Column : Searching for healthier alternatives

Written by Michael Walton | Michael Walton | Updated: Sep 8 2009, 03:34am hrs
When concentrated interests effectively appropriate a collective narrative theres a potent recipe for policy distortion. A striking example is the debate over health reform in the United States. The irony is that this blend is the biggest threat to the US long-term fiscal position.

To a non-Americanand undoubtedly to many Americansthe health care debate has at times a surreal air. The problems seem obvious. There is something quintessentially American about a system that combines abundant spending, a seemingly in-built tendency to demand more, and greater exclusion than any other rich country.

As is well known, the US health system is extraordinarily expensive by international standards. In 20007for which the OECD has comparable datathe United States spent 16 per cent of GDP on healthcare, compared with 9 per cent for the OECD average. The average annual cost is now over $8000 per person. This is a big problem for the US fiscal position because substantial parts of the health system are already publicly financed. Most important is Medicare, that covers the elderly. Medicaid, the publicly financed programme for the destitute, also contributes. The high cost of the overall health system directly affects these government programmes. Absent major change, they constitute a much bigger future threat to fiscal stability than social security or financial sector bailouts.

High costs are not delivering better results. Some Americans do receive excellent, high-technology service. But it is not at all clear that average care is better. The US actually has less beds, physicians and nurses per person than the OECD average. And overall health outcomes are bad by OECD standards, with lower life expectancy and significantly higher infant mortality than the average. So what is going on And why is reform so hard Here are three things.

First, unlike any other industrialised society, the US has no guarantee of health insurance. The core of the system is private insurance for the non-elderly, with no mandate on either citizens or insurers to provide coverage for all. The private health insurance industry has an interest in this system. It does not have an interest in greater public management that would hold down costs either by greater regulation (as in the Swiss model) or by competition from a public insurance agency (as was on the table in recent months, and may be off the table now.) This interest translates into influence: the health insurance industry is a big contributor to campaign finance, of both Republicans and Democrats in Congress.

Second, there are structural incentives for high and growing costs. Doctors and hospitals have few incentives for looking for the most cost-effective solution to their patients problems when private insurance companies (or Medicare) will pay. The incentives are to go for more diagnostic tests and more procedures. Financial gains for medical firms and individuals are aligned with the seemingly virtuous pursuit of every medical pathway when health is at stake . In a compelling piece in the New Yorker in June, Atul Gawande, a medical doctor, visited the most expensive health market in the US, in McAllen, Texasthat has much higher costs per patient than other markets, including some markets with outstanding care, and even than nearby markets in Texas. This was not because of worse health conditions or better health care. It was because of a tendency amongst doctors to do more of everything, a tendency the author linked with a growing link with a culture of money, of looking, explicitly or implicitly, to the financial payoff from medical interactions with people.

Third, deeply American narratives of self-reliance and small government were appropriated by critics of health reform, often with bizarre accusations of how public involvement works in practice. Keep your government hands off my Medicare! was a refrain in August townhall meetings. Apart from the fact that Medicare is a government programme, there is a larger irony. In the absence of either more public involvement or public regulation of this unusual market, there will be ever greater public spending, alongside continued influence of health insurance and medical interests. That is surely not what these citizens had in mind.

So what does this imply for health policy reform in the US, and indeed to change in general There are good technical alternatives on the table. But more important than this is the need to pay attention to the incentives that shape the existing system, to the power of concentrated interests, and to not lose control of the narrative. After all, providing decent health care for all and resisting the power of special interests are persuasive, and indeed American, narratives.

The writer is at the Harvard Kennedy School, Institute of Social & Economic Change and the Centre for Policy Research