• Economists agree!

    I don’t always agree with Tyler Cowen on matters relating to health care and health economics. I do, however, agree with a lot of what he wrote in reaction to Rep. Ryan’s budget plan. Below, I’ve removed non-health comments (not that I don’t agree with them, I just don’t want to get into those), picked out the health care bits I do largely and unambiguously agree with, and edited (with “[…]”) for efficiency:

    2. Ryan nails our dysfunctional, “who is really responsible for paying for Medicaid?” structure.  That said, I’ve long preferred the federalization of Medicaid.  […]

    3. […] Medicaid should be one of the last parts of the health care budget to cut.  […]

    4. […] I would urge maximum transparency.  Health care costs are increasing by about five percent a year.  That means a fixed value voucher loses about half its real value, in terms of command over health care resources, within fourteen years.  […]   If that is the decision we are going to make, let us understand it as such.  […]

    5. It would be nice to have a scientific estimate of how much fixed value vouchers would lower the rate of growth of health care costs.  I’m not convinced the effect here is large, but I’d like to see it studied more closely.

    6. Ryan’s budget repeals ACA and thus in the semi-short run it could considerably increase Medicare costs.  There is no reason why Ryan’s plan shouldn’t keep the most fiscally responsible aspects of ACA.  Ryan exempts the current elderly from any Medicare cuts at all, see David Leonhardt’s remarks. […]

    8. As I’ve already blogged, the vouchers idea won’t help cut health care costs.  Let’s create some multiple public options within Medicare, some of which would allow people to trade health care benefits for cash. […]

    10. There’s not nearly enough on reforming the dysfunctional supply-side of our health care institutions.  Nor does science or basic research receive much discussion. […]

    13. [… T]he plan is not intended to be enacted into law.

    I would only add that not all voucher plans have the same consequences as Rep. Ryan’s. My readers, by now, must know this.

    Comments closed
    • Concerning this:

      4. […] I would urge maximum transparency. Health care costs are increasing by about five percent a year. That means a fixed value voucher loses about half its real value, in terms of command over health care resources, within fourteen years. […] If that is the decision we are going to make, let us understand it as such. […]

      The other day I heard an blurb on my local NPR station that I found frightening and disorienting. It was from the college of veterinary medicine at the University of Florida (I live in Gainesville FL). It was about hip replacements for dogs! They told how many they do. I was stunned. Having grown up when I did, I though who would do a hip replacement on a dog!

      If we have come to doing hip replacements on dogs how will we ever commit to a fixed value voucher system that would limit care for humans?

      On another issue a hip replacement for a dog in much, much cheaper than for a dog and there is no inherent reason that they should be as far apart in cost as they are. Maybe it is due to excessive licensing/regulation on the human care side! It could also be related to Robin Hanson’s Idea that we spend to show we care and so the amount must be high even if it need no be.

    • I don’t understand how vouchers can work given the concentration and variability of health care costs within populations, and the absence of any risk -adjustment mechanism.

      Health care expenditures tend to be highly concentrated within small segments of the overall population. Stated in statistical terms, the distribution of health care costs among the population tends to be positively “skewed”, rather than normally distributed. Marc Berk and Alan Monheit in their study “The Concentration of Health Care Expenditures, Revisited” concluded that roughly 5 percent of the population generates 55 percent of the expenditures. The bottom 50 percent of the population has garnered 3 to 5 percent of total health care expenditures over the period 1963 through 1996.

      While the health care costs of a population of seniors would tend to be more homgenous inevitably there will a small minority whose costs far exceed the mean and a large majority whose costs well never reach the mean. Among those in the small minority far exceeding the maen will be persons in the last year of life. Under a voucher system they will face the choice of ending treatment early or bankrupting their families. Making people die sooner – one way to produce savings I suppose.

      • It’s a voucher to buy insurance. Risk pooling, the function of insurance, addresses your concern. It’s not that different than Medicare Advantage other than how voucher levels are set.

        • Duh! Of course.

          Still we are fragmenting the risk pool into many smaller ones with less ability to distribute risk. Any enrollment strategies by private insurance that result in adverse selection will lead to the gradual segregation of beneficiaries into healthy-low cost and sicker high-cost plans, with the later put at significant fionancial risk.

          • Medicare has multiple plans, some private, today. The Part D program has ~50 plans available to each beneficiary. Other than MA selection w.r.t. FFS, I’m not aware of any severe selection issues. The bottom line is how vouchers/subsidies for private plans are set, not whether we have them. We already do. And they’re not going away.