Rationing Health Care

Uwe Reinhardt:

‘Rationing’ Health Care: What Does It Mean?, by Uwe E. Reinhardt, Economix: As the dreaded R-word — rationing — once again worms its way into our debate on health care reform, it may be helpful to relearn what is taught about rationing in freshman economics.

In their well-known textbook Microeconomics, the Harvard professor Michael L. Katz and the Princeton professor Harvey S. Rosen, for example, put it thusly:

Prices ration scarce resources. If bread were free, a huge quantity of it would be demanded. Because the resources used to produce bread are scarce, the actual amount of bread has to be rationed among its potential users. Not everyone can have all the bread that they could possibly want. The bread must be rationed somehow; the price system accomplishes this in the following way: Everyone who is willing to pay the equilibrium price gets the good, and everyone who does not, does not. [Italics added.]

In short, free markets are not an alternative to rationing. They are just one particular form of rationing. ...

Many critics of the current health reform efforts would have us believe that only governments ration things.

When a government insurance program refuses to pay for procedures that the managers of those insurance pools do not consider worth the taxpayer’s money, these critics immediately trot out the R-word. It is the core of their argument against cost-effectiveness analysis and a public health plan for the non-elderly.

On the other hand, these same people believe that when, for similar reasons, a private health insurer refuses to pay for a particular procedure or has a price-tiered formulary for drugs – e.g., asking the insured to pay a 35 percent coinsurance rate on highly expensive biologic specialty drugs that effectively put that drug out of the patient’s reach — the insurer is not rationing health care. Instead, the insurer is merely allowing “consumers” (formerly “patients”) to use their discretion on how to use their own money. The insurers are said to be managing prudently and efficiently, forcing patients to trade off the benefits of health care against their other budget priorities. ...

One must wonder where people worried about “rationing” health care have been in the last 20 years. Could they possibly be unaware that the United States health system has rationed health care in spades for many years, on the economist’s definition of rationing, and that President Obama and Congress are now desperately seeking to reduce or eliminate that form of rationing?

Let me remind rationing-phobes what they would find in the huge body of research literature and media reports on our health system, should they ever trouble themselves to read it ...[list here]...

As I read it, the main thrust of the health care reforms espoused by President Obama and his allies in Congress is first of all to reduce rationing on the basis of price and ability to pay in our health system.

An important allied goal is to seek greater value for the dollar in health care, through comparative effectiveness analysis and payment reform. ...

To suggest that the main goal of the health-reform efforts is to cram rationing down the throat of hapless, non-elite Americans reflects either woeful ignorance or of utter cynicism. Take your pick.

I tired to make the same basic argument here: "Health Care Rationing Rhetoric".

Bruce Bartlett:

Health Care: Costs And Reform, by Bruce Bartlett, Commentary, Forbes: When asked about the federal government's long-term budget problem, Barack Obama always responds that it is essentially a health issue. Unless we fix the health care system, he says, we cannot get control of the budget. This is the key reason why Obama has stressed the need for health reform this year.

There is certainly truth in this proposition. ... According to CBO, spending for Medicare has risen 2.3% per year faster per beneficiary than growth of nominal GDP per capita since 1975. Obviously, this is a trend that cannot be allowed to continue or Medicare will eventually eat up 100% of currently projected tax receipts.

The problem of health care spending growing faster than incomes is also a problem that plagues the private sector, which explains why total spending on health care in the economy has doubled over the last 30 years to a current level of about 16% of GDP. CBO estimates that this percentage will double again over the next 25 years to 31% of GDP.

Americans widely believe that while the our health system is expensive it is nevertheless the best in the world. However, a new report from the Organization for Economic Cooperation and Development suggests otherwise. ...

We spend $7,290 per person on average versus $2,964 among all OECD countries. Norway, the nation with the second most expensive health system on a per capita basis, spends $4,763. ...

Of course, Americans know that they pay a lot for health... But they also fear that any further expansion of government involvement in the health care system will only make it more expensive. ...

The international data, however, show no evidence that increasing government's share of health care expenditures raises health spending as a share of GDP. The top five countries with the highest government share of total health outlays spend almost exactly the same percentage of GDP on health as the lowest five countries excluding the U.S.: 8.2% of GDP on average for the former versus 8.3% of GDP for the latter. (I left out the U.S. because it skews the data; the bottom five countries including the U.S. spend 9.7% of GDP on health on average.)

Even more significant is the fact that despite spending vastly more on health than any other country, the U.S. has little to show for it in terms of key measures of health resources. For example, we have fewer physicians per capita than most other OECD countries... Only four OECD countries have fewer acute care hospital beds per capita than the U.S. ...

Nor has the U.S. bought significantly better health with its vastly higher health spending. ...

The U.S. does excel at one thing: the amount of highly expensive medical equipment per capita. ... But our lead in high-tech equipment is shrinking. A few years ago we had far more CT scanners per capita than any other country; now our lead is much less and several countries have more scanners per capita.

I don't think any health expert doubts that it is possible for the U.S. to spend far less on health than it does today while improving the general quality of health. Obviously this is the case because other countries do it.

Health care reform would be relatively easy if we were starting from scratch. But we aren't. We not only have to design a new system if we hope to lower costs without impairing health care quality, but we also have to figure out how to get from here to there given that we have an enormously complicated health system involving massive government programs along with huge health insurance companies, increasing numbers of businesses dropping or reducing their health care benefits to workers, and a large and growing population of people with no health insurance at all.

It's too soon to say what the outcome will be of the congressional debate on health reform. But one thing is for sure: unless we find a way of at least slowing the rate of growth of health spending it will not have delivered on our biggest health problem--its cost.