Arnold Kling  

Mass Health Care, Left and Right

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Here is a Leftist critique of the new Massachusetts health care plan.


the linchpin of the plan is the false assumption that uninsured people will be able to find affordable health plans. A typical group policy in Massachusetts costs about $4,500 annually for an individual and more than $11,000 for family coverage...The legislation promises that the uninsured will be offered comprehensive, affordable private health plans. But that's like promising chocolate chip cookies with no fat, sugar or calories. The only way to get cheaper plans is to strip down the coverage — boost copayments, deductibles, uncovered services, etc.

...Study after study — by the Congressional Budget Office, the Government Accountability Office and even the Massachusetts Medical Society — have confirmed that single payer is the only route to affordable universal coverage. But single-payer national health insurance threatens the multimillion-dollar paychecks of insurance executives and the outrageous profits of drug companies and medical entrepreneurs.


I agree with a lot of this. I do think that the new "plan" makes unrealistic promises about the health insurance that might be available to people on modest incomes. I also agree that single-payer health insurance would lead to lower incomes for health-care providers. Finally, I agree that the Massachusetts plan is probably worse than single-payer, in that it will produce profits for insurance companies without any of the benefit of market discipline.

However, my diagnosis of the health care policy problem is not that private providers make excess profits. No doubt there are excess rents earned by many in the industry, but I do not believe that is the core issue.

I believe that the problem is that there is a disconnect between costs and benefits in the mix of health care services consumed. Under our current system, where insurance coverage kicks in at relatively low levels of expenses (even first-dollar coverage is common), consumers only confront health care costs indirectly through insurance premiums and taxes.

Under single-payer, costs and benefits are brought into line by government budgeting and control. Under my preferred approach, catastrophic health insurance policies with high deductibles would cause consumers to confront the cost of most health care services directly.


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COMMENTS (13 to date)
M1EK writes:

The implication that people consume unnecessary/frivolous medical care continues, I see, but it doesn't get any more true no matter how many times it's said.

Consider my own case - I work at home, so it's easier for me than it used to be to go to the doctor when I think I have an ear infection (which I get, frequently). However, a trip to the doctor still entails making an appointment, then spending 40 minutes round-trip travel time, then spending an hour (on a good day) at the facility; 2 or 3 on a bad day. How many people who work for a living will voluntarily leave their job for this long? Not many, in my experience. The switch from an HMO to a PPO back to an HMO and now to an HSA-high-deductible plan has done absolutely nothing to change my calculus about when I go to the doctor (answer: when I can't stand it anymore).

Since none of the health care solutions being seriously discussed do anything to limit the availability of health care for the one demographic that CAN feasibly endure that kind of time cost (the elderly), it's all just useless rhetoric.

Don writes:

What's useless rhetoric is presenting one anecdote as if it were universal truth.

Bob writes:

The inconvience factor is real, but not terribly relevant because it is a largely fixed cost. Sure, not many folks are going to run to the doctor for a scratch, but when they do go to the doctor there is little to know incentive to limit their consumption. Suppose a cafe ten miles away offered free coffee and pastry. You wouldn't run down every time you got a bit hungry. But when you went, you would likely pig out.

To some extent, the up-front fixed cost works against frugal consumption because many people will end up wanting to make sure to get their "money's worth" after spending the time and effort getting to the health care provider.

M1EK writes:

Don,

Anectdotes are a powerful way to understand incentives, or disincentives. And in this case, there's a lot of people out there claiming that there's no disincentive to overconsumption and/or frivolous consumption of medical care, which is just not true. (The best health plan I ever had, from BC/BS of California, still imposed a $20 copay and you still had to wait forever for your appointment at the primary care phyisician - these are powerful disincentives, as a matter of fact).

Some folks are letting ideology cloud logic here.

Bob,

If medical care were anything like the analogy you propose, I'd agree with you completely. But it's not - when I go to the doctor, I pay one fee for the visit, and a separate one for each prescription. Each specialist visit is a separate charge (incl. copay, i.e.). Every hospital visit my family has endured comes with a raft of charges - it's most definitely NEVER been "pay once and then enjoy all you can consume".

knzn writes:

The right and the left both want to find someone or something to blame for the rising cost of health care. I tend to agree with both the “right” and the “left” that the new MA system doesn’t add up, but let me give a more centrist opinion of what the original problem is. It’s not excessive profits, and it’s not excessive consumption of unnecessary health care; it’s the fact that the sphere of necessary health care increases every time new health care a technology is invented. If there’s a new way to keep people alive, or a new way to make the quality of life tolerable, we have to have it. We really do have to have it. The problem is that improving technology forces us to face the ugliness of life and death that we chose to ignore when there was nothing we could do about it.

knzn writes:

Continuing my previous post, I think I can come to either a right-wing or a left-wing conclusion, but neither of them is pleasant.

The right-wing conclusion is that we should stop trying to get health care costs under control and just make sure we’re clear about who is going to pay. (Requiring insurance is one good feature of the MA plan in this regard, because it forces the “who pays” decision to be made before the care is given.) Skyrocketing health care expenditures are rational because of diminishing marginal utility. We hate to suffer, when it’s preventable, and we will (and should) pay through the nose to avoid it.

The left-wing conclusion is that innovation is responsible for skyrocketing health care costs, and the way to get costs under control is to stop innovation. So the problem really is profits, because profits provide the incentive and the wherewithal for innovation.

Actually, having written those, I’m not sure which one is left-wing and which one is right-wing, or are they both just a sort of pessimistic centrism?

Robert writes:

Inconvenience factors impose a constraint on freeloading, but they also constrain the medical consumer's ability to make informed choices: if I have to pay the inconvenience costs all over again merely to find out whether better opportunities exist, my willingness to comparison shop, whether for better prices or better treatment options, is severely curtailed.

knzn writes:

(Continuing again from my previous comments) I’ve figured out exactly what the problem is in terms of expected utility theory. It is the distinction between mean-expected utility (which people do and should maximize) and median-expected utility (which is not rational to maximize, but which is more salient).

When you calculate your expected utility, you integrate across all the things that could possibly happen to you. But many of these possibilities are constant with respect to any available choice variable. And I contend that these constants are typically large and negative. (There are positive constants also, but they are small because of diminishing marginal utility.) I’m talking about small probabilities multiplied by very large negative utility realizations. Since they are constants, they don’t affect our choice. (If you don’t believe in negative utility, just imagine that the possible realizations are all expressed relative to some large constant. The zero point is irrelevant, because the constant will go through any expectation operator, but I find it easier to think in terms of negative and positive.)

But then a new choice variable, in the form of a newly available medical technology, comes along and turns one of these constants into a variable, and we can make a choice which will give this variable a zero value instead of a big negative value. Naturally, we are willing to give up a lot of positive value somewhere else in the probability space in order to zero out this negative value. When we do this, our mean-expected utility increases significantly. However, our median-expected utility actually declines, because we have taken a big chunk of probability (multiplied by a small number) off the positive side, whereas we have taken only a small chunk of probability (multiplied by a large number) off the negative side.

This is just the problem with health care costs. Our median-expected utility is going down. It looks like it really sucks. Our typical quality of life is getting worse (or at least, not getting better when we hoped it would) because we spend more and more of our income on health care. But our mean-expected utility is going up. Our average expected quality of life, taking into account all the bad things that can happen, is getting better.

Tell me, am I an optimist or a pessimist?

eye5600 writes:

1) In every case of a single-payer system I have ever heard of, the payer reneged on the deal, i.e. underfunded the system. How do you prevent that?

2) I don't hear much about the possibility of forcing large-scale consolidation of the insurance business. We don't need thousands of insurers; we only need a few.

JohnJ writes:

Just make sure that whatever you do takes away people's ability to decide for themselves what to do with their health and their property. Cuz the only alternative to that would be to let people be free to decide what to do with their own money and let them make their own decisions regarding what health care plan to use, if any at all. I mean, we can't just let people be free to do whatever they want to do. That would be anarchy! Can you imagine people making their own decisions all willy-milly? Some of them might make BAD decisions! We can't let them happen! Freedom's overrated anyways. It's not like there's charities out there for people to choose to go to without all these laws getting in the way. What's freedom ever gotten us?

Lord writes:

the payer reneged on the deal, i.e. underfunded the system. How do you prevent that?

You don't. That is what solves the problem of healthcare costs. In fact, the solution of uninsured or self-insured incidental care combined with catastrophic insurance would have similar ends as people drop insurance altogether and pay out of the pocket until something major happens and they can't pay, sticking the provider with the bill.

knzn writes:

What Lord said.

As I argued earlier, the real problem is not health care costs but suffering and mortality, to the avoidance of which we are, quite rationally, willing to devote ever-increasing amounts of resources. If you insist (as most people do) that costs are the problem, then the only “solution” is to induce irrationality. One way to do this is to trick people into thinking they will get better care (for beneficiaries) or higher payments (for providers) under a single-payer system than what they actually end up getting.

eye5600 writes:

Lord: If I understand correctly, you advocate telling the American people (who are footing the bill, one way or another) that you are going to get costs down by withdrawing costly treatments and having long queues for elective procedures. Evidently, you are not a politician.

Long queues only save money to the extent that people drop out of the queue. Treatment delayed is treatment denied. Large deductibles also imply denied treatment. Anyone who works in a doctor's office will tell you that even a modest copay for an office visit will cause patients to skip followup appointments.

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