Posts tagged ‘Paging Friedrich’

Health Care Cost Control

Good editorial today in the WSJ on the myth of government health care cost control:

A field as dynamic and innovative as U.S. medicine, in which costs are largely driven by new technologies and better ways of caring for patients, is rife with complexities and uncertainties. But no one bothered to strike that note of caution when Washington was hopped up on a cost-control gambit that was too painless to be true. The new cost-control apologists concede that there isn't any actual plan for controlling costs: Throw enough speculative policies against the wall, they say, and some breakthrough will stick. Yet Mr. Orszag's no-less-confident predecessors spent decades trying to pull down Medicare spending with little to no success. Technocracy rarely if ever works as intended. Mr. Gawande points to the case study of U.S. farm policy, and if politically sacrosanct agriculture subsidies and rural price-supports are the best to hope for, then what's the worst?

More relevant examples include Medicare's "relative value" payment scale, which was designed in 1985 by the Harvard economist William Hsiao to encourage more primary care. That's this year's rallying cry too. "Diagnosis-related groups" were introduced into Medicare in 1983 to alleviate hospital cost growth, and what a monumental success that turned out to be. With only brief periods of relatively slower growth, nominal Medicare spending has risen on average at an annual rate of 9.6% since 1980. Over the same period total Medicare spending has grown 13-fold, climbing from 1.2% of the economy to 3.2% today.

Congress lacks the stomach for serious cost control in any case. One policy Mr. Orszag favors"”Medicare penalties for hospitals that re-admit certain patients"”is limited to only three conditions in the Senate bill, and the penalties are trivial.

Another"”a putatively independent commission that is supposed to enforce cost cutting"”is barred from going after costs incurred by doctors and hospitals, which leaves out more than half of Medicare spending. Earlier this year Mr. Orszag got into a heated debate with Henry Waxman over such a commission at a dinner party hosted by Connecticut Rep. Rosa DeLauro, precisely because the House baron enjoys the political power that flows from controlling health spending.

Paging Friedrich von Hayek.  The administration constantly whines that none of his critics ever offer an alternative (a patently false statement that seems to play well in the sympathetic press, very parallel to the global warming alarmist charge that skeptics haven't offered an alternative explanation of past warming).

Hmmm. One liberal sage noted in a 2007 paper that "four decades of empirical research" have shown that insulating people through third-party insurance coverage "from the full cost of health care has been responsible for anywhere from 10% to 50% of the large increase in health expenditures." Ultimately, he concluded, increasing cost-sharing would give individuals a direct stake in more prudent purchasing, as opposed to today's invisible health dollars that vanish as more expensive premiums, foregone wages and higher taxes.

Those are the words of Jason Furman, now the White House deputy economic director who seems to have been put into witness protection. Every serious health economist in the country recommends reforming the tax exclusion for employer-sponsored insurance, perhaps by converting it to a deduction or credit. Cost control will never stick unless it is extricated from politics and transferred to individuals to make their own trade-offs.

Such reforms were ruled out by union opposition, so the Senate gestures at them with a 40% excise tax on high-cost insurance plans, on the theory that two wrongs will make a right. But this untargeted tax will simply raise the cost of coverage for all workers in a given pool"”it's too clever by 40%"”while doing nothing to stem the distortions from first-dollar, third-party insurance.