Arnold Kling  

Proposals for Health Care Stasis

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Now that Hillary Clinton has released her health care plan, it occurs to me that "health care reform" has become an Orwellian term. Her proposal, like those of other Democrats, would take our existing form of health insurance--what I call insulation --and try to extend it to everyone.

Consider three ways that medical decisions can be made:

1. Put bureaucrats in charge of spending the money and making the decisions.

2. Put consumers in charge of spending the money and making the decisions.

3. Use insurance to try to separate the issue of spending the money from the process of making medical choices.

Our current approach is to use (3). This means that we spend lots of money, with Hansonian consequences.

What I would like to see is different states experiment with (1) and (2). My own preference is for (2), but it is possible that (1) would work out better than (3). In any case, the "reform" plans would foreclose any experimentation of any sort. They should be called stasis plans.


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COMMENTS (30 to date)
Amicus writes:

Put consumers in charge of spending the money and making the decisions.

What is 'making the decisions'?

How the heck do I know where the cheapest place to run medical tests is or what the State laws are on who is allowed to do so? Do I know or should I know how much a chest x-ray costs or whether I just got ripped off?

If I'm out flat and on a gurney, do I have time to ask the doctor if the test he's ordering are really necessary? That the medicine he just prescribed is the cheapest formulary? Do I know whether he is discharging me too soon?

Since that seems like far more choice than anyone could reasonably be expected to handle.

In that light, doesn't "process of making medical choices" just end up the process of selecting an insurance coverage provider?

Buzzcut writes:

Since that seems like far more choice than anyone could reasonably be expected to handle.

Have you been to Best Buy lately? Have you been in their TV department? Have you seen the choices available in TVs?

This was a market that was old and stodgey 10 years ago. Now there are tons of choices in terms of display technology, receipt of service (OTA, cable, satelite), type of service (analog, digital, High Def) etc.

There is WAAAAAAY more choices to be made in buying a TV than in the vast majority of health care decisions. Yet people buy TVs everyday.

Just because a market doesn't exist now for medical care doesn't mean that one can't evolve quite quickly if we allow it to.

Of course, the first step is to make health care insurance premiums taxable income. The next step is to make Medicare benefits taxable income.

Floccina writes:

I think that marginal healthcare (say the last 50%) does have some benefit but that if we knew how small it was and had a mechanism too exclude it we would not buy it. Hillary’s plan does nothing to address this problem.

What we need is a scheme that allows people to determine how much marginal medicine helps and a mechanism to allow them to decline care above a given level AND RECEIVE THE BENEFIT FOR DECLINING IT THEMSELVES. Living wills are great but do nothing for the person who has one. They benefit their insurance company and Medicare but not the person who declines the extra care. Perhaps the insurance companies should give discounts and Government should give tax breaks to those who sign living wills.

You could take for example the cancer that is most expensive to treat per year of life and offer people to exclude that type of cancer from their insurance policy and see how many people would choose the lower bill and that type of exclusion. An impossible to implement way to handle this would be: If the doctor looks on your lab results and sees that you have that type of cancer he does not even tell you that you have it.

Another idea is that perhaps the insurance companies could offer a buy out. It could work like this: the insurance company offers to pay for your treatment or pay you say $100,000. You could leave that money to your family and friends or you could spend it or maybe use part of it to get care in India from Apollo healthcare.

Also:
Has anyone other than me noticed how much a veterinarian will do for a couple of hundred bucks compared to what a doctor will do? So deregulation might help I wonder why a company called “Mastectomies are Us” does not exist.

Floccina writes:

"How the heck do I know where the cheapest place to run medical tests is or what the State laws are on who is allowed to do so? Do I know or should I know how much a chest x-ray costs or whether I just got ripped off?"

How am I to know what is the cheapest place to get my transmission repared?

"If I'm out flat and on a gurney, do I have time to ask the doctor if the test he's ordering are really necessary? That the medicine he just prescribed is the cheapest formulary? Do I know whether he is discharging me too soon?"

If I am far from home and my car breaks down what then? We get by.

If I'm out flat and on a gurney I would most likely pay the price established by those who needed the same care but where not out flat.

General Specific writes:

I'm not sure it's very productuve to malign proposals with the term "Orwellian" and scare quotes on terms such as "health care reform."

For one, it's an approach that is a bit tired and overused, particularly in the conservative media (e.g. WSJ). Second, it's not clear the term "Orwellian" is even appropriate. Universal coverage is a "reform," just one you don't like. And "statis" is not the necessary outcome after this first step is taken. Granted, costs would have to be deal with. Just as blue cross finds ways to limit costs on my insurance.

In other words, I'm not necessarily agreeing with the particular Democratic reforms, but I'm not willing to malign them in such an off-handed fashion.

Similar to the Hitler/Fascist/Nazi rule that Kevin Drum??? mentioned, in which any argument that brings up the above three terms has run out of ammuniation and reached bottom, a rule should be formulated for the phrase Orwellian, and scare quotes, implying that the argument has grounded itself on the shoals of rhetorical mudslinging.

Victor writes:
If I'm out flat and on a gurney, do I have time to ask the doctor if the test he's ordering are really necessary? That the medicine he just prescribed is the cheapest formulary? Do I know whether he is discharging me too soon?

I think some of us believe that the vast majority of medical decisions are not made when you are "flat out on a gurney". Given my assumption, I am unmoved by claims that I am not capable of being responsible for what gets done to my body.

As to prescriptions, your pharmacist will know what's cheapest. Over the past 30 years, medical care has become excessively bureaucratic and cumbersome as it has struggled to comply with Medicare. Insurance companies were free to innovate with Rx, however, and they developed real-time adjudication, automated generic substitutions, etc. They did this not to save money directly on claims -- the old system was better at avoiding claim payments because it required fallible people to collect paper receipts and mail them in. They did this because of consumer demand & competition.

Consumer choice can come in many flavors, many of which are likely unimagined. Healthcare itself is continuing to change dramatically. This is creating new financing opportunities and challenges as we speak. It would be a shame to further ossify our healthcare financing system in the face of such dynamism in healthcare, and I can only hope that ossification in financing will not carry over into ossification of our health system as a whole.

caveat bettor writes:

When I go to McDonald's, I get to choose what I want from a menu of options. If I don't like the options, I don't spend the money, or I go to a competitor. MCD provides what consumers want, and profits from superior supply (sure the food is not great, but the consistent quality and value are both crushing competitors).

So why would I want to give up my medical care choices?

Publius writes:

I'm not sure anyone is interested in purchasing the McDonald's of healthcare.

Information is a huge obstacle in consumer-driven healthcare. Maybe we can educate the whole of the population to make informed decisions but I doubt it. I'm not sure every adult is capable of buying the best TV for them regardless of the options and information available. Nor do I think people want to spend that amount of time in deciding each medical decision. Who's going to plow through clinical data to decide whether that elective surgery really pays off in the long-run?

I agree that state experimentation is underutilized (in almost all policy consideration and implementation, including) with healthcare.

Congrats on finding your angle to oppose critique Hillary's plan. It's so foilicious to almost everyone that it's a shame for her she can't pick up royalties on the various oppositions almost everyone is going to spew forth about.

She should should've put out a fake one on April 1st. It would have been the April Fools joke of all time.

Richard writes:

"I'm not sure anyone is interested in purchasing the McDonald's of healthcare."

A lot of us are. Think of your routine care, eye-checks, physicals, dental check ups, even lab work. For eyeglasses and things of the like I can walk across the street from the mall and get my eyes checked and a new pair of glasses. I can call ahead or simply walk up. If I have a routine malady that doesn't have me laid up having something equivalent (i.e. a McDonalds of health care) is an unmitigated good. I don't want to take my precious leave so I can get some antibiotics.

Buzzcut writes:

Wow. I see a trend on this thread. "Healthcare offers too many choices". "Consumers aren't able to choos the best TV for themselves, why would they choose the best healthcare".

Any evidence that consumers are making bad decisions in their television choices? I love my high def tv, I think that I made an excellent choice.

I just moved into a new house, and all I did was hook the cable from the wall into the back of the TV, did a channel scan, and got 180 channels between OTA, analog cable, digital cable, and high def. No set top box. No visit by the cable guy. Un-frickin-believable. What a world we live in.

Choice needs to be embraced, not repressed.

Mike writes:

Regarding consumer choice and availability of prices here's an idea.

The government loves to have regulations and controls so let them set-up a standardized list of procedures and rates. In order to provide health care services a supplier would have to post on a website their rates for this list of procedures and rates. They would be held to those charges but can change there rates based on allowed timing and procedures. These prices would be entered into a database which consumers could use search tools to select the best supplier. Hypothetical indices or rates could be constructed to facilitate ease of interpreting the data without having to be a college graduate with an economics major.

This would result in price competition by all suppliers so you would have little concern about having to make selection choices while in an emergency medical situation as the prices would be reasonably competitive or the supplier would not be able to stay in business.

General Specific writes:

"The government loves to have regulations and controls so let them set-up a standardized list of procedures and rates."

I think this is a great idea. But do you think it would happen without regulation or control? I think not. Markets don't always form naturally. They often require government to facilitate them. Why not combine the best of both worlds?

I'd support an idea like this with my voice and dollars. The medical community is not going to like it of course. E.g. should gas stations be forced to post prices on street corners? Why not require all shops to post prices on the internet. Better yet, why not require all companies to post as much information as possible about their product, up to and including cameras in slaughter houses? Why not? Transparency cleans up a lot of sins.

And while we're at it, why not allow medicare to negotiate drug prices? Since when should the government (e.g. Bush and company) disallow price competition.

Mike writes:

"I think this is a great idea. But do you think it would happen without regulation or control? I think not."

It depends on what you mean by regulation and control! The idea is that government would regulate in the sense that they would require the posting of prices into a standardized data format and require suppliers to stand by their prices through say the end of the current quarter as a condition of supplying health services just as having the proper licensing is a precondition.

Anyone who is charged more than the posted price could suit for damages. They would also provide the website and search engine to allow consumers to find the best price (but not necessarily the best service which should still be the consumer's responsibility).

Due to the unique history of health care and insurance I don't believe these ideas should be extended to other industries as it would be too heavy handed. It is one thing for consumers to understand most any other product than health services and with the third party payment system we have been conditioned to buy what suppliers tell us we need and send the bill to someone else with overt prices seldom raising their head.

Publius writes:

Regarding the McDonald's of healthcare I was suggesting the quality was comparable to McDonald's as much as the convenience. Is the public at large interested in making cost-effectiveness decisions on their own?

Correct me if I'm wrong but if I give people 3 choices (low cost, mid-cost, and high cost) don't they select the mid-cost on average without correlation to efficacy data I might give them? And what do you say to someone that chooses to not spend money because their doctor didn't properly inform them of how important the more expensive and technologically advance procedure is over the cut-rate procedure?

Healthcare isn't the farmers market and it isn't best buy. You buy one TV in 3 years but a person with chronic conditions would be forced to make life-altering decisions multiple times a month. And the consequences of choosing poorly are far more than missing the Big Game.

Also what doctor's are going to give up their authority because patients can choose which services they'll pay for? "yes I'd like antibiotics but skip the strep test cuz you know I don't want to pay $100 for that and the antibiotics will fix the problem if it was positive anyway."

On a side note its amazing to see the number of people that read blogs to hear what they already believe parroted back to them.

8 writes:

The last time we had something approaching a free market in healthcare was 50 years ago, when doctors made housecalls and charged the rich people in town more money than they charged the poor people in town.

We have no idea what a true free market would look like today. We know what various single-payer and universal coverage systems look like. What's wrong with experimenting in the states? As an added incentive, the states should be allowed to plow any Medicare savings into other spending or tax cuts.

Richard writes:

"Regarding the McDonald's of healthcare I was suggesting the quality was comparable to McDonald's as much as the convenience."

That's true in a sense. I would never go to McDonalds for a sweetbreads or a something that requires any skill. But if I have a cold or something like that, and a lot of medicine is essentially routine, the assembly line style medicine is appealing to me. Why bother with the cost to me in terms of my time?

John Fembup writes:

"Maybe we can educate the whole of the population to make informed decisions but I doubt it. I'm not sure every adult is capable of buying the best TV"

Well, then, here is a difference of opinion.

Some people think that most people (not all) can become conversant with their medical needs for most (not all) services.

Some people (you for example) seem to think not.

I think it is well worth finding out.

And for my part, I think the 1-pound ball will fall just as fast as the 10-pound ball. Oooh, heresy!!!

Floccina writes:

What could this do to the cost of healthcare:

http://www.msnbc.msn.com/id/20481206/

General Specific writes:

Mike wrote: "Due to the unique history of health care and insurance I don't believe these ideas should be extended to other industries as it would be too heavy handed"

Well, I was sort of kidding about extending it to everything. My main point is that there is a cost to consumers to overcome lack of transparency, and that cost is significant at times. It's useful for people to know, for example, how much sodium is in a product so they don't have to find out through blood pressure increases.

bingo writes:

Two thoughts:

1) No one commented on Arnold's concept of INSULATION, that aspect of health care insurance as we now know it that insulates a consumer from the true cost of her care. Without some exposure to the cost of care there is no reason not to demand any and all care that may be available, regardless of its effect on health outcomes. Mrs. Clinton ignores this as well. She also ignores the demand influence of defensive medicine, care ordered for the sole purpose of preventing the initiation or loss of a lawsuit; in a fascinating irony Karl Rove mentions this in an op-ed in today's WSJ.

2) We hear only about decreased prices and downward pressure on prices in an open market for medical services, or in several posts above about standard, government-set prices. In an open market a government standard can be floated but providers of all sorts should be free to charge LESS if they can do so, making profit by providing bare-bones/minimal service-added care (McD's). They should also be free to charge MORE if they so choose, offering new technology and treatments to early adapters, or offering value-added services to patients (customers) who wish to pay for the extras (Harry Trotter's, Puck). Innovation thrives in the premium space for it is here that the innovator has the incentive to bring something new to the market. In time these new innovations decrease in price and drift into the mid-major market, and value-added services become more standard fare, reducing the premium necessary to access both. That's how markets work, in services and products.

General Specific writes:

bingo wrote: "Without some exposure to the cost of care there is no reason not to demand any and all care that may be available, regardless of its effect on health outcomes."

True. Exposure to costs will reduce costs.

In general: Medical expenses will be reduced by (a) reducing the actual cost of procedures (b) reducing the profit margin on procedures and (c) reducing the number of procedures.

Blue Cross, as an example, doesn't seem to limit procedures as much as they set ceilings on the profitability of procedures (by fighting with the medical practitioners to lower chargers) as well as by selecting certain doctors who may be lower cost (PPO program), forcing people to pay for more expensive doctors with greater out of pocket expenses.

HMOs, on the other hand, limit the cost of procedures--e.g. through salaried doctors and other cost savings. They obviously don't want to limit their profit margin.

But here's the deal. I buy my own insurance. My wife had breast cancer years ago. Aetna would not take her. Doesn't matter how high the deductable, or anything. Just plain no. The only other choice is Blue Cross, which did take her, but they might have said no as well. In california, a pool exists that takes on all the people rejected by insurance companies, so that would have been an option.

In other states, that option might not exist. Here in California the state is forcing the coverage, creating a pool similar to what Kerry had proposed in the last election.

It is outrageous that a person cannot buy catastrophic healthy insurance without the state stepping in, and that is the first issue to address in health insurance. People who want to buy insurance should be able to purchase it. Right now, they can't. At least not without state intervention.

This is not a question of free-riders not buying insurance, or not being able to afford insurance. It's the insurance companies saying go away, we don't want you, even if you can afford it. They do it all the time.

Universal coverage of some sort is needed, at least for catastrophic high deductable coverage.

bingo writes:

General Specific writes: "Universal coverage of some sort is needed, at least for catastrophic high deductable coverage."

Amen. This is actually rather easily accomplished with just a couple of simple legislative strokes. Define a catastrophic coverage minimum; establish a national maximum deductible for that coverage ($10K? 15? 20?); make the market for catastrophic coverage national so that it supercedes all state minimim coverage laws, maximizes the risk pooling, and opens up the competition between insurance companies; mandate that all citizens and legal aliens carry catastrophic insurance; police the insurance industry to prevent fraud. Do this and there is no need for the state to become involved in the market other than to protect against fraud, a reasonable job for government. This would be insurance in the truest sense of the word: protection against a relatively rare or remote occurence that would cause financial disaster should it occur.

How do you pay for the deductible? Well, that's another rather long post, now, isn't it?!

Floccina writes:

The medical people mostly assume that a longer but less enjoyable live is best for everyone. So what if I am diagnosed with a form of cancer that is expensive and debilitating to treat and say 10 percent of the people who receive that treatment will live another year and only 1 percent of the people not receiving the treatment would live another year but the treatment makes me sick for 6 months. Without the treatment I will live 6 good months before declining. Well I might choose to go to Hawaii and live it up for the last 6 months of my life or I might try the treatment. If I am paying myself I am more likely to take the trip to Hawaii. If the insurance company is paying I am more likely to take the treatment. If I forgo treatment the insurance company benefits and if they would share that benefit with me I might go to Hawaii (I might also go to Apollo healthcare in India and Hawaii).

The problem is when the insurance company is paying we demand healthcare up to or beyond the point where the marginal value of the last treatment is $0.

Another example:
If government is spending the money they could spend x dollars to treat a certain illness and extend the life of the average American by maybe 10 days but they could maybe spend the money on making the roads safer and extended life 20 days.

It get very complicated.

Start tongue in cheek:

Ban the motorcycle.

End tongue in cheek:

Floccina writes:

Bingo,
How about universal coverage with a deductable equal to the your last years adjusted income minus the poverty level. Or that is a function your last years adjusted income minus the poverty level. I would prefer that the deductible start at $300.00 for those at or below the poverty level and rise faster than income, becuase the richer people are the more capable and responsible they should be. Perhaps you could cap the deductable at about $200,000 to discourge people from buying insurance for to cover the deductible. Thus encouraging price sensitivity among the most capable and responsible people.

Publius writes:

I'm not sure how Newtonian mechanics equates to consumer-driven health care.

If people are capable of being so well informed why doesn't every adult go to college? Why do people still fail to save for retirement? Certainly the population at-large is more sure of this than they are of the most cost-effective treatment for an MI.

My point in all of this is to simply say that the health care market is not competitive and and putting the full burden on the consumer will be no more successful than granting the government full responsibility for providing health care.

bingo writes:

Floccina: OK, but remember, you asked ;=)

First-dollar health "insurance" is nothing more than a complex pre-paid service contract. The insurance company attempts to determine the amount of money you are likely to spend on health care and then in effect charges you that as a premium; the insurance company (in a very simplistic way to explain it) makes it's profit on the investment value of the premium dollars it holds before they must be paid out for health care.

No matter what the deductible in a catastrophic, true insurance plan may be there will always be people who have varying degrees of ability to pay for their "deductible-covered" health care. Those who have no extra money after the basics of life are covered (food, shelter, clothing, basic transportation) are properly cared for by a benevelent government and citizenship. The tax code and the IRS are the appropriate places to do this. Tax credits for the most poor, tax deductions for the middle class, phased out to out-of-pocket for those more able. Anyone can negotiate for an "insurance" policy that would cover the deductible. The premium may represent the difference between driving a Honda Accord or a Honda Civic in many cases, and this is an appropriate way to view the financial choice since the tax code based subsidy will prevent having to make a choice between your apartment or your gall baldder surgery.

This type of plan exposes ALL patients/consumers to the cost of health care. Providers will respond by making choices avaiable across all levels of price, comfort, luxury, and efficiency. People will choose to decline care that has minimal utility as Floccina describes above with her cancer scenerio, or care that provides a minimal addtional effect on outcome (eg. an MRI suggested AFTER a negative CT scan for a headache).

Next you need to reduce the provider demand...

Floccina writes:

Bingo wrote:
"Next you need to reduce the provider demand..."

I consider deregulation of who can provide what care as essential but another topic. It might lead to division of labor with technicians doing surgery in systems designed by engineers with redundancy put if to improve quality rather than artisan doctors. Sadly no politician is even talking about that, as Robin Hanson has said medicine is weird.

Is that what you are getting at in the above comment?

bingo writes:

Floccina:

Nope. What you are describing is SUPPLY. A major driver of provider DEMAND is the need, perceived or real, to practice medicine in a way that minimizes the liklihood of a malpractice tort. So-called defensive medicine. Simply put, no amount of medical care that can be ordered is sufficient if just a little more will reduce the liklihood of a lawsuit. Depending on whom you read 15-25% of health care expenditures are directly tied to defensive medicine. 15-25% of $2 Trillion.

Floccina writes:

We agree on that. Looser pays looks good for that, at least in theory.

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