Marginal Revolution‘s Tyler Cowen penned this insightful NY times op-ed over the weekend that addresses the problem of the elephant in the parlor in regard to Obama’s proposed reform of America’s dysfunctional health care finance system:
MEDICARE expenditures threaten to crush the federal budget, yet the Obama administration is proposing that we start by spending more now so we can spend less later.
This runs the risk of becoming the new voodoo economics. If we can’t realize significant savings in health care costs now, don’t expect savings in the future, either.
It’s not the profits of the drug companies or the overhead of the insurance companies that make American health care so expensive, but the financial incentives for doctors and medical institutions to recommend more procedures, whether or not they are effective. So far, the American people have been unwilling to say no.
Drawing upon the ideas of the Harvard economist David Cutler, the Obama administration talks of empowering an independent board of experts to judge the comparative effectiveness of health care expenditures; the goal is to limit or withdraw Medicare support for ineffective ones. This idea is long overdue, and the critics who contend that it amounts to “rationing” or “the government telling you which medical treatments you can have” are missing the point. The motivating idea is the old conservative chestnut that not every private-sector expenditure deserves a government subsidy.
Nonetheless, this principle is radical in its implications and has met with resistance. In particular, Congress has not been willing to give up its power over what is perhaps the government’s single most important program, nor should we expect such a surrender of power in the future. There is already a Medicare Advisory Payment Commission, but it isn’t allowed to actually cut costs. [. . .]
Those cuts alone will not solve the fiscal problem, but if we aren’t willing to take even limited steps to conserve resources, we shouldn’t be spending any more money elsewhere. [. . .]
The demand for universal coverage sounds like a moral imperative to “take care of everybody,” but in reality it would make only a marginal difference when it comes to the overall health of the American population. The sober reality is that universal coverage is another way to spend money, which may or may not be a good idea.
The most likely possibility is that the government will spend more on health care today, promise to realize savings tomorrow and never succeed in lowering costs. It is rare that governments successfully cut costs by first spending more money.
Mr. Obama has pledged to be a fiscally responsible president. This is the biggest chance so far to see whether he means it.
Read the entire op-ed. Any reform of the U.S. health care finance system will not be successful in controlling costs unless or until a consensus is reached on a fundamental issue that most Americans do not even want to discuss — that is, what is the basic level of health care that every individual in the U.S. is entitled to receive regardless of cost? For example, what level of care is an insolvent, uninsured, illegal immigrant entitled to receive? How much care should we be willing to subsidize to extend the life of a seriously-ill 90 year-old? A terminally-ill 50 year-old? These are thorny issues, but they must be addressed if we are ever going to achieve a coherently-financed health care system.
As Arnold Kling has been saying for years, many of us live under the delusion that we cannot possibly afford health care if we pay for it individually, but of course we can afford it if we pay for it collectively. For those of you who think that the government can magically make health care more affordable, just remember what happened after the government directed Fannie Mae and Freddie Mac to make home ownership more affordable.
Update:Charles Kenny makes a good point that better health care is not necessarily expensive.
Update II: Steve Chapman chimes in with a timely observation:
There are only three ways to pay for this expansion of health insurance coverage: increased taxes, reduced benefits, or shiny gold ingots falling out of the sky. Voters emphatically prefer the latter option, so that is the one most likely to be embraced by Congress and the administration.
Update III: Arnold Kling notes the problems with Obama’s “dessert now, spinach later” approach.
In November 08, I had an emergency appendectomy. I didn’t have health insurance. The final bill was nearly $100,000. I paid it out of my savings. I don’t understand not paying it.
Granted, it’s expensive. But nobody else had my appendectomy; I did. It was my responsibility to pay for it.
Since I required it, I had to pay for it. This is Cara’s First Law of Suck It Up.
As Big T and I have discussed before, there are three major facets that people want in the provision of health care:
1) Access
2) Quality
3) Reasonable cost
We can, as a society, have as much of any two of these facets as we might want. But, we can never have all three. To wit,
1) If you allow unlimited access and provide high quality, you end up with out-of-control costs.
2) If you combine high quality of care with controlled costs, you must limit access – this is the HMO / managed care model.
3) If you provide unlimited access with low costs, then the quality of that care suffers (this is Medicaid, and increasingly so, Medicare).
If you (as addressed to our society) want a system whereby you try to get a portion of all three factors, it might be doable – just tell those of us in the medical profession where you want us to pare back the most – access, quality, or cost.
And a hat tip to Cara above – most folks have neither the savings nor the sense of responsibility to pay a bill like that.
And, unfortunately, with the way that medical pricing is done these days, she has paid not only for her appendectomy, but also for the other three surgeries done that day on persons who have no intention of ever paying their bill. She also has helped pay for the procedure done on the patient with medical insurance, since when that person’s $100K bill would be reviewed, and it was determined that the “usual and customary” approved charges were “only” $45K, the hospital reimbursement for this patient would be reduced accordingly.
This is why two Tylenol tablets cost $10 in the hospital – you’re paying for your Tylenol….and for the Tylenol for the other folks down the hall, too.
jrb
JRB,
I admit, I probably messed up by paying the bill. I am glad I did but I got laid off from my job a few months later, and with my savings gone, I was completely freaking out. It made me feel like I was being punished for doing the right thing. A few friends had advised me not to pay at at all because “nobody actually pays.” There were times when I thought that was pretty good advice and I regretted not taking it.
I don’t know what the solution is. I just know my own experience with the medical system was very expensive but I didn’t see a better alternative. I didn’t die from appendicitis. I guess that means the situation was a success.
And the fact that I might have paid for others’ operations just angers me to no end.