Solving cost crisis in US healthcare

CONCERN: The biggest fear of Americans about Obamacare is escalating costsOnly govt can ensure all-round healthcare

MANY liberals believe that the Affordable Care Act -- Obamacare -- is unpopular only because most Americans don't understand it. There is some truth to this: studies show that the core provisions of the bill are more popular than the bill itself. But there's also a reason, rooted in reality, why many Americans worry about Obamacare -- its cost.

Most Americans have healthcare. What they worry about is the cost of insuring 20 million to 30 million more people. Unless the meteoric rise of healthcare costs is slowed, a big expansion of coverage might well remain unpopular, no matter how it is explained.

Republican alternatives to Obamacare, such as Rep Paul Ryan's plan, don't bother with expanding coverage, which is a mistake because they leave in place a broken insurance model in which people can freeload. But most do have a strategy to control costs -- get consumers to pay for more of their healthcare. The basic idea is intuitively appealing. Markets produce efficiencies; they presumably would do the same thing in healthcare.

But the situation on the ground suggests that markets work imperfectly in this realm. A new study conducted by the pharmaceutical company, Novartis and McKinsey and Co, shows a stunning difference among countries with regard to healthcare efficiency.

For example, smoking rates are higher in France than in the United States, so the French population has higher rates of lung disease. Yet, the French system is able to treat the disease far more effectively than happens in the US, with levels of severity and fatality three times lower than those in the US. And, yet, France spends eight times less on treatments per person than does the US system.

Or consider Britain, which handles diabetes far more effectively than does the US, while spending less than half of what we spend per person. The study concludes that the British system is five times more productive in managing diabetes.

To be fair, there is one case in which the US does better -- battling breast cancer, where early screening and easy access to advanced treatment make the country the most effective place to tackle that disease. But overwhelmingly, the most effective care for diseases comes from countries with much lower costs.

To understand the issue better, I spoke with Daniel Vasella, the chairman (and former chief executive) of Novartis and a physician by training. He is also frankly pro-market and pro-American, both of which have made him a target for some criticism in Europe.

Vasella emphasised that there was no single model that worked best, but he explained that France and Britain were better at tackling diabetes and lung disease because they took a systemic approach that gave all healthcare providers incentive to focus on early detection and cost-effective treatment, and that made wellness the goal.

 "In America," he said, "no one has incentives to make quality and cost-effective outcomes the goal. There are so many stakeholders and they each want to protect themselves. Someone needs to ask, 'What are the critical elements to increase quality?' That's what we're going to pay for, nothing else."

I asked him whether the lesson he has drawn is that only the government can produce system-wide improvements.

"It pains me to say this as a free-market advocate, but you have to have (the) government act in this case. Healthcare is very complex. Only at a systemic level can you figure out what works best based on the evidence, and what procedures and treatments are not worth the money," he said.

Economists have often written about "the asymmetry of information" -- areas where consumers are not expert enough to be able to determine what product is best. Evidence increasingly shows that this is true of health.

After all, consumers freely make the choice to smoke, eat junk food and forgo preventative care, all of which are highly likely to make them sick, force up their healthcare costs and lower their quality of life.

Having us spend more of the money ourselves is unlikely to solve the cost crisis in healthcare. Washington Post Writers Group

Obamacare supporters celebrating the Supreme Court’s ruling on the Affordable Health Act in Washington recently. The act is unpopular because most Americans do not understand it. AFP pic

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