America’s health care catastrophe

We know very well a married couple who traveled in spring 2013 to vacation in Ireland and England. While on the first part of their trip, in Ireland, each of them contracted a bad case of influenza, part of the flu epidemic of 2013, which is considered the worst in recent history. The symptoms started with a sore throat and headache followed by a runny nose and significant fever combined with extreme fatigue that made even getting out of bed a chore.

As soon as our friends arrived at their hotel in London, they asked for referral to a doctor. The hotel’s concierge referred them to a small medical group where they were able to get an immediate appointment. 1 A lady doctor examined them both, said she was confident in a diagnosis of the then current flu, prescribed ampicillin 2 and handed them the medicine in her office. Before leaving the medical offices they paid for the service, as the physician was in private practice and was not working in Britain’s National Health Service.

The husband of this couple said the experience reminded him of treatment by his family doctor as a child, when he came down with pneumonia. The family doctor, also a lady, came to his home, examined him and gave him penicillin, which she described as a new “wonder drug.” 3

This kind of prompt and effective medical service was once the norm, but has become unusual in early 21st century America, where the medical profession has acquired the reputation of having the worst service of any industry or profession. In Britain’s National Health Service, one can get an immediate appointment in case of emergency, but the doctor is prohibited from discussing any other medical concerns; there is a one condition per appointment rule; if the patient is referred to a specialist there is usually a wait which may take months. 4

In America, since the 1950s remarkable deterioration in customer service in medicine has been accompanied by continual escalation of the costs of medical services. The two are related. The factors which have caused ever higher costs for health care have also caused ever deteriorating quality of customer service.

Andrew Galambos remarked frequently that a medical customer is called a “patient” for good reason: patience is required while waiting for medical service.

An extraordinary new book by David Goldhill shows the way to solving the problems of poor customer service and health care expenses that threaten to bankrupt the people of America and the federal and local states. The book is Catastrophic Care: How American Health Care Killed My Father—and How We Can Fix It (Alfred A. Knopf, 2013). David Goldhill is a business man, CEO of The Game Show Network, who earned degrees in history at Harvard (BA) and NYU (MA).

There is another fine book that came out just before Mr. Goldhill’s Catastrophic Care. It is Priceless: Curing the Health Care Crisis (2012) by John C. Goodman, Ph. D., who is highly qualified to analyze the financing and other problems of American Health Care. The basic premise of Dr. Goodman’s book is the same as Catastrophic Care, namely that false beliefs about health care have eliminated normal market forces from American health care, making it almost impossible to solve problems in health care the way they are solved in other markets.

David Goldhill’s book describes a solution for the health insurance mess America is in—with some 18% of America’s production and income 5 being consumed by health care expenses and with some people paying nearly half their income for health insurance and other medical costs. Mr. Goldhill’s solution is one that the people of America may well embrace after (1) they fully appreciate what a financially disastrous monster America has in health insurance, public and private, (2) that insurance can work only if it is designed to share the risk of catastrophic events that are unlikely to occur to many people in any one year, and (3) that insurance cannot work if it is used to process and pay claims for relatively routine expenses.

That Mr. Goldhill could devise a feasible solution to health care finance provides good cause for optimism that Americans can surmount the ideological differences that have made health care a contentious political issue. He says:

“I’m a Democrat and once held views about health common in my party. But the more I’ve looked at our system, the more I’ve come to believe that the obsessions of our political debate—universal access, health insurance regulation, cost control—are irrelevant to the real problems that have created our mess . . . [D]espite more than sixty years of government efforts—representing the work of both political parties—we are moving further and further away from what we want. Prices are higher, more people are excluded from needed care, more excess treatments are performed, and more people die from preventable [medical] errors.”

NOTE: Unless otherwise indicated, all quotations herein are from Mr. Goldhill’s book. Assertions of fact and opinion not delimited by  quotation marks are those of Mr. Goldhill, either nearly verbatim or paraphrased. 

Malcolm Gladwell, bestselling author and staff writer for The New Yorker since 1996, said 6 in a televised interview of Mr. Goldhill, “I think this book is really quite extraordinary. Since reading it I have not stopped thinking about it. It had the effect of turning my own ideas about health care completely on their head.

“I’m Canadian. I was a dyed-in-the-wool universal health care guy. And now I’m not any more. I don’t really know what I am. All I know is that something in this book has dramatically up ended my carefully received wisdom about health care. . .” 7

Mr. Gladwell wrote an endorsement for the book that says “David Goldhill has written a devastating and utterly original analysis of what has gone wrong with the American health care system. Read it, and take a deep breath. He will convince you that our ‘solutions’ are not solving our problems. They are making our problems worse.”

David Goldhill’s own ideas about health care changed after his father’s terminal illness. Goldhill’s father was 83 years old and still active in his profession of psychiatry in a suburb of New York City when he came down with a respiratory problem. Mr. Goldhill says of his father’s last illness that Dr. Goldhill “. . . died from a hospital-borne infection he acquired in the intensive care unit of a well-regarded New York hospital. Dad had just turned eighty-three and had a variety of the ailments common to men of his age. But he was still working the day he walked into the hospital with pneumonia. Within thirty-six hours, he had developed sepsis. 8

“Over the next five weeks in the ICU, 9 a wave of secondary infections, all contracted in the hospital, overwhelmed his defenses and caused him great suffering.

“Have you ever had a loved one stay in a hospital for an extended period? If so, were you shocked at how much time your family needed to be physically present to prevent mistakes—both big and little ones . . . My father was taken twice for medical procedures meant for other patients, suffered the same tests multiple times, missed doctor and nurse visits, received incorrectly filled prescriptions, and so on. I now know our experience was typical, not unusual. Even more shocking is how many physicians confirm the need for family members to be present as much as possible to prevent such errors.” 10

Near the end of Dr. Goldhill’s stay in the hospital when it was clear that his life could not be saved, his family made the heart-rending decision that he should be made as comfortable as possible, meaning that he should be allowed to die without further medical intervention. The night before his father died, his son David was at his bedside when a technician came to take a blood sample. Even after David told him the decision had been made to let Dr. Goldhill die the technician insisted on taking the blood sample because it was required by the rules of the hospital. David had to block him physically to prevent him from drawing blood from his dying father.

“Keeping Dad company in the hospital for five weeks was an eye-opening experience. While the facility’s diagnostic equipment was state of the art, the technology used to record that diagnostic information and track the patient was less sophisticated than the desktop computer at my local Jiffy Lube. . . The patient’s trash was picked up only once a day and often only after overflowing onto the floor. . . We saw little or no effort to make the hospital room cheerful or even moderately comfortable. 11

“And whose needs are served by the bizarre and unpredictable scheduling of hospital shifts, assigning an endless string of new personnel to care for a patient?

“. . . [A]lthough his death was a deeply personal and unique tragedy for me and my family, dad was merely one of a hundred thousand Americans who died that year as a result of infections picked up in the hospital . . . The hundred thousand deaths from infections are compounded by a litany of routine mistakes that create preventable blood clots, drug dosage and prescription error, and any number of oversights. All this adds up to an estimated two hundred thousand Americans killed each year by medical mistakes.” 12

“A few weeks after my father’s death, The New Yorker ran an article by Atul Gawande 13 profiling the efforts of Dr. Peter Pronovost to reduce the incidence of fatal hospital-borne infections. 14 Pronovost’s solution? A simple checklist of ICU protocols for physicians and nurses governing hand washing and other basic sterilization procedures.

“Hospitals implementing Pronovost’s checklist achieved almost instantaneous success, reducing hospital infections by more than half. But many physicians rejected the checklist as an unnecessary and belittling intrusion, and many hospital administrators were reluctant to push this simple improvement on them.” 15

Mr. Goldhill’s mother received a statement from Medicare showing that the total hospital charges for her husband’s five-week stay in the hospital were roughly $670,000. In his interview with Malcolm Gladwell, David Goldhill commented that a charge of $670,000 for killing a man was the kind of thing that outside of the health care industry, one would expect only from the Mafia.

In the Malcolm Gladwell interview Goldhill compared the $670,000 Medicare statement of charges for his father’s hospitalization to a hypothetical alternative. In this alternative

  • Mr. Goldhill would take his father not to a hospital, but rather would install him in a large room at the Four Seasons Hotel in New York, a luxury hotel, where the daily room charge is around $1,000 a day, about the same as the daily charge for a private room at the hospital where his father died.
  • He would arrange for two hours a day of medical supervision, in the hotel room, by qualified doctors.
  • He would arrange for round the clock nursing care.
  • He would fill the room with a million and a half dollars’ worth of hospital equipment which he would rent.
  • His father’s food would be provided by hotel room service.

The total cost of this hypothetical alternative: $160,000, or less than one-fourth of the hospital charges reported by Medicare.

Goldhill says that nobody pays such outrageous hospital charges. Medicare does not. Insurance companies do not. But if someone without insurance has such a charge from a hospital, the hospital will hound them relentlessly, sometimes even to the point of bankruptcy. Note: According to a physician who works in administration of a large hospital in Southern California, some hospitals may agree to settle for the patient paying what Medicare would pay for the same hospitalization.

Goldhill believes that the only purpose of the statement from Medicare was to show his father’s family how lucky they were to have Medicare take care of his father’s expenses.

Nevertheless, despite the catalog of horrors described above, in looking for an explanation for his father’s death, Goldhill does not blame the physicians, who he says were “smart, thoughtful, and hardworking,” nor the nursing staff who were “without exception . . .dedicated and compassionate.” 16

The September 2009 issue of The Atlantic published as its cover story an 11,000 word article by David Goldhill entitled “How American Health Care Killed My Father.” 17 It was an extraordinary and implicit tribute to the passion and quality of the article for a journal as prestigious and sophisticated as The Atlantic to publish with such prominence the work of a man whose writing had never been published elsewhere and who lacked academic accreditation in the field about which he wrote.

Explaining how the article came to be published, Mr. Goldhill states: “I had the opportunity to write this book [Catastrophic Care] only because my favorite magazine, The Atlantic, made the courageous (or reckless, depending on your point of view) decision to give an unknown, nonexpert writer  the cover for an unorthodox take on the day’s most contentious policy issue.” 18

The Dean of the Medical Faculty at Harvard University, Jeffrey Flier, was so impressed and energized by Mr. Goldhill’s article in The Atlantic that he invited Goldhill to speak at a symposium on Health Care Reform at Harvard in January 2010.

Flier wrote an endorsement of Goldhill’s book, which appears on the back of the dust jacket. It says, among other things: “David Goldhill offers a brilliant and much needed antidote [to the failures of the health care system] . . . by calling out with remarkable clarity the numerous, but now almost invisible incentives and regulations that drive the dysfunction of our current system. [The book] provides an illuminating framework for understanding the crisis, and then a path to the kinds of reforms that will surely be necessary.”

Because of his article in The Atlantic Mr. Goldhill soon became a much sought after speaker and participant in meetings of experts on health care policy. Eventually he had to engage the services of a booking agency to manage a plethora of speaking and appearance requests. 19

One such recent appearance was a colloquy with Dr. Ashish Jha at Harvard Medical School in which Mr. Goldhill gave a good account of his position. 20 Introducing the two speakers, Dean Flier said of Catastrophic Care: “It is my view that he [Mr. Goldhill] is taking a perspective on health care that is likely to be informative to those who bother to read it and listen to his discussion.”

David Goldhill’s ideas have won the respect of some influential people. He was recently named a Director of The Institute of Medicine of the National Academies. 21

Nevertheless, as soon as Catastrophic Care appeared in January 2013, it was met by a salvo of criticisms that seem, at least in some cases, to originate in political ideology—particularly the belief that it is corporate greed that is the root cause of health care problems in America. However, some of the critics have their own horror stories of medical malfeasance that reinforce Goldhill’s concerns. For example, the following appeared in a generally unfavorable review of Critical Care in the San Francisco Chronicle. 

“Four years ago, my 69-year-old mother was admitted to a hospital through the emergency room. The plan was for her to start receiving blood-thinning medications to prevent a blood clot that might cause a stroke, and to undergo procedures the next day (a Friday), to correct her abnormal heart rhythm. A hospital bed was unavailable, so she was ‘boarded’ and spent the entire night sleeping on a gurney in the emergency room.

“Only when other patients had been discharged from the hospital on Friday was my mother admitted to a regular hospital bed. Because of the delay, her planned procedures were postponed until Monday. On Saturday, she suffered a severe stroke that would claim her life. She had not received the blood thinners as planned while she spent the night in the emergency room. Key treatments are often missed while patients are boarded this way.” 22

This tragedy illustrates and reinforces David Goldhill’s assertion that patients’ family members are needed in hospitals to prevent errors and omissions by medical professionals. The man who wrote the foregoing description of the circumstances that seem to have caused his mother’s probably needless death was himself a physician. One can only speculate that either he was not present when his mother was being neglected or that he was present and unable to get the hospital staff and his mother’s physicians to take immediate charge of what was clearly a medical crisis.

It is difficult, if not impossible, to do justice, in a brief review, to so original and analytical book as David Goldhill’s Catastrophic Care. However, the following is an attempt to provide a summary that evokes the ideas and qualities of the book, in large part by direct quotations from the text. This summary is based also on remarks of Mr. Goldhill in the above-cited video of his interview with Malcolm Gladwell.

The health care “island”

“Our health care system isn’t an example of ‘socialism’ or ‘profit-driven medicine.’ In fact, it is such a strange beast [for which] . . . the best analogy might be the Galápagos Islands, set so far offshore from the mainland of industrial evolution and economic laws that it has produced odd, anomalous creatures of policy and regulation. Though these products of convoluted laws and rules manage to thrive on the Island of Health Care, they would not survive on the Mainland, where all other industries are forced to compete for their customers.”

On the Mainland high prices, poor quality, and miserable service cause lost customers, lost revenue and lost profits. On the health care island “. . . bad behavior doesn’t produce these bad results; bad behavior is often rewarded with additional revenues, and efficiency is penalized with less.”

Insurance and the Surrogates

“At the heart of [the] perverse incentives [in health care] is insurance. Unlike with anything else in the economy, we rely on insurance as the sole means for paying for everything in health care—from the most routine to the most urgent. Even our government health programs take the form of insurance.”

“. . . [N]ot only is insurance the costliest way of financing our spending, it is the most distortive . . . [it] requires that we turn over our role as consumers to what I call the Surrogates: private insurers, Medicare, and Medicaid. . . Their actions—and our own absence as a disciplinary force in the health care marketplace—create many of the incentives for bad behavior.”

Goldhill observes, for example, that:

  1. Private insurers have no incentive to reduce health care spending. The more that is spent the higher their revenues and profits. Private insurers have an inherent conflict of interest in that they want as much business as they can get, but they also have an incentive to deny claims in order to protect their profits.
  2. Medicare and Medicaid have no incentive to reduce health care spending because they are “entitlements.” Medicare and Medicaid must pay for whatever services the participants choose to partake of, at little or no cost to themselves.
  3. For every two physicians in America there is one person working in the health care insurance industry, public and private, a bizarre phenomenon caused by having routine medical expenses processed through the insurance mechanism rather than being paid for directly by consumers. This alone adds a great deal of cost to the expenses the public must pay.
  4. When individuals pay for health care out of their own pockets, they are far more discerning and prudent in the expenses they incur.
  5. Medicare and Medicaid operate like a giant “all you can eat restaurant,” where the more customers consume the more the state pays, so that the more the customers consume the greater is the revenue to the proprietor. 23

True insurance is generally unavailable for medical expenses

The true function of insurance is to share the risks of events that are unlikely to happen to most people in any one year, but would be catastrophic to those who do suffer such an event. A true concept of insurance operates in homeowners’ insurance, auto insurance, and life insurance.

For example, damage to a house from fire, flood or other events can cause unacceptable loss. Insurance against such risks is relatively inexpensive, so people would be imprudent not to buy such insurance. However, it would be extremely expensive and foolish to buy insurance for the costs of routine maintenance of a house, such as plumbing repairs, painting the exterior, or replacing a roof. All such things can be paid for out of income and savings without undue financial detriment.

On the health care island, insurance pays for routine maintenance. Many people expect their medical insurance to cover visits to the doctor for a bad cold, acquisition of prescription eyeglasses and the cost of prescription drugs. In large part that is what drives up health care costs, by making everyone pay for others. That deludes people into thinking they are getting medical treatment at low cost, or even without cost. This misuse of insurance for payment of most medical expenses encourages profligacy and discourages frugality.

The worst customer service in the world

Goldhill points out that in health care we all put up with terrible service that we would not tolerate in any other activity. His father’s time in the hospital was an example. He provides others. Waiting time in a doctor’s office is generally far longer than in a dentist’s office. Why? Because most dental service is on a cash basis. Dentists are in competition with each other for business. Doctors on the other hand are getting paid by the surrogates, so they are relatively unconcerned about patients being dissatisfied with waiting.

If someone is planning elective surgery in a hospital it would be desirable to shop on the basis of price and quality. But hospitals do not quote prices to prospective patients. If you go to the hospital you find out the charges after you leave the hospital, and then there is nothing one can do about it but pay what is asked. Hospitals can get away with such conduct only because they are on the “island.”

Insurance companies have terrible customer service. They want the business, but all too often look for ways not to pay off. Of course, they pay in the overwhelming number of claims, but they may give the customer a hard time.

Goldhill describes his pre-adolescent son’s appendicitis as an example of terrible service from both the hospital and the insurance company. When he took his son to the hospital emergency department with the painful symptoms of appendicitis, the father had to fill out similar if not identical forms several times before his son could receive treatment. When he submitted the claim to his insurance company, at first they denied it on grounds there was no showing the appendix surgery was “medically necessary.” This was patently absurd. Eventually the insurance company paid, but not until Goldhill had to argue with them. And he was the CEO of the company that maintained the insurance contract with the insurer.

Prices and the law of supply and demand

On the health care island there are no prices to inform consumers of the real costs of what they consume. This does not happen on the health care island because everyone is operating under the delusion that somebody else is paying for what a consumer consumes.

Goldhill gives as an example the price for an MRI, the acronym for magnetic resonance imaging. Goldhill’s sister-in-law was visiting from her home abroad. As a foreigner she had no medical insurance, but she needed an MRI to determine the nature of an injury to her knee. Her sister, Mrs. Goldhill, called a radiologist to whom she was referred by the Goldhill’s family doctor. She asked the radiologist’s office staff for the price and was quoted $1,200. Mrs. Goldhill made a number of calls to find a lower price for what is, after all, now a routine procedure. After quite a few calls she found a radiologist who said $300, payable in cash, be here tomorrow at 4:00 p.m.

Behind this story is the fact that all radiologists could charge far less than $1,200 for an MRI, but they can get away with charging $1,200 because of insurance. The insurer may pay less than $1,200 but will surely pay a lot more than $300, so the radiologists prefer not to bargain with a medical customer, even one who will pay cash at the time services are rendered.

Off the island, on the mainland, such a thing would never happen. Radiologists would be advertising for customers on the basis of price as well as the quality of their interpretation of the MRI.

Goldhill compares it to the costs of any other service involving already paid capital costs for equipment, such as airline seats. In the market for airline seats individuals can search the internet for the lowest price, and there will be a price that is lower than others if not the lowest. That is because airline customers are paying out of their own pockets. They don’t send their insurance company a claim for reimbursement for air travel.

In the mainland economy prices work hand in hand with the economic law of supply and demand. An increase in the demand for goods or services causes an increase in their prices. Consequently consumers reduce their spending on pricey goods and services and direct their spending elsewhere. This has the beneficial effect of putting a non-coercive, automatically operating ceiling on the price of scarce goods and services; and the further benefit of creating a demand for goods and services that are relatively low in price.

NOTE: Andrew Galambos commented that the law of supply and demand was a law of nature, in that it is natural to humans to operate in the way described by the law of supply and demand.


While public “. . . debate has focused on the vulnerability of the uninsured and the uncovered . . . our current health care system is also a disaster for the insured,” according to David Goldhill. He gives an example of a real employee in his company, called Becky in the book, not her real name. She was hired at age 23 for a beginning salary of $35,000, plus health care insurance. The employer, Game Show Network (GSN) pays $6,000 a year for the insurance and Becky pays $2,000.

From the standpoint of GSN, the company provides health insurance because employees want it. They want it because there is an important tax benefit that came into the tax laws beginning in World War II: employer-paid medical insurance is treated as compensation expense to the employer, and is therefore a deduction from the employer’s taxable income, while the employee receives this benefit tax free. 24 Goldhill calls this a “mistake” in the tax law that has had the perverse consequence of contributing to a real, inflation-adjusted, tripling of health care spending as a percentage of national income, as represented by Gross Domestic Product. 25

Becky, the employee referred to above, was worth $41,000 a year to GSN as entry level compensation, namely her salary of $35,000 and $6,000 of the $8,000 of health insurance. Becky also pays other taxes, including almost 3% of pay for Medicare Part A (hospitalization). 20% of her income taxes actually go to other federal programs of health care.  Mr. Goldhill points out that the federal state spends $400 billion a year, nearly 20% of all its tax revenues, on programs other than Medicare and Medicaid. 26

Local states, such as California and New York spend about 10% of their tax collections on health care. The net effect of all this is that Becky, whose salary is $35,000, but whose real salary is $41,000 from the perspective of GSN, is paying $10,050 into the health care system, almost 25% of her true gross income.

If Becky works 30 years and costs don’t go up she will pay $300,000 into the health care system and then she will pay Medicare premiums taken out of her Social Security starting at age 65. But of course things will change. If she gets married and her income grows as would be expected she will pay more into the system. If she works to age 65 and stays in reasonably good health she will earn $3.85 million over her career and pay $1.9 million into the health care system (half her earnings).

That is right.  It is not a misprint. Half of her income will go for health care costs. If today’s youth continues to have the benefit of employer-paid insurance (which is dubious as discussed below), over their working careers half of their compensation will be in the form of health care costs.

The Beast

Everybody ends up paying for the actual costs of health care, one way or another. A principal form of “payment” is the relentless escalation of costs to society as a whole. Insured individuals and their employers see it in higher insurance premiums.

Medicare beneficiaries do not see the cost escalation because it is obscured from them by federal accounting for Medicare which, in effect, treats unfunded future liabilities as though they never have to be paid for. That is, people who are paying taxes into Medicare, and beneficiaries who are taking out health care benefits do not realize that Medicare is actually the world’s largest Ponzi scheme.

That is incendiary language, calling Medicare a Ponzi scheme. Medicare is widely considered the most popular thing the federal state does. Goldhill says, in effect, if the shoe fits, wear it. The characteristic of a Ponzi scheme is payment of supposed investment returns from new money coming in from other people. That is exactly what Ponzi operator Bernard Madoff did for thirty years or more. 27 The Madoff Ponzi scheme ended, as they all do, when the supply of money coming in from new people was not enough to pay prior participants the supposed “interest” on their committed capital, or even to return the capital.

The federal state has been advised by many credible sources, from the International Monetary Fund to academics, and staff of federal agencies such as the Office of the Comptroller and the Congressional Budget Office, that Medicare and also Social Security are, in effect, Ponzi schemes that must be reformed to avoid a disaster for the state and the beneficiaries of these programs. 28

The author calls health care “the Beast” because its insatiable appetite is consuming more and more national wealth, for example:

  1. Health care spending as a percentage of Gross Domestic Product (GDP) has gone from 6% of GDP to 18% of GDP since the enactment of Medicare and Medicaid in 1965.
  2. Since 1965, at the time of enactment of Medicare and Medicaid, Americans have grown healthier in many ways. Their work is generally less physically demanding and they retire earlier on average, they smoke less, they drink less alcohol, and eat in a healthier way. Therefore, it is paradoxical for health care costs to have escalated so much while the population was becoming healthier because of factors other than health care.
  3. Projections of federal agencies such as the Congressional Budget Office indicate that health care spending will continue to increase, taking more and more of the people’s incomes.
  4. As of 2012 the current administration (the executive branch headed up by the President of the United States) projects that over the thirty years starting with 2012 total compensation for work will increase at a moderate rate, but spendable (and taxable) income of Americans will decrease. How can total pay increase while spendable income decreases? Because more and more of individuals’ incomes will be taxed to feed the Beast of health care.

The growth of chronic conditions

The Beast is continually looking for ways to increase the amount of national wealth it consumes. One way is in the increase in chronic conditions classified as a threat to health, even though they may be asymptomatic and a natural consequence of aging. For example, hypertension, commonly called “high blood pressure,” tends to increase among individuals as they grow older. Although it has been called a “silent killer” because it may indicate a higher risk of having a stroke or heart attack, with most people hypertension can be controlled by inexpensive medication. There are also lifestyle factors that can help people minimize hypertension, a subject with an extensive literature beyond the scope of this essay.

Recently there has been talk in the health care industry of a condition called “prehypertension.” That means factors that can be identified by testing that may predispose a person to develop hypertension at a later time. The Beast is pushing to have prehypertension classified as a chronic condition so that its treatment may be paid for by insurance.

Medicalizing lifestyle choices

Another way for the Beast to increase its taking from society is in “medicalizing” what are really lifestyle issues, problems that may impact health negatively but are best handled by lifestyle changes rather than medical intervention.

Goldhill points out that the insurance industry (private and public) is complicit in this process, as perverse economic incentives motivate insurers, private and governmental, to push costs ever higher. With medicalization of phenomena that are really lifestyle issues not medical issues, people are encouraged to expect insurance to pay for fixing ill health caused by lifestyle choices.

On June 18, 2013, the American Medical Association (AMA) declared obesity a disease, defining 78 million obese American adults and 12 million children as having a chronic medical condition requiring treatment.

This action “. . . is certain to step up pressure on health insurance companies to reimburse physicians for . . . discussing obesity’s health risks with patients . . . It should also encourage doctors to direct these patients to weight-loss programs and to monitor their often-fitful progress.

“The federally funded Medicare program, which insures an estimated 13 million obese Americans who are over 65 or disabled, already covers the costs of ‘intensive behavioral therapy’ for obese patients, as well as bariatric surgery for those with additional health conditions. But coverage for such obesity treatments has been uneven among private insurers. . .

“‘As things stand now, primary care physicians tend to look at obesity as a behavior problem,’ said Dr. Rexford Ahima of University of Pennsylvania’s Institute for Diabetes, Obesity and Metabolism. ‘This will force primary care physicians to address it, even if we don’t have a cure for it.’ . . . [Emphasis added]

“The Food and Drug Administration, which has approved just two new prescription weight-loss medications since 1999, would probably face increased pressure to approve new obesity drugs, spurring new drug development and more widespread prescribing by physicians . . .

The AMA’s Council on Science and Public Health speculated that “employers may be required to cover obesity treatments for their employees . . . It might also shift the nation’s focus too much toward expensive drug and surgical treatments and away from measures to encourage healthy diets and regular exercise, the council wrote in a background memo for AMA members.” 29

The next day brought news that popular entertainer Christina Aguilera had lost 20 pounds by reducing her caloric intake to 1600 calories a day and increasing her exercise program.

The Mayo Clinic says: “You can usually lose weight through dietary changes, increased physical activity and behavior changes.” 30

According to the Dietary Guidelines for Americans 2010 Executive Summary, those who achieve and manage a healthy weight do so most successfully by being careful to consume just enough calories to meet their needs, and being physically active. 31

Health care is not health

Mr. Goldhill makes an assertion that will be a surprise to many, namely that there is no direct relationship, in any country, between life expectancy and the amount of nationwide spending on health care. Other factors are far more influential on life expectancy and health during one’s lifetime. These include wealth; leisure time; the relative physical effort required for work, e.g., the work of a coal miner compared to that of a teacher; cleanliness of the environment in terms of air quality and water quality.

The more that the people of a society spend on health care the less there is available to increase wealth, leisure time, advances in technology to reduce the strain of physical labor, etc. Thus, in a real way, excessive spending on health care decreases health and life expectancy.

The Fatal Conceit

David Goldhill does not use the term “the fatal conceit” in his book. That term was coined by famed economist F. A. Hayek (1899-1992). 32 However, the tenor of Goldhill’s argument is imbued with Hayek’s concept of the fatal conceit.

Hayek posited that the “fatal conceit” was the idea that top-down economic planning by the state was far more efficient, and led to better outcomes for society, than leaving choices to individuals. Throughout Catastrophic Care Goldhill makes the case that leaving health care decisions to individuals, with the advice of their physicians, of course, would be far less costly and would lead to far better outcomes than the centrally decided and directed administration of health care that has developed in America, specifically through having surrogates replace the individual as the payer for health care services.

As the payer of health care services, the surrogates are making choices for individuals that are inimical to the best interests of individuals, the medical profession as a whole, and society as a whole. Goldhill gives as an example the effect of the fatal conceit on that vital physician, the primary care doctor, also known as an internal medicine doctor or a family practitioner.

Some thirty years ago Medicare promulgated rules for hospitals known as “Diagnostically Related Groups” or “DRGs” as they have come to be known. There was a list of some 467 conditions that hospitals could bill to Medicare. Medicare instituted a fixed payment schedule for the DRGs. This was an attempt to control the escalation of hospital costs of Medicare patients.

The private insurance industry, and Medicare itself, began to apply a similar concept to physicians’ services. That is, all physician services were categorized in terms of the procedure involved in providing the service. Physicians were paid for doing specific procedures. In the case of a good internist or family practitioner, much of the benefit from their skill comes not from doing procedures, but from talking with patients to understand what is going on medically and otherwise in their lives–e.g., is the patient experiencing emotional distress–and then to counsel the patient or refer the patient to a specialist, as appropriate.

Insurers and Medicare do not pay much, if anything for such medical counseling by internists and family practitioners. This has had the following adverse consequences to the internists and to patients.

  1. Internists and family practitioners work as many hours, on average, as do specialists but earn half as much as the average for specialists because specialists get paid per procedure and the most important services of an internist or family practitioner do not qualify as a procedure.
  2. Medical students understand how this works. Fewer and fewer medical students are choosing to go into internal medicine or family practice. They can earn far more with no more effort in a specialty that has lots of procedures.
  3. The internist or family practitioner has several important roles in medical care. Often, acting as primary caregiver or first responder, he or she can do everything necessary to alleviate a patient’s symptoms and suffering. Specialists are not equipped to see the whole person and to deal with many patient issues in the way that internists and family practitioners do. For example, suppose one comes down with a severe respiratory infection, such as the flu or bronchitis. The internist can diagnosis the problem, advise the patient, and where necessary prescribe medication such as an antibiotic, or suggest an over-the-counter medicine that will alleviate symptoms.
  4. The primary care physician should also be the one to coordinate the activities of specialists if two or more are needed for a particular patient. The internist or family practitioner is the best qualified for this role.

The top-down specification of what will be paid for and price fixing by surrogates is driving a growing scarcity of the all-important internal medicine doctors and family practitioners.

In any other industry or profession, practitioners could decide for themselves what to charge and their clients or customers could decide what they were willing to pay. This is how everything works off the health care island. If health care were returned to the mainland the supply of internal medicine doctors and family practitioners would adjust to the requirements of patients as evidenced by their willingness to patronize the doctor.

A century before F. A. Hayek, famed French thinker, classical liberal theorist,  and political economist Frédéric Bastiat (1801-1850) anticipated Hayek’s idea of the fatal conceit in this way. He described the French socialist intellectuals of his day as people who considered themselves an elite class who knew better than the general population what was in their best interest. This political elite considered the rest of humanity to be like a malleable lump of clay that the elite could mold into whatever shape they thought best. 33

It seems self-evident that both Bastiat and Hayek would find much to like in David Goldhill’s argument that in health care individuals, not their surrogates, should be the ones to make the choices for their own health care.

There are several common arguments in the political discourse of our time as to why health care is so different that individuals are incapable of making the right choices for themselves. Goldhill points out that the surrogates, who are supposed to know better than individuals have done a miserable job of allocating resources. That is why health care  costs are have gone up so much and are likely to go up further.

The Affordable Care Act of 2010

Mr. Goldhill argues that we should not expect any relief in the escalation of health care costs from the Affordable Care Act of 2010, known by the acronym ACA and also as “Obamacare.” Rather, we should expect ACA to worsen the crisis in health care finance. How so? Because ACA itself is built on the idea that there is not enough insurance and there should be more of it for more people.

The insurance model has been instrumental in creating the health care island, where the economic law of supply and demand has virtually been abolished. David Goldhill remarked in his interview with Malcolm Gladwell that “once we have decided to move health care to this island and pretend that there are not prices, just costs, you’ve given up the whole purpose of prices, we have given up their whole use; they are the circulatory system of our economy and we have eliminated them from the biggest industry in our economy.” [Emphasis added] 34 In Mr. Goldhill’s view the ACA further weakens the already enfeebled law of supply and demand in health care.

ACA also further limits freedom of choice, which is a prominent defect in American health care. And ACA will probably have the effect of providing incentives to employers to stop providing health care insurance for employees. That, together with the provisions of ACA requiring the uninsured to buy insurance without providing a means for this to occur consistent with the law of supply and demand, means that ACA will exacerbate the problems he describes in the rest of his book.

America is on the verge of big changes in health care finance

Mr. Goldhill believes many employers will drop health insurance coverage for employees once Obamacare goes into full effect; and that many of those employees will choose to pay the tax (or fine) for not buying health insurance. That will be cheaper than buying the insurance through the mechanism provided in ACA. Such people will then become the payers of all their own health care. Mr. Goldhill expects them to act like they do in buying anything else. They will be price conscious and price sensitive and will not put up with bad service. That would be a huge change in American health care.

Furthermore, under the ACA an uninsured person can wait to buy insurance until he gets very sick. Insurance companies are barred from refusing to insure such people. Imagine such a provision in the law that affected homeowners’ insurance similarly. One could wait until one’s house was badly damaged, for example by storms, other natural conditions or normal deterioration with passage of time, before taking out insurance, and the insurance company would have to issue the insurance, at rates not taking into account the impending large loss to the already damaged home.


Mr. Goldhill does not conclude that America needs socialized medicine like Canada or England.  In an interview televised after publication of Catastrophic Care, Mr. Goldhill took note of a widely read article by Stephen Brill in Time magazine, in which Mr. Brill argues that to get control of health care costs Medicare ought to be empowered to set prices for all medical services and products. 35 Mr. Goldhill observes that Medicare has been setting prices for medical services and products since the early 1980s, yet Medicare’s costs have escalated far more rapidly over that time than the overall increase in the Consumer Price Index.

Further, Mr. Goldhill argues that insurance, including Medicare, is driving an explosion in costs and in inappropriate or improper health care; that there is so much money available for health care, and that individuals pay directly out of pocket such a small amount of their medical expenses that the system has been cut off from the discipline provided almost everywhere else in the economy by prices and the law of supply and demand.

Considering the single-payer systems of Canada and Britain, Mr. Goldhill observes that the single-payer mode of state-provided medical insurance will be undergoing severe cost pressures due to advances in what medical science can accomplish. When state-run medical insurance was originated in Imperial Germany under Otto von Bismarck in the late 19th century, the idea was that a worker could suffer a disabling injury or illness that would prevent him from working to take care of himself and his family. Therefore, the original German insurance plan was to get the worker repaired physically or cured of illness and back to work so he could support himself and his family.

With the passage of more than 100 years, the focus on health care has changed from repairing a catastrophic injury or curing a catastrophic illness to providing all manner of services and products in response to the demands of people for medical care. That is to say, the public’s demand for medical services has increased more or less in tandem with  the increase in the capabilities of medical science and technology. Because of this development, the state-run insurance programs around the world are coming under severe cost pressures that they can contain only by rationing health care, by making people wait or by denying treatment altogether, especially for the elderly.

That was clearly and nicely illustrated in the British motion picture The Best Exotic Marigold Hotel (2012). In an opening scene an elderly woman is lying on a gurney in a hospital corridor. She calls for a nurse, and tells her she has been lying there for hours without attention and wants to see a doctor. The nurse says the doctor has seen you, and points out a very dark-skinned man in a suit looking at papers down the hall. The patient says pointedly, “I mean an English doctor.” The nurse replies that she will send one right over.

In short order a handsome man, obviously East Indian, comes to the lady and addresses the patient in impeccable English, saying he has looked at her chart and she needs a hip replacement. I know that says the lady, when can I have it done? I am in terrible pain. The physician says there will be a six month wait, but there is a way to speed things up. The lady says how? In the next scene she is getting on an airline flight to India, where in fact she has the hip replacement almost immediately.

David Goldhill proposes several solutions to the health care crisis, including the following.

  1. First and foremost, getting health care off its island and eliminating the role of the surrogates by turning over to individuals the function of paying consumer that operates off the island.
  2. Making available true insurance, that is insurance for medical catastrophes, not routine care. At the time of writing his book, Goldhill said, correctly, that true catastrophic insurance was not available in most states. The anticipated cost of true catastrophic insurance (he calls it Tru-Cat) would be a small fraction of the cost of most medical insurance that Americans have.
  3. Change the tax laws so that individuals who do not have employer-provided insurance are not disadvantaged vis-à-vis persons who get insurance through employment.
  4. If a tax benefit for medical costs is deemed part of our social order, then Health Savings Accounts (HSAs) should be increased in scope. They exist already but their scope is quite limited. Individuals would have a tax deduction for funding their HSAs, and could take the money out tax free to pay medical expenses.
  5. Goldhill suggests that payments into HSAs be compulsory, whether it is an employer or an employee who funds the HSAs.
  6. In a most original and creative solution to another problem, Goldhill considers the situation of a person whose routine medical expenses exceed both his HSA account balance and his other liquid assets. He suggests that such people could find commercial loans given against the security of the mandatory future contributions to an HSA. While this could become feasible it would take some working out. But working out seemingly unusual arrangements is the strong point of a free market, so there is reason to take this idea seriously.
  7. For those economically disadvantaged people who cannot afford even cheap Tru-Cat insurance and cannot afford to fund HSAs Goldhill believes that the federal state ought to pay for such insurance and fund their HSAs. The expense of doing so appears likely to be far, far less than the amount currently spent on the Medicaid program for low income people.




  1. As foreigners they could have gone free of charge, except for medicine, to the “A&E” (accident and emergency) of a British hospital operated by the National Health Service, according  to “How healthcare can work when it is a right, not a privilege” by David Lazarus, Los Angeles Times, October 4, 2013,,0,1359951.column
  2. an antibiotic in the penicillin group of drugs,
  3. This event occurred in 1949, when the use of penicillin was relatively new. In 1928 Alexander Fleming (1881-1955) a Scottish biologist and pharmacologist working in London, England discovered penicillin, one of the earliest discovered and widely used antibiotics. Fleming published his discovery in 1929, but for over a decade the medical profession paid little heed. In 1940 pharmacologist and pathologist Howard Florey and biochemist Ernst Boris Chain together innovated a technology for mass production of penicillin, which was used extensively in WW II for treatment of wounds of war. In 1945 the Nobel Prize in medicine was awarded to Fleming, Florey and Chain for the discovery and development of penicillin.
  4. The source for the statement in this sentence is a telephone interview with a man at the concierge desk of the London hotel that referred our friends to a private doctor, as described above.
  5. As measured by Gross Domestic Product
  6. Mr. Gladwell has written four books that were on the New York Times Best Seller List. They are The Tipping Point: How Little Things Make a Big Difference (2000); Blink: The Power of Thinking without Thinking (2005); Outliers: The Story of Success (2008); and What the Dog Saw: And Other Adventures (2009), a collection of his journalism
  7. The interview, before an audience in Pasadena, California, ran 65 minutes, including a question and answer period with the audience. The interview is available on the internet at There are also televised interviews of David Goldhill at and
  8. According to the Mayo Clinic “sepsis is a potentially life-threatening complication of an infection. Sepsis occurs when chemicals released into the bloodstream to fight the infection trigger inflammation throughout the body. This inflammation can trigger a cascade of changes that can damage multiple organ systems, causing them to fail. If sepsis progresses to septic shock, blood pressure drops dramatically, which may lead to death. Anyone can develop sepsis, but it’s most common and most dangerous in elderly people or those with weakened immune systems. Early treatment of sepsis, usually with antibiotics and large amounts of intravenous fluids, improves chances for survival.” Quoted from
  9. well-known American acronym for an  intensive care unit within a hospital
  10. Catastrophic Care, pages 5-7 and 91
  11. There appears to be considerable anecdotal evidence that a cheery environment is a big help in getting successfully through serious illness and that there is truth to the saying that laughter is the best medicine. That was the premise of journalist and author Norman Cousins (1915-1990) in his book, Anatomy of an Illness (1979).

    After being diagnosed with a terminal illness while in the hospital, Mr. Cousins and his doctor worked out an unconventional treatment plan: leaving the hospital and checking into a hotel where the patient watched videos of movies by the Marx Brothers, prominent comedians who made fourteen successful comedy movies between 1929 and 1949. Mr. Cousins made a complete recovery. Impressed by Mr. Cousins’ hypothesis about the role of attitude in dealing with illness, the dean of the School of Medicine at UCLA invited Cousins to teach at the school. UCLA subsequently established and continues to maintain The Cousins Center for Psychoneuroimmunology. Its mission is to investigate the idea of recovery from illness being associated with positive emotions and attitudes, such as purpose, determination, love, hope, faith, will to live and festivity. See Cousins Center for Psychoneuroimmunology,

    In his book The Home Health Guide to a Cancer-Free Family (2005) Australian physician and author Gabriel Kune has written that a positive and optimistic outlook, coupled with a regular relaxation technique and regular exercise is a good indication of a better than average survival rate from cancer.

  12. Catastrophic Care, pages 6-7
  13. Atul Gawande, M.D., a contributing writer to The New Yorker, is a surgeon, a professor of surgery at Harvard Medical School and a professor in the Department of Health Policy and Management at the Harvard School of Public Health.
  14. Peter J. Pronovost, MD, PhD, FCCM is Senior Vice President for Patient Safety and Quality and Director of the Armstrong Institute for Patient Safety and Quality at the Johns Hopkins University School of Medicine.
  15. See “The Checklist,” by Atul Gawande, The New Yorker, December 10, 2007,
  16. Catastrophic Care, page 8
  18. Catastrophic Care, page 353
  19. See
  20. To watch this discussion, on the internet go to{A23E29CB-B5B1-4BD7-825C-109925EB5ED8}
  21. The National Academies is an independent, nonprofit organization that works outside of government to provide unbiased and authoritative advice to decision makers and the public. It was chartered by the U.S. federal state in 1863. The Institute of Medicine, established in 1970, is the health arm of the National Academy of Sciences. See
  22. Quoted from “‘Catastrophic Care,’ by David Goldhill,” a review by John Maa, San Francisco Chronicle, January 18, 2013 John Maa is an assistant professor of surgery at the University of California San Francisco, widely known as UCSF, the original medical school of the University of California system.
  23. This comparison is not from Mr. Goldhill’s book. It is an observation made by a Professor of Economics at the UCLA Anderson School of Management some years ago, in a lecture attended by the author of this website. However, the statement is consistent with the ideas in Mr. Goldhill’s book.
  24. The Internal Revenue Service allowed such tax treatment during World War II. The practice was codified in the U.S. Internal Revenue Code of 1954.
  25. The tripling of spending referred to by Mr. Goldhill occurred between 1965 and 2012;
  26. These other federal health care programs benefit active military personnel, veterans (via the Veterans Administration which operates the largest hospital system in America), Native Americans via the Department of Indian Affairs, etc.
  27. Bernard Madoff, a seemingly reputable stock broker, ran a Ponzi scheme for many years that ultimately caused billion in losses by those who entrusted their funds to him. It was the largest private Ponzi scheme in American financial history. See Bernard Madoff, Wikipedia, at
  28. For citations in support of the foregoing, readers are referred to a chapter of the book with which this blog is associated, namely the chapter entitled “Political Democracy in America,” and specifically the discussion within that chapter under the heading “The World’s Largest Insurance Company.”
  29. Quotations from “AMA declares obesity a disease,” by Melissa Healy and Anna Gorman, The Los Angeles Times, June 19, 2013.,0,4422080.story
  30. See
  31. See  The Dietary Guidelines for Americans is a publication of the Center for Nutrition Policy and Promotion, an agency within the U.S. Department of Agriculture.
  32. Professor Hayek authored an entire book with that title, The Fatal Conceit: The Errors of Socialism (University of Chicago Press, 1988)
  33. Bastiat said that “Socialists look upon people as raw material to be formed into social combinations . . . as an artificial creation of the legislator’s genius . . . To [them] the relationship between persons and the legislator appears to be same as the relationship between the clay and the potter.” Bastiat, Frédéric, The Law (1950 English language publication, translated by Dean Russell of the Foundation for Economic Education, Inc.) pages 34- 35. This essay was originally published in France in 1850 and entitled La Loi. As of the first decade of the 21st century Bastiat’s The Law is available from booksellers in hardcover, paperback, and electronic book versions. A PDF publication of a 1998 edition of the book may be read without charge at the website of FEE (The Foundation for Economic Education) The quotation above appears at page 31 of FEE’s 1998 PDF publication.
  34. Quoted from David Goldhill interview with Malcolm Gladwell, at 23:30 to 23:50 minutes.
  35. “Bitter Pill: Why Medical Bills Are Killing Us,” by Stephen Brill, Time, March 4, 2013,,9171,2136864,00.html
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17 Responses to America’s health care catastrophe

  1. Ken Eagleson says:


    This latest blog entry is one of your best. I now have a much better understanding of what is causing the problem. If enough people are made to understand the issues, change in the right direction can be made.

    My uncle – your friend – talked about this many times prior to his untimely death. He would have appreciated your post.


    • fgmarks says:

      Ken: I appreciate your approval of the blog post. I worked long and hard on it. The David Goldhill story gives hope for bridging the political and ideological gap that divides America on the issue of health care finance. Mr. Goldhill is a self-described member of the Democratic Party who says that before his father’s death he had views on health care common to his party. His good friend Malcolm Gladwell of The New Yorker magazine is a Canadian who was for single payer health care finance–that is Canadian style socialized medicine–before he read Goldhill’s book. Both have changed their views; both now favor empowering individual patients to control their health care expenses by taking charge of payment for services, rather than leaving the payment in the hands of insurers and government agencies. That change could cause a big reduction in health care expenses, a great improvement in the quality of customer service and a reduction in needless deaths through medical error. Goldhill’s book has already been influential in changing the terms of the national debate among health care experts. I hope it becomes influential with the wider public. It may become more influential as more people read it and watch the televised interview between David Goldhill and Malcolm Gladwell.

      • Ken Eagleson says:

        Fred: I have enjoyed two of Malcolm Gladwell’s books: The Tipping Point and Outliers. He is widely read and known, so his support of moving healthcare in the right direction is significant. As someone who has seen the cost and inefficiencies up close due to both of my sons having Autism, the prospects of changing the healthcare paradigm is near and dear to me. During a conversation you and I had several months ago, you suggested being able to purchase insurance to protect against developmental disorders made so much sense. If that was possible, I would be several hundred thousand dollars better off. Again, thanks for a terrific post. Ken

  2. Paul F. Marx says:

    I find it ironic that the post begins with an anecdote quite favorable to the English single-payor healthcare system and then proceeds to discard it as a model for reform on the ground that it cannot survive in the current medical environment without the rationing of health care, especially for the elderly. But the reality is that rationing of health care is already in place, except implemented irrationally and unevenly by insurance companies. A single-payor system with a rational, evenhanded rationing of health care and an increased co-insurance factor is the only practical and politically feasible way to reform our health care system, and the Affordable Health Care Act (AKA Obamacare) is the first step in that direction. In addition to being political non-starters, I consider the solutions listed in the post, for the most part, to be unrealistic, impractical, and unenforcible.

    • fgmarks says:

      The medical services described in the opening anecdote were NOT provided through the British National Health Service (NHS). In paragraph 2, note 1 states: “As foreigners they were not eligible to use the British National Health Service.”

      The next paragraph states “The hotel’s concierge referred them to a small medical group [where] . . . a lady doctor examined them both, said she was confident in a diagnosis of the then current flu, prescribed penicillin, and handed them the medicine in her office. Before leaving the medical offices they paid for the service.” This was “concierge medicine,” operating outside NHS, a not uncommon phenomenon where physicians and their customers are able to arrange for services and payment as they would with any other goods and services.

      The Bing search engine lists ten concierge medical practices in and around London, England as one can see by typing the following phrase into the search engine: “London England private medical practice.” It was to one of these that the couple with the flu were referred by their hotel.

      Rationing of health care by insurance companies exists primarily in HMOs (Health Maintenance Organizations). Many physicians and nurses would say that the name of such organizations should be changed to HDOs (Health Care Denial Organizations). The federal Health Maintenance Organization Act of 1973 spurred the rapid growth of HMOs. They are creatures of federal law that operate under joint federal and state regulation. HMOs are the predominant form of “managed” care organization which consciously restricts access to medical care in the interest of cost control.

      As a freedom-oriented person, the author of this website does not favor state run “single-payer” systems such as exist in Canada and Britain. State-run systems are justified by their adherents in the interest of providing access to medical to everybody irrespective of ability to pay. The underlying premise is found in the statement that health care is a “right” not a “privilege.”

      That philosophical approach led to the motion picture scenes mentioned near the end of the blog, concerning long delay in hip replacement surgery for an elderly lady, where the lady follows a physician’s suggestion that she go to India for the hip replacement if she is unwilling to wait another six months to have it done under the British NHS.

      The author of the foregoing comment uses the words “unrealistic, impractical, and unenforceable” to describe the solutions recommended in David Goldhill’s book. Let’s examine those three labels.

      “Unrealistic.” It is the present system in American health care finance that is unrealistic because of its high and growing costs. As Mr. Goldhill argues, the Affordable Care Act of 2010 (ACA) is likely to make costs go up even faster because it is the excess use of insurance that has caused costs to triple in real, inflation-adjusted terms over the past 50 years and the plan of ACA is to increase the amount of insurance. Single payer systems like those of Canada and Britain are also coming under severe cost pressures because of the demands of the public for medical services that have become feasible for a large and growing number of conditions that were not susceptible of treatment in the past.

      “Impractical.” What is impractical about physicians and their medical customers arranging between themselves for treatment and payment for the treatment, with insurance reserved to indemnify the insured only for catastrophic injury and illness? That was the norm in times past. If individuals could not afford to pay for medical care it was provided often by means of charity, service by physicians without charge, or the assistance of extended family.

      “Unenforceable.” If health care is considered a “right” not a “privilege,” this use of the word “right” requires “enforcement” by means of taxation and regulation to control the costs of administering that right. The force in enforcement includes legalized theft of the property of everybody via taxation to pay for the health care of everybody. Legalized stealing for the supposed public good was among the most prominent causes of the fall of the Roman Empire and the French Revolution that overthrew monarchy in France. America has been headed down a similar path. It is the genius of Mr. Goldhill’s book that (1) he recognizes the dangers in continued and growing public “enforcement” of health care and (2) he offers reasonable and well-considered solutions that are mostly voluntary in nature, and are therefore both affordable and compatible with human nature.

  3. Alfred Sils says:

    [Alfred Sils is a physician]

    The beginning anecdote in this Post features an English physician who dispensed penicillin for influenza. However, penicillin does nothing to combat a viral infection such as influenza. The traveling couple probably would have gotten over the flu just as fast without the medication. They were pleased with their interaction with the physician and may have felt better just because they received prompt, caring and professional attention. This is much like the placebo effect in which a patient responds well to an inert substance with no medicinal properties because he has been told it is an effective cure.

    Goldhill circles around some problems, although he is right to focus on insurance as a big part of the problem.

    The MRI anecdote involving Goldhill’s sister-in-law is an example of circling around a problem. Most painful knee problems get better over time with conservative care. An MRI is indicated only if the physician feels that surgery is the most likely option based on clinical findings; an MRI is not appropriate to determine whether surgery is needed. There is an overwhelming likelihood that the MRI should not have been ordered at all.

    One of the problems in American medical practice is excessive utilization of costly and medically unnecessary procedures. In the specialty of imaging, this occurs both because of the widespread availability of imaging devices, the financial incentives to use them and financial disincentives to limit their use.

    A radiologist who has practiced in both England and America says that in England radiologists are required to be “gatekeepers,” saying no to many requests for radiological examinations that may be of questionable medical utility. In America the situation is the other way around. Radiologists are service providers, not gatekeepers. They are expected to do imaging procedures without questioning their medical utility. However, “overutilization of imaging . . . leads to waste, unnecessary radiation, and undue anxiety about false positive results—thus, lower-quality care. . .”

    In America “. . . there are no rewards for denying an imaging study—one loses a reimbursable exam and expends time in which other reimbursable studies can be read.” Quoted from the “From Imaging Gatekeeper to Service Provider—A Transatlantic Journey,” by Saurabh Jha, New England Journal of Medicine, July 4, 2013.

    Another bigger, yet related, problem in American medical practice is that clinicians [internists and general practitioners] often order diagnostic procedures for questionable, and often incorrect, indications. They should know more about the likely cause of a patient’s symptoms before referring to a specialist, and if they did, there would be far fewer referrals, and that would reduce medical expenses considerably.

    Another big problem with Goldhill’s analysis is the assumption that a free market in medical care would lead to lower costs. However, there really is no free market in medical services because there is a limited supply of physicians due to the requirement of long medical training and medical licensure. The limited supply of physicians means that the patient as customer has a limited choice of service providers. This is not a condition in which it can be said that a truly free market can operate. That means that the ordinary operation of the law of supply and demand cannot operate as it does where there are no limitations on who can supply goods and services.

    The result of the limited supply of service providers is a market in which prices are fixed by the service providers and the customers do not have recourse to an adequate supply of good quality competitive suppliers who could bring prices down.

    Another problem with Goldhill’s book is the proposed solution of limiting insurance to truly catastrophic medical events, and counting on individuals to shop intelligently and cost effectively for routine medical services. Goldhill proposes a very high deductible. However, even today there are medical insurance policies available with deductibles as high as $5,000. Such a high deductible presents a problem for lower income people. If they have to pay out of pocket for medical costs as low as say $300 in a month that may mean that they could not afford to pay their rent or make their mortgage or car payment.

    A single-payer health care system would solve that problem.

    Most Canadian and most British citizens and physicians are highly satisfied with the single payer system in their county. It is true those systems are not without flaws and problems. Sometimes people have to wait a long time for treatment. Those who don’t wait and can afford the expense can go to America or elsewhere to get treatment immediately. Of course, that is not an affordable option for most Canadians and Britons.

    However, Canada and Britain are not the only models for single-payer health care. For example, the government-run systems in Germany, Austria, and Israel work well and are rarely cited when single payer systems are being debated. It seems that the rather minimal defects in the English and Canadian systems are always remarked upon when they pale in comparison to our own sixty million uninsured and underinsured citizens. Goldhill competently identifies a major problem in our system-the insurance industry. We must look at other systems and use their experience to continue an intelligent debate about solutions rather than longing for a simpler past that will never be again.

    • fgmarks says:

      Dr. Sils has provided cogent comments.

      • There appears to be merit in his statement that in the example given at the beginning of the blog post penicillin may have been prescribed when it was not needed or appropriate—as it is not in case of a viral respiratory infection such as influenza.
      • Radiological and imaging services probably are greatly over-utilized in American medical practice, a proposition in accord with the comments about excess care in Mr. Goldhill’s book.
      • There are advantages to patients, physicians, and society generally in a single payer medical system such as those in Canada, Europe, and elsewhere in the world. However, below we discuss a major financial problem with a single-payer health care system in America, and inevitably in every country that has a single-payer system.

      It is true that the market for medical services in the U.S. is far from as free as it could be. In this regard, we offer the following comments of Professor John H. Cochrane, quoted from “What to Do on the Day After ObamaCare,” John H. Cochrane, The Wall Street Journal, April 2, 2013. John H. Cochrane is AQR Capital Management Distinguished Service Professor of Finance, The University of Chicago Booth School of Business.

      “Most pathologies in the current system are creatures of previous laws and regulations. . .

      “Start with the tax deduction employers can take for their contributions to group health-insurance policies—but which they cannot take for making contributions to employees for individual, portable insurance policies. This is why you have insurance only so long as you stay with one employer, and why you face pre-existing conditions exclusions if you change jobs.

      “Continue with the endless mandates (both state and federal) on insurance companies to provide all sorts of benefits people would otherwise not choose to buy. It sounds great to “make insurance companies pay” for acupuncture. But that raises the premiums, and then people choose not to buy the insurance. Instead of these mandates, at least allow people to buy insurance that only covers the big expenses.

      “The number of new doctors is still restricted, thanks to Congress and the American Medical Association. Congress caps the number of residencies, the AMA has fought the expansion of medical schools, state tests make it difficult for foreign doctors to work here, and on and on.

      “There are hundreds of government impediments to competition. New hospitals? In my home state of Illinois, every new hospital, expansion of an existing facility or major equipment purchase must obtain a “certificate of need” from the Illinois Health Facilities Planning Board. The board does a great job of insulating existing hospitals from competition if they are well connected politically. Imagine the joy United Airlines would feel if Southwest had to get a “certificate of need” before moving in to a new city—or the pleasure Sears would have if Wal-Mart had to do so—and all it took was a small contribution to a well-connected official.

      “The result is a monstrous system in which insurance patients are gouged to subsidize Medicare, and cash patients are gouged most of all.”

      In dialogue with Dr. Sils he mentioned American critics of single payer health care point always to Canada and Britain as if those two countries were the only models for a single payer system. He mentioned that Austria, Germany, Israel and Switzerland are examples of single payer systems that are working quite well. A survey on the internet appears to confirm that he is right about that, although single payer systems in some countries are experiencing problems of rising costs.

      Dr. Sils mentioned the experience of an American woman of his acquaintance who was hospitalized with a medical crisis while traveling in Austria. She was treated successfully during the course of a five day stay in the hospital. The total charge to her was only around $3,000. That is certainly a dramatic contrast to America and speaks well for the Austrian health care system.

      Dr. Sils observes correctly that “. . . there is a limited supply of physicians due to the requirement of long medical training and medical licensure.” From this truth he reasons that Mr. Goldhill is wrong in arguing that a free market in medical care would lead to lower costs because the law of supply and demand cannot operate as it does elsewhere in the American economy.

      Mr. Goldhill addresses this issue in his description of the American health care “island,” where the usual laws of economics, including the law of supply and demand, have been abolished. The law of supply and demand can operate even with a limited choice of physicians. A limited choice is not the same as absence of choice. We offer the following examples as evidence that in America in the second decade of the 21st century individuals do have choice in deciding which physicians to patronize, absent limitations imposed by their insurance. The author of this website has chosen the cities and towns mentioned below because of personal familiarity with them, but in all probability the choices available are similar throughout America.

      A brief internet search showed at least fifty internal medicine physicians listed in or quite near Santa Monica, California, a city with a population of 89,736 in 2010. NOTE: References to population in the rest of this reply are to the population shown in the 2010 U.S. Census. While Santa Monica is thought of as an affluent community, that does not explain the seemingly adequate supply of internal medicine physicians, as over 70% of the residents of Santa Monica are renters rather than home owners, indicating that many in Santa Monica are not affluent.

      Port Orford, Oregon is a very small town located on the southwest Oregon coast. It has just one physician, but its population is only 1,133. The nearest towns of Bandon (population 3,060) thirty miles to the north and Gold Beach (population 2,250) thirty miles to the south have a total of fifteen general practice physicians. There are even more general practice physicians and a full service, 100-bed general hospital 60 miles to the north of Port Orford, in Coos Bay/North Bend, Oregon, adjacent cities with a combined total population of 25,571. Bay Area Hospital in Coos Bay serves not only Coos Bay/North Bend but smaller towns along the Oregon coast. Like most American cities of similar size, the Coos Bay/North Bend metropolitan area has a fairly good selection of specialists to whom general practitioners may refer patients, although shortage of physicians in some specialties could necessitate going to Eugene, a city with a population of 156,185 some three hours’ drive from the tiny town of Port Orford.

      The small city of Sequim, Washington (population 6,645) has ten general practice physicians. There are 35 more family and general practice physicians in nearby Port Angeles, Washington (population 19,038) which has a full service 125 bed general hospital, Olympic Medical Center, as well as specialists to whom general practitioners may refer patients.

      Dr. Sils comments that there are many people who could not afford to pay routine medical costs out of pocket, because they just don’t have the money to pay a medical charge as low as $300 in addition to their other expenses. Three responses come to mind immediately: first, Mr. Goldhill addressed this issue; second, in the long run no country, not even America, can afford a single-payer health care system in which people are entitled to obtain medical services without cost to themselves; and third, in a stateless America the standard of living would be so much higher that very few people would be as financially embarrassed as Dr. Sils postulates.

      Mr. Goldhill addressed this issue as follows, as we noted in our blog post: “For those economically disadvantaged people who cannot afford even cheap Tru-Cat insurance and cannot afford to fund HSAs Goldhill proposes that the federal state pay for such insurance and fund their HSAs. The expense of doing so appears likely to be far, far less than the amount currently spent on the Medicaid program for low income people.” NOTE: HSAs are tax advantaged Health Savings Accounts.

      In single-payer health care systems it is a deliberate goal and a matter of public policy that there shall be no requirement of monetary payment for medical services at the point at which they are rendered. That means those who seek medical services look upon them as free, because they are not paying. Whenever anything desirable is offered free of charge there will be an abundance of people taking advantage of the offer. The author of this blog post once heard Medicare described as follows by a professor of economics at the UCLA Anderson School of Management: it is like an all you can eat restaurant where the proprietor has an incentive to serve as much food as possible because a third party (in this case the federal state) is paying for the food, no matter how much is served.

      In a single-payer health care system the end users, the patients, have no incentive whatsoever to limit their demand for service, but the supply is definitely limited, as there is not an infinite supply of anything relating to health care.

      America is already suffering from severe financial problems in the provision of all kinds of services at every level of the state, including the federal state, the fifty states (such as California and the rest), and local state entities (the cities and counties). In essence at every level of the state in America, promises have been made which cannot be kept, no matter how high taxes are raised. For those readers who are surprised by the foregoing statement we cite just two of numerous recent books that have been making this case forcefully: Kotlikoff, Laurence J. and Scott Burns, The Clash of Generations: Saving Ourselves, Our Kids and Our Economy (The MIT Press 2012); and Whitney, Meredith, Fate of the States: The New Geography of American Prosperity (Portolio/Penguin 2013).

      The authors of The Clash of Generations state:

      “The United States . . . is in worse [financial] shape than many other countries commonly regarded as basket cases. [We’ve tried] to do right by our elders by expending ever-larger sums each year to keep them healthy and financially secure. These sums are now huge, amounting to more than $30,000 per retiree per year. That’s three-fourths of annual U.S. per capita income. In the process, we’ve done terribly wrong by our children, grandchildren, and great-grandchildren. We’ve saddled them with massive government bills . . . [that] are beyond our childrens’ capacity to pay, just as they are beyond our own capacity—and will—to pay.” Quoted from The Clash of Generations, page 2.

      Bringing all Americans into a single-payer health care system would make this problem worse than it already is by adding an expensive new entitlement program to the existing federal entitlement programs that are the principal cause of a huge gap, which the authors call the “fiscal gap,” between prospective tax collections and the benefits they are supposed to pay for. Using data from the Congressional Budget Office, Kotlikoff and Burns calculate that the federal fiscal gap was $212 trillion as of the year 2011, and growing. See The Clash of Generations, page 10 and page 238, note 15. The $212 trillion fiscal gap amounts to $1.8 million per U.S. household; the $212 trillion total fiscal gap is about fifteen times the aggregate net worth of U.S. households. Kotlikoff and Burns have proposed solutions for the problem they describe, in chapters 10 to 13 of their book. Without some solution they assert that the U.S. is headed for social upheaval and chaos, and higher taxes are not a solution given the size and continual growth of the fiscal gap.

      Kotlikoff and Burns warned about the problem of the fiscal gap in an earlier book, The Coming Generational Storm: What You Need to Know about America’s Economic Future (MIT Press 2004). However, nothing has been done since then to address the fiscal gap problem, which has grown much worse since 2004.

      In Fate of the States author Meredith Whitney examines the finances of state and local government across America. According to the author of this book over half the states are in serious financial trouble, with California being probably the worst case. The states in trouble are not collecting enough in taxes to fund their current annual expenses, and far from enough to fund their liabilities to state employees for retirement benefits. Such states have been getting tax money from the federal state, just to get by for the time being. The federal money is not enough to cover state budget deficits, so such states are pushing expenses down to the local county and municipal entities. The federal state is subsidizing state and local entities with money created by federal deficit spending, aggravating the federal fiscal gap mentioned above.

      Cities and counties in those states with troubled finances can only pay their bills by cutting back in services such as public schools and public safety (police and fire departments). At the same time the states are also cutting back spending on a wide range of activities including by way of example, but not limitation, spending on higher education, state parks and health care. Thus, more than a few states are cutting their share of payments into Medicaid a joint federal/state program to pay for health care needs of low income residents. This is happening at a time when a new federal law is about to add millions of Americans to the Medicaid rolls. The so-called Affordable Care Act of 2010 is designed to use Medicaid to provide health care for millions of Americans who lack medical insurance.

      There is a third response that comes to this author’s mind about the plight of the impecunious person who wants medical service and the consequent political solutions to satisfy those wants through state programs such as single-payer health care. That is, the wealthier a society the higher the average standard of living. When the state undertakes to do so much to benefit its citizens, it actually tends to impoverish them. Without the contemporary state and its heavy and growing taxes, individuals could afford more readily to pay for their needs and wants and could afford more easily to help their less fortunate fellows with individual and group charity. The more the state takes in taxes the less ability and inclination of individuals to give to charity. And the less the state takes in taxes, the fewer would be those who need charity. The role of individuals vs. the state in the quest for more affluence and security is the subject of a chapter entitled “Abundance and its Sources–Poverty and its Causes” in the book portion of this website. Go to

  4. Mark Stein says:

    Fred, you have done a superb job of summarizing and highlighting the comments and writings of several of the most expressive people, who are increasing public awareness of the rapidly deteriorating relationship between the PUBLIC [individuals who are ill or are concerned about becoming ill], and the CAREGIVERS [those who provide medical services: medical professionals, facilities, and the innovators and producers of medical equipment and treatments]. My own experiences as a physician, patient, and advocate for patients are, unfortunately, rich with confirmations of what you and those you quote are disseminating. Thank you for bringing the works of individuals like David Goldhill, John C Goodman, Jeffrey Flier, and Malcolm Gladwell to my attention. I would like to expound a bit about what I am convinced are viable solutions to this human social catastrophe. The exposés to which you refer are the first step: raise awareness. They are poignant, disturbing, verifiable, and yet represent only a crevice into the morass. Most people, upon learning of these travesties, will probably react with ire, feeling victimized and helpless. Both the PUBLIC and the CAREGIVERS may sometimes succumb to these emotions. Some, flailing from the pain, will try to ameliorate their anger by blaming the third party at the medical table, the INSURERS.

    The focus of my thinking about these problems for the past several decades has not been on exposing these wrongs, but on righting them. Before most revolutions, knowledge of how life could be better is imparted to the people; then the people take to the streets. Usually, they fight for what they want to be rid of rather than for what they want to establish as the better form of government. This first step is stimulated by the kind of personal experiences which you address regarding the disease plaguing our health care delivery system. Then, as the State increases its control in an attempt to ‘fix’ the problem by instituting restrictions, rationing access to care, limiting freedoms of choice, and proliferating costs, we, the PUBLIC, suffer the consequences. We suffer unwillingly and unwittingly. But, with this knowledge in our grip we are motivated to recapture individual control of our health care. In fact, we are on the threshold of a revolution in medical care delivery in the United States, and I, for one, much prefer to see as smooth a transition as possible from our current terminally ill system to its functional replacement; one that will be welcomed into the marketplace; initially, by a few who see a bit farther than others, but eventually by everyone, by choice.

    I believe that the concepts already exist for the foundation of an alternative social structure that can bestow upon the PUBLIC the best quality care, deliverable by existing CAREGIVERS, at the lowest price. My instincts say not to drop this bomb in this forum; not to publish my insights for a new proprietary health care delivery system for the first time here, now, and perhaps prematurely, without first presenting a thorough grounding in the theory underlying my conclusions. However, your activism has inspired me to act sooner rather than perhaps wiser. Implementing these new concepts of medical care delivery requires refocusing the existing social mechanisms in revolutionary ways. I disagree with Mr. Goldhill. The culprit is not the insurance company. The insurance company is simply selling the wrong product to the wrong individuals.

    Today, the PUBLIC wants to buy insurance, i.e., pay a premium, to sell the cost of their risk of being sick to someone, and the insurance companies have stepped in to oblige them. The word ‘premium’ is vitally applicable here, because in this market exchange, the PUBLIC does indeed pay a (high, and ever increasing) premium. In this contract, the PUBLIC doesn’t even know what it has bought. It doesn’t find out until it submits a claim, at which time the insurance company often denies it, fights it, says ‘no,’ and seeks only to retain its premium. Meanwhile, the insurance company has little control over the cost of the risk it has bought. So, the insurance company constantly tries to control the delivery of medical services to its clients and simultaneously to limit what it pays to the caregivers. In this current system, there is no incentive for anyone to act morally. The PUBLIC often tries to abuse the risk it has sold by seeking unnecessary and frequent care. The CAREGIVERS often try to limit their time spent and care given because they fear insufficient revenue. The INSURANCE companies increasingly deny both the PUBLIC and the CAREGIVERS the terms to which they believe they agreed. There is no explicit agreement among any of the parties. The incentives in these relationships motivate non- or poor performance on everyone’s part: excessive use and abuse by the PUBLIC, marginal care by the CAREGIVERS, and coverage and reimbursement denial by the INSURANCE companies. Under the present mess, only after a service is rendered does one receive the charges, and only then does the conflict begin as to who will pay for what. The system is dysfunctional. This concept is flawed. When the State stepped in to become one of the ‘insurance’ companies (Medicare; Medicaid; etc), the deterioration accelerated: costs grew out of control faster, and availability and quality of care diminished, i.e., a crisis morphed into a runaway catastrophe.

    The first key needed to unlock this spiraling prison is the guarantee. CAREGIVERS need to, and will want to, guarantee their work. This is radical. Upon reading this, nearly all caregivers would protest. Instead of the caregivers being paid for providing a service or procedure, as they currently are, I propose that CAREGIVERS offer their services to the PUBLIC in the form of explicit contracts; contracts which state among other things, outcomes, time frames, and penalties for nonperformance, offered at a specific price. Only then will the PUBLIC have valuable options for their health care purchases. The guaranteed aspect of these contracts will cause CAREGIVERS first to limit their ‘giving’ to match their confidence and expertise, and secondly, eventually, to seek to acquire insurance to safeguard the inherent statistical risks of these contracts.

    The PUBLIC will no longer need insurance. The PUBLIC will willingly pay (with money they previously may have used for insurance premiums) CAREGIVERS directly in exchange for specifically contracted services, with guaranteed outcomes, backed by tangible penalties. The better caregivers will be able to afford insurance to cover a portion of the guarantees in their contracts, and the cost of their premiums will be connected to their past performance. Individuals, collectively the PUBLIC, will choose from an array of contracts which they will voluntarily buy, rather than buying insurance. Many widely available contracts will exist in the marketplace supplying all (or nearly all) encompassing medical services, and those contracts will cost less than comparable insurance does or would.

    Thereby, the PUBLIC, for the first time in history, will know, in advance, what medical services they are buying, how much they cost, what to expect health-wise, and even how good the CAREGIVER is. You might be thinking, how would the quality of the caregiver be determined? It would be by the price of the insurance premium he pays. Through mechanisms such as this, we can develop a cogent concise self correcting system that provides explicit services with measurable outcomes and with consequences for failures to achieve those contractual outcomes.

    “Why would the caregiver voluntarily do this?” you might ask; because CAREGIVERS want to make more money. Yes, the technology is proprietary and motivated by profit. Once CAREGIVERS see the value in offering contracts such as these, they will rush to do so, voluntarily. And, to protect themselves, they will seek insurance. Caregivers will want to receive their compensation for providing guaranteed outcomes, as soon as they understand that it gives them a competitive advantage, at least where they indeed have expertise.

    Perhaps when you read these revolutionary concepts for the first time, they will seem like ‘pie in the sky.’ But, they are not. The technology to achieve this requires no change in existing laws; it only requires that new laws are not passed to prevent caregivers from offering contractual medical services with guarantees, and that no laws are passed to prevent insurance companies from selling a new form of policy that insures caregivers against bad outcomes.

    Speaking of insurance companies, they are the second key needed to unlock the door to the freedom of our future promise of health care delivery. Emphasis: The insurance companies are selling the wrong product to the wrong individuals. Instead of insurance companies buying the risk of prevalent disease, as they do now, they should be buying a different risk from a different customer. CAREGIVERS, desirous of selling their risk of making mistakes, will gladly pay a premium, a fee, to INSURANCE companies to buy that risk. Insurance companies are already extremely capable of calculating those risks, producing a new product for this new market, and pricing it to the CAREGIVERS. To set these premiums, the insurance company actuaries will analyze data to determine how good each individual caregiver’s past performance has been. The better a CAREGIVER’S quality, the more anxious will that caregiver be to provide performance data, obtain a lower insurance premium than his competitors, and advance forth into this new medical market. Thus, with premium in hand, the CAREGIVER is equipped to advertise his contracts and his premium proudly. Meanwhile, the INSURANCE companies will confidently be spared great loses by virtue of the participating risk of their new clients, the CAREGIVERS. The CAREGIVERS’ risk is not a single patient failure outcome, nor the co-pay for contractual penalties that they may incur, but the damage to their reputation that an increase in premium entails should they fail to perform on their contracts.

    INSURANCE companies will be buying the risk that CAREGIVERS fail because of limitations beyond the boundary of medical knowledge and technology. The effect of turning the tables on the function of insurance and of the behavior of the players is that CAREGIVERS will be providing comprehensive health plans to the PUBLIC that include guarantees and penalties for specific outcomes at a market price, and they will be doing so voluntarily, graciously, and expecting to profit from what they do best, deliver health care. In this process, CAREGIVERS will obviate the need and the perceived desire for the PUBLIC to purchase insurance. Finally, the appropriate clients will be purchasing insurance for risks inherent in the limitations of medical knowledge, not for the risk of their own lack of expertise; finally, insurance companies will have true partners in their client, with aligned motives; and finally, the PUBLIC will benefit the most, and without needing to buy medical insurance. These are pivotal insights.

    The ‘how’ to implement this technology requires a bridge, from where we are to where we are going. The first pylon will be sunk by a few caregivers willing to offer simple, perhaps single service, contracts to people. Individuals will choose the services of these caregivers over others, i.e., over those who have not made their costs explicit, or their outcomes guaranteed. A smooth transition will follow. The recipients of this preferable system, the PUBLIC, will foster increasing demand for more services of this type. As demand grows, other caregivers will voluntarily offer better contracts, whenever they believe their skills will result in them having a competitive advantage, thereby expanding the offerings in the medical marketplace. The pioneering caregivers of these initial offerings will, of necessity, probably be self insured, but the insurance industry will soon see this rapidly expanding market of caregivers guaranteeing their work, and seek their position to profit from it. Actuaries will measure caregiver performance and create, for their own positive self serving reasons, an appropriate insurance product that will enhance the market advantage of this form of explicit contractual medicine. Desiring insurance, competent caregivers will offer their experience data proudly. Those who do not would be suspect, perhaps uninsurable. Eventually, this technology will dominate medical care delivery, simply because individuals will prefer it, and because caregivers will hone their skills and self realization to achieve greater satisfaction and profit. Yes, caregivers who successfully match their contracts to their abilities will flourish. Those who do not will be incentivized to hone their expertise or seek it elsewhere. Whoever offers the most competitive price/guarantee contracts will naturally woo business from less competent caregivers.

    I’ve probably already said too much. I’ve said enough that others could take these new concepts, expound on them, and even implement them before I am able to publish a full treatise. Herein I have only hinted at the method; I have promulgated conclusions. Some may react by thinking these concepts are some form of unrealizable utopian fantasy. From this skeletal description, mainly of conclusions out of context, it is easy to poke holes and to imagine hypothetical situations that seem to thwart the implementation of this technology. They are all subsumed by a proper implementation, the result of which emerges as a non-coercive self regulating social structure wherein all three players: PUBLIC, CAREGIVERS, and INSURANCE PROVIDERS willingly participate for their own selfish reasons. It will culminate in our salvation from the seeming impasse of the political quandary in which we currently find ourselves.

    For others, these skeletal beacons may illuminate the world where my mind abides, where quality medical care receipt and delivery occupy the same universe in harmony and freedom. Simply engaging in medical care contracts, between people and caregivers, of a kind never present before in the marketplace, can provide enough grist for some to envision this pathway to a positive revolution of health care delivery wherein each individual receives the best possible health care at the lowest possible price given the realistic abilities of the caregivers.

    The medical marketplace is already seeing an embryonic, but imperfect, form of contractual medical care that recently developed. The desire to free themselves from the insurance debacle led a few physicians to offer a contractual service recently dubbed ‘concierge’ medicine. They offer a two party contract between an individual and themselves that specifies rather broadly encompassing medical services for a specific period of time (say a year) at a specified fixed price. Instead of charging for individual services or procedures, they include these and liberal access to their advice and assistance in the contract. Unfortunately, not being grounded in this theory, they fail to provide any specific outcomes or warranty. Nevertheless, this is a step in the right direction. Though conceived out of desperation rather than contemplation, these caregivers are pioneers of a nascent revolution.

    In conclusion, I’d like to present a single simple example of the first step, the first pylon, of this bridge to achieve these goals. I am a radiologist. Imagine that I offered a contract to perform a screening mammogram on an asymptomatic individual, one who attests that she has no symptoms or findings to suggest that she has breast cancer (ie, no lumps, pain, discharge, prior abnormality in her breasts, etc). But, unlike the offer currently in the marketplace, I make two offers: For $50, I will perform the mammogram, interpret it with no guarantees. This is the current system, but most caregivers offer this service at a considerably higher price. Or, for $150 I will perform the mammogram, and I guarantee that no breast cancer will be discovered in this woman’s breast in the next 1 year. If it is, I would pay a penalty of say $5,000 to her. If from this mammogram, the diagnosis is uncertain to me, and I recommend further work, like ultrasound, a 3D guided needle biopsy, or so on, then I shall provide these services at no additional charge. However, if a surgical biopsy is recommended, and it shows that she does not have breast cancer, I would pay a penalty of $1,000 for having recommended surgery that proved unnecessary because of my uncertainty. Read it again. This is a simple contract. The individual pays $150 total to determine with a $5,000 guarantee that she has no breast cancer for the next year, or she pays $150 to learn that she probably has breast cancer and requires surgery, in which case I pay $1,000 if I’m wrong.

    Now you might say, what’s $1,000, or even $5,000, to a person in whom I miss a breast cancer? And the answer is: its $5,000 more than anyone else is paying for a mistake. When a better radiologist than me emerges, that caregiver will offer a better contract than mine, and each individual can choose to contract with that caregiver instead of me. This mechanism incentivizes me to either get better so I can compete to the limit of current medical knowledge and ability, or to direct my energies where I have more expertise. I think this abbreviated presentation is sufficient insight to provide a vision of the sweeping revolutionary power these pivotal innovations have. The elegant but elementary step of caregivers guaranteeing their work encourages the convergence of optimal quality care and universal voluntary acceptance of this technology by initiating the foundation for a new social order. Without invoking politics, this structure resolves all the political quandaries: universal access, insurance ‘regulation,’ and cost ‘control’ minus the coercion. The State has no role, save not to intervene; and caregivers are incentivized to find that sweet spot of offering the best balance between guarantees and prices for services rendered.

    Though the forest may still lie obscured through this one tree example, I believe that a smooth transition will ultimately encompass far more broad reaching contracts between caregivers and individuals and will eventually replace all forms of conventional medical health care delivery. As you no doubt know, my ideas have evolved over decades of attention to these issues in my medical career, inspired by the profound concepts I absorbed from my mentor, Andrew J. Galambos, to whom I owe an enormous earned debt of gratitude.


    • fgmarks says:

      In his comment Dr. Mark Stein discloses his innovative approach to medical practice that has the capability, when fully developed, to solve or obviate all the problems of the current dysfunctional health care system described in David Goldhill’s book, Catastrophic Care: How American Health Care Killed My Father and How to Fix It. These problems include, but are not limited to extremely high costs that are growing to a totally unsupportable level; perverse incentives that keep costs rising; the absence of a normally functioning market in which the law of supply and demand operates and customers make decisions based on price and quality of services offered; an unacceptable death and injury rate from hospital borne infections and medical errors in hospitals; and the worst customer service in America, bar none.
      The following observations are based in large part on an interview that Dr. Stein afforded the author of this website after his comment was posted.

      • The dollar numbers in his comment are hypothetical; actual amounts would be based on population statistics for breast cancer and the radiologist’s track record
      • Ultrasound, needle biopsy, and surgical biopsy are different procedures. Ultrasound could be sufficient in some cases to diagnose a benign condition that is not cancerous; needle biopsy is indicated in others and surgical biopsy in still others. A needle biopsy provides a sample of tissue; the surgical biopsy excises the tissue. Needle biopsy requires very little post-procedure recuperation. Surgical biopsy usually requires general anesthetic. Radiologists perform needle biopsies. Surgeons perform surgical biopsy. The surgical biopsy is done in hospital or in an outpatient surgical facility; the patient is observed in a recovery room until she is stable enough for discharge. Recuperation may take a week or more.
      • If the diagnosis is cancer physicians who treat cancer could also provide a guaranteed contract.
      • The contract could specify the price of the treatment. Kaiser Permanente (see below) already operates in this way—specifying a contract price for extraordinary treatment, as contrasted to routine treatment paid for by periodic charges.
      • The guarantee could be that after treatment the patient will recover and be free of malignant cancer for a specified period of time. The longer the time guaranteed ordinarily the higher the price of the contract.
      • The contract for treatment would specify an amount of compensation to the patient in event the guarantee becomes applicable because of a recurrence of cancerous malignancy.
      • As a matter of sound practice, in order that a physician not become financially unable to honor his or guarantee, the treating physician or physicians would buy insurance to provide indemnification to themselves for all or part of the amount payable under the guarantee.
      • There are two requirements for a competent guaranteed contract;
      1. Population statistics showing the percentages of various outcomes
      2. The physician’s track record (based on adequate data on outcomes)
      • A related requirement is actuarial accounting and underwriting capability virtually identical with the actuarial and underwriting functions employed by insurance companies to set the price for their insurance contracts.
      • Group medical practice would be the best means for employment of guaranteed medical contracts because a group practice could have the following characteristics
      1. A full range of diagnostic and treatment capabilities
      2. A larger and more comprehensive data base on outcomes
      3. Experienced physicians who could mentor younger physicians who have not had the time in practice to develop a track record of outcomes
      4. The corporate characteristics of centralized management, continuity of existence (potentially perpetual), limited liability, and transferability of ownership interests
      • Prototypes of such group medical practice exist already, e.g.
      1. Mayo Clinic is a medical practice and medical research group. It is a large integrated group medical practice employing more than 3,800 physicians and scientists and 50,900 allied health staff.
      2. The Cleveland Clinic is a multi-specialty medical practice and medical research organization that employs approximately 2,800 staff physicians and scientists and 1,300 residents.
      3. Kaiser Permanente consists of the Kaiser Foundation Health Plan, Kaiser Foundation Hospitals, and Permanente Medical Groups. As of 2006, Kaiser Permanente operated in nine states and the District of Columbia, and was the largest managed care organization in the United States, with 8.9 million health plan members, 167,300 employees, 14,600 physicians, 37 medical centers, and 611 medical offices

      The concept disclosed in Dr. Stein’s comment does not preclude or foreclose other issues arising that ought to be mentioned to anticipate various objections that could be made to the guaranteed medical contract concept, including the following by way of example, but not limitation.

      • Congenital birth defects are often of a kind that medical and biological science has not yet found a way to cure or even to ameliorate. The best way to finance the care of people born with such congenital defects is a concept innovated by Andrew Galambos. That is birth defect insurance. Population statistics are adequate to allow an insurance company to price such insurance and sell it profitably. Prior to pregnancy the prospective parents could take out such insurance. The range of benefits would be a matter of contract. The greater the benefit the higher the price. For example, the highest price would be for lifetime medical and custodial care for seriously handicapped children.
      • A person born in normal, healthy physical condition later could develop a chronic sickness that would make medical insurance very expensive. The reader should bear in mind that such insurance could be offered today to people suffering from chronic sickness but for state regulation of insurance rates that virtually prevents an insurance company from pricing insurance for chronically sick people at a level that makes the insurance profitable for the insurance company, and thereby persistent and stable for the insured.
      • Pre-pregnancy insurance could be designed that would provide for the prospective child to be insurable for life at a reasonable price irrespective of subsequent onset of chronic sickness that would otherwise be very expensive to insure.
      • There would be people who cannot afford to pay for guaranteed medical contracts or to buy birth defect insurance, or guaranteed lifetime insurance irrespective of adverse health developments. The solution for such cases is not the state with its taxation to provide for the needy. That “solution” opens the way for development of a politically organized and coercive full-fledged social welfare state. We have seen the adverse consequences of the full-fledged welfare state. They are financial bankruptcy of the state and its citizens.
      • Economic poverty is the cause of the inability to afford medical contracts or insurance as described above. The solution to poverty is freedom and innovation which maximize the wealth of a society and its average standard of living. Those two factors, freedom and innovation, will minimize the number of people too poor to afford medical care under the system described above.
      • For those who are too poor to pay for their medical care even in a free society, charity could be a solution. There is evidence from the experience in American history that wealth and a high degree of charity go together. The wealthier a person is, generally the more such person gives to charity; and the wealthier a society is, the higher the societal level of giving to charity. Charity will remain a necessary partial solution only so long as a society has not developed the high degree of affluence and technological prowess that can be anticipated once total freedom has taken root for several generations.

      Guaranteed medical contracts in the hospital setting could provide some interesting and valuable concepts for development, including by way of example, but not limitation, the following.

      • Prices: A hospital could establish a price schedule for frequently used hospital services, such as delivery of a child, coronary care, surgery facilities, etc. Stand alone, proprietary, outpatient surgical facilities exist already. They have a price schedule. A hospital should be willing to have a price schedule for use of its surgery facilities from admission through recovery and discharge.
      • Hospital-borne infections. A hospital could guarantee that its customers (a word used advisedly here) would not contract a hospital-borne infection. The pricing of the guarantee and the financial consequences of payment to someone who did develop a hospital-borne infection would operate similarly to the example given by Dr. Stein for diagnostic imaging procedures.

      It is reasonable to believe that a hospital would have a significant competitive advantage if it offered just those two contractual terms–pre-admission price disclosure and guarantee against contraction of hospital-borne infections.

  5. Alfred Sils says:

    Dr. Stein’s essay is well written. He has obviously thought about this subject in great detail. We do, however, live in the real world and the assumptions he makes are breathtakingly fantastic and too numerous to discuss. His removal of the insurance industry to a position of being the ultimate guarantor of physician contracts simply places this rapacious industry in a position to control health care completely. In addition, it is worth noting that of the examples cited by Mr. Marks as potential vehicles for the contractual provision of health care, two are employers of salaried physicians and one (Kaiser) is a single payer system.

    The fact is we do not have to reinvent the wheel. If we look to the successful European and Israeli systems a model already exists on which we can build. Let’s get real.

    • fgmarks says:

      Dr. Sils communicated another brief comment: that the health care payment system in Japan is another model that works well.

      Gabriel Kune is a highly regarded Australian physician who is an Emeritus Professor of Surgery, Melbourne Medical School, University of Melbourne, Australia and author of two books: The Home Health Guide to a Cancer-Free Family (2004), and Nothing Is Impossible: The John Saunders Story (1999). In 1959 John Saunders co-founded what became The Westfield Group, based in Sydney, Australia, that has become the world’s largest shopping center company.

      Dr. Kune has asked that the following be added to the blog post, America’s Health Care Catastrophe

      Here is a brief summary of how I see the Australian Health Scene, given that I am no longer in the middle of it, having retired from clinical practice, and given that I am no economist.

      We have a compulsory health insurance scheme called Medicare, and pay almost 2% of our gross income. This works quite well for serious illness or admission to public hospital or care in public hospital outpatient departments, and to a lesser degree for primary care by GPs. The downsides are a few, mainly long waits for non-acute surgery such as hip replacements, cataracts etc, and no choice of Specialist in Hospitals.

      There is a parallel Private Health Insurance possible so one has a choice of Doctor, and have rapid access to treatment, particularly surgery. This insurance added to the so-called Medicare Rebate usually covers costs, with the exception of things like cosmetic surgery where there is an out of pocket expense in many cases. Overall private health expenses are I believe much, much lower in Australia than in the US.

      On top of this two-tiered scheme we also have a Veterans’ Scheme similar to yours, as well as two further insurance schemes one for employer paid Workers Accident and Injury Scheme and a No-Fault Transport Accident Compensation Scheme paid for at Vehicle Registration.

      Clearly nowhere near ideal, often the subject of complaints from various quarters, but in my view, just as Democracy, “A bad system, except for all the others.”

    • fgmarks says:

      The real world we inhabit in America is actually a world of fantasy–wherein the already gigantic and steadily growing unfunded social welfare liabilities (much of it for health care) of the United States are disregarded. It is a fantasy to believe that coming generations of Americans will be able to pay for the already accumulated and unfunded social welfare liabilities of the United States of America, that now exceed $200 trillion. Sums that large are unimaginable in aggregate. In every day life they seem like mere statistics. At the level of American households these unfunded future liabilities amount to an average of around $1.7 million per U.S. household, this in a society where total household net worth is around $50 trillion (including home equity) or around $430,000 per American household.

      The term “unfunded future liabilities” means the amount of contemplated and promised future benefits in excess of the taxes allocated in U.S. finances to pay the benefits.

      These amounts will not be paid because they cannot be paid. They cannot be paid because the benefits were legislated without calculation of how they could be paid over coming generations.

      To pay these amounts present and future generations of Americans would have to liquidate all of their assets, including home equity, and turn the proceeds over to the U.S. federal state. Even then the remaining unfunded liabilities would be three times as much as Americans had paid by divesting themselves of all their assets.

      The U.S. federal state is the world’s largest insurance company, and the most insolvent by any forward looking standard of measurement.

      The suggestions of Mr. Goldhill and Dr. Stein are far more practical than a continuation of the status quo, which amounts to a giant, slow motion train wreck in process of developing.

      Americans don’t see this looming financial wipeout because influential politicians and academicians don’t see it, or if they do, they act like the proverbial ostrich with its head buried in the sand.

      These are not scare figures made up by political ideologues. They are amounts calculated by Professor Lawrence Kotlikoff of Boston University and reported in two books mentioned in the blog post reviewing Mr. Goldhill’s book. Professor Kotlikoff’s calculations are based upon data reported by the U.S. Congressional Budget Office (CBO). Professor Kotlikoff has written two books to warn the American people of this problem. The latest is entitled The Clash of Generations: Saving Ourselves, Our Kids, and Our Economy (MIT Press 2012). The first chapter of this book is entitled “The United States is Bankrupt.”

      It is not only the CBO that is warning Congress, the executives branch of the U.S. federal state and the American people. The International Monetary Fund (IMF) issued similar warnings to the U.S. in a report issued in 2004, namely Muhleisen, Martin and Christopher Towe, Editor, “U.S. Fiscal Policies for Long-Run Sustainability,” Occasional Paper 227. This IMF report says, at page 8: “. . . closing this fiscal gap would require an immediate and permanent 60 percent hike in the federal income tax yield, or a 50 percent cut in Social Security and Medicare benefits. The analysis also illustrates that this gap is associated with a severe intergenerational imbalance, with the burden of future generations increasing further if corrective measures are delayed.”

      Note: The U.S. is a founding member of the IMF. When a country joins the IMF, it agrees to subject its economic and financial policies to the scrutiny of the international community. The IMF’s regular monitoring of economies and associated provision of policy advice is intended to identify weaknesses that are causing or could lead to financial or economic instability.

      The U.S. has done nothing to avert the financial instability the IMF warned of in the above-mentioned report. This is the kind of report by the IMF that one associates with weak and dysfunctional countries, such as Argentina where the state’s social security system went bankrupt in the financial crisis of 1999-2002. Hyperinflation in Argentina from the 1970s onward motivated Argentines to move their savings outside the country. To counteract this, in the 1990s the Argentine state encouraged citizens to hold U.S. dollars in Argentine banks, but in the financial crisis of 1999-2002 unilaterally converted these dollars to a new Argentine currency “. . . at an exchange rate far below the market level. . . [T]his was a widespread legalized theft.” See Rojas, Mauricio, The Sorrows of Carmencita: Argentina’s crisis in a historical perspective (2002), pages 122-123.

      In 2008 Argentina nationalized, i.e. confiscated, $26 billion in private retirement accounts in order to use the money to bolster the state’s finances. See “Argentine Congress passes pension nationalization law,” AFP [Agence France-Presse], November 20, 2008

      David M. Walker, when he was Comptroller General of the U.S. and head of the Government Accountability Office issued similar warnings near the end of first decade of the 21st century. Mr. Walker was so concerned about this looming fiscal shortfall of the U.S. that he left federal employment to take a position in the Peterson Foundation in order to sound an alarm, and then then set up his own foundation called Come Back America and published a book entitled Comeback America: Turning the Country Around and Restoring Fiscal Responsibility (2009) to warn the American people.

      There are quite a few books by other authors and commentators warning the American people of the unsustainability of federal health care and other welfare programs.

      People don’t write such books idly. They do it out of concern for their country and the American people.

      What a travesty it would be to induce generations of Americans to rely on the promises of the U.S. when those promises are sure to be broken.

      If America is to avoid ugly social unrest and conflict, its intellectual leaders must do something to make politicians and the public aware of the true nature of the problem.

      In Mr. Goldhill’s book he asserts that if state-funded health care costs continue on the path established since enactment of Medicare and Medicaid in 1965, the entire gross domestic product, meaning all of the income of Americans, will have to be spent on health care–an obvious impossibility.

      The real fantasy is to think the status quo can continue.

  6. Nick Anton says:

    The author of the following comment, Nicholas Anton, MD, is a retired physician who was an internal medicine practitioner for many years. Dr. Anton is a member of Physicians for a National Health Program (PNHP). Dr. Anton says that retirement has allowed him more time to read and to investigate these issues. His comment follows.

    I appreciate your thoughts and those of Malcolm Gladwell and David Goldhill; however I continue to be convinced that what I have proposed (see below) continues to be the best solution for this issue. Healthcare system change is like turning an aircraft carrier. It requires a big tug boat not 1,000 rowboats. A big change requires a big effort. In such a system, in spite of Hayek’s “fatal conceit,” a top-down plan is needed.

    I’ve decided to address the issue by first giving you my take on our healthcare system and then discussing your blog and the Goldhill video.

    I agree with much of David Goldhill’s assessment of our current healthcare system. It is exorbitantly expensive, $2.7 trillion last year, nearly 18% of GDP; extremely complex due to its multi-payer composition; produces mediocre health results compared to international peers as complied by the OECD (Organization of Economic Cooperation and Development); and is wasteful and leaves nearly 50 million in the US without health insurance (healthcare), resulting in 45,000-50,000 unnecessary deaths a year. Private for-profit health insurance, mostly tied to employment, results in 30 cents out of each healthcare dollar being spent on administration, profit, marketing for the insurers, and unnecessary administration for the providers of healthcare. Studies by Himmelstein and Woolhandler have estimated this excessive administrative expense to be $3-4 hundred billion dollars annually.

    Employer-supplied health insurance results in the loss of health insurance when an employee is laid off or the company downsized. Healthcare debt continues to be the cause of 62% of individual bankruptcies, of which 75% had insurance at the onset of their healthcare debt accumulation. Many healthcare economists estimate that $700 billion dollars/year in borderline or unnecessary treatment occurs annually (see the book Overtreated by Shannon Brownlee). As a result, unnecessary hospitalizations and complications occur causing lives and dollars to be lost.

    As a result of this dysfunctional system, costs/prices are rising faster than inflation. Provider groups (hospitals, doctors, and ancillary services) are combining to form large, dominate provider organizations. 52% of doctors are now employed by hospital organizations. Large insurance companies–seeing the handwriting on the wall–are increasingly purchasing provider groups in large numbers. Half of the US has no competition between provider groups for the provision of health services. Even the largest insurance companies are unable to negotiate lower prices because of the dominance by these provider groups. The only insurers that control prices for medical services are Medicare and Medicaid. Medicare, while expending less than 2% on administrative overhead in traditional Medicare, has its total overhead raised to 5.2% because of the excessive administration of Medicare Advantage plans (the private for-profit Medicare plans), serving 25% of the Medicare patients.

    Goldhill states that Medicare and Medicaid have no incentive to reduce healthcare spending because they are “entitlements.” The reality is that Medicare and Medicaid have been restrained or prohibited by laws (passed mostly by those legislators who are most critical of entitlements in order to protect and further corporate and business interests) which mandate Medicare to pay for any drug or medical device approved by the FDA while prohibiting Medicare from negotiating drug prices as do other countries and our own VA system. In addition, the US healthcare system pays 50% more for pharmaceuticals and 20-25% more for durable medical equipment (DME) (artificial joints, pacemakers, etc.) than the rest of the OECD countries.

    What is the solution to this massive problem? The recently-passed Affordable Care Act (ACA) (2800 pages) offers some tangential solutions by insuring 20-25 million of the uninsured (most optimistic of projections), creating insurance exchanges (marketplaces) for those without employer-based insurance and those with pre-existing conditions to obtain health insurance, eliminates annual/lifetime caps on health spending, allows 18-26 year-olds to stay on their parents’ insurance, gives government subsidies to those making less than 400% of the poverty level to pay health insurance premiums, reduces the overhead allowed for insurance companies to 15-20% of revenue, expands Medicaid to cover those below 138% of the poverty level (currently only 25 states are participating in this expansion), creates prototype plans designed to study alternative payment methods and cost reduction schemes (pay for performance and accountable care organizations), gradually closes the doughnut hole in the Medicare Part D prescription drug benefit, and mandates that every individual buy health insurance and every company with more than 50 employees provide health insurance for their employees or face a fine, and gradually eliminates the Medicare Advantage plans, designed to save 500 billion dollars over ten years.

    On the downside, the ACA preserves the for-profit health insurance industry and enlarges their market, does nothing to reduce the cost of pharmaceuticals and DME or other healthcare costs, and leaves 25-30 million without any healthcare coverage. Since the ACA is based on the Massachusetts health plan (started in 2005), we can guesstimate other consequences of the ACA based on the results in Massachusetts. The overhead for healthcare will rise to administer the plan, while doing little or nothing to abate rising healthcare costs and not reducing the number of individual bankruptcies related to healthcare debt. This is not the solution. The ACA’s one saving grace is the provision to allow states, in 2017, to obtain waivers from the federal government to obtain the Medicare and Medicaid dollars spent in the state and to design and administer a healthcare system that provides the same or more benefits at equal or reduced cost. A portal to creative attempts at real reform at the state level. More on this later.

    David Goldhill is correct that our excessive expenditure on healthcare (18% of GDP) is robbing not only individuals of any income growth but is robbing our society of the ability to spend on needed infrastructure, educations, and needed safety net programs. He is also correct that it is not the employers’ job to lower healthcare costs, but it is in their interest that they be lowered. I also agree that the efforts of Dr. Peter Pronovost to institute procedures that result in decreased in-hospital infections and death are needed and should be supported and encouraged. I also agree that we shouldn’t medicalize lifestyle changes such as obesity, and medical decisions should be made at the level of physician and patient, not by insurance companies and their surrogates.

    However, I disagree with David Goldhill’s prescription for the problem. It starts with his assessment that healthcare has been given a pass, is on an island, and that by paying for routine maintenance (the homeowner insurance analogy) we are driving up costs. These are not the high costs of healthcare. This line of thinking—although he didn’t use the term—is based on the belief of a “moral hazard” that exists when individuals’ use of the healthcare system is separated from the payment for the services they use. The belief being, if I don’t pay directly for the service, I will not know the cost so will use more of it and this will “encourage profligacy and discourage frugality.” When looked at critically, as the Princeton healthcare economist Uve Reinhardt says, “there is little evidence for this occurring.” Yes, a tiny minority of patients are “frequent fliers,” the “worried well”, and overuses the system. These are small in number, and the kinds of services they use are the least expensive (i.e., frequent office visits). 20% of patients account for 80% of the healthcare costs, and 50% of the population will not use any healthcare in a given year.

    Healthcare should be seen as a right for everyone, and all of us should contribute, as most of us will be using it at some point in our lives unlike many other things we collectively fund through our shared society and government. The thought that we will approach buying and using healthcare like we approach buying a flat-screen television or going to a certain gas station because the price is better flies in the face of reality. Healthcare is different than the market would like it to be, and patients choose doctors and hospitals differently.

    I agree that the system needs to be more use-friendly, service-oriented, and receptive to patients’ needs. But to think that putting money in the hands of individuals to pick and choose what healthcare services they need and where to get them is for me a reach-too-far. How much would they spend on alternative medicine (currently not covered by insurance, but unproven and reaping $54 billion a year)? Currently under consumer-driven plans where patients have Health Savings Accounts (HSAs) with high deductibles and co-pays (close to Goldhill’s proposal), we see a decrease in the use of low-cost medical services. These measures have an initial small effect on decreasing costs due to less use of low-cost medical services but ultimately result in many of these individuals entering the healthcare system more sick and with more advanced disease which becomes extremely costly for the system. Patients with so-called “skin in the game” aren’t always using the system intelligently and appropriately, and there is an overall decrease in quality of healthcare.

    The belief that by empowering consumers/patients with the help of their physicians to make health decisions based on market dynamics will change a complex, entrenched system with powerful and well-financed interests (insurance companies, hospitals, MDs, pharmaceuticals, and DME companies) is impossible to comprehend. In a recent July 24, 2013, JAMA article “Views of US Physicians About Controlling Health Care Costs,” 79% of physicians agree that they “should be solely devoted to individual patients’ best interest even if that is expensive.” Unfortunately, this does little to control societal healthcare costs. In that same article, physicians were also strongly opposed to high co-pay and high deductible plans.

    Let me propose a better solution. First, I’m going to concede that in the current political and ideological climate at the national level, change would be at the least improbable if not impossible. This is why the provision of the ACA that allows states to institute their own healthcare program in 2017—if the benefits and the costs are equal to or better than those of the ACA—is so important. States such as Vermont and Hawaii are proposing solutions close to what could be described as an improved Medicare-for-All system. Such a system would cover everyone living in the state. The benefits would be comprehensive, including hospital, medical, surgical, and mental health; dental and vision care; prescription drugs and medical equipment (e.g., hearing aids); ER care and ambulance services; substance abuse and recovery programs; diagnostic testing and Hospice care. There would be no co-pays or deductibles. Each patient would have a health card similar to a credit card within an imbedded microchip containing the patient’s medical records. Doctors and hospitals would have only card readers, with no on-premises charts or electronic patient medical records. Such a card system has existed for many years in France and was more recently instituted in Taiwan.

    How could we pay for such a comprehensive set of benefits to all residents of the state? California actually passed such a bill (SB810, only 80 pages) twice (2006 and 2008) only to be vetoed by then-Governor Schwarzenegger. Prior to its passage a financial analysis was done in 2005 by the Lewin Group (at the time, an independent consulting firm but now part of United Healthcare). Revenue was a combination of Medicare/Medical dollars already spent in California, a payroll tax split between employers and employees, and a small 0.001% on electronic stock and bond transactions. Excessive administrative overhead worth billions of dollars was reduced by the elimination of for-profit insurance companies.

    Additional billions were saved by negotiation of lower pharmaceutical, medical supply, and DME costs. There would be global budgeting for operational costs of hospitals and separate budgets for capital costs based on the needs of the system. Fee schedules would be negotiated to fairly compensate physicians and to increase financial reimbursement for primary care services. Savings determined by the Lewin Group in the first year alone would amount to $20 billion in reduced administration, $5.2 billion in bulk purchasing, $3.4 billion by increasing emphasis on primary and preventive care, and $800 million from increased ability to recognize and reduce fraud in the system.

    A total savings of $29 billion would result while extending comprehensive benefits to all Californians including the 7 million currently uninsured. Individuals, businesses, and government agencies in the state would pay less for healthcare than they are currently paying in premiums and out-of-pocket expenses. Similar financial analyses have been done for Minnesota, North Carolina, and other states with similar results. As a result, physicians would no longer give uncompensated care, have a reduction in office overhead (currently $80,000/US MD/year compared to $20,000/Canadian MD/year), and an immediate decrease in malpractice premiums (half of all malpractice settlement dollars are for current and future healthcare costs).

    For patients, there would be no restriction on choosing doctors and hospitals and the freedom to move or change jobs without loss of healthcare coverage. Such a system would begin to encourage the development of integrated delivery groups and begin the process of moving from fee-for-service compensation to salaried physicians (i.e., the Kaiser system). This change would allow these integrated delivery systems to pay for care of a population of patients, and the physicians in such an arrangement could determine best care along with their patients free from outside interference.

    The responsibility of the payer organization would be to monitor quality of groups and individuals based on agreed-upon metrics of medical care quality as well as customer/patient service based on feedback and surveys. These findings to be transparent and made public thus allowing patients to make intelligent decisions in choosing hospitals and physicians. In addition, such a system will move toward total integration of an information technology (IT) system in addition to the patient medical record cards. Such IT integration would allow early identification of successes or failures of new procedures or pharmaceuticals, on-set of new or old diseases or epidemics at an early stage, and institution of best practices. A coordinated, system-wide public health approach to nutritional, environmental, and behavioral changes could be instituted which is critical to the health of the entire population.

    The Canadian Medicare System, started in Saskatchewan by Tommy Douglas in 1945 with the provision of hospital services to all inhabitants of the Province, was expanded in 1962 to include physician services. Within ten years, the other provinces of Canada adopted similar programs, and the healthcare costs of Canada and the United States (which were at the time an identical % of GDP) began to separate. The 70% of the Canadian Healthcare System which is their public Medicare (including all ages) has been consistently 7.5% of GDP for the past 30 years. The total cost for Canadian healthcare is 11.2% of GDP because the private sector–including dental, vision, outpatient drugs, and rehab–has a much higher overhead than the public sector and prices have been rising higher in that sector. Had the United States growth in our Medicare/per capita costs been equal to the growth in the Canadian patients over-65/per capita costs, the US healthcare system would have saved over $2 trillion in the last 30 years. The proposal that I have outlined is much more comprehensive than the Canadian system since it includes all those elements that are private in their system.

    Fred, I appreciate your thoughts and those of Malcolm Gladwell and David Goldhill; however I continue to be convinced that what I have proposed continues to be the best solution for this issue.

    • fgmarks says:

      Dr. Anton:Your comment is most informative.

      First, it seems clear that it is a needless struggle for physicians, and costly in terms of time spent by office personnel, to get timely payment from private medical insurance companies. That is disgraceful and unacceptable. This disgusting phenomenon is a big part of the pathology of the current prevalent payment method for health care, where most payment is via insurance claims. That is an issue that David Goldhill addresses. He says that except for catastrophic health problems all other costs should be paid by patients, directly, out of pocket. If that eventuates, presumably the payment policies of medical insurers would parallel payment policies of property and casualty insurers, i.e., companies that write homeowners, auto, and business property, casualty and liability insurance. There are few reports of insurance companies in those fields stalling on payment of claims.

      From all accounts Medicare pays promptly without question the amounts they allow. The issue for primary care physicians is inadequate payment by Medicare. The cause for this is discussed in the review of Mr. Goldhill’s book.

      The Medicare system does not place much value on the personal consultations which are at the heart of the practice, and the value, of primary care physicians. This is a significant factor driving primary physicians away from Medicare, and driving new physicians away from specialization in primary care.

      The administration expenses of Medicare are far higher than widely reported. Taking into account costs incurred in the private sector on account of participating in Medicare the administrative costs of the program are 5.2%, according to Sally C. Pipes in her book entitled The Top Ten Myths of American Health Care (2008). Sally Pipes has a bias against state action and in favor of free enterprise and makes no bones about it. The publisher of her book is The Pacific Research Institute (PRI), a San Francisco based think tank. On its website PRI says: “The mission of the Pacific Research Institute (PRI) is to champion freedom, opportunity, and personal responsibility for all individuals by advancing free-market policy solutions.”

      The 5.2% in Medicare direct + indirect administrative cost is still far lower than the administrative costs associated with private insurance. However, an additional cost of Medicare is fraud, waste and abuse which a decade ago was estimated to be 20% to 30% of Medicare costs. The source of that statement is Malcolm Sparrow, a health care fraud expert at Harvard University’s School of Government. Sparrow was interviewed and quoted at “Medicare bilked for billions in bogus claims,” by Reynolds Holding, San Francisco Chronicle, January 12, 2003,

      Malcolm Sparrow has published a book entitled License to Steal: How Fraud Bleeds America’s Health Care System (updated edition 2000).

      Here is an interesting selection from the Malcolm Sparrow interview in The San Francisco Chronicle:

      “A major obstacle to effective oversight, say many experts, is the lack of financial incentives to scrutinize claims. Medicare puts private insurers on a fixed budget to compensate them for the costs of handling claims. The incentive is to process the claims as cheaply as possible.

      “‘We try to do a good job,’ says an executive responsible for reviewing doctors’ claims in California, ‘but we don’t get extra money for doing a good job.’

      In their private insurance businesses, companies typically spend more than 8 percent of the total cost of paying claims on the review process, the GAO [Government Accountability Office] said. But in a 1998 report, the GAO found that 41 companies spent only .007 percent of their cost of handling Medicare bills on ferreting out fraud and abuse.

      “‘There just isn’t a whole lot invested in reviewing (Medicare) claims,’ says William Scanlon, managing director of health care at the GAO.

      “While researching the 2000 edition of his book on health care fraud, ‘License to Steal,’ Sparrow says he posed to several contractors a hypothetical scam: A doctor submits a $1,500 Medicare claim. The insurer pays the claim and thus confirms that the bill was coded correctly. The doctor then submits identical but false claims on the same day for 10,000 other patients.

      “Virtually every contractor conceded that the scam would work, says Sparrow, and the doctor ‘would most likely get his or her $15 million check at the end of the week.’”

      Suppose one takes as a given that Medicare fraud losses are what Professor Sparrow says they are–20% to 30% of Medicare costs. Add that to the 5.2% of direct and indirect expenses of Medicare. The total comes to between 25% and 35%, a figure as high as if not higher than the expense ratio of private medical insurers.

      Single payer health care finance via the federal state, presumably through Medicare, could reduce these costs significantly. However, for reasons pointed out in his book, that would not eliminate a bigger problem of single payer systems: the pressure from the public for more extensive and sophisticated care as biological science and medical practice develop new and better treatments to alleviate or at least palliate a host of chronic sicknesses that are primarily the result of aging or of poor lifestyle choices.

      Just about everyone agrees the health care payment system is dysfunctional and financially ruinous for individuals and the country. There are two primary, opposite, and competing ideas about the cause of the problem and an appropriate solution to this enormous problem:

      • One idea is that private health care insurance companies have caused the problem by their virtually rapacious conduct. Hence, the solution is to get private insurance out of health care and turn the whole of American health care over to the federal state.
      • The other idea is that the state’s well-intentioned policies are actually a major cause of the problem, although not the entire cause. Mr. Goldhill develops this point in an illuminating way, starting with the tax-favored treatment of employer-sponsored health care insurance. In this view, the solution is to minimize the role of the state and of private medical insurance, as Mr. Goldhill explains in the primary thesis of his book.

      Another major issue is the idea expressed by Dr. Anton, and widely held not only in America but in the economically advanced countries of Europe, as well as Canada, Australia, and presumably Japan—that health care is a “right,” not a “privilege.”

      Andrew Galambos provides a penetrating analysis of the idea that some benefit is a human “right.” Stripped of all its humanitarian appeal in the case of health care, this amounts to saying that everybody has a right to have his or her health care paid for by everybody else, even if health care is defined so broadly as to include medical attention needed, by way of example but limitation, due to poor lifestyle choices, for routine checkups and tests and for medical services that most people could pay for if they did not have a disincentive to pay because they believe that through the mechanism of the state others will pay for them.

      That attitude leads directly to an intractable dilemma: bankruptcy of the state if the status quo continues, or state imposed rationing of health care.

      The word “rationing” is odious when it comes to health care. Yet that is the raison d’être basis of HMOs (Health Maintenance Organizations). In single payer systems the state rations medical care by limiting it or denying it based on a calculation of costs and potential benefits to sick people. To be explicit—by denying some forms of health care entirely to people considered too old to justify the expense; or by making people wait a long time for elective procedures that are expensive but not immediately life threatening.

      The free market has an automatic, built in form of rationing. It is price. People, one by one, individually, make a personal cost/benefit analysis before making any significant purchase. The man or woman who decides to forego a purchase of a new or newer automobile, or some fashionable new clothing, in order to conserve their assets, is engaging in self rationing.

      The only argument against free market self-rationing in health care comes down to: what do you mean by that? We can’t just let someone die for lack of ability to pay for health care!

      That approach presents a classic false alternative–that the choice is letting people die or taxing others to pay for the health care of someone who cannot afford it.

      Those are not the only alternatives for someone in need of health care beyond his or her ability to pay immediately in full. Here are some less dire alternatives.

      • Credit: A person could finance purchase of health care by borrowing, just as they do with other expensive and desirable goods and services.
      • Insurance: That is low-cost insurance for catastrophic medical expenses, an alternative explored in detail by Mr. Goldhill.
      • Family: It is not uncommon for family members to help each other in case of need or emergency.
      • Charity: Physicians generally never turn away anyone who really needs their help in an emergency. They provide their services first in emergencies and ask for payment later. If the patient cannot pay physicians do not customarily press them for payment. Hospitals could provide charitable treatment as well. Many hospitals were established by and are operated by not-for-profit organizations under a charter specifying that they will operate to provide service to all irrespective of ability to pay.

      The foregoing are alternatives in the short term to the solution of providing medical care to those who cannot afford to pay the entire cost at the time of service.

      In the long run increasing productivity and production will solve the problem best of all. As a society grows in wealth and prosperity its people can afford to have goods and services that a poorer society scarcely can afford to even its most prosperous members. Consider what we have pointed out at various chapters in the book associated with this blog. Even the least affluent members of society in the so-called developed countries of the early 21st century have comforts and conveniences no king or aristocrat anywhere could have had three hundred years ago: e.g., clean water piped into one’s home, hot and cold running water, appliances and fixtures for waste disposal of all kinds including human waste, clean and unobtrusive heating in winter and cooling in summer, rapid local, national and international transportation by a variety of means, fresh produce in grocery stores all year round including summer fruits and vegetables imported in winter to the northern hemisphere from the southern and vice versa.

      The least affluent Americans, not including the homeless (more about them below) in the early 21st century have access to over the counter medications, inexpensive, privately operated walk-in clinics and the ability to consult, at least, with a primary care physician, unquestioned access to medical care in a real medical emergency, etc.

      Even the homeless in America are far better off than the nearly one billion people primarily in Asia and Africa who exist, barely, on the equivalent of $1.25 per day or less.

      The wealth taken via taxes to operate the state, at all levels national to local, is wealth that cannot be used for production. It is production that provides for consumption. It is capital, property produced, saved and invested rather than being consumed that is the source of growing productive capacity, and growing prosperity. The farmer with a motorized tractor is far more productive than a farmer using the muscle power of animals for cultivation of the fields. The farmer with a motorized tractor operates it from within an air-conditioned cab, and after work goes home to an air conditioned house. The farmer using a mule or an ox for motive power, more than likely goes home to an unheated, un-cooled dwelling with outdoor toilet facilities.

      By taxing away so much of the work product of the people the state lowers the standard of living enormously. Wealth diverted to tax goes by definition to non-productive activities. The wealth and standard of living in America grew most rapidly in the first 130 years of the nation, at a time when taxes were low.

      The higher the rate of taxation, the slower the growth of prosperity. It has been widely noted that real, inflation-adjusted, income of Americans has not grown, and has actually declined since 1970. Without undertaking detailed analysis, one can still remark with reason that it is not anomalous or paradoxical that the growth in the size and scope of state spending at all levels, has coincided with a decline and even a reversal in the growth of prosperity of American society as a whole.

      There is a homely truism that says give a man a fish to eat and he will eat that day; give him the tools to fish and teach him how to fish and he will feed himself thereafter.

      The state is taking from its citizens the ability to increase the tools which people in their individual pursuit of happiness can use to increase their ability to pay for the goods and services they want. In this sense tools means anything that aids in the production of goods and services, including, for example, immaterial tools like computer software.

      Two things could promote a long-term and permanent increase in the ability of Americans to pay for health care:

      • Changes in the use of insurance of the very kind advocated by David Goldhill
      • A significant reduction in state taxing and spending at every level from local to federal.

  7. Mark Stein says:

    Dr. Sils’ comments raise fears and concerns to these new ideas that emanate from old predominant ideas, grounded in historic patterns of social interaction.

    Though my comments only touched the surface of a social technology capable of revolutionizing health care delivery, there is much more depth to these new concepts than can be revealed in a concise introduction. To begin, the term, CAREGIVERS, refers not simply to physicians, but to a myriad of others, eg, PAs, nurses, various therapists from physical to respiratory to psychiatric, to physical trainers, dieticians, pharmacists, patient assistants, not to mention the medical instrumentation innovators, engineers, marketers, manufacturers, and Pharma.

    Also under the auspices of CAREGIVERS are facilities (hospitals; surgical centers; imaging centers; cancer centers; dialysis units; medical centers; rehabilitation centers; assisted living facilities; even research activities) to name a few. Then there are manufacturers, middlemen, and merchants who provide products from crutches and walkers to oxygen and wheelchairs, from exercise aids and supports for muscles and joints to wound care, from monitoring equipment to surgical suites and instruments. All of these entities would (can now) operate under the same social mechanism. Since that mechanism simply suggests that each and everyone one of these caregivers voluntarily offer contracts containing the elements that I described, it becomes a corollary of this social technology that there would soon be no employees.

    Obviously this conclusion is not obvious. In order for CAREGIVERS to fulfill their contractual obligations, each caregiver would need collegial and support services. These, too, involve contractual relationships: among caregivers; with similar elements: explicit outcomes, guarantees, costs, and terms. Thus, the caregivers would grow a network of contractual relationships to fulfill their contractual obligations, seeking colleagues and supporters who would warrant their end of the bargain, so to speak. What will evolve from this new way of working together is a networked team, melded by a series of contractual engagements, where no one would become anyone else’s employee. The system that will evolve will actually mitigate Dr. Sil’s worries. In fact, it’s the current system that is driving the power behind the insurance companies deciding what care they will approve or deny for the PUBLIC, and it’s the same current system that is driving the consolidation of hiring physicians as employees.

    So, if you can suspend your disbelief, and try to imagine this contractual world, then you will be able to envision that the insurance companies will have no power to effect either the cost of medical care delivered from CAREGIVERS to the PUBLIC, nor the power to approve or deny any specific service that the CAREGIVER provides to the PUBLIC. It’s the CAREGIVERS alone that will decide what they can offer, at what price, and with what guarantee for what outcomes. The only power the insurance company will have is to raise or lower the premium they charge the caregiver. The caregivers alone will decide how much insurance to buy and how much of that cost will affect the terms of the contracts that they offer.

    I understand that for most readers, these ideas are so revolutionary, so ‘out of the box,’ so seemingly fantastic, that they will dismiss them immediately as impossible, and raise all the historic criticisms. But, these ideas are, in fact, fresh and new, and they do not produce the same quagmire of disastrous health care with which we currently live.

    I conceived of them, integrated them into a coherent plausible non-coercive easy to initiate technology that offends no one, that violates no laws, and that simply provides an alternative that any CAREGIVER can offer to any individual in the PUBLIC domain, who can then accept or reject that offer for medical service or product. Thus, I remain optimistic that there are just a few readers, who will open their minds to the power of these concepts, and who will implement them, on a small scale at first.

    Then, I am convinced, that the free market will propel them to success by competitively overtaking the existing system, making it obsolete. This is how all innovation eventually succeeds the status quo. It begins with resistance, entices the minds of a few early adopters, finds preferential acceptance in the public domain, and evolves to become the dominant form of knowledge and technology.

  8. I am glad to read this post, it’s a good one. I am always looking for quality posts and articles and this is what I found here, I hope you will be adding more in the future. Thanks for sharing.

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