Arnold Kling  

Medicare and the Socialist Calculation Problem, Continued

Cobden's Pacifist Political Ec... The Perils of Published Studie...

The latest in a series of posts by Uwe Reinhardt.

Surely there is something absurd when a nation pays a primary care physician poorly relative to other specialists and then wrings its hands over a shortage of primary care physicians.

But this sentence does not convey the flavor of the post. Reinhardt is a true believer in technocratic pricing, or what I would call socialist calculation. He regards the mistakes that this process produces as anomalies that can be corrected.

His economic analysis of Medicare pricing shows great knowledge of the trees but a failure to grasp the forest. By the forest, I mean the entire socialist calculation debate.

COMMENTS (8 to date)
hp writes:

I'm curious to know if anyone has ever gotten anything other than a blank stare when talking about the "socialist calculation problem." To me, this is a compelling argument for markets. It is better to have a well-defined algorithm for setting prices than to simply make stuff up, even if the the algorithm often produces noisy results . . .

MernaMoose writes:

All of which requires, of course, that Congress properly fund the C.M.S. administrative budget for all that agency is asked to do.

Well, if Congress would just "properly" fund Medicare then they could pay doctors any price that doctors wish to ask for. And why not, when prices become a quasi-democratic procedure rather than something dictated by the market?

Because, this would require that Congress "properly" tax the rest of us to pay for it. And in a quasi-democratic way, the rest of us might someday revolt. Taxpayers do that once in a while.

Shangwen writes:

I read the post. Sounds like pretty fancy stuff. I raise my own hand in shame and confess to being a socialist calculator, or at least one who makes health care costing decisions in the service of Canadian socialism. I can tell you it has absolutely nothing to do with the value that accrues to the patient, in terms of health utility, which is why a lot of my work involves cutting costs, and advocating further cuts. I notice that patient health utility also does not appear in the Medicare RUC.

MernaMoose is correct. There are plenty of people out there who insist that there really is a correct, and very grand, answer. Unsurprisingly, they have a bias for things being very expensive.

Political Observer writes:

I wonder how much of this "market" distortion is the direct and indirect result of government policy such as Medicare, Medicaid etc.???

mark writes:

The "nation pays" primary care providers? The nation? So I can stop paying them out of my own checkbook? Wish someone had told me sooner. Where do I send the bill?

Uwe Reinhardt writes:

It is one thing to take grandiose potshots at the way government-run health insurance determines or negotiates fees for physician services. It is quite another to argue that the way the private health insurers price physician services does any better.

For example, Shangwen, do you sincerely believe that private health insurers in the U.S. pay physicians for a particular service on the basis of the value (utility) that service has for the patient? If that is your belief, can you cite me some robust evidence to support that belief? Have you seen in my blog posts the charts on what private insurers pay different hositals for the same service within one state? Do these price differentials have anything to do with "value" as you define it? Is anyone prepared to make that argument?

Finally, why do you think it is that the much maligned "socialist" approach to setting Medicare fees was imposed on Medicare by none other than Ronald Reagan and Bush the Elder? And why, if Medicare's RBRVS is so dumb, have most private health insurers in the US adoped the Medicare RBRVS for their physician payments, negotiating only the conversion factor? A good many insurers n ow even use the DGRs.

Can you even tell me what you guys believe the "market" is? Does it imply the absence of third party payment, period, with every patient negotiating their own fees with every provider in that laisser fair market? And how exactly would you propose that doctors and hospitals advertise their prices?

Until you become more constructive I can't see why I or anyone should take uyou seriously.

Austin Frakt writes:

Let's talk more about the forest presumed to be adjacent to the one in which Reinhardt's trees reside. It's my understanding that private plans also use the structure of Medicare's physician fee schedule.

That being the case, what are the options for Medicare? Where's the innovation that they are to follow?

There may be only one real forest here, and the trees Reinhardt sees reside there. Let's not mistake a fake impressionist rendering of a forest for the real one.

Dellis writes:

Mr. Reinhardt, my understanding of the private insurance market is that they use Medicare's fees because the private market is insulated from cost competition due to the employer-only deduction, the barrier to buying health insurance across state lines, and the formidable barriers to entry. Why bother developing your own fee structure when you are already a protected member of the oligarchy? In short, it's a combination of monopoly-allowed laziness and a rational decision to not invest in a complicated new fee structure when Medicare has already done the hard work for you.

Why do you think that the private insurers haven't come up with their own fee structure?

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