Tiered Healthcare System?

In my Quality Controls class, a number of students have been debating the merits and detraction of a tiered healthcare system, where the wealthy have the option of buying high-end services and the poor get the quality of services their wallets and government support can afford.  Here is my take on the question.

Thomas Hobbes, the glass-is-half-full philosopher who maintained that life is short, brutish, and nasty, asserted that humankind adopts government in order to limit freedoms, not expand them.  Under his logic, we originate (think “cave dwelling”) in a state of absolute freedom, with the ability to murder, steal, rape, et cetera.  Subsequently, governments are created to enact laws that limit those unsavory freedoms, allowing us to pursue what Maslow later described as “higher-order goods” – eventually (hopefully) leading to the pinnacle of “self-actualization.”  Philosophically, this explains why Thomas Jefferson described one role of government as providing for “domestic tranquility.”  If unable to produce domestic tranquility or allowing its opposite, government’s legitimacy is undermined (since this is, according to Hobbes, the reason government exists).

This naturally raises the question of how much public discontent must exist before a government’s legitimacy is so undermined that its overthrow becomes likely.  Outside of the United States, in Third World countries especially, “overthrow” may extend as far as revolution – if revolution is defined as “the violent overthrow of government.”  In the US and in other countries where an electoral tradition is well established, revolutions tend to occur at the ballot box, with no violence necessary to achieve dramatic change.  But how much discontent is necessary before such change is compelled?

One recent study in the arena of political science indicated that as few as 10% of the population is all that is required to promote violent revolution – especially, in locales where a tradition of revolution is recent and perceived as acceptable.  In “The Tipping Point,” Malcolm Gladwell describes the necessary elements to achieve profound change using the model of epidemics, along with an abundance of anecdotal “evidence.”  You may recall from reading it that Gladwell contends a critical mass of just 20% is necessary to promote dramatic change.  Both figures are certainly in keeping with the findings of the academics at The Santa Fe Institute, where, under “Complexity Theory,” they discovered that small influences at the start of a process frequently account for a disproportionate amount of the end result.  Either way, it appears that far less than a simple majority of like-minded citizens is necessary to overturn the status quo.

While no suitable catalyst leading to violent revolution exists in recent US history (not since the Boston Tea Party, at least), it may be argued that the importance placed on health care is significantly greater than most other concerns in human life, and that this translates across cultures and borders.  This can be seen with the willingness among certain African countries and Brazil to violate international patent protection laws, threatening to produce generic AIDS medications in the face of that devastating epidemic.  Outside of health care, we have recently seen the willingness of government to create laws and policies on-the-fly (i.e., without legislative authorization) when seeking to combat the current financial crisis and the potential of an international market meltdown.  Just as some companies are “too big to fail,” some crises are deemed too immediate and compelling to comport with even long established procedures, especially when the legitimacy of authority is under attack.  Even in this election year, bipartisan support for dramatic intervention was achieved this week when the severity of the crisis became evident, just as it did in Brazil when the severity of the AIDS crisis confronted the comparative nicety of patent protection.

All this is important when it comes to the issue of healthcare equity, which is at the core of this question concerning whether a tiered system of quality would be acceptable to the American electorate.  Jeff Koons, before achieving fame and fortune as a modern artist, was the most successful membership salesman at the Metropolitan Museum of Art in New York City.  That success was predicated on his creating tiered membership levels among the museum’s patrons – when he was a master at upgrading patrons from one membership level to the next.  Indeed, diversifying product lines to satisfy customer preferences for varying levels of price and quality has existed for almost as long as there have been products in the marketplace.  This was the genius and genesis of General Motors’ success during its heyday, where the principal difference between Oldsmobile and Chrysler was tiered differentiation on those two metrics.

While health care providers and payers may gravitate toward such a model, given the influence and motivations of the competitive marketplace, we should ask whether the electorate will accommodate such a differentiation.  Recall that, before Medicare Advantage, there was Medicare+CHOICE.  Both represent public-private partnerships, combining Medicare with traditional insurance, and both seek/sought to secure price savings through the competitive market.  Under Medicare+CHOICE, government compensation to insurers declined to a point where private sector support of the program stalled, with up to 140,000 seniors displaced yearly as insurance providers exited the system.  This led to senior citizens confronting significantly higher cost, especially, for medications, with news reports describing elderly Americans making unsavory choices between heating homes in winter or cooling them in summer, on the one hand, and purchasing life-sustaining medications, on the other hand.  There were even reports of senior citizens eating cat food in order to make ends meet.  The political backlash was significant and palpable, as the AARP ramped up its legion of reliable voters.  Not only was the $800 billion-over-10-years Medicare Part D program a consequence, Medicare’s parent organization found it necessary to change its name from HCFA to CMS, so significant was its loss of credibility among a population that amounts to, you guessed it, something on the order of 20%.

Of course, senior citizens may be viewed as more politically influential than those on welfare – even though senior citizens often possess joint membership in both groups (especially, “crossover” patients possessing, both, Medicare and Medicaid membership).  The Medicare Part D “revolution,” however, pales in comparison to the civil rights revolution, which was largely about economic equity for African-Americans, who constituted between 20% and 25% of the population in the southern states.  Again, we have that 20 percent figure of Gladwell’s, suggesting that, at the extremes of political and policy discourse, minorities possess greater power than a simple grasp of majority rule might suggest.

Of course, it may be that health care is not nearly as important as this argument supposes, but minority views on matters of seemingly lesser importance abound.  We may decry its influence, but political correctness in our speech and policies follows not from majority action but from an active minority – motivated by their perception of what is right and just, and wielding the power of the minority purse.  A boycott by 20 percent of customers, leading to a 20 percent decline in market share, is often sufficient to bankrupt a high fixed-cost firm, those shouldering even moderate amounts of debt, and those operating in strongly competitive markets, where loss of market share can be devastating.

We see this, as well, in elective politics, as the campaigns for both political parties focus on voters with no strong affiliation to either party and those declaring themselves “undecided.”  The next president will not be elected by their base but, instead, by the 20 percent that reside in neither camp, since both parties are evenly matched, enjoy the reliable support of 40 percent of the electorate.

So, when it comes to considering a tiered system of healthcare, where price and quality follow from the patient’s ability to afford services at a specific level, we must look beyond the competitive market to predict the future.  Instead, we must question whether a tiered system is likely to “anger to action” something approaching 20 percent of the population.  Personally, I think it will.

A tiered system would create a system of healthcare haves and have-nots, right?  Well, not really.  The bulk would presumably have access to that portion of the system that is neither mansion nor poor house (i.e., the “fat part of the curve” for the statistically literate reader).  But such a system would be suspect if average cost and quality were accorded to 60 percent of patients, with the remaining 40 percent evenly divided between quality-plus patients and quality-minus patients.

So, would the quality-minus population reach that 20 percent threshold?

To answer this (well, estimate it), it is necessary to consider which demographic groups would fall into the quality-minus group.  Clearly, the poor and those with diminished disposable incomes are candidates for quality-minus status.  According to a US Census Bureau research paper, the 2007 poverty rate for households was 12.5 percent.  http://www.census.gov/prod/2008pubs/p60-235.pdf This included a 10.9 percent rate for working-aged Americans, 9.7 percent for seniors, and 18 percent for children.  This is at the lower end of the range deemed necessary to promote political change, and well off the 20 percent deemed necessary by Gladwell.  US seniors, however, will soon balloon as a percentage of the population, from today’s 47 million to more than 80 million by 2030.  As witnessed before, seniors exercise what is arguably disproportionate political clout, given their reliable presence at the ballot box, their greater coordination on issues affecting them, and the emotive reverence with which we hold our aging parents.  In fact, no group of Americans is held in greater esteem, and only children exceed them when it comes to engendered sympathy.

Recall the news report of a 12-year-old stuck at the New Orleans Superdome during the aftermath of Hurricane Katrina, when, with cameras rolling, he pleaded for the nation’s sympathy and support, pointing to a dead senior sitting beside the building in a wheel chair.  The backlash from the federal response to Katrina was not due to the flooding, and, as alarming as the stranded and desperate working-aged adults at the Superdome were, it was the elderly and the children that turned this nation of cynics into a furious amalgam of sympathizers – sending the president’s approval rating lower than Richard Nixon’s (35 percent versus 39 percent — http://www.nytimes.com/imagepages/2005/08/08/opinion/09opart.1.ready.html and http://www.hist.umn.edu/~ruggles/Approval.htm ).

Moreover, the official poverty level is a misnomer.  Not even the federal government takes it seriously where it matters most, to management and executive leadership when it comes to budgets and the cost of services.  Most CMS services kick in for those earning significantly more than the poverty level – at multipliers extending up to 300 percent of the poverty level.  So, that 12.5 percent dissatisfaction rate is likely to grow due to the aging population.  It seems likely to grow if inflation increases or recession arrives in earnest, compared to 2007, when the Census Bureau report was written.  Add the emotive multiplier of seniors and children and the government’s abundantly conservative estimate of real poverty, and my gut tells me that a 20 percent level of dissatisfaction is a near certainty.

What does your gut tell you?