Killing through complexity: the US healthcare system

The Economist looks at healthcare in the US: 

Every year America spends about $5,000 more per person on health care than other rich countries do. Yet its people are not any healthier. Which firms profit most from America’s health-care system, 'The Economist', 17 March

... In crude terms, the health-care labyrinth comprises six layers, each involving the state, mutual organisations and private firms. People and employers pay insurance companies, which pay opaque aggregators known as pharmacy-benefit managers and preferred provider organisers. They in turn pay doctors, hospitals and pharmacies, which in turn pay wholesalers, who pay the manufacturers of equipment and drugs. Some conglomerates span several layers. 

Understanding the US healthcare system is possible, but it might be conceptually simpler to solve the problem rather than explain it in detail. With the proliferation of Social Impact Bonds (about which I have reservations) there has been a welcome shift in public policy toward focussing on outcomes.

I think that health policy, by targeting improved outcomes could go a long way toward making healthcare systems the world over more efficient. The outcomes I'd target would be ones that are meaningful to ordinary people. That is, they would not be about funding arrangements, institutional composition or structure, or irrelevant micro-targets. Instead we'd target measures of health such as: Quality Adjusted Life Years, longevity, infant mortality.

We'd also reward people for achieving these outcomes, rather than for carrying out activities that may or may not be helpful, or that might even conflict with our health goals.

The Social Policy Bond principle applied to health could be the answer. Health Bonds would target meaningful outcomes, and they would reward their achievement. Being tradeable (unlike SIBs), investors would have incentives to carry out steps leading to long-term goals: goals that extend beyond any individual investor's time horizons. Bondholders could use the information generated by the market for the bonds to allocate funds to those initiatives that will bring about the biggest improvements in health per dollar spent. Such initiatives might well fall outside the traditional, antiquated purview of those currently responsible for health policy. One example: the most cost-effective way of saving young lives might be to lay on taxis for people leaving nightclubs in certain areas. Maybe. Maybe not. But under the current system there's no way of knowing, and nobody with any incentive to see how such a project stacks up against others.

The second para, above, excerpted from the Economist does help our understanding. They US healthcare system is ridden with so many vested interests, that any change in any direction will be seen as a threat and opposed. As in other sectors, it is precisely the profits these bodies gain from uncompetitive and manipulative practices that allow them to fund lobbyists to oppose any reform that might diminish them. I don't think the complexity of the system is an accident either. Indeed, policymaking itself is so complex that only powerful vested interests, or their paid agents, can follow and hope to influence it.


In this, again, US healthcare is quite typical. As the Economist article concludes:

Wherever products are too complex for customers to understand, and where subsidies and complex regulation add to the muddle, huge profits can opaquely be made. Remember mortgage-backed securities?