Bending the curve: conflict and skepticism

As Aaron illustrated in his recent series, there is a lot of excess spending in our health system, above what our wealth would predict based on other OECD nations. We generally perceive that as a problem, but we’ve yet to find a sustained way to deal with it.

Most of the ideas–past and current–guarantee, at best, a shift in the level of spending, not a change in the rate of growth. Yet, as I wrote before, it is inconceivable that the curve will not be bent, eventually. Of course the curve will bend, because, last I checked, at most only 100% of GDP is available for health spending. (OK, perhaps close to 200% at maximally tolerable debt levels.) 🙂 On the other hand, it is hard to see how it will be bent given our past experience. This is a bit of a conflict. I, myself, am conflicted.

There are, broadly, only two ways the curve can be bent: (1) people, collectively and perhaps motivated by new forms of insurance, change their behavior and (2) by fiat. Way (1) is consistent with private-side, market-based, approaches. Way (2) is public-side force of law (global budget). Which way will we choose, (1) or (2)? I can’t decide because I don’t see how either will work. Hence, the conflict and skepticism. Let’s start with (1).

Way (1) strikes me as unlikely to work because people don’t really want to or cannot behave in a way that bends the curve and is consistent with (1). There are too many market failures in health care, and bending the curve is a collective action problem. What people want is for everyone else to use less health care, but each individual wants the works for himself. That might mean that we really don’t want to bend the cost curve, or, rather, we want to put off doing so as long as financially possible. That’s OK, so long as everyone has access to decent care. If we want to spend 2, 3, 5, 10 times other OECD countries on health care, fine. There’s no inherent value to be placed on that.

If we end up trying way (2), government dictated global budgeting, it’ll be decades from now and only because people may demand it. It sounds like a paradox. But it isn’t. It’s market failure. Health care is different. When push comes to shove we can’t really help over-consuming and overspending individually. Yet we aren’t happy with the collective outcome. The only way to solve that is to bind ourselves collectively to spend differently, to ration differently.

Yet way (2) is subject to political failure. Will Americans really stand for government-imposed constraints on health care? Can health care really be made sufficiently immune from rent seeking? From populist pandering or demagoguery? Our experience suggests not. So, I’m skeptical about (2) as well. Maybe we don’t really want to bend the curve any faster than it would be bent due to the fact that we have to do other things with our money like eat and provide shelter?

If that’s the case then maybe way (1) is better in that it reflects what we really want as individuals. If so, we should stop demanding a bend to the cost curve and stop selling private-side innovations as if they’ll achieve it. On the other hand, maybe way (2) is better because it solves a collective action problem. Individual choices are not necessarily socially optimal, and particularly not when made in imperfect markets. However, we have to admit the imperfections of government too and should stop selling its solutions as guaranteed just because they look good in 10 year budget projections.

I also think we’ll try way (1) first, at least for most of the working-age population, because we want it to work (or powerful special interests do). So, we’ll have our market-based test, many of them, as we have already. But, remember managed care? It worked! Then it stopped. Why? Because we hated it as individuals (consumers and providers). That it reduced costs was generally regarded as a collective victory. That it constrained us as individuals pissed us off. We may try way (2) as well, though a serious movement toward global budgeting is likely decades away.

In a 2004 paper, Joe Newhouse wrote  that tools cooked up by the insurance industry in the name of holding back the rate of increase in health care costs aren’t likely to work. Nevertheless, tools to alter incentives and manage care can lower waste and inefficiency, i.e., shift the level, which is worthwhile. But we shouldn’t kid ourselves. Bending the cost curve is hard, and only inevitable in the sense that we must, eventually, reserve some sliver of national income for other necessary goods.

So, the curve will bend, eventually, but not necessarily as soon as some think it will or should. We’ll groan and gripe every year as costs continue to escalate, but we’ll pay them, whether out of pocket or through social programs. We have not yet demonstrated anything that suggests to me we’re really serious as a society to do otherwise. Maybe, at some level, we are getting what we want. We love our health care and we love to complain about it. Sadly, some do more than that, they suffer, they receive poor care, they die. If we’re going to keep spending vastly more than any other nation, can we at least buy ourselves–all of us–the best care in the world?

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