Private Sector Snake Oil

Jennifer Rubin thinks David Brooks is too "cozy" with the Obama administration:

David Brooks of the New York Times likes to fancy himself as a truth-seeker, bringing social and hard sciences to the masses. But in his Friday column on health care and death, he makes some shocking and inaccurate assertions. Given his coziness with the Obama administration one has to wonder if he is test-driving some Obama administration rationalizations for rationing.

That's just funny. Brooks has an act where he presents himself as a reasonable centrist and then, amazing how this works out, he almost always comes down on the side of conservative arguments. Even funnier (if that's the right word) is that Brooks does not even mention the Obama adminstration's proposal for a Medicare cost control board at all in his column. In fact, Brooks says:

it is hard to see us reducing health care inflation seriously unless people and their families are willing to ... confront death and their obligations to the living.

He's saying individuals must make this decision, i.e. contrary to the assertion by Rubin, he is not supporting the Obama adminstration's cost control procedures, he is advocating individual intitiative.

But let's look at the actual argument Rubin is making. Before doing so, however, these are statistics from Finkelstein and McKnight (2006). The table shows that medical spending is very skewed: If you order people according to their spending on health care, the top 10% of spenders account for 72% of all spending and the top 1% of spenders account for 30% of all spending. 

Share of health care spenders	Cumulative share of US medical spending
Top 1%	30%
Top 5%	58%
Top 10%	72%
Top 30%	90%
Total population	100%

Source: Berk & Monheit (1992)

So limiting spending means limiting care for people in the tail of the distribution, often people in need of life-saving or life-prolonging care. Like it or not, that's where most of health care spending goes and cost control must be focused on this group. We particularly want to stop using procedures that do little or no good relative to their high cost -- that allows our health care dollars to be spent more effectively -- the question is how best to do that. Can the private sector do this better than government?

Here's Rubin:

David Brooks: The scary and sloppy case for rationing, by Jennifer Rubin: David Brooks of the New York Times likes to fancy himself as a truth-seeker, bringing social and hard sciences to the masses. But in his Friday column on health care and death, he makes some shocking and inaccurate assertions. Given his coziness with the Obama administration one has to wonder if he is test-driving some Obama administration rationalizations for rationing.

Brooks is enamored of Dudley Clendinen’s “splendid” essay, as he describes, “The Good Short Life.” Brooks thrills to this definition of a life worth living:

Instead of choosing that long, dehumanizing, expensive course, Clendinen has decided to face death as one of life’s “most absorbing thrills and challenges.” He concludes: “When the music stops — when I can’t tie my bow tie, tell a funny story, walk my dog, talk with Whitney, kiss someone special, or tap out lines like this — I’ll know that Life is over. It’s time to be gone.”

Well that “dehumanizing, expensive course” allows millions of Americans who would have died in past years to “kiss someone special.” But is someone confined to a wheelchair (no dog walking) or who needs help dressing not living a life of value? Clendinen, and in turn Brooks, begin down a slippery slope as they decide that, really, is it worth it to keep grandpa around for years if he can’t tie his tie?

Brooks then embarks on a flight of misinformation to suggest we’re wasting much of that money. ...

Perhaps the point is to rationalize reductions in health-care dollars spent on the elderly, which by gosh is precisely what the Obama administration is trying to pull off with its Independent Advisory Patient Board. Limiting care, conscience free! After all, do all these old people really enjoy living to 90?

By all means we should have the debate over public and private resources. Let’s come up with market solutions that increase competition and reduce cost. Let’s minimize out unnecessary, external costs (e.g. malpractice insurance). And for the record, I am in favor of living wills and allowing those with terminal illnesses to refuse care. But ... I’m not ready to throw in the towel on my loved ones (or anyone else’s) because they can’t walk the dog.

Nobody is talking about outlawing procedures. If the board decides that a treatment is too costly given the benefits, or that it has no benefits at all, anyone who wants to can still pay for that cure themselves in the private sector -- and there are plenty of people waiting to take advantage of your willingness to spend money on questionable or quackish procedures. All this does is put into place a mechanism that prevents taxpayers from footing the bill for procedures that have little value in terms of improving health.

As for the private sector doing this better, that ignores history. Insurance companies will put these boards in place themselves. When HMOs were popular, do you remember how many people had to fight with them to pay for procedures their doctors thought might help? Stories about insurance companies refusing to pay for life-saving procedures, and procedures of other types for that matter, were common.

Markets ration heartlessly. If you can pay, you get the goods, if not, tough. You're out of luck. Markets don't care if you are poor, uninformed, whatever. If you have the money, you can purchase the treatment of your choice, and it's up to you to make good choices about how you spend your money. If not, too bad for you unless the evil government gets involved.

The idea that private markets can perform this rationing function effectively has been disproved by our experience with HMOs (in the end, in part due to pressure to expand coverage, HMOs were not very effective at reducing costs). And the idea that consumers have the information they need to navigate medical care in the private sector and make good decisions is also false. The phrase "selling snake oil" exists for good reason.

We can hope that technology somehow reduces costs over time and reduces the necessity for us to decide what will and won't be covered, and as a result, who will and won't get certain care. But that hasn't happened yet. If anything technology has been behind the cost escalation, and some of these procedures are nothing but modern and very expensive snake oil (and some are miraculous cures, but which is which?). So the need to make these decisions will not go away. If the private sector had a record of being able to control these costs, and if information problems didn't interfere so much with the ability of consumers to decide what is and what isn't worth the cost -- if he typical consumer wasn't a sitting duck for exploitation -- then we could rely upon market mechanisms. But the private sector has not performed this function very well due to various market imperfections (except for the exploitation, it does that very well), and as we look around the world we see that costs are lower, more people are covered, and care is just as good and in some cases better when government is involved in these decisions.