OP-ED

The Accidental Socialists

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.

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Ian FiskChePeter ShortpPeter Recent comment authors
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Ian Fisk
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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… Read more »

Che
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Che

@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… Read more »

Peter Short
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Peter Short

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… Read more »

p
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p

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… Read more »

Gary Lampman
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Gary Lampman

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… Read more »

Peter
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Peter

“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… Read more »

Nate
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Nate

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?

Nate
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Nate

“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.… Read more »

Peter
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Peter

“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… Read more »

Nate
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Nate

vote conservative in November and you can start

Margalit Gur-Arie
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“you want to go more left”
No. I want to go more right. Right, as in the opposite of Wrong.

Nate
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Nate

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… Read more »

Margalit Gur-Arie
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Nate, why does everything have to be black or white? Why are the only options Colombian Cartels free markets or Communist non-markets? Why is the only alternative to the miserable system we have now, a felcher staffed Gulag public clinic? Why should insurance companies have either license to exploit as they please or be totally dismantled? Why can’t we look at countries that use health insurance companies, or sick funds, a bit more creatively and a bit more fairly? Why do we have to make the assumption that this country cannot possibly provide quality health care for all its citizens?… Read more »

Craig "Quack" Vickstrom, M.D.
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Craig "Quack" Vickstrom, M.D.

Nate, I don’t know as if I’d like to see insurance companies banned entirely, maybe just regulated like a public utility, with the government limiting how much of a profit they can make, how much they can pay their staff, minimum benefits they must provide, and maximum premiums they can charge. “How would you feel working 12 hour days 5 days a week treating over weight people with self inflicted illnesses who consume needless amounts of care because it doesn’t cost them anything?” I already do more than this, far more. I have to waste unconscionable amounts of resources. As… Read more »

Nate
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Nate

How would you feel working 12 hour days 5 days a week treating over weight people with self inflicted illnesses who consume needless amounts of care because it doesn’t cost them anything? And make $60,000 a year for doing it. That would be the public system yoiur asking for. I don’t think we could find enough doctors to staff such a system. MD as Hell would you sign up for that? bev would you pratice in such a system?