As I’ve written about in several posts, the current health care system is built on flawed premises. It mis-applies market principles. Technically speaking, it assumes that doctors and health insurance companies are “suppliers” and that patients are “demanders” who have an independent preference function. This is wrong. In healthcare, patients only demand what the suppliers tell them to demand. Thus, the system gravitates toward whatever incentives the suppliers have, unchecked by patient “demand.” The result is:
1. Doctors identify the most lucrative services and organize their practices around delivering those
2. Insurers identify ways to minimize the dollars they pay out. They try to attract healthy people and dump sick people.
The only thing that holds this process in check, concealing its absurdity, is the fact that doctors have an ethical conscience and the larger scientific community provides some checks and balances on absurd care. But these balancing factors have limited power.
There is no independent consumer demand, but we do know what consumers want — long term health. They want to live as long as possible. Thus, we don’t actually need consumer preferences to set up an incentive system. A proper incentive system would simply reward suppliers for making people healthy.
This incentive naturally exists in a single-payer system. By making people healthy when they are young, the single-payer has lower costs when they are old(er). Another way to do this is to try to use centralized judgments about “best practices” and mandate that insurers follow these (the current Medicare system). But this system, as we know, is open to gaming and runaway costs. The current “private system” simply lacks this incentive. Since people can switch their plans at any time, private insurers are not likely to recoup investments in young, healthy customers in the form of cheaper-to-care-for, longer living older customers.
A system of “health co-op shares” might be able to solve this problem. The key would be that every insured person would not only have a policy with fees and coverage, their policy would have a “value,” similar to a life insurance policy. The “value” is an estimate of the cost of caring for the individual in the long run relative to the fees they are likely to pay, based on some standard schedule that includes health metrics (age, weight, cholesterol etc.).
Every person is covered and is the responsibility of some co-op. The co-op tries to make me healthy. If I stay in my co-op, the co-op earns a return on my long term health. Thus, it has an incentive to make me healthy when I am younger. If, for some reason, I want to leave my co-op, the new co-op I go to has to “buy out” my shares from my old co-op. The shares would be valued by a standard formula based on my medical history, age, weight etc. The government, or an independent board, could be the clearinghouse.
The upshot is that my co-op gets a return on its investment for making me healthy regardless of whether I stick with them. If I stick with them, they get the low costs in the future. If I switch, they get a payment rewarding their efforts, as they have made me a “high value” client.
There are likely to be important weaknesses to this approach. I am somewhat wary in the way that it tries to re-apply market principles just because this is what is popular, when a single-payer system is a less convoluted way to achieve a similar result. That said, a workable co-op system would avoid the major disadvantage of a single-payer or otherwise centrally run system: the only incentive for innovation is in bureaucratic exploitation. In a co-op system, shareholders could do better if their co-op found a way to make people healthier.
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