Arnold Kling  

A Reader's Question on Health Care

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He writes,

It seems to me that you are saying two different things about healthcare:

1) the way we think about health care and paying for it is out of whack.
2) the government is not (is not going to be?) an efficient manager of the health care system.

Whether I accept both premises, or only one (and which one) is very important. It is not inconceivable that the first is correct and the second is incorrect. In that case, we would want to restructure payments, but we could create a system in which the government was still the "single payer" (or non-payer as the case may be).

I raise this point because of the mounting evidence that insurance companies really are kind of evil--I know you're probably cringing as I say that. Did you catch Wendell Potter's interviews with Bill Moyers and/or Geurnica Magazine? Here's a former executive basically saying "we only make money by taking premiums and denying coverage when possible, and we only respond to Wall St and investors who want us to maximize money." To me, that's a problem. I don't see why the government managing the risk pool, doling out vouchers to poor people or outright paying for all their medical expenses, and cutting out the profit layer of the insurance companies is a bad idea.

Let me start with the issue of the evil of health insurance companies. As a matter of theory, I agree with my co-blogger, Bryan, that in a competitive market health insurance companies would not be evil. Those with bad reputations would lose business, and those with good reputations would obtain loyal customers.

As a matter of practice, the market for health insurance does not work that way. The individual health insurance market has been killed by a thousand cuts--or more precisely, 50 cuts, as each state regulates private health insurance and many of them (such as Maryland) pretty much regulate the insurance companies out of business.

The only functioning insurance market is the employer-provided health insurance market. There, it is up to the employer how the insurance company behaves. If the employer wants the insurance company to pay claims, that is what it does. If the employer wants the insurance company to play hardball, then that is what it does.

Now, on to the larger point. I am not a fan of employer-provided health insurance, of Medicare, or of Medicaid. That makes me totally unacceptable politically. For a politician, to question any of the major status-quo institutions in health insurance is like a soldier popping his head out of a foxhole surrounded by enemy machine guns--you just get your head blown off.

The fact is that radical health care reform--either single-payer or market-oriented--is off the table. In theory, it could be that moving in the direction of single-payer could produce a more efficient system than what we have now. But note that David Goldhill's great screed in the Atlantic says that insurance company profits amount to about 1 percent of all health care spending, so that's not a big deal. The real efficiency would come if and when the government gets evil and denies coverage for procedures it does not think are cost-effective.

The really radical move would be toward market-oriented health care. See John Mackey. See Crisis of Abundance. See Goldhill.

I continue to describe what is happening now as a non-debate over non-reform. Both sides are fighting harder to entrench the status quo than for any meaningful change. Maybe the Democrats will take our already-socialized system and make it a few degrees more socialized. Maybe they won't. From my perspective, it's much ado about nothing. I certainly don't think that keeping the existing private health insurance system in place is anything to write home about.

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COMMENTS (16 to date)
Arthur_500 writes:

By continuing to divide insurance amonge the 51 entities cost savings come to a standstill. In addition,those 51 governing States limit the market ability to calculate for risk.
I believe the key is risk management. Everyone talks about the poor and the elderly but wealth has nothing to do with health.
If we can fire the President of GM since GM accepted taxpayer funds and we can deny an abortion because the taxpayer doesn't agree with that procedure then we can certainly "ration" healthcare in other ways.
Private companies do drug tests and fire those who utilize tobacco but our States accept millions of dollars of tobacco settlement money and never insist their employees or welfare recipients participate in a cessation program.
We can't lower medical need without demanding lifestyle changes from those who receive our largess. This is the third-rail of the healthcare debate.
I believe that the healthcare bill that passes will be nothing more than a tax on those who can 'afford' it. We will all be forced to pay for insurance and receive nothing we don't already have. However, it will drive up the cost (floor) of insurance and increase the deductible which will do wonders for the insurance companies and wall street.

Justin Rietz writes:

One aspect of health care costs I rarely see discussed is the quasi-monopoly create by the American Medical Association.

The AMA more or less legally controls the number of doctors and other health care professonals by a) limiting the number of medical schools, and b)controlling who may lawfully practice medicine.

Is there any solid research on this topic?

Les writes:

I don't want to be a stickler for detail. But I do think it is important to get the terms of discussion right.

In my opinion we are not talking about health care, and not even about medical care.

It seems to me that all we are discussing is insurance for medical care. If you agree, then let's just call it medical care insurance.

Justin Rietz writes:

Les, good point. My apologies for going off topic.

Niko writes:

I'm not certain if this adds anything to the discussion. But I think if there were to simply be more doctors in the US, costs could go down significantly. I've lived in Italy and the US, and I can say that doctors in Italy made significantly less than what doctors in the US made. I also believe there were more of them per capita than in the US.

John Fembup writes:

"I think if there were to simply be more doctors in the US, costs could go down significantly."

It will be absolutely necessary to have more doctors - if not, when the presently-uninsured gain insurance, doctors are going to be much busier than today and appointments will be harder to get. Whether having more doctors will result in lower per-capita costs is another matter, and I've seen arguments on both sides of that question.

So as with everything else related to medical care - it's not simple. Here are a few complicated examples:

1. Doctors' fees account directly for something like plus/minus 25% of total medical spending. How much can their fees be reduced? 10%? 20%? If 20%, that would make a 5% dent in the total medical spend. 5% would be a fair-size dent - but with the continuing 8% annual rise in medical costs, that 5% would be wiped out within a year. Then what? The best basis for reducing doctors' fees would be to do something that reduces their practice costs. Anyone read anything in HR3200 that would reduce practice costs?

2. Doctors order up most of the services that account for the remaining 75% of medical costs - prescriptions, hospital admissions, lab work, imaging, etc. But while doctors can be viewed as "responsible" for just about 100% of medical care spending, it's clear that reductions to their fees will not significantly affect overall medical spending. That's because fee reductions have nothing to do with patients' medical conditions. So it seems to me it's most important to ask: How can the U.S. "bend the curve" of medical conditions - obesity for example - in the population?

3. One commenter - Les, above - identifies another ornery complication. Medical insurance and medical care are quite different. It is not a trivial distinction. It is however dismaying to watch the politicians and so-called "experts" continually confusing these terms. Medical insurance is costly because medical care is costly - not the other way around. Medical insurance premiums are rising because the cost of medical care continues to rise.

4. The nation has a medical cost problem. The politicians and so-called "experts" saying we have a medical insurance problem, have misdiagnosed the problem. It's hard to solve even a simple problem if it's mistakenly defined as something altogether different from what it is. You would not keep your doctor if she prescribed only pain-killers and missed the diagnosis of the disease that is causing your pain.

jr writes:

"I continue to describe what is happening now as a non-debate over non-reform."

Focusing narrowly on health insurance, you might be right. (I think not.) However, the current situation reveals something more that just that. They were rushing a 1000-plus page bill through while not many of them even were familiar with its content. Don't you also want to comment maybe a little about the democratic process here? And how's that a "non-debate"?

You might think that as a libertarian, you are entitled to "stand above" the messy quarrel. That's exactly libertarian might always be a loser in assert any meaningful influence on society.

MikeP writes:
I don't see why the government managing the risk pool, doling out vouchers to poor people or outright paying for all their medical expenses, and cutting out the profit layer of the insurance companies is a bad idea.

It is interesting that the questioner gets through a long statement, even diverting along the way to talk about evil insurance companies, before he mentions the poor.

The fundamental problems with health care in this country are caused by government attempts to subsidize the health care of those who can afford to pay for their own health care. Medicare of course is the prime example: government provided health insurance for the richest age cohort of the population. The tax favoritism of employer-provided health care is another critical example.

Real reform amounts to letting people who can afford health care and/or health insurance to get it in the market, and for "doling out vouchers to poor people or outright paying for all their medical expenses."

Health care for the 75% who can pay for it themselves should not be ruined in order to take care of the 25% who can't.

Dan Weber writes:

The real efficiency would come if and when the government gets evil and denies coverage for procedures it does not think are cost-effective.

Why is this "evil"?

I would definitely not want to live in a place where the government was the sole provider of health care, deciding whether or not procedures are cost-effective.

But all health plans have some metric for deciding whether a given procedure is cost-effective. I want my health care dollars given out on some rational basis. Right now I have no idea what the third-party health care providers do to make these decisions. It seems based on how likely they think I will fight a "no" decision. (The government-run system isn't much better, more based on how likely I can politically fight.)

Is Britain's system that bad? Britain has NHS, and it provides limited services to everyone. But that limitation practically begs a private market to exist to serve people who want to exceed those government limits. (And there is such a private market, and more than half the people take part in it, so this isn't just theory.)

It will be absolutely necessary to have more doctors

It depends on the kind of doctors. More specialists lead to higher health care spending, but not to any better health.

Dan Weber writes:

The real efficiency would come if and when the government gets evil and denies coverage for procedures it does not think are cost-effective.

It occurs to me that I may have misread Arnold's tone. Maybe he was saying that, if the government were to dole out procedures on the basis of cost-effectiveness, then it would be decried as being evil, even though that's what it's supposed to do.

hacs writes:

In a very simple manner, I believe that freedom to choose is a good thing, but I do not want to pay what health care industry in the USA charges for its services, I prefer to pay for health care from companies from other countries (I know several of them). I do not care if for many Americans those health care services are insufficiently up to date in terms of technology, they would give me what I want for the price I agree to pay for. But I cannot do that because those companies cannot work here, although they probably would like to work in a market where, on average, each costumer spends about US$7000,00 per year in health care. That would not cut choices for the exigent American consumers, but it would give me a choice which I (and many others like me) would prefer. For a minor example, a blood test in a private company (a renowned laboratory) from XXXXXX costs US$50,00, but here the same test costs US$205,00.

PeterW writes:

For those talking about increasing the number of doctors, remember that high-IQ people are a limited resource, and doctors are already underpaid relative to what they could get in comparable professions such as banking or law. I am not convinced that the medical school graduating class is a real constraint on the numbers of medical professions right now.

If we want to get more doctors, we will have to pay them more to divert talent from the other high-IQ sectors. However I think there is untapped complementarity between doctors and such workers as nurses, PAs, etc, so we may be able to increase output without increasing the number of doctors.

Mr. Econotarian writes:

"The AMA more or less legally controls the number of doctors and other health care professonals by a) limiting the number of medical schools, and b)controlling who may lawfully practice medicine."

I have spoken with a friend who is in the process of becoming a doctor. She feels that the main limitations on becoming a doctor is getting medical school admission, and if you can make that and not flunk out, you have pretty much made it. School costs will be borrowed, residency will occur (despite the fact that Medicare is not expanding residencies much), you will pass the USMLE and get licensed and board certified.

Whether our health care system is too dependent on these highly qualified doctors is another question.

One thing we should do is allow more immigration of doctors and not force them to re-do a residency in the US.

Note that US doctors (and nurses) make twice the OECD average, yet the US has a lower-middling level of doctors per capita compared to OECD countries.

A Tyler Cowen-like thought, it is possible that as we become more Asperger's-like, we might end up with more people being great computer programmers, engineers, and biological researchers than doctors who have to put up with annoying sick people all day :)

R Richard Schweitzer writes:

Insurance is for spreading (sharing, pooling) risks.

What is at issue in Health CARE (not Health INSURANCE) is the sharing of costs.

Currently costs are shared (spread) back through increased pricing and through taxation (or borrowing) and stiffing some services providers (who in turn recover as much as possible through other charges - whether or not legitimate).

Separate the two, risks and costs, consider that like socialism, which does not shares poverty, not wealth, the proposals to date for using insurance vehicles will only share the relative inabilities to bear costs.

political observer writes:

I find the debate about health insurance interesting but I wonder how many individuals out of the total "insured" population are actually covered by an insurance company plan. I raise this question because the bulk of health coverage is provided through employer based plans. A large portion of the large employers (500 employees or more) offers a health benefit that is self insured. The employer designs the health benefits to be offered and provides the financing of those benefits generally through company revenues and employee contributions. They may have some sort of stop gap insurance coverage that limits their dollar exposure in any given year but for the most part they are absorbing the risk of covering their employees. It is quite common for self insured plans to use a third party claims processor such as an insurance company to paid claims against their plan but again the insurance company is not providing the benefit only the claims processing services. The insurance company is required to pay any and all claims that are for covered services under the employer designed health benefit.

I raise this point because the current debate seems to suggest that the overwhelming numbers of insured are covered by health insurance companies who issue health insurance coverage. Lacking any current data, my suspicions are that the percentage of health "insured" individuals who are actually covered by a health insurance plan are a relatively small number of the overall "insured" population.

I would be curious if anyone has actual data on the difference between the numbers covered by employer self insured plans versus insurance company plans.

Mike Rulle writes:

Well, if number 2--or Single Payer--is the worst case, it is not a fight about nothing. It means we get to fight another day to move toward a more market based system.

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