Thoughts on Regulation

James K. Galbraith made an interesting point regarding government regulations of business in his book The Predator State. While government regulations are usually posed as impediments to progress and a general nuisance, he points out that regulation can be the friend of both business and consumer.

"Regulation emerged, reached its high point in the Nixon administration, and survived thereafter because a large part of the business community was prepared to support it. And this was so because while regulation is a burden for some businesses, it is a competitive blessing for others. A functioning structure of regulation is the competitive instrument of the more progressive part of the business community, which wishes—for its own advantage—to force everyone to play by a common set of rules."

Playing by a common set of rules is the critical issue. Say you are a manufacturer of a product that is safe and robustly designed to be reliable and long-lived. These attributes do not come for free; they add to the cost. If there are no rules defining safety standards, then it is relatively easy for another company to come in with an inferior product that is less safe and less reliable, but at a much lower price. The lower cost item will take away some of the business and put pressure on the first business to cut costs to compete, and in the process also put out an inferior product. This competition could easily lead to a situation where the only product available is cheap junk and neither the business nor the consumer is happy. With regulation in place, the companies would have to compete on a basis that does not diminish the quality of the product. It would be more likely that the consumer would get a good product at a good price and that the most efficient company would be able to make a decent profit.

This idea of regulation providing a common set of rules that can benefit everyone comes up in the current debate about financial reform as well as the health care debate. Consider a financial outfit that is trying to be conservative in limiting its exposure to risky by maintaining a reasonable amount of capital to fall back on and cover any losses. It has to compete with an outfit that does not share those concerns, one whose debt-to-capital ratio can be enormous. When times are good that has been shown to be a way to make a lot of money. The conservative firm now has to explain to its shareholders why it is making less money. So it will come under pressure to leverage its transactions more heavily also. The lack of regulation then has pushed all the players into a risky situation. As we have seen when times turn bad they can turn very bad when this is the case.

Similar situations arise in health care. Many states have minimum coverage regulations which define what can and what need not be contained in a medical insurance plan. These are intended to protect the consumer from spending money on a plan that is essentially worthless. A lot has been said about allowing people to purchase out-of-state plans. The reason for doing this is to allow people to shop in states that have the least protection for the consumer. Once again you will have a rush to the bottom in terms of coverage if that is allowed to occur. Federal, nationwide coverage rules would eliminate this downward competition.

Regulation, thoughtfully applied, can be to everyone’s benefit.

The Green Collar Economy: How One Solution Can Fix Our Two Biggest Problems by Van Jones

If one comes to this volume, The Green Collar Economy, looking for a discussion of macro-economic and political issues associated with a failing economy and a ravaged environment, they would not be disappointed. Excellent introductions to these issues are presented by Robert F. Kennedy Jr. and by the author. However, those are not the main focus of Mr. Jones. He approaches these issues not as a politician or an academic, but as a social activist. In his own words:


"We want to build a green economy strong enough to lift people out of poverty. We want to create green pathways out of poverty and into great careers for America’s children. We want this green wave to lift all boats."

Most of the book is devoted to demonstrating that the author’s goal can be reached and to laying out the path that should be followed to get there.

He begins by delivering a thrashing to traditional environmental activism. He describes the first wave of environmentalism as one of conservation in which the rights of the native population were trampled on:


"National parks and wilderness areas were set aside for the benefit of white American tourists.....the conservationists stood up for the most vulnerable places—but not always for the most vulnerable people."

The second wave he refers to as that of regulation.


"The movement to better regulate industrial society was, in its origins, almost entirely the purview of the affluent and white. As a result it failed to see the toxic pollution that was concentrating n communities of poor and brown-skinned people, even after major environmental laws were passed. In fact, some people of color began to wonder if white polluters and white environmentalists were unconsciously collaborating."

These concerns led to the development of a parallel movement focused on environmental justice.


"Since the 1980’s the United States has had a shameful secret: its environmental movement is almost explicitly segregated by race—the mainstream environmentalists are in one camp (mostly white), and the environmental justice advocates in another (made up almost entirely of people of color)."

Mr. Jones’ hope is that the third wave, the green wave, will be focused on all the population.


"The green sector needs to break out of its elite niche and succeed on a broad scale economically. If the green economy remains a niche market, even a large one, then the excluded 80% will inevitably, and perhaps unknowingly, undo all the positive ecological impacts of the green 20%."

This argument drives the structure of the remainder of the book. He discusses how to form a coalition of interests to drive for a "Green New Deal." He points out that many initiatives are already in place demonstrating the potential for energy savings and job creation, but that only the government can scale these types of activities up to the level needed to address our problems. He also points out that it is necessary to have the business community as an active and an enthusiastic partner. "Only the business community has the requisite skills, experience, and capital to meet the needs." Jones provides a detailed and convincing game plan for the next (current) president to use in implementing a green revolution. The most compelling sections are those in which he describes the large number of jobs requiring only a minimal amount of training that can be created and pay a living wage. These were the types of jobs that allowed blue collar workers to send their children to college in the decades after WWII. Jones would like to see that dynamic reproduced here. His warning is that "positive government action is required to steer jobs and investments to areas where they are needed." It is not surprising, given his background and interests that Van Jones was appointed by the Obama administration as "Special Advisor on Green Jobs for the Council on Environmental Quality (He has since resigned that role)."

It was pleasant to encounter a treatise so positive and hopeful. The author threw out a particularly pleasing quote which he vaguely ascribed to the thinking of the native American Indians:

"We don’t inherit the earth from our parents; we borrow it from our children. The earth doesn’t belong to us; we belong to the earth."

The Healing of America by T. R. Reid

This review was written just prior to the passage of the health care bill. Its relevance has not diminished.

This was one of the most interesting and relevant books I have encountered in some time. The author makes two valuable contributions to the discussion of health care issues in the USA. The first is to emphasize that any formulation of a health care strategy must evolve from the answer to this most basic of questions: can society allow a person to die because they do not have the funds to purchase health insurance? Health care is thus posed as a moral issue. The second contribution is to travel the world investigating how other countries have developed systems of care and to report back on the strengths and weaknesses of the various approaches. After having read this book, one will have plenty of ammunition to throw the next time the words "we have the best health care system in the world" are uttered. If you hear: "we don’t want to do things like France/Germany/England/Canada/Switzerland/Japan/Taiwan" you will be ready to pounce.

In the author’s words:

"But the primary issue for any health care system is a moral one. If we want to fix American health care, we first have to answer a basic question: should we guarantee medical treatment to everyone who needs it, or should we let Americans.....die from a lack of access to health care?....Beyond this general ignorance about the fate of the uninsured, Americans have never really carried on an ethical debate about health care as a right—that is about which inequalities we are willing to tolerate."

Mr. Reid performs a valuable service by reminding us that there is a moral obligation at issue here. While he is persistent in damning the current state of affairs, he lets general citizens off perhaps a little too lightly. He criticizes the Clinton approach as being focused on health care as an economic issue, implying that this was a major reason for failure. He refers to polls which indicate that when presented with the abstract question: "Do you think that everyone has a right to medical care when they get sick"?—a significant majority answer: "yes". He then implies that people would be more in favor of a universal health system if they only understood the implications of not having one. One could just as compellingly argue that people fully understand the implications and have chosen to pursue their own, narrow self-interest. It is useful to evaluate the response of the various demographic groups to the current legislative activities providing the opportunity (threat?) of universal health coverage. There is a narrative that says the administration began by focusing on the need to provide health coverage for the uninsured, a moral issue, but that did not sell well with most people and they had to switch to an approach that essentially answers the question "What’s in it for me?" If this interpretation is correct, it says something rather disturbing about our society. For example, who better understands the need for access to good health care than senior citizens? Yet the unsubstantiated hint that seniors might get a little less in order that those with nothing might get a little bit more sent them running to the barricades. These people might be ignorant when it comes to the details of what is being discussed in Washington, but they know full well that many people without health care are going to die. Shared sacrifice seems to become popular in this country only when it comes with a healthy tax deduction.

Another disturbing aberration demonstrated in the current health care arguments concerns the role of religion. Bismarck described his development of social services, including universal health care in Germany as "a program of applied Christianity." In our country it is the secular segments of our society that are leading the charge towards universal coverage. It seems that the more loudly one proclaims one’s Christian credentials the more likely that person is to be against health care reform. We can’t even do Christianity right anymore.

The author uses a clever ploy to introduce us to health care in other countries. He approaches each country both as an investigative reporter and as a patient. Mr. Reid has a shoulder that was seriously injured many years prior. He is suffering increasing pain and disability from this injury as he grows older. His US doctor has recommended what is essentially a shoulder replacement, a very expensive and somewhat risky procedure. The process of acquiring appointments and the recommendations he receives from the various doctors in other countries would make an interesting story in itself. His approach allows him to interleave the expected statistics and facts with personal stories from the perspectives of both the patient and the health care provider. This strategy yields accounts that are exceptionally readable as well as informative.

The author begins by providing a short summary of the various health care strategies that are available for study.

The Bismarck Model (Germany, Japan, France, Belgium, Switzerland)

This model uses private health insurance plans, usually financed jointly by employers and employees through payroll deduction. The unemployed or those unable or no longer working have these insurance premiums paid by the government. These plans cover everyone and they do not make a profit. Tight regulation of medical services and fees provided the necessary cost control.

The Beveridge Model (Great Britain, Italy, Spain, most of Scandinavia)

In this system health care is provided and financed by the government through tax payments. There are no medical bills. Medical treatment is considered a public service similar to fire or police services. Many, but not all, hospitals and clinics are owned by the government. Most, but not all, doctors are also government employees. Cost is controlled because the government, as single payer, controls what doctors can do and what they can charge.

The National Health Insurance Model (Canada, South Korea, Taiwan)

This system combines elements of the Bismarck and Beveridge models. The providers of health care are private, but the payer is a government-run insurance program that everyone pays into.

The Out-Of-Pocket Model ( countries too poor to provide a national health service)

The rich get medical care and the poor stay sick or die.

The author points out that the US has aspects of all of these models in its convoluted system.

"For most working people under sixty-five we’re Germany or France or Japan."

"For Native Americans, military personnel, and veterans, we’re Britain or Cuba"

"For those over sixty-five we’re Canada."

"For the 45 million uninsured Americans we’re Cambodia, Burkino Faso, or rural India."

Mr. Reid presents a good summary of the shortcomings of the US "system." These facts are not new to anyone who has been following these issues over the past year. His greatest contribution is to shed light on how the systems in other countries actually work. He devotes chapters to the state of health care in France, Germany, Japan, the United Kingdom, and Canada in order to survey all the established models in practice. He finds that all systems work in the sense that they provide an adequate level of care for the entire population. However, each has its own peculiarities and the occasional drawback. He also visits India as a means of discussing areas where out-of-pocket payments dominate. Presented below are some of his more interesting observations and conclusions.

Solidarité

The author first describes this concept in the context of France, but he encounters it in all the developed countries he visits. This term refers to the notion that citizens feel they must stick together to help one another in time of need. The fruit of this concept is the determination to provide health care coverage for every person, no matter how rich or how poor. This goal has been realized in every "rich" country except the United States. Clearly, we do not yet have a universally recognized goal of health care for all, but even more disturbing is the question of whether or not we even have this concept of solidarité.

Cost

Mr. Reid refers often to the table of health expenditure as a function of GDP for the various countries. We lead the pack at 15.3% (2005). France comes in at 11.1% and Japan at 8.0%. The fact that we spend the most and obtain relatively poor results should by now be well known. If we were to provide health coverage for all while maintaining our current cost structure, our percentage of GDP would be even higher. The author describes in detail how each of the countries control costs and what issues arise from each approach. It would appear that every country has similar issues related to the need to control the cost of medical care. For example, France has excellent health care results at much lower expenditure than the US, but the pressure to control costs is perhaps greater. Health care is still an enormous expense for them and increasing expenditures is politically difficult. The tendency is to clamp down on provider fees from doctors, hospitals and vendors. The author was of the opinion that some of the systems had gone too far in controlling fees and they would be better off by increasing their investment somewhat. The lesson for us is that eliminating inefficiencies will not be sufficient. We will not be able to sufficiently control our costs unless we figure out a way to limit the fees charged in our system.

Doctors

Doctors have strikingly different existences in the countries studied. Under universal health care there were strict limitations on what they could charge for a given procedure. This effectively limited their income to what the author claimed was equivalent to a mid-level corporate executive. In other words they could live comfortably but not get rich. There was some grousing about low salaries by the physicians Reid encountered in his travels, but, as Reid points out, there were also significant benefits to being a doctor in the various systems. Doctors in the US generally have to pay their own college and medical school expenses, often leaving them with an enormous debt to pay off after graduation. There is a tremendous amount of overhead required by our system. Doctors must support accountants, insurance specialists, someone to handle their billing, and must pay for expensive malpractice insurance. Besides practicing medicine they must become small businessmen. They can become wealthy, and perhaps assume they have earned the right to become wealthy, but only by charging their patients enough to cover all that overhead as well as their lofty income. In the other countries the cost of medical school was generally much lower and was often paid for by the government. With well-defined rules on treatment there was not the need to worry about whether given procedures would be covered. Reimbursement for services becomes trivial and rapid. Malpractice insurance was very inexpensive and often paid for by the state. In fact, the author did not indicate that any of the physicians he encountered even considered malpractice suits as something worth thinking about. In other words, doctors could concentrate on being doctors, and the system saved a lot of money.

With respect to medical malpractice, there was an interesting study related by Malcolm Gladwell in his book Blink.

"Believe it or not, the risk of being sued for malpractice has very little to do with how many mistakes a doctor makes. Analyses of malpractice lawsuits show that there are highly skilled doctors who get sued a lot and doctors who make lots of mistakes and never get sued. At the same time, the overwhelming number of people who suffer an injury due to the negligence of a doctor never file a malpractice suit at all. In other words, patients do not file lawsuits because they’ve been harmed by shoddy medical care. Patients file lawsuits because they’ve been harmed by shoddy medical care and something else happens.

What is that something else? It’s how they were treated, on a personal level, by their doctor. What comes up again and again in malpractice cases is that patients say they were rushed or ignored or treated poorly. ‘People just don’t sue doctors they like’ is how Alice Burkin, a leading medical malpractice lawyer, put it."

What a concept! You treat people with respect and you gain respect. Perhaps there is also something to this soliderité notion.

Carte Vitale

The author dedicated this book to General and former President Dwight D. Eisenhower. His reasoning was as follows. Most politicians would be afraid to admit that any other country does anything better than we do. As president, Eisenhower had to sign off on the plans for a new interstate highway system. He was presented with conservative extensions of what was currently in place: two-lane highways that went through the heart of every town. Eisenhower recalled the impressive autobahn system built by the Nazis in Germany consisting of four-lane highways with overpasses and ramped interchanges to avoid intersections. He decided that if the Germans had a better idea there is no reason why we cannot copy it. Reid is suggesting that with so many examples of how to do health care better, wouldn’t it be nice if a politician would stand up and say "We need to do it like the French/Germans/Japanese/British..........."

Carte Vitale seems like a perfect example of a better way to do things, one that we would never be allowed to copy.

"This carte vitale—the "vital card," or the "card of life"—contains the patient’s entire medical record.... Imbedded in the gold metallic square just left of center is a digital record of every doctor visit, referral, injection, operation, X-ray, diagnostic test, prescription, warning, etc., together with a report on how much the doctor billed for each visit and how much was paid, by the insurance funds and by the patient. Everybody in France over the age of fifteen has this card—a child’s medical records are maintained on his mother’s card—and it is the secret weapon that makes French medical care so much more efficient than anything Americans are used to.......But the greatest value of the carte vitale is its impact on the payment of medical bills. Each patient’s green card (carte vitale) knows which sickness fund and which private insurance plan covers that patient. When Dr. Bonnaud finishes a consultation and enters that day’s treatment on the patient’s card, he stretches out the ring finger on his left hand and hits the "transmit" key on his computer. With that single keystroke all billing information—how much the patient owed, how much he paid the doctor as a co-pay, how much each of the insurance plans should pay back to the doctor and the patient—is transmitted to each of the relevant insurance plans. With that single keystroke the billing process is finished. ‘I will be paid,’ Dr. Bonnaud told me, with total confidence, ‘in three days.’ The insurance funds are required to pay him that fast, with no quibbles—and they do"

Preventive Medicine

Much has been said about the efficacy of encouraging early detection of problems and healthy lifestyles. Mr. Reid makes a point about the feedback between universal coverage, or the lack thereof, and preventive medicine that is probably not very obvious.

"In a system where health insurance comes with the job and ends when the job ends, the insurer can expect many customers to terminate coverage in a few years. Insurance experts say the average customer stays with the same plan for less than six years, so an insurance executive with his eye on the bottom line has little financial incentive to pay for long term prevention. American health insurance plans sometimes do cover mammograms and PSA tests and similar preventive measures, but they do it primarily for marketing purposes, to make their plans more attractive to corporate customers.

On occasion, the incentives built into the US health care system are downright perverse. Because awareness of preexisting conditions can lead to higher insurance premiums—or outright denial of coverage—some Americans deliberately avoid physical exams or other medical tests for fear of losing their health insurance."

Compare the passage above with this quote from Tony Blair’s health minister in the UK.

"Almost every person in this country is my patient for life. From the minute the line turns blue on your mother’s pregnancy test until the minute you die, maybe ninety-nine years later, you are my patient. If you become ill it is the job of the NHS to treat you, without regard to cost. So of course I want to prevent you from becoming ill."

Change

One occasionally hears the comments like "this is all too complicated to fix" or "it’s just too hard." To counter such attitudes the author studied and visited Switzerland and Taiwan.

"Most important, both Taiwan and Switzerland had fragmented and expensive health care, similar to the American system—until they launched their reform campaigns. In both countries, payment for medical care was dominated by health insurance plans tied to employment; in both, significant numbers of people were left with no coverage at all. Even with large numbers of people uninsured, both countries were pouring considerable amounts of money into health care. In both Taiwan and Switzerland, as in the United States today, a growing chorus of voices began demanding universal coverage, arguing that every sick person should have access to a doctor.

But at that point the parallels end. The big difference between those two democracies and the United States is that, in Taiwan and Switzerland, the advocates of fundamental health care reform eventually won the day. Both of those nations adopted new health care systems to guarantee that everybody would be covered—and both of them happened to do it in 1994, the same year that the Clinton health care plan was going down in flames."

Shame on us!

The content of this book should have had some impact on the development, and selling, of a national health care approach. It is not clear that it did. Perhaps it appeared too late in the process to alter plans that had already focused on rather limited objectives. Or, perhaps, we are not yet a nation whose people feel united by common purposes. A mere two hundred years may not be long enough to form a stable nation.