TCS Daily


Government and Health Care: The Good, The Bad, and the Ugly

By Arnold Kling - November 28, 2007 12:00 AM

Suppose that instead of looking at health care policy as a means to push an ideology or score political points, we examine it from a pragmatic American vantage point. What works? What does not work? What backfires? Those are the good, the bad, and the ugly, respectively. The table below summarizes our experience in terms of three goals of health care policy: improving access to care; improving the quality of care; and lowering the cost of our health care system.


AccessQualityCost
Good--clinics
--vouchers
--high-risk pools
data analysis data analysis
Bad--mandates
--Medicaid
--Medicare
P4Pcost containment
Uglynational health servicesmalpractice suitslicensing regulations

Providing Access

The first goal is access to health care. The expectation is that taxpayers will ensure that people are not denied necessary health care.

What poor people need are clinics that are convenient to where they live. Ideally, clinics would succeed at pro-active outreach and promoting issues of public health, including vaccination and disease prevention. Government can establish these sorts of clinics for poor neighborhoods, or it can offer subsidies to the private sector to provide these services.

Another way for taxpayers to help people with low incomes is to provide vouchers that could be used to purchase health insurance and to pay for health care. Vouchers would be means-tested. In other words, the poorest families would receive large vouchers, but the size of the voucher would decline as income rises.

Health care vouchers would work like food stamps. Food stamps allow poor people to shop at the same grocery stores as everyone else. There are concerns with food stamps, including high obesity rates among the poor, but on the whole they work relatively well in delivering benefits to the intended recipients.

High-risk pools are for people who have expensive medical conditions that make it impossible for them to get low insurance rates. In states that offer high-risk pools, private insurers cover people with pre-existing conditions, with premiums subsidized by the taxpayers of that state. High-risk pools are a reasonable way to help people who otherwise might fall through the cracks of the insurance system.

A bad way to provide universal coverage is through mandates. With a voucher, the family decides what type of health insurance meets its needs. With a mandate, the state decides what type of health insurance everyone should have.

The reason that mandates do not work is that politicians are under too much pressure to "gold-plate" the required insurance policy. Organized lobbies and provider associations work the political process to force insurance to cover fertility treatments or eye care or other services, rather than let individual families pick packages based on cost and need.

The failure of mandates is evident in Massachusetts. As Maggie Mahar reported,

Uninsured citizens earning more than 300% of the poverty level are expected to buy their own insurance. Here, the state hoped that 228,000 of its uninsured citizens would sign up. So far, just 15,000 have enrolled.

Medicaid does not solve the problem of health care access for the poor. In Maryland, earlier this year we read about a boy who died from a tooth abscess. The article pointed out the difficulty with finding a dentist who will treat Medicaid patients. A voucher system, which would allow a family to choose any dentist rather than be limited to those who work with Medicaid, would seem to be a better idea. In the case of this particular family, I suspect that the best chance of avoiding the tragedy would have been by making health care more convenient through a local clinic.

Medicare is a bad approach for providing access. It does cover many people with expensive medical conditions. However, as I have said before, it is the fiscal equivalent of the Titanic. The iceberg that it is headed toward is tens of trillions of dollars of unfunded liabilities.

National health services, such as those found in Canada or the United Kingdom, are an ugly way to provide universal coverage. In theory, everyone has access. In practice, however, too many people wait for care and too many people receive low-quality care.

Quality

Health care quality is an issue in the United States, as well. For example, a paper that can be found on the web site of the Centers for Disease Control states that more than 90,000 people a year die from infections that are contracted in hospitals.

One good thing that the government can do about health care quality is to gather, analyze, and disseminate information. Statistics that pertain to the risk and effectiveness of common medical procedures would be very helpful. In addition, information on how outcomes of procedures vary by hospital and by doctor could be quite useful.

A bad idea to improve quality is a government-run "pay for performance" system. In theory, it is an excellent idea. The government would figure out what sorts of processes and treatments are most effective, and it would pay bonuses to providers who use such best practices.

In practice, as the United Kingdom has found, "P4P" is a system that is ripe for gaming, because it is political. Doctors in the UK were able to build in an "exception" system, where they could designate certain patients as requiring exceptions from best practices. In theory, this makes sense, because there has to be some flexibility in medical care. In practice, the exception process was used so cleverly by doctors that the bonus payments amounted to a 20 percent increase in physician pay, even though the administrators of the P4P program did not believe that there was anywhere near a commensurate improvement in quality.

An ugly idea for improving quality is malpractice lawsuits. It only works to the extent that being sued successfully is highly correlated with being a bad doctor. Instead, the pricing of malpractice insurance suggests that being sued is highly correlated with being an obstetrician.

Cost

The problem of restraining health care costs is quite acute. I believe that cost is the most urgent issue of all for health care reform. It is impossible to envision making progress in dealing with access or quality without doing something to address cost.

All of our health care finance systems are under stress. The government system is completely unsound--the Titanic headed toward the iceberg of unfunded liabilities. Employer-provided health insurance is a questionable concept in theory that is unraveling in practice. The individual insurance market is a disaster, with something like 3/4 of all families who do not get insurance through work or government electing to remain uninsured.

The underlying driver of costs is that Americans make extravagant use of medical procedures with high costs and low benefits. See Crisis of Abundance or Overtreated.

A good way to help bring down cost is to provide patients with better information on the benefits and risks of medical procedures. As we have seen, this information will help with quality as well. In addition, consumers should be given transparent, advance information about the costs of alternative treatments using alternative providers.

Once consumers have the means to evaluate the benefit of procedures and to compare costs, they need to be given the opportunity to use that information. From the standpoint of opportunity, Maggie Mahar writes,

The well-informed patient, on the other hand, appreciates the grey areas of medicine. His doctor has been open in describing the uncertainties. As a result, this patient is more willing to accept answers like "We don't know." Or, "It depends." And he is more likely to listen to a doctor who tells him that the most aggressive approach is not necessarily the best approach. He is more likely to hear a physician who says: "Try physical therapy first. Try drug therapy. Try a change of diet and exercise."

This is why I think that, if doctors and patients work together, they can contain the cost of health care, paving the way for a sustainable, affordable, health care system that offers the right care to the right patient at the right time.

I believe, however, that having the means and the opportunity to make better choices is not sufficient. Consumers also need a motive, which is why I think that our system needs to eliminate the insulation provided by our poorly-designed forms of health insurance. Instead, I would like to see insurance policies with higher co-payments and higher, longer-term deductibles.

I would be very modest in portraying government's role in giving consumers the means, the motive, and the opportunity to make more cost-effective decisions. I think that government can contribute to gathering data and providing analysis, because it would be difficult for a private provider to profit from such an undertaking (information wants to be free). If doctors and patients need to have better conversations about treatment options, I do not see government as the natural driver of that. Finally, if the nature of insurance is going to change to give consumers more responsibility, that is going to require a less politically-tilted health care finance system, including a higher age of eligibility for Medicare and fewer tax advantages for employer-provided health insurance.

A bad idea for dealing with cost is "cost containment." What that means is cracking down on the prices and incomes of doctors, hospitals, and drug companies. Government attempts to do this run afoul of organized political opposition. Moreover, it is very difficult to implement heavy-handed negotiations on price without at some point stifling innovation and hurting quality. When it is allowed to operate, the market generally does a better job of cost containment. The example of laser eye surgery is frequently cited to support this in health care.

The government gets ugly when it regulates health care providers. My pet peeve is the requirement in Maryland that someone must obtain a doctorate to become a physical therapist. That regulation clearly was enacted for the benefit of incumbent physical therapists (who are exempt, of course) and works to the detriment of patients.

If health care is ever going to be rationalized, made efficient, deploy technology in a cost-saving way, and so forth, then practice regulations and licensing regulations will have to be revised. The anti-competitive nature of today's regulatory environment is discouraging.

The Superior Efficiency of Socialism?

One question concerning cost is whether costs would decline if we went with a single-payer health care system. Two arguments are typically made in support of the idea that socialism is the route to superior efficiency.

1. Other countries have single-payer systems, and they spend less on health care than we do.

2. Health insurance companies do not disburse all of their premiums to health care providers. Instead, they "keep" a large portion to pay for overhead and profits.

The amount that a country spends on health care is mostly a function of supply. In fact the amount that an individual state within the U.S. spends on health care is mostly a function of supply. One of the reasons that Massachusetts is a difficult state in which to try to offer universal coverage is that the supply of specialists and high-tech equipment is so high there. Given the vast supply of expensive health care providers in the United States, there is reason to doubt that shifting to a universal system provided by government would bring down spending.

Government is not as efficient as it might seem. While the government can operate without profits, it cannot operate without taxes. Taxes discourage work, thrift, and risk-taking. The deadweight loss from taxes as a percentage of revenue is higher than insurance company profits as a percentage of their revenue.

As to eliminating overhead, if all of private health insurance were ended, government would face a new responsibility: setting price schedules for every medical service in every section of the country. As it stands today, prices are negotiated with private insurers, and government programs feed off of these "usual and customary" charges. Deprived of this market information, government would have more overhead and would have difficulty correctly assessing the relative values of different services.

Overall, I am not persuaded that socialized medicine will prove more efficient in the United States. However, I am not a big fan of the insurance industry as it operates today, and I think that it would be interesting to see an experiment with single payer at a state level.

As it stands, none of the leading Presidential contenders is advocating single payer. Instead, some candidates propose additional government mandates and/or subsidies, while keeping our existing private insurance systems intact. It seems unlikely that this will reduce the cost of providing insurance.

Solving the Problems

I believe that there are things that government can do to enhance access, improve quality, and lower the cost of health care. However, I believe that we would be best served by having government focus on the policies that I put into the "good" category--clinics in poor neighborhoods, vouchers, high-risk pools, and better information on the effectiveness of services and the performance of providers. If we look to government to take a larger role in running our health care system, then my prediction is that things will get ugly.

Arnold Kling is an adjunct scholar with the Cato Institute and author of "Crisis of Abundance: Rethinking How We Pay for Health Care."
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21 Comments

Good article but it ignores one point of socialism
Beyond the idealistic offerings of socialism is the dark side of politics. Politicians seek a NHA as yet another approach to control the populace and buy votes. As Roosevelt did with SSI, the idea is to place yourself as high in the voter food chain as possible insuring perpetual victory.

Politicians are not, at least most, benevolent entities seeking the betterment of humanity. Most, if not all, are in it primarily for power.

I like the voucher approach and more market based approaches to insurance will insure lower cost premiums and greater access. The profit motive arguments against insurance companies are stale.

If the profit motive was the sole problem then lets extrapolate it to goos and services of all types. How small, light and advanced would your cellphone be is it was a government entity.

One only need look to the dismal record of Soviet industry to see the failure of planned economies. The profit motive drives people to greater supply, lower cost and higher quality.

If we get a NHA here expect less of all. The system is a mess but the solutions are easy to impliment if we had the will.

How can you divorce people from their philosophy, err, ideology?
There was a time when a POTUS vetoed a measly $15,000 (may be $15 Million in today's dollars) for - heaven's sake - treatment of mental patients.

How could he do it? Because, the DOMINANT ideology of the day was to look to the federal GOVAGs only in case of clear and present danger to people's Rights to Life, Liberty and Pursuit of Happiness and nothing else.

Today, the DOMINANT ideology is to look to federal GOVAGs for the relief every inconvenience, real or imaginary, big or small.

Unless this mindset is changed, NOTHING can be achieved.

Why can’t we demand that our politicians they cover everyone for the money that they are currently s
Our Government spends more per capita on healthcare than France does. Healthcare is highly regulated and providers are highly licensed by the government, so how is it not the Government's fault. Why can’t we demand that our politicians they cover everyone for the money that they are currently spending? Democrats seem not to want to call for this but for more funding for some reason. Some Democrats actually seem to want higher taxes just to lower the wealth of the rich.

Better information
In theory, better information about illnesses and treatments sounds good. The problem I see is that disseminated from the private sector, it's bound to be adversarial (e.g. is the insurance company trying to save money by expressing an unenthusiastic view of a treatment), and from the public sector, it's bound to be political. For example, I'm not advocating smoking, but is there any realistic, balanced information coming from the government about the risks that light and occasional smokers really face? How can we expect government information to not be embroiled in politics?

Research finds people want information on cost and quality
PORTLAND, Ore., Nov. 28 /PRNewswire/ -- The number of people inclined to comparison shop for medical services such as knee surgery could be much higher than previously thought, according to groundbreaking research
conducted by Regence.

Seven out of 10 consumers indicated they would seek out information such as price and quality for medical services, according to a recent survey of 2,000 people in the states Regence serves: Washington, Oregon,Idaho and Utah.

"This data fills a gap in our knowledge about consumers, and opens a window on how people would shop for health care," said Robert Harris, who oversees Regence market research.

Regence developed the parameters for the research, and respondents, both insured and uninsured, were chosen by an independent firm for their Internet shopping habits. Participants were asked to select one of 25 health care services they might need in the next five years and polled
about their information-seeking behavior. The 25 non-urgent services were the types that would allow time for research, such as childbirth or diagnostic testing. Both covered and non-covered services (such as teeth-whitening) were included.

Of those who thought they would seek out information, 78 percent indicated a preference for quality, while 74 percent indicated a preference for cost. Taken as a whole, almost 50 percent of all 2,000 respondents said they would be "very likely" to compare provider quality, seek out
information from reputable medical sources and to rely on the reputation of the service provider.

These results indicate substantially higher interest in cost and quality information than other research into consumer behavior, Harris said.


Further findings indicated:

-- People with health insurance were more likely to research quality than
cost.
-- People without health insurance -- 8 in 10 -- were more likely to
research cost than quality; this is significantly higher than insured
respondents.
-- The breakpoint for health care comparison shopping is higher than for
consumer goods. The median price at which people shop for health care
is $500, but only $199 for durable consumer goods.

Additionally, about one-third of all respondents said they would be "very likely" to compare prices of medical services. Further analysis and research is needed, Harris said, but initial indications are that a substantial portion of people could be shifted toward more consumer-minded health care behavior.

Quality and effectiveness of medical care are of increasing concern to patients. Some experts estimate that erroneous or unwarranted medical intervention is the third leading cause of death in the U.S., taking anywhere from 105,000 to 275,000 lives a year.

A dose of consumerism is promoted by many as an ingredient to remedy the ailing health care system. If people could compare which treatments work better and what they cost, the theory goes, providers would feel pressure to compete on successful outcomes, prices and their own formula for customer service. Currently, regional and national efforts to corral quality and cost information are scarce and scattered.

"It's the Wild West out there for quality information, but hopefully this new insight that we have gained into consumer preferences will help us to move the dial in the right direction," Harris said.

Because in France...
...health care spending is less due the lack of ambulance -chasing lawyers (all medical malpractice lawsuits in France are handled in non-jury courts composed of medical experts/judges and there are NO punitive damages, for example) and the fact that French doctors typically make only 1/3 of what an American doctor makes.

There are other differences, but those two are the biggies that clearly explains the difference between costs of our system and theirs.

Also, our government spends more per capita on education than most other foreign nations do to -- despite the myths perpetrated by the NEA and their Dem allies to the contrary. Yet, we get poorer results from it than those other nations spending less do. Hmmmm...why is that?

Point is: health care systems between nations are like apples and oranges, given the complexity of the issues involved that define them respectively.

I take one issue with what Kling says
and that is this:

"As it stands, none of the leading Presidential contenders is advocating single payer."

The attempts of the Dems to expand SCHIP is a backdoor means of instituting de facto single payer. Kling surely must know this. And SCHIP has always been Hillary Clinton's thing. She also voted for the 'expansion' and -- I believe -- screamed the loudest of all the candidates when Bush vetoed it. She has also been consistently vocal in not only supporting the current proposed expansion but also expanding it some more.

She nor any of the other candidates may not openly advocate single-payer (what about Dennis Kucinich?), but Senator Palpatine didn't openly advocate Galactic Empire either, as he clawed his way up to power in the second Star Wars saga. Besides, in both cases there's always a Jar-Jar who can be duped into handing over the homeworlds, so why should they stick their necks out openly?

Yeah
Kucinich has flat-out said that he wants socialized medicine. Unlike the other Demononimees, he is not lying about the Democratic Socialist agenda.

The problems you mentioned are squarely in the government realm, and thus are produced by the politi
Zyndryl wrote:
...health care spending is less due the lack of ambulance -chasing lawyers (all medical malpractice lawsuits in France are handled in non-jury courts composed of medical experts/judges and there are NO punitive damages, for example) and the fact that French doctors typically make only 1/3 of what an American doctor makes.

Loser pays would reduce the law suit problem.

Doctor pay could be reduced to 1/3 of current pay by simply lowering requirements until you fill all positions at 1/3 the current rate and looking at the research (like the Rand health Insurance experiment and the book “Overtreated” Brownlee) I doubt that the quality hit would be much.

The problems you mentioned are squarely in the government realm, and thus are produced by the politicians.

Also I think that most things are cheaper in the USA than in France. I vacationed in Italy this summer and it seemed that most things where cheaper in the USA than in Italy (how much do they spend on medical care in Italy?). So why wouldn’t medical care be cheaper in the USA?

Zyndryl wrote:
Also, our government spends more per capita on education than most other foreign nations do to -- despite the myths perpetrated by the NEA and their Dem allies to the contrary. Yet, we get poorer results from it than those other nations spending less do. Hmmmm...why is that?

Education is another example of an area where the politicians have played a huge role, so why is it not the politician’s fault that we spend more on education but do not get much better results? Further there is little real evidence that the USA educates less well than most other nations do.

there's another
they don't provide anywhere near the level of services we get

what's wrong with adversarial
it's up to the consumer to check several sources of information. Compare, contrast, and decide for himself.

contenders
I believe Obama has called for single payer.

Edwards definitely has, and the other candidates, when given the chance to rebuke him, chose not to.

Did you even READ what I wrote?
"why is it not the politician’s fault that we spend more on education but do not get much better results?"

Did I say it WASN'T their fault? Hell yes it IS their fault. And by using those examples, I was demonstrating that letting the government have MORE power to muck things up will only increase that 'fault' a whole lot more. (Hint: THAT is the debate we are having here, btw)

As for everyone else, I was referring to the differences of the two systems as they are NOW. Sure, we can adopt 'loser pays'. We can also amend the constitution to adopt jury courts for malpractice lawsuits, too.

"The problems you mentioned are squarely in the government realm, and thus are produced by the politicians."

No kidding Sherlock! Nice that you are on board with the rest of us.

Who cares what you 'found' in Europe? On a per capita basis, we SPEND more on health care than they do. Hell, if you judge things by what you the consumer see in the prices, the the difference in health care spending would be even more pronounced because it would come across as FREE. The incorrect moniker 'free healthcare' amongst the economically illiterate was thus born the same exact way.

Single payer (socialized) healthcare would be preferable…
To the crap Hill-Billy Clinton and many other are spouting. "Universal Insurance" is a scam, and insurnace companies will reap the benefit; at the cost to the consumer in both higher taxes and lower service.

Be very careful of the schemes being employed; if the dems maintain control of congress, most of the front-runners on both sides of the D/R divide will knuckle under and we could all be the big loser!! If the choice come down to one between Hillary's "Universal Insurance" and someone elses "socialized medicine" I will tke the later over the former.

In short, while I don't like either of those two choices, Hillary's plan, as I understand it, scares me.

nice article, but
The claim is that the article is on our experience with government and health care. Do we have any significant experience with vouchers and high risk pools, or is that just ideology talking? The Burkean conservative in me wants to know.

The "efficiency" of Socialism
It seemed obviouse to Nikita Kruschev that a single payer system for everything would be far more efficient that all that wasteful advertising and duplicative competition by multiple companies as practiced in the west.

So he believed it to be inevitable truth when he said "We will bury you!"

socialised medicine in canada example
I wonder if those Americans who want a 'Stalinist-lite' system like Canada has heard about latest scandal there last week. A canadian guy was being transported from Windsor canada, to Detroit for heart care at the Henry Ford hospital there, and he was delayed by the border guys even tho he was in an ambulance. Apparently there was great shock and dismal and criticism of the poor guy for being placed in such jeopardy like that being delayed at the border. But nobody was shocked that this poor guy had to be taken to the US in the first place, since such care is not even available in Windsor! Apparently more than 150 ambulances have to cross every year to the States in that city alone. They also say that a hospital such as this Ford one, nor the Mayo Clinic, etc would ever be allowed to even exist in Canada.

Support structure
I am reminded by this story of the following: What are the three most important things allowing the Canadian health system to continue to function?

Seattle, Detroit, and Buffalo.

fear
we got away from the individual paying for the services rendered by the physician(s) who treated him back in the 40's.

we do not know anything else. we have only major medical and pay the rest out of pocket. we seek treatment when necessary but not for every sneeze and cough.

since we pay out of pocket, the physicians give us 20% discounts on their fees. cash payments minimize their overhead.

read some of the doctor blogs that tell of the nightmares that they have with insurances and medicare.

many are considering leaving the profession because it really is a low return on investment. they are better off being a realtor than a doctor.

another approach is to truely marketize the process. right now there are clinics that offer people walk in blood/urine tests. these are a lot cheaper than going through the doctor. the results can be sent to any physician.

What about simple tax credits?
I don't understand why it would be so difficult to offer those who must pay for their own health insurance a tax credit to offset part or all of the cost of their health insurance premiums. This would be much cheaper than adding to the already obese bureaucracy and people could choose the amount and type of coverage without government meddling.

The number bandied about of those who are uninsured usually include those in the country illegally, who are temporarily in between jobs that offer employee coverage, and those who simply do not want insurance, but prefer to pay out-of-pocket (like young, healthy folks who seldom get sick anyway). Those who are here illegally should not expect ANY government assistance, just as we wouldn't if we were in their country. Those between jobs will be insured again when they are once again employed. If they are not, they should receive the tax credit. And those who just don't want to pay for insurance, well they shouldn't have to, but should expect to pay for trips to the doctor should it become necessary.

I don't mind paying taxes to help the truly indigent receive basic health care, but I am really tired of paying for ever-increasing government intrusion into our daily lives.

paying for the system
Currently there are 4 different entities engaged in the health care cost debate. The consumer, the provider, the inital payer (IE and insurance co) and the ultimate payer, who ever pays for the insurance policy. TFew of these even talk to each other.
Prior to massive government interference, the costs of health care were pretty much contained by what the customer would put up with. True, the care available now is far higher quailty than what was available in 1953. However, compare a 1953 car to the cars on sale now. The costs have stayed in lock step with incomes, corrected for inflation, but the equipment and life span have vastly improved. I have early 50s collector cars--I dearly love them, but when it is 10 below 0, and I need to get to work, I am thrilled that I have a "modern" to use.
Have you ever tried to get a price quote from a health care provider? I demand it every contact. Lots of luck. I amlucky to get a quote from them, with the disclaimer about "other providers will add additional costs". You take you car to the body shop, you get a definate number. They have the frame rack to pay, the tow company to pay, the paint place to pay, the parts supplier to pay, and the guy who does the work to pay, and the shpp costs to pay. How come they can come up with a price, but the MED PROFS can't? I suspect taht the Medical Professionals are just practicing, where the rest of us have to know what we are doing.

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