Thoughts on economics and liberty

Exploring the zonal health care model further

I proposed a different kind of model of health care in BFN. Details here. and here

I'm posting a recent conversation with Vishal here since I'd like to discuss and explore the incentives created by this model further. While I have far more confidence in the school and higher education models proposed in BFN, I haven't spent enough time in expanding on the implications of the health model I propose.


Sanjeev – Healthcare cost all over the world keep increasing. I have picked your idea about compulsory insurance , zoning and awarding contract to a private consortium  for delivery.

It struck to me that this model would shift the focus of the private player to a preventive model as their revenue is fixed based on the population.

The best way to reduce cost is to have more healthy people in your zone. If people are obese then the private player may want to start a campaign advocating a better healthy style. In the current model healthcare industry does not have any incentive to do prevention. It requires more sick people.

Am I right in my thinking?

Is this model followed anywhere in the world as I understand healthcare systems like NHS is provided by government and there are no private players

My response:

Yes, you are quite right. 

In general, the current model is inefficient because it encourages self-selection, with those in bad health are more likely to insure. The model I propose will create cheaper insurance because (a) everyone will be included automatically for emergency care in a zone, and (b) all the poor automatically included for all health care. Note that this system does not exist anywhere. Instead, the government directly insures the poor in the West for emergency and other care. That is, in my view, very inefficient. 

The key efficiency is in the economies of scale in an entire zone being managed by specialst private insurance companies subject to regulatory and contractual oversight, instead of having an incompetent government system which has no interest in cost savings.
Their payment scheme will have to be tailored a bit more than what I have proposed. But you are right that a method can be designed by which they will have incentives to focus on preventive care for those on the social minimum. Since no compulsory insurance is proposed for ordinary health care for those not on the social minimum (which should be the vast majority of people), so some of the benefits of preventive care would be absorbed by the 'rich', which would reduce incentives for insurance companies to focus on preventive care. 
However (and this is something I'm grappling with in terms of 'justice'), I have in mind a situation where even for ordinary care rich private individuals living within a zone will be insured by one single insurance company. That will eliminate self-selection effects, and increase preventive health and other innovation incentives. The problem is that this would amount to excessive interference in choice. 
Whatever the final model, such a system will create a strong incentive for insurance companies to reduce costs by modernising all hospitals within the zone, linking them through IT, etc. They will also innovate on a number of other issues (e.g. one good doctor could be given the task – over the internet – of supervising other doctors who are conducting operations in the theatre, and good nurses given the task of supervising other nurses who are conducting an operation, so they doctors don't leave scissors inside their patients, etc.. cf. Checklist Manifesto ( Other innovation could be to enhance the quality of doctors in their network through training and only accredit hospitals that hire high quality doctors (since doctors are often incompetent) – although that should be happening even now, but doesn't since doctors run monopoly professional associations (like trade unions).

Anyway, this is a fertile area and I'd welcome your considered thoughts. I have not fully expanded on this system, and suspect it might have been explored by someone in the literature. It is the only one, however, that (in my view!) is capable of providing high quality health care to those below the poverty line. Whether it does all other things is not clear yet – till its details are finalised through discussion.

(An aside: I had a visit a few weeks ago from a senior Indian official who works in the health ministry, but no matter what I'd suggest, I could not get him to show any interest in health policy and discuss options for improvement….) 


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2 thoughts on “Exploring the zonal health care model further
  1. Mahesh

    Greetings from a newbie at your blog.
    Your post on health-care reminds me of discussion happening in u.s. on public health-care. In a somewhat loose sense, what you propose approaches Atul Gawande's proposal. Or even Obama's Democrat competitor John Edwards (except for the compulsory insurance part).
    That apart, any idea what is the health insurance penetration in our country ? My sense is – it is abysmally poor.

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