VA Scandal Proves My Contention: The Only Government Health Care Cost Reduction Ideas are Rationing and Price Controls

I feel like I was way ahead of the pack on May 1 reminding everyone that the Left until recently held up the VA as a model for government health care.  I pointed to articles by Kevin Drum and Phil Longman in 2007, but since then others have highlighted articles by Paul Krugman and Ezra Klein that made the same point.  Klein said:

If you ordered America's different health systems worst-functioning to best, it would look like this: individual insurance market, employer-based insurance market, Medicare, Veterans Health Administration.

Paul Krugman said

Well, I know about a health care system that has been highly successful in containing costs, yet provides excellent care. And the story of this system's success provides a helpful corrective to anti-government ideology. For the government doesn't just pay the bills in this system -- it runs the hospitals and clinics.

No, I'm not talking about some faraway country. The system in question is our very own Veterans Health Administration, whose success story is one of the best-kept secrets in the American policy debate.

Supposedly, the reason for this success according to Drum and Longman was that ever-popular Lefty magic bullets, electronic medical records and preventative care.  On medical records:

"Since its technology-driven transformation in the 1990s...the VA has emerged as the world leader in electronic medical records — and thus in the development of the evidence-based medicine these records make possible." Hospitals that joined Longman's "Vista network" (his name for the VA-like franchise he proposes) would have to install the VA's electronic medical record software and would "also have to shed acute care beds and specialists and invest in more outpatient clinics." By doing this they'd provide better care than any current private network and do it at a lower cost.

On preventative care:

How is a supposedly sclerotic government agency with 198,000 employees from five separate unions outperforming the best the private market has to offer? In a word: incentives. Uniquely among U.S. health care providers, the VA has a near-lifetime relationship with its patients. This, in turn, gives it an institutional interest in preventing its patients from getting sick and in managing their long-term chronic illnesses effectively. If the VA doesn't get its pre-diabetic patients to eat right, exercise, and control their blood sugar, for example, it's on the hook down the road for the cost of their dialysis, amputations, blindness, and even possible long-term nursing home costs....The VA model is that rarest of health care beasts: one with a perfect alignment of interest between patients and providers.

Neither of these have ever proven in real life to actually lower costs in anything but tiny pilot programs, and there is a lot of reason to believe that while preventative care can improve health outcomes, it tends to increase costs.

I have said for years that at the end of the day, the only ideas government planners have for cost control are rationing (which leads to queuing) and cost controls on things it buys from private markets, like doctor time (which leads to shortages and more queuing).  This is why every health care system that offers free care to all comers, whether it be socialist systems in other countries or the VA or even an urban emergency room, has long queues.

In fact, the situation, as I think we will find at the VA, is worse.  Not only is the old pie being allocated differently (shifting from price-sensitivity to queue tolerance) but the pie of available supply is likely getting smaller as resources are consumed by government red tape and price controls drive suppliers out of the market.  The next stories will be about the staggering waste of money on red tape in the VA system, and the stories after that will be about a few VA users jumping the queue because of political connections.

This stuff is so inevitable that it was all addressed years ago in my three part series of Obamacare.  In that series, the issues were not failing exchanges and the mess we have seen so far, but the issues we are more likely to see over the long term.  The VA is merely a preview, but we shouldn't have needed a preview because we could have looked at countries like England.  Of course, if the media had any desire to honestly tell these socialized medical stories we would not get fawning profiles of the horrendous system in Cuba.

My Forbes series:


  1. Ward Chartier:

    If the Federal government could find its way to not engage in world-wide military actions, there would be fewer veterans joining the VA rolls. This is only a long-term benefit in a situation that desperately requires short-term corrective action.

  2. Gdn:

    After the first few tens of thousands, the trouble is not the number of people in the system. The first line trouble is that the bureauocracy, as well as it's leadership, were trying to pretend it didn't have a backlog and wasn't even trying to obtain suitable funds.

  3. mesaeconoguy:

    The VA is a sneak preview of coming attractions.

    This is what US healthcare will look like in 10 – 15 years, after full nationalization.

    Britain’s NHS is now in severe financial and operational distress -

    If you don’t believe medical care will get this bad this quickly, you’re in for a very nasty surprise.

  4. Incunabulum:

    the VA has a near-lifetime relationship with its patients. This, in turn, gives it an institutional interest in preventing its patients from getting sick and in managing their long-term chronic illnesses effectively.

    Well, actually it doesn't. It gives the VA a captive set of customers who will consume their services without regard to cost (since they're not paying) or quality (since they're there because they can't afford better). It gives the VA absolutely no incentive to provide good service at any part of the patient's life since money not spent on patient services is money that can be spent on salaries and other employee benefits.
    The only incentive to provide care is the VA's need to avoid bad publicity. If it avoids bad publicity it reduces the incentive for the legislature to exercise oversight - which increases the autonomy of the VA.
    So they do exactly what we see happening here - provide juuuuuust enough quality to stay out of the news.

  5. Incunabulum:

    The big focus in the news is on wounded veterans but they make up a tiny percentage of the VA's customer base. Especially the veterans of our last couple of wars.
    The VA is used by people who have received *any* significant injury while on active duty - including stuff that happens because of the individual's carelessness while off-duty and chronic illnesses, whether or not they are actually service related. Add in that pretty much anyone who retires/transfers to the fleet reserve are eligible for VA care and the issue is not our *wars* per se, but the size of the military force itself.
    Even if we hadn't fought a conflict for the last 30 years there would still be tons of people on the VA's rolls.

  6. marque2:

    VA is not the worst government welfare system. The worst is Indian Health Services run by the Department of Health and Human Services. The funding is so bad that the service runs out of money in April or May of every year.

    Medicare and Medicaid are bad, but they piggyback onto the private healthcare system, making the rest of us subsidize it, so the horridness is not as apparent.

  7. A Scot:

    My grandpa was in the VA system until he died this year of cancer. As a "non-paying" customer, the VA would actually prefer that you die quicker to reduce ongoing costs. Much like a car dealership while your car is under warranty, they cannot find any problems until the warranty (or yourself) expires.