Arnold Kling  

The Fiscal Outlook

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Peter Orszag writes,


tax rates would have to be raised by substantial amounts to finance the level of spending projected for 2082 under CBO’s alternative fiscal scenario. Before any economic feedbacks are taken into account, and assuming that raising marginal tax rates was the only mechanism used to balance the budget, tax rates would have to more than double. Such tax rates would significantly reduce economic activity and would create serious problems with tax avoidance and tax evasion.

Orszag points out that containing health care spending is the key to avoiding dire scenarios. But elsewhere he puts more faith than I do in improving health care efficiency. A one-time increase in efficiency, no matter how large, does not take us off the path of ever-increasing health spending. It only postpones the day of reckoning.

It seems to me that fee-for-service reimbursement, paid for by third parties, without rationing, is inherently not sustainable. As I say in my book, we cannot have open access to health care services, consumer insulation from expenses, and sustainable health care spending. Pick two.


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CATEGORIES: Fiscal Policy



TRACKBACKS (3 to date)
TrackBack URL: http://econlog.econlib.org/mt/mt-tb.cgi/832
The author at Health Care BS in a related article titled THIS SHOULD BE OBVIOUS writes:
    Arnold Kling reiterates a fundamental reality of health care economics that should be obvious to any sentient being: We cannot have open access to health care services, consumer insulation from expenses, and sustainable health care spending. Pick two. ... [Tracked on May 20, 2008 9:43 PM]
COMMENTS (4 to date)
kebko writes:

I agree with all your points completely. As a self employed person with issues that make insurance companies less than helpful for us, I can say the the s*** will hit the fan well before 2082. I agree that health care technology is greatly improved, but to even get our foot in the door for basic care is a minor financial crisis for us. Every few months we have a jaw dropping moment where we get a bill for something that our very major medical insurance policy didn't cover. "Hey, honey, do you know how much they charged us for letting you sit in that bed in case you fainted?!" Even if you weren't about to faint or in agonizing pain, just try to find out ahead of time what that is going to cost you. Every time we need anything, I feel completely used by the system to a degree used car salesmen could only dream of. At this point, health care of any kind that involves a hospital starts in the 4 digits. I'm a die-hard libertarian, I believe that within the next 2 decades there will be a wholesale shift in how health care is practiced, and I still think it needs to be fixed immediately, even at high cost (actual & opportunity).

But, the actual point of my post was that my first thought is to look for health care speculation from 1966, and to see what problems they thought would be most important in 2008. My guess is we'd look at it & say, "Man, I hope nobody actually proposed policies based on these predictions."

Dan Weber writes:

But, the actual point of my post was that my first thought is to look for health care speculation from 1966, and to see what problems they thought would be most important in 2008. My guess is we'd look at it & say, "Man, I hope nobody actually proposed policies based on these predictions."

I finally read Overtreated and they go into a lot of detail about the history of health-care spending over the past 50 years. It's an excellent read.

The short form is that we've seen this cycle of a problem appearing, a solution being implemented to fix it, the solution working rather well, but then the solution metastasizes into a brand-new problem. Medicare, pharma, managed care; it's like a Greek tragedy.

Dr. T writes:
we cannot have open access to health care services, consumer insulation from expenses, and sustainable health care spending

The problem is that few care about point three. Government provision of universal health care (or health care insurance) is a popular idea because few voters are concerned about burdening the next generation with massive debt. Today's culture has disavowed the previously common belief that parents should try to give their children a better standard of living than they had. Instead, our generation expects the next generations to sacrifice for our current and future profligacy.

RL writes:

There's another problem with divorcing patients from the cost of health care that's never talked about. I'm a physician, a radiologist. There is a dramatic skew in the quality provided by different physicians that superficially supply the same product. There is little to no quality control, compared to a competitive market.

For example, I routinely see grossly misinterpreted studies that either 1) completely ignore a pertinent finding, 2) describe but mischaracterize a pertinent finding with incorrect management recommendations made, 3) overcall an insignificant finding. At best this leads to a costly unneccesary workup or a delayed diagnosis. Occasionally it kills people.

Shoddy quality is accepted in most practices unless it becomes a huge malpractice liability, and most errors, though dangerous, don't reach that level.

Why is it accepted? In part because patients don't know. Oftentimes other specialists don't know. The difference between Dr. X misread the CT and "CT is not that accurate for this problem" can be a subtle distinction.

WHy does it happen? Because a high-quality interpretation bills exactly the same as a low-quality interpretation. You don't get bonus points for doing a high-quality job. If anything, you make more money by reading more cases/day at the cost of marginally cutting quality. That's how RBRVS is designed. It "objectively" assigns points for various tests/procedures, etc. It couldn't possibly work if it had to distinguish "Dr. Smith's CT interpretation" from "Dr. Jones' CT interpretation". So all the incentives are in the system to minimize quality to the level where any lower would get you sued.

I'm not suggesting people make these decisions consciously. But there's little incentive to research a challenging finding when you know you've got to read 100 more CTs before you leave if you want to maintain your income level.

And of course there's absolutely NO reason to advertise that you read CTs better than other radiologists in your area. That would piss off a lot of people, and besides, patients are often rationally ignorant of differences between physicians.

There are many problems with third-party payment systems, or at least with monopsonistic payment systems, but the inability to compete by offering higher quality medical care is one that is often overlooked.

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