Sunday, October 17, 2004
So you want to debate health care policy?
One thing that depressed me about last week's debate was the pathetic level of discourse on health care policy. Health care policy is complicated---much more so than foreign policy---and to understand it, you need to know quite a bit of economics, for a start. I'm increasingly leaning toward the belief that health care policy may be simply too complicated for voters to follow in any prospective sense. In other words, maybe we would be better off if the debate were merely about whether you like the current state of health care, and not about what should be done to improve it. (How would this be accomplished? Independent commission? Elite consensus to keep it off the table? Beats me; I can't see any enforceable way to stop "Harry-and-Louise-ism".)
Compare the language of the debates with this document, a primer on health care by clear thinking health economist Uwe Reinhardt (Princeton), hosted by Brad DeLong. Letting people make policy choices who can't converse about health care at this level would be as foolish as hiring a surgeon whose only experience is with the board game Operation.
I'll just add one comparative remark. Anytime you hear someone say "America has the best health care system in the world", you can ignore everything else they say on the topic; it will be pure bs. Every serious research would agree that while for those willing and able to pay the price, American health care is as good as any, the *system* is about the worst in the industrial world. American spends more, per capita, than anyone, and covers a smaller fraction of its population than anyone.
How is this dual failure possible? It results from private provision of a good that the market cannot provide efficiently. Private health insurance is cursed with several severe market failures, most notably information asymetry and moral hazard. In the traditional fee-for-service arrangement, patients and doctors collude to bilk insurance companies for everything they can get. Patients have the moral hazard---they pay a premium, but not the full cost of the services. Doctors have the info asymetry vs the insurer---they know which services are worth the expense, and which aren't, and have no reason to share this info truthfully. Insurers are left with the bill, which they spread around, raising everyone's premiums. The patients as a group don't like paying so much, but they are trapped in a prisoner's dilemma---why restrain your consumption if everyone else keeps scamming the insurers?
At the same time, people without full coverage are denied needed medical care, and either suffer, die, and/or go to the ER when the crisis is acute, pushing up costs further.
The whole mess gets worse when you add rapid technological improvements. Over time, doctors and patients will be able to spend ever more insurance company money on new services.
Almost all other countries deal with this problem by providing most health care through public funds, which are capped at some level. Then the task is trying to use the budget efficiently---targeting it to the health care that does the most good, most cost-effectively. This arrangement has much to say for it democratically; the government sets the global budget for health care, and if voters want more health care, they just vote for the party that promises to raise the budget (and vice versa). That's a choice I think voters can handle.
Public health care under a global budget is empirically the only successful method for restraining health care spending in a modern industrial economy. Managed care was an effort to reap these gains in a private system; it has slowed cost increases, but I don't think many people are too happy about it. By contrast, the publics of countries with public provision tend to be very happy with their health care systems, and usually thank God they don't live in the US.
Long ago, as an undergrad, I wrote a paper on all this; you can find it here.
Compare the language of the debates with this document, a primer on health care by clear thinking health economist Uwe Reinhardt (Princeton), hosted by Brad DeLong. Letting people make policy choices who can't converse about health care at this level would be as foolish as hiring a surgeon whose only experience is with the board game Operation.
I'll just add one comparative remark. Anytime you hear someone say "America has the best health care system in the world", you can ignore everything else they say on the topic; it will be pure bs. Every serious research would agree that while for those willing and able to pay the price, American health care is as good as any, the *system* is about the worst in the industrial world. American spends more, per capita, than anyone, and covers a smaller fraction of its population than anyone.
How is this dual failure possible? It results from private provision of a good that the market cannot provide efficiently. Private health insurance is cursed with several severe market failures, most notably information asymetry and moral hazard. In the traditional fee-for-service arrangement, patients and doctors collude to bilk insurance companies for everything they can get. Patients have the moral hazard---they pay a premium, but not the full cost of the services. Doctors have the info asymetry vs the insurer---they know which services are worth the expense, and which aren't, and have no reason to share this info truthfully. Insurers are left with the bill, which they spread around, raising everyone's premiums. The patients as a group don't like paying so much, but they are trapped in a prisoner's dilemma---why restrain your consumption if everyone else keeps scamming the insurers?
At the same time, people without full coverage are denied needed medical care, and either suffer, die, and/or go to the ER when the crisis is acute, pushing up costs further.
The whole mess gets worse when you add rapid technological improvements. Over time, doctors and patients will be able to spend ever more insurance company money on new services.
Almost all other countries deal with this problem by providing most health care through public funds, which are capped at some level. Then the task is trying to use the budget efficiently---targeting it to the health care that does the most good, most cost-effectively. This arrangement has much to say for it democratically; the government sets the global budget for health care, and if voters want more health care, they just vote for the party that promises to raise the budget (and vice versa). That's a choice I think voters can handle.
Public health care under a global budget is empirically the only successful method for restraining health care spending in a modern industrial economy. Managed care was an effort to reap these gains in a private system; it has slowed cost increases, but I don't think many people are too happy about it. By contrast, the publics of countries with public provision tend to be very happy with their health care systems, and usually thank God they don't live in the US.
Long ago, as an undergrad, I wrote a paper on all this; you can find it here.
