Principle based policy

Democrats and Republicans have delivered agendas that seem to cling to traditional view points in the healthcare policy debate. The best way to resolve the stalemate and move forward is to first agree on the principles and then create actions that will deliver them. However, observations are not principles. For example, an observation that healthcare costs are rising faster than inflation is an observation but that does not in itself mean that there is something wrong. More controversially, the observation that the healthcare in the US is 1.5 times more expensive than elsewhere and that the life span of an average American is about the same as well developed countries also does not mean that there is something wrong. A focus on the metric of costs (i.e spending per capita, growth-rates etc.) may not lead us to the principles that could be used to reform the system. The reason neither current spending nor growth mean that the system is broken is that it could be driven by number of factors including a proclivity to use excess healthcare, a lack of focus on the maintenance of health and a faster growth in the value of life,  in addition to market failures such as monopolies, fraud and legal architecture.

Thus, it is important to have the principles laid out first. The following may be a good place to start.

(a) Any system will be inefficient if the participants do not have the right incentives for optimal behavior. In this case, patients, providers and payers all have to have the right incentives to maximize the health of the individual and the value to society.

(b) Any system that does not incorporate available and more efficient technology will be more expensive to operate. All participants, thus, also have to have the right incentives to maximize health while simultaneously minimizing costs by the application of available technology.

(c) Individual utilities are different – and each individual will have a different way to maximize his/her utility. Thus selection choice is an important aspect of healthcare.

(d) Healthcare – is a fundamental attribute of society and has to be available to everybody.

So, the problem to solve is the provision of a choice for healthcare to everybody that will simultaneously maximize value to society and minimize overall costs. It sounds intimidating but it is eminently doable. The one attribute that will help in the design of such a new system is incentives.

In the acquisition of healthcare insurance, the market for payers should be competitive. Currently there is a plethora of market failures, such as monopolies and restricted access across state boarders, in this arena. So, the first task is to remove all known market failures and make the insurance business completely competitive. In doing so, it will drive out incompetent and inefficient companies who currently hide behind regulation and market failures. Such a process will ultimately upgrade this industry to the 21^st century technology.

The providers should have an incentive to maintain the health of the patient and do so without fear of being sued for unknown technicalities. This will require a significant modification to the legal architecture as well as a capitation based payment scheme. Finally, the patients should have the right incentives to acquire healthcare insurance and maintain health. This may require penalties for non-compliance and modification of life style.

Any design without the consideration of these principles will be a band-aid that will let the wound fester under a cosmetic cover.