Arnold Kling  

Health Care Rationing

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Ezra Klein writes,


Britain and Canada control costs in a very specific fashion: The government sets a budget for how much will be spent on healthcare that year, and the system figures out how to spend that much and no more...


American healthcare controls costs in another way. Rather than deciding as a society how much will be spent in the coming year and then figuring out how best to spend it, we abdicate collective responsibility and let individuals fend for themselves.

He is right about Britain and Canada. He is wrong about America. In America, about 90 percent of health care spending is paid for by third parties--most individuals do not fend for themselves. He also writes as if those who [don't] have health insurance do without health care. They do with less than other Americans, but it is not accurate to say that they do without. [Freudian slip corrected]

My view of the American health care system is that it hardly rations health care at all. That is why we spend so much more than other countries. I wish we put more responsibility on individuals. Instead, we have this delusion that we cannot possibly afford health care if we pay for it individually, but of course we can afford it if we pay for it collectively.


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COMMENTS (35 to date)
scott clark writes:

You write:

"He also writes as if those who have health insurance do without health care."

It looks like you forgot a "don't".

Carl The EconGuy writes:

More than half of all health expenditures in the US are spent by the Govt, in Medicare and Medicaid, and most of the rest is subject to huge price controls. Who says we don't have socialized medicine already?

Here's the huge difference: Medicare spends two-thirds of its enormous outlays on caring for people in their last six months of life.

Thus, the real difference between Canada and other European-style health systems is this: we spend enormous funds redistributing wealth to peole who will die very soon, but the others let them die cheaply.

Go figure -- which system do you like better?

Blackadder writes:

American healthcare controls costs in another way. Rather than deciding as a society how much will be spent in the coming year and then figuring out how best to spend it, we abdicate collective responsibility and let individuals fend for themselves.

This may not be how America deals with healthcare costs, but it is how we control the costs of lots of other things. Like food. Society doesn't first decide how much will be spent on food in the coming year and then figure out how best to spend it. The horror.

eccdogg writes:

The solution to these problems seems pretty simple to me with some type of grand bargain between the parties.

1) Remove the employer tax deduction and replace it with a general credit or tax deduction for insurance/medical expenses/HSA.

2) Deregulate insurance industry to allow more free market options.

3) Allow most people to purchase insurance health care in totally free market.

4) Create Federal or State insurance option (either single payer or private insurance with state subsidy and regulation) this would be the same as Canadian/English systems we would decide how much we wanted to pay and then ration care from there for these programs.

5)Premiums paid by individuals to the Fed/State plan would be based income. Effectively this would make the program a safety net for the poor, the sick, and the old who would be priced out of the market.

This set up gives a free market for the majority of us and a cost controled safety net for the poor/sick/old.

Why won't that work?

Dan Weber writes:

I would happily sign up for a system that said that extreme measures would not be taken in my old age.

I would also love to sign up for a system that rations health care. I'd want to know how they are rationing, of course, but rationing isn't a deal-breaker. In fact, it's required.

janet writes:

If people took more responsibility for their own health by eating right and exercising, health care costs would come way down.Money would not be spent on unnecessary drugs and tests.

kurt writes:

What's the point in getting health insurance when you are in your 20's or early 30's and haven't visited a doctor in some 10 years.

baconbacon writes:

"He is right about Britain and Canada."

Hes not right about Britain and Canada, in Britain private health care supplements the areas in which public health care is lacking. Both illegal clinics and travel to the US supplement the national care in Canada. Neither of these two countries has a true put a number on it and work from there scenario.

Arthur_500 writes:

Health Care is rationed worldwide. In the United States those with cash buy the healthcare they can afford. When they can no longer afford healthcare they get what they can and the public picks up the tab. Those with Insurance get what the Insurance company will pay for and when they run out of insurance they get what they can with the public picking up the tab. At the end of the day, those who already have their foot in the door will get what they can and they public is left paying for the costs.
Costs are high due to inefficiencies in purchasing as well as delivery of services. In addition, there is the ever-present cost of litigation. A large system, be it nationalized or just a large company will improve their cost controls to a point. However, we have yet to figure out how to punish those who are derelict in their service delivery and those who are just the victims of fivolous lawsuits. As a result we will pay for insurance from the band-aid factory to the operating room and then the additional costs of litigation on top of that.
In the meantime our 'leaders' will promise unfettered access to universal healthcare and deliver what they can afford. By the time they start telling you that your kid isn't worth getting an operation or your mother's life isn't as important as your elected official's life it will be too late. Divided we stumble together we fall.

hacs writes:

Can you buy how much health care as you want? I do not think that is possible, there is a minimum (maybe, an intrinsic characteristic of that business). So, it is necessary an universal health care supplying those basic treatments.

Thomas DeMeo writes:

There are many reasons why markets work very poorly with healthcare. We want the good that comes from markets, but we are unwilling to accept the bad. We simply aren't willing to let someone die on the street because they made some foolish choices earlier.

There are some parallels to the housing crisis. With healthcare, poor behavior will often not have consequences for many years. Vendors offer highly profitable, highly technical products that are difficult for laymen to judge properly. Pricing is complex.

Healthcare will slowly but surely expand faster than the economy until we give in. It must be rationed.

steve writes:

I do not think we can have real free market health care as long as insurance is involved. There are lots of problems, but as a physician let me point out just two. Private insurers pay much better than Medicare and Medicaid. I get paid more if I do more. Think about those and tell me how we can have free market health care.

Steve

john writes:

"My view of the American health care system is that it hardly rations health care at all."

So speaks a supreme theorist no doubt sitting in a generous academic healthcare program. This is essentially the Bush "let them eat cake" argument that folks can always go to the emergency room. As if no cost arises out of visiting an emergency room. Arnold should try it sometime and if he had no insurance he'd also find himself paying full tariff. Of course healthcare is rationed, and rationed very inefficiently in the US. He may be right about 90% being paid by third parties (ie.govt or your employer) but employers have now reached the limit of what they can shift to employees, a process that has been going on for the last 10-15 years. Speaking as someone who oversaw this process at a large corporation I always predicted that when it got to that point was when big corporations would would switch their support to a govt organized system and that's what's happening now. US healthcare costs aren't twice those of everyone else because healthcare "isn't rationed" although the emergency room alibi might be a minor part of the problem. Costs are out of control because we have a massively inefficient, bureacratic, patchwork system that is driven by profit which are taken at all levels by hospitals, doctors, insurance companies, drug companies and a myriad of parastic outgrowths from companies that exist to enable corporations to work the system to doctor owned clinics and even insurance companies to take care of their own malpractice insurance. Basically the right has no solution to this mess which is why they can never articulate it and rely instead on horror stories of granny dying in the streets of Montreal or Montreux. Clearly what we're going to get is something that looks a bit like the MA system of mandates, a public option but with most the paying side the remaining with insurance companies. The delivering side (the distinction between the two sides is constantly blurred by the right btw to confuse folks) will essentially remain unchanged. This configuration is of course going to evolve over time because it has to if costs are to come down. Ultimately, my guess is we'll end up with virtually a single payer system or at least govt and maybe a couple of big insurance companies left standing while delivery will remain largely in private hands but it won't be anywhere near so profitable.

scott writes:

Why not try a system like Britain or Canada? Their costs are less than ours.

Real free market health care will quickly become a two tiered system. Decent health care for the very rich, very mediocre health care for the working class. The poor will have no health care.

john writes:

"The poor will have no health care."

The poor have very little access to healthcare now outside of emergency rooms that Arnold thinks are free. I've lived and worked in Britain and France as well as the US and my comments on their systems would be: UK 6/10, a bit rough round the edges in aftercare but covers everyone and treatment is first class: France 9/10 outstanding treatment and aftercare. So Arnold why don't you tell us what the right's proposal is for a universal healthcare system that brings costs inline with our peer countries in the west. Is it a variant on the proposal in the recent Republican budget to give everyone their Medicare voucher and you're on your own?

jaycbird writes:

"Instead, we have this delusion that we cannot possibly afford health care if we pay for it individually, but of course we can afford it if we pay for it collectively."

"this delusion"?? Currently, my chemotherapy is $6000 per infusion - 14 infusions per year - $84000, per year. I can not pay for that individually. Even collectively, ie Medicare, pays 80%, which means my co-pay would be $16,800 per year, without a private, supplemental insurer.

What is the solution to bring that cost down? Oh, and my chemo is for a mucinous carcinoma that originated from my colon. So, if you were ready with a "well, if you didn't smoke, this wouldn't have happened" argument, that's not going to work here.

baconbacon writes:

"There are many reasons why markets work very poorly with healthcare. We want the good that comes from markets, but we are unwilling to accept the bad. We simply aren't willing to let someone die on the street because they made some foolish choices earlier."

The statement is contradictory, there is no reason that charity and goodwill won't exist under a market scenario. If 'WE' are unwilling to let someone die on the street then 'WE' have hundreds of organizations that accept donations. There is nothing particularly peculiar to healthcare markets that makes markets unworkable in the US other than massive, disjointed and poorly thought out government intervention.

Dan Weber writes:

I encourage people to read The Best Care Anywhere, which describes why the VHA functions so much better than Medicare or private insurance.

It's theoretically possible for the private market to emulate this, but it would need some legislative protections.

Azhrie139 writes:

I see that virtually no one on this thread has actually read any research to look where the majority of health care costs come from. For example, "If people took more responsibility for their own health by eating right and exercising, health care costs would come way down. Money would not be spent on unnecessary drugs and tests," bzzzzt wrong. Important, but sixth or seventh on the list of reasons health care costs so much in this country relative to most other countries. Try overhead (dozens of different bureaucracies trying to work together and I don't just mean the government) and American’s (both doctor and patient) obsessive need for the newest technologies and medications that don’t actually improve outcomes (this is as separate issue from the experimental drug track for example).

Barbara writes:

I am a non-health care provider who works in the health care industry. I work with both insurers and providers. There are both macro and micro problems with health care in the U.S. Here are what I see as the most important of these:

1. Macro: A lot of health care is totally useless. Literally, and totally useless. Some of it might be justified, but there are some people who probably live better lives because they can't get "health care." My dad died of terminal cancer without insurance -- he got exactly what he needed in the way of palliative care and nothing more. How do you convince people, especially with end of life care, that this is actually better, and I mean exponentially better, than continually trooping to a hospital and then, ultimately, dying there disoriented, usually without your family, in great pain and at great expense to society?

2. Micro: The physician payment methodology that predominates in the U.S. is totally insane. Literally, and totally insane. Cut to the chase, it incentivizes physicians to hyperspecialize, because it rewards them for doing sophisticated stuff regardless of whether the stuff has value, is appropriate, or is done well, and to boot, it is highly vulnerable to fraud.

So here would be my two policy prescriptions:

1. Reducing funding for specialty training programs and upping funding for primary training programs and finding a way to truly value primary care practice relative to specialty practice would go a long way towards de-escalating the health care arms race.

2. It's hard in the U.S. to explicitly ration by individual wealth. However, that means we should be even more vigilant about effectiveness research in all kinds of ways -- from evaluating new drugs and technologies, and refusing to pay for those that don't improve outcomes, to refusing to pay for surgeries that research ultimately shows are contra-indicated.

The fact is, most doctors don't have the information -- or even the ability to evaluate that information and many lack the incentive to make use of the information even when they know what they should be doing -- and insurers, which often have the information and even the expertise, lack credibility and also have conflicts of interest in evaluating it. It is absolutely justified that the government fill the gap in this regard.

Thomas DeMeo writes:

baconbacon- Sorry I used the term "we".

I agree that there is, and would be a substantial amount of charity and good will brought to bear on the problem, but it certainly would leave gaps.

Even if it did not, you aren't addressing the core problem. Charity would, to only a slightly lesser degree, cause the same dynamic that government causes now. This isn't like many other markets. An unacceptable percentage of people will ALWAYS decide not to spend $500 per month on something they may very well not use for years, especially if they know someone else will help them should they need it.

floccina writes:

jaycbird wrote:
Currently, my chemotherapy is $6000 per infusion - 14 infusions per year - $84000, per year. I can not pay for that individually.

I am just guessing here but I bet you could if you had too. Given the provider would give you terms.

floccina writes:

Thomas DeMeo wrote:

An unacceptable percentage of people will ALWAYS decide not to spend $500 per month on something they may very well not use for years, especially if they know someone else will help them should they need it.

Couldn't it be rational in many cases to enjoy the money in other ways?

Barbara writes:

Jayc, maybe the real culprit is the price point of the medication. Maybe if the pharma had to charge based on the marginal benefit, or if third party payment wasn't guaranteed, you could pay because the price would be much lower. These things are taken as a given and they need to be challenged. I don't know enough about your personal situation so I won't comment, but I was a former rheumatology patient and, though I really respected my doctor, I found the expensive drug happy obsession of his profession to be appalling. The inherent assumption that something called "health care" is needed to "deliver" health is false. So, while I advocate universal care, we need to radically rethink the esteem in which we hold health care "practitioners." Most are actually illness practitioners who don't even have the capacity to cure what they treat.

Dan Weber writes:
1. Macro: A lot of health care is totally useless. Literally, and totally useless. ...

2. Micro: The physician payment methodology that predominates in the U.S. is totally insane. Literally, and totally insane....

Barbara, have you read Overtreated? I think you would love it.

I think we need to follow the VHA model. This doesn't imply private or public funding, BTW. We need more GPs over specialists, and more nurses over doctors.

The pay-per-procedure model used by both Medicare and BlueCross needs to become a very minor niche.

Huntington writes:

"...of course we can afford it if we pay for it collectively." Just like we do highways, schools, the military, water, power, etc. I don't see the problem here.

Dan Weber writes:

If highways were funded with the Medicare model, everyone would decide on their own where they wanted a road, have it paved, and then the government would pay the construction crew.

Note that I'm not doing this to rag on government-funded health care; this is pretty much the same with private insurance.

Floccina writes:

Huntington, I think the idea is that we are affording it either way. Collectively we pay for it or individually we pay for it, either way we pay for it.

Thomas DeMeo writes:

floccina wrote: Couldn't it be rational in many cases to enjoy the money in other ways?

I think it could be.

So play that out. What happens when such a rational person gets a head injury and cannot afford to pay for care? Often, family, community or charity would step in to fill the gap, but sometimes, they would not. So what happens then?

Floccina writes:

@Thomas DeMeo that type of emergency care is a small part of the overall costs and emergency care is one area where health care seems to have good bang for the buck. Usually in cases like that he is given the care and providers try to collect from him later. Many hospitals were started by Churches and charities and many providers truly want to help people and so they absorb the costs of the few fail to pay. But it would not be so bad to force people to get insurance for cases like that. It would be very cheap.

What about a case were someone refuses care for other reasons e.g. Jehovah's witnesses and blood transfusion, should we force them to accept care and pay for it?

I have posted in the past an idea where Government provides insurance but with an income based deductible. People with low income might have a $300/year deductible. The deductible would rise rapidly with income with people making $100k/year having a deductible of maybe $200,000/year (clearly within their ability to pay).

Barbara writes:

We shouldn't force someone to accept care. But as for the "what happens when the free rider gets a curable cancer and has a wife and three children under the age of five" scenario, you know what? My view isn't one that has great sympathy with him, but it does have sympathy with the rest of us as people who don't want to be put in an untenable moral position of letting fellow human beings die when they can be saved and then dealing with all the awful collateral consequences.

And as for the whole individual versus collective thing -- the reason why I even came over here is because that really does strike a chord with me and it's a very valid insight. However, and I will put this in caps: THE PAYMENT FOR HEALTH CARE IS SO DISTORTED AND THERE ARE SO MANY PERVERSE INCENTIVES THAT WE DON'T EVEN REALLY KNOW HOW MUCH WE ARE PAYING FOR WHAT. The advantage of universal coverage is that it strips out the need and justification for a lot of the "robbing Peter to pay Paul" mentality that goes on in health care, and lets us see where the real costs are coming from, be it inefficient hospitals or fraudulent DME companies.

Cheers.

DarrenG writes:

If you think health care is not being rationed in the U.S. I can only assume you do not have any personal experience, either directly or indirectly through friends and relatives, with the current level of care provided via HMOs, HSAs, or the 'catastrophic care' insurance that many small employers are now limited to offering.

Even with an unusually generous PPO, my family and co-workers often have to wait months to see a specialist or schedule routine procedures. In light of our own experiences with the U.S. system, the fear-mongering over Canadian or EU wait lists seems silly and quaint for many of us.

Cliff writes:

Darren,

What you say you have experienced is wildly out of whack with everything I have experienced, heard about from others, or heard reported. Perhaps there is a wait if you want to see one particular specialist, but generally getting an appointment for a given treatment or to see a certain type of specialist is almost nil.

sam writes:

If people took more responsibility for their own health by eating right and exercising, health care costs would come way down. Money would not be spent on unnecessary drugs

Mark writes:

I wonder how much Canada and the UK's health care costs would be if we didn't have the US health care engine paying for a majority of the research and development of medical technologies and drugs in the world. Does anyone have any information on that? I wasn't able to find any online?

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