This is a common argument, especially among those who are against regulation. It’s also one of those that seem to make sense. But it’s not a good idea.
See, the reason we don’t allow insurance to cross state lines is because we allow states (right now) to regulate their own insurance markets. Some states have chosen to have strict regulations, like community rating and guaranteed issue... It’s what allows Massachusetts to try it’s own plan. This way, some states have implemented reforms so that people can’t be denied coverage for pre-existing conditions.
In general, these plans do make insurance more expensive for the young and healthy, but more equitable across the board. If we allowed insurance companies to cross state lines than companies in states with less regulation could cherry pick health patients from previously regulated states. This would destroy the risk pools in the regulated states and lead to a breakdown of the systems they have in place. Sure, it might result in even more options for healthy people, but that’s not who insurance is really for, is it?
The reason we have restrictions on interstate sales of health insurance is that a number of states regulate insurers. In particular, some states have a form ofcommunity rating, which basically says that insurers can’t deny you coverage or charge extremely high premiums if you have a preexisting condition. And community rating will be unsustainable if individuals can buy insurance from out of state; insurance companies in states that don’t have community rating will cherry-pick the healthy, good risk people, leaving the community rating states with only the highest-cost people.
Now, you might say that’s fine: if you’re a bad risk, you don’t get insurance. But politicians never say that in public, because most voters feel that their fellow citizens shouldn’t be denied health care. So the way this is always presented is that effective competition will make insurance so cheap that everyone can afford it.
But we already know better. California — which has more people than many countries — has a non-community-rating insurance system:
Insurers have wide latitude to choose among applicants for individual coverage and set premiums based on medical conditions. Insurers say medical underwriting, as the selection process is known, is key to keeping premiums under control.
And what are the results of competition there? The answer is that insurers compete by doing their best to deny coverage to anyone who might actually need medical care.
What kinds of things are enough to cause denial of coverage?
Insurers declined to disclose the underwriting guidelines that lead to rejection or higher premiums. But a review of public records, as well as rejection letters sent to individuals, shows that California carriers turn people away or charge them higher premiums for conditions that range from the catastrophic to the common. Cancer, epilepsy and AIDS make the list, along with breast implants, ear infections, varicose veins and sleep apnea.
Jeffrey Miles, a vice president of the California Assn. of Health Underwriters, a trade group for independent insurance agents, said one of his clients — a 27-year-old woman “in perfect health with absolutely nothing wrong” — was rejected because she had seen a psychologist for three months after breaking up with a boyfriend.
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Consumer advocates say out-of-date, ambiguous and even erroneous medical information can render people uninsurable. Sometimes the reasons can seem absurd. In a letter to an otherwise healthy recent college graduate, for instance, Blue Cross listed among the reasons it denied coverage a past bout of jock itch, “successfully treated with cream.”
So when you hear people like DeMint — or conservative economists — preach the wonders of a market-based health care system, bear in mind that this is what it would look like: an America in which nobody who has ever had a major health problem, or had a minor health problem that for some reason bothers the insurance company, can get coverage. Believing that it would turn out otherwise is the triumph of ideology over experience.
Globalization has been conspicuously missing in healthcare policy debates, however. Even the economists who normally push a free-trade agenda have been silent, largely because there has been a tendency to conceive of healthcare narrowly as a domestic issue. There is some logic to this narrow view: in a healthcare emergency, we need immediate treatment, not assistance from someone halfway around the world. Nonetheless, there are some obvious and important ways in which the healthcare sector can benefit from increased globalization.
The first route is through opening the door wider to medical professionals from other countries. Doctors in the United States, especially highly trained specialists, earn far more than their counterparts in Western Europe or Canada, at least in part because it is very difficult for doctors - even those who meet our high standards - to train in other countries and then work in the United States. There has been little effort to coordinate medical licensing standards so that well-trained doctors elsewhere can practice here. In economic terms, this is a form of protectionism, just as arbitrary as restrictions on imported shoes or clothes. Trade policy over the last three decades has worked to dismantle the barriers to imported goods, but largely ignored the barriers that obstruct the entry of qualified doctors.
What if, however, the government sought to remove the licensing barriers for foreign physicians? Compensation in the most highly paid medical specialties averages far above $250,000 a year (even after paying malpractice fees). Many doctors trained outside the United States would find these positions attractive even if they only paid $100,000 a year. Opening medical practice to foreign competition would allow for the same sorts of gains from trade that we have seen with opening trade in apparel and textiles - except that we spend far more on doctors each year than we do on clothes.
To allow hospitals to hire well-trained doctors from Mexico, India, and other developing countries, the government would need to eliminate certain protectionist barriers, such as the requirement that an employer first try to hire a US citizen or green card holder at the current market rate. The next step would be drafting international training and licensing standards; doctors could be tested in their home countries, by US-certified testers. Those who do would have the same access to a healthcare job in the United States as a US citizen. A kid growing up in Mexico City or Beijing would have as much opportunity to work as a neurosurgeon in the United States as a kid growing up in Long Island.
To compensate for the inevitable brain drain from developing countries, we could impose a modest tax on the gross income of foreign-trained doctors in the United States for their home countries to spend on training doctors who stay. A 10 percent tax on one US-based doctor’s salary would almost certainly support the training of two doctors in most developing countries, and ensure that countries sending doctors to the US would also see an improvement in the quality of care at home.
The next important way to gain from globalization is to move some procedures overseas. Today this practice goes by the slightly pejorative term “medical tourism,” but behind that nickname is an important and growing trend that can offer real benefits.
Facilities in developing countries such as Thailand and India can perform many major medical procedures for a fraction of the cost in the United States. These facilities are set up to meet Western standards of care; in many cases they are equipped with the most modern medical equipment. For some medical procedures, the savings over an American procedure can easily cover the cost of airfare and hotel bills for the patient and several family members. Today, between 60,000 and 85,000 people cross international borders each year for medical procedures, according to consulting firm McKinsey & Co., and the number is growing. But its growth, and the potential gains, are limited by the lack of adequate government oversight.
If US policymakers embraced rather than ignored medical tourism, the government could create a process for certifying facilities in other countries to ensure the quality of care. It could also establish guidelines for malpractice liability; insurance companies could contract with facilities in the developing world and offer large discounts to patients who opt to travel for major procedures. (Some insurance companies have already begun offering such options.) To ensure that the host countries also benefit, the US government can insist that developing countries impose taxes on medical tourism, and use the proceeds to improve their own healthcare systems.
The third way that globalization can help healthcare is by allowing Medicare beneficiaries to buy into national health systems overseas. Currently, tens of millions of current or future Medicare beneficiaries have close family or emotional ties to countries with more efficient healthcare systems, and in many cases may want to retire to these countries. However, at present their Medicare benefits are of no use outside of the United States. Medicare beneficiaries moving to a foreign country are left to make healthcare arrangements for themselves, or return to America for any expensive procedure.
What if Medicare benefits could cross borders instead? With portable healthcare, Americans might feel more liberated to retire abroad, enjoying comfortable lives in lower-cost countries and generating enormous savings for the US government. The cost of healthcare abroad is so much lower that the U.S. government could even offer a premium to participating countries - say, 10 percent above that nation’s per-person healthcare costs. Medicare beneficiaries and the US government could split the remaining savings, which would still be substantial. For example, a beneficiary moving to the Netherlands or the United Kingdom in 2010 could expect to pocket close to $2,000 a year just from their share of the savings, a nice supplement to retirement benefits. That amount will only grow over time.
Having a large segment of our retired population living overseas may not be desirable in the long term, but it is almost certainly better than letting their runaway healthcare costs wreck our economy.
There will be many objections to increased globalization of healthcare. Some people may object to being treated by immigrant doctors, no matter how highly qualified they may be. And the thought of people flying around the world for major surgery is somewhat offensive on its face - if you need healthcare, you’d like to think that you could get it near where you live. The AMA and the other interest groups will object just as strongly to potential income losses due to globalization as they do to potential income losses due to President Obama’s healthcare plan.
To counter this opposition, we need stronger voices among the experts. It would be helpful if my fellow economists would act like economists on this issue and start singing the praises of globalization. If economists denounced the doctors and others demanding special protections in the same way they denounced autoworkers seeking such protections, it would go a long way toward moving the debate forward.
The goal of globalizing healthcare, of course, is not to send Americans around the world in search of healthcare. Our real goal should be to fix the US system to provide quality at a reasonable price. Globalization is best seen as a stopgap measure: a way to save money by taking advantage of more efficient foreign healthcare systems, while providing incentives for retooling our own.
If it works, it could increase the pressure for reform by making the inefficiencies of the US system more apparent. It could also put much-needed downward pressure on prices in the United States. If the gap between the cost of major medical procedures performed in America and other countries continues to grow, fewer people might have those procedures performed here. Highly paid medical specialists will either accept lower fees or go with much less work. The same logic will apply to other high-cost areas of the system.
Globalization offers enormous opportunities: it allows Americans to escape a broken healthcare system and generates new pressures to fix it. If done right, our trading partners will benefit as well. This may be a circuitous route to a system that provides high quality care for everyone, but it may also be the only route.
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