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Home > Social Issues
Health Care Dynamics
by Bob Powell, 2/17/03
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The death spiral of our current, fundamentally free-market-based, health care system is due to our focus on the individual, rather than the whole. Why? Jump to main article below:
Health Care Dynamics ... why the "free market" fails.

An important point for those who have an irrational fear of collective solutions (socialism): It's not simply socialist to implement a single-payer health insurance system that works and scrap a privatized health insurance system that does not work. It's pragmatic.

First a few notes:


Added 10/3/10: On up to 55,000 Vioxx deaths
FDA's Drug Safety System Fails to Protect Public
Drugs, Devices and Doctors

Added 10/30/09: What Insurance Companies Love: Money! Money! Money!, Influence!, Bogus Reports!, Employees Who Figure Out New Ways To Deny People Coverage!, Market Domination!

Note 8/15/09. Health Insurance Misinformation. Go to PolitiFact.com to get the facts about many statements floating around about health insurance & healthcare. Most of them are "Pants on Fire" false.

Note 8/14/09. Uninsured and Dying Because of It

In 2002, the Institute of Medicine (IOM) estimated that 18,000 Americans died in 2000 because they were uninsured. Since then, the number of uninsured has grown. Based on the IOM's methodology and subsequent Census Bureau estimates of insurance coverage, 137,000 people died from 2000 through 2006 because they lacked health insurance, including 22,000 people in 2006.

No problem here.

Note 8/10/09. “They Dump the Sick to Satisfy Investors”: Insurance Exec Turned Whistleblower Wendell Potter Speaks Out Against Healthcare Industry

As the debate over healthcare reform intensifies on Capitol Hill, we spend the hour with a former top insurance executive who’s now exposing the industry’s dirty secrets. Wendell Potter once served as the head of corporate communications at CIGNA, one of the nation’s largest health insurance companies. We speak to Potter about his own transformation from industry mouthpiece to whistleblower, the healthcare industry’s extensive PR and lobbying machine, the campaign to discredit Michael Moore’s film Sicko, and the insurance industry’s most pressing task: the fight against a public option, let alone a single-payer system. [includes rush transcript]


WENDELL POTTER: ... I know pretty much the game plan that they have developed and used and the talking points that they use and send out to people who they think will say the things they want them to say.

AMY GOODMAN: And what are those talking points? What is the game plan of the health insurance industry?

WENDELL POTTER: Well, the game plan is based on scare tactics. And, of course, the thing they fear most is that the country will at some point gravitate toward a single-payer plan. That’s the ultimate fear that they have. But currently -- and they know that right now that is not something that’s on the legislative table. And they’ve been very successful in making sure that it isn’t. They fear even the public insurance option that’s being proposed, that was part of President Obama’s campaign platform, his healthcare platform. And they’ll pull out all the stops they can to defeat that.

And they’ll be working with their ideological allies, with the business community, with conservative pundits and editorial writers, to try to scare people into thinking that embracing a public health insurance option would lead us down the slippery -- excuse me, slippery slope toward socialism and that you will be, in essence, putting a government bureaucrat between you and your doctor. That is -- you know, they’ve used those talking points for years, and in years past they’ve always worked.

AMY GOODMAN: What turned you? Why did you change?

WENDELL POTTER: I changed because over the last two or three years I began seeing more than I’d ever seen before and became more knowledgeable of how health insurance -- how health insurance companies make money, how they maximize profits.

The companies that I worked for were two of the biggest for-profit health insurance companies. And over the past fifteen years, since the last time we had this debate, the health insurance industry has consolidated to the point that now there are about seven very large for-profit health insurance companies that dominate the market.

They have begun shifting their business model away from managed care, which, frankly, I used to think was a great model, a great concept, for the delivery of healthcare. But they’ve moved -- they’re moving away from that to what they refer to as consumer-driven or consumer-directed care, and it really is just a euphemism for shifting the financial burden from insurers and employers onto the shoulders of working men and women. I saw that happening. But I also saw how --you know, the things that they do to maximize their profit, which really boils down to dumping the sick. ...


Note 8/6/09. On "conservative" violence and motivations:

Fists Pounding on Glass, Right-Wing Violence Stops Tampa Town Hall by Jeffrey Feldman, August 6, 2009

The Town Hall Mob By PAUL KRUGMAN, August 6


Note 8/6/09. On "conservative" disinformation about health insurance reform:

E-mail 'analysis' of health bill needs a check-up By Angie Drobnic Holan, 7/30/09

... Most of what the e-mail says is wrong. In fact, it's a clearinghouse of bad information circulating around the Web about proposed health care changes, so we thought it would be helpful to address a bunch of its claims. ...

... we consulted with Jennifer Tolbert, an independent health care analyst at the Kaiser Family Foundation, a nonpartisan foundation that studies health care reform. Tolbert has read and analyzed all the major health proposals, including those of the Republicans, and the foundation provides point-by-point analyses of the plans on its Web site. ...


Note 8/4/09. Conservatives: "no one in America goes without health care"

There's an argument against changing the system that no one in America goes without health care and we've got the best health care system in the world. No one goes without care?

On patient dumping in America: "Refusal of Emergency Care and Patient Dumping" Jan 09.

... From 1996 to 2000, the watchdog organization Public Citizen confirmed violations from 527 hospitals in 46 states, as well as the District of Columbia and Puerto Rico [10]. Of the 527 hospitals, 117 had violated the act more than once, and for-profit hospitals were significantly more likely to do so. ...

That's documented cases. Think how many people must have been turned away. Oh, no. That doesn't happen, does it?

Emergency rooms turn away more patients By Rob Amen, Pitsburgh Tribune, 6/16/06

... Nationally, half a million times a year -- about once every minute -- ambulances are turned away from full emergency rooms and diverted to others farther away, an investigation by the Institute of Medicine revealed this week. ... in ERs across the country, patients can wait hours, even up to two days, the Institute of Medicine report found. "Ten years ago, it was unheard of," Yealy said. "That happens every day (now)."

The Busiest Emergency Room in America by: Moo Means Hello

... Examination rooms are converted horse stalls, made into "rooms" by creating walls out of ropes, sheets, and clothing pins. There are sometimes thousands of people in the ER waiting area at a time. Here's a picture of the waiting area: (see at link).

Some people drive from as far away as Ohio and Alabama just to be able to get free medical care, and it's often the only medical attention they've received in years.

What's the catch?

The catch is this emergency room is first come, first served basis -- and it's only open for two and a half days every year. Some people spend the night in their cars just to be able to get an appointment -- and thousands are still turned away. ...

See? No problem.

Note 8/3/09: Column: Faint Praise by Robert Kuttner 8/2/09

... We under-insure tens of millions of others by leaving big loopholes in what's covered. More than half of Americans who file medical bankruptcy nominally have insurance.

Why is our system so massively inefficient? Because it is run by and for private insurers, aided and abetted by for-profit drug companies and hospitals. Even if we insure more people, as President Obama hopes to, a fragmented, profit-oriented system dominated by these interests simply cannot yield the most efficient use of health outlays. ...

Column: What's so great about private health insurance? by Michael Hiltzik 8/3/09

The bloody battle in Congress over a 'public option' ignores the insurers' role in creating the nation's healthcare crisis and their efforts to throttle reform.

Throughout the heroic struggle in Congress to provide a "public option" in health insurance, one question never seems to get answered: Why are we so intent on protecting the private option? ...

The industry loves to promote surveys indicating that most Americans are "satisfied" with their current health insurance -- 37% are "very satisfied" and 17% "extremely satisfied," according to one such study.

Yet these figures are misleading. Most people are satisfied with their current insurance because most people never have a complex encounter with the health insurance bureaucracy. Medical care generally follows the so-called 80-20 statistical pattern -- 20% of patients consume 80% of care. If your typical encounter is an annual checkup or treatment of the kids' sniffles, or even a serious but routine condition such as a heart attack, your experience is probably satisfactory.

But it's on the margins where the challenges exist. Anyone whose condition is even slightly out of the ordinary knows the sinking feeling of entering health insurance hell -- pre-authorizations, denials, appeals, and days, weeks, even months wasted waiting for resolution. ...

Why indeed protect the "private option"? The private" option" has failed, and will continue to fail, because of the "adverse selection" dynamic and overall dysfunction and inefficiency.

Column: Health Care Realities By PAUL KRUGMAN, 7/30/09

"... unregulated markets don’t work for health care — never have, never will."

Column: Right Wingers Wreak Havoc on Philadelphia Town Meeting by Denise Dennis 8/3/09

... I asked three of the boisterous opponents of health care why they do not support it and one of them pulled a copy of the Constitution from his hand and waving it, said, "Health care is not covered in the Constitution." Their arguments were illogical and based on lack of knowledge and an abundance of fear. I commented to them that they were being had, that they were working against their own best interests and they kept waving the Constitution.

The fury and rancor in the faces of the right wingers at the town meeting made it clear that this was not about health care only. It is about fear and raw anger, already inside them, now directed toward the health care debate. They see defeating health care legislation as their opportunity to re-visit the Presidential election.

Indeed ... fear based on ignorance & illogic. And, by the way, it is in the U.S. Constitution to "form a more perfect Union" and "promote the general Welfare". To do that and overcome the "adverse selection" dynamic REQUIRES single-payer health insurance.

Note 7/20/09: Employer-based health insurance discourages entrepreneurs.

When someone who wants to start a business based on their new idea, they'll lose their insurance covering pre-existing conditions and perhaps lose it entirely. If they have a family that depends on their insurance they cannot take the risk. Health insurance premiums paid by the employer are tax-deductible. There's no deduction for the self-employed, which also discourages people striking out on their own.

Note 7/5/09: Single-payer insurance is not "socialized medicine".

Many who oppose a single-payer insurance system, and even a public option, call such plans "socialized medicine." Nothing could be further from the truth as doctors and nurses would not work for the government (as they do in the military).

Also, I have yet to have it explained why a public option is even viable given the adverse selection dynamic. Those who are dropped by, or driven out by escalating costs, of private insurance will go to the public option. This will drive up public option costs as the insurance companies "cherry pick" those who are the most healthy. This seems likely to be why the CBO estimates of such an option are so high. Thoughts?

Note 6/21/09: Employer-based insurance hurts U.S. competitiveness against other countries with single-payer.

A major reason for single payer is that the U.S. competes with other industrial nations that have it. This means their companies do not bear the cost of health insurance. This is why, for example, a car company would put manufacturing in Canada instead of in the U.S. ... as has happened. This costs the U.S. good manufacturing jobs and contributes to the "trade" deficit that is anti-stimulus that has undermined the U.S. economy.

Unless this is properly addressed by creating at least balanced trade (i.e., zero trade deficit) or, better, a reasonable trade surplus for a time to make up for past deficits, we have a bigger problem to worry about than health insurance: economic survival sufficient to pay for health or anything else.

Note 6/21/09: The dynamic, the "natural law", that makes single-payer necessary is not obvious at all.

On the Thomas Jefferson Hour this a few weekends ago (I think it was show 772), Clay Jenkinson (portraying Jefferson) made several interesting comments something to the effect that:

  • Society and government should be in accord with natural law.
  • Natural law is not created by man, but discovered by man.
  • The most important aspects of natural law are obvious.

I agree with the first and second, but not the third. Many aspects of natural law are not obvious at all.

For example, Akerlof, Spence, & Stiglitz got the Nobel Prize for "discovering" the "adverse selection" dynamic. If it were all that obvious, it wouldn't have been such a notable discovery. Even so, it remains a veritable secret in that I have never heard any mention of it in debates about what to do relative to heath insurance.

Being in accord with this effect of "natural law" is absolutely necessary for a functional system, so the absence of "adverse selection" from the debate is rather amazing. Is this because of ideological blindness and political correctness that dares not challenge "free market" fundamentalism? "Market forces" do not operate properly to regulate supply & demand when we ignore natural law.

While a single-payer system is the only workable approach -- other developed countries have adopted it -- we hear it characterized as (gasp) "government-run health care." This is obviously false, because doctors would not work for the government. We also hear the argument that "we don't want government between us and our doctors." But what we've got now are "corporations between us and our doctors," charging high premiums to determine who not to cover, to determine what treatments to not cover, and to pay CEOs exorbitant amounts (e.g., William McGuire's $1.6 billion stock options). See more examples at The Health Insurance Mafia Deserves a Good Screwing by Bob Cesca 6/10/09.

Turns out, humans are terrible at systems thinking. And many humans, especially those of the libertarian variety, won't recognize systems effects at all. There's a word for those out of touch with reality; they're called "insane."

Health Care Dynamics ... why the "free market" fails

An important point for those who have an irrational fear of collective solutions (socialism): It's not simply socialist to implement a single-payer health insurance system that works and scrap a privatized health insurance system that does not work. It's pragmatic.

Here's a list of reasons:

Adverse selection: Healthy people take the risk that they can do without insurance, leaving the less healthy in the system. Premiums rise and again the most healthy, as well as many who just can't afford it, drop out. The rising premiums and increasing dropouts of the healthiest is a reinforcing feedback that causes a death spiral.

Adverse selection causes havoc in a market economy because of asymmetric information, in this case because the buyers know their health situation better than the sellers. The understanding of this phenomenon is so important that those who developed it (Akerlof, Spence, & Stiglitz) were awarded the Nobel Prize in 2001.

Unfortunately an awareness of its impacts has not sufficiently worked its way into the political realm. It explains why a privatized insurance-based prescription drug proposal would fail. People who know they don't have as much need for prescription drugs will drop out ... and the death spiral begins.

Though adverse selection is the fundamental driver of system failure, other effects accelerate it.

Dropouts get sick: Some take a risk, betting they won't get sick, and don't get insured. Others simply can't afford it. Some lose the bet and get sick. The logical outcome in a pure free market system would be to just let them sicken and die. Thankfully, for the most part, our society is unwilling to do so. They often get some kind of government-funded care with many going to emergency rooms for treatment. The costs, some excessive, are passed on to the public in higher taxes, and to businesses in higher premiums, as much as 15 percent higher.* The higher taxes and higher premiums to businesses cause even more people to drop, or be dropped from, coverage. This reinforces the death spiral.

Loss of positive externalities: We don't take advantage of them. For example, when you spend money on your heath care, it benefits me. First, because I'm less likely to get sick, and, second, because if we work together, I'm going to be more efficient when you're in good health. Therefore, the result is higher premiums, and less income to pay them, when everyone isn't covered.

Short-term orientation: Even though it's a lot more efficient to prevent health problems than it is to treat them once people get sick, all companies, including HMOs, find it difficult to spend now for lower costs in the future. It's much faster and easier to deny care, to save now by not spending on prevention. People denied care often sue, which drives up costs. And, according to a 1999 Institute of Medicine report, To Err Is Human, two studies show that between 44,000 and 98,000 hospitalized Americans die each year due to medical mistakes. This costs lives and also results in lawsuits. So instead of driving costs down by prevention and providing adequate care, our system now drives them up due to the higher costs of treating people after they get sick and legal expenses.
[Another article: How Many Die From Medical Mistakes in U.S. Hospitals?]

Unfortunately, there's a current push to cover up the root causes of the legal problems by taking the determination of lawsuit awards away from juries, who hear all the evidence, and impose one-size-fits-all caps on awards.

In summary, adverse selection, costs being passed on to the public in taxes and to businesses in higher premiums, not taking advantage of positive externalities of health care, a lack of emphasis on prevention, denying coverage, and medical mistakes are causing the death spiral of our health care system.

The market is a powerful mechanism and it works well to solve many, many problems. But there are problems for which only collective, government-based solutions will suffice and for which individualistic, market-based solutions are doomed to fail. Health care is just one example. Market solutions also fail for power production, fisheries, farming, and commons preservation (maintaining clean air and water).

Our society values radical individualism. Our greatest fear seems to be the collective. For example, the ultimate enemy in much science fiction is of a collective nature, as in the Borg of "Star Trek" being the best example, where the loss of individual identity is the equivalent of death. Similarly, we fear collective solutions; they smack of communism. But unless we want to stand by and watch many of our social and economic systems fail around us, we'd better get over it.

We can let go of extremes of ideology and design practical systems. Juveniles neglect responsibilities to the whole, adopting a foot-stomping "I want to do what I want to do" attitude. But maturity requires balancing between the extremes, as does a family that balances between individual needs and family needs.

For a detailed description of the dynamic, see Health Care: A Systems Perspective (173K). This paper is based on an article in The Systems Thinker (referenced in the paper) by Gene Beyt and Sherry Bright  that got me thinking about health care. Gene Beyt, in August 2003 after someone referred him to the paper on my web site, was kind enough to phone to say it’s good work and ask if he could use it in his courses. Sherry Bright, the other author, commented, "I read your article on the plane to visit / benchmark a very busy physician practice. I think you did a terrific job of both capturing and explaining the relationships and feedback loops within the industry. ... It IS that complex. And failing to understand, or at least appreciate, the complexity will lead to continuing failures in managing it."

*Study: 'hidden tax' funds Medicaid.  Businesses pay higher premiums

References: Health Care Stories and Articles includes column above and news stories that illustrate system behavior.

URL: http://www.exponentialimprovement.com/cms/HealthCareDyn.shtml

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