As I’ve always suspected, Health Care = Communism + Frappuccinos

As I’ve always suspected, Health Care = Communism + Frappuccinos

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By MATTHEW HOLT

Happy 15th birthday THCB! Yes, 15 years ago today this little blog opened for business and changed my life (and at least impacted a few others). Later this week we are going to celebrate and tell you a bit more about what the next 15 years (really?) of THCB might look like. But for now, I’m rerunning a few of my favorite pieces from the mid-2000s, the golden age of blogging. Today I present “Health Care = Communism + Frappuccinos”, one of my favorites about the relationship between government and private sector originally published here on Jan7, 2005. And like the Medicare one from last week, it sure holds true today. Matthew Holt

Those of you who think I’m an unreconstructed commie will correctly suspect that I’ve always discussed Marxism in my health care talks. You’d be amazed at how many audiences of hospital administrators in the mid-west know nothing about the integral essentials of Marx’s theory of history. And I really enjoy bring the light to them, especially when I manage to reference Mongolia 1919, managed care and Communism in the same bullet point.

While I’ve always been very proud of that one (err.. maybe you have to be there, but you could always hire me to come tell it!), even if I am jesting, there’s a really loose use of the concept of Marxism in this 2005 piece (reprinted in 2009) called A Prescription for Marxism in Foreign Policy from (apparently) libertarian-leaning Harvard professor Kenneth Rogoff. He opens with this little nugget:

“Karl Marx may have suffered a second death at the end of the last century, but look for a spirited comeback in this one. The next great battle between socialism and capitalism will be waged over human health and life expectancy. As rich countries grow richer, and as healthcare technology continues to improve, people will spend ever growing shares of their income on living longer and healthier lives.”

Actually he’s right that there will be a backlash against the (allegedly) market-based capitalism — which has actually been closer to all-out mercantilist booty capitalism — that we’re seen over the last couple of decades. History tends to be reactive and societies go through long periods of reaction to what’s been seen before. In fact the 1980-20?? (10-15?) period of “conservatism” is a reaction to the 1930-1980 period of social corporatism seen in most of the western world. And any period in which the inequality of wealth and income in one society continues to grow at the current rate will eventually invite a reaction–you can ask Louis XVI of France about that.

But when Rogoff is talking about Marxism in health care what he really means is that, because health care by definition will consume more and more of our societal resources, the arguments about the creation and distribution of health care products and services will look more like the arguments seen in the debates about how the government used to allocate resources for “guns versus butter” in the 1950s. These days we are supposed to believe that government blindly accepts letting “the market” rule, even if for vast sways of the economy the government clearly rules the market, which in turn means that those corporations with political influence set the rules and the budgets (quick now, it begins with an H…). That’s how defense has always been and how pharmaceuticals will increasingly be. Rogoff recognizes the centrality of this argument in his description of what’s wrong with American health care:

“Part of the rise in U.S. healthcare costs stems from the breakdown of the checks and balances that more centralized systems provide. (For example, Americans are several times more likely to receive heart bypass surgery than Canadians, where the procedure is reserved for extreme cases. Yet several studies suggest that patients are no worse off in Canada than in the United States). And even the most fanatical free marketers recognize that healthcare is different from other markets, and that the standard supply-and-demand principles don’t necessarily apply. Consumers have poor information, and there is an obvious case for greater government involvement than in other markets.”

But he then goes on to say that the much greater spending seen here as compared to Canada and the UK creates both a terrible service level (and by implication quality level) and diminishes innovation in health care services. And if all countries squeezed profits in the health sector the way Europe and Canada do, there would be much less global innovation in medical technology.

“Today, the whole world benefits freely from advances in health technology that are driven largely by the allure of the profitable U.S. market. If the United States joins other nations in having more socialized medicine, the current pace of technology improvements might well grind to a halt. Even as the status quo persists, I wonder how content Europeans and Canadians will remain as their healthcare needs become more expensive and diverse. There are already signs of growing dissatisfaction with the quality of all but the most basic services. In Canada, the horrific delays for elective surgery remind one of waiting for a car in the old Soviet bloc. And despite British Chancellor Gordon Brown’s determined efforts to rebuild the country’s scandalously dilapidated public hospital system, anyone who can afford to go elsewhere usually does.”

His conclusion is that because for the sake of social equity government intervention in the system is warranted, the health sector will be a “battleground” between capitalism and socialism through this century. If you get past his mis-use or mis-understanding of the terms “capitalism” and “socialism”, the point he’s making is quite interesting. It does though suffer from a typically Amero-centric bias. Rogoff assumes that the extra spending on health care in America leads to better services and by implication better quality. But that’s an old chestnut. By that measure the higher spending in Canada (11% of GDP) should lead to a better system than in France (9%) or Germany (10%). But in those two nations access to drugs and technology is much greater than in the UK or Canada, and things like waiting times are comparable to the US — in fact in Australia and New Zealand they’re better than they are here. A few years back The Economist said that the Swiss system (again several percentage points cheaper than here) was better than the American on an absolute level. Furthermore recent studies of international care quality suggest that particularly for primary care, the US is results-wise(at best) in the middle of the pack. All of those nations have a heavier proportion of government funding of health care spending than in the US, and all of them spend a whole lot less money. Note that the US government spends more per head (and damn nearly as much as share of GDP) on health care as the whole of the UK.

So that all tells us one thing. We’re paying a lot more for health care here, but it isn’t necessarily getting us better outcomes, innovation or even services. We might though have nicer waiting rooms and we certainly lead the league in surgeons with Porsche 911s. Therefore it’s a stretch to imply that higher private spending leads directly to innovation and better services, particularly if the system is not set up with either government-based or real market-based co-ercive capabilities to promote efficiency and value for money. And lets be real, the US system is set up to provide revenues and profits for providers and suppliers. It’s a bit like saying Tammany Hall provided the best government services because it cost the most, when huge chunks of the money were getting diverted off into corruption.

Furthermore, it’s also a stretch for Rogoff to suggest that by definition government spending creates lower innovation compared to private spending. After all government spending led to the creation of the Internet and biotechnology. Private spending created reality TV. And despite the fact that there is no private spending on defense, well the boys and girls in the US military are no longer riding around on horses pulling gun carts. Somehow innovation and progress seems to find a way to happen even in government sponsored sectors. And if we want to drag real communists into the equation, the reason that we’re not all speaking German is that Hitler lost WWII to a nation that ten years before he invaded was inhabited by peasants. Yup, unpleasant as it might have been, Stalin’s Great Leap Forward in the 1930s was by far the fastest period of economic growth seen in any nation, probably any time…..just in time to save our arses in 1942-4.

I’m not exactly advocating purges, slave labor camps, collectivization and enforced Ten Year Plans as a panacea for the future of health care (although David Brailer keeps going on about his ten year plan). But the overall point is that greater government involvement in spending and regulation of health care doesn’t necessarily mean the disaster in services and innovation that Rogoff suggests. And there are excellent reasons from the “socialist” angle for greater government involvement in health care than we have now.

The first is the fallacy that there can be such a thing as a private health insurance market with free use of underwriting. Social insurance (or universal insurance), in which everyone pays in and everyone receives at least a basic level of benefits is the only way to get around the problem of the uninsured and the uninsurable. It of course means a relative redistribution of income from the healthy and wealthy to the poor and sick, but in fact that can be budget neutral to the healthy and wealthy if the overall price tag is kept down. That though would require a redistribution of income from the health care sector to the rest of society. Such universal insurance is good enough for everyone over-65 in this country and good enough for everyone else in the developed world, but the concept just can’t seem to get the attention of the American public enough to force it past the “special interests” in Congress. And everyone (apart from actuaries and underwriters and some participants in the system) suffers as a result.

The second is the role of government or someone like it as a clearinghouse of information or as a standards-setting body in a market where information access is very lopsided. Health care is very, very complex and someone has to provide decent information (preferably with some regulatory teeth) so that consumers/patients are not at the mercy of providers and suppliers who know far more than they do and in whom most patients still are forced to place their trust blindly. This is the role of the NICE in the UK, and in theory ought to be the role of the FDA here. Adding an economic element to that role by giving information on value for money would probably be derided as socialism by Rogoff’s “capitalists”, but is a rational role for government. And one they are likely to add as spending increases — of course the Brits and Aussies already have done so to some extent, and are linking cost-effective performance to payment.

So overall I don’t think there’s any basis for suggesting that if we have more “socialism” in health care — and by that I’m using Rogoff’s meaning of government spending, regulation and income redistribution — we will necessarily have worse services or lower innovation. Although we may have lower drug prices and a less profitable health care industry. Anyone awake during the last three months of Vioxx breast-beating is becoming painfully aware that expensive “innovation” can be costly for the wrong reasons and actually not be innovative–COX-2s didn’t really do what they were supposed to do (reduce GI problems) but they did cost a lot more than NSAIDs in both money and increased heart disease. But it’s that kind of “innovation” that Rogoff correctly says that Americans are paying more for than anyone else.

However, Rogoff is making a very important point when he discusses the likely trade-offs between basic health care and lifestyle enhancements that will dominate the politics of health care for the next century. We’ve already seen this begin with the medicalization of social afflictions (ugly teeth, small breasts), the medicalization of several “diseases” that aren’t really diseases (impotence, shyness), and the medicalization of old age (osteoporosis, prostate cancer). Now the nano-gurus are discussing the medicalization of death — which will presumably lead to a cure, or at least a delay, for it at a hell of a price.

As more and more health care services become luxury goods, there is a justifiable discussion about what’s a basic necessity and what should someone have to pay for out of their discretionary income. At the moment no-one’s seriously suggesting that your boob job or teeth whitening should be other than an individual expense, or that your cancer treatment is a luxury good to be chosen if your mood and wallet fits. But clearly the middle of that continuum will continue to fill up.

This leads me to what has been called the mocha-Frappuchino problem. I read an article once (that I can’t find anymore) that discussed the increase in productivity of the US workforce since the 1930s. It’s doubled. Which means that we could work half the time and have a 1930s standard of living, or we could work as hard as we do now and have more stuff. The author noted that in the 1930s you couldn’t get a Mocha Frappuchino; so you’ve been spending Wednesday 1pm through Friday afternoon working for your Frappuchino (or similarly frothy goods and services).

We’ve always thought of health care as an “essential”. And eventually even in the US I believe we’ll figure out a way to solve the problem of creating an equitable and sustainable social insurance model for that “essential”. But increasingly, the health care Frappuccino will be paid for and delivered privately, in a separate system. Of course it’s the blurring of those two systems that concerns bleeding heart liberals like me, as that can well lead not as it has done here for the Medicare population, as society giving Frappuccinos to everyone, but instead society deciding to take away essential services from those who can’t afford Frappuccinos.

And that will be the real socialism versus capitalism battle of the next decades.

Matthew Holt is the founder of The Health Care Blog

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