Bryan Caplan  

Private Death Panels

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Suits, Geeks, and Lehman... Economics of Mandated Health I...
Suppose it were legally safe for a private insurer to offer death panels - presumably after talking to marketing to get a better name.  (By "legally safe" I mean not just the absence of contrary regulation, but a strong expectation that the death panels wouldn't provoke lawsuits).  How much would this have to reduce the cost of health care to be acceptable to the typical American worker?  Assume that due to competition, workers get 100% of the cost savings.


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COMMENTS (16 to date)
Dezakin writes:

What the hell is this in reference to? Because it isn't in any proposed plan I've seen, public or private. Should we include the economics of Futurama's suicide booths as well? Because its just as reasonable to discuss in this fiction.

Alex J. writes:

From the perspective of a self-employed person who can't afford health insurance now, presumably the cost savings would not have to be so great. I'm sure there are plenty of people at the margin right now who would take the deal. Of course, the problem in real life that produces the hypothetical, is that the median voter is not at the health-insurance-death-panel margin. His own distress at potentially denying someone care counts much more to himself than forbidding other people's insurance arrangements he finds distasteful.

If you want to know what the cost savings dynamics actually are, look at the prices of HMOs from when they actually allocated care. I'd guess that a cost savings of a third would easily make many people bite, if they could compare the costs directly.

keddaw writes:

I have never understood the public's reaction to healthcare - on either side of the Atlantic.

Why can't we have plans that allow for treatments up to (say) $250,00 that are relatively cheap and open to all with no pre-checks - like holiday insurance - and then have people able to top up to cover the more expensive bills?

This would enable the government to fund a reasonable level of healthcare for all Americans and keep the majority of the system private. Individuals or companies could then take out improved packages if they saw fit.

If implemented in the UK it would slash public healthcare spending and allow the private health insurance access to the riskiest, and most profitable, sector of the market.

B.B. writes:

It would never be acceptable to use "death panels" in the sense that Sarah Palin used, that is, a government or HMO panel that would decide who gets cut off from medical care.

But we could have a set of rules about treatments. A insurance company could say up front that it will not pay for X, Y, or Z because they are too expensive. Those who buy such insurance contracts would get lower premiums. What they accept in return is that if consumers get a low probability but expensive to treat disease, they pay out of pocket or just die.

I think many would accept such a deal.

The real problem is an agency problem. We expect something from our insurance, be it private or public. And we object when the insurance program decides after the fact, and after we have made payments, that tough luck for you, it will not pay for your treatments.

The agency problem can only be fixed by telling people in advance what they cannot get.

Dan Weber writes:

A insurance company could say up front that it will not pay for X, Y, or Z because they are too expensive. Those who buy such insurance contracts would get lower premiums.

Similar to what I would like. I'd be fine with signing up for a program that says "we will pay up to $N thousand to extend your life by 1 quality-adjusted-life-year."

I think lots of people would be scared of this at first. It would take some convincing to demonstrate that it is safe.

The real problem is an agency problem.

Definitely. How can I know that the third-party payor -- be it government or corporate -- really is following that metric?

I want to make this deal with a hospital or HMO, and have it be long term. That is, I'll pay $4000 a year, every year, and they can't kick me out. In return, we measure the hospital or HMO on the length/quality/enjoyment of its patients. We'd need to break out by lots of sub-groups, because one place might deal with pancreatic cancer better than another, which deals with diabetes better than a third.

The government can provide a minimum floor, where the "$N thousand" figure is very low.

Granite26 writes:

I'm confused... isn't this what we have now? At least to the extent that it's what the government would be doing it: assign risks and values and costs ahead of time, and the 'panel' is really just a matter of deciding which bucket you fall into.

The only difference is that now, we've got the option of taking our ball and going home.

DanT writes:

I see what you are getting at: why not allow private insurance companies to offer a policy with an "Excessive Benefit Review Board" (EBRB).

Since most healthy people are excessively optimistic and would never expect the EBRB to be applied to them, its benefits would not need to be large for the typical US worker. My bet would be about $10 a month.

The larger effects of this would be that healthy people get the EBRB policy and people at risk for high health care costs would get the non-EBRB policy. The cost of non-EBRB policies would skyrocket as people self-selected as a health insurance risk.

Dan Weber writes:

Granite26, that's kind of what the UK has right now. The government will pay about £30,000 to extend your life by 1 quality-adjusted-life-year. If you don't like that, you can get your own coverage, and lots of people do.

Right now for most of the US, the coverage for marginal cases is determined either by your political power (if you get coverage from the government, do you have lobby groups on your side?) or your economic power (if you get coverage from the private sector, are you part of a large group that your provider worries about not renewing?).

Cyberike writes:

Let me second DanT. As a matter of fact, I would PAY $10 a month to be put in such a plan, because if it works as DanT described it would lower my expected future payments (or limit the increase) far more than the status quo.

Floccina writes:

I think that men would be willing to accept the death panels to get lower costs but our wives would not allow it. :-)

dWj writes:

Initially it would be tricky. Eventually presumably it would depend on the company's reputation as to how trigger-happy it is. (Metaphorically, I assume.)

Daublin writes:

DanT,

Take your scenario a step further. Imagine the high-risk person paying high-cost health insurance. How much would *they* need to save that they'd go with the EBRB plan? If they're health insurance equals their mortgage, and they save half, do you think they might take the death-panel option?

B.B.: I'm unclear what you mean by it being unacceptable. As one example that recently went around the blogosphere, the U.K. refuses all medical care to babies born before a certain week long. The place it draws the line is a place where over 99% of babies will not make it, but it's less than 100%. Babies in that bracket died to a bona fide death panel.

Dan Weber writes:

Babies in that bracket died to a bona fide death panel.

There's a difference between "we don't think it's worth the money to resuscitate this baby" and "you cannot spend money to save this baby."

In any health care system, there is going to be some situation in which money could be spent to save someone and it isn't. While some systems will cost less and spend less and other systems will cost more and spend more, the real indicator is how clear those decisions are. And right now in the US, those decisions are pretty opaque, whether the payer is public or private.

(Although Britain probably uses the wrong measure. I think weight of fetus as opposed to age is probably better, although they may have their reasons for using age.)

8 writes:

In China, the doctor and patient discuss the cost of the treatment and the possibility of success. In one show I watched, the doctor told the patient that his cancer was too advanced and it would be better to leave his daughter the money to pay for college.

The solution isn't more government, it's more freedom. Life and death decisions, along with the money, belong in the hands of the patients.

El Presidente writes:

Suppose it were legally safe for a private insurer to offer death panels - presumably after talking to marketing to get a better name.

Hilarious! Don't ever lose your humor. :-)

I might suggest one I borrowed from a former professor: United People for Good Stuff.

A = A writes:

Assume that due to competition, workers get 100% of the cost savings.

Bryan, this is a laughably-simplistic assumption, and you're bright enough, sufficiently culturally-aware, and well-heeled enough in your profession to know it. No executive worth his salt is going to avoid the temptation of collusion to fix prices and prevent this scenario from occurring. (For further cultural awareness on the ADM link, see the new movie, "The Informant", a reasonable representation of the same story told recently on NPR.)

Market economists need to seriously consider the size and role of profit margins. Only in a perfectly-competitive market can your hypothetical 0% profit margin theoretically exist.

Yet in practice, for example, at major office-supply retailers, even though many of the electronics you buy there are essentially commodities that can be found anywhere (e.g. USB cables), some of those products will still have a 50% or greater margin (counter-acting the sometimes single-digit margins on more-established, lower-cost, legacy items, e.g. pens and paper).

Margins are similarly-great in professional services; 30-60% is common.

These are, therefore, obviously less than perfectly-competitive markets.

Bryan, to assume competition will assure a 0% profit on an efficiency gain is truly laughable, and it's a demerit to your credibility an intellectual honesty (if you are aware of facts like those above) to do so.

While I usually enjoy reading your blog, my main complaint is that you are not nearly as analytically-rigorous and honest as your co-blogger, Arnold. Your arguments are more purely ideological; Arnold's are more scientific and reality-based.

Assume a similarly-simplistic, yet more-realistic and less-self-deluded 50% and move on.

Also, I second Granite26's comment. Private health insurers already implement death panels -- any system of health coverage must do so, due to scarcity.

That's what makes phony the entire "death panel" debate: whether the government or a market institution does it, rationing must occur because scarcity exists.

The only question is of "who decides": a faceless, policy-driven government bureaucrat actuary abiding by some set of publicly-available rules...

...or a faceless, policy-drive corporate bureaucrat actuary abiding by some set of privately-kept (publicly-unavailable) rules?

The difference is likely insignificant. In both cases, it is not the individual patient making the choice.

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