Wednesday, June 8, 2011

Healthcare and David Brooks

David Brooks had his usual column in The New York Times yesterday, where he believes the great philosophical debate between Democrats and Republicans will be defined by the Medicare debate.  Namely, should there be a centralized panel of experts/technocrats that decide optimum courses of care that would be funded (which is what Democrats have argued for and has worked in other countries) or do we give individual patients the power of choice and let the markets drive down costs (which is what Republicans have argued for and what Rep. Ryan's voucher program would equate to).

In the column he notes, rather well, a typical Democrats argument for a centralized panel:
Democrats tend to be skeptical that dispersed consumers can get enough information to make smart decisions. Health care is phenomenally complicated. Providers have much more information than consumers. Insurance companies are rapacious and are not in the business of optimizing care.
The trouble is he never addresses these objections.  Instead he cites how various studies have been off on the cost or enrollments, and ignored the data in the previous link I added above.  That's a pity.  My largest complaint about healthcare solutions in the vein of Rep. Ryan's and other Republicans is the failure to address information asymmetries in healthcare.  As Matt Yglesias reminds us, buying healthcare is not like buying shoes.  

And before someone jumps all over me for failing to think my fellow citizens have the capacity to make good healthcare choices, let me add I don't trust myself to make the right healthcare choices.  That's why I go to the doctor.  If chicken soup and Advil (or is it Tylenol, I don't know) don't work I go to a doctor and do what he or she says. Would it be better doctors, not insurance companies, were the decision makers in healthcare?  Absolutely, but that's not the case in our current system, and that still doesn't put the power with the consumer, because doctors are simply going to know better.

I get so frustrated with the illusion of the discerning senior with the time, energy, and intellect to competently choose the right medical care for themselves and that such a discerning senior can, through aggregate market forces, drive down costs without driving down quality.  At the very least a centralized government panel won't be driven to decide a course a treatment by considering profit margins.  The same can't be said for private insurance adjusters.

11 comments:

Colin said...

The trouble is he never addresses these objections. Instead he cites how various studies have been off on the cost or enrollments, and ignored the data in the previous link I added above.

Nothing cited by Klein contradicts or undermines the argument made by Brookes. It really isn't much of a revelation that government-run health care systems do a better job of controlling costs. Governments have the power to ration and set limits on the number of resources that will be allocated.

But I am not interested in simply controlling health care costs, I want to eliminate health care waste and ensure the appropriate amount of health care dollars are spent. It's efficiency we are after, not simply reducing costs. If we budget less money and people don't receive needed treatments, that's not much of a win. Central planners are poorly positioned to assess this and match needs with resources. That is the thrust of the argument made by Brookes -- central planning quite literally never works better than markets -- which you have declined to address. Are you not bothered by the dismal record of central planners in calculating health care costs (off by a factor of nearly 10 for Medicare) or Medicare's chief actuary being off by a factor of 20 in determining the popularity of high-risk pools? Does that not give you pause?

Colin said...

My largest complaint about healthcare solutions in the vein of Rep. Ryan's and other Republicans is the failure to address information asymmetries in healthcare. As Matt Yglesias reminds us, buying healthcare is not like buying shoes.

Information asymmetries exist either in market-based or government-run health care. In fact, how often does the consumer *ever* know as much as the provider/seller? You will never know as much as your doctor. The question is which system is best positioned to overcome them. Markets provide an incentive for information to be generated. Government does not.

Yglegias, meanwhile, is just being glib. Shopping for an auto mechanic is not like buying shoes. Finding a veterinarian is not like buying shoes. Hiring a plumber or home builder is not like buying shoes. Yet are these all examples of broken or non-functioning markets?

Would it be better doctors, not insurance companies, were the decision makers in healthcare? Absolutely, but that's not the case in our current system, and that still doesn't put the power with the consumer, because doctors are simply going to know better.

Wow, we agree! Our current health care system is overrun with insurance, which is directly attributable to government intervention through Medicare and a tax code that promotes the overuse of insurance. So then you must agree with me that we should get back to a doctor-patient relationship and minimize the role of insurance companies, which involves less rather than more government intrusion in the health care sector.

Colin said...

I get so frustrated with the illusion of the discerning senior with the time, energy, and intellect to competently choose the right medical care for themselves and that such a discerning senior can, through aggregate market forces, drive down costs without driving down quality.

Illusion? If this is illusion then why has the competition and choice-based Medicare prescription drug benefit come in so dramatically under its estimated cost? I can cite numerous examples of free market health care producing high quality health care at lower cost. This isn't some figment of the imagination, it's reality.

At the very least a centralized government panel won't be driven to decide a course a treatment by considering profit margins. The same can't be said for private insurance adjusters.

Government is every bit as beholden to the reality of scare resources as the private sector. You are dreaming if you think that costs will not come in to play or be absent from the discussion. At least the private sector faces competition and an incentive to please its customers.

Jason said...

Some good thoughts raised there, so let me take them one by one.

- The panels that many Democrats are asking for, and the panels that are support, are panels a medical practitioners and experts who can decide optimum courses of treatment. I don't expect this board will have "rationing" authority, but rather would be tasked with looking at the empirical data on treatment outcomes and make recommendations on courses of treatment. In a fee for service model (which Brooks and I agree, has it's flaws) this would keep a doctor honest.

And I have to make the point that, so far, China has done a pretty good job with a largely centrally planned economy. Not necessarily something to aspire to, but something to give any neo-classical economist pause.

- Information asymmetries do exist in other markets, but I think the asymmetries are largest when you're talking about healthcare and certainly the consequences are the greatest. I've said it before and I'll say it again, healthcare is different. The traditional market forces that work when buying shoes or finding a mechanic are different. It calls for a different solution.

- Even if you eliminated Medicare and the parts of the tax code you find objectionable, people would still need health insurance. In fact, if you eliminate Medicare people would have to have insurance as there would be no safety net. Even if people found a good doctor, paid that doctor for services rendered after their annual check-up or after a cold, people would still want the safety net of insurance to be prepared for the unexpected. The trouble is health insurance is that it's not a good business to be in fundamentally. Accidents will happen, insurance will have to pay out. And so insurance premiums are pushed higher until people can't afford them, because without government intervention that mandates people to participate, insurance companies could cherry pick and/or those of us in our reckless youth, who are least likely to think of the cataclysmic won't fork over money to pay for something we don't need.

- I can cite a number of single payer countries that delivers the same, if not better, quality of care as in the U.S. at a lower cost and with high quality of life. Single-payer has worked in many places.

- This last point implicates the rationing argument, which I contested above. Costs will always be part of the discussion, but the incentive for courses of care would be different if run by the government.

Colin said...

The panels that many Democrats are asking for, and the panels that are support, are panels a medical practitioners and experts who can decide optimum courses of treatment. I don't expect this board will have "rationing" authority, but rather would be tasked with looking at the empirical data on treatment outcomes and make recommendations on courses of treatment. In a fee for service model (which Brooks and I agree, has it's flaws) this would keep a doctor honest.

The notion that a national board will know the best treatment for every person in the country is unserious. I think my doctor, who knows me, my medical history and possible complications, is far better positioned to assess my needs than members of some committee I have never met.

And I have to make the point that, so far, China has done a pretty good job with a largely centrally planned economy. Not necessarily something to aspire to, but something to give any neo-classical economist pause.

Not sure why China -- which has seen its growth explode as it has *backed away* from central planning -- should give neo-classical economists pause.

Information asymmetries do exist in other markets, but I think the asymmetries are largest when you're talking about healthcare and certainly the consequences are the greatest. I've said it before and I'll say it again, healthcare is different. The traditional market forces that work when buying shoes or finding a mechanic are different. It calls for a different solution.

Again, these asymmetries do not disappear with a government-run system. Your doctor will still be more knowledgeable than you. At least markets encourage the generation of information to overcome these asymmetries while government does not.

Colin said...

Even if you eliminated Medicare and the parts of the tax code you find objectionable, people would still need health insurance. In fact, if you eliminate Medicare people would have to have insurance as there would be no safety net. Even if people found a good doctor, paid that doctor for services rendered after their annual check-up or after a cold, people would still want the safety net of insurance to be prepared for the unexpected. The trouble is health insurance is that it's not a good business to be in fundamentally. Accidents will happen, insurance will have to pay out. And so insurance premiums are pushed higher until people can't afford them, because without government intervention that mandates people to participate, insurance companies could cherry pick and/or those of us in our reckless youth, who are least likely to think of the cataclysmic won't fork over money to pay for something we don't need.

Yes, but people would shift from comprehensive insurance to catastrophic insurance, thus increasing out of pocket expenditures (while reducing premiums) and forcing health care consumers to shop around for the best deal possible and driving down costs.

I don't understand your statement that "health insurance is that it's not a good business to be in fundamentally." Obviously it is, or health insurance companies wouldn't exist.

I can cite a number of single payer countries that delivers the same, if not better, quality of care as in the U.S. at a lower cost and with high quality of life.

Please cite them, I am genuinely curious.

Colin said...

This last point implicates the rationing argument, which I contested above. Costs will always be part of the discussion, but the incentive for courses of care would be different if run by the government.

The incentive for government, which faces resource constraints just like the private sector, is to deliver the least amount of care. If this weren't true we wouldn't hear about patients literally dying while waiting for care in single-payer systems. I don't know why you think it would be any different -- will doctors employed by the government be more compassionate/caring than their private sector counterparts? What is your thinking?

Lastly, you still fail to engage with the crux of the argument made by Brookes: central planning is never superior to markets. You said that old people would be too befuddled to choose their own health care plans, but fail to acknowledge the success of the competition-based Medicare prescription drug program. You also fail to acknowledge the failures to Medicare to estimate cost accurately -- or even remotely closely -- or estimate how many people will participate in various programs. Why should we have any confidence whatsover in the power of central planners? Why are you not disturbed by their record of failure?

Jason said...

Going point by point again.

- A national board would prescribe optimal courses of treatment. This happens now through the insurance regime, but the incentive to keep costs down for an insurance company is to maximize profits. The incentive to keep costs down by a national board would be tied to scarce resources. Given the choice, I'd rather not the capitalist recommend the optimum (read: most profitable) course of treatment, instead I'd rather the panel of doctors recommend the optimum (read: empirically most effective and cost effective) course of treatment.

- In a regime that was a blend of out-of-pocket and cataclysmic insurance, what happens to people with pre-existing conditions?

- What I meant by my statement "health insurance is that it's not a good business to be in" is that people get sick, so the insurance has to pay out. The reason health insurance companies do so well right now is for all the reasons we don't like the current system. Regardless of how that system changes, I don't think health insurance companies will be happy with the outcome.

- As to the single-payer scare tactics, here's a link addressing several myths about Canada's system: http://theincidentaleconomist.com/wordpress/in-defense-of-canada/

I have not been able to find a link for the specific single-payer outcomes but I'll keep looking. I did find this link: http://www.washingtonpost.com/blogs/ezra-klein/post/the-hard-truth-about-health-care-government-works/2011/05/19/AGcE95KH_blog.html?wprss=ezra-klein which outlines how much, as a percentage of GDP, several countries spend on healthcare. And this link shows doctor satisfaction levels in several countries that overlap with the previous link: http://www.washingtonpost.com/blogs/ezra-klein/post/meme-busting-doctors-are-all-leaving-canada-to-practice-in-the-us/2011/06/03/AGVdAuHH_blog.html#pagebreak

Jason said...

And as to China and central planning, I'm not advocating for central planning. There are shades of gray to capitalism and a dogged commitment to unfettered markets neglects reality.

Colin if you have the time I encourage you to watch this whole speech: http://atthecenterofitall.business.gwu.edu/2011/04/08/world-bank-chief-economist-speaks-at-gwsb-crossroads-conference/. It clocks in at 1 hr and 20 mins, so it's not a passing commitment. However in the talk Justin Lin, chief economist at the World Bank and a heavy hitter Chinese economists outlines a new kind of economics he's called New Structural Economics.

Basically he's able to explain the success of South Korea and Japan post-WWII, which conventional neo-classical folks can't full as both countries had and have lots of government intervention. It's off topic from our discussion, but fits the broader ideological divide we're discussing.

Colin said...

A national board would prescribe optimal courses of treatment. This happens now through the insurance regime, but the incentive to keep costs down for an insurance company is to maximize profits. The incentive to keep costs down by a national board would be tied to scarce resources. Given the choice, I'd rather not the capitalist recommend the optimum (read: most profitable) course of treatment, instead I'd rather the panel of doctors recommend the optimum (read: empirically most effective and cost effective) course of treatment.

Actually, I would rather go the capitalist route. The capitalist has an incentive to keep me happy, while the government does not. If the capitalist gets a reputation for going cheap on his clients then people will abandon him for a competitor and his profits will plunge to zero. We need more profit incentives in health care, not less. My girlfriend, meanwhile, is a physical therapist and she has never mentioned anything about her treatment plans being dictated to her by the insurance companies.

The notion that a board will know the optimal course of treatment for every patient under every particular circimstance is simply fantastical.

In a regime that was a blend of out-of-pocket and cataclysmic insurance, what happens to people with pre-existing conditions?

I imagine it depends on the condition. Athsma is a pre-existing condition, but I doubt an insurance company would deny catastrophic coverage because of it. One of the best things we could do is end regulation of insurance which sets minimums as to what must be covered. This would free people to negotiate tailored insurance arrangements. For example, if I have a heart condition I could obtain a policy that covers everything but my heart, or which which would include the heart but set a high deductible for heart-related treatments.

For the truly needy -- say, someone with muscular dystrophy -- we could have a government-provided or subsidized insurance arrangement.

I don't pretend that my solution of reducing the role played by insurance will be perfect, merely that it is both an improvement over the status quo.

Colin said...

What I meant by my statement "health insurance is that it's not a good business to be in" is that people get sick, so the insurance has to pay out. The reason health insurance companies do so well right now is for all the reasons we don't like the current system. Regardless of how that system changes, I don't think health insurance companies will be happy with the outcome.

Do so well right now? Health insurance as of 2009 was the 86th most profitable industry out there with an average profit margin of 3.3 percent.

As to the single-payer scare tactics, here's a link addressing several myths about Canada's system: http://theincidentaleconomist.com/wordpress/in-defense-of-canada/

What scare tactics? This stuff really happens. My point was not that these systems are cruel or even worse than the US, but simply that such systems are not exempt from the reality of limited resources.

I have not been able to find a link for the specific single-payer outcomes but I'll keep looking. I did find this link: http://www.washingtonpost.com/blogs/ezra-klein/post/the-hard-truth-about-health-care-government-works/2011/05/19/AGcE95KH_blog.html?wprss=ezra-klein which outlines how much, as a percentage of GDP, several countries spend on healthcare. And this link shows doctor satisfaction levels in several countries that overlap with the previous link: http://www.washingtonpost.com/blogs/ezra-klein/post/meme-busting-doctors-are-all-leaving-canada-to-practice-in-the-us/2011/06/03/AGVdAuHH_blog.html#pagebreak

I don't see what either link is supposed to prove. I already responded to the first Klein link in my initial comment and the second isn't very revealing either. OK, many US doctors do not like the current system. Hell, *I* don't like the current system and think it badly needs fundamental change.

Lastly, again, why are you not bothered by the failings of US central planning in health care thus far? Does it really stand to reason that the same government which has missed the mark so stupendously in the past will suddenly become change its striped and become wildly more efficient?