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A Snark on Health Care Cost Reduction

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David Leonhardt writes,


The debate over the health law showed that there is deep political opposition to Medicare cuts -- even if such cuts are the single most important step toward bringing down the country's long-term deficit. In theory, many voters (and politicians) are in favor of reducing the deficit. In practice, they don't like having their taxes raised or their benefits reduced.

That's why Mark McClellan, the former head of Medicare who is now a senior fellow at the Brookings Institution, told me that he thought the best strategy might be for private insurers to take the lead on using medical research to make coverage and payment decisions -- as Aetna and Cigna have begun to do.

1. He seems to say that cutting health care spending means reducing spending on medical procedures with high costs and low benefits. I agree with that.

2. He seems to say that this is difficult to do politically, so that the private sector should take the lead. I agree with that.

My snarky comment is this: explain to me again why government is the solution to soaring health care spending.


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COMMENTS (5 to date)
Dan Weber writes:

explain to me again why government is the solution to soaring health care spending.

You might need government cover. A private company that offers a rational, cost-constrained plan like NHS would quickly find itself the defendant in lawsuits about denying people the stuff they need to live.

Michael writes:

It isn't. There have been some instances when monopoly power (and a public-financing cult) have been used in Canada and the UK to force massive cuts and changes in expensive expectations; I am thinking of Canada in the mid-90s when a series of large cuts to social spending led to drastically reduced practices in the use of hospital beds, so that people were sent home after surgeries much sooner than before. This led to a broad and enduring change in public expectations about the need for long hospital stays. However spending picked up shortly thereafter at its usual blistering pace. In other words, governments might manage through some forced reductions, but they will not value savings as inherently desirable. They do not see shrinking as their operational goal.

For the US, I am not sure why a government determined to show its panache at managing health-care systems would allow a private contractor to steal its thunder. And there is always the tendency of bureaucracies to see savings and cost reductions as "new revenue".

Lord writes:

Because such knowledge is a public good.

Steve` writes:

Yglesias linked to the article too and wonders at the end: "In other sectors of the economy we frequently have firms built around the idea of slightly reduced quality in exchange for dramatically reduced cost. In health care, not so much." Maybe I misread the tone of his comment but he seems to be puzzled. I posted a comment that a working price system would be an experiment worth trying.

Ravi writes:

Government involvement is an essential part of reducing health care spending because *only the government* can establish a playing field where private sector competition will actually help reduce health care costs.

Health insurers do not (primarily) compete on cost. Instead, they compete by finding new, creative and socially wasteful ways of weaseling out of the insurance contract: cherry-picking healthy individuals, recissions, automatic denials and plodding appeals processes, surprising fine print about what is and isn't covered and so on. They do this because "that's where the money is".

With health insurers as a fundamentally broken part of the health care value chain, it is no wonder that there health care innovation has done little or nothing to limit the growth of health care costs. The government is an essential part of fixing this. By regulating (and, ideally, eliminating) the socially wasteful ways in which health insurers compete, they help fix the health care value chain and enable the private sector to improve health care on all the dimensions we care about - including cost and value.

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