment experiment;" the study, conducted in the 1970s, looked at all California residents who were on welfare (then known as AFDC) and also eligible for Medicaid. Because of their low-income status, they received free basic medical care. The study took 30 percent of this group and required a $1 copayment for each doctor visit. Startlingly, in this condition the number of doctor visits fell by 17 percent. Considering one dollar was enough to cut visits, most of these visits were probably a waste of doctors' time..
Medical researchers found similar results in another famous experiment at the University of Rochester. In 1968, the university moved its student health center to an off-campus location that was a 20-minute walk from dorms, whereas the previous location was only five to 10 minutes away. Just as in the California copayment experiment, clinic use fell by a third.. Again, it looks like students were simply wasting doctors' time.
Although frivolous treatment is a significant driver of costs -- The Economist puts it at 9 percent -- it is not the primary one. The main thing pushing up health care costs are specialized, expensive treatments such as bypass surgery and chemotherapy. These procedures are for the types of diseases that are either lifestyle-related or most easily treated if caught early. Either way, they are the types of ailments whose costs can be seriously mitigated by a few doctor visits. Thus, while Republicans go on about costs, Democrats' favorite phrase is "preventative care."
So despite the added costs of more doctor visits, many academics assert that cost control measures such as higher copayments are actually more expensive in the long run. They argue that cutting doctor visits reduces preventative care so more people end up with more serious illnesses that are more expensive to treat. But any health care plan that ignores costs is still flawed. Reaching a compromise requires thinking about the nature of medical insurance. At its root, insurance is paying someone else to assume the small probability risk that something terrible will happen to us.
Insurance is most beneficial when it's targeted at only the most expensive treatments, leading many economists to support so-called "catastrophe insurance." This has very low monthly premiums so that nearly anyone can afford it, high copayments and very high deductibles deter using it for minor aches and pains. But if something truly calamitous happens that requires expensive treatment, the insurance is there.
If we add to these types of policies, say, two covered doctor visits per year, everyone wins. Individuals get better treatment since they get to see a doctor regularly. Since checkups may catch life-threatening diseases early, these individuals are less likely to need highly specialized, expensive treatments later on. This makes more money for the insurance companies in the long run and keeps health care costs lower overall.
There are many, many more issues in the health care debate ranging from adverse selection (sicker people have a greater incentive to buy insurance) to moral hazard (insurance causes people to act riskier). But policy makers owe it to our citizens to strike a balance between cost control and preventative care. If they don't, then watch as businesses move to other countries with lower health care costs.
Josh Levy's columns appear Mondays in The Cavalier Daily. He can be reached at jlevy@cavalierdaily.com.
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