What Maya Said
June 2nd, 2009 . by economistmomI’m on the road in Columbus, OH (Ohio State–shhh… don’t tell my alma mater, U of Michigan friends) for a screening of IOUSA we held tonight, using an audience participation technology device for the post-movie discussion for the first time! (I’ll write more about this in the next couple days.) So at 5 minutes to midnight, I don’t have time for much of a post tonight. Time to “cheat” a little while catching up on a great column that my friend and colleague Maya MacGuineas wrote in Sunday’s Washington Post, on the promise of savings from health care reform. All I have to say is “what Maya said”…
“Health-care reform is entitlement reform” has become a mantra of the Obama administration. The idea is that Congress can add a massive health-care program this year — covering the uninsured — and use the same measures that pay for the health reform to fix the broader budget problems. If that sounds too good to be true, there’s a reason…
Here is the bottom line: Most health-care inflation is the result of new technologies. Bending the curve enough to help balance the budget means walking away from some of the new technologies and devices that people want when they are sick. It also means improving consumer cost-consciousness through insurance reform and higher deductibles and co-payments. For most of us, that means paying more, not less. Even then, it is unlikely to be enough to get costs under control.
Health-care reform will have to be an incremental process: Try some things now, and try more in a few years. Maybe we will choose to spend a good deal more on health care, but if so, even more will have to be done to fix the rest of the budget…
Is it possible to both expand health care coverage (the number of Americans who have health insurance) while reducing the government’s overall spending on health care at the same time? Well, yes, but only if you’re willing to exercise those tough choices that involve reducing the generosity of public coverage for at least some of those people who are currently perhaps-too-generously-and-inefficiently covered. That’s not so easy to figure out in theory, and even harder to follow up on in practice.
Many health economists have argued that technology is a main culprit for rising health care costs, which is what Victor Fuchs found when he surveyed professional economists in the early 1990s. On the other hand, most economic theorists were more skeptical, probably because they are less likely to see technology as a exogenous. Engineers, like everyone else, react to incentives, and the incentives in health care are to make things fancier and more expensive. Burton Weisbrod has argued that the ambiguities of health insurance contracts interact with incentives to engineers/drug developers to push technological development in a more expensive direction. Certainly no one argues that technology is why computers are so cheap relative to decades ago. To put the blame on technology for medical cost growth is at best a very incomplete analysis.
(so that what is covered changes over time) plus
I think that the point about technology is not that it increases the cost of medical treatment, rather it greatly reduces the cost of existing medical treatments on a cost-benefit basis, but at the same time it creates new costly treatments that didn’t exist at all before, that many people now demand.
E.g. hip and joint replacements are performed in huge numbers today, a few decades ago they were impossible. On a cost/benefit basis that’s a tremendous gain due to technology, but on a pure cost only basis, that’s a big extra cost added to the mix that somebody has to pay for.
Similarly, studies of new costly prescription drugs show they provide tremendous benefits compared to old drugs/no drugs, as to both quality of life and simply staying alive. That’s a great cost-benefit gain — but to people who want/need the drugs, paying their cost is just a new higher cost.
One can draw an analogy with computers — they become ever more powerful and perform ever more vaulable tasks for us each year, producing tremendous gains on a cosst-benefit basis. But society spends a heck of a lot more on them as a percentage of GDP than it did 60 years ago. That’s a huge cost increase.
The difference between computing technology and medical technology is that the payoff from computer technology generally is in commercial terms — from freelance writers to Fortune 500 corporations, the cost-benefit gains from investing in new computers produces higher net revenue that pays for the computers. The investment in the technology is self-funding.
With medical technology the cost-benefit gains result in “quality of life” (and “continued life”) improvements that are plenty valuable to the recipients — but which generate no revenue to pay for the spending on the medical technology. So the spending on the technoligy has to come from “somewhere else”, reduced consumption of other goods, taxes dropped on somebody, someplace.
Here is the bottom line: Most health-care inflation is the result of new technologies. Bending the curve enough to help balance the budget means walking away from some of the new technologies and devices that people want when they are sick. It also means improving consumer cost-consciousness through insurance reform and higher deductibles and co-payments.
True. Through advances in medicine and technology, we should be able to provide most, if not all, of yesterday’s medical technology at lower and lower costs. However, we need to ration the expensive new technologies to the cases where they are truly needed.
It would seem like a starting point to addressing the cost problems is to determine exactly where the health care dollars are going. How much is going for MRIs, how much for hip and joint replacements (mentioned by Jim Glass above), and how much for end-of-life care? Rationing care will be very difficult but it has to be done. As long as we pretend that we can provide all people with all existing medical options, achieving savings just through elimination of “waste and abuse”, I fear that we will never get health care costs under control.
This analysis is simplistic and unenlightening. If you posit an explanation than it should fit the facts.
The truth is that right now under our existing insurance structure some providers deliver similar or better quality health care much more cheaply than others. It does not require patient’s to pay more. It required the providers in question to recognize that they were wasting a tremendous amount of resources and by doing so providing worse care.
All it takes it adopting the practices of Mayo Clinic in MN, Geisinger Clinic in PA, Intermountian Health in UT, Marshifield Clinic in WI, Group Health in WA, Kaiser in CA. If your explanation (it’s all technology and over-insurance) cannot tell us why these types of institutions already do what you say is not possible without big policy reforms then it is not a very useful explanation is it?
To be sure our payment systems should have incentives that reward the efficient delivery of health care but to claim until we change the insurance markets and force patients to pay more, then we can’t do things more cheaply is willful ignorance. Or maybe intellectual arrogance of those who think only big P policies create change.
The problem is not technology. It is the way we use technology. And it is not patients demanding more and, and more expensive treatments that are at fault. it is doctors over-utilizing those things which are not necessary or which there is no evidentiary basis to assume are superior. It is the way we practice medicine, organize care, measure what we are doing and learn systematically from our experience.
One quick word about “rationing”. If you went to a car mechanic who was always finding things wrong with your car in a way that you could prove had no material impact on it’s functioning, but instead was just a way to run up the bill, would you suggest it was necessary to ration mechanical services.? NO you would say stop doing all that stuff to run up my bill. Stop wasting my money.
You ration things that are scarce. Our problem is that we over use resources that do not add value or improve function and we underuse things that could add value.
You have to believe that we do not have enough to decide that rationing is necessary instead of recognizing that we already have plenty of what we need.