Overhauling Health Insurance from the Bottom Up

Over the weekend, following a town-hall meeting in Grand Junction, Colorado, President Obama broadened his rhetoric on health care reform, saying that a government insurance policy was not the only option available to lawmakers.  However, a New York Times article reports:

Speaker Nancy Pelosi said Monday that House Democrats, rather than backing down, strongly supported giving people the choice of a new government health insurance plan. “A public option is the best option to lower costs, improve the quality of health care, ensure choice and expand coverage,” said Ms. Pelosi, Democrat of California.

Grand Junction was selected as a location for one of the President’s town-hall meetings because it was recently profiled in a New Yorker article as an example of a region that successfully manages health costs. The presidential interest in Grand Junction’s system, however, seems strange, because the area’s cost-saving practices have not come about by the sort of top-down overhaul that his administration is promoting for the country. Rather, area doctors developed a grassroots solution:

Years ago the doctors agreed among themselves to a system that paid them a similar fee whether they saw Medicare, Medicaid, or private-insurance patients, so that there would be little incentive to cherry-pick patients. They also agreed, at the behest of the main health plan in town, an H.M.O., to meet regularly on small peer-review committees to go over their patient charts together. They focussed on rooting out problems like poor prevention practices, unnecessary back operations, and unusual hospital-complication rates. Problems went down. Quality went up. Then, in 2004, the doctors’ group and the local H.M.O. jointly created a regional information network—a community-wide electronic-record system that shared office notes, test results, and hospital data for patients across the area. Again, problems went down. Quality went up. And costs ended up lower than just about anywhere else in the United States.

The article cites the Mayo Clinic and the health care systems in Danville, Salt Lake City, and Northern California as all having developed local solutions for improving care and reducing costs. These systems likely do require some sort of management body for doctors, such as the agreement reached in Grand Junction, because doctors, like all people, respond to incentives.

Most doctors certainly care about their patients, so one of their incentives is to provide the highest possible quality of care. However, doctors also care about making profits, which are related to the tests and treatments that they prescribe, and the most lucrative care may not be the best for patients’ health or finances. These conflicting incentives are further complicated by private insurers, Medicare, and Medicaid, which all pay for services differently than would be the case if all patients paid for health services individually.

However, the necessity of developing a solution to the conflicting incentives that doctors face does not lend itself to being solved by the federal government. One problem with the administration’s original plan is that any government insurance plan that somehow succeeds in lowering costs would have to be fraught with rigid mandates about the sorts of care that doctors provide for given diagnoses.

A nationalized health insurance policy would crush the potential for the sort of dynamic innovation and social entrepreneurship observed in Grand Junction.  In other words, if a government payment plan lowered costs in the present, it would stifle future improvements by limiting the options available to inventive doctors and health administrators.

The most loudly voiced conservative argument against the Obama plan is that it is likely to increase the cost of healthcare borne by taxpayers. A more important flaw with the White House plan, however, may be that it would legislate away the possibility of private sector and non-profit solutions that are able to evolve over time in order to best cater to patients. Additionally, medical care should be highly individualized to suit the needs of each patient; a New York Times article outlines some of the inherent risks involved in national standards that restrict doctors’ options for administering treatment.