Winning the Healthcare Fight

David Frum frets that conservatives might be in for a Pyrrhic victory in the health care fight if they define winning as “beat back the president’s proposals, defeat the House bill, stand back and wait for 1994 to repeat itself.”

[W]e’ll still have the present healthcare system. Meaning that we’ll have (1) flat-lining wages, (2) exploding Medicaid and Medicare costs and thus immense pressure for future tax increases, (3) small businesses and self-employed individuals priced out of the insurance market, and (4) a lot of uninsured or underinsured people imposing costs on hospitals and local governments.

We’ll have entrenched and perpetuated some of the most irrational features of a hugely costly and under-performing system, at the expense of entrepreneurs and risk-takers, exactly the people the Republican party exists to champion.

That’s essentially the argument Dave Schuler’s been making for months.  And it’s right as far as it goes:  We’re not talking about a free market system that’s functioning superbly and needs only to be saved from the depredations of socialism; large parts of the system are already on the federal budget and the trends are unsustainable.

So, what does Frum propose conservatives do? Well, nothing in that post.  Fortunately, he follows it up with this a rather detailed set of bullet points which he says is “non-exhaustive.”  Allowing the self-insured to buy insurance with untaxed dollars, support for private co-ops, a government rating system, outlawing certain insurance company bad practices, moving away from employer-financed insurance, tort and malpractice reform, and so on.   He then concludes:

We should of course fight against any so-called public option. Direct government provision ought to be the conservative red-line; No deal at all is preferable to a deal that includes a bigger government entry into the insurance business.

Which, ironically, is the Republican position that he’s complaining about!

Reality check:  We have a Democratic president with overwhelming Democratic majorities in the House and the Senate. There is no way — zip, zero, zilch, nada — for Republicans to pass tort reform or any number of other programs that they might prefer.  The time for that was in 2001 when they had the presidency and both Houses of Congress.

All the Republicans can really do is throw sand in the gears and try to prevent creation of a massive new government entitlement program.  If public option becomes reality, not only will it be permanent but it will likely become increasingly less optional.

Tactically, the only way to achieve that is to attack the weakest parts of the Democratic plan so as to put pressure on Democrats in more conservative states and districts to break from the pack and vote against the package.  That’s not done by wonkish talk about fantasy alternatives but rather by making Obamacare the target.

And, lo and behold, it seems to actually be working.

Frum’s approach, by contrast, would make it much more likely that conservatives lose the big fight on public option.  It concedes that what we have now isn’t working and that the government must step in and do something.  Given who’s in charge, that something would not look much like Frum’s list.

FILED UNDER: Government, Health, Politics 101, , , , , , , , , , , , , , ,
James Joyner
About James Joyner
James Joyner is a Security Studies professor at Marine Corps University's Command and Staff College and a nonresident senior fellow at the Scowcroft Center for Strategy and Security at the Atlantic Council. He's a former Army officer and Desert Storm vet. Views expressed here are his own. Follow James on Twitter @DrJJoyner.

Comments

  1. triumph says:

    If public option becomes reality, not only will it be permanent but it will likely become increasingly less optional.

    Not only that, but Obama’s plan will also establish death panels which will euthanize people he doesn’t seem worthy.

    The death panels will be coupled with “gay panels” that will force people gay so they won’t have kids. This is the other brilliant element of Obama-care–the assumption is that if he can turn enough people gay, systemic health care costs will depreciate.

    Essentially what would be established is a cap-and-tax for children.

    This whole thing reeks of the holocaust.

  2. sam says:

    I think Dave has also argued, correctly I believe, that the absolute core problem in our health care system is the fee-for-service model upon which it’s based. A model that is extremely lucrative for both health care providers (income) and insurance companies (premiums). As far as I can see, nobody, on either side of the debate, is offering any serious alternative. Both the Democratic and Republican proposals assume the model. The differences arise over how to best ameliorate its deleterious effects. Until the model itself is changed, Democratic bandaids or Republican bandaids are all we’re going to get.

  3. Dave Schuler says:

    Just to emphasize why the scenario that Mr. Frum describes is something we shouldn’t want to take place, consider the large number of unemployed people. The trend in the healthcare sector is for a relatively small number of very well-compensated people. There’s really no prospect that the millions of newly unemployed people are going to get brand spanking new jobs in the healthcare sector—that would be contrary to everything we’ve seen in that sector over the period of the last 40 years.

    Creating new jobs will take capital investment and for capital investment you need capital. As long as the healthcare sector is sucking as much capital out of the system as it is, other sectors, more likely to produce the jobs of the future, will continue to be crowded out.

  4. just me says:

    I am not convinced the republicans have to present a shiny, new alternative-at least not at this point. When Bush wanted to reform social security the democrats didn’t come in with their own ideas, they attacked Bush’s plan.

    I do think at some point they need to present ideas-but writing out a nice, shiny plan right now, when they have power to implement nothing will just provide something for the democrats to attack. The democrats don’t need to attack the GOP plan-they need to defend theirs.

    The time for that was in 2001 when they had the presidency and both Houses of Congress.

    Just wanted to point out that the GOP did not have control of both houses of congress in 2001-Senator Jeffords switched in the spring of that year, and the democrats had control because Jeffords caucused with them.

    The GOP only controlled both houses from 2003-2007. Although your point is still apt-if they wanted to implement their plans, those were the years to do it.

  5. Dave Schuler says:

    I am not convinced the republicans have to present a shiny, new alternative-at least not at this point.

    They don’t have to. They could get behind Wyden-Bennett which has the advantages that it provides universal coverage and has been scored by the CBO as “bending the cost-curve down”.

    If we don’t engage in serious healthcare reform so that costs start coming down immediately by 2012 very, very bad things will start to happen.

    Do you really believe that if the Republicans take control of one or more houses of Congress in 2010 that they’ll be likely to submit an alternative plan that can pass both house of Congress quickly enough to prevent that meltdown?

  6. Pug says:

    A thoughtful Republican with something positive to contribute. Now that’s a novelty. Frum needs to get back with the herd and start screaming “death panel, death panel” or he is going to find himself even more of an outcast than he already is.

    BTW, the death panels already exist. If Sarah Palin were to explore the “magic of the marketplace” and attempt to buy private health insurance for her family, she would not be able to find a company that would cover her Downs Syndrome stricken child. He would surely be rejected. Of course, Sarah is completely oblivious to reality, as usual.

    The “death panels” are at Blue Cross/Blue Shield, Aetna, United Healthcare and Kaiser Permanente. They are run by profit motivated insurance companies and if you don’t think they will reject you up front or drop you like a bad habit if get very sick, you haven’t been out there in the real world in a while.

  7. muffler says:

    In classic Republican form if they can’t have it exactly the way the want it – it’s a waste of effort to contribute or cooperate.

    BTW Just Me: The changes to Social Security was a means to delay the failure of the markets as happened in 2008. It would have been a government gift of huge amounts of the peoples money into unsecured markets. I for one am glad it was blocked. Health Care reform should be reformed in stages and not all out, but it needs changes and ones with everyone working on it not just throwing misinformation.

  8. Stan says:

    The subsidies in the Wyden-Bennett plan would be financed by ending the current tax-free treatment of employer-provided health insurance. Over time, employer-provided health insurance would surely end under Wyden-Bennett. What would happen then? Would ending employer-based health insurance be popular? I think it wouldn’t, and any administration that proposed it would be thrown out in no time.

    If I’m wrong, convince me otherwise.

  9. odograph says:

    There is a way to satisfy both a market system and a single payer system: Vouchers.

    That is, vouchers for basic HMO style coverage, allowing those who work hard and can afford more to elevate them to something more complete (and possibly responsive).

    Re. Frum, Joiner, and deadlock … it seems that whatever the merits of vouchers, we can’t get there from here. Health Insurance companies hose down Democratic and Republican congressmen to keep the status quo, and this (arguably more market than where we are heading) solution is too “socialist” for the Repubs.

    If I was in charge, I’d to a stepwise process, converting the various sorts of federally funded healthcare to vouchers first, and then expand that base.

  10. odograph says:

    (If it wasn’t clear, you take your voucher to Blue Cross or Kaiser and say “I’d like a voucher plan, please.” Or “What Voucher Plus plans do you have?”

    It would probably need to be a requirement that any health insurance company operating in the US accept basic voucher members. But they’d be free to “up-sell.”)

  11. floyd says:

    Government has an obligation, that is to govern!
    The few flaws in our otherwise excellent health care system could have been, and still could be, adequately mitigated with a few simple regulations. Now after proving their lack of understanding of how to regulate the system, they choose to take over and run it?
    Only profound ignorance could produce such irony.

  12. odograph says:

    Floyd, our “otherwise excellent health care system” depends on there being uninsured. It “works” for the healthy because they pay their fees and never go to the doctor.

    If we started covering everyone who is sick, without any other changes, costs will go up. Duh.

    (I recently saw a little table of percentages of US population and percentages of expenditures … ah here it is.)

  13. Dave Schuler says:

    If I’m wrong, convince me otherwise.

    Since you haven’t made any suggestions about what might convince you, that’s a pretty tall order but I’ll give it a try.

    Before I do, it’s probably worth mentioning that public insurance isn’t ipso facto incompatible with private insurance. France has public healthcare insurance and in addition most employed people also carry private insurance.

    Employers abandoning employer-subsidized insurance is not synonymous with a complete abandoning of the system of private healthcare insurance. If employers did not subsidize healthcare insurance, at least some employees would carry it themselves. I’ve carried private insurance for decades.

    Let’s say, arguendo, that no employers provided healthcare insurance as part of their employees’ compensation packages. Many employees would certainly take out their own insurance and in all likelihood make more prudent choices about their insurance and their consumption of healthcare than they do now. They might take out high deductible catastophic healthcare insurance policies. Those are quite reasonable.

    The fundamental thing to keep in mind is that the status quo is unsustainable and, consequently, won’t be sustained. All but the staunchest anarchists find something they like in what government does whether it’s supporting a robust judiciary to enforce contracts, providing a strong defense, inspecting food, building roads, or subsidizing the education of the children of the poor. If we do nothing, all of those things are at risk. Comparing the status quo to proposed plans is fallacious. You’ve got to compare the status quo in the foreseeable future to the plans and, using that yardstick, I think that Wyden-Bennett provides the superior alternative.

  14. odograph says:

    Before I do, it’s probably worth mentioning that public insurance isn’t ipso facto incompatible with private insurance. France has public healthcare insurance and in addition most employed people also carry private insurance.

    I’m trying to read that line with respect to my vouchers, but I really decided that it doesn’t make sense in terms of our current system. There are private insurance programs that dovetail with Medicare, aren’t there?

  15. Dave Schuler says:

    Yes. I’m preemptively responding to the claim, frequently seen, that public insurance will inevitably eliminate private insurance altogether.

  16. kth says:

    The public option isn’t the linchpin, mandatory coverage is. No reform is worthy of the name unless healthy people are required to buy coverage, and sick people can’t be excluded (nor the same thing, their rates raised so that they can no longer pay the premiums).

    A public option probably brings this state of affairs about more efficiently than the lack of one. And you could craft a public option that met the ostensible objections of the Republicans (i.e., public option funded by premiums, and any subsidies/vouchers required to be made available to competing private plans).

    But whatevs. The thing that has to happen is mandatory coverage and no exclusions/rescissions, and if we have to do it with private insurance only (though it will be more expensive that way), so be it.

  17. kth says:

    If we started covering everyone who is sick, without any other changes, costs will go up. Duh.

    Not necessarily, depends on the health of the median uninsured. A lot of the uninsured are healthy young wage-earners without assets, who are really better off self-insuring (or buying catastrophic policies with enormous deductibles, in the unlikely event that they will need a hospital). If they are required to carry coverage, then they will at least partially balance out the uninsured sick.

    Short version: the per capita cost of insuring everyone only goes up to the extent that the average health costs of all the uninsured are higher than those of the insured (including Medicare recipients).

  18. Dave Schuler says:

    A lot of the uninsured are healthy young wage-earners without assets

    The uninsured are about as healthy as the insured population.

  19. kth says:

    Well that’s kind of what I figured. Expanding health care coverage shouldn’t cause per capita costs to go up, as long as the expansion covers both tails of the distribution.

  20. Zelsdorf Ragshaft III says:

    When you speak of mandatory coverage for health insurance. I have to ask where is the authority located in the constitution for the government to tell a free people they must buy a product or a service? What is next? Government telling us where we can shop? What we can eat? Where we can work? Who we have to vote for? I do not want the federal government doing anything not outlined in the constitution. They already exceed that in many areas. My suggestion for those of you who want health care more than freedom is move. Canada has many nice cities. My only codicil is when you go there and find their health care system wanting. No coming back here. Your ancestors moved here because of the freedom we offered not because the government offered programs to take care of you from birth to death. If you try to take away my freedom, you will not be needing health care.

  21. kth says:

    I have to ask where is the authority located in the constitution for the government to tell a free people they must buy a product or a service?

    It’s the same authority the government uses to force you to save for your retirement. That fight was waged 75 years ago, and your side lost.

    Not even the most vehement critics in Congress of health care reform have suggested that the Supreme Court, currently dominated by Republican nominees, and with a bloc of four stalwart conservatives, would overturn any plan currently under consideration. You might want to think about where that places you on the ideological spectrum.

  22. Dave Schuler says:

    where is the authority located in the constitution for the government

    ZR, even if we had a minarchist federal government, it would make little difference. The states have always had the power to do pretty much what they wanted other than set up a monarchy.

  23. just me says:

    I am somewhat curious as to how the government will choose to define what is basic.

    I think we can all agree that catastrophic care would be included, hospitalizations, and sick visits.

    But where is the line between basic and nice to have covered?

    Is this new government program going to be more of the “Cadillac” version or something more akin to a catastrophic plan with doctor’s visits and screening tests thrown in?

  24. An Interested Party says:

    I wonder how many people really believe that ours is an “excellent” health care system with just a few flaws…

  25. Gustopher says:

    I am not convinced the republicans have to present a shiny, new alternative-at least not at this point. When Bush wanted to reform social security the democrats didn’t come in with their own ideas, they attacked Bush’s plan.

    The Democratic plan on Social Security was “leave it alone, it’s working just fine”.

    If the Republicans can actually say that the health care system is working just fine, then they don’t need to come up with a plan either.

    But, it isn’t working just fine. Group plan costs are rising 15% a year, much faster than wages and inflation, putting a huge burden on employers. Individual plans are unavailable and unaffordable should you ever get sick. And, if you have health insurance when you’re sick, you still have the private insurance Death Panels.

    There are lots of reasons for this, and I don’t think the Democrats’ plan addresses half of the reasons, but the Republicans aren’t even trying to craft a free market solution.

    A free market solution could work, but it would have to fundamentally change the rules under which the insurance companies operate, to incentivize good behavior. Health insurance needs to act as insurance, and it needs to protect not just the individual, but society at large.

    Off the top of my head:

    1. Single pool — everyone an insurer insures is in a single pool, paying the same rates for the same plans. Whether it is Sarah Palin’s Down Syndrome kid, or the healthy 20 year old down the street.

    2. Mandatory minimum coverage for people, through a voucher system. Those who don’t sign up for a plan will be assigned to a plan by their state through whatever means the state finds appropriate (lottery, auctioning off the people in a county, whatever)

    3. Mandated minimum coverage for plans. In order to sell insurance, every insurance company must offer a voucher plan that meets this minimum. They can also offer other plans that give more benefits.

    4. Tort reform for medical malpractice. The costs of malpractice insurance are greatly out of line because the insurers need to protect not just against malpractice, but also against excessive judgments.

    5. Tort reform for insurance malpractice. Right now, insurance companies are not liable for wrongfully denying coverage, and many routinely denying coverage. Because of this, doctors offices need to hire people whose sole job is fighting with insurance companies, and these people are essentially waste in the system. If insurance companies had to pay 10% more after an initial denial, and were liable for significant damages after a second denial, this would eliminate a lot of that. Give the insurance companies an incentive to do the right thing, or a disincentive to do the wrong thing.

    Beyond that, let the health insurance companies determine how to provide coverage at the best prices for them. Whether they want to put people into a network of salaried doctors, form networks of insurance companies with standardized claims systems, offer malpractice insurance themselves and require patients to sign on to a list of common malpractice payments, etc, it’s all fair game.

  26. Anon says:

    Well, I would suggest that there is another option, though I can’t say for sure that it would work. That would be for the Republicans to say: “We know we can’t get exactly the plan we want, but we definitely can throw sand in the works. So how about a compromise that we can both live with?” Or is the nature of policy today that a compromise would be worse than no change?

  27. steve says:

    ” Many employees would certainly take out their own insurance and in all likelihood make more prudent choices about their insurance and their consumption of healthcare than they do now.”

    I would feel better if there was a model for this. If you follow behavioral economics, it is pretty clear that people do not always behave in a perfectly rational manner. You do realize that what you are proposing will require massive changes in behavior. Maybe twice in over 25 years have I had a patient ask what something costs. Also, as a physician of many years, it is easy to se the loopholes.

    Where do you set the limits on catastrophic insurance? Might that not act as a driver for physicians to proffer more expensive rather than cheaper treatments? If drug companies and device makers know that only expensive items will be covered, what will they concentrate on developing? Will people save money on cheaper, routine, preventive care trying to save money? (I think Cutler studied this one.)

    At any rate, I hope you are right. There are some good ideas above. I would also like to see the Republicans push for an exclusion clause that will let states opt out if they have a plan of their own. The only restriction to that plan should be that everyone gets covered.

    Steve

  28. just me says:

    The Democratic plan on Social Security was “leave it alone, it’s working just fine”.

    Although this is pretty much a lie.

    And at the time there were a lot of democrats saying they didn’t need to offer a solution, they were in the minority.

    And i am still not convinced the the GOP needs to present a nice, shiny plan-because it isn’t like the democrats are going to actually agree with it-they want a plan they can attack in order to deflect criticism for their plan.

    I actually think in this case the blue dogs are probably the group most in need of producing an alternative. Now if they can do this as a group or look for GOP support, but I am not seeing the need for the GOP to produce some kind of step by step plan.

  29. Stan says:

    ” Many employees would certainly take out their own insurance and in all likelihood make more prudent choices about their insurance and their consumption of healthcare than they do now.”

    My own retiree health insurance plan is one of several options offered by the human resources department of my former employer, a major American research university. I don’t have the faintest idea of how to select an insurance plan myself, and if I had to do it during my working career I wouldn’t have had the time. The idea that individuals, most of them unversed in legal terminology, could do a good job of buying their health insurance is a fantasy.

  30. Actually, there is something the republicans could do immediately. In conservative states (e.g. Texas) they could do two things which would put downward pressure on health care costs. They can recognize non-ama certified doctors to practice in the state (that will expand the pool or providers) and they can enact more tort reform (which will reduce the cost of doing business). These things can be state centered and effective. It doesn’t solve the federal problems, like medicare cost outrunning income, but it can help. It would also help get the republicans back in power where they can impact things at the federal level.

  31. hcantrall says:

    I personally have had to fight United Heathcare for the last year to get them to hold up their responsibility to pay for my husbands melanoma surgeries + chemo from last summer. We paid what we were supposed to pay but before all of the paperwork could clear, my husband changed jobs and we were switched to BCBS. Which apparently made United Heathcare decide that they weren’t obligated to pay out now and BCBS wasn’t going to pay for something that happened before we were with them.
    It was a giant pain in the ass and I’ve finally gotten a letter stating that we’re no longer obligated to pay the $24,000 bill that they were denying and it’s all cleared up. That kind of BS is what needs to stop – what’s the first rule of insurance? Deny the claims until you’re forced to pay them?
    I am all for reform – I don’t however feel that it will make things better to break the system worse than it already is. Why does this have to happen in one giant bill full of crap at once. Can’t we chip away at these problems and slowly transition things? I’m also against the single payer deal, I don’t believe there are any children who are not getting health care. Every state I’ve lived in (there have been several) has the children covered. But, I tell you what, if you’ve got an iphone and you’re driving a newer car than I have and you’re spending your income in other irresponsible ways, why do those of us who have decent coverage have to lose it and go to whatever the government deems fair for everyone? Who said life had to be fair? I almost lost my husband last year, that’s not fair either. Surely we all know by now that “fair” is a fairytale.

  32. sam says:

    In conservative states (e.g. Texas) they could do two things which would put downward pressure on health care costs.

    Ah, yes, Texas. See, The Cost Conundrum: What a Texas Town Can Teach Us about Health Care.

  33. floyd says:

    “””I wonder how many people really believe that ours is an “excellent” health care system with just a few flaws…”””

    Perhaps not near as many as will look back on it as “excellent” after the Marxists take it over!

  34. TangoMan says:

    that the absolute core problem in our health care system is the fee-for-service model upon which it’s based. A model that is extremely lucrative for both health care providers (income) and insurance companies (premiums). As far as I can see, nobody, on either side of the debate, is offering any serious alternative.

    From my vantage point the only viable route out of this conundrum is through competition. Rationing works towards creating a stasis and then dividing up the resources.

    There are too many rent-seeking agents in the system as it’s currently structured. We should be seeing things like diagnostic clinics which are heavily reliant on computer based diagnosis start popping up to compete with a family physician who sits down for one-on-ones with each patient. There should be a cost difference between these two approaches. Another reform might focus on HOW physicians address a medical issue from diagnosis to completion of treatment. Perhaps the methods used in clinical testing could be modified to apply to medical treatment. In clinical testing we don’t see the investigator devise the product, select the testing population, perform the tests, and then analyze the tests. Usually different teams are involved in the separate stages. In the world of medical treatment perhaps a pilot project could test the economic efficiency of one group of physicians diagnosing a patients problem, then another group of surgeons bidding to take on the patient for a fixed price based on the specifications established by the diagnosing physician. The resulting transactions are measured and in an environment of transparency the efficiency of diagnosis and outcome can be established, thus creating a more efficient bidding system where reputations reduce uncertainty.

    My point is that there are a lot of ideas that could be tried in various pilot projects but they will all likely share the notion of busting up rent-seeking behavior.

    As long as the healthcare sector is sucking as much capital out of the system as it is, other sectors, more likely to produce the jobs of the future, will continue to be crowded out.

    This doesn’t ring true to me. This is like arguing that the upscale housing market is sucking too much capital out of the system and not creating enough jobs. It takes just as much manpower to build a 10×10 room in a farmhouse as it does in a mansion. It probably takes about the same amount of time to put up a brick facade on a 10×40 front facade as it does to put up a granite facade of the same size. The difference in costs are disproportionately centered on quality of materials and on the amount of skilled craftsmanship.

    The point is that luxury housing, like advanced medical care, is a superior good and as people earn higher incomes they’re willing to spend more on such superior goods.

    The way I’m reading your comment is that you’re looking at the medical sector as an inefficient money pit. I’m not sure how one can engineer an economy to a.) create more jobs for low skilled workers, b.) draw capital to such job creating enterprises, and c.) create economic returns on the capital that warrant the investment compared to the returns that could be realized on foregone opportunities. In other words, the medical sector is growing because it provides goods that people want and it creates economic returns for investors.

    I grant you that government spending, via the power of economic redistribution, is contaminating the market here. That being the case I’m not certain why we should double down and kludge fix the economic decision making apparatus in order to salvage the distorting effect of government spending.

    The democrats don’t need to attack the GOP plan-they need to defend theirs.

    Exactly.

    The “death panels” are at Blue Cross/Blue Shield, Aetna, United Healthcare and Kaiser Permanente.

    Those aren’t bugs, they’re features. If you don’t like the “death panel” policies that you see being implemented in your plan and applied to your fellow plan members, then you seek an alternative plan more to your liking. You don’t have this option when there is only one plan, the government’s, left in the “marketplace.”

    A lot of the uninsured are healthy young wage-earners without assets, who are really better off self-insuring (or buying catastrophic policies with enormous deductibles, in the unlikely event that they will need a hospital). If they are required to carry coverage, then they will at least partially balance out the uninsured sick.

    I see little justice inherent in a system which requires young, and income and asset poor, people to pay more so that they can subsidize older, and income and asset healthier, people who’ve had a lifetime to a.) look after their health and b.) financially prepare for declining health in their golden years. If someone who is 50 and has accumulated equity in their home and has developed a reasonable retirement portfolio isn’t inclined to cash out some of their wealth in order to pay for their hernia operation, then why should a young 22 year old just starting out in life have to pay for their operation via increased premiums? Who derives the benefit from the hernia operation? Certainly not the young person. Health care is a consumer good, just like automobiles. It would be nice if everyone could get a Mercedes paid for by other people, but this doesn’t happen because other people don’t get any benefit from someone else driving a Mercedes.

    There are lots of reasons for this, and I don’t think the Democrats’ plan addresses half of the reasons, but the Republicans aren’t even trying to craft a free market solution.

    If someone is counseling that people jump out of airplanes with pack filled with rocks, it is sufficient to yell STOP. Later, when the doors of the plane are closed and everyone is safe can people sit down and invent a parachute.

    A free market solution could work, but it would have to fundamentally change the rules under which the insurance companies operate, to incentivize good behavior. Health insurance needs to act as insurance, and it needs to protect not just the individual, but society at large.

    I agree. The rules of the market are rigged to protect rent-seekers. Rent-seekers exist because they’re good at manipulating legal systems to legislatively protect their rent-seeking activities. Dislodging these groups is going to be a monumental task in that there aren’t counter groups that are as dedicated to destroying rent-seeking legislation as we see from those groups that are dedicated to protecting turf.

  35. anjin-san says:

    My wife had a procedure last year that we were paying off over 12 months. We were down to the last payment, and we got a notice that our bill had been “recalculated” and we owe anther $900. Call the hospital, they say call the billing agency. Call the billing agency, they say call Blue Cross. Call Blue Cross, they say talk to the hospital. They all agree on one thing, if you don’t pay, we will just send you to collection and screw up your credit rating. Not the first time I have been thru this. Legalized extortion.

  36. Stan says:

    “Perhaps not near as many as will look back on it as “excellent” after the Marxists take it over!”

    Who are the Marxists, Floyd? And what do you mean by Marxism?
    I’m waiting breathlessly for your answer.

  37. TangoMan says:

    Who are the Marxists, Floyd?

    If you had asked me, this would be my response – those who adhere to the notion of “From each according to his ability, to each according to his need.” President Obama, who stated that he is focused on “spreading the wealth” even when it runs counter to measures of fiscal efficiency, is certainly a Marxist by my standards.

    Taking money from taxpayers, especially young taxpayers, in order to subsidize the health insurance of those who are middle aged, is a means of taking from those who have and giving to those in “need.” Straight up Marxism.

  38. steve says:

    ” Usually different teams are involved in the separate stages. In the world of medical treatment perhaps a pilot project could test the economic efficiency of one group of physicians diagnosing a patients problem, then another group of surgeons bidding to take on the patient for a fixed price based on the specifications established by the diagnosing physician”

    LOL, this already exists, at least the separation of duties. Internists often do the diagnostic work and surgeons then operate. Russians actually do something similar with their surgeons, at least they did when a team from our hospital visited there.

    You have no free market model to which you can point, so all you have to offer is conjecture and the assumption that health care can work like selling cars or clothes. Yet much of medicine violates basic free market rules. Both sides cannot simply walk away if they do not like the offered deal. There is severe information asymmetry. With competition also comes the idea of trying to maximize profits. Are you ok with the idea of physicians practicing with the goal of working to maximize profits as their primary goal? When you come into my OR at 3:00 AM for an emergency, why cant I charge you 20 times a normal day time fee while I have you at my mercy?

    Every time I look at free market suggestions I see ways to make lots of money off of it if one is so inclined, or allowed to do so with the lack of oversight that would come with a free market.

    Steve

  39. TangoMan says:

    LOL, this already exists, at least the separation of duties. Internists often do the diagnostic work and surgeons then operate.

    My point isn’t focused on the specialization aspect, it’s focused on the bidding. The current system usually has all of the medical specialists within the same organization. There is no price competition within groups of internists and groups of surgeons, there is no marketplace where internists refer to different surgeons outside of their formal or informal networks. If I’m wrong on this point of suppressing competition, set fees, formalized networks, etc then I’d be happy to be corrected.

    There is severe information asymmetry.

    Agreed. This existence of the information asymmetry present in the existing system doesn’t imply that it is an inherent factor in patient-physician interactions. Information asymmetries exist in all sorts of interactions between specialists and generalists. Usually informed intermediaries come to act as either agents or advisers to the generalists.

    If we’re really talking reform, then it would seem to me that an area ripe for reform would be to introduce measures, and perhaps even institutions, which inhibit price competition due to information asymmetry. A new class of advisers that specialize in aiding patients choose between competing physicians based on reputation, fee, service, outcomes, history with challenging cases, etc.

    With competition also comes the idea of trying to maximize profits.

    Don’t overlook the fact that competition, and the profit motive, also create a fertile environment for innovation. A profit motivated surgeon might invest in robotic surgical equipment which boosts his productivity, ceterus paribus. Robotics might even get to the point where some procedures could be programmed by the surgeon so that they are semi-autonomous or fully autonomous. A surgeon on a salary or in a rent-seeking arrangement would have very little incentive to introduce measures which lessen his central role in surgeries.

    Are you ok with the idea of physicians practicing with the goal of working to maximize profits as their primary goal?

    I’m very comfortable with physicians being profit motivated. In fact, I don’t see many physicians taking priestly vows of poverty.

    As for whether profit motivation becomes the principal motivation, I’m not sure that physicians are much different from most everyone else who works – profit motivation is not usually the principal factor involved with job performance or job selection.

    When you come into my OR at 3:00 AM for an emergency, why cant I charge you 20 times a normal day time fee while I have you at my mercy?

    I have no issue with you trying it, so long as you have no issue with bearing the consequences that result as your reputation is marred for being a profiteer no different than those who jack up prices for food and water after a natural catastrophe.

  40. Raoul says:

    JJ: so making pubbies look like fools is a winning strategy? It may stop some aspects of health care reform but I am unsure is worth the political cost- next time I hear another hysterical argument I will be thinking of your views. But I am we now understand the futility of rational debate. Did someone slip a pod under your mattress last night? As to public option: the way I see it is essentially creating a larger pool of individuals including pre existing conditions and everything else and allow the power of bargaining – that’s it- essentially it will provide a curve bending mechanism, though probably not that much and save tax payers money and there is nothing wrong with that.

  41. sam says:

    @Tangoman

    A surgeon on a salary … would have very little incentive to introduce measures which lessen his central role in surgeries.

    I’m not not sure about that. See the New Yorker piece I cited above and its discussion of the Mayo Clinic (where all the doctors are on salary) and this, Robot-Assisted Surgery (at the Mayo Clinic). In fact, google shows that the Mayo seems to be one of the leaders in advancements in robosurgery.

  42. Stan says:

    TangoMan, by your definition Social Security and Medicare are Marxist plots because they take from the young and give to the old. Do you really want these programs to end? Do you think the graduated income tax is Marxist? How about the children’s health insurance program? I favor these programs. Does this make me a Communist in your eyes?

  43. steve says:

    “A profit motivated surgeon might invest in robotic surgical equipment which boosts his productivity, ceterus paribus. Robotics might even get to the point where some procedures could be programmed by the surgeon so that they are semi-autonomous or fully autonomous.”

    OK, so you clearly do not work in medicine. Robots are a way to some surgeries more safely, but not faster. They do not increase productivity. It is going to be many years before they can do that. My OR has a robot.

    “As for whether profit motivation becomes the principal motivation, I’m not sure that physicians are much different from most everyone else who works – profit motivation is not usually the principal factor involved with job performance or job selection.”

    A current trend in medicine, doctors, is the application of business and marketing techniques to improve profits. Dont leave money on the table is the mantra. This involves increasing the number of procedures you perform. Finding ways to own the diagnostic machines to which you can then self-refer. Doing more expensive procedures rather than cheaper ones. In short, the goal is to provide more care rather than appropriate care. In oreder to make this work better, docs are forming larger groups. Outside of the major cities, you are seeing specialty areas dominated by one or two groups. How do you propose to inspire competition in this setting, absent government intervention?

    On innovation, there are motivators other than money, and often it is money delayed. Most of the basic science research in medicine is done in academia. By your theory, that should not happen.

    Medicine in areas where both parties can negotiate and walk away if they choose follows free market principles pretty well. This includes cosmetic surgery and things like Lasik. It does not apply to big chunks of medicine, especially the expensive parts. Barring a working model, you need to make an argument that you can violate this most basic of economic principles and still make medicine work as a free market.

    Steve

  44. Dave Schuler says:

    Stan, I don’t think you should take it so hard. Except for a staunch few, practically everybody these days is a socialist. They may bristle at the description but they’re socialists nonetheless.

    If you believe in maintaining a large standing army, educating the children of the poor, or basic public health, you’re a socialist because none of these things can be maintained on the basis of a head tax or user fee alone, anything else is redistributive, and the redistribution of income is socialistic.

    I believe in all of those things so, definitionally, I’m a socialist even though by today’s standards I’m pretty conservative economically.

  45. sam says:

    On socialism and medicine. Just to follow up on Dave’s last, we’ve had socialized medicine in this country for a long time, even discounting Medicare and Medicaid. Much of the medical research (and a lot of not obviously medical research) in universities is funded by the NIH. Moreover, the General Clinical Research Centers located in hospitals associated with medical teaching universities (there are 78) are almost entirely funded by NIH grants.

  46. Dave Schuler says:

    Yes, I do find the argument that a system, 60% of which is funded via tax dollars, isn’t socialized medicine but another system, 90% of which if funded via tax dollars, is.

  47. TangoMan says:

    TangoMan, by your definition Social Security and Medicare are Marxist plots because they take from the young and give to the old. Do you really want these programs to end?

    Yes, I want the programs to end. Do I think it is politically feasible to end them? No. The system that I prefer would have citizens, over their expected lifetime, fund their own retirement and medical needs by paying more when they are young and middle aged and then drawing this down in their golden years.

    A person’s medical care is not a public good. I don’t benefit at all when you get a hernia operation. You benefit, therefore you should pay.

    I find it a travesty of justice that young people, just starting out in life, are burdened with taxes that go to support wealthier people who’ve had an entire lifetime to get their affairs in order and neglected to do so. I hold that younger people would have more productive uses for their own money instead of it being taxed away from them. They could use that money for education, thus improving their economic productivity, they could use that money for family formation activities, such as buying a home, having children, allowing one spouse to stay home with children, etc. Instead their money is going to support wealthier strangers’ personal consumption habits.

  48. floyd says:

    Dave,
    Your argument sounds like the one used by the restaurant patron soliciting the waitress for sex.

    The million dollars establishes what she is, the only thing left is to haggle over the price, Right?

  49. TangoMan says:

    Robots are a way to some surgeries more safely, but not faster. They do not increase productivity. It is going to be many years before they can do that. My OR has a robot.

    Robots are but one example. Nurse practitioners are another. Any reform of practice which replaces high priced talent with lower priced substitutes, ceterus paribus, will increase the productivity of the enterprise.

    We see in plenty of unionized operations that labor is vehemently opposed to the introduction of labor saving devices which work to make laborers redundant. I expect that rent-seeking physicians benefiting from their central role in the system as it is currently construed will act the same way. Thus, innovation in robot development will skew more towards developments that improve surgical safety and less towards automation, in that safety will find a larger market than automation. However, I don’t expect this condition to be permanent and some simple procedures will become more automated.

    Another example of rent-seeking behavior on the part of physicians is the stranglehold they have on state licensing requirements and in many cases the burdensome thresholds they establish for recognition of foreign degrees. Just speaking on principle, I find it troubling that a group can form a cartel and use the power of law to maintain the standards of their group and bar entry to competitors, thus working effectively to limit competition.

    When we talk of reform there are plenty of practices which most reform efforts never touch and many of these practices preserve existing rent-seeking arrangements.

    I’d favor 50 different reform experiments, all pilot projects, that we could evaluate against a host of metrics so that we would be better informed about the actual mechanics of reform rather than charging head long into a reform process that is predicated upon predicted performance of some idealized scheme.

    A current trend in medicine, doctors, is the application of business and marketing techniques to improve profits. Dont leave money on the table is the mantra. This involves increasing the number of procedures you perform. Finding ways to own the diagnostic machines to which you can then self-refer.

    This is simply ration behavior responding to the rules of the system. The system pays for fee for service, so the best way to maximize profits is to provide more services. Auto mechanics are also paid for fee for service, but because the customer is price sensitive there is more resistance to an escalation of services that are ancillary to the primary task at hand. What I’m saying is that the operating rules of the game need to be reformed and then under these new rules the profit maximizing behaviors will be geared more towards innovation and increased labor productivity rather than crafting schemes which boost top line revenue while keeping productivity static.

    Most of the basic science research in medicine is done in academia. By your theory, that should not happen.

    I’m very aware of this. Basic research is a close to a public good in that it is unlikely to be funded by personal initiative and the knowledge benefits of a discovery are not restricted to a single consumer but are shared with the public.

    Medicine in areas where both parties can negotiate and walk away if they choose follows free market principles pretty well. This includes cosmetic surgery and things like Lasik. It does not apply to big chunks of medicine, especially the expensive parts.

    I agree. My agreement though is conditional on an examination of the system to identify and remove structural impediments to competition, impediments which are designed to protect the interests of physicians, even if masked to appear to be serving the interests of the public. For instance, referrals from one physician to another that take place without any price negotiation or that occur within defined networks. If a patient needs an operation, then I think it would be beneficial to a price sensitive patient that they have before them the option to choose from surgeons who offer their services with varied prices. As you note, this happens with cosmetic surgery and Lasik but is absent in many areas of medical practice.

  50. Our Paul says:

    Yesterday Dave Schuller (August 9, 2009 | 08:49 am) said this:

    If we don’t engage in serious healthcare reform so that costs start coming down immediately by 2012 very, very bad things will start to happen.

    I wondered what exactly the very bad things were. If I interpret his comments in this, and other posts, he is talking about two separate issues.

    First, the cost of Medicare/Medicaid programs will continue to increase leading to either government retrenchment in other programs, an increase in taxes, or decreasing benefits in these entitlement programs. Dave has a bit more on this over at his home base.

    Second, by the time the Presidential elections role around in 2012 the voting Public will have realized that they have been flimflammed one more time about the magic of the market place and the body politics will fragment. The GOP will disappear to be swallowed into the bowls of Alabama, Mississippi, and Texas. The fight will be only among Democrats, and they are known for this trait…

    I do find this statement by Dave (| August 10, 2009 | 10:19 am) rather droll:

    If you believe in maintaining a large standing army, educating the children of the poor, or basic public health, you’re a socialist because none of these things can be maintained on the basis of a head tax or user fee alone, anything else is redistributive, and the redistribution of income is socialistic.(my italics, OP)

    . Must have been those liberal colleges professors who taught me that the cornerstone of socialism was state ownership of the means of production and means of distribution of goods. The bane of our existence, Wikipedia has this definition:

    Socialism refers to any one of various theories of economic organization advocating state, public or common worker ownership and administration of the means of production and distribution of goods, and a society characterized by equal access to resources for all individuals with a more egalitarian method of compensation.

    The redistribution of income is socialistic? Come, come now Dave, any attempt to corral Vulture Capitalism is socialism? Believe it or not, the CEO of Blue Cross and Blue Shield of Western New York, in the teeth of recession and job loss in the area it services bumped his salary to 2.7 million in ’08, and recently in a memo to his employees urged them to oppose Health Care reform. Do you have any solutions for the fact that if we wish to define our political system we no longer have a Democracy but a Plutocracy?

    Keep up the good work Dave, your links are always helpfull, your views often challenging, and if I ever get my head around Wyden-Bennett Health Reform bill I will probably agree on some aspects of the bill. But, you are indeed a stern taskmaster. The link you gave is a 42 page pdf file.

  51. steve says:

    “. For instance, referrals from one physician to another that take place without any price negotiation or that occur within defined networks. If a patient needs an operation, then I think it would be beneficial to a price sensitive patient that they have before them the option to choose from surgeons who offer their services with varied prices”

    What yo suggest works for selling cars and truly elective medical procedures. Please note that in the medical areas where this works, Lasik and Cosmetics, there are no referrals. You see a single doc and make a deal. What you suggest for surgery would be incredibly time consuming. It takes real time to review each case. making a bid and waiting for a response, more time. This plan sounds like a big decrease in productivity to me. How does one then work out call coverage? Urgent procedures? Emergency procedures? Who makes the decision about which surgeon to choose? The patient may want to choose a surgeon who places mor eof the burden of follow up on the primary care doc, thus increasing his costs.

    Steve

  52. TangoMan says:

    What you suggest for surgery would be incredibly time consuming. It takes real time to review each case. making a bid and waiting for a response, more time.

    Which is why I mentioned transparency and reputation up-thread. Up and down the chain of medical professionals we should see a process where a bidding physician makes a bid on the information that is presented to them. If the physician who is compiling and grading the medical information is doing so to minimize the complexity of the case, in order to draw in low bids, then the reputation of this physician suffers as the winning bidders consistently find that they have to deal with more challenging, or time consuming, cases than they expected. Their response is to avoid bidding on cases from the physician or to modify their bids to account for his reputation for inaccuracy.

    As to the process you find burdensome, I would say that a productivity advantage would flow to any physician who develops a process which streamlines the evaluation, pricing and decision cycle associated with the bidding process. For instance, a marketplace of sorts could be developed which required the presentation of key metrics. These metrics could be evaluated by a software program owned by each bidding physician in which the physician inputs personal parameters registering what they are willing to bid based on time, complexity, support team, and whatever other variables they believe pertinent. Over time, as physicians win and lose bids for patients, they modify their parameters based on the competition they witness in their field of specialty. Just to throw out one example, let’s say that a hospital OR has downtime in the middle of the night and the hospital is amenable to making the space available for a fee that is lower than the fee charged during the working day. An up and coming surgeon might be willing to schedule elective surgery in the middle of the night and be able to do so at a lower cost than his competitors who stick to more traditional hours. If the discount is sufficient then some patients will be willing to submit to surgery at 3 am instead of 9 am.

    Look, I’m throwing reform ideas out for discussion – I’m not saying that I’ve written a White Paper on the topic. These ideas are premised on dismantling rent-seeking behavior and enhancing competition. The reform ideas that I see floating around, seem to me at least, to ignore many key market principles, they divorce the consumer of the service from the payment for the service, they encourage price insensitivity, etc and they primarily focus on shifting the paying entity from one institution to another while leaving much of the rent-seeking players firmly ensconced in their comfortable niches. Frankly, I don’t believe that any reform that I see being floated will have much influence on shifting the cost curve downwards. The only way I see to do that is to change incentives and behavior deep in the medical economy, which means that patients have to start caring about cost.