Arnold Kling  

Why Health Care Reform is Hard

Single-Lever Macro... Merton on the Financial Crisis...

Peter Orszag offers a can-do outlook on controlling health care costs.

The bottom line is that health care reform must be deficit neutral in the short run and deficit reducing in the long term. We have to have scoreable savings in the short term to finance additional benefits or coverage. But we must do more than that. We have to move aggressively to change the rules of the game so that we slow the growth in long term costs. Many of these things may not have substantial short-term savings, but over the long term will contribute to more efficient arrangements in the health sector.

I think he makes it sound way too easy to control health care spending. Let me give a semi-anecdote.

My oldest daughter is in her mid-twenties. She has a friend the same age who was stricken with cancer last year. She was treated with chemotherapy, Initially, the doctors thought this had worked, but now the cancer is back. My guess is that her prospects at this point are rather frightening.

That ends the anecdote. What follows is my imagination.

Imagine it were my daughter. What would be my attitude? I imagine that I would be walking into the oncologist saying, "Look. There has to be something you can try. I don't know whether it's bone marrow transplants or stem cells or some clinical trial somewhere. But we can't just sit here and watch her die. Either you give us something that has a chance of working, or we'll find another oncologist who will."

Next, imagine that the best hope is a treatment that costs $100,000 and offers a chance of success of 1 in 200. Would I want her to get that treatment? Absolutely.

But look at the issue from a rational, bureaucratic perspective. You have to treat 200 patients at a cost of $100,000 each in order to save one life, for a cost per life saved of $20 million. Is that what a rational bureaucracy would do?

A rational bureaucracy would not even tell the family about this treatment option. But I think that in the American culture regarding medicine, I would find out about it.

This semi-anecdote says nothing about free-market medicine vs. government health care. In my mind, free-market medicine is more likely to result in the treatment being attempted, but that is not necessarily an argument for or against free-market medicine.

My point is that I would be a lot less "can-do" than Peter Orszag in promising to rein in health care spending. I think that our cultural attitudes about medical services are such that attempts to bring rational cost-effectiveness to the system may not be so easy to implement.

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COMMENTS (70 to date)
Murraymises writes:

"A rational bureaucracy would not even tell the family about this treatment option. But I think that in the American culture regarding medicine, I would find out about it."

This is exactly what happens in Europe. See here for more ( The ban on advertising new medicines is designed to keep costs down.

JP writes:

Yes, no one is willing to go from a system in which most people get almost all the care they can possibly want without paying more than a fraction of the cost. Their motives, as you show, are usually not bad.

Thanks to perverse tax incentives, the past 60 years or so have taught Americans (1) to think of healthcare as "free," not as part of their compensation, and (2) to assume that the only way to afford healthcare is through some central payor (a large employer, Blue Cross, an HMO, ... the federal government).

Things didn't have to be this way. But now that they are, we're unable to "pull the plug."

Justin writes:

I would imagine that the cost of the hypothetical treatment would decrease over time and possibly lead to a higher success rate as well. It may also open up the door to newer, more successful treatments. It may therefore be rational for a more long term thinking bureaucracy to use this treatment.

William writes:

So you don't think Americans would tolerate waiting lists?

If we had any hope of achieving healthcare rationing, we might be able to rein in costs.

8 writes:

The government could publicly state that the average American life is worth $X and only treatments that have a cost per life saved of $X or less will fall under government insurance.

There's no favoritism for any disease, no political lobbying. Either the treatment is "profitable" or it is not. Otherwise, the government will then have to pick and choose when and where it makes exceptions, and we go down the rabbit hole.

Brian writes:

Your hypothetical offers an interesting jump-off into other questions.

What if your insurance didn't cover the treatment and the cost represented, say, 25% or even 50% of your net worth. Would you spend the $100,000? I suspect yes, but....

What if you offered the $100,000 to your daughter, to spend as she saw fit. Would she buy the treatment or use the money some other way at the end of her life? If you were her, what would you do?

What if the insurance company said, yes, under your policy we are obligated to pay for this, but we offer to either pay for it or pay you $50,000 in cash. Would you take the treatment or the cash? What combination of odds of success and cost would change your mind?

TIE writes:

Easy it will not be. That is clear.

Thank you for your comments to my post. You added an important element to the discussion. I replied to your comments there and am only alerting you to that fact here.

Fundman writes:

Actually Arnold's point is even more relevant when we consider that many physicians DO NOT KNOW what the most advanced and currently accepted treatments are for rare conditions. Imagine someone diagnosed with a rare form of cancer which, 20 years ago when the GP or Oncologist was in med school, was uncurable. Faced with an avalanche of papers to read, s/he never reads up to discover new promising treatments and simply directs the patient to standard, doomed, care. Without the options provided by market based medicine, an individual's choices are not only limited in extreme experimental scenarios, it's also about being limited when treatments do exist! It's not merely cost-benefit, it's poorly informed cost-benefit that bedevils government health care that's non-competitive.

kebko writes:

8, are you being sarcastic?

Barbara writes:

How did the myth get started that there are no waiting lists in America? Because I work in health care, I once got forwarded a desperate APB e-mail from a friend of a woman diagnosed with a rare cancer with the most cutting edge treatments available only at a few places in the country. She was seeking anyone, ANYONE who knew a doctor she had identified as a specialist for her cancer. The waiting list was one year, greater than her life expectancy at that point and the best she could do was join a waiting list.

This is the reality: we may not have a "tolerance" for rationing but neither do whe have the medical infrastructure to support true universal access to all kinds of treatments. One thing suggests itself immediately: rigorous and continuous effectiveness research. This, at least, would help us to stop taking up resources for useless treatments.

John writes:

Arnold is an out and out opponent of a universal healthcare system so he's certain to find ten reasons why it won't work rather than one reason why it might. In fact I can give you a personal anecdote from a socialized system, Britain's, that demonstrates that bureaucrats don't make clinical decisions of the type he posits. A brother in law of mine contracted Guillame Barre syndrome about four years ago. This involved a 10 month hospital stay, a series of enormously expensive treatments and about 18 months of extensive aftercare. He is now largely recovered. A couple of doctor friends over here estimate the cost for his treatment in the US at $1.5 to $3 million. The cost to my relation was zilch. Never at any point was cost a factor in determining the treatment he would receive. I'm afraid this is just another variant on the granny dying in the streets flesh creeper from the right. I don't dispute that adjustments will have to be made and it won't be easy but it's certainly not impossible and on a cost/benefit basis well worth the effort.

rjh writes:

The same issue is dealt with in the British system with a review and approval council. There are generic guidelines. The benefit is measured in terms of expected quality life years. A procedure with a cost of 50K per year of life gained is near certain to be approved. A procedure with a cost exceeding 100K per year of life gained is unlikely to be approved.

This is of course controversial in practice.

Barbara writes:

To Fundman's point: Out of date practitioners present a real problem that doctors just hate to confront. It is, however, changing, as newer doctors are themselves much more information age savvy and in particular, as their patients confront them about gaps in their knowledge. However, I don't really see how public versus private makes a big difference here. Some of the most cutting edge practitioners are at NIH and other government run facilities, where doctors do not have to frantically worry about practice expenses and reimbursement rates.

Unfortunately, when there is such a huge gap in the information base of sellers and buyers, buyers are rarely in a position to judge well. The main goal, from my perspective, is to try to raise the bar overall so that more and more providers are practicing at a high current level of competence, rather than to try to have various practitioners undercut the reputation and performance of others. It doesn't foreclose competition, but it accepts that competition, per se, may not be the best way to achieve that particular goal.

cleek writes:

can you walk into a hospital, ask for a procedure at random and expect your insurance to pay for it?


that's rationing.

a less farcical example: i can't get a root canal unless my dental insurance approves it first. that's rationing.

another: i've had insurance plans which would not approve a visit to a specialist unless i was referred there by my G.P.. i pay a penalty if i visit doctors who don't cooperate with my insurance company. my insurance company regularly overrides prescriptions my doctor gives: substitutes generics, other formulations, refuses to cover, etc.. my wife is a cancer survivor; and that's a pre-existing condition which has some serious effects when it comes to insurance coverage.

that's all rationing, in effect. the insurance companies refuse to pay (or to pay fully), or to insure at all, based on whatever bureaucratic or financial whims they have that day.

we already have rationing. we are already subject to market pressures (as imposed by our insurance companies).

it's time to bite the bullet and get universal coverage.

Dan Weber writes:

I would imagine that the cost of the hypothetical treatment would decrease over time and possibly lead to a higher success rate as well. It may also open up the door to newer, more successful treatments.

Radical chemotherapy was done a lot a generation ago (I think the 1980's). It cured very few people, while costing a fortune, and putting those people through hell. Many proponents have regretted the role they played.

A procedure with an NNT (number needed to treat) of 200 is almost always wrong. There can be exceptions if the procedure is extremely cheap and/or has extremely low side effects.

Americans love to fight. It's not always the best thing to do. It depends a lot on the cancer, but just living with it can often be the best option for the patient's quality of life, totally ignoring costs.

Faced with an avalanche of papers to read, s/he never reads up to discover new promising treatments and simply directs the patient to standard, doomed, care.

The doctor probably shouldn't be required to make those calls. The doctor should have an independent source s/he can turn to that analyzes the papers critically. I think this should be done at the hospital level, because different hospitals can come to different conclusions, and they can share their data afterwards to see which treatments seem most effective for different patient types in real world settings.

Anonymous writes:

isn't the current situation just as bad?
think about the same situation you described. there is a possible treatment that would cost 200K. The doctor tells you about it, you want to try it, but the INSURANCE COMPANY says no way. It is not covered because it is experimental or some other excuse. And they just deny, deny, deny until the daughter dies.

Now going back to government health care.
Maybe they say it costs 200K. Govt cannot pay over a certain amount (for the same reasons an insurance company would give). So for experimental or excessively expensive treatments the patient would have to decide if they want to do it themselves. basically you are in the same situation. But the advantage is all your health care before that point was covered, so hopefully that means you have a little extra. Or maybe there is a private supplementary insurance people buy for just this situation.

Carter Russell writes:

There is a kind of rationing that goes on already. Or maybe it is a shifting of costs. Whatever you call it, fatalistic people get less from the health care system (unless they are completely self-insured) for what they contribute than others. For example, I know of one man who was diagnosed with cancer, but chose not to battle it. Such a mindset was never considered when he was paying insurance premiums, and was not considered through any system of taxation. He paid just as much as those people who expect Dr. House to be called in if it might prolong their lives one additional day.

Gus writes:

You think rationing doesn't go on in our current system? My dad has cancer. He was lucky enough to be put on a clinical trial for a drug that helped him dramatically. Unfortunately, now that the trial is over, he would have to pay $15,000/month for the drug. I'm not sure of all the details, but it isn't covered under his current insurance, so he has to make do with lesser drugs. His cancer will kill him eventually, but the newer drug would have prolonged his life and made the life he has left a little more comfortable. That's rationing by another name.

Glenn writes:

Of course one thing we all miss is that rationing is coming whether we like it or not. We are entering a period in our history in which the largest age group of people are entering into their autumn years and will need signifigantly more medical care. Despite that fact, at least in my home town of chicago the amount of total hospital beds has gone down over the past 15-20 years.

The hospital my wife works for is on bed alert throughout most of the week and thats now. not 15 years from now when the baby boomers are in their 70s.

Rationing is coming whether we like it or not. It is coming whether we reform health care or not. The only choice we have is whether that rationing should be based on medical need or the ability to pay. As is, it will be based on the ability to pay.

JP writes:

Where in this post does Arnold talk about rationing? He's discussed rationing in the past, but that's not what this post is about. As I read it, he's talking about the difficulties that will likely be faced in any effort to reduce health-care spending in the U.S.

Jim W. writes:


What do you think about this piece in today's WSJ by Weems and Sasse?

El Presidente writes:


You have hit on a very important point that even those of us who like the direction of proposed reforms need to be cognizant of. The main driver of costs is acute care and most of that occurs toward the end of a patient's life. Much of that expense is brought about at the insistence of family, as your analogy suggests. So, unless preventive care can make people more willing to accept the inevitability of death or make their families aware of the costs they are imposing on others for want of a better way to assuage their grief, we will still see a good measure of this behavior.

That said, I'm not sure this is the key to understanding the economic dilemma of how to maximize the utility of health care expenditures. I think that we have to measure things like absenteeism, learning outcomes for children, length of hospital stays, recovery time, processing costs (digital recordkeeping), medical errors and malpractice, etc. We need to take a broader look at where money is spent and how. Many insurers do this, but they have a different set of incentives than a dispassionate economist or a bureaucrat would. They're looking for ways to enhance profit, not necessarily ways to enhance economic efficiency or health outcomes.

John Thacker writes:

I'm baffled by the comments that people are making about rationing. Arnold's piece seems simply to be discussing why universal health coverage in the US is unlikely to produce the cost savings seen in other countries.

In my mind, the most likely model for universal health coverage in the US is Medicare and Medicaid. Medicare and Medicaid spend far more than the universal health systems in other countries, and spend similar amounts to the private insurance system here.

Everyone complaining about current rationing-- remember that in order to keep costs down there would have to be still more rationing, not less. In the current situation, any health care rationing by insurance companies leads to political protests and legislation to force insurers to cover more things. I think it unrealistic to expect that the same would not happen in a universal system.

A universal system certainly could happen, but could it overcome the political incentives towards spending just as much on treatments? I don't think so. Would people really go quietly and accept the government's judgment that experimental treatments aren't worth it? I don't think so-- and they increasingly aren't doing so in other countries, where people learn about treatments via the Internet and badger their governments to cover them.

John writes:

One has to wonder if the health insurance lobby think they are doing themselves any good pulling stunts like this:

JP writes:
Sure Arnold is talking about the difficulties of implementing rationing but the wider implication is that bureaucrats are going to impose lots of it and anyway resistance to pragmatic clinical decisions will meet a lot of resistance so it's not worth trying. This is a very thin argument. In fact the arguments against a universal system seem to be getting thinner by the day. Over the past few days I've seen conservative pundits claim we shouldn't worry about 15-20% of GDP costs because "we can afford it" which in a way is Arnold's or alternatively many Americans "don't want" universal healthcare and we'd be impinging on their "freedoms' by making them have it.

rjh writes:
I suppose by this measure my bil would have made it through the net since he was in his mid fifties when he contracted GB. On the wider issue though one has to ask is it reasonable to spend a million to keep someone alive for a year. Every circumstance is different but probably not.

neil wilson writes:

I have been called many names but ....

It is absurd that we don't put a dollar value on human life.

I am not smart enough to know what it is but I am smart enough to know that we are better off spending $100 to CURE a 20 year old of disease A than we are spending $1,000,000 to cure a 60 year old of the same disease.

I assume we, as a country, are rich enough to cure the 20 year old. I don't know if we are rich enough to cure the 60 year old. I assume we are not rich enough to cure every 100 year old if the cost would be $5,000,000.

We do ration everything even though we don't always admit it.

John writes:

John Thacker writes:
Medicare is insuring the over 65's. You don't provide any numbers but are you comparing apples with apples. We do know that Medicare has lower admin costs and of course doesn't have to provide stockholders with divs or top managers with large pay packets. That said there are a host of reasons why the US system costs twice as much as anyone elses and they are not all on the paying side of the ledger by any means, most I'm sure are on the delivery side but the fragmented nature of the system makes containing these costs next to impossible, particularly when you have politicians in the pockets of the drug companies restricting the ability of govt to do anything about drug costs which are 2-3 times higher in the US than elsewhere.

Jonathan Peterson writes:

people, rationing has been here forever. Insurance companies will not pay infinite amounts of money for every patient.

The only question is whether the rationing is done through a government regulated mechanism, or through a set of hurdles and limits on coverage/access that differ from person to person, hospital to hospital, medical plan to medical plan, state to state, none of which you really find out about until you have to start jumping over them.

TomB writes:

As with most health care discussions, one of the points that gets lost is the distinction between "costs" and "efficiency."

I think everyone wants a more efficient health care system. The most objectionable type of inefficiency is administrative inefficiency. We do not want to pay for wasteful overhead, duplicative tests, or rediscovery of information already known (such as results from tests done by a previous doctor that are inaccessible to your current doctor). When most people talk about "lowering costs," I think what they are really talking about is greater efficiency. Greater efficiency will result in lower costs, better outcomes, or both.

Lowering costs, on the other hand, is a much different thing. Costs can be decreased by increasing efficiency, by lowering quality, or by lowering quantity. Addressing quality first, quality costs money, and it costs quite a bit of it. But most people want quality. People want cures for cancer (look at all the donation campaigns). People want AIDS vaccines. People want prosthetic limbs. People want smart doctors looking at them when they are sick or hurt. We have to pay for it, but that isn't a bad thing. We want quality, and we are willing to pay for the benefits it provides.

As for quantity, we want to limit needless or inefficient procedures. But do we want to limit low probability procedures? We do not want to deny people hope, but we do not want to pay $400K to extend someone's life by 1 year. Is the government in the best position to make this evaluation or is some private actor? I think the private actor is because he can pay for insurance that fits his demand for quantity.

However, reducing quantity has a side effect - it will do one of two things: lower quality or increase costs. Let's say it cost $500M to develop a new cancer drug, and the drug company wants to recoup its investment in 5 years. It needs to make $100M per year. If we cut quantity, the drug company either charges more for the drug to make back its money or it does not bother developing the drug in the first place.

It is rare that government participation increases administrative efficiency. Where do you think "cost" reductions will come from if the government is in charge? Especially when the effects of reducing spending and investment are latent.

Dan Weber writes:
Would people really go quietly and accept the government's judgment that experimental treatments aren't worth it?

I would very willingly put my health decisions into the hands of a group that said "we won't try any radical treatments, and we won't try super-hard to save your life once you are over 60."

I'm not sure a private group could do this, because we have a history of lawsuits (see above about radical chemotherapy) that said, loosely, "if you need procedure X to live then you get procedure X." It would require a state or very powerful city government to provide itself legal cover while implementing such a plan.

The kicker is that people who get less health care tend to be just as healthy as people who get more, with a few very clear and specific exceptions. (RAND did the experiment in the 70's, randomly assigning people to groups.)

So once one public group managed to pull this off, and show that it works, other groups across the country would start to replicate it. Some would be private and some would be public.

We would get the benefits of evidence-based medicine, and most people would still have choice. If we want the government to pay for all health care, that can happen under this model. If we want individual citizens to pay for their health care, that can also happen under this model.

John Thacker writes:
John: Medicare is insuring the over 65's. You don't provide any numbers but are you comparing apples with apples.

Yes, I'm comparing apples to apples. Medicare spends considerably more on over 65s than universal health systems in other countries spend on over 65s. Other apples-to-apples comparisons, such as comparing health care costs among people file for Medicare early, or among people who have private insurance (such as UAW retirees) instead of Medicare after 65, or simply comparing costs among people 63-64 who are just barely not under Medicare with people 65-66 who have just signed up, show no significant difference. Medicare does not save money; nor does it spend less on health care treatments. Medicare and Medicaid "look like" the US's private insurance health care system, from treatments to cost, much more than they look like the universal health care systems in other countries.

Yes, I concede that I don't provide numbers here. That's also because our host, Arnold Kling, wrote a book about it.

Dan Weber: I would very willingly put my health decisions into the hands of a group that said "we won't try any radical treatments, and we won't try super-hard to save your life once you are over 60."

You say that now, and perhaps you mean it. However, I feel that many people would say that and change their mind in the actual case. Still, your argument remains the most plausible one-- that government will somehow have the ability to force through even stricter rationing, of the kinds imposed by HMOs in the early 1990s that people politically rebelled against, and manage to grant itself sovereign immunity to the inevitable lawsuits that would occur against private insurers.

And once again, there seems to be a lot of people who regard the idea that insurance companies engage in rationing as some kind of trump card. Certainly they do, but the argument from universal health care proponents is that they don't engage in enough rationing, and that we need to go back to early '90s HMO you can't choose your doctor style rationing and other savings. And that just seems to me to be politically impossible.

I see nothing that changes my opinion that universal health insurance in the US will be like Medicare and Medicaid, not like other countries'. The experiences of TennCare and Massachusetts do nothing to change that. Spending and premiums in Massachusetts are rising much faster than the national average, as political pressure groups ensure that everything must be covered.

There are some savings from forcing the young and healthy to get insurance and subsidize the sick, but it's not clear that that actually leaves the young better off. (And President Obama, when a candidate, specifically denied that he would mandate coverage.) If OTOH the deal is sweetened sufficiently that all young and healthy choose to sign up, then there are no savings.

Dan Weber writes:
You say that now, and perhaps you mean it. However, I feel that many people would say that and change their mind in the actual case.
I understand your doubt. There's a chance that I'll come down with cancer, and I'll want to undertake reasonable treatment. Or if I'm in a car accident, I'll want my spine put together and then engage in physical therapy. Or if I come down with diabetes, I'll want insulin treatment.

Experimental treatments are a "maybe." Without getting into the terminology of Phase II trials and all that, if some small group shows results, we should try it in a slightly larger group. This doesn't mean that I get the right to the treatment, but each group should do some experimental therapies and share the results with other groups.

Still, your argument remains the most plausible one-- that government will somehow have the ability to force through even stricter rationing
Often less care is better. The first system I'm imagining would start out small, be voluntary, and cover the poor and the administrators. (Eat your own dog food.) Eventually it would grow to allow people to sign up and pay their way in, and it's at that point that it would need to stand up to lawyers who demand that it cover a therapy that is 1) untested, 2) tested but unproven, or 3) proven but known to be extremely expensive. Being able to point to the data that shows our population is just as healthy as people who get more expensive treatment will be critical.

This could conceivably be done by a private group, but politically and legally it will work out better if a public group does it. And once the public group breaks the seal, private groups should be able to replicate the pattern.

and that we need to go back to early '90s HMO you can't choose your doctor style rationing and other savings. And that just seems to me to be politically impossible.
That's not quite what I'm arguing for, but it's close enough so I'll address it. The big problem with not being able to choose your doctor is that most people could not choose their HMO, and it was a captive market. If people could freely choose their own HMOs I don't think those problems would exist, and the model I'm talking about resembles that much more than it resembles employer-provided plans.

John writes:

John Thacker writes:

Yes, I'm comparing apples to apples. Medicare spends considerably more on over 65s than universal health systems in other countries spend on over 65s.

Of course Medicare spends more on over 65's compared to other countries. But that's not the original claim you made which was that it was spending as much as private insurance companies in the US. I was merely inquiring if you were comparing Medicare with over 65 private insurance patients or the entire private insurance universe. You then make some more claims, surrounded by all sort of qualifications, but don't provide any numbers. I wonder whether you read all my posting where I conceded most of the problem occurs in the DELIVERY part of the equation as distinct from the PAYING part. Such research as I've seen on the subject indicates admin costs in Medicare of around 5% versus 15% with private insurance companies so you'd have a 10% saving right off the bat which is not to be sneezed at but most of the savings would come from the delivery side.

Bill Nelson writes:

A Fable About Microwave Ovens:

At one time, microwave ovens were very expensive, and the only way to buy one was to either A) Be very rich, or B) Have an employer-provided "appliance insurance company" pay for one.

Unfortunately, insurance companies did not consider microwave ovens profitable -- what with the low premiums they were collecting for purchases of electric razors, transistor radios, and toasters. So, the insurance companies denied most requests to buy microwave ovens.

The government (i.e., taxpayers), however, would pay for microwave ovens if the applicants could demonstrate that they would devote their entire lives to the food and restaurant industry. "Just a simple cost/benefit analysis," they said.

Seeing that the market for microwave ovens would be suppressed by insurance companies and the government, no appliance manufacturer would risk developing it as a mass-market inexpensive item.

And that is why, to this day, hardly anyone owns a microwave oven.

Moral: The insurance companies must be punished, and the entire electronics industry must be nationalized.

steve writes:

Can you really have free market economics apply in a situation where both parties are not free to walk away?


Bill Nelson writes:

steve writes:

Can you really have free market economics apply in a situation where both parties are not free to walk away?

I would think that free markets would permit enough competition so that both parties can walk away.

Sort of like the veterinarian business, where there is no insurance, and no health care "crisis".

Matt writes:

As someone who works in the medical industry, I can attest to the fact that health care consumers want to have their cake and eat it too. There is simply no way to reduce health care costs without some form of rationing.

The fact is we do ration health care in favor of the elderly in this country. An earlier poster, Neil, brought this up and anyone who works in health care can tell you this. Medicare, which at current levels of payout, will overtake the majority of the US budget as the baby boomers start taking benefits. When you turn 65 in this country, you enjoy a bottomless pit of medical expenses. It is not uncommon for an obese smoker on Medicare to consume well over a million dollars of health care in a year. If you are an unemployed pregnant 20 year old you get the bare minimum - that is if you get enrolled into Medicaid. You can forget about experimental cancer treatments. Not to sound conspiratorial but the AARP has a lot to do with this sorry state of affairs.

A lot of great ideas are being thrown around like Computerized Medical Records and More Research. I can tell these people don't work in health care. These reforms will save money, but its just nibbling around the edges of the problem. The "meat" of the problem is the inherent high cost of medical care that will never go away no matter how much efficiency you introduce to the system. Medicine is not like other businesses. Costs continue to rise as we are able to treat more and more diseases.

Doctors are expensive. Nurses are expensive. MRI machines are expensive. Don't get me started on malpractice insurance (grrr!!!) Do you think these costs will go away if the Government takes over medical insurance?

Joseph writes:

One of the worst parts about being a doctor is that everyone wants to tell doctors what to do. Four years of highly competitive undergrad, no social life, MCATS, 4 years of med school and 3 years of residency, exorbitant malpractice insurance, $200,000 in debt and what do you get? A bunch of know-it-all lawyers and business types who know how to fix it all telling you how to run your business. Just wait until the government puts doctors on a salary and increases their taxes. Yeah you will see some real quality health care then. Just ask anyone the truth about the NHS. The British system would horrify any pampered American, I promise.

hacs writes:

A short point.

During decades education was a manner of giving to every man/woman accesses to the national workforce (as well as in other decades had a simpler objective as to read the Bible), inclusive to the unemployed pool. That is, education as basic set of skills to work. Nowadays, education is that for many people yet.

Obviously, there are others with higher dreams and ambitions, ready to pay high amounts for the finest education.

I believe that public health care should have a simple aim like that, containing basic treatments (preventive medicine), focused on an ex ante equality of opportunity standpoint (behind the veil of ignorance), not an ex post point of view.

JP writes:

Matt and John Thacker -- I'm posting this here because I don't know how else to communicate with you -- I enjoyed your comments so much that I'm posting them on my blog (click on my initials to go there). Thanks.

[Hi, JP. Please supply a permanent link in your comment when you quote EconLog material, e.g., and also, please do not paste EconLog material elsewhere without at least adding your own ideas and feedback. --Econlib Ed.]

Dan Weber writes:

I would think that free markets would permit enough competition so that both parties can walk away.

In the emergency market I don't have the freedom to walk away. I may not even be able to walk. I might not even be conscious.

Bill Nelson writes:

Dan Weber writes:

In the emergency market I don't have the freedom to walk away. I may not even be able to walk. I might not even be conscious.

The most expensive medical treatments involve long-term care for chronic illnesses, and not tourniquets and defibrillators.

That said, private markets do a pretty good job of taking care of non-medical emergencies without bankrupting people; e.g., ever have a burst pipe in your house? Would you care to try a local plumber, or instead call a "free" nationalized Department of Plumbing "hotline" to take care of that?

Perhaps with free markets, you would be able to contract beforehand with a medical provider. Or perhaps you would buy an insurance policy that would cover catastrophic and expensive emergency events -- and not waste money on premiums for inexpensive "procedures" like checkups, blood tests, etc.

Old Country Boy writes:

I can tell you how to save a bundle of money. Make all the doctors take the instruction "go to your nearest emergency room" off their answering machine. My care group has 6-8 doctors. They could save everyone a bundle of money if they would just designate someone in rotation to see the patient 24/7. Whenever you send people to the emergency room, you bring in all sorts of expensive conditions, for the patient, for the hospital, for the insurance company, and for the insured patients that are paying for someone to hold the hand of someone who would rather buy booze than insurance.

Mark Buehner writes:

Has there ever been an example in modern medicine of government run health-care reducing costs without rationing care? Has there ever been an example of costs not spiraling out of control with rationing being the result?

Here's an easy one- how has Medicare reduced the cost of health care? Please, stop laughing. This time it will be different, I swear. Efficiency is the watchword!

Richard writes:

Do away with medicare and health insurance and let people make their own deals and you will see medical cost drop like a rock...when the person receiving the service are not paying for the service, they use as much as they can without reguard of cost...can you imagine if our utilities were free...we would have no concern with how much we used...

As far as the poor go, they could be subsidized but should have to pay something to prevent them from using the service except when necessary...

Sounds cruel, but we need alot more self-responsibility or eventially we're doomed...

James writes:

I agree that most of what is talked about here is nibbling around the edges along with some discussion of who pays and how. Lets face it. Health care will be expensive and will always be expensive no matter how the payments are arranged or the risk is structured as long as the current system of supply is not changed.

In an economics discussion, I actually expected to see some discussion of a basic principal - namely supply and demand. There is a supposition that the demand is essentially infinite as people seek to have their health needs totally met. On the other hand, supply is restricted by the medical establishment, the system that puts high barriers to entry and the archaic hierarchy that pervades the medical establishment that restricts how the basic services are provided.

In order to reduce costs (really) there has to be a greater supply of health care providers at lower levels of expertise, different types of specialization and therefore lower levels of compensation. Under the current arrangement, doctors are the chokepoint for the whole system.

So, do we need more doctors - probably. But, there is a whole raft of activities currently performed by doctors that can be more than adequately be performed by other paramedical personnel with the appropriate training and qualifications.

Do we really need a doctor to give us a prescription for athletes foot, or can we just see a pharmacist. How often do we need to see a doctor to confirm its just a cold?

Its only if we can wrestle medicine from the medical hierarchy that we can really see efficiencies and cost reduction. The competition should be in the providers, not for who pays for the monopoly services.

PS writes:

My personal antecdote. 5 years ago, I changed careers and began selling small business health insurance in California. One night, I was lucky enough to sit at the same table as a former VP of a large health insurance company. I asked for his thoughts about ideas floating around Washington D.C. regarding health care reform. To paraphrase his answer: Health insurance is one of the largest and most profitable industries in the world. Insurers can afford to hire the smartest people in the world to work on their problems. Who do you think will do the best from "reform", politicians and bureaucrats or the insurance industry?

Bill Nelson writes:

There is a demand and supply for healthcare. Demand might change in the long term, perhaps with changing demographics. Otherwise, no program is going to change the fact that there's only so much healthcare supply to go around for a fixed demand.

The "solution" (and I really hate using that term) lies with increasing supply, such as:

- More doctors
- Greater freedom for non-MDs to see patients
- Technological improvements
- Pharmaceutical improvements

And Medicare, Medicaid, government "insurance" schemes, etc. address the above supply

Oh, I forgot, let's stop Big Pharm!

Also, I guess that demand could drop if patients weren't required by law to see an MD for some codeine now and then.

Thom York writes:

I've always made this point with regards to HMO vs. PPO. HMO's generally have the doctors working directly with insurance companies whereas with PPO's doctors are largely independent. Anecdotally, my HMO insured sister-in-law was told she was being paranoid about an ailment she had researched and was sure she had. She was right, but because the doctors refused to even test she can not have children. My doctor would've run the test. Well maybe not on me, but on my wife if I requested.

I actual heard Press Secretary Gibbs say that nationalizing healthcare would be necessary to save Medicare and Social Security! A third bloated bureaucracy to save two others? Really? When has anything involving government disbursements not gotten more expensive, not less? Double digit inflation has been rampant in... healthcare, student loans, home prices vis a vis mortgages, military toilets and hammers....

reader writes:

Look, the problem with health-care reform is that nobody gives two shits about providing health care. They want to provide insurance. It's the mother lode.

If Barack Obama wanted to provide people with health care, he'd be building hospitals. How many hospitals has Barack Obama proposed? None!

It's all about the insurance profits. Republicans have the insurance profits. Democrats want the insurance profits. That is all you need to know.

If you want to know whether a bureaucrat will give two rats asses about your kid's cancer, what do you think the answer is? How many compassionate IRS agents do you know? Have you interacted with any government employee lately? Most of them are morons unemployable in the real economy.

It's not about your kid's cancer. It's about the 200 million people who DON'T get cancer who will be forced to pay monthly premiums to Democrats for Ethiopian-level health care. Your kid's already dead to them. Your cancer stricken kid cuts into their profits. Of course they'll just unplug them.

Health care reform isn't about providing cancer care to your kid. It's about screwing all those Republican insurance agents in the most efficient way possible.

garrett bowling writes:

William writes:

So you don't think Americans would tolerate waiting lists?

If we had any hope of achieving healthcare rationing, we might be able to rein in costs.

But we do ration. We ration based on price. Just like we do food.

garrett bowling writes:

cleek writes:

can you walk into a hospital, ask for a procedure at random and expect your insurance to pay for it?


that's rationing.

No, that's an insurance company. If you wanted to pay for it, then you could have it.


garrett bowling writes:

cleek writes:

a less farcical example: i can't get a root canal unless my dental insurance approves it first. that's rationing.

No, you ask your provider, "how much will this cost me?" He/She will tell you. Save up that amount of money. Pay it to them. It really is that simple.

Aaron B. Hicks writes:

"Next, imagine that the best hope is a treatment that costs $100,000 and offers a chance of success of 1 in 200. Would I want her to get that treatment? Absolutely."

Sure, YOU would want the treatment. But can WE afford it? People in third world countries are dying because they cant afford basic medications and treatments while we're debating over whether or not we're ENTITLED to overly expensive, many of which prolong life without any added value.

In order to provide basic care for everyone in this country, we need to reassess where we spend our money. Half of Medicare spending is for procedures done in the last 6 months of life, after all. And we keep spending money on interventions up until the day people die. How much are we going to keep wasting in this country on chasing immortality?

charles austin writes:

The biggest obstacle to healthcare reform is the sheer amount of misinformation, ideological claptrap, and bloody-minded bad faith on the part of so many people who express an opinion, as evidenced by many of the comments in this thread.

Dave Everson writes:

My daughter had to have significant surgery to remove a tumor and I can tell you that I would have spent every penny I had and every penny of yours I could get my hands on if it had been necessary. We were fortunate and had a good outcome. I often wonder what people mean when they say we spend 'too much' on health care. When your child's life is on the line there's no such thing as too much.

James writes: nice. give examples don't just troll by with an outburst. Engage in dialog. Do you actually have any ideas yourself?

sagi writes:

Old Country Boy and some of the rest of you need to re-read the 13th amendment ...

garrett bowling writes:

Bill Nelson has it right, imho. So does the person that pointed out that there is no veterinarian "crisis"

I really don't have enough time to post my whole thought but I will try. Let's put some free market principles to work in the healthcare arena. Keep in mind that office vists are becomeong more expensive and so are hospital stays. Put more market forces in both.

Make the patient pay for the procedure for office visits. No more filing of insurance for the patient. Help them sure, but make them pay and get reimbursed or file and then pay. Get the patient used to the idea that healthcare costs.

Make the office publish a list of costs for the most used procedures. Standard office visits. Samples for standard blood tests. I bet the first time a patient says "is there another test?" the MD will pull out the schedule and say for $125 I can run a Cerebrospinal fluid check. And the patient gets to decide if they want to spend the money.

Make it easier for an MD to see patients. This means lower malpractice premiums. This means limit HUGE legal awards. If you like government solutions, then set up a insurance fund like they do for booster shots. The small percentage of children that are affected by the serum are paid from that fund, no suing going on.

Make it easier for Nurse practicioners to see patients.

If you really want to put government into action, then provide Universal Catastrophic Insurance (UCI). Look if you fall off your bike and break your arm. YOU, not me, are responsible for the bill. If you kid falls off his/her bike and breaks his/her arm YOU, not me, are responsible for the bill. Get over it. So, if the government simply calculated a dollar value (they could do so based upon relevant dollar tax receipts divided by the expected cases) above which you are NO longer responsible (that year) then insurance companies would rework all of their actuarial tables. For example, if the Government said that UCI has a floor of $50000 in 2010 so if you have a case (or multiple cases) that will rack up $50000 in one year then the government will kick in the UCI to cover it. So, a triple by-pass, costs you and your insurace company nothing, cancer treatments (for big cancers), transplants, ditto. But if you just need to get a cardiac cath and they do some type of angio on you then you get that $20000 bill. That is what insurance is for.

After the insurance companies put that calculation in place, then all of the insurace policies they sell will cost less. So, people will be able to shop around and buy more or pay less for insurance.

And before anyone starts whining, of course you have to have a plan in place to help the poor.

David Forslund writes:

The problem described by the anecdote is a fundamental problem in dealing with healthcare and points out the biggest issue that is not being considered by someone like Peter Orzsag. Healthcare payers need to deal with statistics (epidemiology) to figure out overall costs. But these matter little to the one that has the disease. They want/need to be treated. They contribute to the statistics but don't want to be treated from a statistical point of view. It is the tension between this dehumanizing aspect of healthcare and the intensively human aspect of healthcare that creates the problem with cost. If we only deal with the statistics, we will fail in our healthcare system.

Frank Snyder writes:

The problem with both insurance companies and government programs is the third-party payer problem. In most fields of technology, quality improves while prices drop. This hasn't been the case with health care. But note three areas where health care HAS dramatically improved while prices have plummeted: (1) lasik eye surgery, (2) cosmetic surgery, and (3) cosmetic dentistry. In each of these areas the technology is vastly superior and prices have dropped; credit terms are available for the lower-income; doctors are competing on price.
What do these three areas have in common? They aren't covered by insurance or government.

Garf writes:

Another problem with universal government healthcare is that they force everyone to be in the government system. They do this to keep the so called rich from opting out. Now you may ask “Why would it matter if the rich opt out?” The answer is doctors. If a rich person is willing to pay more for a doctor with less paperwork, why would the doctor stay in the government system? If you don’t think this will happen, try finding a doctor or dentist that is willing to accept new Medicare patients today.

Kyle writes:

This isn't just about cost/benefit or rationing. It is about freedom. If I make $X or have saved up $X, then why can't I use those $X the way I want? That includes using those $X on a hail-Mary treatment for my dying daughter. Why can't I? Isn't it my money? I can certainly use those $X to buy a new speedboat or a vacation home. What makes medical treatment of a loved one different?

There are two lessons we should have learned from the failed communists states like the Soviet Union. First, equality of outcome allows means most everyone suffers equally instead of greater prosperity for most. Second, the powerful are always exempt from the rules they dictate to everyone else. Remember the pigs in Orwell's "Animal Farm"? Under a single payer system, the rich will always find some black market doctor to provide them advance treatment not available to the general public. The rich in Europe and Canada don't have to worry as much about waiting in lines because they can always take a quick trip to the U.S. If the U.S. adopts this system, you can bet that some little Caribbean island (or Middle Eastern country flush with oil cash) will set up a hospital the same way some of them set up tax havens.

Bill Nelson writes:

What is so unique about healthcare, anyway?

Is it "important"? Sometimes yes, sometimes no. It certainly isn't as important as food, shelter, and clothing. And we don't seem to have many "cotton shirt crises" or "Diet Coke crises".

Is it "urgent"? Almost never. And besides, there are plenty of non-medical things that are urgent -- gas leaks, fires, etc.

Is it "expensive"? It's dirt cheap compared with routinely forking over most of your earnings to government agencies. Also, I would bet that most people, over the course of their lives, spend far more on food and shelter (if not clothing) than they do on medical care.

Is it "exclusionary"? It sure is -- just like everything else that has a price.

My hunch is that healthcare has some sort of emotional pull that makes us want to believe that everyone is entitled to everything all of the time -- and at no cost. And since that isn't true, we try to pretend that it can be accomplished by coming up with all sorts of rationing schemes.

I think we have seen that there is an inverse correlation between the actual availability of services and the number of schemes developed to create that availability.

James writes:

Bill; actually I think its the number of schemes developed to restrict services and make more money for those in the system.. the insurers, the HMO's and the doctors.

Open the system. Provide more types of medical practitioners. Create competition and destroy the medical monopolists.

Then lets talk about how it gets paid for.

Pat writes:

Here's what happens when you have socialist health care, as delivered by the British National Health Service:

In 1948, when the NHS was formed, there were 480,000 [hospital] beds and 350,000 staff.

By 2002, there were 186,000 beds and 882,000 staff.

As of September 2008, there are 160,000 beds and 1,368,200 staff.

Ann Keen, the Health Minister, said; "The NHS workforce is now at record levels and has increased by almost 300,000 over the last ten years."

The NHS is now the third largest employer in the world; surpassed only by the Indian National Railway and the Red Army.

Gotta love it. So many administrators; so few competent care givers.

Harold Cutler writes:

Main two problems with our healthcare system is politicians, lawyers, and insurance companies.

Make Insurance Companies in their annual audits show how much was paid in for premiums and how much was paid out treatments. Then let us select the most cost effective insurance company.

Pass tort reform, This will limit the cash cow that lawyers earn from the medical business. Errors can be resolved without bankrupting the medical business.

Authorize medical savings accounts, along with catastrophic insurance. Most people will see what medicine costs and will take better care of themselves. The politicians will lose their capacity to tax and control us so much.

Good doctors are hard to find. Under a medical savings accounts, poor doctors will quickly leave the system. Good doctors will remain in the system at a lowered cost.

Too many people want free medicine, too many people will not take care of themselves and then will go to the emergency room for free care.

If you find a good doctor, trust him/her and realize that they will make your life better and even extend your life.

Don't be greedy

SEO writes:

The irony... Ted Kennedy's brain surgery would probably not have been approved under a government health plan (at least the one they'd give you and I). It cost him (us) $250K to extend his life 3-6 months.

Dan Weber writes:

Perhaps with free markets, you would be able to contract beforehand with a medical provider. Or perhaps you would buy an insurance policy that would cover catastrophic and expensive emergency events --

In emergency situations, we can't count on checking someone's insurance card before sending them to the hospital. In a car accident, you could quite likely end up unconscious and naked. You would still need to get taken care of.

I think the free market has a lot of things going for it, including efficiency and freedom. That doesn't mean it always is the right answer.

Duncan Frissell writes:

Arnold, Wouldn't it be more reasonable to say that we know simple ways to reduce the cost of medical care but the methods would be politically unacceptable.

Eliminating licensure of health professionals and facilties, prescription requirements, immigration controls on medical pros from LPNs on up, and the FDA would certainly reduce health care costs.

Self prescription alone would save $billions in unnecessary doctor's visits. Nurse staffed clinics in Walmart, etc. are cheap. Cost of new drugs and medical devices would plummet w/o the FDA. (Note BTW that surgical procedures are unregulated by the government apart from licensing of MDs and yet surgical patients usually live).

But few would coutenance such a radical deregulatory model.

George writes:

Commenters in this thread (not Arnold) keep using the word "rationing" a lot. I do not think it means what you think it means.

If I want something, and I can't afford it, that's not rationing.

If I want something medical, and my medical insurance doesn't cover it, so I can't afford it, that's not rationing, either.

If I want something medical, and I can afford it (either out-of-pocket or through insurance), and the government says I can't have it, that's rationing.

Maybe the non-rationing situations above are undesirable, or inefficient, or morally wrong — they're still not rationing.

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