Last week I reviewed the book Rich Like Them.  Last week’s winner is Angie.  Please contact me Angie at living almost @ gmail dot com!  This week I’m reviewing a short book called Crisis of Abundance: Rethinking how we pay for healthcare by Arnold Kling.  It’s asking us to rethink health insurance in the USA. I think a very interesting read and while it’s not what I normally think, it’s very thought provoking.  Again these opinions are those of the authors, and this is a book review. I am summarizing my take on the author’s opinion and words.  Please do accuse me of feeling this way, this is not my opinion but a biased review.  But for a chance to win the book, please leave a comment!  I will draw the winner next week!

Chapter 1 -The Rise of Premium Medicine

What is premium medicine? The author describes it as medicine that utilizes both more physical capital (MRI machines) and human capital (specialists).  It’s the current evolution of our health care in the US.  We believe that we should be able to solve any medical problems.  30 years ago it was either go home and see what happens or just treating a person with standard care.  That solved 98% of the cases.  Today we try to solve 100% at a much higher cost of ruling out every little thing.  This is because we have abundant medical resources and don’t worry about cost.  Thus “premium medicine”.

Chapter 2 – Three Health Care Narratives

The three narratives the Dr. Kling wants to talk about is

• Private Health Insurance doesn’t work
• Health Care Providers Overcharge for their services
• Premium Medicine accounts for most of the rise in health care

He starts out by saying people might think private insurance doesn’t work because the only people who buy insurance are those who need it.  The truth is with the rise of employer provided coverage, most Americans are not covered by private insurance, thus it’s not really the reason health insurance is so exorbitant in this country.

Second, yes the share of US Gross Domestic Product spent on healthcare by far outstrips other countries spending.  But it isn’t that out costs are that much more than say France or Canada.  What’s the difference? How many specialists we see and how often we go to the doctor that causes the difference in paying provider’s services.  We use services at nearly 2x the rate, so of course we spend more.

Finally, this is the author’s reason for higher health care costs, the rise of premium medicine.  This he says is in direct correlation with the previous argument.  People go to the doctor for everything all the time.   Yet the US does not have significantly longer lifespans than most other westernized countries.  At least for what we pay.

Chapter 3 – Dollars and Decisions

This chapter talks about how medicine is mostly a subjective area.  Most health care services are neither absolutely necessary or absolutely not.  It’s a decision for the physician to decide if the costs are worth the benefits.  Cost-benefit analysis is a difficult thing and subjective even between people.  He asks what is the most cost effective way to scan for colon cancer?  Non-invasive imaging is substantially cheaper but only 80% success instead of invasive colonoscopy for 90% detection rates?  Shouldn’t it be the cheaper method that catches nearly as much?  That’s the question here, what is the cost benefits?

An example he gave is maternity.  He said what would happen if we had to pay out of pocket for maternity care?  If we had to pay for the actual delivery of the baby?  Would women stop having unnecessary c-sections?  Would we not use drugs?  He says maternity shouldn’t be covered under the major insurance because it’s a known cost.  You would shop around and use a doctor who is good and cheap for an emergency c-section.

Chapter 4 – No Perfect Health Care System

Dr. Kling’s opening statement is “Any health care system must reflect a compromise of preferences.  We cannot have health care that is both accessible and affordable while insulating the consumer from the cost.”

Truly that is the issue.  In most countries around 20% of the cost of medical procedures is carried by the consumer.  In the US the number is around 14%.  So 86% of the cost is carried by the government or insurance.  He makes the argument that when someone else is paying (like in the US) no one care about cost.

Thus out of the three we have to decide which two are the most important.  If we want unrestricted access to medical care we might have to give up affordability or insulation.  We will have to start caring about the costs.  If we care only about the costs, we will have to give up unrestricted availability of services like other countries.  Nothing in life is free, and this as well.

Chapter 5 – Insulation versus Insurance

In this chapter Dr. Kling talks about whether or not we should be aware of the costs of our health care.  He says that because we are “insulated” from costs, that allows us to override any “gray” area decisions regarding healthcare.  Instead we make health care decisions based on what we feel is best, not necessarily cost-effective.

He makes the suggestion that insurance as we know it should go away.  Instead we should have insurance only for catastrophic or large expenses.  This way we would apply the laws of supply and demand to health care.  He says currently people consume  a lot more health care because we don’t care about the cost.  He likens it to eating at a buffet.  We eat whatever we want because we paid a set price, like medical care.  We paid out 14% and premiums so we don’t care about the rest of the costs.

Doctors actually prefer insulation.  This way they can cover all their bases.  No one can accuse them of malpractice and they’ve covered every angle.  If it were on a pay as you go basis, people would what to know what they are paying for, and what it will tell the doctor, and if it’s relevant and necessary.  He suggests that we consider moving to an individualized system.

Chapter 6 – Matching Funding System to Needs

He suggests that the government only care for the very poor to lower their burden.  Everyone else can buy their own insurance for only extreme coverage.  Then most medical expenses would be paid for out of pocket by the average person who is not sick or poor.  He would stop all employer provided private insurance.  Instead all basic costs would be covered by the individual and we would be required to save for old age.  We would NOT have Medicare.  Instead only Medicaid for those living in poverty level situations.

This would allow the poor to pay less out of pocket. It would also allow those who care about finances to pay less than those who value their health.   Also it might cause the average person to stop “overconsuming” medical care.  Instead we would only use absolutely necessary care.

Chapter 7 – Markets and Evolution

This chapter focuses on why capitalism is efficient.  Dr. Kling believes it would better to move in the direction o a decentralized market.  That we need to change our culture preference for insulation.  We need to become aware of costs of health care.  He says that markets learn what is efficient and what is not, thus it’s constantly changing and learning.  This changes in value would drive innovation. We would seek to lower the price of health care while still keeping the quality high.

Chapter 8 – Policy Ideas

This chapter he talks about a few different policy ideas.

1. Shift health care spending for the elderly from government to individuals
2. Encourage innovation and efficiency in the health insurance market
3. Encourage innovation in the provision by deregulating the health care sector

These are very big goals.  And he has specific subpoints for each.  For the first one he suggests raising the medicare age, encourage health savings accounts, reduce incentives for medicare, and establish medical guidelines.  For the second he suggests treating employer provided health insurance as taxable income, eliminate barriers for health insurance across state lines, and elimite limits on catastrophic health insurance.  For the final point, he suggests moving towards a single system of accountability and technology.  There is too much overlap and administrative work.

Conclusion

I thought the book laid out an excellent argument for deregulating the current American health care system. It pointed out what most of us take for granted about our “paid” for health care and insurance.  Does it change how I feel about an individual payer system versus a single payer system?  No.  I am still of the belief that socialized medicine is a basic right.

But the book explains why a true free market capitalistic health care can happen in the US.  That it is feasible to afford quality health care if you paid for it 100% out of pocket.  That we would be cognizant of costs and shopping around.  That we would be responsible for choosing what medical procedures are absolutely necessary versus just investigative.  But I fully disagree about costs in some cases.  How many women out there would pick a doctor to delivery their baby on cost?

But the truth is until we see how people fare without Pensions in the US, I doubt we can afford to go this route.  Right now with Americans barely saving for retirement on their own, how do we expect people to save to pay for their own medical care period?