KEEPING THE POVERTY INDUSTRY ALIVE

I wrote this in the Calcutta Telegraph of 20 October 2009, in continuation of the column of 25 August 2009. ADVERSE SELECTION

Americans devote twice as much of their income to medical treatment as Europeans, and are still considerably less healthy. This fact has attracted much notice and, recently, analysis. The American healthcare system uses more private enterprise than the European systems, many of which are fully State-owned. So devotees of capitalism, of whom there are many in the United States of America, belittle the difference and try to find innocuous reasons for it. Barack Obama was the first politician to contemplate doing something about it, and asked his vice-presidential candidate, Joseph Biden, to draw up a plan. Now that they (I will call them Barjos for brevity) are both in power, we may see some of it implemented. What does it involve? In the US, as in India, someone who feels sick goes to a doctor, the doctor asks him to go and get tests done, he gives his blood or urine, and takes the test results to the doctor. This happens every time he gets sick. Barjos propose that the results of whenever tests are done be fed into a website. Then when a patient seeks out a doctor, the doctor will seek out his test records on the web, and if they are not too old, the tests will not be repeated; so much testing will be prevented. As people get old, they acquire diseases that are a nuisance but do not kill quickly — diseases like heart trouble, obesity and cancer. The longer they live, the more do they need treatment for such chronic diseases. Some of the diseases reduce people’s ability to look after themselves; they then need care. In the US, where labour is expensive, such care costs a lot. Barjos want to reduce the cost of chronic disease treatment by persuading people to live physically more active lives and to avoid harmful habits like smoking and gluttony, so that they will suffer less of chronic diseases for fewer years. Most Americans’ medical costs are paid out of private or public insurance. Still, many are not covered; for them, Barjos want to start a government insurance company or devise an insurance policy. But this company or policy will not pay doctors for the number of patients seen or laboratories for the number of tests done; it will pay them on outcomes — that is, how sick or healthy the doctors and labs leave their patients. American patients can collect millions by suing their doctors for wrong or inappropriate treatment. So doctors take out expensive malpractice insurance. Barjos think that insurance companies are overcharging doctors, and will sue the insurance companies under anti-trust law for profiteering. They will also sue insurance companies that give health insurance policies if there is not enough competition amongst them, and force them to reduce their profit margins. They will start a government insurance exchange which will advise people on what insurance to buy, and perhaps bargain for them with insurance companies. Insurance companies often exclude from policies diseases that the insured have contracted before they were insured; Barjos will force them to stop this practice. The US is home to the world’s biggest pharmaceutical firms. They spend huge amounts on research and development, patent the drugs they thus develop, and use the monopoly that patents confer to make big profits. Apparently, they make bigger profits out of Americans than others; they charge Americans 67 per cent more for the same drugs than they charge Europeans. A simple solution would be to reduce or abolish patent protection, and to import the drugs from India. Barjos will not do such radical things; they will import the drugs from “other developed countries”; that is, Europe and Japan, if they are cheaper there. The big drug companies file expensive patent infringement cases against generic drug companies like ours, and often bribe the companies not to enter the US market. Barjos will “prohibit” the companies from doing such things; just how, I do not know. The drug companies used their influence with Congressmen to get legislation passed that prohibits the government’s Medicare organization to bargain with the companies over drug prices. The department of veteran affairs runs a similar healthcare programme for ex-soldiers. It faces no such prohibition, and freely bargains and brings down drug prices. Barjos want the constricting legislation repealed, so that Medicare too can bargain. The most interesting and least clear of the Barjos proposals is one for a national health insurance exchange. It is not clear whether this exchange will be an insurance company, or will help everyone to get insurance; probably both. It will introduce a benefit package similar to what employees of the federal government get; presumably, the government has negotiated with private insurance companies to provide this common benefit package to government employees, and will similarly negotiate for the rest of the population. So the Barjos plan is to give to all uninsured Americans the choice of getting an insurance package similar to that of government employees. But they will not get it free; they will have to pay for it. Those who pay taxes will get tax rebates on the premiums. Premiums will be “fair”, co-payments (the proportion of his medical costs a patient has to pay himself because the insurance company will not pay it) will be “minimum”, paperwork will be “simple”, and the plans will be “easy” to enrol in. This is all admirable, and vague. Barjos face a problem — that they cannot touch the current business of the private insurance companies. They want to extend coverage to those whom insurance companies have avoided because they cannot afford the premiums or because they have ailments and conditions that the insurance companies do not want to insure against. Barjos cannot simply use the government to cover these uncovered people and conditions because insurance companies would then weed out even more people and make even more money out of healthy people. This is a classic case of what economists call adverse selection. So Barjos are split between helping the uninsured people and conditions directly, and forcing insurance companies to insure the uninsured. There is no ideal balance between the two, and whatever balance is decided, it will be difficult to achieve it. Barjos should stop trying to repair a dysfunctional market. Instead, they should start at another point. They should aim at a basic, fully government-funded, entirely free national health service. It would consist, first, of a doctor within reach of every American whom they could see without paying; these doctors should be full-time employees of the government, and groups of them would be backed by free laboratories. Second, the drugs prescribed by the doctors would also be free provided they fall within a government list of generic drugs. Third, the government doctors should give every American a check-up once a year, and if it shows that they are fit and are living healthily, they should get a reward. Finally, for those who need hospital and nursing care and cannot afford it, the government should negotiate with private hospitals to have a certain proportion of beds at its disposal. What the government should ensure is not the probability of treatments given by insurance, but certainty of specific treatments guaranteed by itself.