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YOU DECIDE: What dilemma do we face in health care?

March 19, 2010

MEDIA CONTACT: Dr. Mike Walden, 919.515.4671 or michael_walden@ncsu.edu


Dr. Mike Walden
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For the last six weeks, I've seen our health care system up close. My 87-year-old father had his aortic heart valve replaced. Fortunately, the operation itself went smoothly with no complications. But as the surgeon warned us, many of the issues occur well after the surgery.

Indeed, my father contracted pneumonia, and he has been battling it at the same time he has been rehabbing from the operation. Needless to say, it has been tough going for him and us.

As a professional economist, I perhaps look at our health care system in a different way than others do. I'm not only observing what goes on in terms of the specific care and treatments, but I'm also studying the incentives in the system facing both patients and providers.

In dealing with my father's care, my first observation is very much a positive one. I am simply in awe over what medical science can do today. To think that a surgeon could go in to my father's heart, extract the defective valve, insert a new valve and have my father's heart resume functioning within a matter of hours is truly amazing.

I've also been impressed by the other medical staff - including doctors, nurses and technicians - who have helped my father during his three weeks in the hospital. All have been professional, caring and knowledgeable. I've even sampled the hospital food, and at least in my opinion, it's not bad. So when people say our country has the best medical care available, I can believe them.

But what about the cost of this health care? Being over age 65, my father has Medicare, the federal program to help pay for the medical care of senior citizens. He also has a private supplementary health care plan.

Not once did anyone ask my father or his family (my wife and me) about cost and payment of that cost. For example, when the surgeon was discussing plans for the operation with us, never did he say, "Now, this operation will cost $X, so consider this expense in deciding whether to go ahead with the operation." Instead, we were able to decide purely on the basis of whether the procedure would help my father.

But notice how this is different from other kinds of decisions we make. No one would purchase a vehicle simply on the basis of the benefits that vehicle would give the owner. How much the buyer would have to pay for the vehicle is a consideration - for many, perhaps the most important consideration.

On one level, it's good my father and his family only had to consider one side of the economic equation - the benefit side - without also being confronted with the cost side. How agonizing it would have been if we had to compare the benefits - maybe five to eight additional years of life for my father - against the six-figure cost of his surgery and care.

Some may say the cost of my father's care doesn't matter because it's "free," mostly paid by Medicare or his insurance. True, this cost isn't out of my father's pocket, but it certainly isn't free. The money spent on my father could have been spent by Medicare and his private insurance company on other patients, or it could have been used to reduce very slightly Medicare taxes and private insurance premiums.

This, then, is the big dilemma we face in health care. We want people to have access to the best possible health care. However, we also want to shield people from the cost of this health care. Furthermore, as medical science advances (for example, the type of heart valve procedure used for my father wasn't even possible five years ago) and health care professionals can do more for more people, the cost of our health care rises.

A reinforcing cycle has, therefore, resulted. Medical science can do more, and doing more costs more. At the time decisions are made about treatment, the patient has very little financial "skin" in the process because taxes and insurance premiums have already been paid, so patients want more to be done. This motivates medical care professionals to do more and look for ways to do even more, which pushes costs higher.

There are three ways out of this box, but they all have big downsides. First, put more of the patient's money on the line at the time medical decisions are made. For example, make my father pay for a significant percentage of his heart surgery. But do we want people to consider money at a time when their life may be on the line?

Second, have someone other than the doctor and patient decide if the benefits of a treatment outweigh the costs. In my father's case, this external decision maker would have considered my father's age and likely longevity in deciding whether to pay the costs of the valve replacement. Yet, do we want a third party making these decisions?

Or, third, encourage the expansion of the "supply" of health care professionals and facilities in order to reduce costs. However, would greater quantity come at the expense of lesser quality?

I don't have an easy answer - in fact - right now I'm glad I don't have to decide!

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Dr. Mike Walden is a William Neal Reynolds Professor and North Carolina Cooperative Extension economist in the Department of Agricultural and Resource Economics of N.C. State University's College of Agriculture and Life Sciences. He teaches and writes on personal finance, economic outlook and public policy. The Department of Communication Services provides his You Decide column every two weeks. Earlier You Decide columns are at http://www.cals.ncsu.edu/agcomm/writing/walden/decide.htm

Related audio files are at http://www.ncsu.edu/waldenradio/

Posted by Dave at March 19, 2010 08:19 AM