View/Review: Baylor’s Triage Officers

by Barbara Elmore

The Census Bureau estimates about 44 million Americans do not have Health Insurance. The subject of health care insurance in America is a political and polarizing issue. Doubtless, you have heard presidential candidates from both sides of the political spectrum espousing their views on this issue in the media. Now, two respected economists at Baylor have put their heads together in an effort to propose a centrist solution to the American health care problem.

It’s not hard to imagine James Henderson wearing a white coat as he checks a patient’s vital signs, shaking his head. Or Earl Grinols asking sharp questions designed to get to the core of an illness, then drawing a straight line from Point A to Point B to illustrate how to get from here to there.

But the two are not doctors. A more appropriate garb would be the lab coats of veteran researchers, or “economists hats,” if such hats existed, and they would feature the Baylor logo.

Both are economists inside the Hankamer School of Business, and they are probing the sticky wicket of health care in the United States with the idea of helping solve what has become a crisis. The Census Bureau estimates about 44 million Americans do not have health insurance, which means they often don’t seek health care when ailments are most treatable, or they seek the most expensive health care available, often through an emergency room or trauma center. Or they get sick and die when death is preventable.

Henderson, the Ben H. Williams Professor in Economics, and Grinols, Distinguished Professor of Economics, discern two separate but related problems with the country’s health care system: The first one is that not everyone has health insurance, and the second one is that some people who don’t have health insurance cannot afford it. Identifying these as two separate issues helps them find solutions to both problems, and they want the proposals to carry Baylor’s identity. “Baylor should be doing health care education and research on the main campus,” Henderson says. “The brand identity at Baylor is nationally known. When you put the Baylor name on something that’s health care, people will take a look at it.”

The plan that he and Grinols designed is woven throughout a hefty manuscript that peers have extensively reviewed. “It’s a most detailed look at the health care financing problem,” Henderson says. Their goal is to give it a debut before and during the 2008 presidential elections.

To sort out the jumble, the duo started by establishing five objectives:

1. Every American should have the opportunity to have insurance.

2. Such insurance needs to be patient-centered instead of provider-centered. That is, respect for the individual is a central component, offering permanency throughout life, Henderson says. “Nobody should be in jeopardy of losing his health insurance when he changes jobs. Nobody should be in jeopardy of losing health insurance because he gets sick. This is essential.”

3. Insurance planning must show respect for the market. “That’s the best way to diligently serve the wants and needs of the customer,” Henderson says.

4. The plan must include cost containment. “The government must set a budget for its involvement,” he notes, adding that both Medicare and Medicaid need disciplined checks. “You’ve got to have dollar amounts, set in advance, and enforced with certainty.”

5. Finally, the program must be sustainable, lasting indefinitely without major revisions.

The researchers believe the only way to achieve these objectives is to concentrate on the cause of the current problems, not the symptoms. Thus they’ve identified three pitfalls and three plans of attack. Some of these, like the first pitfall the researchers list, include the creation of new words. “Polit-troughing,” for example. Coined by Grinols, this term translates to politicians feeding at the public trough. “It means promising constituents payment and aid with the benefits paid for by someone else,” Henderson says. The second and third pitfalls are governmentalizing (the government taking over a task better performed by the private sector) and a Ponzi scheme, or the “Rob-Peter-to-Pay-Paul” system, in which one person’s health care benefits are paid for by the contributions of others. Medicare is a Ponzi scheme, Henderson says.

The best path around the three pitfalls comes from three plans of attack that they have identified as the intervention principle, incentive symmetry, and “every pot sitting on its own base.” The intervention principle takes Grinols’ direct mathematical approach. “The best way to accomplish an alteration of a given economic system is to influence most nearly the margin you want to influence using a tax or subsidy at the least level needed to accomplish your objective,” Grinols says. “You go directly to the thing you want to accomplish.” Government often gets the program wrong by subsidizing the wrong thing, he says. If you want people to have health insurance, you target health insurance with incentives for that purpose.

The second principle, incentive symmetry, proposes incentives to purchase insurance. If you believe that some people cannot afford insurance and that others simply refuse to buy it, you must subsidize the purchase of health insurance for those who cannot afford it and tax everything else for those who refuse to buy it. “That way you are reminded daily that you are not buying health insurance,” Henderson says. “We don’t want to redistribute income; that’s not the purpose of health insurance. Make the tax burdensome enough and everyone will buy health insurance. This is not a mandate. These are incentives.”

That leads to the third principle of “every pot sitting on its own base,” Grinols says. This simply means that a sustainable health care system would not require external support to remain firm and strong. “Any government program that is designed to deal with a class of people should be designed in such a way that it does not require external support to remain standing. It should not need propping up,” he says. Any time a pot doesn’t sit on its own base, it likely includes unsustainable incentives, he adds.

The two believe that their plan can work if government steps in by regulating insurers in a couple of key areas. First, insurance companies must offer customers the same rates and guaranteed renewability depending only on such things as age, gender, geographic location and such lifestyle choices as smoking and obesity. Secondly, government must require that providers of health care provide rate transparency. That means that the price for every procedure – X-rays, for example – would be public and would be the same for everybody. Insurers would have no gate keeping role in a properly functioning market, they note. “Insurance companies don’t need to know about all treatments” a doctor recommends to a patient, Grinols says.

The two economists were brought together in their health care research by something Henderson describes as a providential alignment of planets. Grinols’ arrival at Baylor several years ago honed the interest of both men in expanding Baylor’s influence in health care policy. “He’s got some excellent organizational and technical skills,” Henderson says of his colleague. Meanwhile, Henderson possesses an extensive knowledge of the U.S. health care system. His textbook, Health Economics & Policy, first came out in 1995, and he is revising the fourth edition for 2008 publication. His interest in health economics turned into a Healthcare Administration Program as part of the business school’s MBA program.

Also key to their health care push was the arrival at Baylor of Scott Garner. After a distinguished 30-year career in the Air Force as a hospital administrator and member of the medical services corps, Garner joined the Baylor faculty in 2000 as the administrative director of the Healthcare Administration program.

Soon after Grinols’ arrival, he and Henderson began looking into alternatives to pharmaceutical patents, which led to presentations at national meetings. One such showing at the American Society of Health Economists a year ago led to suggestions that their proposals be submitted to the journal PharmacoEconomics. Their submission will be published this year, Henderson says.

But more to the point, they are hoping that their plan, in manuscript form, gets a thorough airing before and during the 2008 presidential election. “Four years ago, we figured the ’08 election was about health care,” Grinols says. Although health care issues are complicated, they feel confident in the answers provided by their research and analyses. “If you set everything on a proper basis, you can deal with the other things that arise,” Grinols says. “Any person who accepts our three principles and applies them to reaching the objective is going to be led to a program pretty much like what we’re saying. The game itself leads you to what the economics tells you should be the answer.”

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Baylor Business Review, Fall 2007

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