Woolhandler and Himmelstein on competition and public funds
Competition in a publicly funded healthcare system
By Steffie Woolhandler and David U Himmelstein
BMJ
December 1, 2007
Why would anyone choose to emulate the US healthcare system? Costs per capita are about twice the Organisation for Economic Cooperation and Development average. Forty seven million people are completely uninsured. Many others with insurance face high out of pocket costs that hinder care and bankrupt more than a million annually. Mortality statistics lag behind those of most other wealthy countries, and even for the insured population, clinical outcomes and patient satisfaction are mediocre.
This dismal record arises, we contend, from health policies that emphasise market incentives. Even as the public share of health spending in the US has risen to 60%, investor owned firms have eclipsed the public, professional, and charitable bodies that previously managed the financing and delivery of care. The development and effect of US policies that mix public funding and private management has wider relevance because politicians in Europe and beyond are pushing analogous schemes.
Market failure
Market theorists argue that although competition increases administration, it should drive down total costs. Why hasn’t practice borne out this theory?
Investor owned healthcare firms are not cost minimisers but profit maximisers. Strategies that bolster profitability often worsen efficiency. US firms have found that raising revenues by exploiting loopholes or lobbying politicians is more profitable than improving efficiency or quality.
What’s driving privatisation?
Evidence from the US is remarkably consistent; public funding of private care yields poor results. In practice, public-private competition means that private firms carve out the profitable niches, leaving a financially depleted public sector responsible for the unprofitable patients and services. Based on this experience, only a dunce could believe that market based reform will improve efficiency or effectiveness.
Privatisation trades the relatively flat pay scales in government for the much steeper ones in private industry; the 15-fold pay gradient between the highest and lowest paid workers in the US government gives way to the 2000:1 gradient at Aetna.
Lessons for other countries
Health systems in every nation need innovation and improvement. But remedies imported from commerce consistently yield inferior care at inflated prices. Instead we prescribe adequate dosing of public funds; budgeting on a community-wide scale to align investment with health priorities and stimulate cooperation among public health, primary, and hospital care; encouragement of local innovation; explicit empowerment of patients and their families; intensive audit for improvement, not reward or blame; a system based on trust and common purpose; and leadership not by corporations but by “imaginative, inspired, capable and . . . joyous people, invited to use their minds and their wills to cooperate in reinventing the system, itself . . . because of the meaning it adds to the lives and the peace it offers in their souls.” (Quote from Donald Berwick)
http://www.bmj.com/cgi/content/full/335/7630/1126
Comment:
By Don McCanne, MD
Although this article is targeted to policymakers in other countries who currently are experimenting with American-style privatization, it actually is a good resource article for health care reformers in the United States. It is worth downloading in its entirety.
Why is it important to us? We have a window of opportunity to achieve reform. All of the Republican and most of the Democratic candidates for president support some form of competition between private health plans, with perhaps a public insurance option. As this article states, “public-private competition means that private firms carve out the profitable niches, leaving a financially depleted public sector responsible for the unprofitable patients and services.” Massive amounts of funds are directed to private market enterprises, whereas the task of financing much of our essential health care is left to the government and the taxpayers.
A discomforting reality is that health care has now become so expensive that the insurance function is no longer limited to a transfer between the many who are healthy to those with health care needs; it now also requires a transfer from the wealthy to moderate- and low-income individuals who have health care needs.
Competition of health plans provides no market motivation to provide wealthier individuals with incentives to pay more for their health care coverage than do average-income individuals. That will occur only with intervention by our own government. Even with progressive tax policies and government regulation, private plans would continue to waste considerable resources to maintain low-risk, low-cost financing pools while shifting the responsibility of actually paying for health care to other competitors, including “competing” government programs. The Medicare Advantage plans have proven that this is not mere policy theory.
The last paragraph reveals the fatal policy flaw behind the concept of an efficient government program competing with administratively-wasteful private plans. The competition is not over the ability to provide ever more financing for those requiring the greatest amount of health care, it is over the ability to segregate only the healthiest individuals into the private insurers’ own highly profitable risk pools.
Government health programs don’t compete; they directly address the health care needs of the people. Private plans do compete, but by market manipulations that enable them to contribute as little as possible to the financing of our health care needs.
Competing private plans provide the weakest links in our health care equation. Our health care infrastructure would fare well by removing these flimsy, unreliable links, and replacing them with solid reinforcement through the strength of our own government program.