Arnold Kling  

Debating Health Care Reform

The Pledge for Efficiency vers... Carrying Hyman Minsky's Torch...

Next Thursday, I will be debating Robert Kuttner in Burlington, Vermont. To be precise, 4-5:30 p.m. on April 23 in the Grand Maple Ballroom of the Dudley H. Davis Center on the University of Vermont campus.

Ezra Klein writes,

The hypothesis I'm going to offer is not definitive, and is not meant to be. But my read of the evidence is that at the root of our health care problem is an almost pathological aversion to making hard choices -- an aversion that has, in its steadiness and implications, become the most consequential choice of all.

...There is no budget. We don't want one. We're profoundly uncomfortable saying that a person's life, or health, is not worth the price of a particular procedure.

What we want is unlimited access to medical procedures without having to pay for them. What we get is extravagant use of medical procedures with high costs and low benefits. This is unsustainable and it will stop.

The debate should be about how the cost-benefit trade-offs and rationing will take place. I will argue that most health care spending should be paid for out of pocket, with insurance reimbursement only for very large expenses over a multi-year period. With consumers paying out of pocket, they will take price into account in making their choices, and they will self-ration. The alternative is to have government officials make the choices about what treatments people are to obtain. I do not think that this is a one-sided debate, in which one position is clearly better than the other. But I hope that Kuttner and I can have this debate, rather than go off into red herrings like drug company profits.

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COMMENTS (28 to date)
Todd writes:

Will the audio of the debate be posted to the web?

JP writes:

I second Todd's question.

jsalvati writes:


Dan Weber writes:

One thesis I was playing with a while ago was this:

1. The middle- and upper-class consume too much health care.
2. The lower-class doesn't consume enough.

These weren't meant to be a balance. It's just the way it worked out.

I think if your proposal is that people should pay more for their own care, you need to be explicit about where that leaves the under-class. If it's "we give them direct subsidy to purchase health care," that would probably cut it, although you would want to test your numbers ahead of time.

Larry writes:

While I totally agree that getting consumers to put more skin in the game will rein in costs, and is an essential part of reform, I don't get how that works for chronic conditions.

Perfectly appropriate treatment for many such conditions costs too much for anyone other than really prosperous people to pay for. It also doesn't fit the insurance model. These expenses are predictable and ongoing. Using insurance for this is like having insurance cover your gasoline bill as well as collisions. We need a different model for chronic conditions.

JP writes:

Dan and Larry -- IIRC, the proposals Arnold makes in Crisis of Abundance include a safety net for the very poor and for those with chronic conditions.

Arnold Kling writes:

I expect that at some point the debate will be posted on the web.

JPIrving writes:

Professor Kling: Be ready for a very hostile crowd. I'm a senior at UVM and can tell you that 85% of the audience is just there to hear about "evil insurance companies".

Fortunately the debate seems to be clearly framed, that should help keep things on topic.

lukas writes:
With consumers paying out of pocket, they will take price into account in making their choices, and they will self-ration.

Hmm. On the other hand, insurers will want their clients to go to see doctors early and often so they can avoid the large expenses that arise when problems go undetected for too long. Self-rationing will only minimize short-term costs.

Crawdad writes:

Dan Weber,

Were did you get the numbers to support your thesis? For instance, my wife and I both started in the lower income brackets and have worked our way into the middle brackets. Our health care consumption has been pretty steady no matter what bracket we were in. In fact, our consumption has probably dropped in the last couple of years.

We have health coverage through my wife's work. We have to set appointments to see a doctor and we have substantial co-pays even with our high premiums. Our local emergency rooms are constantly buried by low income people using the ERs like their personal healthcare physicians, mostly for non-emergency treatments. They do this because the great majority of them fall under TennCare and so have no concerns over costs. Apparently, in Tennessee anyway, everybody is getting plenty of medicine too as a CDC report indicated a couple of years ago that there are twelve prescriptions per person issued here each year. I've had one in the last five years. Do the math.

Maybe I'm wrong, but how would you go about measuring when low-income people have consumed enough healthcare? Or, when upper-income people have consumed too much?

Joe Marier writes:

More like a pathological desire to make hard choices for others, so says the battle-weary social conservative...

Dave writes:

My experience is like Crawdad's. I know several people that have foolishly delayed (or are still delaying) treatment because of not wanting to pay. Also, people I know have had treatments that turned out not to work (but were usually pretty cheap, like antibiotics for something that turned out not to be an infection) but I haven't known them to get treatment for conditions that didn't totally suck and deserve treatment.

If I were your opponent (an easy role to play because I disagree with your thesis), I would make challenges like:

- Do you have any actual evidence that people overconsume health care because of insurance? Or is it just a zero-order assumption that fails to take into account things like the fact that most people hate to go to the doctor? This is the real challenge--I haven't ever been presented with empirical evidence supporting the moral hazard thesis.

- What about people with no savings, which is a lot of people? Will they take out loans? What about people with no savings that can't qualify for credit?

- What about chronic conditions, as someone asked above? For a young person, the possibility of getting a chronic condition requiring $10,000 per year of care is a big risk. Will your plan mitigate risks like that?

Larry writes:

I have frequently consumed medical stuff (per doctors' advice) given that I did not have to pay for it. Of course, I wanted fixes to my issues, but I was highly skeptical that any of the things they were doing were worthwhile. As it turned out, I was right. I would have reduced national health care expenses by thousands if it had been coming out of my own pocket. Am I the only one?

hacs writes:

Sorry, but the defense of the freedom restricted to business and entrepreneurship becomes insignificant and risible before much stronger totalitarian trends as

Crawdad writes:


Here's the winning paragraph:

"Rock Harmon, a former prosecutor for Alameda County, Calif., and an adviser to crime laboratories, said DNA demographics reflected the criminal population. Even if an innocent man’s DNA was included in a genetic database, he said, it would come to nothing without a crime scene sample to match it. “If you haven’t done anything wrong, you have nothing to fear,” he said."

Yeah, right.

Larry Becker writes:

I agree with the proposition put forward by EK. An additional benefit, which should be considered for having people pay a higher proportion of their health care out of pocket is that if people who are receiving the services are paying the bill, they will put direct pressure on those that determine the prices of the services.

Too often, people believe that the 'insurance company' is paying and no one is getting hurt by charging more. Well the reality is that we all pay for inflated prices.

In every other industry prices are reduced as technologies, equipment and services become more efficient. Not so in the health industry. Why? At least in part because the direct consumer is not paying the bill directly.

Larry writes:

check out the following blog if you want to begin to understand some of the underlying issues in our current health system.

Duracomm writes:

Coyote Blog has an interesting post on how political influence of disease interest groups will substantially distort the care delivered in a government system.

But Kaus is correct that if some high-powered and well-funded interest group gets behind a certain procedure, cost-effective or not, the government overlords of the program will likely approve it.
As a result, for example, no potential treatment for breast cancer will ever be denied given the proven strength of women’s groups lobbying for breast cancer treatment (already, breast cancer research is hugely over-funded vs. other diseases given its mortality, due in large part to this powerful lobbying).
Access to care will no longer be determined by money, but by political pull.
A rarely discussed example of how politics would overwhelm the clinical / scientific components of a cost benefit analysis.

Crawdad writes:

A follow up to my statement about ERs and the abuse that goes on with real, local numbers. We live in a county with a population of just under 100,000.

My wife, who works in our local healthcare system, said that last night there were 75 people waiting in the emergency room by 2:00 am. Of those, two were admitted to the hospital, eight others had real issues in need of emergency care, either injuries or illness.
The rest were seen, given a pat on the head and sent home. Many, many of those sent home also got prescriptions, whether they really needed one or not. The doctors often give out these prescriptions just to avoid the hassle of arguing with their patients.

Anyone care to guess the percentage of those sent home with prescriptions who were on TennCare?

FYI: A big chunk of the "stimulus" money Tennessee received from the Feds is going to TennCare.

Don the libertarian Democrat writes:

This sounds like a good debate because you and Kuttner are both excellent. My view conforms with Milton Friedman's about health care in this interview he did with Kuttner:

"RK: But, you know, physicians incomes relative to other highly skilled professionals are relatively lower in the western countries that have universal health insurance, so I think it is kind of indeterminate.

MF: We have the worst of all of all worlds on that score

RK: I couldn't agree with you more. We have the worst mix of government and private, I could not agree with you more.

MF: We ought to have much more private or much more government. ( NB I AGREE COMPLETELY- DON )

RK: Well, to the extent that government is involved at all it ought to be doing a better job than its doing now. I am entirely in agreement.

MF: But there is no formula for doing it. Every area where the government gets involved, whether its education, whether its medicine. If government were to take over the industry of running retail grocery stores, that would be a major problem. The post office is a problem. And if Medicare and Medicaid had never been passed, it may well be, probably would be, that expenditure on health would have gone up, maybe to seven, eight, nine percent of GDP, because as we get to be a richer country, it's a product that people want to have more of. And there is nothing wrong with that. In fact there's nothing wrong with medical spending being 20 percent of national income.

RK: If people want it, sure.

MF: But what happens when the government takes over, spending goes up while the government involvement grows, but when the government takes the whole thing over, then spending goes down. Look at what happened in Great Britain or in Canada, they spend much less, That's because of government rationing. Allen Wallace once wrote an article about the effect of government taking over an activity, and he pointed out that spending goes up while they're taking something over, then it goes down afterwards because that's where they can get money for another venture.

RK: Well, I guess the basic disagreement is that I think there are more sectors of the economy than you do that for a variety reasons aren't either self-regulating in terms of how they operate, or get the right resources.

MF: I think the real difference is that you have more confidence in government than I do.

RK: No, I don't have necessarily have confidence in government, but I think rather than just concluding that the remedy for healthcare not being a good subject for the free market, is just to say well that's too bad, I think you've got to work harder at having the government to do what is has to do better. And I think, ironically enough, the Federal Reserve is one of the proofs of the pudding, because that, after all, is part of the government, and it has learned some things over 70 years.

MF: Wait another 10 or 20 years. I trust the government to behave like a government."

I would like us to choose one way or the other. The hybrid approach is a disaster. My own view is like Charles Murray's view, and that is that we should have a guaranteed income out of which universal health care insurance is paid.

"Lopez: At one point you talk about possibly increasing the grant size if you estimate on health-care-cost needs turned out to be off? What’s to say that in implementation the grant size doesn’t skyrocket?

Murray: The passage you’re talking about was intended to anticipate critics who present elaborate data to prove that my $3,000 allocated annually to health care is not precisely right. I’m close, but I don’t want to spend the next year arguing about whether the right number is $3,300 or $3,500 instead of $3,000. In effect, I’m saying to the reader: “Okay, for purposes of reading the other chapters in the book, assume that the grant size is their number for health care plus $7,000.” The debate about the Plan shouldn’t get sidetracked over a few hundred dollars, because small dollar differences are irrelevant to the main argument. Suppose, for example, that the right figure for the annual health care allocation is as high as $3,8000 instead of $3,000. All that means is that the projected costs of the Plan cross those of the current system in 2015 instead of 2011. "

I just thought I'd mention it since no one besides me is going to. Otherwise, as I say, we should choose anything but a middle of the road hybrid.

Dr. T writes:

I agree with your (Arnold Kling's) position on health care payments. But, another factor besides consumer choices about costs and care must be considered: the mindset of US physicians. For decades my colleagues have treated almost all their patients without considering costs. When uncertain of a diagnosis, there usually are three options: 1. Wait and see what happens (low cost), 2. Treat based on your best guess and see what happens (fairly low cost), or 3. Order a battery of diagnostic tests and procedures (moderate to very high cost). Almost every doctor today chooses #3, a fact that also explains why many physicians favor a national healthcare system. They'll make less money, but they won't have to alter their cost-ineffective practice style. (Note: They also choose #3 because they won't get paid much for the extra time required with choices 1 or 2.)

So, even if consumers become more cost-focused, hundreds of thousands of physicians must alter their behaviors. That will be an extremely difficult task and will require big financial incentives for the physicians (who don't change behaviors based on logic alone). One possible incentive: go with a time-based billing system just like lawyers, accountants, and consultants.

Dan Weber writes:
Do you have any actual evidence that people overconsume health care because of insurance?
People do consume more when it is free. Someone on this board pointed me to the RAND study, where people were randomly given near-full coverage and others were randomly given a de minimis coverage. The people who had it paid for used more, and were no healthier than the other group (excluding vision care).
Our local emergency rooms are constantly buried by low income people using the ERs like their personal healthcare physicians, mostly for non-emergency treatments. They do this because the great majority of them fall under TennCare and so have no concerns over costs
Does TennCare say that they should just use the emergency room as their personal doctor? Or are they supposed to get family doctors or use something like a Minute Clinic for basic problems?
Crawdad writes:

Dan Weber,

"Does TennCare say that they should just use the emergency room as their personal doctor?"

The answer is no. But the state and hospitals can't refuse them treatment if they show up to the ER. Since there is no downside for them that's how they use it. And if you're a prescription drug addict (we have tons) it's a bonanza because as I mentioned above, the ER doctors often give out prescriptions just to get people out the door without a hassle. Since the ER doctors don't know the patients like a personal physician would, they get played by the druggies all the time. In many ways, the state is subsidizing drug abuse, even if unintentionally.

We do have walk-in clinics for basic health issues, colds etc. and these folks make use of them too, extensively. My wife's observations in this regard fully support the Rand studies. And for years it was so easy to get enrolled in TennCare, that people from other states were flocking here if their own states refused to enroll them. Once on the rolls, it is nearly impossible to get them off.

I forgot to mention how massive the free rider problem we have here is too. My wife deals with people every night who are obviously abusing the system, but enforcement is weak to the point of nonexistence. My wife gave up reporting people to the state after years of frustration for all but the most egregious cases.

Tennessee could be the model that best supports Dr. Kling's thesis. Our govenor, Bredesen, a fiscally conservative democrat, gamely tried to reform the system a couple of years ago, and had some minor success; thousands were removed from the rolls. The howling though from advocates and local media was deafening. And everything I've described above remains even after the attempted reforms. The reason it remains is because it's tough for a politician who wants to remain in office to sell fiscal reality in relation to healthcare; it's one of those new "rights" you know. As Dr. Kling says, "What we want is unlimited access to medical procedures without having to pay for them." Actually, I think the impulse is more, "We want medical care and we want someone else to pay for it."

Dan Weber writes:

But is the abuse of the emergency department the fault of TennCare? Almost every state requires hospitals to serve everyone who comes in, and they do.

Government plans should work on setting up alternatives to the ED to relieve the burden on them. How to do that is the devil in the details. Your experience is that people flood the ED even when other options are available to them.

Crawdad writes:

"But is the abuse of the emergency department the fault of TennCare?"

Incentives matter, yes? So in essence, the state has provided the incentive for them to abuse the ERs because they get to use the facilities for free. Think like them. They can go through the hassle of making an appointment and waiting until they can be seen or just show up at the ER, wait a couple of hours and see a doctor. Either way, the state picks up the tab. Even if the ER physicians recognize the people who are abusing the system, they are prevented from turning them away due to legal ramifications. There are no disincentives for TennCare recipients to not abuse the ERs.

People who have to pay their own way avoid going to the ER unless absolutely needful because their time is valuable in real monetary terms and because there are direct costs through premiums and co-pays or from out of their own pockets.

I guess what I'm saying Dan is that, in this case, I would kind of reverse your thesis:

1: People who have to pay for their healthcare, either through purchasing insurance or directly out of their pockets consume as much healthcare as they deem necessary.

2: People who get their healthcare needs met for "free" are provided with the incentive to consume more than they need.

Dan Weber writes:

So in essence, the state has provided the incentive for them to abuse the ERs because they get to use the facilities for free.

But people do this in states even without TennCare. The poorest people will go to the ER there, too, for the reasons you just mentioned. The ER can't throw them out by law. And what else are they going to do? Bill them? Good luck collecting on that.

People who have to pay for their healthcare, either through purchasing insurance or directly out of their pockets consume as much healthcare as they deem necessary.

Buying insurance doesn't make someone more discerning in their health-care consumption. I agree that those who pay directly are the most discerning (although sometimes too much).

Crawdad writes:


I think we are agreeing to a great extent.

The system incentivizes over use and/or outright abuse and fraud because it is providing "free" services. That's the issue isn't it? It's not that people in need consume the healthcare they require, (that's a separate issue) but that they incur massive costs to the system by using it when they don't really need it. I've provided an example of one night in a single, small ER where upwards of 65 people incurred unnecessary costs to the hospital and the state (taxpayers) because there was no disincentive to check their behavior. Has anyone gathered data on these costs at the state or national levels?

It seems to me that state and federal governments aren't really concerned with this because they always leave the enforcement side under funded and under staffed, always. The cynic in me says that efficiency and cost control are not the determining factors for their involvment in healthcare.

I'll think about insurance and it's effect on consumption. I would think though that those paying out something, anything, (either for insurance or even more so for out of pocket spending) for their healthcare have that in mind when making their decisions. I know I do.

Jiddic writes:

This should be a good debate and yes the crowd should be interesting... hopefully respectful and open to BOTH sides.

Also being a senior at UVM in the economics department, ive been doing some research and reading from both sides. Im going into the debate completely open minded and honestly have yet to make my mind up on this truly interesting debate.

I will be twittering the debate at my personal account: "jiddic" starting at 4 if you are interested if following it.

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