Arnold Kling  

Fixing the Health Care System

Posner and Kling on Financial ... Buy Global...

Melinda Beeuwkes Buntin and David Cutler write,

There are health care institutions that have spent large sums on health IT with zero or even negative returns; some health IT reforms made matters worse and had to be uninstalled. The reason for the failures: lack of organizational changes.

However, the basic message of their paper is "can do." I love it when people who have never managed anything more than a government grant are convinced they can manage one sixth of the economy.

Thanks to Greg Mankiw for the pointer.

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COMMENTS (8 to date)
fundamentalist writes:

This was a very interesting article to me because I work as an analyst in the health care industry.

Since hospital charges account for over half of all health care spending, I think this is the primary area we ought to focus on for savings. The article addressed reducing hospital costs by attempting to prevent initial hospitalization and re-admissions through better disease management. However, I have a nagging suspicion that a major factor in high hospital costs is excess capacity.

I used to work at an electric utility and I knew from working there that matching power generation capacity (the size of the generating plant in terms of megawatts) was critical to financial success. Too little capacity meant you had to buy very expensive energy on the spot market. Too much capacity and you had to charge very high rates and you became uncompetitive, would lose lucrative commercial customers and your fixed costs per kilowatt hour would go up.

I suspect that this is a problem in hospitals, too. Excess capacity in rooms and equipment can cause higher fixed costs to be spread over every admission. Does anyone know of any research into this issue of overcapacity?

Justin P writes:

I'm convinced after reading an old paper from Freidman, that the whole third-party payment system needs to be abolished and replaced with catastrophic insurance with high deductible (like all other insurance), medical savings accounts and ending Medicare/Medicaid.

Everyone knows Medicare/Medicaid lets doctors and hospitals "game" the system, increasing costs. The true costs are hidden thanks to the neolithic health insurance-employment link. What's the first thing they teach you in freshman Micro? The lower the price the increase in Demand, but when the quantity demanded isn't available, the price has to go up. There simply isn't enough doctors or health care facilities to everyone. Like all resources, health care is scarce.

The whole Blue Cross model needs to go. How stupid are we as a people to buy into the rhetoric that expanding health care (Demand) will decrease costs? Sadly that probably reflects on our education system which is another thing that needs reform desperately.

fundamentalist writes:

Justin, I understand that insurance companies are prevented by state laws from offering catastrophic insurance with high deductibles. My guess is that large insurers bribed state legislators to mandate coverage and deductibles in order to keep out low-cost competitors. Catastrophic insurance would be much cheaper, so healthy young people would opt for it, leaving the big guys with the sick, old people who spend a lot on medical care. Mandating coverage shifts the costs of older people onto the healthy younger people.

How to Make Health Insurance Affordable

Excessive State Mandates Increase Costs.

  • About one-fourth of states require health insurance to cover acupuncture and marriage counseling.
  • More than half of states require coverage for social workers and 60 percent mandate coverage for contraceptives.
  • Seven states require coverage for hairpieces and nine for hearing aids.

The mandates appear through pressure from groups that supply services. They want those services covered as a type of "medical care" so they can increase billings. The groups have piled on. Of course, they don't want high-deductible insurance, because that would contradict the value of their lobbying efforts.

8 writes:

ABC should let John Stossel do a one-hour primetime special on health care with Arnold as a guest. It needs a catchy title, like "America's Biggest Rip-off"

From my experience, even 80-90% of the conservatives in America do not understand why health care is so screwed up.

At the very least, get the Republican congressmen to read Crisis of Abundance, so they can make a coherent argument.

Dan Weber writes:
The whole Blue Cross model needs to go
You might want to try Talk Of The Nation on NPR tomorrow (or so, schedule depending). They'll be asking if the problem with health care is private insurance. I'm going to try and write in and say "yes, but the problem is both private and public insurance."
gnat writes:

My experience is that corporations do offer a wide variety of health insurance plans--including plans with catastrophic coverage with high deductable. Many employees take broader coverage plans because they are risk adverse. As long as they are willing to pay the costs then I see nothing wrong with fixed price plans.

Mary, tea bag thrower writes:

[non-substantive ad hominem comment deleted]

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