Healthcare, the next frontier of finance research

September 10, 2009

There is no doubt that Obama’s address to Congress on heath care last night was a superb piece of political craftsmanship.  The purpose of the speech was to take the issue back from the boarders of fringe discussions.  By casting health care as a moral-national imperative, he made a hard-to-dodge (unless you’re an unpatriotic jerk) argument that there should be bipartisan agreement on the definitive need for a heath coverage plan of some kind, even if the details are not fully consensual. The address was designed to re-secure political will.

The US heath care debate is largely a question of finance.  Two points of the proposed plan struck me as potentially interesting sites of empirical research.

1. An insurance exchange to replace the idea of a federally run heath care program. “Now, if you’re one of the tens of millions of Americans who don’t currently have health insurance”, Obama said, “the second part of this plan will finally offer you quality, affordable choices…We will do this by creating a new insurance exchange – a marketplace where individuals and small businesses will be able to shop for health insurance at competitive prices. Insurance companies will have an incentive to participate in this exchange because it lets them compete for millions of new customers. As one big group, these customers will have greater leverage to bargain with the insurance companies for better prices and quality coverage.”

A non-profit insurance agent run by the state has been trounced on all sides.  It’s been found offensive on the grounds that the government can’t be trusted to run anything efficiently; AND on the grounds that private insurers could never compete against a government run agency.  Now that this idea seems to have been displaced in favor of a more palatable ‘marketplace’, my question is: What kind of market device will have to be built to get such an exchange going?  Who is going to build it?  And what will be the role of government in designing the dimensions of this exchange?

2. The cost of good care. Although recycling savings from improved efficiency within the existing system to pay for extended coverage to include more people sounds appealing, there has been very little said in the debate to examine how costs are built into medical practice.  Over treatment to protect against tort law is only one part of this.  Incentives for compensation are another.  As the eminent physician, Dr. Relman commented in the NYTimes today, “The main drivers of medical inflation are fee-for-service payment of physicians, and all the other incentives in the current medical care system for increasing providers’ income. We will not control costs without major changes in the way medical care is organized, delivered and paid for.”

As medicine and finance intervene, there is an excellent opportunity opening up to recapture some of our science studies roots.  Forget superfluous costs for a moment. What are the costs within the practice of ‘good’ medicine? How is a cost calculated when it is confronted with scientific efficacy?  It seems that there are things to be learned by looking at how costs are ballooning within the very heart of what it means to interact with and intervene upon the body from a sound medical perspective.

In a (too) simple example, medicine is an industry that pushes for disposable, single-use consumption. Where tools were once sterilized and reused, latex gloves, paper sheets, the plastic speculum etc… medical practice calls for more and more disposable things and technologies. (This reminds me of the difference between a French café where the counter attendant washes out the cup and spoon by hand with a cloth rag at a sink, and a Starbucks, where they give you a full sized cup for a single expresso, a disposable stick, and a paper girdle to keep you from burning your hands, all of which are promptly disposed in a trash can.)  How is this happening from a cost perspective, and why?

Health care. It’s the next frontier of financial research…

2 Responses to “Healthcare, the next frontier of finance research”

  1. Sean Byrne Says:

    I am a second year doctoral student at Texas A&M International University with Finance as my concentration. I personally have been naturally drawn to the field of health care finance as it is more fulfilling to me to write research paper for the better good of the people, especially those in need. I enjoyed your article very much. Is anyone aware of research funding in this area of finance and health care? Any advice or suggestions would be greatly appreciated. Thanks, Sean

  2. Vinterdekk Says:

    Great and insightful post. Even though I’m from norway things are really not that different. Great to read articles / post like this for more insight. Thank you and keep up the good work.


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