• A health care conundrum

    I just finished reading Pricing the Priceless: A Health Care Conundrum, by Joe Newhouse. It’s not an easy read, but it is loaded with value. The final paragraph makes a crucial point.

    [A]ll [health care financing] arrangements that can be implemented have important drawbacks. Although variation in ideology plays a role in the payment methods that different countries use, the wide variation in institutional arrangements around the world as well as the ongoing efforts at attempting to reform and improve those arrangements in almost every country are consistent with that conundrum.

    A close corollary is that any proposal to reform any health system is imperfect. Each comes with obvious or hidden deficiencies, threatened by potential market or government failures. This is also the message conveyed by Katherine Baicker and Amitabh Chandra in one of my all-time favorite papers pertaining to health policy, about which I wrote,

    To some readers, this might seem uselessly equivocal, the mutterings of the proverbial two- (or three-) handed economist. To me it is a strong dose of reality. Baicker and Chandra tell it like it is, and it is complicated. No single, simple idea is going to solve everything. In my view, anyone who says otherwise is either selling something or misguided, or both.

    I can’t tell you how many emails and comments on this blog I’ve read (or posts elsewhere) that suggest all will be solved by a single-payer system, or more consumer-directed health plans, or by driving the profit motive out of the health system, or any number of other very simple ideas. I guarantee, not one of them will solve all our problems. Nor will the ACA.

    Still, we should choose the “best one,” the “least worst,” right? Naturally! But that’s not at all defined. Cost minimization could be a goal, but it’s far from a universal one (zero spending on health care is very low cost). Maximize quality? What’s quality? Maximize economic welfare? How, in the presence of market and government failures?

    There really is no unique, rational way to choose. In promoting a single idea, nobody is 100% right! It is, therefore, appropriate that the system we have and the one we’ll get will be a messy hybrid that imperfectly balances many interests. The best anyone can do is to enter the reform dialog with open eyes. We can’t achieve a perfect system, but we can at least be more fully informed about the state of things and the limitations of alternatives. If we can’t choose correctly, we can at least choose wisely.

    (Photo h/t, Greg Mankiw.)

    • I don’t think anyone over the age of 12 is asking for perfect. What most of us would like to see is for both our costs and our outcomes to come back in line with averages for other developed countries. Paying twice as much for considerably worse health outcomes is not acceptable- particularly as costs continue to grow. As for which of the many systems is best, my preference would be for the French system. But being a realist I will settle for any that will cover my self-employed brother, his wife, who is developing diabetes and his severely disabled son without impoverishing either them- or the rest of the family in trying to help them.

    • You nicely sum up my thoughts. Everyone I work with knows that I read a lot on the topic of health care reform. Every now and then they will ask me what to do to decrease costs. They all want a simple answer, but I cannot think of any. Their eyes glaze as I start to go over the alternatives. Now, I mostly tell them I am not sure. Same thing on the cost issue BTW.

      Given this uncertainty, it is one of the reasons I favor using our states, preferably blocs of states working together, to try some different approaches while we work towards a better solution. You seem a bit lukewarm on this approach (or am I wrong?), which I kind of understand as it also has drawbacks, but then so does every other plan.


    • Hmmm, just read your Kaiser article. May I retract the lukewarm on states comment?


      • @steve – I’m a bit skeptical on the “let’s let states try different things and then pick the best model” idea. It’s a bit like kicking the issue of the day to a bipartisan committee. We have a lot of state-level experimentation in Medicaid and in private market reforms. Massachusetts is one of them. We’ve learned a few things from the Massachusetts experience. I don’t see agreement on what those things are!

        Having said that, if state-level flexibility is what is required to move the ball forward, let’s have it. But I don’t think we should presume that will lead to good solutions for everyone. It’s even far less likely to lead to a national solution. Will moving across state lines become (or remain) a health insurance headache? Seems like some national coordination is required.

        … and the debate goes on.

    • Love the book. It is dense, but well worth the read. If only I could fit the 200 pages worth of text in my brain permanently…