What About Reducing the Cost of Healthcare?

There has been much discussion recently of the high costs of healthcare — the fact that, on average, these costs (adjusted for inflation) have been increasing and will probably continue to increase. President Obama has certainly mentioned it while trying to build support for his project of reforming the healthcare industry. But he has also mentioned another, related problem — that so many Americans do not have health insurance or are in danger of losing it — and it seems to me that more legislative energy has been spent on trying to fix this problem than on trying to reduce the cost of healthcare. This is alarming, because the latter problem is a consequence of the former, and a solution to the lack of coverage is likely to become infeasible in the long run if healthcare costs continue to rise.

We should distinguish between two types of healthcare costs: the costs of the actual services (treatments, tests, consultations, etc) and the cost of insurance. Of course, the two are correlated: the cost of insurance will go up when the costs of services do. My contention is that the recent healthcare bills do too little to address the rising cost of health services. If I am correct, then the result of any of these bills, if passed, would be a country that still pays too much for healthcare, although with more people receiving it at the expense of the wealthy.

As for the cost of insurance, the potential effects of the proposals are mixed. Prohibiting insurers from refusing coverage of people with preexisting conditions and from increasing premiums when a customer is discovered to have a medical condition will increase the average cost of insurance, if it has an effect on it at all. On the other hand, requiring everyone to have insurance is likely to decrease the cost, because young and healthy Americans who do not require much medical service will be paying premiums to support old and sickly Americans. Insurance exchanges could also reduce the cost of insurance.

A public insurance plan, or nonprofit cooperatives, would also have a greater effect on the cost of insurance than on the cost of service. In fact, the only way I can think of that a public or nonprofit plan could reduce the cost of medical service is by enrolling so many people that it would have the clout to demand lower prices from service providers. But this approach would only go so far: push too much, and service providers will just stop providing service.

It is not clear that any of these proposals would lower the cost of even insurance (for individuals or employers not receiving subsidies), let alone medical service. But even if we all switched to the same government insurance plan — a plan managed without a profit motive — this country would still face the rising cost of medical service, and the average taxpayer would still pay too much for healthcare.

A Suggestion

I hate to complain without suggesting some solutions, but I unfortunately don't know of a complete solution to the rising cost of of medical service. The best I can do is discuss some things I (and, I'm sure, many others) have noticed about the healthcare industry that may indicate a way to mitigate this problem.

In a typical market, the price of the product is restricted by the ability of the consumer to choose a competitor's less expensive product, and by the fact that the consumer will choose to do without the product entirely if the lowest price is still too high. Remember, though, that in the real world not all widgets are identical, and so the consumer must choose between the less expensive Widget Model XY10 and the more expensive Widget Model XY20. To make a good choice, the consumer must be savvy about these types of products — not savvy about the technical, implementation-level details but about the user-level functions and their utilities vis-a-vis the consumer's requirement.

I believe that, today, in the medical-service market (that is, the market in which patients pay for doctors, medications, procedures, etc.), the consumer is not savvy enough to create this type of downward pressure on prices. Instead, health-insurance companies have become savvy consumer-proxies — second-guessing doctors' prescriptions, only paying for the treatments they regard as effective — which is why we hear complaints about insurance companies interfering in the relationships between doctors and patients. In this way, the insurance companies definitely do contribute to lowering service prices.

Given insurance companies' severe aversion to paying for services, why aren't prices even lower? I hypothesize that health insurance in fact causes overuse of medical services. To be specific: I hypothesize that health insurance causes people to consume (and, eventually, pay for) medical service that they would not consider to be worth the price if they had to pay out of pocket. A caveat: This hypothesis applies to the average health-insurance customer, who gives more money to the insurance company than the insurance company spends on him. Please note that the average health-insurance customer is still paying for all of his medical service: this hypothesis implies that, if the insurance were taken away from him, he would choose to purchase fewer medical services.

If this is true, how does it contribute to high service costs? Insurance companies can root out many unnecessary or ineffective treatments, but they cannot determine whether the benefit to the patient makes a service worth the cost — because that judgement can only be made by the patient. Therefore, if the service is not too bizarre, they'll just pay for it (as they are obligated according to the contract). Now, imagine that a neighborhood clinic purchases its first CT scanner; when a patient with a potential concussion sees a doctor at this clinic, the doctor can now offer to do a CT scan to check for bleeding in the brain. The doctor has no idea how much it will cost the patient or the insurance company, and so cost does not enter the conversation with the patient. So the patient evaluates the option of doing a CT scan in terms of the benefit (possibly preventing the patient from dying of a brain hemorrhage) versus inconvenience and discomfort. Price may have a part in the evaluation, but it would be greatly reduced to the form of a copayment or coinsurance. The result is that manufacturers and doctors are encouraged to minimize discomfort and inconvenience and not the cost of the service.

I am not claiming that my hypothesis is correct, but I think that it is probable and helps to explain the high cost of medical service. If it is true, then it implies that the cost of medical service will be reduced if the people who are currently overpaying their insurance companies were to instead pay most of their medical costs themselves at the time of delivery (everything else equal).

I am also not claiming that this hypothesis, if correct, accounts for the only cause of the high cost of medical service. There are definitely other factors, which many other people have pointed out: for example, the need for doctors to purchase malpractice insurance, and the incentive for doctors to overprescribe treatments and test.

Where Morals Come From

Ever since I read Ayn Rand in high school, I've been interested in ethics. One of the particular issues that I've often thought about is the difference between behaving selfishly and behaving selflessly. I have long suspected that there really isn't much of one.

Let's contract two hypothetical examples. Example 1: A man, who is both a father and a husband, neglects his family by spending too much time at work, which he enjoys very much. He would earn enough money to provide comfortable affluent lives to his family if he worked regular hours; he just chooses to work more. (His job is "ethically neutral" --- e.g., a songwriter --- and not something like a surgeon.)

Example 2: A very serious hurricane is approaching a neighborhood, and it is understood that it will cause much damage and probably kill or injure anyone left in the area. A mother is anxiously driving to her house in the neighborhood to pick up her children and move them to a safe place. She cannot find them immediately and so spends an hour looking. While she's looking, she sees a few people from her neighborhood who also need rescued, but it would not be possible to fit all her children along with any extra people into the car, and rescuing them before finding her children would increase the risk that she would not find her children before the hurricane arrives. She chooses to continue looking for her children.

Example 3: A politician appoints family members to important positions instead of other people who are more qualified. He does this not because of any obligation to them or fear of reprisal but simply because they are members of his family.

How would you explain the behavior in these examples?

I believe that most people would call the behavior of the man in example 1 "selfish". He chooses to do something because he enjoys it, and he does it at the expense of other people. Moreover, by neglecting his family, he is failing to perform what many people would feel is his duty -- namely, to provide enough personal attention to his wife and children.

Example 2 is more subtle. The choice that we are interested in is the one between single-mindedly searching for her children and spending time to rescue neighbors before she finds her children. This choice can be described as a choice between, on one hand, decreasing the risk of disaster for her children at the expense of adding to such a risk of her neighbors and, on the other, spreading this risk more evenly among her neighbors and her children. She chooses to minimize the risk for her children. If you were one of the neighbors whom this woman declines to rescue, would you call her behavior "selfish"? The fact that she is looking for her children and thus putting her life at risk might make you call her behavior "selfless", but what about her choice between her children and her neighbors? What motives are behind it? Obviously, one of them is love for her children. Perhaps another motive is her knowledge that she will be miserable if her children die or are badly hurt. Is she any less selfish than the man in example 1? She wants to search for her children; she does not want to die, and perhaps she wouldn't say that she would not want to live without her children, but she is willing to risk her life to try to save them.

Example 3 is similar to example 2: the actor makes a choice that favors a few people who are family members over more people who are not related. Example 3 also shares a feature with example 1: the actor fails in what many would consider to be his duty --- in this case, his duty to act in the best interests of the public or his constituents. This example is interesting to compare with example 2, because I would bet that most people would condemn the politician but would not condemn the mother. But why? Let's look at the politician's motives. The most obvious one is his love or at least affection for members of his family. Is his behavior selfish? Does it make a difference whether it is selfish to our judgement of it?

I believe that the behavior in these examples cannot be usefully explained by different degrees of selfishness --- that is, concern for one's own welfare at the expense of the welfare of others. It is not even clear just how selfish the alternatives in examples 2 and 3 are. Instead, I believe that this behavior can be explained in part by a set of values possessed by the actor, where some values have greater degrees than others.

In example 1, the man probably values his wife and children --- that is, he wants them to be happy, and he enjoys spending time with them --- and he definitely values work. In just so happens that he values work more than his wife and children. Many of us will find this deplorable, but that's either because we were socialized to believe that his priorities should be the opposite or because we ourselves value our own families more than our work, or both. When we value our families, spending time with them and making them happy makes us happy. For this man, work makes him just as happy.

Examples 2 and 3 make this set-of-values hypothesis most obvious. In example 2, the mother's decision is caused by the higher value she places on her children --- on their welfare. She is not doing it because (or only because) she feels obligated. In example 3, the politician has a similar set of values, only this time his value for his family is much more extreme than the mother's value for her children, because (I could argue) the harm to the public that he causes, relative to the benefits to his family, is greater than the harm (or, more precisely, the risk) to the neighbors caused by the mother, relative to the benefit to her children. That, I think, is why many of us would condemn his behavior.

This idea --- that behavior can be explained in part by these sets of values --- is definitely not my own. In a way, it is quite obvious and a common theme in much "folk-psychological" explanations of behavior ("He does this because he cares about that."). I think that my very good friend, Walt Mandell, made the importance of values in guiding behavior clear to me. But I have come up with a different description of how our most intimate and important values are realized, which does not contradict but rather adds to the set-of-values model. I will present this description now.

We feel sympathy with the people we love or care about --- the people we value. We share, to different degrees, their feelings of happiness and sadness, and even (in a way) physical pain. We even share the "pain" of our possessions --- haven't you ever cringed after accidentally scraping the side of your car, as if you had just scraped your own arm? We feel incomplete when our close family members, friends, and pets are away or die. It is as if we consider these people, animals, and objects as parts of ourselves. I would say that, in fact, the things we cherish the most do in fact become parts of ourselves, for all practical purposes. Why do I say "for all practical purposes"? Because this qualifier is what make my proposition meaningful rather than mere poetry. I claim that our behavior regarding the things we value the most is the same as our behavior regarding our own bodies and minds.

As I said, I came up with this idea on my own, but I was happy to see that Douglas Hofstadter has come to some very similar conclusions, albeit not specifically to explain behavior or ethical choices. These conclusions are expressed in his book I Am a Strange Loop, and he illustrates them with a description of his feelings after his wife died suddenly:

One day, as I gazed at a photograph of Carol taken a couple of months before her death, I looked at her face and I looked so deeply that I felt I was behind her eyes, and all at once, I found myself saying, as tears flowed, "That's me! That's me!" And those simple words brought back many thoughts that I had had before, about the fusion of our souls into one higher-level entity, about the fact that at the core of both our souls lay our identical hopes and dreams for our children, about the notion that those hopes were not separate or distinct hopes but were just one hope, one clear thing that defined us both, that welded us together into a unit.... I realized then that although Carol had died, that core piece of her had not died at all, but that it lived on very determinedly in my brain.

With this description of how our strongest values are realized, I think to think that our behavior, at least toward family and friends, is often (or always) selfish. And that is the way it should be. I (and I think many others) admire people for their values (I guess we value their values!). Imagine that the man in example 1 were to start forcing himself to attend more to his family (perhaps out of guilt and a sense of duty), while his true preferences stay the same. Would we then admire him more? How would he compare with a man who truly values his family enough to spend time enough time with them? Are the actions the only thing to be judged, or do the motives affect the verdict? In the end, we admire people who have same or analogous values as our own. (By "analogous values", I mean values like ours except applied to the other person's situation. For example, we can admire someone who cares about their family more than they do about our own, and we do the opposite.) I condemn people who defraud others not because they are "selfish" but because their "self" does not incorporate those other people --- they do not value them as much as I do. But by understanding what they do value, I can understand their behavior.

Math in Theoretical Physics

I have a casual interest in cutting-edge theoretical physics, which causes me to read books like Lee Smolin's The Trouble with Physics. Unfortunately, I do not have enough training in either theoretical physics itself or the math involved in the most interesting stuff (e.g., particle physics, string theory, quantum gravity) to get a full understanding of any of the parts of it. That's why I hope that the approach to the current problems that turns out to be correct happens to be the one with the easiest math. In other words, please not string theory.