April 14, 2008

The Health Insurance Mafia

Most discussions about the rising cost of health care emphasize the need to get more people insured. The assumption seems to be that insurance – rather than the service delivered by doctor to patient – is the important commodity.

But perhaps the solution to much of what currently plagues us in health care – rising costs and bureaucracy, diminishing levels of service – rests on a radically different approach: fewer people insured.

You don't need to be an economist to understand that any middleman interposed between seller and buyer raises the price of a given service or product. Some intermediaries justify this by providing benefits, such as salesmanship, advertising or transport. Others offer physical facilities, such as warehouses. A third group, organized crime, utilizes fear and intimidation to muscle its way into the provider-consumer chain, raking in hefty profits and bloating cost, without providing any benefit at all.

The health insurance model is closest to the parasitic relationship imposed by the Mafia and the like. Insurance companies provide nothing other than an ambiguous, shifty notion of "protection." But even the Mafia doesn't stick its nose into the process; once the monthly skim is set, Don Whoever stays out of the picture, but for occasional "cost of doing business" increases. When insurance companies insinuate themselves into the system, their first step is figuring out how to increase the skim by harming the people they are allegedly protecting through reduced service.

Insurance is all about betting against negative consequences and the insurance business model is unique in that profits depend upon goods and services not being provided. Using actuarial tables, insurers place their bets. Sometimes even the canniest MIT grads can't help: Property and casualty insurers have collapsed in the wake of natural disasters.

Health insurers have taken steps to avoid that level of surprise: Once they affix themselves to the host – in this case dual hosts, both doctor and patient – they systematically suck the lifeblood out of the supply chain with obstructive strategies. For that reason, the consequences of any insurance-based health-care model, be it privately run, or a government entitlement, are painfully easily to predict. There will be progressively draconian rationing using denial of authorization and steadily rising co-payments on the patient end; massive paperwork and other bureaucratic hurdles, and steadily diminishing fee-recovery on the doctor end.

Some of us are old enough to remember visiting the doctor and paying him/her directly by check or cash. You had a pretty good idea going in what the service was going to cost. And because the doctor had to look you in the eye – and didn't need to share a rising chunk of his profits with an insurer – the cost was likely to be reasonable. The same went for hospitals: no $20 aspirins due to insurance-company delay tactics and other shenanigans. Few physicians became millionaires, but they lived comfortably, took responsibility for their own business model, and enjoyed their work more.

Several years ago, I suffered a sports injury that necessitated an MRI. The "fee" for a 20-minute procedure was over $3,000. My insurance company refused to pay, so I informed the radiologist that I'd be footing the bill myself. Immediately, the "fee" was cut by two thirds. And the doctor was tickled to get it.

A few highly technical and complex procedures that need to amortize the purchase of extremely expensive hardware will be out of reach for any but the wealthiest patient. For that extremely limited category, insurance might work. A small percentage of indigent individuals won't be able to afford even low-cost procedures. For them, government-funded county facilities are the answer, because any decent society takes care of the weakest among us. But a hefty proportion of health-care services – office visits, minor surgeries – would be affordable to most Americans if the slice of the health-care dollar that currently ends up in the coffers of insurance companies was eliminated.

When I was in practice as a psychologist, I discussed fees up front with prospective patients, prior to their initial visit. People appreciated knowing what to expect and my bad debt rate was less than 1%. That allowed me to keep my charges reasonable and, on occasion, to lower them for less fortunate patients. And I loved my job because I was free to concentrate on what I went to school for: helping people, rather than filling out incomprehensible forms designed to discourage me from filing them in the first place.

Physicians and other providers need to liberate themselves from the Faustian bargain they've cut with the Mephistophelian suits who now run their professional lives. Because many doctors are loath to talk about money, they allowed themselves to perpetuate the fantasy that "insurance is paying." It isn't. There is no free lunch and no free physical exam.

If substantial numbers of health-care providers shook off the insurance monkey on their back, en masse, and the supply of providers was substantially increased by opening more medical schools, the result would be a more honest, cost-effective system benefiting everyone. Except the insurance companies.

Dr. Kellerman, clinical professor of pediatrics and psychology at USC's Keck School of Medicine, is the author of numerous crime novels and three books on psychology. His latest novel is "Compulsion" (Ballantine, 2008).

April 7, 2008

Burden of sloth

We distribute vast quantities of foodgrain through our public distribution system. The finding is 36 per cent of the foodgrain does not reach the poor. We have laid out the largest guaranteed wage employment programme as a safety net for the poor.

The finding is that there are pockets in India where this programme is not giving the guaranteed wage to the very poor. We have the largest school lunch programme in the world; 130 million children eat a school lunch. The finding is that the quality and the quantity of the food at many places leaves much to be desired. We have very large road building programme. But many of the roads that are laid are of such poor quality that they have to be re-laid every five years, they vanish after three or four years."

This is not the rant of an academic. It is Finance Minister P. Chidambaram describing the quality of governance in the country at the India Today Conclave on March 15. Ten days later the Sixth Pay Commission, headed by Justice B.N. Srikrishna, submitted its report arguing the case for a 42 per cent rise in salaries of babus. (See graphic: Pay and pension expenditure)

The hike will add Rs 12,561 crore to the Centre's salary bill of Rs 53,497 crore taking it to Rs 66,058 crore. Add to this Rs 18,060 crore in arrears as the hike will be effective from January 2006 and Rs 1,365 crore towards higher pension. If the political hurrahs are any indication, in a few weeks the panel's recommendations will be formally accepted. In return, the taxpayer cannot expect anything because there are no performance guarantees.

Given the expectation of polls and the season of sops, the only intervention will be in favour of a higher hike, not on delivery. The distance between the need for reforms and the absolute lack of political will has never been greater. The pathetic state of governance Chidambaram spoke about will continue to be the subject of lament.

The commission has offered the carrot but there is no stick in sight. There is no mechanism to make the babudom more accountable. Only, taxpayers will be paying a higher price for the sloth in the system.

Prey commission

George Bernard Shaw should be quoted. "A government that robs Peter to pay Paul can always depend on the support of Paul." Given the Sixth Pay Commission recommendations, robbery is an appropriate term. Unlike theft, there is use of force, exercised by the government. In reacting to salary hikes proposed, we forget that economics is about allocating resources with competing uses.

A Central pay commission isn't about Central Government and its 3.5 million employees alone. It will inevitably extend to state government and quasi-government bodies and cover around 45 million people. The overall impact will be around 1 per cent of GDP (less than Fifth Pay Commission's 1.5 per cent, because DA hikes have been larger since then). The point isn't whether buoyant revenue can absorb this 1 per cent shock.

Even if it can be absorbed, these are resources that could have been spent elsewhere. Unless one can demonstrate these hikes will result in efficiency improvements and increase the size of the cake, this is a transfer from 375 million who work outside the government to 45 million who work for government and quasi-government bodies.

It is not only a transfer, it is a regressive transfer, because 375 million are the relatively poor and 45 million are the relatively rich. And that might be warranted had there been a real improvement in efficiency. Efficiency is individual. It can't be collective. The moment one has a concept of grades and scales, one assumes rewards based on average productivity (which is collective) and not on marginal productivity (which is individual).

This is like saying that regardless of where one wishes to go in a city from the airport, the cab fare will be the same. This may be easier to administer (taxis needn't have individual meters), but is nonsensical if one is stimulating efficiency. True, private sector also has grades and scales.

But it permits greater deviations and allows incorporation of individual performance-linked rewards. This is impossible within the government system, where bonuses also become guaranteed. Of course, there is wheat within the government system. But one can't differentiate wheat from chaff. One would have bought the efficiencystimulating argument, had there been individual contracts de-linked from scales.

Since 90 per cent of government jobs covered by the pay commission are Classes III and IV, one can't be serious that pay commission hikes will improve efficiency or governance. Indeed, governance will improve far more if we implement even 5 per cent of assorted civil service reform recommendations articulated in assorted commissions, committees and task forces.

Any pay commission recommendations would have been more convincing, had one included imputations for perks, housing, other allowances, five-day weeks, complete security of tenure and worked out CTC recommendations for government servants, with FBT provisions included. In India's workforce, a small percentage is integrated into the global labour market, with incomes that are global, adjusted perhaps for PPP (purchase power parity). That's because these people can freely enter (and exit from) the global labour market.


April 5, 2008

Pakistan Picaresque

For our meeting with the director of the Pakistan Nursing Council, we arrived punctually at a small ­two-­room office tucked away in a corner of the National Institute of Health's campus in Islamabad. In the center of one room was a table covered with a flowered plastic tablecloth, as if awaiting a picnic. Resting on it were a pencil holder, some writing materials, and a telephone. On one side of the table was a rather ornate chair, and on the wall behind it was a framed photograph of Muhammad Ali Jinnah, the man credited with creating Pakistan, in his signature oval cap and a severe black sherwani, a formal ­knee-­length coat. Four rickety chairs, a bit dusty, lined the other side of the table. In the adjoining room were more rickety chairs and another table, on which an elaborate tea service was arranged. A small man wearing stained clothes sat on a stool by the door, and mumbled something as he rubbed sleep deposits from his ­eyes.

"She's what?" I heard my companion ask in a ­panic-­stricken tone. "Dead! Oh, my God, do you hear that?" she said to me. "The director of the nursing council is dead." She stood still for a minute, as if paying her respects. "How did she die?" she said, again turning to the ­fellow.

The man looked offended at our misapprehension. "Late. Mrs. S.," he said. Ah, Mrs. S. wasn't dead. She would be ­late.

My companion, a Canadian, was new to this part of the world and understandably confused by the way Urdu, the national language, is translated into English, the "official" language, especially by people who have minimal schooling. Mrs. S. had gone from merely being late to being "the late Mrs. S." In a way, this slip of the ­tongue—­or of the ear?—was quite symbolic. For in its efforts to make any effective contribution to the changing needs of the health care system, the Pakistan Nursing ­Council—­the federal institution that oversees nursing and all related ­professions—­might as well have been ­dead.

We told the man that we would ­wait.

April 4, 2008

Old Ways, New Pain for Farms in Poland

STRYSZOW, Poland —Depending on your point of view, Szczepan Master is either an incorrigible Luddite or a visionary. A small farmer, proud of his pure high-quality products, he works his land the way Polish farmers have for centuries.

He keeps his livestock in a straw-floored "barn" that is part of his house, entered through a kitchen door. He slaughters his own pigs. His wife milks cows by hand. He rejects genetically modified seeds. Instead of spraying his crops, he turns his fields in winter, preferring a workhorse to a tractor, to let the frost kill off pests residing there.

While traditional farms like his could be dismissed as a nostalgic throwback, they are also increasingly seen as the future — if only they can survive.

Mr. Master's way of farming — indeed his way of life — has been badly threatened in the two years since Poland joined the European Union, a victim of sanitary laws and mandates to encourage efficiency and competition that favor mechanized commercial farms, farmers here say.

That conflict obviously matters to Mr. Master. But it is also of broader importance, environmental groups and agriculture experts say, as worries over climate change grow and more consumers in both Europe and the United States line up for locally grown, organic produce.