‘Catastrophic Care’: An Exchange

To the Editors:

In Arnold Relman’s review of my book Catastrophic Care [NYR, August 15], he writes: “Rarely has the irrationality of the system been so convincingly demonstrated.” I greatly appreciate the kind words. But I think he’s missed my point. My argument in Catastrophic Care is in fact that the health care system is very rational. Health care is an industry, and as such, it has responded almost perfectly to the misguided economic incentives wrapped up in private insurance, Medicare, and Medicaid.

Our health care debate is imprisoned by a set of assumptions that have gone unexamined for at least fifty years. Most care, we are told, is used by only a small percentage of patients. Care is so expensive that only insurance could make it affordable to anyone who isn’t rich. Care is too complex, too nontransparent, and too urgent to rely on consumers to serve their normal role. Care is nondiscretionary, so consumers can never have leverage. As the population ages, the cost of care must rise. And most tellingly, technology is driving up the cost of care. In every other industry, technology drives down costs and consumers are considered perfectly capable of making decisions for themselves. But health care experts always argue that their field involves so many unique complexities and irrationalities that it requires massive central assistance and control (usually involving their guidance). My book doesn’t ignore these old chestnuts; it argues they are simply wrong and that their impact on health care policy has been disastrous.

Dr. Relman repeats the superficial truism, for example, that Medicare is more efficient than private insurance because its administrative costs are so low. But isn’t he curious why private insurers would spend so much on administration when all of that extra money comes directly out of their own profits? And that these same private insurers actually perform much of Medicare’s payment administration, which is contracted out to them? Who ever heard of a for-profit company performing a service more cheaply for a third party than for itself?

Scratch just a bit below the oft-repeated “fact” about Medicare’s efficiency, and the truth is obvious. Medicare administers “efficiently” because it barely administers at all: it was intentionally designed by politicians never to say no—including to providers, who complain even as their share of our economy and wealth grow each and every year. And because it never says no, Medicare isn’t a mere passive and efficient funder of needed care; it’s a primary driver of the medicalization of senior citizenship, of massive overdiagnosis, of excessive treatment, and of a medical culture of limited accountability. Today, the share of their income that seniors pay toward out-of-pocket medical costs is almost twice what it was before Medicare was created.

Most health care “solutions” really aren’t solutions, because they never challenge these mistaken assumptions. If our private insurers have failed to control the cost of care, add levels of incomprehensible complexity, and fail to genuinely protect beneficiaries against true catastrophe, then why deepen our reliance on insurance? And if our government-run systems like Medicare/Medicaid are politically incapable of saying no, then why would it help matters to give central planners even more authority? As Medicaid and Medicare, the dialysis program, insurance regulation, and restrictive licensing programs should make obvious, our government is incapable of serving as a neutral guarantor of health care. Adopting a version of Sweden’s health care system won’t make our health care like Sweden’s; it will make it more of what it is already—undisciplined industrial policy made by a coalition of the naive and the self-interested.

Ideas like Dr. Relman’s “multispecialty group practices” are thoughtful and serious. But if legislated, they resemble re-setting a stopped watch: they’re right only for the moment. The last fifty years of our government’s role in health care make clear how powerful industrial interests prevent meaningful change. The only way to unlock the process of continuous and dynamic change—the essential characteristic of successful services—is to avoid freezing arrangements in place through law, no matter how cleverly. If we want price, quality, and service improvement in health care, we’ll have to allow competition among diverse service and payment models—the exact opposite of conventional wisdom–driven policy.

Dr. Relman tries to fit my work into the tired debate between centrally driven care and its favorite straw man of “consumer-driven care.” But my book makes a far more radical argument: fundamentally health care is much like everything else. If we want it to perform as well as everything else, we’ll have to run it more like everything else.

David Goldhill
New York City

Arnold Relman replies:

I agree with most of Goldhill’s critique of the present health care system, and admire the eloquence with which he makes his case. However, I take exception to his claim that private insurance is more efficient than Medicare. His opinion is contrary to all the evidence.

The Congressional Budget Office has recently estimated that the higher overhead expenses and the profits of private insurance added about $150 billion to the annual costs of health care, not counting the additional tens of billions expended by the billing offices of physicians and hospitals trying to collect from multiple private plans. Under the Affordable Care Act, private insurers are limited to an overhead of 15 to 20 percent of their premiums, whereas Medicare’s overhead is well below 5 percent. And over the years, the costs of privately insured health care have consistently risen more rapidly than those of Medicare.

As I indicated in my review of Goldhill’s book, my main difference is with his proposed solution to our health care problems. He believes that health care is an industry like any other, and that patients can and should shop for the medical services they want like consumers in other markets. To implement this idea, he favors a system with high-deductible, “catastrophic” insurance, and vouchers that encourage patients to save on health services as they choose their own care.

But almost everyone who has ever been seriously ill or injured knows that personal medical care is not just another consumer product for sale in a competitive market. Patients are critically dependent on physicians for their care—the more serious or alarming their condition, the greater their dependence. Moreover, the system Goldhill advocates is unfair to patients with limited means, because it forces them to choose between spending on medical care they might need and saving their funds for other needed or desired purposes. Those with higher incomes have no such pressures.

Underlying Goldhill’s discussion is the notion, common among businesspeople, that the supposed wisdom of the market can solve our health care problems, and that government is of little or no use. The US is the only advanced country that seems to accept this notion, and tolerates widespread profit-making in personal medical care, as well as in other parts of the health economy. Not coincidentally, our health system is the most expensive and least efficient among these countries. This very probably could be corrected by some form of single-payer system, with care delivered by nonprofit, salaried medical groups—a prospect that I believe is inevitable, but that Goldhill rejects in favor of a competitive market-based plan. Time will tell which of us is right.