• A question for “cost control before coverage expansion” advocates

    A fairly standard position is that we should implement more cost control before embarking on coverage expansion. A variation on this idea is that getting costs down will itself help expand coverage, not all the way to universality, but a bit.

    I’m skeptical that a “cost control first” approach is politically viable, but let’s put politics aside. Here’s my question: how much cost control is enough? In other words, if you think cost control should precede coverage expansion, at what level of health spending would you be ready to move on to coverage expansion?

    Recognize that one can always make an argument that we spend too much on health care. Today health spending is about 18% of the economy, with Medicare itself consuming 3.6% of GDP. Back when the total was only 15% or 12% or 7% of the economy and Medicare was just 3% or 2% people said we spent too much too. Where’s the line at which we began spending too much? If we bring spending down to that level, whatever it is, would we finally have consensus that it was time for coverage expansion? If so, why didn’t such a consensus exist in the early 1990s or the 1980s or at any other time in American history? (Ironically, the answer is that some were concerned that coverage expansion of the types proposed would slow health spending and the incomes it funds.)

    Also recognize that some contend we have received great value from health spending (Cutler, Murphy/Topel). Still others think we can rationally spend a great deal more than we do (Hall/Jones). Maybe we don’t spend enough, though people differ on this point. If you’re one of them, I’m talking to you. I want to know what level of health spending you think is appropriate.

    Before you answer, a word of caution. If you attempt to address the issue of how much cost control is enough, be careful with an argument based on efficiency. Our health system is inefficient, I grant you. Evidence of a lack of productive efficiency is that we have under-use along side over-use. One approach to addressing this is through reforms that reduce incentives for over-use (e.g., paring back the employer-sponsored health insurance tax subsidy, changing how Medicare pays providers, etc.) and reforms that aim to reduce under-use (e.g., expansion of coverage for low-income populations, reforms of the insurance market so that participation by those with health care needs is easier). Baicker and Chandra argue that one cannot say how much health spending is the right amount in the presence of productive inefficiencies. Maybe there is another argument they or I have not considered. What is it?

    So, if you think you know what level of health spending we should aim for, tell me what that level is, and tell me why that means coverage expansion should wait. I’d really like to know. Putting all my cards on the table, I don’t really think this is a debate driven by how much we spend, but one driven by how much we tax. If you think taxes are too high then it is convenient to be able to say we also spend too much on health care, at least through government programs. But what if we don’t? What if it is allocatively efficient to spend more or at least productively efficient to spend differently, but, in any case, not less?


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    • I guess I would pick one of the other developed economies with residents who are generally satisfied with their health care system (France? Germany?) and aim to match both spending and benefits. On humanitarian grounds, I don’t support any delays in expanding coverage, even if that means higher taxes. But I see no reason to accept long-term a system that is less efficient than known good examples.

      I realize that the political barriers to achieving this may be insurmountable.. I still think that this is the goal we should articulate.

    • I am assuming others, like me feel that it is indeed possible that the amount we currently spend is the right amount and maintaining that level is what we should aim for for the future.

      However this does not mean that coverage expansion should wait.

      So, really I agree with you, we really should just be spending differently.

    • I think the argument from the Paul Ryans of the world (not one that I necessary subscribe to) in favor of cost control before coverage expansion would center on the deficit. Namely, that health care spending is threatening the long-term financial health of the country (and crowding out other important priorities, like tax cuts), and we can’t spend more to expand coverage until we get our fiscal house in order.

      The specific point at which the deficit became “too big” and health care spending “too high” is not exactly clear to me, but I imagine there is some cutoff where it becomes a significant problem (maybe we’re already there).

      That argument doesn’t really distinguish good health care spending from bad health care spending, but for their purposes that distinction is irrelevant.

    • My concern is HOW we manage/control costs. I don’t think a society can control costs humanely without covering all. We currently don’t manage costs and leave 20% outside coverage, so how’s that working for us. Coverage and cost control go hand in hand.

      Health care has no consistent rational method of cost accounting, there is confusion between prices, costs, premiums, and consumer out of pocket expenses, unlike other service industries health care doesn’t price on the margin, and fees are per unit of service all of this patchwork quilt of costs and revenue flows make value difficult to determine. My fees as a health care consultant are part of the costs of health care but do I provide value? (I like to hope I do but I could be self delusional.)

      Without some major changes in how our society pays/reimburses care there is no rational method to control/manage cost or the rate of cost increases without wage and price controls. (We can see that working can’t we?) Market forces can’t work well because of the information imbalances between providers, payers, and patients. Do we open the supply side up and let anyone individual or company provide care regardless of eduction, training, or experience. I call this the drill baby drill method of lowering prices by increasing supply. How’s that working for petroleum?

      To date the only society I know that has totally redesigned its society’s health care system is Tiawian. Perhaps its a model for us?

      • It’s ironic that you suggest Taiwan as a model for our health care system considering that they used America’s Medicare system as the model for their health care system.

        • Taiwan’s system is fine. But do you know what you are getting in that system? Docs in Taiwan routinely see 100+ patients per day; you are literally shoved out of the room after 5 minutes of the doc’s time.

          The consensus opinion out there is that american doctors dont spend enough time with patients.

          The best system IMHO is one that removes the incentive for docs to cram in as many patients as possible. Pay us flat salaries and that will go a long way towards reducing healthcare costs. US patients are incredibly overdiagnosed and overtreated.

    • 1. I would not give an amount but we should try to reduce the excessive licensing an see how that impacts spending and access before we do anything else.

      2. If we do socialize medicine one of the goals should be to cut total medical spending in half to bring us inline with other industrialized countries.

      • A free market “supply side” solution will not work with healthcare, because helathcare can not and will not ever be a free market, regardless of what country you are in.

        Consider this: New York and Boston have the highest number of doctors per capita in the world. In a free market system, that means that healthcare costs should be lower in those markets, because all those doctors are competing against each other, right?

        Wrong. Healthcare costs are higher in NYC/Boston than just about everywhere else, not just in spite of the huge number of doctors but BECAUSE of it. If you flood the market with 100 million doctors, that means you find stuff wrong with a ton of people that results in lots of extra money being spent.

        More doctors = HIGHER healthcare costs, not lower

    • I’m by no means an expert on health policy, but it seems to me that expanding coverage is a method of cost reduction just in terms of bargaining power and risk pooling. Granted, this would only apply under a largely centralized system as having slight increases across several private entities would probably not make a noticeable change.

      From my perspective, total spending on healthcare isn’t the correct metric. Shouldn’t we be more concerned about healthcare costs on a per capita basis? Obviously, we have a system now that excludes many due to costs. We could very well improve efficiency, lower cost, and still spend more on health care in total.

      The relationship between expansion of coverage and lowered individual costs is a paradox I’m having difficulty to grasp.

    • I definitely appreciate the question you are asking, which is not asked nearly enough in other areas (e.g. how much education spending is enough – the question works in all directions and at all parties).

      I’m not a cost-control before coverage expansion guy, I would argue instead that there are better ways to expand coverage that may also bring costs down (destroy interstate restrictions, end the employer tax advantage, etc.) nor am I really that worked up about costs – which puts me in the very tiniest minority of economists I suppose. So the post begs the question a little bit.

      But I’ll answer it without having to address what level of health spending is appropriate: when folks argue that other federal spending is “too high” or “high enough” too then I will accede to the point you are making. Is environmental protection spending high enough? Infrastructure spending? Defense spending? The departments of education and energy? Will someone stand up and say this health thing is more important, even if we believe deeply that other federal spending is important too?

    • I find this whole line of questioning very peculiar. In no other industry (except education) do we ask what level of spending the industry “should” consume. In other industries, cost is the single driver of access–i.e., lower cost leads to increased access. You don’t have to ask whether efforts to reduce cost should occur before or after efforts to increase access–they are one in the same.

      As for being “in line” with other western countries, what exactly does that mean? Per capita we spend more, but controlling for per capita GDP _and_ total population, we spend almost exactly what the regression line would suggest. If France had a population of 300 million, would their per capita health care spending remain the same or would it be more in line with that of the US? I just don’t know how productive these surface-level comparisons are.

      Wintercow20 asks the right question but from the wrong perspective. You don’t want to rely on politicians ranking the importance of health care spending against that of environmental protection and defense. Those calculations should largely occur in the mind of the consumer, with health care spending weighed against spending toward other consumer goods. Singapore’s system does a good job of shifting decisions on marginal consumption of non-emergent health care to the consumer.