Yes. Employers Really Are to Blame For Our High Medical Prices

I welcome Leah Binder’s earlier post on this blog, written in  response to my blog post in The New York Times. To be thus acknowledged is an honor.

As an economist, I am not trained to respond to Ms. Binder’s deep insights into my psyche, dubious though it may be. Nor, alas, can I delve into hers, fascinating though that might be. Let me therefore concentrate instead just on substance.

First of all, I do not recall calling employers “stupid,” nor did I question their IQ. I do confess to having once called employee benefits managers, when addressing them at some of their usually mournful meetings, “kind-hearted social workers dressed to look like tough Republicans.” At that meeting I contrasted how carefully their company’s tough-minded VP for Procurement, Murgatroid de B. Coverly III, Princeton ’74, purchased paper clips for the company with the much more mellow approach taken by their V.P. of Human Resources to purchase health care for their company’s employees.

Benefit managers – I hate to call them BMs — really are the nicest folks. They care deeply about their employees’ well being (until, of course, the latter lose their job with the company). They worry incessantly about their company’s ever rising outlays for health insurance. And, after a cocktail or two, they regularly lament how rarely they get the attention of top management and of the board of directors – the very folks I once told to go look into a mirror in their search for the culprit behind rising health care costs.

No, when I say “employers” I really mean top management and boards of directors who make the rules. And  I did not even call those mighty ones stupid, but merely “passive payers” as did, by the way, David Dranove on this blog in his critical response to my New York Times piece. Why these usually tough and smart people have behaved so passively in buying health care for themselves and their employees remains a puzzle at the level of economic theory.

As none other than the distinguished Alain Enthoven put it as early as 2003, and later with Victor Fuchs in“Employment-Based Health Insurance is Failing Society“.

I concur. Indeed, if I really had the titantic power over U.S. health power Ms. Binder imputes to me and my academic colleagues, I kindly would have relieved employers long ago of their nettlesome burden of worrying over health-care costs. I would rather just have them concentrate on making the best widgets in the world and sell them to China.

Furthermore, I would grant Americans truly portable health insurance that is not lost with a job at a particular company and I would have afforded Americans price transparency in the market for health care.

Many academic economists have that same dream – perhaps most – but for more years than I wish to remember we have been howling into the wind with these ideas – even with the more modest idea of eliminating the regressive tax-preference now accorded employer-paid health insurance, a dream David Dranove seems to have as well.

I do stand properly accused, however, of accusing employers being party – passive or active, I care not which — to a deal to keep prices for health care in the private sector opaque from the public. Well, haven’t they? After all, they had half a century to flush these prices out into the open. Indeed, I recall that one of the major complaints among employees with high-deductible policies has been the lack of information on prices by provider and procedure.

Ms. Binder assures us that employers have “fought tooth and nail” to get more transparency on prices for employees. I wish Ms. Binder had explained to us their lack of success in this regard so far. Aren’t insurers the hired agents of employers, and should not these agents do as their principals tell them to do? How can principals fighting tooth and nails for something they want from their agents lose that battle?

Finally, I have nothing at all against The Leapfrog Group, being a friend of several of its founders. They, and especially their CEO Binder, are fine, hard-working people truly devoted to improving the cost-effectiveness of U.S. health care, with some successes.

But The Leapfrog Group brings to mind a pictorial model I used during the late 1990s to sum up my impression of the U.S. health system. At that time employment-based health-insurance premiums started once again to rise at double-digit rates. The picture is of a giant elephant lumbering down a jungle path, carrying the U.S. President on one of its tusks, and with people on the ground busily beating the legs of the beast with chop sticks, hoping thus to shove the beast into a more desired directions.

The Leapfrog Group is among the chop-stick wielders called “employers.”

A more current image of the Leap Frog Group in my head is that of a band of U.S. Special Forces doing valiant stuff in the wild mountains somewhere in Afghanistan. Great combat victories in tiny areas, but overall – you get the picture.

Michael Millenson’s, no stranger to this blog, apparently agrees with that imagery.

Uwe Reinhardt is recognized as one of the nation’s leading authorities on health care economics and the James Madison Professor of Political Economy at Princeton University. He is a regular contributor to The New York Times Economix Blog.