Convenient Care and Telemedicine

Policy Reports | Health

No. 305
Wednesday, November 28, 2007
by Devon M. Herrick

What Public Policy Changes Are Needed?

As the previous section indicates, the greatest barriers to innovation and competition in health care are government laws and regulations . Evidence suggests that where markets are competitive, entrepreneurial providers create innovative services. 83 Deregulating health care and equalizing the tax treatment of self-insurance and third-party insurance are important steps in the right direction.

Needed Reform: Remove tax penalties on self-insurance .  Traditionally, tax law has favored third-party insurance over individual self-insurance.  Every dollar an employer pays toward employee health insurance premiums avoids income and payroll taxes.  For a middle-income employee, this generous tax subsidy means government is effectively paying for almost half the cost of health insurance.  On the other hand, until recently, the government taxed almost half of every dollar employers put into savings accounts from which employees could pay their medical expenses directly.  The result was a tax law that lavishly subsidized third-party insurance and severely penalized individual self-insurance.  This encourages the use of third parties to pay every medical bill, even though it often makes more sense for consumers to manage discretionary expenses themselves. 84

“Tax law should treat Health Savings Account deposits the same as third-party insurance premiums.”

If the tax laws made it easier for people to self-insure instead of relying on third-party payers, competition would improve the efficiency of the medical marketplace. Currently, Health Savings Accounts (HSAs) are allowing millions of people to partly self-insure. However, congressional tax-writing committees have made decisions about the design of HSAs that more properly should be made by the market. 85 For instance, the amount of the HSA deposit and the accompanying health insurance deductible are set by law.  Instead, the market should be allowed to answer such questions as: What is the appropriate deductible for each service?  Should different amounts be allowed for the accounts of the chronically ill?  In finding answers, markets are smarter than any individual, because they benefit from the best thinking of everyone.  Further, as medical science and technology advance, the best answer today may not be the best answer tomorrow.

Needed Reform: Greater patient autonomy.   The first step is for state and federal policymakers to understand that telemedicine will benefit American consumers by reducing costs and improving quality through greater access to medical information and care. 86 Just as information technology has improved productivity in virtually every other area of the economy, it will also improve the productivity of medical care.  Physicians' groups should understand that telemedicine also stands to benefit providers — who should not be limited to treating patients in the office (or hospital).  Reforms should prevent state medical societies from blocking innovative changes they fear or dislike.  Public policy should allow patients themselves to decide which innovative services hold value and which ones do not.

Needed Reform: Modernize state licensing laws.   Preliminary research suggests that telemedicine is not only convenient, it also saves money on unnecessary office visits and reduces emergency room visits.  Moreover, patient satisfaction among those who talk to a physician by telephone is high.  However, outdated licensing laws reduce the cost saving potential of telemedicine.  Some experts favor a voluntary regional approach to licensing laws by local jurisdictions instead of a nationwide reform instituted by the federal government. 87

“Qualified foreign physicians should be allowed to provide telemedicine services.”

However, medical licensing laws must be brought into the information age, where distance (or country) is irrelevant. 88 Reforms should include recognizing providers in other countries as alternative resources. For instance, many Indian and Thai physicians are board-certified or licensed in the United States, Australia, Britain or Canada.  Foreign physicians who meet international standards should be allowed to provide telemedicine services to U.S. citizens if they have been approved for a U.S. hospital staff or included in a U.S. insurer's health plan. It does not make sense in the 21st century for each state to approve and police physicians living thousands of miles away. The same holds true for physicians practicing in the United States.  Laws that prevent physicians in one state from consulting with patients in other states by telephone or e-mail should also be eased.

Relax Laws that Inhibit Beneficial Collaboration.  The federal Stark laws prohibiting self-referral should be modified to allow innovative, efficient arrangements for coordination and provision of care.  The Stark laws make it difficult to integrate the services of physicians living abroad into the practices of local providers.  Integrated medical services would allow domestic providers to compete by creating more efficient operations. For example, a traditional physician practice could offer disease management for chronic conditions at a lower cost through an associated Indian physician.  An American radiology practice could hire a lower-cost Indian radiologist to read X-rays overnight.

Relax Laws Prohibiting the Corporate Practice of Medicine. This would allow a health insurer to hire licensed physicians to help plan members suffering from chronic diseases better manage their conditions. 89 It would also allow a U.S. technology company to hire qualified doctors and nurses from other countries to consult with American patients by phone (or e-mail). Corporate ownership also has the advantage of better access to capital markets, economies of scale and the ability to integrate the expertise of other professionals (such as industrial engineers).

Ownership is not so restricted in other industries where very low error rates are required for consumer safety.   The airline industry provides a strong example: If airlines were prevented from hiring pilots and owning airplanes, the industry would likely be very different.  Rather than numerous carriers flying thousands of large airliners on thousands of regularly scheduled routes, the industry would likely be dominated by charter pilots flying small propeller-driven planes.

“Corporations should be allowed to hire physicians.”

Corporate ownership of airlines has not reduced safety.  In fact, the health care industry is increasingly looking to the airline industry's quality improvement procedures for insight into ways to improve patient safety. 90 For instance, flight crews receive training designed to break down hierarchy and empower all crew members to speak up if they feel safety is compromised.  By comparison, many experts think the lack of communication among surgical staff in operating rooms leads to preventable medical errors. 91

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