Economics

It’s a Trade-Off, Stupid.

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An advantage of being a foreigner, or a recent immigrant to be precise, is that it allows one to view events with a certain detachment. To analyze without the burden of love, hate or indifference for the Kennedys, the Clintons or the Bushes. To observe with both eyes open, rather than one eye looking at the events and the other looking at a utopian destination.

The most striking thing I’ve observed in the healthcare debate in the US is the absence of an honest discussion of trade-offs.

I’ve found that “trade-off” carries a sinister connotation in American healthcare parlance. Its mere utterance is a defeatist’s surrender. If optimism is the iron core of the United States, acknowledging trade-offs is her kryptonite.

I was raised in Britain. I learnt to guard optimism with pursed lips. You never knew when it would rain. I also learnt in Britain’s NHS where healthcare resources really are finite, there is a trade-off between coverage and access.

In the discussions preceding the implementation of the Affordable Care Act (ACA) two disparate truths were conjoined by a single solution. The unsustainable trajectory of healthcare spending. And the large number of uninsured population. It was scarcely acknowledged that solution of these problems are inherently oppositional.

This has led to the search for utopian payment models. Fee for service incentivizes physicians towards generously reimbursable services of marginal benefits. Capitated systems dissuade physicians from taking sicker patients.

How about we pay for outcome, value and quality?  Sounds simple enough.

There are trade-offs. Transaction costs are incurred in defining, ranking and measuring outcome, quality and value. There is rent seeking when stakeholders feel undervalued. Physicians may avoid sick, non-compliant or poor patients, caring for whom might be unfavorable to the metrics. Finally, there is Goodhart’s Law, well known in Britain’s NHS, which states that when a metric becomes a target it ceases to be a good measure.

We must tackle waste, we are told. There are few better example of waste than over utilization of diagnostic imaging. But we also want emergency physicians to never miss life-threatening conditions. Once again we face a trade-off, a dilemma.

If we don’t want to miss an impending heart attack in a young patient presenting with vague symptoms, in whom the chances of a heart attack are minuscule but not zero, many patients will need imaging to pick up that black swan. Because we don’t know who has an impending heart attack and who has heartburn, with certainty, before the event.

If we want zero misses there will be waste. If we want zero waste there will be misses. Choose.

We want to please the patients, the consumers. We want to reward physicians for satisfying patients. But then be prepared for unnecessary antibiotics. Let’s not bemoan antibiotic resistance. Patients often equate good care with intervention, whether antibiotics in a common cold or MRI for back pain.

We don’t want patients to wait too long for medical services. To achieve this we must build services that not only are optimally efficient but have redundancies built in to them. This costs.

We want systems to be efficient, uniform and have low marginal costs. That means consolidation, Cheesecake factories. But we also want the Marcus Welby type of doctor, available within a canter; who is personable and very knowledgeable of us.

We now face another dilemma: uniformity or nuance.

We want Dr. Welby to have the latest electronic medical record, one that communicates with the Cheesecake factory, but pay attention to us not the screen.

We want pharmaceutical companies to innovate, to innovate safely and to take it on the chin when they fail to be innovative. Yet when they succeed and place a price tag for both their success and failure (and cost of complying with the FDA) we balk at what we see.

Why would big pharma stay zealous about innovating if their pills are going to be sold at Walmart prices?

We want equality in healthcare. It hurts our sensibilities that someone might not have access to the latest treatment for hepatitis C just because life’s lottery placed them in a modest income bracket.

We must decide if we want MD Anderson level care for all. That will cost. Or will we restrict care to ensure equality within a finite budget? That means rationing.

Equality means cost or rationing. Choose.

We want big data to do its magic with information. But we want our privacy to be guaranteed.

We want vendors for health information technology to be imaginative but also collaborative. That’s like asking Colonel Sanders to share his secret recipe with local restaurants and continue developing new recipes.

We want insurers to bargain with providers to bring the charges down. They can achieve that through narrow networks. But we want to retain choice.

We want trainee surgeons to be experienced when they operate on us. But never to be their first surgical candidate. How can they get to their 100th operation bypassing the first?

Halbig v. Burwell is fundamentally a tension of trade-offs. Subsidies do not arise out of magic but through taxes. Taxes reduce the chances that small businesses arise and grow.

Do we want more mandates and coverage and fewer jobs or more jobs and less coverage? Choose.

The biggest trade-off is between a constitutional republic, with all its checks and balances, and a centrally planned healthcare. The two are fundamentally incompatible. The future will yield many more convulsions. Many more Halbigs.

The optimism surrounding the ACA, summed up by President Obama’s promise “if you like your doctor, you can keep your doctor”, gave many the impression, myself included, that healthcare reform can be Pareto optimal; a win-win for all.

Regrettably, trade-offs are a fact of life. Which means there are winners and losers. This is not unusual. But by not acknowledging the trade-offs we have created resentment in the losers, and widened the partisan chasm.

The partisanship, that sadly is all too typical of the healthcare debate, comprises the two wings of the trade-off. If we desire less polarization in our debates we must start acknowledging trade-offs.

 

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17 replies »

  1. Excellent beat ! I would like to apprentice even as you amend your web site, how can i subscribe for a blog website? The account aided me a applicable deal. I have been tiny bit familiar of this your broadcast offered vibrant clear idea

  2. Yes, Bastiat’s Candlemakers’ Petition. “Oh, heaven let your light SHINE down”{song} That is wonderful and if only Bastiat were read instead of listening to that 67 minute piece suggested above one would have added an additional hour to the day making the day 25 hours long using the accounting methods of some in this present administration. The administration should let the light shine down and permit the sun to come through.

    Competition and innovation: Another interesting story exists in the book the Discoverers by Boorstin. He explained how the very narrow minded French guild system inhibited French clockmaker and other guild innovation while the looser regulations of the British guilds permitted them to fulfill the needs of their ever growing seafaring empire by producing seafaring clocks and improved scientific equipment.

  3. I like Bastiat’s Candlemakers’ Petition.

    But the relevance of Bastiat, Hazlitt and Hayek depends on a fundamental assumption: that sovereign debt matters even for USA.

    If debt doesn’t matter, which I think it does (although secretly hope it doesn’t), then the only thing we need to wok out is how fast can we print money.

  4. As I believe Saurabh would tell you there are trade offs and perhaps he might add that the one hour of time could have been better spent reading Bastiat’s discussion of the broken window theory.

  5. “There are a lot more but look at Coolidge, Kennedy and Reagan.”

    I wonder if that would be an “hour +”.

    You never miss an opportunity to turn down the chance to be enlightened allan.

  6. Thanks peter1, but I don’t think I want to spend an hour+ on this video. I decided to randomly listen to the brogue and at ~13 min he was talking about the EU and some of the crazy things caused by the EU leading to the southern nations becoming poorer and I presume others (Germany) becoming wealthier. I stopped listening after one or two minutes so I am not sure where he was going. If he was going to say the system caused a lot of those problems I agree and that is why I never thought, without the impossible political union, the EU would survive intact.

    The title is on austerity. I hate to mention it but in the end the checkbook has to balance and if it doesn’t there is only bankruptcy, so no I don’t agree with the way our government has spent our money. I don’t agree with the credit afforded to individuals that ultimately had to be paid back by the taxpayer.

    What is austerity? In the context I use it, it means balancing a checkbook and not going into debt unless that debt is being carefully used to create wealth.

    If there is something he said that was important you will have to tell us. My suspicion is he ran around in circles trying to show how greedy people wrecked the economy and that government was needed to spend even more money servicing those banks and financial services institutions that caused the problems in the first place.

    My suggestion to you is to look at three points in our history where we had financial difficulties. There are a lot more but look at Coolidge, Kennedy and Reagan.

  7. I agree with allan, American consumers do pretty well with assessing trade-offs. Sadly, US healthcare is the furthest thing from an efficient market that supports that level of transparency. I don’t know if we’ll have the money or patience to see if we can get there…

  8. “We have so much ‘consumer’ credit that houses were being bought without any down payment helping to lead us down the road to fiscal catastrophe.”

    Indeed. The facts of life are Austrian.

    But you know the only reason you can do this is because you can print your own money, and that’s only because $ is the trading currency and many know/ hope, that it will continue this way, with the only debt being the interest on the borrowing from China, which is not insignificant.

    So you never have to face Gresham’s Law.

    It’s as if the rest of the world has been intelligently designed to serve American consumerism.

    Enjoy it whilst it lasts! (as I plan to!).

  9. Trade offs is the name of the game something I believe virtually all Americans are familiar with. But, why look for trade offs if someone is providing something for free (even though it isn’t).

    Maybe other countries are different. Those other countries might be more used to a King or a Queen, a singular ethnic society, etc. Perhaps Americans are more individualistic in a way described by Tocqueville. Maybe that is where the policy wonks fail in their attempt to socialize medicine. But, that is how the US became the richest and most powerful nation in the world.

    You are right that “The most striking thing I’ve observed in the healthcare debate in the US is the absence of an honest discussion of trade-offs.”

    The politicians on the left never permits such a discussion and neither do those politicians outside of the left that are merely lefty lights. Our school system hasn’t paid very much attention to economics and has likewise helped create the idea that anything desired can be had (without cost).

    Correct me if I am wrong, but the US has an almost unique system of consumer purchasing. Most Americans have credit cards where essentially they are given loans to purchase things. I believe in continental Europe things might be different as they utilize the debit card approach. Using that approach one has to be able to pay in advance rather than 30 days after the purchase. We have so much ‘consumer’ credit that houses were being bought without any down payment helping to lead us down the road to fiscal catastrophe. The healthcare dilemma is just a part of a much greater question as are the trade offs you describe.

  10. A very good friend of mine, who has spent decades toiling in the health policy intelligentsia in Washington, puts it this way: “the reason US healthcare is unfixable is that each American views the medical care system as his or her personal tool to obviate death. But, they all want that obviation to take place on someone else’s dime and time.” Nothing says it better.

  11. Mostly this is about, “I don’t want to trade off my health care for your health care.”

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