Matthew Holt

Costs v Coverage: Krugman gets it–Brooks is almost quite close

So Paul Krugman, the NY Times Nobel Prize winning lefty columnist, says this (and echoes what I’ve been saying for a while)

So where in America is there serious consideration of moving away from fee-for-service to a more comprehensive, integrated approach to health care? The answer is: Massachusetts — which introduced a health-care plan three years ago that was, in some respects, a dress rehearsal for national health reform, and is now looking for ways to help control costs.

Why does meaningful action on medical costs go along with compassion? One answer is that compassion means not closing your eyes to the human consequences of rising costs. When health insurance premiums doubled during the Bush years, our health care system “controlled costs” by dropping coverage for many workers — but as far as the Bush administration was concerned, that wasn’t a problem. If you believe in universal coverage, on the other hand, it is a problem, and demands a solution.

So universal coverage systems find that they can’t just let the health care system increase costs because there is no safety valve of the uninsured to dump out of the system. We’re all in it.

That’s actually been fine with the American health care system in aggregate—if you can increase prices (costs) and have relatively inelastic demand, you’ll find that enough people stay paying into the system that the total amount paid in goes up. That’s the story of the last 40 years as we’ve gone from 5% of GDP on health care to 16%.

Of course that price increase screws the people on the margins who get tossed out. And eventually that number becomes more and more people.

However, my guess is that not enough people are on the margins suffering to cause really serious sustainable insurance coverage reform. And I said as much more than two years ago when I said we should wait for it to get worse

Right now there are still only 45 million uninsured, Medicare is still a popular program insulating seniors from most of the foibles of the health care market, and most people still get their insurance at work. But as I said, the numbers are heading the “right” (or in reality) wrong way. In five years, the $10,000 cost of family insurance will be $15,000, more and more employers will have dumped people either into high-deductible health plans where consumers will become horrified about their out of pocket costs, or into the uninsured pool. Medicaid will not be able to pick up the slack, and the baby boomers will not yet be 65 and able to cross over into the safety of Medicare.

But this has got to really hurt, and really hurt the poorer Evangicals voting against their class interest, before it’ll create a constituency that will support universal health care both as an election issue and support it through the slings and arrows of the massive opposition that will be lined up against it. And that pain is still some years away.

So I said it would be after the 2012 election that we’d get serious reform. But I may be wrong and we’ll see what comes out of the House, Senate and conference in about a month.

But what comes after the move to universal coverage is the realization by the people paying that those suffering the burden of the increase are no longer those excluded from the system—but instead are all of us. That’s why every other developed nation uses some form of global budgeting to keep health care costs in line with economic growth-–and in some cases to reduce it (see Canada and Japan in the 1990s).

David Brooks, the NY Times middling right wing columnist (sans Nobel) calls health care costs “Rhinos” and says this:

The rhinos are closing off your future. As the White House folks say, health care premiums have doubled over the last decade. The government is saddled with $36 trillion in unfunded liabilities.

He doesn’t have a solution other than a shotgun approach to everything that’s been suggested so far. But at least he realizes that the increase in health care costs has an impact eventually on everyone. And he calls fee-for service medicine the “core perversion in the system.” So even those politically conditioned to oppose universal coverage are getting there slowly.

However, according to the NY Times reporters who went to four different households last night, Obama hasn't yet convinced Americans that the legislation in Congress can cover everyone and cost less. And somewhat foolishly in my view he’s not trying to find all the money he needs within the health care system (and yes, it’s in there all right!). So he’s leaving himself open to the accusation of saying “pay now to save later,” and of course “paying” means “taxing.” (Funny this accusation is never made when it’s a small foreign country we need to invade, but then we feel OK just borrowing that money).

But Obama and Brooks, unlike Krugman, haven’t got to the logical conclusion. You need universal coverage before the political will can be gathered to do the unpleasant things that real cost control requires. Because when there’s no more “them” to take on the pain, it visits “us”.

CODA: I’m off to the Aspen Health Forum this weekend as an invited “young” Fellow. They obviously think in terms of longer life expectancy than I do. I resisted the temptation to demand an interview with Goldie Hawn (although I was offered one). But while I’m there I’ll try to write a weightier article about how we should just what comes out of the reform process. But my two key judgment metrics are 1) Does it cover everyone, and 2) Does it have cost containment built in. I’ll tell you what Kate Hudson thinks next week.


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11 replies »

  1. In regards to healthcare being a right: I believe that it is NOT and, further, that it must NOT come to be regarded as one.
    Not that I am opposed to anyone getting health care services, or even the government paying for those who cannot afford them. But still, it must not be considered a right for significant practical reasons:
    posted at
    During the current debates over health care, there has been argument that health care is the right of every American, if not every human being. Is it?
    Certainly everyone needs health care. Everyone wants everyone to have it. Everyone I know wants anyone who cannot access health care to have it made available at the expense of others.
    Does this make health care a right?
    I’m a doctor, not a lawyer. But my understanding is that rights are what government is required to guarantee equally to all, to protect, and to supply if wanting.
    Some argue that rights do not emanate from government, but from human nature, nature, or God: universal or inalienable rights. Such rights are few in number. Some governments deny their people liberty, the pursuit of happiness, and sometimes even life. Do their citizens still have these rights; do they exist in name only, nonexistent in reality?
    Here at home, other, derivative rights, including those to privacy, to quiet enjoyment, and to safety, all seem reasonable. Their definitions are determined and legitimized by courts – that is, by government. Once anything is deemed a right, it is incumbent upon government to supply it to those who do not have it in adequate supply. Since government becomes the source, the individual no longer needs to strive to secure it. In fact, it is appropriate to demand that government give you your rights and, further, to give you more if you have less than someone else: equality of rights. Politically, as well as through the courts, government decides what is the proper amount of a given right for individuals or groups.
    Recently those who are differently-abled have been guaranteed rights, including access to transportation, public spaces, and mainstream education. Since these are higher on Maslow’s famous hierarchy of human needs than health care, shouldn’t health care be a right as well?
    Consider food, clothing, and shelter. These are necessities, more fundamental even than health care. Governments provide food (food stamps, school lunches, surplus give-aways) and shelter (public and Section 8 housing, FHA loans) to those who are otherwise without. Charities help immeasurably (food banks, food pantries, Habitat for Humanity) and also help with clothing (Goodwill, Salvation Army, churches and hospitals).
    Yet food, clothing, and shelter are not broadly accepted as rights. They are considered responsibilities. This is not just a difference of semantics. It is a difference of attitude.
    Individuals are still expected to feed, clothe, and shelter themselves. The government can help in time of need, but this provision is not generally expected for a lifetime. Most on food stamps strive for the day when they no longer need them. Many I have known in public housing scrimp against difficult odds to afford a place of their own. Even though the government provides, they maintain parallel efforts to provide for themselves.
    If government – or private charity – supplies something they are not required to give, the response is gratitude, not entitlement. Responsibility remains with the individual. If the government provides free cheddar and not a properly aged Gorgonzola, there is little impulse to complain. This would not be true if free cheese were considered an American right and if a vast government bureaucracy existed to supply it.
    I want everyone to have health care. As necessary, I want government to help people have it. [But there are many political, structural, and practical changes that can be made before it is necessary for government to be a direct provider.] I certainly want charities and other benevolent organizations to help too: Church-based free clinics and endowments for the unfunded are examples.
    It is the nature of health care that each person’s potential demand for services is essentially limitless. It is not reasonable for people to demand, as a right, that the public – that is, taxpayers – pay more and more without expectation that they contribute themselves. Under such a system, outcomes – both clinical and financial – will be poor.
    Finally, if healthcare is considered as a subsidiary right, to be defined and expanded by government, it can also be limited and denied by government, through rationing or arbitrarily.
    Healthcare must remain a responsibility.

  2. There is something about our national psyche that is very peculiar and disastrous. In health care, we spend fortunes on curing and alleviating symptoms of diseases that could have been prevented if we intervened sooner and if we invested some capital in preventive care. Instead, we choose to wait until it’s too late, and only then we step in with heroic measures, at unaffordable prices.
    Sounds familiar? We had to wait until Wall Street went up in a ball of fire and Detroit went down in smoke, before regulating the banks and breaking up the inefficient management of the auto industry. All accompanied by astronomic “bailout” costs.
    We are also going to wait until the green grass starts growing on the North Pole and we all choke in clouds of pollution before we do anything significant about global warming.
    So Matt is right. We first have to wait for our current health care system to become terminally ill and excruciatingly painful, and then and only then, will we be willing to “step up to the plate” and “bite the bullet” and whatever other platitudes we usually come up with, to really mean that we have to spend an enormous amount of cash on the problem, with very uncertain outcomes.

  3. Right now the Congress is giving those who win the subsidy lottery, price protection, but it is failing to give mandated people and those already in the system, who do not qualify for tax supported healthcare, any price protection, AND it is also imposing additional tax burdens on this group. Who thinks this “reform” will get voter support unless most voters fall into the subsidy catagory – clearly not the case. It appears that the beast has grown too big to reform until more people are pushed to the margins.

  4. Affordable insurance guy. Unlike 99% of spam these comments are reasonable but you ain’t using THCB to spam your links. I’ve deleted them–come back if you like using an identiy that doesnt link to a commercial site but stop using those links

  5. I think our healthcare cost control problems lie more with Oxen being gored than Rinos run amok. Some mechanisms need to impose limits on health spending, and that’s hard to do in a sciety where death is treated as an option, or at least the relative we keep hidden in the closet.
    If healthcare is a right then how can any physician sleep while illnes persists? Health is a communal responsibility, one our society hasn’t met for quite a while. We are on the (continual) first steps of what will be a long journey that hopefully wouldn’t end for us collectively but surely will someday for each of us.

  6. David Brooks, I am sorry to say, is a phony with no grasp of any issue. Prof. Krugman on the other hand has remarkable insight and knowledge. Regarding Prof. Krugman’s supposed “leftist” credentials, as he notes, his government service was on the Council of Economic Advisors was under the Reagan Administration. Nothing leftist about his analysis. It is fact- and knowledge-based. Aside from that he has been a pure academic with the somewhat recent addition of his columnist role.

  7. And even in Massachusetts, the battle lines are already being formed even before universal coverage is achieved as the focus shifts to improving affordability.
    Boston Medical Center is suing the State because the cuts in uncompensated care subsidies have substantially exceeded additional revenues from newly insured patients.
    Providers are positioning the proposed move to global reimbursement as a multi-year transition, not a near term direction. It will be quite interesting to watch how physicians and ancillary providers align themselves with hospitals, and who gets to divvy up the global pie 🙂

  8. I’m pleased that Professor Krugman recognizes the virtues of moving away from FFS payment. The problem, of course, is that Krugman is a huge fan of government administered pricing schemes (e.g., Medicare PPS and RVRBS) as well as single payer systems. If you want to preserve the perverse incentives embedded in our health care system (in which, for example, a physician treating a diabetic has a powerful incentive to amputate a toe but almost no incentive to provide advice on how to lose weight or quit smoking), supporting the Medicare status quo or single payer is the way to go. By the way Mr. Krugman, do you really think Massaschusetts would seriously consider capitation and episode pricing if it had to get a permission slip from CMS?

  9. In order to “reform” health care processes, it requires an understanding of the macro-economics of why reform is needed. The perversions of the current iteration of healthcare has its genesis in the defacto decades of wage controls on doctors.
    Think back to the cause of the inflation of the 1970s. It was the wage and price freeze enacted by the infamous President Nixon.
    This is the cause of inflation embodied in excessive utilization, today, despite the myriad of other plausible explanations beginning with litigation protection.
    Doctors are not paid to practice cost effective medicine. They practice in reaction to the controls put upon them by the government, health insurance companies, PBMs, and hospital administrators, all of whom are gaming the system to suit their own interests.
    There are things that doctors perform now as they did in 1990. They are getting paid 30 cents on the 1990 dollar excluding inflation.
    To accomplish the goal of achieving accountable cost effective medicine, doctors must be paid to do that. Since doctors control how each dollar is spent (they only make a small percentage of that), it would be rather simple to pay each to establish a fixed amount of savings. If each doctor in is/her judgment conserved a small amount in overall expenditures, say $100,000, that would equate to about $70 billion per year, more than enough to “pay” for the reform.
    However, doctors would need to share in the savings.
    As a simple example, a surgeon does one less exploratory lap or elective gall bladder per year. The surgeon is out a few hundred bucks but the savings to the system is the entire hospital fee, home care, and more. If there is a complication avoided by not having done the “elective” operation, the savings could be tens of thousands. Of those thousands saved from not having the hospital expense, the surgeon should be paid a certain percentage more than the fee paid had the surgery been done.
    As has been done in agriculture (interestingly enough) when farmers were paid not to plant a certain amount of acreage, physicians should be paid not to abuse the system or putting it another way, be paid to save the entire system big bucks.
    That may be too simple for a Congress that takes pleasure in complex carrot and stick games, the kind that got us into this mess.

  10. Healthcare is a basic right…and I am saying this even though I do not believe I am leftist or rightist. However the solutions can not be simply mandating everyone to buy.
    Government is not liviing the life of individuals to understand those who may have difficluty putting food on the table, where do they get the money to buy insurance.
    Telling others is is just a talk with enforecement power.
    What we need is a basic coverage for free. Let us hire PCPs and create metric to ensure that they perform..such as wellness index, throughput, cost, etc. Let them become the healthmanager who has budget but must keep the cost down. Then remaining needs can be fulfilled by supplemental insurance.
    The problem with the legistlations now is that it is too complex – I tried to read it.
    And secondly, why are we talking of need for more money when we already have so much money being wasted….let us make it pay as you go improvement. There needs to be concrete plan to cut the cost. AND we are failing big time on that.