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Thursday, August 20, 2009

"The Rationing Canard"

Free Exchange responds to a WSJ editorial by Martin Feldstein charging that "rationing health care is central to President Barack Obama's health plan":

The rationing canard, Free Exchange: Many, many people have already weighed in on whether or not the health care plan making its way through Congress will involve "rationing", and it was inevitable, I suppose, that Martin Feldstein would eventually decide that it's his turn. Here he is:
...The Obama strategy is to reduce health costs by rationing the services that we and future generations of patients will receive.
The White House Council of Economic Advisers issued a report in June explaining the Obama administration's goal of reducing projected health spending by 30% over the next two decades. That reduction would be achieved by eliminating "high cost, low-value treatments," by "implementing a set of performance measures that all providers would adopt," and by "directly targeting individual providers . . . (and other) high-end outliers."
The president has emphasized the importance of limiting services to "health care that works." To identify such care, he provided more than $1 billion in the fiscal stimulus package to jump-start Comparative Effectiveness Research (CER)... Comparative effectiveness could become the vehicle for deciding whether each method of treatment provides enough of an improvement in health care to justify its cost. ...
...The deployment of scare quotes would seem to suggest that Mr Feldstein has a problem with the government limiting high cost, low-value treatments, even though they're costly and not very valuable. In his third paragraph he says that Comparative Effectiveness Research—that is, research to determine whether treatments are effective or not—could lead to a cost-control mechanism which could become the vehicle for deciding whether a treatment's effectiveness justifies its cost. And then he says something about a system that in no way resembles the one America would have if the current reform package passed. Left unaddressed is whether it counts as rationing if you're still allowed to pay for additional services out of pocket.
It's fair for Mr Feldstein to recommend certain changes in the tax code, as he then proceeds to do, as a useful policy step. But why the long and dishonest preamble?
The bigger problem with the argument by rationing is that it seems to ignore how resources are allocated in a perfectly free market—by willingness or ability to pay. Mr Feldstein writes:
But unlike reductions in care achieved by government rationing, individuals with different preferences about health and about risk could buy the care that best suits their preferences. While we all want better health, the different choices that people make about such things as smoking, weight and exercise show that there are substantial differences in the priority that different people attach to health.
Certainly, preferences regarding the level of health insurance to carry vary, as do preferences for overall healthiness, as revealed by choices about things like smoking and diet. But to what extent are lifesaving treatments had or not had on the basis of preference? What about costly but effective therapies for chronic conditions?
The nub of the matter is this—government can afford to provide basic coverage to everyone, but it can't afford to provide every treatment everyone may want to everyone who wants it. It must therefore decide how to limit its expenses, and it can leave open the option of using a private practitioner to those who are denied care based on a cost-benefit analysis. Or government can provide coverage to no one, and those who cannot afford a treatment—effective or not—will go without. Those people will be just as fine as they'd be with treatment in some cases, they'll suffer in others, and occasionally they'll die because they couldn't afford coverage.
That's the nub of it, really. Faced with the prospect of a plan that provides effective treatments to everyone but forces people who want relatively ineffective treatments to pay for them on the private market, Mr Feldstein says he'd prefer a system where people who are unable to afford effective treatments don't get them, calling concern for those unable to pay for treatments "misplaced egalitarianism".
It's all well and good to let the market allocate televisions. Many people live happy lives without televisions, and lack of a television hasn't ever killed anyone. Attempting to provide a basic level of access to television to every American would be misplaced egalitarianism. I would have thought Mr Feldstein could understand the ways in which the market for televisions is different from that for health insurance.

I've discussed rationing via price and other mechanisms previously, (e.g. here), so let me instead try to characterize the political debate on this topic with an overly simplified example. We can, very roughly, break down medical costs as:

total medical costs = (cost per person)*(number of people covered)

The cost per person can be broken into two components:

cost per person = (number of procedures per person)*(cost per procedure)

The number of procedures per person is intended as a rough proxy for the level of care each person receives (i.e. the quality of care, and it includes all aspects of a particular procedure, including prescription drugs). Putting these together gives:

total medical costs = (cost per procedure)*(procedures per person)*(number of people covered)

The Republican attacks are, essentially:

Democrats intend or will be forced to reduce costs by reducing the number of people covered (perhaps focusing on the elderly) and by reducing procedures per person (i.e. a lower level of care on average). Dramatic tax increases may be needed as well.

The Democrat's response runs along the following lines:

That's a fabrication. There's no intent to reduce the number of people covered or to reduce the level/quality of care. In fact, the number of people covered must rise to achieve universal coverage, and procedures per person, i.e. the level of care, will only fall to the extent that procedures with little or no benefit are eliminated. The number of procedures (i.e. the quality  of care) will, if anything, go up.

To achieve the goal of universal coverage while controlling costs, it is necessary that costs per person fall. However, this will not be achieved through rationing care. Instead, costs per person will be reduced by lowering the cost per procedure (through lower administrative costs, increased competition, lower drug costs, etc.) and by eliminating unnecessary procedures. Additional revenue may also be used to broaden coverage. Cross-country studies indicate that the reduction in costs per person needed to provide universal coverage without reducing the level of care is achievable.

The goal of Democrats is to lower costs without sacrificing the quality of care (which will allow coverage to be expanded). Whether that's achievable or not is a legitimate point to debate, I think the experience in other countries suggests there's quite a bit of excess in the system that can be removed without affecting the quality of care people receive, but accusing Democrats of intending to cut the quality of care or to ration care within particular segments of the population (or overall) mischaracterizes what they are trying to achieve.

    Posted by on Thursday, August 20, 2009 at 12:48 AM in Economics, Health Care, Policy, Politics | Permalink  Comments (115)


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