Suggested by a reader, on my commute home yesterday I read the 2008 Health Affairs paper by Katherine Baicker and Amitabh Chandra, “Myths and misconceptions about U.S. health insurance.” It was a breath of fresh air! I agree with every word of it, and I recommend you read it, even if you well understand our health care system.
The abstract doesn’t do it justice, but here it is anyway:
Several myths about health insurance interfere with the diagnosis of problems in the current system and impede the development of productive reforms. Although many are built on a kernel of truth, complicated issues are often simplified to the point of being false or misleading. Several stem from the conflation of health, health care, and health insurance, while others attempt to use economic arguments to justify normative preferences. We apply a combination of economic principles and lessons from empirical research to examine the policy problems that underlie the myths and focus attention on addressing these fundamental challenges.
So, what’s so special about this? It’s that Baicker and Chandra don’t dumb things down and they don’t try to fit square pegs in round holes. That is, the health care system and how to reform it are very complicated. The system didn’t evolve according to some sensible plan. Its emergent properties are functions of perverse incentives, inconsistent and sometimes (but not always!) misguided government policy, and failed markets. It’s a mess! Given all that, it is folly to think that any one thing–whether it be consumer directed health plans, “Medicare for all,” or some other bumper-sticker idea–will solve all our problems.
I’ll leave the details to Baicker and Chandra. What follows is a selection, just to give you more of a taste of how they present the ideas. I’m not singling this selection out because it’s the only thing in the paper I agree with. As I wrote above, I agree with the whole thing. (Bloggers, if you’re tempted to reference this post, don’t bother. Read the paper and reference that.)
[I]nsuring the uninsured would raise total spending. This does not mean that it would not be money well spent (we personally believe that it would be, but this reflects a normative preference). Spending more to extend insurance coverage is not a problem if it generates more value than it costs, and the view that health care is a right is not inconsistent with this framework. First, and sometimes overlooked, is the security that insurance provides against the uncertainty of unknown health care expenses. The value of this financial smoothing alone is estimated to be almost as much as the cost of providing people with insurance. Second, much of the additional health care that the newly insured would receive is clearly likely to improve their health. (But this is by no means automatic; as we discuss below, being insured is not enough to guarantee good health care.) Extending health insurance coverage may be well worth the cost for these reasons, but it would not save money. …
Greater patient cost sharing would help, but it is not the magic bullet that some make it out to be. It is certainly true that first-dollar insurance coverage … encourages the use of care with very low marginal benefit and that greater cost sharing would help reduce the use of discretionary care of questionable value. But there is also evidence that patients underuse drugs with very high value when confronted with greater cost sharing. … Worse, there is evidence that even $5–$10 increases in copayments for outpatient care can result in some patients’ being hospitalized as a result of cutting back too much on valuable care, partially offsetting the reduced spending. …
There is no reason to think that the optimal insurance structure would look like the typical high-deductible plan. Rather, it might subsidize high-value care such as treatments to manage diabetes or asthma, while imposing greater cost sharing on care of lower value, such as elective surgeries with limited health benefits. People would choose the insurance plans that offered them the best benefit mix—trading off higher premiums for plans that covered care of diminishing marginal value. Of course, what may be valuable to one patient could be wasteful for another, and the key challenge for “value-based insurance design” policies is to differentiate between these cases. …
On the other hand, a single-payer system does not automatically provide high quality care: the provision of low-value care is as pervasive in the single-payer Medicare system as it is elsewhere. Single-payer systems are also slow to innovate—as suggested by the fact that it took Medicare forty years to add a prescription drug benefit, long after most private insurers had done so. Nor do calculations of the costs of a single-payer system measure the utility loss from forcing people with different preferences into a monolithic health insurance plan, or the cost to the economy of raising taxes.
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.