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Reinhardt and Cheng: The ethical structure of sustainable health spending

THE NEXT DEBATE IN HEALTH CARE: Transforming the Ethical Structure of U.S. Health Care

A presentation by Uwe E. Reinhardt and Tsung-Mei Cheng
Altarum Center for Sustainable Health Spending, July 12, 2016

(Excerpts)

The theme of these Altarum symposia has been what can be done to make our health system – especially spending thereon – “sustainable.”

I. “SUSTAINABILITY” IN U.S. HEALTH CARE

“Sustainability” is a much-mouthed word, although few people using the word actually define it. We can think of at least two distinct meanings in the context of health care:

A. Economic sustainability – the ability of the macro-economy to absorb further growth in health spending;

B. Political sustainability – the willingness of families in the upper-income strata to subsidize through taxes or health insurance premiums the health care of families in the lower income strata.

Total health spending is the product of health-care utilization and prices.

Under our system of governance, in which the sympathy of politicians literally can be purchased retail, it has been very difficult to control prices overall, other than in government programs.

Indeed, because prices for identical services or products vary enormously across the U.S., within regions and even within cities, it is hard even to measure what prices actually are in this country. What price is representative?

So the focus of health-care cost containment in the U.S. naturally has been and will continue to be mainly on health-care utilization.

The question then becomes whose ox is likely to be gored in our quest to reduce utilization – that is, who will be asked to do most of the belt tightening in health-care.

That question will be the focus of our presentation.

We shall abandon erstwhile dreams of an egalitarian health-care system and instead develop platforms that will allow policy makers to ration health care by income class, without ever openly saying so or debating that policy. By 2030 at the latest these new platforms are likely to be cemented in place.

II. ETHICAL PERSPECTIVES ON U.S. HEALTH CARE

ALTERNATIVE VIEWS ON THE PROPER DISTRIBUTIVE ETHIC FOR AMERICAN HEALTH CARE:

U.S. Progressives: A PURE SOCIAL GOOD TO BE AVAILABLE TO ALL ON EQUAL TERMS AND TO BE FINANCED BY ABILITY TO PAY

U.S. Conservatives: A PRIVATE CONSUMPTION GOOD WHOSE FINANCING IS PRIMARILY AN INDIVIDUAL RESPONSIBILITY

Although anyone can clearly discern these sharply different views on the distributive social ethic of U.S. health care, Americans are invariably reluctant ever to debate them openly, because that could be divisive.

So we talk about the distributive ethic of our health system in code words where, for example, “freedom of choice” may be just code for “you should make do with whatever financial resources you may have, but you are free to deploy them any way you want.”

To progressives, the very idea of rationing health care by income class is anathema – hence their penchant for a single-payer system that at least tries to be egalitarian.

To conservatives, rationing by income of the timeliness, amenities and quality of health care does not seem anathema, because we routinely apply it to other basic necessities such as food, clothing, housing, education and even the administration of justice. Why should health care be different?

Between these more extreme views on the ethics of health care is the confused, large group of citizens without firm views, at least as long as they are healthy.

Correlated with the views on the distributive ethics of health care are views concerning the degree to which the supply side of the health care market should be allowed to extract the maximum revenue from the rest of society through their pricing policies.

Health policy in the past 40 years basically has been a civil war between the two more extreme views on health care, although, as noted, we have debated it mainly in code words, given our reluctance to confront ethics forthrightly.

On the ground, this civil war has taken the form of a myriad of small legislative skirmishes at the federal and state levels, giving victory sometimes to one side and at other times to the other side.

Overall, however, victory has gone to the conservative side.

III. BUILDING THE PLATFORM FOR RATIONING HEALTH CARE BY INCOME CLASS

So what do we need in the structure of a health system designed to ration health care by income – at least a good bit of it? We need two distinct platforms:

A. we need a platform for varying the quality of the health insurance policy by income class, and

B. we need high cost sharing by patients at point of service, to ration health care utilization when illness strikes.

If you think of it, we have been busily building these two platforms during the past 20 or so years, brick by brick.

A. TIERING INSURANCE PRODUCTS BY INCOME CLASS

Health insurance exchanges – public or private – are the ideal platforms for tiering the quality of health insurance by income class. ObamaCare explicitly acknowledges it with its metal tiers.

The instruments for tiering here are:

* narrowness of the network of providers
* narrowness of the drug-formularies
* limits on services covered
* other features of the benefit package

The often proposed conversion of the egalitarian Medicare program from its defined benefit structure to a defined contribution structure (the premium support model) is one of the bricks for the desired platform.

Likewise, the idea to move Medicaid beneficiaries out of that defined benefit program onto the insurance exchanges can be interpreted in the same way.

Finally, the conversion of employment-based health insurance from defined benefit to defined-contribution plans, coupled with private health insurance exchanges, is another brick in the strategy.

It will finally permit the quality of health-insurance coverage within a company to vary by income level.

B. TIERING HEALTH CARE BY INCOME CLASS AT POINT OF SERVICE

High-deductible health insurance policies are ipso facto an instrument for rationing health care by income class, unless the deductible were closely linked to income.

One does not need a Ph.D. in economics to realize that a low income family confronted with a high deductible will tighten its belt in health care much more than would a high income family confronting the same deductible.

Similarly, under our progressive income-tax structure, the idea of tax-preferred Health Savings Accounts (HSAs) ipso facto makes health care for high income people cheaper than for low income people – an amazing ethical proposition.

IV. U.S. HEALTH CARE CA. 2030

At this time, the gradual transformation of our health-care system into one that allows us to ration health care by income is not yet complete.

Part of the problem is that it is not yet politically correct for politicians or the policy wonks who advise them openly to state that rationing by income class is their goal.

The desired structure therefore has to be developed quietly, and so that the general voting public does not know what is happening to their health system.

Indeed, sometimes the steps toward this goal are marketed to the voting public in classic Orwellian lingo – e.g., “Consumer Directed Health Care” (CDHC) that will “enable consumers [formerly patients] to sit in the driver’s seat in health care to shop around for cost-effective care.”

Absent solid, consumer-friendly information on binding prices and the quality of health care produced by different providers of health care – still typically the norm in the U.S. – CDHC actually has turned out to be a cruel hoax.

For the most part, CDHC has been merely an instrument to ration health care by income.

We came across the following paper that goes along with our thesis on rationing: “Wealthy spending more on health care than poor and middle class, reversing trend”

V. CONCLUDING REMARKS

It is not our place to render a value judgment on the merits of this development. That is a matter of ideology and of ideas of what is a “just society.”

But register our amazement — almost our admiration — at the ease with which one faction of the nation’s elite has been able to further this transition – a development of which the voting public hardly seems aware (except when illness strikes).

It can be doubted that the general populace of other countries – France, Germany, the U.K., Canada – would accept this transition with such astounding equanimity.

It is only of recent that the American public seems to have lost faith in the wisdom and beneficence of the nation’s policy-making elite.

We shall see how far that elite can push rationing health care by income before the American public becomes fully alert to that policy.

In an honest referendum, with full knowledge of what is underfoot, the general voting public probably would not support a move to rationing more and more health care by income.

More likely the voting public would opt for a more egalitarian system, which can explain why it is not yet politically correct for politicians openly to advocate rationing health care by income.

“Americans Overwhelmingly Prefer This Presidential Candidate’s Healthcare Plan, Study Shows”

According to Gallup...the overwhelming favorite was the single-payer plan offered by Bernie Sanders. Overall, 58% of respondents favored the idea, with just 37% opposing it and another 5% having no opinion.

In a separate question, Gallup asked respondents to choose between putting a single-payer system in place versus keeping Obamacare in place,and single-payer won by an even broader margin — 64% to 32%.

http://altarum.org/sites/default/files/uploaded-related-files/12_Reinhardt_Special_ALTARUM%20JULY%202016%20XX%207-18-2016_1.pdf

***

Comment:

By Don McCanne, M.D.

Everyone should master understanding the concept presented here. Should the distributive ethic in health care represent a social good for all or an individual responsibility for each of us?

We are transitioning further into the individual responsibility ethic through the platforms of tiering insurance by income (narrow networks and limited benefits) and tiering health care by income at the point of service (high deductibles, health savings accounts, and consumer-directed health care). Thus we are rationing health care by ability to pay, and that will only increase further as we expand our current health care policies. Too many people will not be receiving the care that they should have.

This slide set was expanded to include some of the narrative so that we can understand better how our current approach to sustainability is political rather than economic - supporting an ethic that preserves the wealth of the wealthy by suppressing redistribution, while making the health care system sustainable by making health care less affordable for the majority.

This presentation by the insightful team of Uwe Reinhardt and Tsung-Mei Cheng should be downloaded and shared with as many other concerned individuals as possible. We need to deliver the egalitarian message that the people of other nations take for granted: we can have health care for everyone in a system that is truly sustainable.