Who should decide whether additional medical care is worth the cost? (part 2)
31 August
Friday I took a step back from the legislative debate to look at two examples of hard choices in medical care. Unlike the examples being discussed by some elected leaders, these hard choices are ones in which one option is both medically superior and more expensive than the other. Someone then has to make a decision about whether the additional medical benefit is worth the additional cost. I believe that much of the complexity in our American health policy debate boils down to the question of who should make these cost-benefit decisions.
Today I will present your options to answer that question.
You have three options for who gets to choose whether the marginal benefit of a given medical treatment or health insurance benefit is worth the marginal cost. I think of them as “levels”:
- government;
- insurers & employers; and
- you (with advice from your doctor).
They key analytic point is that whoever controls the money makes the decision. To oversimplify, the higher you push the decision, the more you can redistribute among people. The lower you push the decision, the more efficient you are. I think that certain political realities also will affect the total amount of resources dedicated to health care, depending on at which level the decisions are made.
Equity
Let’s look at how we make similar cost-benefit decisions for other critical goods:
- food – decisions are made in level (3), with subsidies for the poor;
- housing – decisions are made in level (3), with subsidies for the poor;
- elementary and secondary education – decisions are made in level (1). It’s generally through local governments, allowing some but not complete redistribution.
- college education – decisions are made in level (3), with subsidies for all but the rich.
For most Americans under age 65, most health care resources are distributed through decisions made in level (2). Our employer negotiates with health insurers and produces a limited set of options among which we as employees can choose. Once our expenditures exceed our copayments, our insurer decides whether a particular medical treatment is worth the cost and covered by our insurance. If we disagree, we fight with our insurer.
Employer-provided health insurance creates some redistribution. The expected medical costs of a 55-year old employee are higher than those of a 25-year old employee. If each were buying health insurance as an individual, you would expect the 55-year old would face a higher premium. Most employers, however, equalize the premiums charged to their employees, allowing only for differences in single vs. family policies. By getting his health insurance through his job, the 25-year old is therefore implicitly cross-subsidizing the health insurance premium of the 55-year old. (It’s difficult to figure out whether wages adjust to account for these subsidies.)
If we push control of the money, and therefore the cost-benefit decisions, up to the government level, then there is more opportunity for policymakers to redistribute and cross-subsidize. Whether you think that’s good or bad, it is a primary argument made for moving decisions up to the government level. That redistribution could be based on income (rich –> poor) or health status (generally healthy –> predictably high cost). It could be geographic (rural –> urban) or based on gender, age, or any other criteria that Congress defines.
If we push cost-benefit decisions down to the individual, then we must keep the money at that level. This is what we do for food and housing: people buy their own food and housing with their own money. We then subsidize the poor through government programs and charity – food stamps and soup kitchens, low-income housing vouchers and shelters. To the extent we take health cost-benefit decisions out of the hands of employers and insurers and leave them in the hands of individuals and families, health insurance and health care will be distributed largely based on ability-to-pay. Those who cannot afford it will rely, as many do now, on emergency care, clinics, and charity care.
We rely on ability-to-pay to allocate most goods in our (American) society. You work and save, you earn income, you buy what you can afford with that income. This is as true for “essential” goods as for things that are clearly discretionary. We layer on top of this a progressive tax-and-transfer system that redistributes income downward.
I know of three common arguments in favor of greater redistribution for health care compared to other goods:
- There is a significantly skewed initial distribution at birth. Some of us are dealt a poor medical hand at birth and will face high medical costs throughout our lives.
- If the housing safety net fails a poor person, he has to sleep on the street. If the food safety net fails a poor person, he has to go hungry. In the extreme if the health care safety net fails a poor person, he can die.
- Since the end of World War II Americans have been largely insulated from and ignorant of the costs of the medical care that we use. This has created a cultural difference in the way we think about health care compared to other goods. We think more about the price of milk than we do about the price of an MRI.
Whatever your view on whether there should be more redistribution and cross-subsidization of health care, it is indisputable that moving health care cost-benefit decisions from insurers and employers up to government would mean more redistribution and cross-subsidization. We see examples of this in pending legislation. I imagine that the regulations to implement such a law would go further.
Efficiency
By efficiency I don’t mean “least expensive.” If we have two possible decision-makers who can decide whether the marginal cost of a particular treatment exceeds the marginal benefit, then the efficient decision-maker is the one who gets it right more often.
If you’re controlling your own money, then you know how to weigh costs. With health care the hard part is understanding the benefits. Most of us are neither medical professionals nor probability experts, so we have a difficult time understanding the actual medical benefit of a particular treatment and whether it’s worth a financial cost that we do understand. I constructed two examples in Friday’s post to highlight these kinds of choices, but I intentionally made them easy to understand, and I was precise about the medical benefits of each. In practice it’s much more difficult.
On the other hand, I argue that having someone else make that decision for you is far worse. Employers, insurers, and the government can all hire technical expertise – medical professionals who know, on average, the benefits of a particular treatment. This must then be counterbalanced with other factors that push third parties to make decisions that are less than ideal for you:
- Governments/insurers/employers have to set up rules that apply to everyone. People are different, and sometimes those rules don’t fit your particular case.
- People have different attitudes toward medical care. Third parties can’t know those preferences or account for them in their decisions.
- The cost-benefit decision depends on the cost and the resources available. Using Friday’s example 1, you might choose the Skele-Gro if it were $500, but reject it at a cost of $5,000.
- In addition to whatever resource constraint exists, third parties have other pressures on their decisions, and other incentives. A government bureaucrat has rules and laws he has to follow, deadlines, and time and workload pressures. He also faces political pressure from Congress and medical treatment interest groups (hospitals, nursing homes, doctors, nurses, drug and device manufacturers, …) These pressures make his cost-benefit decision on your behalf different from your own.
- Government bureaucracies are slow to adapt to changes in medical practices and markets.
Neither decision-making model is perfect. If most health care decisions were made by individuals, some of us would make poor decisions and screw up our own health care. Most of us would rely on medical professionals for advice, but we are all flawed beings who make mistakes.
I think that our current system of insurers and employers making these decisions for us is worse, and that moving more of these decisions up to the government level would make it even more so. I believe that more bad cost-benefit decisions would be made if those calls were made by someone in government than if you made them yourself.
Total resources
Many on the right argue that if we push these cost-benefit decisions to the government, a binding resource constraint will mean government rationing. Government will have control over the resources and will make cost-benefit decisions for us, en masse. Government will deny us care that we think we need, whether that’s through death panels or, as Megan McArdle aptly puts it, second-knee-replacement panels.
I think it’s equally likely that instead government would just blow through the resource constraint and keep spending more and more of society’s resources on health care, financed by higher taxes or even bigger budget deficits. We see this in Medicare – there’s no rationing, and the program is unaffordable. Because government has control of Medicare resources and elected officials are unwilling to impose a resource constraint, we’re on track to bankrupt our country.
I believe that moving more health care decisions, and more control over health care resources, into government hands will exacerbate this trend. I am afraid of rationing. I am just as afraid of destroying our economy even more rapidly than we are because Washington politicians promise everyone all the health care they think they want, need, and deserve, with no regard for cost.
A deceptive agreement between Left and Right
In the past few months I have twice debated on TV former Vermont Governor and DNC Chairman Howard Dean. Some viewers may have been surprised to see us both arguing against the employer-based insurance system that dominates the American health policy landscape. I believe that Governor Dean and I agree that our current health care system needs to be changed.
Don’t be deceived by this agreement, however. We agree that we dislike the status quo, but would move in opposite directions.
He argues that we should move decisions away from employers and insurers, and into government. I argue that we should move decisions away from employers and insurers, and into the hands of individuals and families (with advice from their doctors). This difference leads us to quite different policy proposals.
Pending legislation would move policy in Governor Dean’s direction. It wouldn’t go as far as a full single-payer system might, but it would move enormous amounts of money into government hands. The health care decision-making authority accompanies the money.
I think the status quo is unacceptable, but I want to move in the opposite direction – taking that money and leaving it in the hands of individuals. I would give you the authority and responsibility for making more of those difficult and painful cost-benefit decisions about health care than you have today, and far more than you would have if this legislation is enacted.
(photo credit: amylynne)
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Strongly agree that it is better for healthcare decisions to be made as much as possible between the patient and the physician. I would argue that the horror of the “death panel” concept is great enough that good strong firewalls should be built between that concept and any chance of it becoming reality.
I suggest that government has a fundamentally conflicted set of interests in the subject of healthcare. Allowing the government functionally unilateral authority to to allow or withhold care cannot be a good thing. If you are old, perhaps possess resources, and are a consumer of healthcare, then your life costs the government money each month, i.e., social security payments, government medical care payments, and your death ends the expense, and even generates a windfall revenue of the inheritance tax in some cases. If faceless bureaucrats could wield such power, they might even decide to look at how a particular patient votes…no, of course they wouldn’t. But it is not hard to picture a large room with desks covered with patient files, and decisions to be made, to approve care or not to approve. And doctors and sick people waiting for answers, and all the bureaucrats having meetings, and coffee breaks, and diversity training.
Not that any one individual’s case would make a measurable difference, but we a looking at the power to reshape the demographics of the nation. Not to impute sinister Orwellian motives, but it is not unreasonable to find the Democrats’ immodest proposal more than mildly alarming.
Yes, except approval decisions are currently not done on an individual basis, but rather on a condition/treatment one. I think in this respect it's exactly what insurance companies do.
Terrific analysis, per the usual, and I think people on the whole are looking for an understanding of what these reform proposals really mean for their health care. For example, I was just reading an "ombudsman" article from the Washington Post yesterday discussing how readers were upset that the Post was mostly covering the politics and process of reform, and not the actual substance of the proposals. The article mentioned that there is a lot of confusion and misunderstanding out there about what things like "a public option" and "rationing care" really entail.
I think this article goes a very long way towards boiling down the substance of the reform proposals to a short and easy-to-understand piece, really highlighting what the central question is that policymakers are debating. I also think that if more Americans had the question framed to them in this way, they would certainly not be in favor of "more government control of your health care decisions."
What are you guys smoking? Do I misunderstand or are you saying that the care decision should be completely in the hands of the patient and his/her doctor because they are more likely to get it right than either of the other two options you offer.
This approach would probably work well for those folks who can afford to buy that 2nd knee replacement, even if the doctor says it's a bad idea. I think that your high level of trust in the "efficiency" of the patient/doctor decision is charming to read about but unlikey to see…..
Wile your analysis may be valid, it ignores the entire premise of insurance to spread risk.
We are talking abut insurance, not health care and to ignore this leads me to question your entire analysisi.
Actually, I'm talking about both health care and insurance. Please see my first post and the two examples within it.
And economic insurance is about pooling risk among buyers with similar risk profiles. People who face the same (or close to the same) probability of a particular loss agree to pool the risk of that loss because they are risk averse.
When we use the term "insurance" to cover people with different risk profiles, we're diverting from the economic concept of insurance, and instead using the same term to talk about (insurance + cross-subsidization). Some people use the term "social insurance" for this concept.
So if by "spreading risk" you mean among people who face similar risks, then I agree, that's the premise of it. If instead you mean "spread risk among people who face different risks," then that's a different concept. Such cross-subsidization is neither right nor wrong — it's a value choice. I would like policymakers to make those value choices explicitly, rather than implicitly as they do now.
> And economic insurance is about pooling risk among buyers with similar
> risk profiles. People who face the same (or close to the same) probability
> of a particular loss agree to pool the risk of that loss because they are
> risk averse.
The problem with looking at insurance this way is that it breaks if you try to move to a level 1 decision making process. The insurance example presupposes a certain level of elasticity that might not (probably doesn't) exist in practice.
If enough people choose not to buy the +$400 insurance, it's no longer +$400 insurance, it's +$500 or +$1,500 insurance; and conversely if enough people buy the $400 insurance, it's now +$300 or +$10 insurance (profit considerations non-withstanding).
If the option is between $400 insurance and $10 insurance, statistically healthy people will choose the $10 insurance, to have $390 worth of beer money. And now, the individuals who would have been interested in the $400 insurance are left with a product that sells for $1500. They can't afford that, so they get some other sort of insurance.
But when they finally get sick, those younger family members who have been paying $10 for their own insurance are often called upon to help pay for the $5 million dollar treatment or watch grandpa die.
Moving insurance decisions to an individual level (particularly when, *as you note*, the general population is not particularly well educated as to medical risks and statistics) means that most people will choose based upon individual risk and individual reward. However, most people in practice are impacted by group risk and group reward; decoupling these is not a simple affair.
Mr Cahalan-
Why does this "break" if you move this to a level 1 decision? There are hundreds of different types of insurance in the private market that work with level 1 decision makers. In some cases the decision is compulsory (minimum auto insurance) but in other cases (life insurance, travel insurance, home warranties, hurricane, earthquake and fire insurance) the government has little to no involvement. And yet people regularly purchase insurance. Why is it that you feel Health Insurance is any different?
Indeed, depending on the numbers you slice, 80 – 90% of this country has insurance- over half of them completely voluntarily.
You seem to hang your entire criticism on the notion that people are stupid and make poor decisions. Why not spend a couple billion dollars educating people on health insurance and creating the type of transparency and signals that would better utilize market forces? We have seen that transparent markets are far better at enabling the common man than control economies.
> And yet people regularly purchase insurance.
I will state baldly that as a class, the average U.S. citizen is vastly under-insured on all fronts. You cite several examples, let us look at them in turn.
Life insurance: industry groups state that millions of American do not have life insurance, and those that do usually have less coverage than they need. While the source is certainly suspect and thus this does not represent especially substantive evidence (and I welcome evidence to the contrary), I don't have a particular reason to disagree with it as I've found no countering evidence. Provide some and we can continue to analyze this particular case.
Travel insurance: this is such a small market I'll just pass on it; it can be considered an outlier in any event because most Americans don't travel very much, and thus those people who *do* travel already exhibit enough common characteristics that any analysis of travel insurance would say more about the risk analysis capabilities of (people who travel) and virtually nothing generalizable about (people in general).
Home warranties: are offered as an incentive for new home purchasers to encourage people to buy newly built homes rather than existing structures. They're largely a marketing tool rather than real insurance.
Hurricane and Earthquake: are not available in many areas where these disasters are common, or are significantly overpriced due to the problem that not enough people actually get them (trust me, I want earthquake insurance living here in California, but if I got earthquake insurance when I bought my house I'd already have wound up paying for the entire replacement cost of the structure). These are actually stunningly examples for your case, as they're strong indicators that people *don't* regularly purchase insurance, thus driving up the cost of that insurance such that it is no longer an economically viable alternative for people who want to have insurance.
Insurance is about the amortization of risk. If not enough people buy insurance, the risk is not spread out enough for the cost to meet the benefit. The nice clean curve of supply and demand turns into a huge related rates problem.
> You seem to hang your entire criticism on the notion that people are
> stupid and make poor decisions.
I said nothing of the sort. Smart people are bad at risk analysis, just like stupid ones are. Making poor risk analysis decisions has nothing to do with your ability (or lack thereof) to make poor or excellent decisions in general.
That said, people (as a class) are generally bad at risk analysis. They massively over-value sensational risks and undervalue common ones. It's been credibly proposed that we're wired to do this via natural selection: the sensational (to the hunter-gatherer) represented a likely immediate threat, the common represented at best a future threat, so learning to respond to the sensational was a survival trait. Now that our general awareness is fed by input that does not concern our immediate environment, we still regard the sensational as a bigger threat for that reason.
Whether you believe that or not, as I said below a simple Google Scholar search will reveal a massive volume of research in many different fields supporting the theory that people are bad at risk management. If you choose not to believe this research, you'll have to tell me what standard of proof you will accept as capable of changing your mind for us to continue constructively.
@Tom: I disagree that people will make poorer decisions if they're made responsible for their health care, but let's say that you're right. The question follows: so what? The people we're talking about are adults, not children. Adulthood is characterized by responsibility for one's choices. If a person makes an ill-advised choice then, assuming there was no deceit on the part of his doctor, he's responsible for the consequences of that choice. To say otherwise renders these people children instead of adults.
Keith,
You forgot most important argument against government control health care. We must have inequality in the health care. When a new expensive new medical procedure or treatment becomes available, the government has the two options, make such treatment available for everybody, or deny such treatment to everybody.
If the government makes such treatment available to everybody, there is no incentive to lower prices, if the government refuse the treatment, then nobody is going to develop a new expensive treatments.
Keith,
Thanks for the great blog! There is one problem that I consistently struggle with when trying to understand the desire among many to move healthcare dollars (per Keith's clears analysis this means decisions) up the chain to government, and that is the problem of redress. Specifically, if the dollars are at level 3 (me), and I have a disagreement with my doctor's diagnosis/course of treatment, I can seek out a more favorable result by switching doctors. If the dollars are at level 2, I can choose to switch insurers or seek redress by the government. But if the decisions are made at the level of government, where do I turn? The tender mercies of doctors and hospitals that are willing to perform expensive procedures without reimbursement from government? We've recently learned that doctors are tonsil-snatching limb-lopping jerks. The javascript:%20postComment(0);courts? If you lean right, think of the Ninth Circuit. If you lean left, think of the Fourth Circuit. Does anyone think this is a solution?
If the decision is made by you and your doctor, in the first example–in the free market–many of the wealthy might go for the skelo-gro for quick healing of the broken arm. Increased demand for skelo-gro would, over time, bring the cost down and the new faster and better treatment would be available to more people. If the decision is made by the government, skelo-gro would probably never be produced commercially, for government would not pay the extra cost. That's how government kills innovation.
You're unfortunately unaware of how the medical technology world actually works, friend.
Discounting drugs, most new treatments are actually not found by for-profit companies. They are found by medical researchers at federally funded research universities and teaching hospitals, paid for by federal grants (usually NIH) which sponsors the research, using materials science also developed at those same universities, albeit by different departments. I know, I work at one, go to school at another, and my wife works for a medical not-for-profit.
The artificial heart? Government grant. The cochlear implant? Government funded researchers working with a for profit company. Most bionics research is done by government funded researchers; it's only when the science is sufficiently robust that a for-profit company will actually even begin doing market research to see if it can be made into a economically viable business; a great many promising medical technologies are left behind because for-profit companies do not take the research farther. This is why there exist not-for-profit foundations that fund medical research.
Government does not kill innovation in the medical technology arena. If it weren't for government funding of basic research, you would have no innovation in the medical technology arena.
Mr Cahalan-
You are missing Elephant Child's point.
To my knowledge, NIH has never ever brought any treatment to market. They sell nothing. You cannot go to the NIH and buy an artificial heart. Today, if you want an artificial heart, you go to a private company (Abiomed) who is currently working on version II of their fully implantable product.
Right now that company's heart can extend someone's life by a few months. There is no way that the Government will pay for the mass development of such a product- whether through grants or through Medicare/Medicaid. It takes demand from a private market at the astronomically high prices to sustain the development that drives the cost of these treatments down. Today, the typical path of medical research starts with the government funding a professor at a university, who then creates a proof of concept, licenses the technology from the University and then starts up his own company. I have friends in Chicago following exactly this R&D curve.
Your last statement is curious. Do you have proof that- without government money- there will be no research and development into these treatments? You already noted that the cochlear implant required private assistance and you handwaved past the pharmaceuticals market, which seems to get lots of private financing.
Don't get me wrong, the Government is doing good things in its funding of research. But these research dollars crowd out private financing (because the cost of getting a grant from the government is much less than the cost of equity or interest paid to a private investor). It is unclear whether or not private financing could do all that the government does, but the suggestion that NO research would be done is just not supported by the facts (at least as I see them).
@the elephant's child – you are exactly right! Unfortunately, your point is rarely picked up by the MSM and even appreciated less.
Keith, I’m disappointed in this followup post. I feel like a guy who walked into a huge banquet hall, saw glittering crystal goblets and brilliantly polished silverware on pristine white linen, sat down on a luxuriously cushioned chair, and was served a twinkie on a cracked plastic plate.
Your previous post did an excellent job of providing a workable foundational framework for constructive discussion on health care. This post was filled with “I think…”s and “I believe…”s and precious little to provide backing evidence for those beliefs. You’ve constructed a faith based argument. That would be fine if we were discussion theology, and at least a credible beginning to a philosophical discussion. What we’re talking about here is trying to make informed decisions about public policy, and knowing what you think or believe isn’t nearly as interesting as knowing *why*.
> Governments/insurers/employers have to set up rules that apply to everyone. People
> are different, and sometimes those rules don’t fit your particular case.
Is this really a particularly worrisome case? People on Medicare are generally happy with Medicare (from what I recall). Is this an exception scenario worth serious consideration?
> People have different attitudes toward medical care. Third parties can’t know those
> preferences or account for them in their decisions.
For the most part, this is why the bill includes the now-infamous (not really) “death panels”, so that doctors can inform patients as to health outcomes for grave illnesses, and people can express those preferences. Beyond a matter of preference, there is the in-practice question of “preferences” diverging from the standard of care. Certainly some people will want to refuse vaccinations, for example. Do we allow them to do so as a matter of routine? What about during an epidemic? Can we state that there are times when the preferences of the individual are not germane? When? If not, why not? And if we allow people to opt-out of care decisions, what happens when the consequences occur? Do we refuse treatment to un-vaccinated children who get measles? Do we treat head injuries to people who ride motorcycles and don’t wear helmets? Do we provide cancer treatment to smokers? On the other side, do we give every conceivable test to hypochondriacs? Do we give liver transplants to people with terminal cancer? Do we give hyperconcerned parents antibiotics for their child’s ear infection, when there is little demonstrated medical value? Your position conveniently allows you to duck answering these questions directly, if we give more decision-making power to the individual, but the consequences to the public policy are still going to be there.
> The cost-benefit decision depends on the cost and the resources available. Using Friday’s
> example 1, you might choose the Skele-Gro if it were $500, but reject it at a cost of $5,000.
Yes, but not all medical decisions can be made on utility theory. Moreover, we can’t expect health care providers to have audit capability over patients’ financial records at the time of admission. If a doctor says one treatment for my daughter’s life-threatening disease will cost $50,000 with an 90% chance of success and one will cost $250,000 with a 93% chance, how does the doctor know I have the other $200K? Are you suggesting removing medical cost related bankruptcy? How does the hospital recoup those costs without passing them on to the other consumers, if it turns out the patient can’t pay?
> In addition to whatever resource constraint exists, third parties have other pressures on
> their decisions, and other incentives. A government bureaucrat has rules and laws he
> has to follow, deadlines, and time and workload pressures. He also faces political
> pressure from Congress and medical treatment interest groups (hospitals, nursing
> homes, doctors, nurses, drug and device manufacturers, …) These pressures make
> his cost-benefit decision on your behalf different from your own.
True, but possibly not really relevant, and correctable. We have an existing, ongoing case study (again) in Medicare to show how often this occurs. How bad is it? You believe it is bad… why? What studies lead you to believe that the workload in Medicare leads to bad outcomes, generally?
The same is true with the status quo. In your proposed model, you’ll have individuals making partially informed medical decisions based largely upon price tag. I’m unconvinced that the average person is going to make a cost-benefit decision that will generally be within a narrower neighborhood of “the correct” decision than medically advised bureaucrats. Moreover, I haven’t seen any proposed model that includes some bureaucrat’s signature to proceed with a treatment. Researchers come up with treatments. NIH grants fund their efficacy. Medicare decides to cover the treatment (or not) based upon that efficacy (certainly, political pressure can be applied here, I’m seriously unconvinced it’s anywhere near epidemic proportions). Private insurers generally follow. Practitioners execute treatments as part of their professional judgment. If a doctor has a pattern of treatments that don’t match the general population of doctors, audits are performed.
> Government bureaucracies are slow to adapt to changes in medical practices and markets.
In comparison to what? (I’ll go ahead and grant you “markets’; medical practices are an entirely different story). What are you proposing as a model for creating a standard of care? “Whatever the patient wants”? How will you have reasonable tort reform if a patient decides that a green tea enema or crystal therapy will cure his currently operable early stage cancer and then he dies of it later? How can a doctor reasonably defend herself from a malpractice suit if there is no standard of care?
Moreover, *people are just generally bad at risk assessment*. This is basic security and psychology research. People will generally underestimate the amount of insurance they need to cover medical costs, just like they underestimate how much they need for retirement (volumes of citations available upon request). When they fail to have the insurance to cover their costs, the two possible choices are: do nothing and let them suffer the consequences, or provide treatment and absorb the cost, spreading it out among the other people who seek care. They become free riders, or dead bodies. How do you propose to resolve this dilemma, which seems to be an inherent weakness in your proposed model?
Pat
I'm much closer to the author's point-of-view than yours. You repeatedly cite Medicare as an example of how government health insurance can work effectively but in doing so, I think you make Keith's point for him. Those who receive Medicare benefits are generally happy with them because they don't pay for them. A far better question would be to ask existing recipients what they would be willing to pay for Medicare. At a price of zero, it's not surprising that people are happy.
Furthermore, as has been pointed out in a number of places, the Medicare system is bankrupt. Were it a private company pension, the company would be bankrupt. Medicare unfunded liabilities under current law exceed the GDP of the country by a factor of about 2 (last time I checked). The fact that a system that is free to the user and financially unviable is popular is hardly a ringing endorsement of greater government role in health care.
To your point of "people are just generally bad at risk assessment". Says who? Sure there are lots of studies that prove that on matters of pure economics, people make poor risk choices. Health care decisions, as Keith rightly points out, are not matters of pure economics. What's the value of a better healed wrist or a lower chance of death. That is in the eye of the beholder. You pose a dilemma of letting people "free ride" on the system or letting them have bad outcomes. I actually think your answer is in your dilemma. It depends on how bad the outcome is. Waiting in line at the emergency room is a worse way to get primary care but it allows free riding. I'm not sure how to balance but I do know that lowering the price of health care to some does not reduce the free rider problem, it simply transfers it.
You may be unconvinced that the "average person" can make a correctly informed decision. My question is why should you or anyone else be empowered to make that decision for me with my money? Can you show that you will make a better decision for me?
And to your example about the two treatments, if I don't have the money, I guess I cannot choose the more expensive treatment. In such a system, would doctors ask for payment up front, probably yes, particularly on matters or $250,000. Or perhaps there would be the equivalent of GMAC to finance medical care for people and they would guarantee payment, who knows? This already exists in the "uncovered" side of medicine (e.g., plastic surgery and LASIC)
And I save your most disturbing argument for last. To do it justice, let me quote:
"Beyond a matter of preference, there is the in-practice question of "preferences" diverging from the standard of care. Certainly some people will want to refuse vaccinations, for example. Do we allow them to do so as a matter of routine? What about during an epidemic? Can we state that there are times when the preferences of the individual are not germane? When? If not, why not? And if we allow people to opt-out of care decisions, what happens when the consequences occur? Do we refuse treatment to un-vaccinated children who get measles? Do we treat head injuries to people who ride motorcycles and don't wear helmets? Do we provide cancer treatment to smokers? On the other side, do we give every conceivable test to hypochondriacs? Do we give liver transplants to people with terminal cancer? Do we give hyperconcerned parents antibiotics for their child's ear infection, when there is little demonstrated medical value? Your position conveniently allows you to duck answering these questions directly, if we give more decision-making power to the individual, but the consequences to the public policy are still going to be there."
We absolutely can state there is a time when the preferences of the individual are not germane, specifically when, with a high probability, the individual's decisions will affect the broader society. So yes vaccinations should be required. The rest of your rhetorical questions are exactly why moving to the government solution is so objectionable. Only in that world does someone (or some group) need to make that decision. Otherwise, the decision is unnecessary. Should I get treatment for a head injury if I fall off my motorcycle? I should if I want it and I can pay for it. Same with your other questions. The only time the rhetorical questions are tough is when you must decide on behalf of all. This is ultimately the issue with pushing the decisions to the government is it inherently must use one set of utility curves and value judgments to make decisions for all.
Keith's definition of efficiency is the decision that most likely equates individual utility and individual cost for each individual. That is far more likely to happen when the individual decides by whatever basis he or she choose than when you or I or Barack Obama or anyone else makes that decision for them.
> Medicare unfunded liabilities under current law exceed the GDP of the country by a
> factor of about 2 (last time I checked).
What did you check? Citation please. I will accept the congressional budget office or another nonpartisan source, or suitably defended economic analysis from qualified experts. Define "unfunded liabilities"? Are you discussing Medicare, Medicaid, SCHIP, some combination of the three, or Social Security?
> To your point of "people are just generally bad at risk assessment". Says who?
Subscribe to any of the major research journals in security, risk assessment, management, or psychology. If you (understandably) don't wish to pay the exorbitant prices, your local library has electronic access. This is generally accepted as fact in the security arena. If you specifically wish citations, I can provide you some, but a Google Scholar search can easily solve this dilemma for you. If you will not accept scientific research as suitable evidence, you will have to give me some evidential target to shoot at; give me a falsification standard that isn't ridiculous.
> My question is why should you or anyone else be empowered to make that decision
> for me with my money?
By the same logic, why should you or anyone else be empowered to make decisions regarding national security with my money? Why should you or anyone else be empowered to make decisions regarding the water supply with my money? Food safety? Highway repair? You are asking a question that can be turned easily back upon yourself, sir. Do you not believe that government should have the power of taxation, and of legislation (if so, we need not continue)? Granted that they do, then by the current law of our land, I can make that decision for you with tax money that is collected from you (note, it's not your money any more, is it?) in the same way that you can make those decisions for me with tax money that is collected from me… by getting enough people to agree to vote in legislators who will pass the legislation. That *is* my right as a citizen in this constitutional republic, just as it is yours.
> And I save your most disturbing argument for last.
I think you're making the same mistake that Dev made above. I was not making an argument for or against any answer to any of those questions (although you are clearly inferring that I have a position on all those questions, my position is not relevant at the moment).
I am asking Mr. Hennessey to address these issues. What is his stance? He can say, "I'm for individual control", but that statement in and of itself is meaningless. WHAT does he mean by it? He may have answers to any or all of those questions; I may agree with some, all, or none of his answers… but these are the hard questions that come up, and if he is going to state a position on this public policy issue he should address them.
> We absolutely can state there is a time when the preferences of the individual are not germane,
> specifically when, with a high probability, the individual's decisions will affect the broader society.
I do not know what you mean when you say "high probability" or "broader society". What do you mean by these terms? Please be more detailed. What sorts of probabilities are you talking about? How broad is the section of society that you consider to be "broader society"?
> Should I get treatment for a head injury if I fall off my motorcycle? I should if I want it and
> I can pay for it. Same with your other questions.
So if you cannot afford it, we don't give you treatment? Where do we determine when you can or can't afford it? If you plow into a pole, why should we even bother to send out an emergency crew if you can't afford it? Because you see, sir, that the mere act of sending out an ambulance or a helicopter to airlift you to the nearest hospital represents a sum of money. IF YOU DON'T HAVE IT, where does it come from? It comes either from the government (which we all agree we pay for), or from the hospital's operating funds (which are recouped by charging more for services to the remaining population). It comes from somewhere, and therefore it affects (by any reasonable definition) "broader society".
To critique your comment more generally, you're making a framework assumption that because I (at least by your estimation) obviously support some sort of greater health care system, I must be a progressive and therefore I support the idea of universal health care for everyone. I agree that in many instances, removing financial interest absolutely does make a huge difference it people's assessment of what sort of treatments to take, and that can lead to unwanted consequences.
I generally don't believe that all medical care should be free to everybody everywhere, if for no other reason it's simply impossible to scale and it is a pipe dream. There are precious few expert neurosurgeons; we can't expect that resource to be available to everyone.
However, the vast, vast majority of basic health care is relatively routine, fairly inexpensive, and staggeringly under-accessed, which drives up costs (again, affecting that broader society). Routine checkups (including basic cancer and heart disease screening for at risk age groups), vaccinations, *basic* emergency care… all of these things are things that can actually be provided to everyone using any number of reasonable mechanisms. All of them will drastically reduce medical costs, as many expensive illnesses are actually fairly cheaply treated provided you have early detection. The Skel-grow treatment can certainly be something outside the realm of universal health care for almost everyone; supplemental insurance and market forces will still exist for those (exceptions to the old standby plaster cast could be made for emergency workers, doctors, firefighters, any class that the broader society would agree would need access to those advanced treatments for practical purposes).
I've studied systems theory for years. Top down systems have efficiency problems; Keith is absolutely correct. Bottom up systems have coverage issues (Keith alludes to this in his first post, and fails to deliver the critical goods in this one). Neither system is the universal answer to every problem. A fully top down health care system will undoubtedly be more inefficient than would be worth it for the overall benefit. A fully bottom up health care system will undoubtedly leave many people unable to pay for the level of care that they require (something that Keith alludes to with "There is a significantly skewed initial distribution at birth.", but doesn't address or provide any sort of mechanism for dealing with in his proposal). We should provide a functional level of *basic* care to everyone the same way we provide drinking water and the electrical grid, and for the same reasons we subsidize basic research. We absolutely need to ensure that adding to this functional level of basic care is done only with careful review; adding the Skel-grow treatment to universal care makes no sense unless or until it becomes as cheap as a plaster cast option. Technology gets better. Treatments get better. As they get better and cheaper, they can be incorporated into the baseline.
But having that baseline isn't unreasonable. It makes everything cheaper for everybody if everyone is already reasonably healthy.
Pat-
Absolutely outstanding thinking.
I do have to raise a point of contention on this last post. You said:
"Routine checkups (including basic cancer and heart disease screening for at risk age groups), vaccinations, *basic* emergency care… all of these things are things that can actually be provided to everyone using any number of reasonable mechanisms. All of them will drastically reduce medical costs, as many expensive illnesses are actually fairly cheaply treated provided you have early detection"
This is often repeated, but fundamentally untrue. The vast majority of preventative measures raise costs. (The New England Journal did a strong review of this last year). In fact, most (over 80%) raise cost for the specific disease under treatment. We don't preform preventative interventions because they save money. We do them because they improve outcomes. Further, in the population-cost category, keeping folks alive longer generally increases the sixe of the population under care, hence costs rise in aggregate (since the successfully treated will eventually incur additional expenses later).
This does not obviate most of your position.
It is worth noting that a hybrid solution where individual bought catastrophic insurance ($10-20,000 deductible) and also bought pre-paid care (e.g., primary care services for $1,000 -$2,000 per year) would meet many of the contentious objectives of this discussion: 1) high cost items are insured, 2) low cost items (where the individual is more likely to be an efficient evaluator are in the hands of the individual, and 3) aggregate costs (premiums plus out-of-pockets) would fall.
Just a thought.
> The vast majority of preventative measures raise costs. (The New England Journal
> did a strong review of this last year). In fact, most (over 80%) raise cost for the
> specific disease under treatment.
Can you point me to a reference? I can access TNEJ, I'd like to read the study.
If this is the case (as yet, I have no reason to doubt it), I'll still stand by the presumption that routine checkups, vaccinations, and several other types of basic routine care overall save money. Now, some forms of preventative care may certainly increase costs to treatment for a particular disease (it may be more expensive to prevent some effects of a disease, for example, than simply allowing it to run its course if those effects are not significant), and I may be the victim of incomplete research on that score, but it is certainly possible to exclude costly preventative (non-life-saving) care from a basic health care system and have that be covered by supplemental insurance, with all the market forces that drive those costs down in play providing obvious long-term benefits.
I'll note I came across this: http://www.firstthings.com/onthesquare/2009/08/co...
… which (although I disagree with some of the conclusions) points out that one problem with having *any* sort of universal care baseline comes the political problem of keeping the covered services down, as people like to vote themselves freebies without thinking ahead of time about the costs (citing the case study of Oregon). This is a viable objection to the model I propose, as feature creep can be a major problem.
However, just because Oregon screwed it up (if indeed they did, but again no reason to suppose that the author is making this up)… does not mean that it cannot be done, just that we would have to study the case and apply the lessons learned appropriately. Feature creep is an inherent problem in *all* services, we have it in every department covering every function of government. It in and of itself can be regarded as a major design difficulty, but it can't be the root cause to choose to reject the idea of providing a government service unless you're going to generalize it to rejecting every government service.
> Do you have proof that- without government money- there will be no research and development into these treatments?
I did not say that. You must read what I write, not what you infer I'm writing. That said, if you define a standard of proof, I might take up that question separately. I will not research a question without knowing ahead of time what sort of evidence you will accept as suitable; otherwise you can simply shift the goalposts.
> You already noted that the cochlear implant required private assistance
No, you misunderstood me. The cochlear implant did not "require" private assistance, any more than most medical research "requires" government research. I was disputing Elephant Child's assertion that "government kills innovation", which is patently, completely, and utterly absurd.
Government funds basic research. There is a huge difference between basic and applied research. Yes, private institutions do indeed fund applied research, and there are a number of private foundations and institutes that do fund basic research, but the vast majority comes from the federales. That said, I do not know of a single professor who would rather take an NIH grant or a DHS grant or an NSF grant over a private grant, simply because the auditing rules for federal monies are completely insane.
They take federal grant money because federal grants outnumber and outweigh private grants by several orders of magnitude, at least in basic research.
Just a friendly reminder – it's usually a good idea to let people know you're using their photos. I don't have a problem with it, I am fine with you using my photo, but in the future I as well as other photographers like to know where their photos are on the internet.
blessings,
AmyLynne
Nice post Keith. And the discussion on here is outstanding. No real issues with anything you said. My only point is that I wish the Republicans would have also presented a health care reform bill. Right now, I'm inclined to go agree with the current bill and hope it passes, despite flaws, because I doubt the Republicans will come back with anything. And something HAS to change. This can not be another 1993. As you mentioned, Medicare costs are going to bankrupt the country. The majority of Americans want the option of a public plan (yet most will stay with their private plan. I would count myself in this group). Why won't the GOP (and the Blue Dogs) acknowledge this and provide a public plan, but make sure that private companies are 'protected'. Right now everything seems to just shut down at the mention of 'public option'. This suggests to me that most are simply being obstructionists.
This probably comes too late in this thread, but hopefully . . .
@Pat Cahalan and Keith: I appreciate both of your cogent argumentation, and would very much like to see Keith respond to Pat's last post. These are very complex decisions, and debate of this quality has been sadly lacking within the political circles not to speak of in the mainstream media. Having said that . . .
Pat, one concern not addressed in your posts is the effect on medical research and innovation – while this has been a driver of health cost inflation, it has also created immeasurable benefits to our society (and many others downstream), and should continue to do so. Having worked with this industry (specifically, genetic-engineering), I can conclusively say that without a viable investment return/profitability model such innovation simply will not be done. The price controls and inflexibility inherent in what is being proposed, especially absent meaningful tort reform, will severely depress research investment and risk-taking.
Finally, I would add that what depresses me the most about the current proposals is its not attacking the foundational causes of the inefficiencies in the health care delivery system, i.e., the incentive structure, performance measurements, and delivery structures. What is proposed uses a medicare-like top-down cost enforcement hammer. Other industries have faced the survival issue of being non-competitive (excessive cost, unnaceptable quality) – the solution was fundamental re-engineering driven by changes in metrics and corresponding processes and organizational structure. The Mayo Clinic is an example of a provider that has borrowed these concepts from other industries, with great success. Regardless of which of the 3 levels decisions are made, without addressing the delivery model, the system's costs will continue to spiral upward.
> One concern not addressed in your posts is the effect on medical research and innovation – while
> this has been a driver of health cost inflation, it has also created immeasurable benefits to our
> society (and many others downstream), and should continue to do so.
Point of fact, most of my arguing here has been counter-argument. My own idea of health care reform Keith might actually like; but that doesn't mean that I won't take what's currently on the table over my own idea, since I'm not exactly a policy maker
This is an issue, yes. I'm aware of the size of the problem, and the coupling with the government (via the FDA): my wife works for a non-profit which rescues abandoned biotechnology that has a prohibitive time to market or development cost. I'm actually less interested in fixing our current web of interdependent externalities than I am in making a couple of major reforms that reset our crazy health care system into something that can be reasonably measured, and then revisiting what we actually ought to do. But most of the arguments I've seen against the proposed government reform of health insurance don't seem very compelling to me.
> Having worked with this industry (specifically, genetic-engineering), I can conclusively say that
> without a viable investment return/profitability model such innovation simply will not be done.
Yes, this is absolutely true; well, in the absence of straight government funding. I'm not too keen on the government funding alternative (the NSF comes with a boatload of audit controls that make it inherently inefficient, not to mention the political baggage). There are a number of mechanisms that potentially could help alleviate this problem. I have a couple of ideas, myself.
> The price controls and inflexibility inherent in what is being proposed, especially absent
> meaningful tort reform, will severely depress research investment and risk-taking.
I agree with this too, but that in and of itself is not necessarily a major reason to reject it out of hand. Any legislative effort may fail to cover edge cases, that doesn't mean it can't be revisited and addressed later. This problem is currently widespread in many areas; South Korea is ahead of us in broadband adoption, the E.U. is ahead of us in physics (anyone remember the Supercollider? It would have been a better tool than the LHC, but we gave up on it), Saudi Arabia is ahead of us in electronic medical records, the Chinese are making advances in manufacturing, the Japanese and the Europeans have better public transportation, etc. We've ceased, largely, to become innovators in a great number of fields, as our economy has become more focused on moving goods from the Port of Los Angeles to distribution centers to retailers to homes, and generating wealth by the changing of hands.
That, in and of itself, is probably as big of a problem as the current wretched state of our health care system.