Healthcare Reform and Socialism

The word ‘socialist’ it thrown around freely as a perjorative any time the subject of universal healthcare comes up. The intent is generally to end the discussion, or to taint it by implication. Socialism is a pretty loaded concept in our society—lumped in with Communism, and the abuses of Stalin and Mao—and getting stuck with this label is often enough to kill an idea in infancy. It’s worth noting though that insurance is an inherently socialistic concept – pooling risk against individual adverse occurences. It’s not by any means beyond the pale to consider putting the entire population into the pool, and insuring them as a single risk group. That is what has been done in every other advanced industrialized nation – including many that one would be hard pressed to seriously label socialist. Once such a population-wide risk pool is in place, no countries have ever considered changing back to a more fractured approach.

That’s not to say that all the other countries have arrived at the same model. The systems vary widely – the one common denominator being that there is one risk group, and everybody’s in it. It is a shame that during what passed for a debate of the US healthcare system over last couple years, none of these other systems were examined at all – other than by disparaging generalizations, shouted angrily, or reduced to bumper sticker length soundbites. Contrast this with Taiwan, which undertook an overhaul of their system in the 1990’s by first examining the best of the other systems in depth, commissioning a major study in which the advantages and disadvantages of each was studied, and designing a system which cherry-picked the best features of the best systems, and fit their culture. As a result, they came away with one of the most cost-effective, service-driven system anywhere.

Population pooling is both theoretically and empirically the most efficient way to approach this problem. Theoretically it’s not unlike investment portfolio analysis – which was my area of focus in graduate school. The most efficient way to eliminate unique risk is to diversify, and the most efficient way to do that is to ‘buy the market’ – which explains the efficiency and popularity of broadly-based, low-management cost index funds. This approach diversifies away all idiosyncratic risk, and forms one risk pool. As with managing index funds, there is no need to employ teams of analysts (underwriters and actuaries), since there is no need to evaluate individual risk. Unlike investment portfolio management, there is no human cost to those entities in which one chooses to not invest.

In practice, I’m sure you are familiar with the cost statistics. We have the most expensive system on Earth. The next most expensive system is the one which is most similar to ours; The Swiss pay about 70% of what we do, on a per capita basis, and cover everybody. But consideration of the cost of living in Switzerland helps put that into context; most countries are much less. And in terms of outcomes, the US is ranked somewhere in the mid-thirties among industrialized nations.

The only people getting much of a bang for the buck here are those in the industry. Our system is characterized by inert highly profitable middle positions, and costly overhead – precisely the problems often associated with government or socialist systems. Every doctor’s or dentist’s office has to employ claims analysts – who have to be familiar with a variety of different claims management systems; one for each insurer with which they work.  And each employer needs to dedicate resources to shopping for and evaluating health insurance for employees, and managing the benefit. This cost is passed on to the patients and their employers. The insurance companies employ people to analyse the claim, and see if there’s any way to avoid paying it.

Neither a person's employer, not the insurance company has fiduciary duty to the insured indivudual.  In both cases, their legal responsibility is to their shareholders.  This often results in policies and claims practices which are not in the best interest of either the patient or the healthcare practitioner.  Whatever one might say about a government run, or regulated system, the stated legal responsibility is to the patient.