February 2018

Human Nature and the US Health Care System, Part I

By Carlos Fuentes

This is the third installment in a series of four articles that were summarized in “A Rigged Game,” published in the July/August 2017 issue of Contingencies, itself a follow up to “Winning or Losing the Game?” (Contingencies, July/August 2016), where a mathematical model was introduced to analyze the economic consequences of integrated delivery models. The first two installments of the series appeared in the August 2017 and November 2017 issue of Innovators & Entrepreneurs, respectively, under the title “Classical Thinking and Game Theory,” parts I and II.

The purpose of this series of articles is to illustrate the “soft” approach of Game Theory using Thucydides’ master work, The History of the Peloponnesian War1 (The History), and then apply it to analyze the strategic interactions of those who participate in the U.S. health care system, understand the root causes of the problem (cost, access, quality, efficiency), and draw conclusions about plausible mid- and long-term outcomes. Due to space considerations the study of Thucydides is limited to a few sections of the First Book of his magnum opus where he introduces his views on human nature, analyzes the causes of the war between Athens and Sparta, and recounts the justifications invoked by the belligerents. A few concepts of Game Theory are discussed to demonstrate how they are embedded in Thucydides thought. This approach should give an indication of how war colleges, military academies and courses on diplomacy approach the master.

The Game

Get your facts first, and then you can distort ‘em as much as you please—Mark Twain

If you can’t convince them, confuse them—Harry Truman

What is the problem with the U.S. health care system? Answering this question is important because it specifies the game. Accordingly, it should be expected that players attempt to define it in ways that advance their cause. Let’s explore the real problem first and then the problem that has been presented successfully to the public. The real problem, stated in objective economic terms, is the following: the U.S. health care system is expensive, inefficient, doesn’t cover a substantial portion of the population and if left unchecked it will continue to deteriorate. How do we know that? All serious studies on health care economics that compare the US with other industrialized countries agree that2 :

  • Cost—The U.S. devotes much more than any industrialized country to medical care. Here is a snapshot of spending as a percentage of GDP: 7 percent in 1970, 9 percent in 1980, 12 percent in 1990, 13 percent in 2000, 14 percent in 2010, 18 percent in 2016. Unless the system is revamped (not patched) the trend will continue until it reaches unsustainable levels. Is the US health care system wasteful? Yes, it is, for two reasons: One is that the U.S. pays more and gets less than other countries, the other is that resources that could be used elsewhere are consumed by an inefficient scheme3 ;
  • Access—By virtue of being the only industrialized country that lacks universal coverage and that conditions access to ability to pay (as opposed to medical need), the U.S. scores low in this category;
  • Quality—The U.S. is in the middle of the pack when it comes to effective care, safe care, coordinated care and patient-centered care. This outcome—that the U.S. is not the leader in quality—may surprise many;
  • Efficiency—The U.S. is at the bottom when it comes to effective administration, avoidance of emergency room care and coordinated care;
  • Mortality and life expectancy—The U.S. ranks very low in population mortality, infant mortality and life expectancy.

Details on relevant measures are widely available and will not be repeated here. The point is that the U.S. health care system underperforms by a wide margin in all important macroeconomic indicators despite the resources devoted to it (in 2014 expenditures per capita were $8,508 in the U.S. compared to $3,405 in the U.K.). But this is not the game presented to Americans. The public has been led to believe that some of these results are unimportant, incorrect or misleading, that other considerations have been left out and even that certain proposed solutions like universal health care are not only ineffective but also anti-American and morally flawed4 . Let’s review and comment on the most important smoke screens that have changed the game successfully:

  • “Whatever the flaws of the American health care system, the ‘invisible hand’ ensures that it is the best the U.S. can do”—This Panglossian argument relies on the quasi-religious status granted to the “invisible hand” and the lack of understanding of basic macroeconomic principles;
  • “Anti-American solutions will compromise freedom and democratic values. Government intervention is pernicious. A single payer system and/or universal coverage will not improve the health care system but instead it will lead to totalitarianism”—This argument ignores the fact that the other industrialized countries have never been in danger of becoming communist as a consequence of universal coverage. It also ignores the experience of the U.S. when Medicare was introduced in 1965: the American Medical Association5 and future president Ronald Reagan6 , among others, warned that Medicare would lead to socialism and the destruction of American democracy. To be fair, the argument is not exclusively American. The Austrian economist Friedrich von Hayek (1899–1992), whose most important work is a book on sociology titled The Road to Serfdom (popularized in the April 1945 issue of The Reader’s Digest7 ), expressed similar concerns on almost any type of government intervention. Surprisingly, von Hayek believed (as stated in The Road to Serfdom8 ) that universal health care provided by the government was desirable. Leaving aside concerns about totalitarianism, many people are worried, with reason, about the prospect of a hugely bureaucratic system that may not be responsive to the needs of individuals;
  • “When it comes to selecting providers and health care plans, consumers value freedom of choice, which will be lost if the current system is changed or universal coverage is enacted or a single payer system is adopted”—Oddly enough, the American system places more restrictions on the patient’s ability to select providers than the systems of most industrialized countries, including the U.K. and Canada. As for plans, why would anybody prefer a large number of options that are difficult to understand and require substantial cost-sharing over a simple, comprehensive plan?9 ;
  • “Access to care is limited in countries like Canada and the U.K. where people die while waiting for care”—Any serious economic study (for example, those conducted by the World Health Organization) contradicts this assertion. Why is it then that Americans think otherwise? The answer is propaganda on two fronts: one is comparing access to care between insured populations, sometimes focusing on elective services. This measure is biased because, on the one hand, elective services have low priority in health care systems that ration care based on medical need as opposed to ability to pay, and on the other, excluding uninsured populations makes the U.S. system appear much better than it is. The second front is anecdotal evidence that may or may not be true but that is statistically irrelevant.10 As a matter of fact, a study published by the Harvard Gazette reports that in 2009 there were 45,000 deaths in the U.S. linked to lack of health care coverage11;
  • “Health care in the U.S. is not rationed. Universal coverage or certain types of cost control would result in withholding needed care”—These beliefs, although common, are incorrect. Health care in the U.S., where access is rationed by ability to pay, is withheld more than in any other industrialized country. Furthermore, U.S. residents are subject to restrictions on certain services such as hospitalizations whose length of stay have been reduced dramatically over time;
  • “The best health care in the world can be found in the U.S. Changing the system would result in lower quality”—Although economic studies rank the quality of U.S. health care in the middle of the pack and life expectancy at the bottom, it is certainly true that the U.S. leads the world in the use of advanced technologies. The questions to ask are: how many people take advantage of these innovations? How do the costs/benefits of advanced technologies compare with the costs/benefits of other interventions? The answers to both questions may or may not justify investing disproportionately in advanced technologies, but people should realize that the benefits of such innovations are usually marginal and associated with end-of-life care at old ages;
  • “The current system is efficient, in particular, administration costs are low”—This assertion is a myth12 , yet a powerful one;
  • “Life expectancy has increased and the U.S. ranks high in the cure of certain diseases”—These are true statements that could distract from the real problem but do not disprove the contention that the U.S. health care system is a poor performer: life expectancy is greater in most industrialized countries and whereas the U.S. does rank high on the treatment of specific diseases such as cervical cancer, it performs poorly overall.

The perceived game can be framed as follows: “The underpinnings of the current system are solid; its shortcomings, primarily cost, can be fixed by fine tuning competition, preserving doctor and patient freedom of choice, increasing the use of technology and deepening analytical work, particularly with big data and predictive models. Governmental intervention can only have negative effects and, therefore, should be avoided. Universal coverage is not only undesirable but dangerous to the economic and ideological welfare of the country.” Interestingly and not coincidentally, the perceived problem almost suggests its own solution: let the “invisible hand” take care of business—literally.

If in fact the differences between the real problem and the perceived problem are so significant, who would be interested in preserving a system that has inflicted so much pain to society? To find out we pose the fundamental question: cui bono?

About the Author

Carlos Fuentes, FSA, FCA, MAAA, MBA, MS, is president of Axiom Actuarial Consulting. His professional interests include strategy, entrepreneurship and public policy. He can be reached at carlos-fuentes@axiom-acturial.com.

1Thucydides (460-400 BC) is arguably the greatest historian of all times. See “The History of the Peloponnesian War,” translated by Martin Hammond, Oxford University Press, 2009. References to Thucydides’ work follow the standard convention.

2See “Mirror, Mirror on the Wall, 2014 Update: How the US Health Care System Compares Internationally” published by the Commonwealth Fund ( http://www.commonwealthfund.org/publications/fund-reports/2014/jun/mirror-mirror), “Ranking 37th—Measuring the Performance of the US Health Care System” published by The New England Journal of Medicine, January 2010 ( http://www.nejm.org/doi/full/10.1056/NEJMp0910064), “World Health Organization Assesses the World’s Health Care Systems” published by the World Health Organization, June 2000 ( http://www.who.int/whr/2000/media_centre/press_release/en/), “Measuring Overall Health System Performance for 191 Countries” published by the World Health Organization (http://www.who.int/healthinfo/paper30.pdf).

3According to some researchers 33% of the healthcare cost provides no value to patients.

4 It is ironic that 2,500 years ago the Greeks did not heed to the “curse of the goddess” but we believe in the modern equivalent.

5 http://healthaffairs.org/blog/2015/09/10/medicare-fair-pay-and-the-ama-the-forgotten-history/.. Was socialism the real concern or lower incomes for doctors, the result of curtailed billing abuses?

6 http://www.bing.com/videos/search?q=reagan+on+communism+and+medicare&view=detail&mid=0C046DCB37874EDAB44D0C046DCB37874EDAB44D&FORM=VIRE

7 http://iea.org.uk/sites/default/files/publications/files/upldbook351pdf.pdf

8See pages 124-125. For example: “…the case for the state helping to organize a comprehensive system of social insurance is very strong” and “there is no incompatibility in principle between the state providing greater security in this way and the preservation of individual freedom.”

9See “In Defense of Simplicity,” Contingencies, Sep/Oct 2016 ( http://www.contingenciesonline.com/contingenciesonline/september_october_2016?pg=14#pg14).

10See “The Truth About Canadian Health Care” ( https://www.youtube.com/watch?v=ChHq5DuBCuw).

11“New Study Finds 45,000 Deaths Annually Linked to Lack of Health Coverage” ( http://news.harvard.edu/gazette/story/2009/09/new-study-finds-45000-deaths-annually-linked-to-lack-of-health-coverage/).

12See “Costs of Health care Administration in the United States and Canada,” The New England Journal of Medicine, August 2013 ( http://www.pnhp.org/publications/nejmadmin.pdf) and “A Comparison of Hospital Administrative Costs in Eight Nations: US Exceeds Others by Far,” The Commonwealth Fund, Sep 2014 ( http://www.commonwealthfund.org/publications/in-the-literature/2014/sep/hospital-administrative-costs).