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Over the next few years, the U.S. healthcare system will be in the hands of academics from Cambridge, Massachusetts. New CMS Czar Donald Berwick was a member of the Harvard Medical School faculty. Joe Newhouse, who has been the senior adviser to Medicare for as long as I can remember, holds appointments in three different schools at Harvard. David Cutler, Dean of Harvard’s Undergraduate College, seems a good bet to lead the Independent Medicare Advisory Board. Countless of their colleagues and former students have taken key policy making positions in Washington.
I know most of these scholars. They are brilliant as a rule and are acting in the truest sense of public service. None of them are socialists in the usual sense of the word; they do not believe that the government is an efficient provider of most goods and services. I don’t think they want the government to provide health care either. They have never called for government ownership of hospitals or suggested that physicians join the civil service. But whether they realize it or not, they are the vanguard of a movement bringing socialized medicine to America.
My Cambridge colleagues are mostly economists and know a lot about how markets do and do not work. They have learned from economic theory and practical observation that free market health insurance is imperfect. Fearing adverse selection, unregulated insurers take steps that leave some individuals uninsured, while other individuals choose not to buy insurance and free ride off of taxpayer subsidized charity. Most economists (myself included) agree with this diagnosis of the problem with insurance markets.
Academics have proposed many fixes to these market failures. Conservatives like Stanford’s Alain Enthoven and Wharton’s Mark Pauly favor some sort of voucher or direct subsidy with which individuals can buy their own private insurance. Unfortunately, Wharton is hundreds of miles from Cambridge and Stanford is on the wrong coast. The preferred Cambridge solution is a combination of greatly expanded government insurance and a tightly regulated private insurance market. This is the essence of Obamacare.
But this solution does not end with a government takeover of health insurance. There isn’t a public or private health insurer anywhere in the world that doesn’t directly intervene in the delivery of medical care. Socialized insurance necessarily leads to socialized medicine, and if the government controls well over half of the insurance sector through Medicare and Medicaid, and tightly regulates the rest, it is only inevitable that it will also seek to control how health care is bought and sold. And I don’t think it will make much difference whether it is Democrats or Republicans in control. The temptation to set the rules for 17 percent of the GDP is too great.
Let me give you one example. Nearly 20 years ago, academics (from Harvard, naturally) devised a new way to pay physicians under Medicare. They anticipated that improvements in productivity would allow physicians to bill ever increasing amounts that would threaten Medicare’s long term solvency, so they crafted some rather clever rules to calibrate fees, while keeping both physicians and Medicare on an even keel. Those rules are still in place, but they have never been implemented. Every year, doctors protest and Congress overrides the rules. So the best laid plans of academics are cast asunder, doctor enjoy ever higher revenues, and Medicare faces insolvency. (Fees per “unit” of service actually fall, but the number of billed units increases at a faster rate.) This same issue is going to plague Obamacare. To take another example, I helped redesign a physician payment scheme in Alberta with the goal of increasing competition. The provincial government adopted part of the scheme and omitted key details. Now I fear that competition is going to be stifled.
The Obama administration has hired an army of academics to implement the new reforms. They bring with them the finest Cambridge pedigrees and promising ideas. They will write the first draft of the rules and academics everywhere will nod in approval at the cleverness of our colleagues. (Some of us may even enjoy seeing our own pet ideas turn into policy.) But in the fullness of time, the rules and regulations that will govern our health care system will bear the imprint of politicians more than academics. It is the nature of the beast.
My Cambridge colleagues do not favor socialized medicine. But I fear that the regulatory behemoth they have been entrusted to manage is too big for them, despite their talents. Ten years from now, we will look back at these days as the beginning of the end of market-based medicine in America. And my colleagues will only be able to look back, shake their heads, and say “it wasn’t supposed to turn out this way.”
UPDATE: My brother Joel reminded me that there are some parallels to be drawn with “The Best and the Brightest.” As chronicled by journalist David Halberstam, these were the Harvard whiz kids enlisted by Robert McNamara to modernize the Defense Department. I doubt whether these academics ever envisioned that their hard work would help McNamara wage war against the Vietnamese.
It is not well known but a young Alain Enthoven was one of the McNamara whiz kids. After serving as chief executive of a defense company, Enthoven took an interest in health care and, especially HMOs. He developed the principles of managed competition while a professor at Stanford. Enthoven’s ideas formed the intellectual foundation for Bill Clinton’s health reform proposal. But after reading the reform legislation, Enthoven commented “Of the 1700 pages in the Clinton proposal, Congress should throw out 1700 of them.” This is a sad reminder that when academic principles meet political realities, the politicians always win.
David Dranove is the Walter McNerney Distinguished Professor of Health Industry Management at Northwestern University’s Kellogg Graduate School of Management, where he is also Professor of Management and Strategy and Director of the Health Enterprise Management Program. He has published over 80 research articles and book chapters and written five books, including The Economic Evolution of American Healthcare and Code Red. He has a Ph.D. in Economics from Stanford University.
Filed Under: OP-ED
Tagged: Affordable Care Act, Berwick, CMS, Medicare, Obama administration Aug 30, 2010
Margalit, your projecting again. The only one dealing in absolutes is you.
“Why are the only options Colombian Cartels free markets or Communist non-markets? ”
It’s not, we already have a very mixed, left leaning market system, we are far more regualted then we are free. You want to take us further left to non-markets, I don’t recall you ever offering any free market or deregualtion suggestions. Everything you propose is more regualtion and less freedom then you want to complain those that disagree are advocating free market chaos.
“Why is the only alternative to the miserable system we have now, a felcher staffed Gulag public clinic?”
Once again you try to define the middle as far left then push even farther. majority of people are happy with their current coverage and don’t want to lose it. It’s only people like you trying to advance political agendas that label it miserable and needing wholesale replacement. Every poll out there says people oppose what you passed and you went to far, yet in your opinion you still didn’t go far enough.
“Why should insurance companies have either license to exploit as they please or be totally dismantled?”
They are already heavily regualted and there is next to no exploitation yet you cry for more regualtion. Again we are already closer to communist like regualtion and you want to go more left.
Your entire agenda is built on dishonesty and distrortion. You try to make it sound like we are living int he wild west with no law and your only proposing some minor regualtion for the good of the community. That was 1960s, you have already distorted the system to the breaking point. We don’t want any more of your regualtion, big government solutions that don’t work. That fact is black and white.
“There is a limitation on the willingness of the poor to support the rights of the rich to get richer, particularly when they realize that their own way to riches is blocked by greed, avarice and sheer callousness. If you leave enough people behind, and for multiple reasons we are doing that now, this entire bubble is going to explode.”
This is a joke, there is no right to be rich, only the opportunity, unless your a democrat politician in Detroit, Cleveland, or other liberal strong holds. Those getting left behind are suffering the results of their own poor decisions and liberal policy. Why should the average person who is less educated and puts forth less effort then 30 years ago be guaranteed a higher minum wage? You reward failure and bestow rights that don’t exist then are shocked at the perverse outcomes. The three pillars of your ideology is what shot you in the foot and your finally starting to feel it.
“you want to go more left”
No. I want to go more right. Right, as in the opposite of Wrong.
vote conservative in November and you can start
“Without insurance companies how would seniors fill in all the gaps of the poor public plan they are forced to have?
So you find Medicare such a poor public plan that private insurance needs to “fill in all the gaps”? Why then are you always saying how we’re spending too much on Medicare now; that it’s insolvent? Do you want Medicare to also “fill in all those gaps” and become more “insolvent” as you put it? Nobody is saying ALL insurance is parasitic or has no value (if piece of mind is a value), but private healthcare insurance has largely been a failure (stop lose possible exception?) because it has failed to control costs for it’s premium payers. But then you say private insurance could controls costs if the government would only allow it to be more selective, impose more rationing, keep payout caps and eliminate mandates – all the things patients (including Medicare patients) don’t want. Then you tell us how you build your business fighting private (not self funded) healthcare insurance companies and how they don’t offer value and are paid too much. If Medicare operated like private insurance you’d see 6% to 10% compounded rate increases per year – how would your grandma like that?
“Nobody is saying ALL insurance is parasitic or has no value”
Um, yes they are Peter, Quack said exactly that as have numerous other liberals. There are 10s of thousands if not more no thinking liberals that would outlaw insurance tomorrow if they could. I would guess millions actually.
“but private healthcare insurance has largely been a failure”
At what? Has it been a failure at financing the payment of healthcare? Not at all, it has accomplished that task quite thoroughly. Has it failed at providing low cost healthcare, sure it has, but that isn’t the role of insurance companies. That is the problem with liberals, you bastardize an industry into something it was never meant to be then jump all over it for failing to achieve your goals. By simple logic insurance is a terrible mechanism to provide social services, but that is exactly what liberals tried to do though. If anything has failed it is liberalism not private insurance. Liberals failed to provide healthcare through private insurance carriers, something anyone with an ounce of common since has been telling them since 1905.
“it has failed to control costs for it’s premium payers.”
In communist Russia they make a lot of jokes about the cars people were forced to drive. Was it a failure of the Russian auto industry to make the cars people wanted when the government required they only make a specific vehicle? How can you even begin to claim private insurance failed to control cost when liberals have been shifting cost and piling on expenses since 1965?
“But then you say private insurance could controls costs if the government would only allow it to be more selective, impose more rationing, keep payout caps and eliminate mandates – all the things patients (including Medicare patients) don’t want.”
You’re making Maggie arguments Peter. Every poll ever done on the subject members overwhelmingly would give up mandates for a cheaper policy. If you poll specific to some of the more questionable mandates 80%+ would drop the mandate. No one ever asked Medicaid to underpay nor Medicare. No one ever asked Medicare to pass a law saying private insurance is prime, in fact many people would prefer for their medicare to be prime or atleast have the option to choose them self. Nothing in that quote is accurate.
“If Medicare operated like private insurance you’d see 6% to 10% compounded rate increases per year – how would your grandma like that?”
Again Peter you have no idea what you’re talking about. Your arguing a level of insurance you don’t have any comprehension of. You wouldn’t even begin to know how to compare the inflation of private insurance to Medicare, and until you grasp what goes into inflation you can’t argue one plan does a better job then another controlling inflation. Typical liberal ignorance and why liberal written bills always make things worse. If Medicare operated like private insurance we would save 40 billion dollars right off the top. That makes up for a lot of supposed 6-10% increases. The double digit rate increases year after year have more to do with regulation then plans ability to control cost.
Peter, Ohio passed a law that Deps have to be covered until age 28. A plan has a 27 year old adult child of an employee come on the plan with serious illness and rates go up 20%. Are you really saying it is private insurance’s fault they didn’t prevent that 20% rate increase and Medicare is better becuase that wouldn’t happen under Medicare, which is true, Medicare doesn’t take any dependents. Do you see how faulty your argument is?
“If you poll specific to some of the more questionable mandates 80%+ would drop the mandate.”
80% would oppose being taxed, but 100% want the benefits they get from other
peoples taxes. Dropping a mandate makes that type of coverage more expensive for those who need the mandate. Not requiring universal coverage of pregnancy makes having babies more expensive, not requiring cancer coverage makes that coverage more expensive for cancer victims, not requiring everyone to pay for eduction makes education more expensive for those who have kids.
“Has it been a failure at financing the payment of healthcare? Not at all, it has accomplished that task quite thoroughly.”
Sure, anyone can finance anything by raising premiums 6-10% per year. Duh.
“Has it failed at providing low cost healthcare, sure it has, but that isn’t the role of insurance companies.”
No, that’s the role of a government run single-pay system.
“How can you even begin to claim private insurance failed to control cost when liberals have been shifting cost and piling on expenses since 1965?”
Like covering preexisting. Let’s just allow insurance to cherry pick, that’ll keep costs low.
Mr Sader,
I pay the majority of my Health Insurance with the company contributing about 30 percent of the premiums. Oh, No doubt it is expensive.These hospitals and insurance companies are so enormously deceptive and manipulative that they fear any form of transparency.
Hospitals and Insurance companies have it all backwards from a free market that Presents the costs of services up front; to a industrious system that thrives on hidden contractual agreements.
Amazingly enough I think the the Health Industry as a whole still is so involved in their own Profit making schemes that patients are not to have a say in their Health.Making Patients Cash Cows for provider and insurer alike.
More Prospective Patients are tired of the high Demand for excessive fees without results.However, the expectation for payment regardless of results is un becoming for a free market model. The private industry is expected to be accountable for failures and short Comings.They Do Not Charge the Customer for a product and/or service that is not of the Custoners making! However, This industry has a habit of charging patients and Their surviving families for preventable Staph infections, Medical Errors, and failures to rescue. Fair? I think Not! Such unaccountability is what makes Hospitalization so dangerious and the emergence of Patient Safety Advocates to protect the patients interests.
If the industry is so oblivious of progressive Patient Safety measures. Than it will have to be those patients that will need to pressure Hospitals to do the right thing by lowering the spread of Staph Infections and Medical Errors.
Where is it that we come from?
Our forefathers defined certain unalienable rights. Life, Liberty and Pursuit of happiness. The constitution enforces these rights and the right to protect ourselves.
Government is empowered by our taxes to protect our common defense.
Among the rights we are guaranteed are not clothing housing or health insurance. These are included in our pursuit of happiness and liberty to seek and earn live the life that we choose.
Over time individuals of faith have felt the duty to assist others who have been born or found themselves with less fortune to rise to a better life than they would otherwise have. They gave gifts and developed organizations to improve the effect of their gifts. Locally Individuals and groups of individuals developed missions to work locally and afar to help others. They maintained their missions. Their gifts were appreciated.
Some of those gifts were joined together to develop funds to ensure that if an individual within the group suffered an illness or injury, that they would receive care and their families would not suffer loss of all they had worked for through their life. The individuals within the group did not expect that minor injury or illness would be paid for by others but were assured that serious illness and expenses were covered. There was no expectancy of profit by any concerned. This insurance was a safety net. Individuals felt the responsibility to maintain the fund for the future and were cognizant of their own vulnerability and potential need at some point for coverage. They knew that reckless use of those funds would mean that in the end the insurance would no longer be available to them.
In simple matters of health provision, care was simple and providers would sometimes give benevolent care or exchange services for those who could not pay. Individuals maintained autonomy, responsibility and gratitude as members of a social group. It was not socialism but independent individuals working together. Perhaps it was not always equitable. Consequences were certainly felt early. Individuals certainly felt the rewards of altruism and the shame of ignorance of the needs of others. These along with the vulnerability that but for the grace of God, instructed their behaviors.
Today in our deserved attitude and capitalistic insurance industry the values of the past are gone. . .Capitalism has taken root and individuals care not about their decisions to spend or of their responsibility to the group. . .this industry can not survive without draining individuals and those who are the ones for whom the insurance began are precisely the individuals who will not have adequate coverage.
As someone who lives in a country with ‘socialised medicine’ I find many of the comments extraordinary and wonder why so many Americans argue against their own interests in regard to their health care. As far as most Australians are concerned (more than 80% approve of our ‘socialised system) we have an extraordinarily good health care system. Despite the rhetoric of some US Republicans, we have access to new drugs, excellent medical and surgical services, new technologies and so on. I haven’t even heard of a death panel! Most importantly we spend about 50% of the amount the USA spends (about 9% of GDP)and everyone, everyone, has health cover. Australians believe I think, that health is not something that can be left to the ‘market’ whether it is free or not. Health care is something that is a basic human right. It is strange to listen to the rhetoric of Americans regarding their personal freedoms and rights and contrast this with their health care system. Most Australians are very concerned with the establishment in this country of American health companies because we have seen and read what they (and the politicians they have bought) have done to your health care system. I can only suggest that if Americans actually listened and saw what health care systems can be (like Australia’s system) instead of being bombarded with, and tricked by, the partisan bleatings of companies, doctors and politicans supporting the appalling system you have, you may be able to catch up with the rest of us.
@P.Short
-it must be nice being able to write such wonderful statistics from a country that is only 14% of total US population, not to mention that our illegal immigrant estimated population as of a couple years ago is about half of your total population.
Everything else equals, having a complete “socialized medicine” system is much cheaper to operate,that being said, what you’re ignorant of is the fact that our (social services, education,health care,prison) systems are flooded with third world country citizens. Considering that the current administration is blatantly refusing to enforce federal immigration law, you can understand why I am opposed to “everyone, everyone” having “insurance” when there is apparently no end in sight to the future influx of people.
So continue looking down at us from that island of yours, while you guys deal with the boatpeople here and there. Just try to imagine, though, what it would feel like to have the world demand their “basic human right”.
Nate, I epitomize the dissatisfied self-employed American, yet I’ll bet dollars to donuts I work harder, take more risk, and have stronger family values than your squinty-eyed right wing ass! Health care & insurance reform is not only about helping the poor, who you assume, (as most AM radio addicted far right wingers do) deserve to be poor due to their laziness. It is about helping young working class productive Americans like me remain productive, healthy and solvent. I’m willing to pay for what I use, willing to be required to uphold my end of the bargain by making healthy dietary & exercise choices. What I’m not willing to do is keep working harder while seeing insurance execs & HMO execs & doctors getting filthy rich in our status quo. I’m under no illusion my post will affect your thinking, so I’ll have you know that when our economy collapses & the s**t hits the fan, its people like you I will show no mercy. You better have a good home security system in your gated community, and a lot of guns, because unlike most of the liberals you hate so much, I’m not afraid to go to war with fascists like you. You are a disgrace to what America is supposed to be and one day I’m gonna make you pay for it