POLICY: Up at Spot-on about rationing

I thought I’d spare THCB readers an article about yet more idiocy from libertarian so-called economists bitching on about Canada. As usual they have forgotten that economics is the study of how to allocate scare resources and so all economics is about rationing. But those of you who want to head over to my column in Spot-on called Rationing’s opponents: Happy in their fantasy world won’t be so lucky.


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  2. Absolutely. Multi-payor universal (MPU) health system will need some thoughtful cross-subsidy / regulation.
    My point was that the most productive thing would be to start with admitting that MPU is the way to go and then work on defining the right subsidy mechanism. That is why I am a fan of Gov. Kitzhaber and his Archimedes Movement for trying to do just that. His plan of putting a waiver request in front of Congress will force this debate for real: Health System Reform: A New Hope.
    Unfortunately today, too many policy types (on both sides) spend too much time mis-understanding each other and trying to defend the indefensible (HSA cherry-picking and Canada monopoly alike).
    I think a Sister Souljah moment (acknowlegement of MPU preference over single-payor) is needed today, afresh.
    Call this a “Radical Middle” position.

  3. Dimitry is right. But multi-payer universal systems still need some form of cross-subsidy/price-setting or they will die the adverse selection death.
    And given that’s what Clinton was trying to put together in 1993-4, didn’t we already have out Sister Souljah moment?

  4. I think many supporters of universal coverage are doing themselves (and the uninsured) quite a disservice by pushing “single payor”.
    Single payor is just not going to fly politically. Does it help to not make the distinction crystal clear and not strongly distance from the idea of complete government control over healthcare? NO WAY! Now is the time for Sistah Souljah moment to admit that there should be a role for private market on both provider and financing side.
    There is too much rhetoric. Reasonable people should admit that we will end up splitting the difference. Universal public baseline plus premium private market.

  5. Trap. Here’s my final word on your post. (Your comments are still screwed)
    You’ve pulled Krugman out of context again. The key word is IF, as in “IF the politicians accept…” But he realizes that full socialized/nationalized medicine isnt going to happen here, and so what he actually argues for is the expanded but limited role of government in medical care provision. The role he advocates for in the paragraph that Kling extracts has a decidely limited role for government that basically is the same as today’s. You and your fellow travelers continue to blatantly misrepresent what he argues for and tar it with the “socialized medicine” brush which is code for all doctors and hospitals being nationalized and working directly for the government.
    As you know I’m in general for socialized highly regulated insurance based on progressive taxation, and some form of competition between integrated systems (a la Enthoven managed competition model) for provision. In his heart Krugman may be ideologically for a single payer Canadian model. Ezra supports a French style floor with people allowed to buy private insurance. Any of those three demands compulsory universal insurance as a first step, and I would be quite happy with any compared to the status quo. And I’m sure that the rational people on both sides of the “voucher” vs “single payer” debate would be happy with either as a politically obtainable starting point that’ll be good for decades.
    The poltical issue is that in this country single payer in the form of Medicare is politically popular (although it has massive problems) but “socialized medicine” has been irrationally demonized for more than a century. So the advocates of the status quo and their attack dogs on the libertarian right will do anything they can to conflate the two in an intellectually dishonest way. And while there’s no tax on lying (as Reagan, Bush and even Clinton proved), there’s no reason that we can’t point it out. After all Shrub can dismiss Kerry’s health care proposal as “government medicine”, which is not only irrelvant — the question is what would be better for the country — but a total lie. And no one seems to have had the balls to call him on it at the time.
    And as for me savaging Kling — this country is full of millionaires and billionaires who as Uwe says as damn happy to get poor people to stick skin in the game, when they have no concept of what that means to poor and sick people. And given their influence in think-tanks (Scaife and corporate-funded ones especially), Fox news and the Republian agenda, they are now as much as anyone responsible for the suffering and pain that the un and under-insured deal with here due to having to worry about whether or not they can afford medical care. You’ll see plenty of these people as you go through medical school. This is a situation that does NOT HAPPEN in other advanced industrialized nations. If Kling is going to advocate positions that continue that status quo, he is helping continue the disastrous policies that have real effects on real people (and macro effects on the whole economy too). He needs to be a big boy and take his lumps from people like me who are prepared to call him out on it. I just wish I did it as well as Uwe.
    And the key point that I was savaging Kling over was not his conflating socialized insurance with socialized medicine but his blatant disregard about the incontrovertible proof that there is rationing here, when he accused systems in the rest of the world of rationing. All economics involves rationing by some means or other–price is only one, and in thise case not the best way. I’ve heard nothing from you about that….I’m waiting, I’m waiting
    It’s fun sparring with you, but you’ve got to come up with something a little better!

  6. David–my reccollection is that Canada grandfathered in some hospitals (including some private ones like the famous Shouldice Institute for hernia repair) and basically nationalized the rest. The physicians are independent operators (as are UK GPs, but not UK specialists) but in both cases they only have one client so the distinction is somewhat academic.
    And your point about the Marines is correct…especially when one considers the Halliburtons of the world.

  7. Matthew:
    You wrote:
    “In Socialized Medicine (Canadian Hospitals, Scandanavia) EVERY PROVIDER works for the government and they own the hospitals. It’s a nationalized monopoly industry like say the Marine Corps. If “some providers” working for the government is “Socialized Medicine”, then we’ve got it here already with the VA and County hospitals.”
    I thought Canadian providers (hospitals and physicians) were not in the public sector. There are over 80 Catholic hospitals in Canada. The Canadian system is like Medicare – public financing of (mostly) private providers. The VA system is more like the British model – public hospitals and employees.
    With the advent of mercenaries in Iraq I’m not sure the Marine Corps is still a monopoly.

  8. I am about to ramble, and for this I am sorry. But I think I figured all out this morning reading this blog and drinking my coffee. Tell me what you think.
    Doctors driving Porsche’s are not the problem here. The profit-driven insurance industry is the problem. I want my cardiologist to be driving a Porsche and to wear a nice suit because this reassures me she knows what she’s doing and is well-reimbursed for taking care of me.
    How about we combine the two approaches debated here.
    Let’s use the taxable income to determine what someone’s (or a family’s) HOOP (Healthcosts Out of Pocket) level is. Maybe a family of four with a combined income of $40,000 has a HOOP of $250 and a single executive making $150,000 has a hoop level of $10,000.
    Let’s have government-regulated or “socialized insurance” pools for all costs above this HOOP amount. The government can set the prices for this catastrophic insurance, to be paid as a part of the tax bill, and the government can regulate the companies that are allowed to provide the insurance (i.e., contracted to administer it) with the goal of reducing as much as possible the red tape involved for physicians, and standardizing what is covered and what is not. Privitizing the administration of these benefits will likely save money over the government directly managing things.
    The State of Massachusetts has government-regulated homeowners and automobile insurance. If you have a ’93 Chevy it will cost you the same no matter which insurance agent/company you elect to use. Prices vary, however, according to “discounts” you can get applied to your bill, e.g., the “good drivers” discount.
    This is where you get the quality initiatives. Give patients incentive to take care of themselves. Vary how much they have to pay in taxes for their catastrophic insurance according to health measures found in their electronic medical record. I do not mean that it should be the diabetic’s responsibility to know that they should have a HBA1C level of less than 7.0, but if they pay 0.5-1% more in taxes because their diabetes is not adequately controlled, they will go straight to their doctor’s office to see what it takes to get it controlled. This would, of course, have to be carefully devised so as not to punish those with chronic medical problems. But it would be easy to apply discounts if vaccinations are up to date, if there was a pap smear within the past two years, a “BMI under 25” discount, one if there has been a colonoscopy within at least ten years, etc.
    Physicians should also carry some of the quality burden and the percentage of charges that are reimbursed after a patient exceeds the HOOP should vary according to carefully measured outcomes.
    I think the HOOP expenditures would control costs. If one Dr. charged $200 for something that another charges $75 for, then patients with HOOP left will seek out the lower cost, living for the out of pocket costs. Forget fee schedules and allowables and, once beyond the HOOP, simply pay a percentage of charges according to quality measures. Make these quality measures and costs more transparent to the consumers. Physicians will not be allowed to set different pre and post-HOOP charges.
    Forget about HSAs. Why add new levels to the freakishly complex tax code with deductions. Instead of requiring employers to provide health insurance, how about calculating ways to use some of the money that is already being spent by employers to further subsidize the government’s efforts in this cause. For those that are providing insurance, their new tax burden should be less than what they’re paying now, and for those that are not, they will now have to participate to some degree by way of taxation.
    Forget about Managed Care, Medicare, Medicaid. Break the legs of the profit-driven insurance industry. Let the public decide, via the election process and by what level of tax they’re willing to put up with, what should and should not be rationed. Put the best public health minds available on deciding what discounts would best improve the healthcare of our citizens and what quality measurements will best incentivize healthcare providers.
    Make it easy for Doctors to provide quality care (removing the liability burden is another topic altogether) and make it worthwhile for patients to take care of themselves and costs will fall and everyone’s health will improve.

  9. Canada is doing much better at controlling costs because it views healthcare as an expense, while the U.S. views it as a profit center, at least from the service provider point of view. My health premium jumped 39% this year after a yearly average increase over six years of about 12% compounded. I extrapolated my premiums out 10 years and figure I’ll need a minimum of $750 per month for health insurance, not including deductibles and co-pays. Just who is the U.S. profit model system trying to serve? Costs here are not controlled, their just passed on, now that’s efficiency!. There was a comment by the now Governor of Michigan the other day that said for the first time there were more cars produced in Canada than in her State, why, because of the manufacturers cost of healthcare. It’s simply cheaper to produce cars in Canada. So just as cheap wages are sucking jobs offshore so to is the cost of healthcare. I finally made the decision, since I’m healthy, to not play the healthcare game anymore and cancelled my coverage last month. I will put what was my premium into a money market account dedicated for healthcare and if I need major surgery go to Canada, India, or Thailand to have it done for about 25% of the cost. I wonder how the business community will view the export of profits instead of the export of jobs?

  10. For what it’s worth, envoking the “Baurmol Effect” is, more or less, saying that “the reason health care spending was so high was that we were so efficient elsewhere in the economy.”
    But I agree, it’s not the strongest argument in the world, however true.

  11. I don’t think they’re quite talking about the same thing. They (I think) are saying that as we’re richer we spend more on luxury goods and most health care is a luxury good. And there’s some truth to that. I think Pauly was saying (and I dont have time to dig it out but I’ve linked to it on THCB in the past so google his name and you’ll get it) that the reason health care spending was so high was that we were so efficient elsewhere in the economy. I could be wrong about the details but again this is an irrelevant argument, even if they aer saying the same thing.
    Neither of them seem to notice what the rest of us (Fuchs, Enthoven, Wennberg and even me) know — that the health care system is damn inefficient and could produce the same outputs (or more) with fewer resources. Of course Wennberg’s mob have been screaming this for years. And as Anderson, Rheinhart et al have pointed out, in other countries (yup, those pesky European socialist ones again), the health systems actually do.
    But their doctors and hospital execs have to make do with driving Audis not Porsches…(slight lie, my dad the surgeon had a porsche briefly, but it hurt his back so he traded it in for a Jag! The GPs though drive Yugos!)

  12. Re: “the reason we spend so much money on health care is because we’re so efficient in the rest of the economy”
    Perhaps you’re refering to the “Baurmol Effect”. [1] If so, you’ll be thrilled to see that Kling’s friends at Tech Central Station believe it matters in healthcare as well. [2] And you’ll be thrilled to see other prominent bloggers envoke it in healthcare too. [3]
    [1] http://en.wikipedia.org/wiki/Baumol%27s_cost_disease
    [2] http://www.tcsdaily.com/article.aspx?id=031006F
    [3] http://www.janegalt.net/blog/archives/005720.html

  13. Pauly is not stupid, he’s an idiot. Stupid means that he would’nt be able to produce the studies, put together the complex data, and develop the theorems he does. And they’re very complex.
    But an idiot will take those studies and decide from the conclusions something that palpably isn’t reality, such as “the individual insurance market works pretty well” and “the reason we spend so much money on health care is because we’re so efficient in the rest of the economy” both paraphrases of Health Affairs articles from Pauly in the 1990s.
    Of course given that he’s a tenuredU Penn Professor with plenty of consulting cash Pauly has never had to buy health insurance in the indivudal market, nor worry about paying for a doctor visit for his kid when he’s trying to make the rent payment. If he had my guess is that his conclusions would be very very different.
    And for all practical purposes moral hazard is indeed crap. It may exist in certain cirumstances, but it only applies to the poor, and it only applies to that part of the care of the poor that they control in the absence of a physician’s intervention. So it applies to less than 20% of 20% of health care decisions. And in those cases, it inspires as many wrong decisions as right ones. See Evans and Barer on Zombies….(search this blog for that great great article)

  14. “The use of the Canadian system is free, meaning taxpayers pay from a pool of tax money (their own), but if there was no form of rationing, the freeness would bankrupt the country as users pay no upfront use fees.”
    Mark V. Pauly, a very prominent health economist at the University of Pennsylvania’s Wharton School, calls this phenomenon “Moral Hazard”. [1] Matthew thinks Pauly is *stupid*-that’s a quote from this blog. And Malcolm Gladwell thinks Moral Hazard is mythical. [2]
    [1] http://www.wharton.upenn.edu/faculty/pauly.html
    [2] http://www.newyorker.com/fact/content/articles/050829fa_fact

  15. As a Canadian now living in the U.S., who has used both systems (Americans like to believe they have a system as if someone would actually invent what they have now), I have some input into rationing. Canadians do have rationing, but it is usually or attempted to be, by need, not by access determined by wealth. If there was no system for rationing in Canada that would be financially irresponsible, since the system is not intended to deny access and good care due to financial affordability. The use of the Canadian system is free, meaning taxpayers pay from a pool of tax money (their own), but if there was no form of rationing, the freeness would bankrupt the country as users pay no upfront use fees. Which system is more cost efficient and delivers the best care for the price, the Canadian system, gee and in a “socialist state” you say.
    I recently had two cataract surgeries. I tried to find out what it was going to cost me. My insurer, BCBS, refused to tell me my net costs, the local hospital refused to tell me my net costs which are proprietary. I had no way to predetermine on price which facility I should use or what I should budget for. Unless of course I was uninsured, then I would have been charged 5 times the cost and known up front why I would have to declare bankruptcy. When I went to Canada to get the procedure done for about 1/3 the cost, I knew up front, what my final cost would be.
    Doctors in Canada are self employed and paid by the government, they have no bad debt or collection fees for patients that can’t or won’t pay. They make a good living, as much as U.S. doctors, no, but a good living. I tell Canadians all the time, whatever the problems with the Canadian system, you don’t want the U.S. “system”. Healthcare in Canada won’t bankrupt a person, moderate healthcare use here does bankrupt people all the time. And it will only get worse. If this isn’t rationing then please, we need a little rationing. Be prepared for a wild ride.

  16. We can – and I expect we will – chat about rationing and Kling’s book later…if you have any breath left after I rightly take you to school for wrongly taking Kling to school…

  17. Trap–While
    a) I quake in fear at “getting it” from you, and
    b) it may just be a lucky conincidence that my memory of the Krugman article was right and your READING of it was wrong, and
    c) you didn’t bother to look at the main point of my Spot-on article which was to rake Kling over the coals for saying that basically we don’t have rationing here (and I rather cleverly found a WSJ series to contradict him, proving as my buddy Vladimir Ilych said that the capitalists will sell us the metaphorical rope to hang them with),
    your first piece on the subject doesn’t say anything other than you’re going to get me in the second. Can you not help me out here a little by giving me something to go on? Or should we just “trust you” that you’re right and I’m wrong despite the evidence?
    Ha. Ha.
    Meanwhile, I’m looking forward to Kling’s book. The other Cato guys (Cannon/Tanner) wrote a totally ridiculous book completely ignoring any solution for the health care 80/20 problem other than 2 sentences saying the market would sort it out. The Hubbard et al book had some vague leanings in that direction with their concept of relative subsidies for the chronically ill–even though they’re unbelievably complex and unworkable in practice and they didn’t advocate the insurance reform needed to make a market for insurance for the chronically ill work. Kling promises more of the same…I look forward to see what he’s coming up with.
    I also wish I’d made a fortune in the tech business too. if you’d like to chip in to buy out my dotcom stock options, that’ll help!

  18. OK. I’ve now re-read the whole article and you are STILL wrong. They are for public insurance and for getting the benefits of INTETGRATED SYSTEMS away from the patchwork cottage industry that we have now. It so happens that the biggest integrated system is the VA, and they like the idea of it being government run, but I suspect that a non-profit regulated integrated system like say, Kaiser or the Mayo Clinic would be fine as it is under their public “socialized” insurance. After all it doesnt really matter whether a provider is employed by the government or a subcontracter, and the latter is much easier to sell in the US.
    So Trap, I’m right to ball out Kling. You are wrong again, and you still never mentioned rationing!

  19. BTW now off to read the long article….and of course there are sensible libertarians too (Ones who dissaprove of the drug war). Sadly only loony libertarians seems to be able to get their policies into action. Hence we have a screwed up health system AND a screwed up criminal justice system.

  20. OK. I’m back now and you are stretching the long quote from Krugman and Wells (that you point to that Kling references) beyond words if you think that they’re calling for “socialized medicine”. Here is what Krugman & Wells say:
    “That means a shift from private insurance to public insurance, and greater government involvement in the provision of health care—if not publicly run hospitals and clinics, at least a much larger government role in creating integrated record-keeping and quality control.”
    In Socialized Medicine (Canadian Hospitals, Scandanavia) EVERY PROVIDER works for the government and they own the hospitals. It’s a nationalized monopoly industry like say the Marine Corps. If “some providers” working for the government is “Socialized Medicine”, then we’ve got it here already with the VA and County hospitals.
    The distinction is very important because Americans go irrationally ape shit about government-provided health care (e.g the county hospital), but are very happy with (some) government financed care (i.e. Medicare).
    So tarring the latter with the brush of the former is a familiar tactic of the loony libertarians, and most who like the status quo.
    Now Trap, what about that rationing, eh?

  21. Trap
    a) Krugman is ON RECORD as preferring German and French health care to that of the UKs
    b) My point was NOT about whether he got that right or wrong (although I think he deliberately confuses the two as does every other loony Canada basher out there), it was that he basically said “foreigners ration and we don’t”
    And you’re right. The Krugman article was too long to read and I read it a month ago so I dont remember too much what he said in it. I will re-read it and re-comment.

  22. Matthew, Matthew, Matthew…shame on you.
    Did you actually read Krugman’s review? Because he makes it very clear that he IS talking about socialized medicine as you define it – “where all the providers work for the government”. I shall quote him:
    “What would real reform look like?…If US politicians could be persuaded of the advantages of a public health insurance system, the next step would be to convince them of the virtues, in at least some cases, of honest-to-God socialized medicine, in which government employees provide the care as well as the money.”
    (I believe that came from the 56th and 66th paragraphs, but don’t quote me.)
    This must be embarrassing, because you make a very hauty, and now obviously false, claim against Arnold Kling in Spot-On:
    “Sadly despite all his wealth and education apparently he [A. Kling] cannot tell the difference between socialized medicine (where all the providers work for the government) and socialized insurance, where all the people are in one or multiple insurance pools and the government sets prices for private contractors. It’s scarcely worth the bother of correcting him…”
    Alas…it is YOU who cannot tell what Krugman is actually saying!! And though it might scarcely be worth the time to correct Dr. Kling (he has a PhD in economics from MIT like Krugman), perhaps it is worth the time to read his blog. If you had, you would have seen that Krugman did, in fact, make a blatant call for “socialized medicine” as you define it.
    Please, try to be nicer when judging Dr. Kling and his fellow libertarian utopians; and if not nicer, at least be more correct.
    Trapier K. Michael