Tuesday, October 13, 2009

Fungibility-or Perspective in Health Care Dialogue

Since the word has it's root in contract law, its importance as a broader concept is not even included in most definitions.  Here's Wikipedia's discusion.

The word fungible is best explained by example:

Purchasing a ton, or even a pound, of Bituminous Grade A Coal means that the individual chunks of coal are interchangeable. They are given no individual identity even though each is different.

Let's look at historical images of the concept.  During Viet Nam the metric of success of combat used by the U.S. forces was "Body Count."  Each dead Viet Cong troop was part of a mass, without a live history or all that made them human beings.  Going back further, fungibilty is a quality that used to apply when the wholesaler purchased the entire cargo of slave ships.  Only when auctioned off did the slaves lose their fungibility, not be become full human beings, but individual units of production.

Medicare patients are treated as fungible when they are analyzed as having an aggregate life expectancy, an average cost per year, and a total demand on medical care resources.  A recent report shows the difference in cost of such patients in Miami county which is twice as much as the average county in the United States.

With the magic of Fungibility, this additional cost becomes "waste," something that can be eliminated and fund one third of the cost of Universal Health Care. Medicare expenses in fungible form here.  .  But as in my examples above, Fungibility, aggregation whether of dead soldiers, slaves, or medicare patients is only a metaphor. 

When it comes to deciding how to bring down the cost of those Miami Medicare patients, in an instant they become actual individuals, in pain, in despair, fearing death and begging, or demanding, succor in the form of medical treatment....that happens to cost money.  Or when it comes down to cutting waste from the other direction, the suppliers of medical care, all of a sudden these amorphous entities become real doctors, nurses, hospital administrators, Health Care investors......and all of them have lobbyists, very powerful effective lobbyists, as discussed in today's N.Y. Times front page article.

Clients of Private Insurers are never fungible.  The sales department may be under pressure to sign up their quota, but the underwriting department has the job of individuating, of evaluating each applicant to determine whether they will insure them. 

Under the existing system (no universal mandate) this is required, since their expected cost to the insurer will depend on whether they are going to be paying for medical care for Grade A (Health) people, or Grade B, who can be expected to cost them more. 

How they do this sorting happens to be major issue. Unlike coal where there are laboratory tests of random samples to determine categories of quality, no exact tests exist for all the ailments humans are heir to.  And every state has developed it's own unique regulations that define how an insurance company can evaluate applicants, and their options once they have done so.

The two largest states are illustrative.  In N.Y. everyone must be accepted for individual insurance, but treatment for given existing conditions may be excluded.  In California an insurer may not exclude caring for a pre-existing condition, but they can refuse to insure an individual.

Unlike the example of Fungible Bituminous Grade A Coal, a lump of coal is not an active agent with an interest in joining a given category.  In the world of private insurance we all want the best value, simplified to the equation of(care/cost)from an insurer, and we will flock to the one who offers it. When this occurs in excess one of the elements of the value equation must change, care must decline or costs must rise, in order to for a given insurer to function.

This process works through adverse selection.  If you go through the excellent Wikipedia article, you will note it only applies to private insurers, not to single payer, national health care, or to medicare.

Let me try to share what I see as the root of the inability to improve our Health Care System.  This is our not looking at the organic verities that underlie it, but assume that legislation, if done right, will cure the problem.  

"Law" is interesting word.  It can mean the product of democratic legislatures, or the edicts of autocracies, that impose rules on constituent entities- individuals, agencies, corporations etc.   But there is another meaning of Law.  That is the discovered relationships of natural forces, as in Law of Supply and Demand, or Law of Gravity. 

Our National Health Care system is shaped by both of these types of laws.  Somehow, we have pretended that the former, "imposed law" will prevail over the later, "discovered law"  We assume that imposed law requiring affordable care, will prevail over the law of supply and demand.  A belief that black markets past and present belie.

While we eagerly try to refine the imposed law in a comprehensive Federal Health Care Reform Act, we have barely even thought about the discovered laws of interactions, economic or psychological.  If this diary has been too arcane, this one, Health Care in the World of Tomorrow, may give an example of a problem that must be addressed before any Health Care Reform will be effective.


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