Arnold Kling  

Help with the Spinach

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In health care reform, I have described cost controls as the spinach and expansion of coverage as the dessert. I continue to predict that the Democrats will first go for expansion of coverage in a way that alienates Republicans, and then come back and ask for bipartisan help with cost control. I call this the "dessert now, spinach later" strategy.

Following this links to Matt and Ezra in Tyler's post, I can see that the calls for bipartisanship in spinach policy have already begun.

I am more than willing to tell Republicans that they should support doing something to control health care spending. But we should have an honest debate over how to do that. I think that spending ought to be controlled in a decentralized way, by having consumers pay for a larger share of health care spending out of pocket (that share is 10 percent currently. Forty years ago, it was 50 percent).

Wonkish Democrats, such as Peter Orszag, want to control health care spending from Washington, by telling people to cut back on wasteful medical procedures. Rabid Democrats, such as Paul Krugman, claim that we can control health care spending by taking profits out of the system.

The rabid Democrats are wrong as a matter of arithmetic--in the long run, there is no way to "bend the curve" by squeezing providers to take less money for the same services. Nonetheless, all of the cost containment currently on offer from the Democrats is of the rabid "screw the drug companies, screw the insurance companies, screw the doctors" variety. I would not advise Republicans to join that game.

The wonkish Democrats recognize that we need to move away from fee-for-service and to cut down on the use of medical procedures. But there are two problems with trying to do this from Washington.

1. The most powerful political influence is not the consumer, but the producer--in this case, health care providers.

2. In choosing where to forego medical procedures, there is a lot more ambiguity involved than Orszag and company are willing to acknowledge. We are not going to find that health care procedures neatly divide between effective and ineffective. Instead, we will find all sorts of morally fraught issues. Does someone with terminal cancer and a broken hip really benefit from hip surgery? Does a colonoscopy protocol that prevents colon cancer cost too much per life saved? etc.


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COMMENTS (10 to date)
Buzzcut writes:

HMOs have worked well in the past (eliminated inflation for a number of years in the '90s). Could they work in the future?

Was the backlash against HMOs simply because they were for profit, and thus "put profits ahead of people"? Would a government system, with no profit motive, be immune to that criticism?

What if we simply expanded the Blue Cross/ Blue Shield HMO system (non-profit, but private) society wide?

I've been an HMO member since January 1st, 1996. They've done well by me. I've had BC/BS for a number of years, again, they've worked well (they're cheap, and I and my family are healthy).

Fazal Majid writes:

The most urgent way to control costs is to lift restrictions on the supply of medical doctors imposed by the AMA cartel.

The effects will take at least a decade to kick in.

The only practical way to achieve that is to expand admissions at government military medical schools, since universities are in cahoots with the AMA as they extract rents in the form of excessive fees in exchange for enforcing the numerus clausus.

Dave King writes:

Where to start Fazal.

Friedman argued about medical licensure to an extent. You want more people going to medical school? How has that effected undergrad enrollment fees now that everyone believes you have to go to college?

Consumers with more control over their coverage selection is a far better start while not thinking a low deductible is the answer to our prayers.

manuelg writes:

> in the long run, there is no way to "bend the curve" by squeezing providers to take less money for the same services

Not exactly true. Outside of medicine, in manufacturing for example, steadily rising efficiencies are the norm.

Obviously, being driven by fixed objective measures is important. Medical providers have the problem of "moving goalposts" - 40 years ago it would have been ridiculous to consider Viagra as a medical necessity.

manuelg writes:

Fazal Majid:

> The most urgent way to control costs is to lift restrictions on the supply of medical doctors imposed by the AMA cartel.

Dave King:

> You want more people going to medical school?

Fazal still has a valid point. I would like the ability to offer my employees medical advice and prescription dispensing using a doctor in India over a web site and web camera, as the first stage of a form of medical triage. My employees would have immediate access to a trained doctor's diagnosis and medication dispension, without a waiting room or co-pay, and only if that is not sufficient, going to a US doctor at a much higher compensation rate.

Currently, this would be illegal.

I don't need the government's help with managing my employees office supply use, but the AMA cartel is one big reason why I am potentially less completive compared to foreign manufacturers. Also, remember, the pharmaceutical companies can directly and indirectly market to the members of AMA cartel. A foreign doctor would be expected to be less likely to rely on expensive pharmaceutical treatments.

bgc writes:

I do not think the Obama administration is serious about providing broad health coverage, and I do not think they are serious about controlling health care costs - but I do believe they are very serious indeed about increasing the amount of public dependency on the government.

It will be very easy to find a set of health care reforms which achieves the government's *real* objectives.

Mr. Econotarian writes:

The NHS has a pretty transparent way to figure out pricing:

http://www.bmj.com/cgi/content/extract/338/jan26_2/b181

"Decisions made by the National Institute for Health and Clinical
Excellence (NICE) about whether the NHS should fund treatments
are based on cost effectiveness. NICE methods guides refer to a
threshold of...$30,000-$45,000 per quality adjusted life year
(QALY)."

Meanwhile, after price-capping, Japanese and French public insurance reimburses on 70% - less than Medicare Part B (80%).


hacs writes:

"1. The most powerful political influence is not the consumer, but the producer--in this case, health care providers.

2. In choosing where to forego medical procedures, there is a lot more ambiguity involved than Orszag and company are willing to acknowledge. We are not going to find that health care procedures neatly divide between effective and ineffective. Instead, we will find all sorts of morally fraught issues. Does someone with terminal cancer and a broken hip really benefit from hip surgery? Does a colonoscopy protocol that prevents colon cancer cost too much per life saved? etc."

I cannot disagree of that.

However, respecting the second point, in spite of treating of an impressionistic standpoint which would require a serious comparative study, it is noticeable to foreigners living in the USA a larger quantity of medical procedures here than in other countries for similar symptoms reported at an appointment with a doctor. Is that perception wrong? If not, is that a signal of the health care quality in the USA? If not, is that a signal of wrong incentives and inefficiency in the American health care system?

Larry writes:

Would we see less resistance from providers if we limited the # of procedures/activities rather than limiting the price of each? I.e., control action rather than controlling prices.

Dave King writes:

>>in the long run, there is no way to "bend the curve" by squeezing providers to take less money for the same services

>Not exactly true. Outside of medicine, in manufacturing for example, steadily rising efficiencies are the norm.

As so in medicine. Stents placed via interventional radiology instead of thoracic surgery, endoscopic surgery, RF ablation to name a few. Now, if only the bureaucracy of health insurance followed suit.

>Obviously, being driven by fixed objective measures is important. Medical providers have the problem of "moving goalposts" - 40 years ago it would have been ridiculous to consider Viagra as a medical necessity.

Consider going to your intern. Your overweight, cholesterol is high as is your blood pressure. You receive two scenarios: A) exercise, diet, moderation or B) take this pill. My bet lies with the average Joe taking B. The advancements in the Rx industry have lead to behavioral tradeoffs that may be less than ideal but, also improvements in health and daily life we all may want at some point. And they directly market to the consumer as well as the physicians, probably more the former via TV and radio.

I don't see the influence you place on the AMA on costs as much as I see state insurance regulation and federal entitlements with poor reimbursement inflating these costs more to the detriment of your company than to some foreign companies health care costs. Sure, some areas of the country are underserved but we are not deliberately importing doctors, atleast not yet. They are not in short supply.

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