Bryan Caplan  

Health Care: Price Controls versus Budgeting

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Tyler Cowen's Response... Pile on James Kwak Day...
Arnold is worried about economists who would "[t]ry to deal with health care costs by setting health care provider compensation policy in Washington."  I'm not quite sure what Arnold has in mind here.  But when the typical person makes this complaint,  he's conflating two different things:

1. Price controls: The government imposing a legal maximum price X for service Y.

2. Budgeting: The government refusing to pay more than X for service Y.

I'm against price controls.  But I'm all in favor of budgeting.  In fact, I want X to be as low as possible, because when X=0 for all Y, socialized medicine disappears by default.


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COMMENTS (9 to date)
Don Lloyd writes:

Tyler,

"...I'm against price controls. But I'm all in favor of budgeting. In fact, I want X to be as low as possible, because when X=0 for all Y, socialized medicine disappears by default."

As does all provision of medical services. See how many MRI's you can get for a buck.

Regards, Don

kingstu writes:

1. Government pays 50% of all healthcare costs (with taxpayer funds).
2. Government has significant market power.

If government refuses to pay more than X for service Y and they pay less than the market clearing price won't we end up with price controls?

Arnold Kling writes:

What I meant was "pay for performance." If a doctor checks a box saying that he did X, he gets a bonus. If he says he did Y, he gets a penalty.

In theory, this is brilliant. In practice it will be gamed and lead to perverse results.

Methinks writes:

In theory, this is brilliant.

In theory this is brilliant only when the consumer of the services is the one who assess the performance. Otherwise, you get a system that is easily gamed or requires a labyrinth of government metrics and still provides incentive for doctors to reject the sickest patients.

http://devilish-details.blogspot.com/2009/08/unintended-consequences-of-paying.html

Drewfuss writes:

If the government made X=0 for all Y, where Y=Medicare, we could afford Obama's health care plan.

Let's do it!

JohnnyB writes:

The government sets the minimum price via Medicare payments to providers. Private insurers typically pay 10 to 20% more than the government.

RL writes:

JohnnyB: That's not true. There's a lot of regional variation. In Phoenix, private insurers often pay less than Medicare.

carlos writes:

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Dan Weber writes:

I like the way Bryan makes this distinction. I really wish conservatives could get on board with budgeting. Unfortunately, they seem to have made "rationing" into a dirty word, when the best possible thing for the private market is a budgeted (and therefore limited) government plan.

Look at Britain as an example. The government's care is budgeted (£30,000 per QALY, IIRC), and there is a very vibrant private sector.

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