Incentivizing Preventive Care

James’s post yesterday on Democratic presidential nomination aspirant John Edwards’s ideas about introducing incentives for patients to seek preventive care has engendered some little comment. I couldn’t get overly excited by the idea for a very simple reason: I don’t think it will happen. Whatever sense it may make (in the context that James notes), it’s not politically possible. And if it’s not politically possible, it’s not possible period.

As Exhibit A in my thesis I’d point out that, to the best of my knowledge, no OECD country has such incentives. If someone has information to the contrary, I’d appreciate it. Why is something that isn’t politically possible in, say, Germany, politically possible in the United States the citizens of which IMO would be even more resistant to such an idea than our European cousins?

I think it also should be noted that, as this article from January points out, the incentives for health care providers is quite the other way around:

See, preventive medicine simply doesn’t pay in the current American medical system.

“The time we spend with patients — we get rewarded almost zilch,” Agatston says.

Or, as Dr. Valentin Fuster, a former president of the American Heart Association, puts it: “There is no incentive at all. It’s a disaster.”

This is obviously an exciting time for health care reform. In California and Massachusetts, state officials have announced plans to provide universal health insurance. Last week, the head of the Business Roundtable, a major corporate lobbying group, and Andy Stern, a union leader, held a news conference to call for more coverage.

President George W. Bush devoted a big part of his State of the Union address Tuesday night to his own health insurance ideas. The push to reduce the number of uninsured, now approaching 50 million, is long overdue.

But a lack of insurance is only one of the two huge problems with health care. The other is the perverse system of incentives that nudges doctors and patients toward expensive tests and procedures when cheaper preventive measures — or simply doing nothing — might actually produce better results. Partly as a result, costs are rising rapidly for the 250 million-odd people who have insurance.

In cardiac care, high-tech scans and invasive procedures like bypass surgery bring in the money. Yet for many patients, there is no scientific evidence that basic procedures like stents prolong life.

So, why not incentivize the health care providers, too? For the simple reason that, unless the incentives your provide for preventive medicine are as large as the money being spent treating conditions, you’re asking the health care providers to take a pay cut. And if the incentives for preventive care are as large as the present incentives, you don’t realize any cost savings.

I’ve said it before and I’ll say it again. To reduce the costs of health care substantially in this country you’ve got to do one of three things:

  1. Health care providers must voluntarily take a pay cut.
  2. Prices must be fixed.
  3. Or you’ve got to increase the supply of health care substantially.

Single-payer might reduce health care costs, perhaps, 10%. That would be more than absorbed by the increases in demand being proposed not to mention the secular increases in health care costs. Unless you believe that health care providers will take a pay cut voluntarily, eliminating employer-provided health insurance won’t reduce costs, either, and, even if it did, it would be to the detriment of public health We’re stuck on the horns of supply and demand.

Cross-posted from The Glittering Eye

FILED UNDER: Economics and Business, Health, , , , , , , ,
Dave Schuler
About Dave Schuler
Over the years Dave Schuler has worked as a martial arts instructor, a handyman, a musician, a cook, and a translator. He's owned his own company for the last thirty years and has a post-graduate degree in his field. He comes from a family of politicians, teachers, and vaudeville entertainers. All-in-all a pretty good preparation for blogging. He has contributed to OTB since November 2006 but mostly writes at his own blog, The Glittering Eye, which he started in March 2004.


  1. Andy says:

    Single-payer might reduce health care costs, perhaps, 10%. That would be more than absorbed by the increases in demand being proposed not to mention the secular increases in health care costs.

    This is a combination of fear mongering and lack of facts that is beneath you.

    Administrative costs for Medicare and other “universal” systems are on the order of 5-10% of overall costs. Administrative costs for HMO care delivery are 30-40%. So, just looking at paperwork, we’re talking about a huge savings — indeed, this is widely reported as the main reason that American health care spending is so much higher than every other first world nation.

    If private care advocates are so sure of the superiority of HMOs and the like, why don’t they support opening Medicare to all, without making it mandatory, and allowing competition for the consumers?

  2. Dave Schuler says:

    Andy, do you have support for the 30-40% figure? I’d appreciate seeing that.

    The figures that I’ve seen are between 20% and 30%. Assuming something other than a best case scenario, here were my assumptions.

    Current costs of insurance 20%
    Cost of single-payer -10%
    Net savings 10%

    I don’t see that as “fear-mongering”. I see it as a realistic projection.

    indeed, this is widely reported as the main reason that American health care spending is so much higher than every other first world nation.

    I’m sorry, Andy, but that is just not arithmetically possible. Our costs aren’t just 30% higher than other OECD countries—they’re three times what other OECD countries are paying. You can’t get a 70% reduction out of 10% or 20% savings.

    BTW, I’m a reasonable interlocutor. There’s no need to insult me or belittle me to make your point.

  3. Steve Plunk says:

    How about choosing #1 and #3? I’m a firm believer that it will take many steps each yielding small gains that will help us. There will not be one big cure for what ails us.

    Increase the number of doctors, nurses, and health techs. Allow the simple tasks to be performed by nurses and health techs. Promote competition and free market solutions. Educate the health care consumers. There are many more small steps that need to be taken to move toward less costly care.

  4. John Thompson says:

    Cut their pay. These guys are nothing more than glorified plumbers or auto-mechanics. There is nothing intellectually challenging about changing a heart–once you’ve done it two or three times it is no more complex and should be no more expensive than changing a radiator. Doctors are WAY WAY WAYYYYYY overpaid.

  5. MikeT says:

    #3 is the cheapest option. It could be done by the following:

    1) Provide comprehensive protection from litigation for doctors that do not act negligently against malpractice suits. While we’re at it, perhaps most of the malpractice issues should be brought out of the civil system and be brought into the criminal system if they’re “that bad.” I’ll defer to a lawyer on that one, for a change.

    2) Provide tax incentives to people who give donations for the creation of new medical schools and the maintenance of existing ones.

    3) Encourage every state to create a medical school at every major state university that doesn’t already have one, while providing funding to increase the class and staff size of existing ones by 25%.

    4) Allow drug companies to pay for their own product evaluations done to FDA standards, provided that the entire process of the certification is done according to FDA standards, is recorded for posterity and the results are submitted for permanent record to either a national medical archive maintained at the Library of Congress or freely available on the Internet.

  6. Dave Schuler says:

    John Thompson:

    There’s no way to reduce salaries by fiat unless we nationalize healthcare; reducing salaries organically requires a drop in demand, a rise in supply, or both.


    The problem with creating new schools is accreditation. The AMA has had an explicit strategy of “fewer, better doctors” for more than a century.

    Medical malpractice is a thorny issue. I’m skeptical about the political effectiveness of pursuing that direction as an approach to solving the problems with our health care system since I think that we’ll have problems enough with doctors, hospitals, insurance companies, and patients with the reforms that need to be made without taking on plaintiff’s attorneys as well.

  7. spencer says:

    The simple alternative is to pay doctors an annual salary. they now face a system that pays them for doing something — so their economic interest is to do something. So change their economic incentives and you change the system. Boy is that simple.

  8. Dave Schuler says:

    Paid by whom? If it’s the government, you’ve nationalized medicine. If it’s HMO’s or hospitals, the physicians’ employers continue to have incentives to “to something” (if that’s how they’re being compensated).

  9. MikeT says:


    The AMA is a problem. That is why accreditation should be done by state agencies, not by private organizations. There is no good reason why a private group, one that is little more than a white collar trade union, should be allowed to control the keys to the industrial kingdom.

  10. Poster John Thompson left me between stunned and amused; really I should not be surprised. There are way too many American ignorami who believe as he does, that physicians are “nothing more than glorified plumbers or auto-mechanics” and that “changing a heart” is simple “once you’ve done it two or three times …no more complex and should be no more expensive than changing a radiator.” Here’s wishing that in his time of need, Mr. Thompson gets EXACTLY the type of physician he percieves. If his views take hold, and I’m guessing they will, the odds are he will get his wish which shall be richly deserved.