In his insightful book and in this interesting essay, Arnold Kling has made several leaps forward from the pack of “America-first free marketeers.” If you want to see them in action, take a look at the comments page of any blogger who dares to suggest that spending nearly double what its economic competitors are spending on health care — primarily because it is paying its providers more for more or less the same volume of services — may mean that the U.S. is not getting too good a deal.
It’s apparent to any serious student of health care that the impact of medical care on overall raw measures of health is not sufficiently important that differences in spending here or there make too much difference to health. The somewhat pedantic arguments over life expectancy and infant mortality, and the slightly more real ones over the appropriate treatment of predominantly elderly people with serious diseases, are all massively less important than the political and medical culture in which the health care system exists. So there is broad agreement, I believe, among most rational observers that the activities Kling describes as “premium medicine” are far more in the interests of providers and suppliers (including those middlemen who mark up the price without taking on much risk) than they are in the interest of patients, and certainly of society as a whole.
Culturally, however, we are still long way from getting past this argument. And to be somewhat brutal, Kling has once or twice in the past, trod the path which several of his colleagues on the political right within and outside of Cato have charged down. And although that path is an intellectual dead end, it’s a very important one for the debate in the United States. I’m talking of course about the concept that single-payer health-care systems — and by extension all foreign health care systems, even if they are not single-payer — must ration care, and thereby kill people.
Of course, all systems ration care somehow because — as at least one wag has put it — good health is just a state of incomplete diagnosis. So the promotion of the unnecessary “premium medicine” MRI which Kling describes, and which would probably not have been done in Canada, does have an impact even in the U.S. The impact is, of course, that the cost of care is sufficiently high that a significant proportion of Americans do not receive insurance, or insulation, in our voluntary system, and so have to rely on public funding. And that public funding results in significant rationing of their care from safety net providers — as that Communist rag the Wall Street Journal pointed out in a long series in 2003.
The result is that in the 2004 presidential debate, the Republican president was able to decry the Democratic candidate’s proposal for a rather bizarre re-insurance scheme, as “government-run health care” — safe in the knowledge that Americans understood this was an unnecessary evil, and even safer in the understanding that no rational debate about whether or not government-run health care had any merits was going to happen. This is despite the fact that the major government-run system in the U.S., the Veterans Health Administration, is not only good enough for our brave servicemen and women but is also on many measures providing some of the best medical care in the country.
So I welcome (at least some of) the contributions of Kling, John Goodman, and others, who realize that we need to create some method of rational allocation of resources to health care. Because, frankly, for the last 30 years this has been a conversation between the Enthoven school and the single-payer crowd. The core business, corporate, academic and media players who hold the political and economic power in the United States have not really been interested in taking part. The consequence has has been the dominance of health care providers and suppliers over those paying.
Kling is the latest in a long line of commentators to suggest that the vast increase in costs that this has caused means that the financing system is not sustainable. While that may be academically correct, the greatest Cambridge economist of them all once remarked that “in the long run we are all dead.” And there are plenty of examples of commentators on the American health care system who have gone to their graves never seeing either the system collapse nor the great reform to prevent it, which they regarded as being inevitable. In fact, the political strength of the health care system actors combined with the disaggregated weakness of the consumers and those paying the bill — intermediated by the costs of health care being hidden within overall employment compensation and buried in the murky finances of the federal government — has meant that the system has chewed up and spat out any serious attempt to reform it since the 1930s.
But let’s assume — somewhat appropriately when replying to an economist who has written about the Internet bubble — that “this time it’s different!” There are three broad approaches to dealing with the insulation and overuse of medical care in the U.S. and the crisis of unaffordability and the related lack of insurance that it is causing.
The first is some form of single-payer with a global budget. This is essentially how it is done in most other countries, where either by use of a fee-schedule, central budgets, or some combination thereof, a more or less explicit trade-off is made between the available resources for health care and those for the rest of the economy. Of course, as part of this deal no citizens are left below a floor, which in some cases is pretty high, and the consumption of medical care is explicitly not a financial transaction at the point of service. In contrast to today’s American experience, this means that the concept of paying medical bills and the very real likelihood of financial cataclysm resulting from the inability to pay the bills is absent. Those on the political right who say “it can’t happen here” would do well to consider this last statement in an America in which the middle-class is feeling extremely insecure and in which their incomes are becoming highly variable. Even for those who are doing pretty well, losing health insurance and facing a financial meltdown is a real possibility. And as that fact gets better known, the attraction of single-payer will increase.
However, personally I believe we are still some way away from the political acceptability of single-payer, even though I believe it is the likeliest outcome in perhaps a decade or so. The reason I think it is the likeliest outcome is that, despite Kling’s optimism, I don’t think that we can institutionally or culturally get to one of the two other alternatives.
Those alternatives are either highly regulated “managed competition” or some version of individual consumer control of spending at the point of service. Personally, I am far too dyed in the Enthoven wool to really believe that medical care can appropriately be bought on an individual service basis. It seems to me that even Michael Porter’s theory of services being bought by disease state is not actually how medical care works. It seems to me that most people faced with any kind of significant medical decision will either be too ill, too susceptible to the influence of providers, or unable to get good enough data about their individual situation, to be able to make a rational choice. For that reason, it seems to me that it is more logical to make a decision about which total environment of care you will choose to be treated in, and to assume that the providers working in that environment will do the best job possible with the amount of of resources that you have decided to commit to it.
This is, of course, essentially how the rest of the consumer economy works. Most people don’t send off for a automotive kit, put it together and augment it with spare parts from Pep Boys themselves. Instead they buy a car within a certain class, knowing that the manufacturer has put together an appropriate combination of parts for their “driving solution.” My assessment is that those promoting individual accounts (with some level of what essentially is re-insurance) believe that we are going to become a nation of health care kit-builders, when perhaps instead we’d prefer the emergence of the health care version of Toyota, GM, Ford, Mercedes, and the rest. To be honest, the compendium of interlocking concurrent insurance products, mixed with subsidies for chronic care illness pools, and other Heath Robinson approaches that will be required, in theory, to make Kling’s approach work are so complicated that I don’t think there is any hope of them being fully understood. Consequently vital parts (such as appropriate cross subsidies for chronic illness pools) will be left out of the political solution, which will lead to more of the same problems as we have today.
At one level, that is my main dispute with Kling, Michael Cannon, and their other Cato colleagues. The other level is one on which Kling may be splitting away from his colleagues (depending on the correct interpretation of the third to last paragraph of his essay). He tentatively admits “that if health insurance were relatively unregulated and unsubsidized, then many people would opt to do without health insurance.” Anybody observing American health insurance today knows that this is true. Of course, that means that in order to cover everybody with health insurance, the market for it does need to be heavily regulated and subsidized. The reason for this is not just the free-rider problem that Kling mentions, but also the ongoing intellectual problem that I have yet to find any “free marketeer” explain away. That problem is of course that health-care spending is highly concentrated amongst a very few people. So, by definition, almost all the money spent on medical care needs to be transferred within an insurance pool from healthy to sick people. This is even the case within catastrophic pools — although we only see this in theory because in current reality catastrophic high deductible plans exclude anybody who they think might get sick.
Even if you can overcome the financial problems of switching from a pay-as-you-go system to one in which health spending is pre-funded over an individual’s lifetime (and I don’t think that you can realistically require extra money to be put into the system or set aside during that transition), you will still be left with a system in which large cross-subsidies within the catastrophic pools will be required to make them work. Unless legislation explicitly prevents this, the next step will be entrepreneurial insurers figuring out a way to cleave the pool so that some groups end up healthier (and more profitable for the insurer) than others. This will then require greater continued subsidies from the government for the sicker pools, which one assumes will not be rationally put up with for long in a compulsory insurance system — although current evidence suggests that this is happening in Medicare managed-care even now.
If there is no attempt to either regulate the behavior of insurers, or to force free-riders to pay into the pool, then I simply do not see why the future system Kling proposes does not end up like the current disastrous individual insurance market in most of United States. And, in the responses heard from Cato, Pacific Research Institute, and others to the proposals from Republican governors in Massachusetts and California, it is pretty evident that the concept of compulsory insurance is not acceptable to many of those associated with this type of free-market approach.
So, in summary, as you might expect, I think that Kling has provided a decent analysis but has proposed a solution that both ignores the political and cultural realities of the health care system, and probably wouldn’t even work in theory. Of course, he wouldn’t be the first and won’t be the last to do that!