• Rationing exists

    Uwe Reinhardt has a great post up at Economix talking about Rep. Ryan’s health care plan, and its ability to curb spending. Go read it. I want to focus on one aspect.

    The most common argument against government funded health care is that it will lead to “rationing”. I have always found this a mystifying response, because health care is rationed right now – by cost. Uwe puts it better than I could, though:

    For reasons that escape me, many Americans do not regard rationing scarce resources through the marketplace, by price and ability to pay, as rationing at all, reserving that term for government withholding of marginally beneficial procedures, based on formal cost-effectiveness analysis.

    I do beg to differ. In their well-known textbook “Microeconomics,” Michael L. Katz of Harvard and Harvey S. Rosen of Princeton, put it thus:

    Prices ration scarce resources. If bread were free, a huge quantity of it would be demanded. Because the resources used to produce bread are scarce, the actual amount of bread has to be rationed among its potential users. Not everyone can have all the bread that they could possibly want. The bread must be rationed somehow; the price system accomplishes this in the following way: Everyone who is willing to pay the equilibrium price gets the good, and everyone who does not, does not.

    That states the matter succinctly, although the authors could have been more precise by writing “willing and able to pay” rather than just “willing to pay.”

    For the record, I don’t understand people’s blanket opposition to cost-effectiveness research either. I recognize that it can make people uneasy to assign utility values to lives (even children’s, where I’ve done some of the work), but when you are dealing with a resource that’s not unlimited, it’s scarce by definition; it’s going to be rationed in some way. Better to do it out in the open, in a public and accountable way, than to pretend it’s not happening at all.

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    • Is isn’t the main point that markets and prices might be better rationers than effectiveness panels and gov’t comittees?

      • That depends on what you mean by “better.” More economically efficient (less dead weight loss)? Sure. More equitable? Almost certainly not.

        • Because of severe assymetry of information, it would also likely not be even more economically efficient. If you want to think about this, I suggest you just substitute the phrase “nuclear power plant safety” for “health care.”

          Markets are great but, as even Adam Smith and Friedrich Hayek have written, not perfect and not well suited to some jobs.

        • Sure, and the efficiency / equality tradeoff is something that TIE has really keyed me into — but in the post above Aaron is attacking a bit of a straw man. There are arguments that a voucher-like system will access some of the markets pricing efficiencies without sacrificing equality, A poster below makes my simple point more clearly:
          “The argument is not that rationing does not exist, but rather what form of rationing we should use. Rationing via government committee is not at all the same thing as rationing on price”

          • There is abundant real world evidence that rationing by government committee is in fact better in health care than rationing by price — the contrast between most other developed countries and ours in terms of cost as an absolute and as a percentage of GDP as well as the contrast in effectiveness as measured by almost every conceivable health endpoint is quite clear.

            • “the contrast in effectiveness as measured by almost every conceivable health endpoint is quite clear.”

              Please elaborate

    • Reinhardt, as usual, cuts to the chase.

      The really great thing about cost-effectiveness research at this point is that there are tremendous savings to be had without any compromise of patients’ health — in fact, often associated with improved results. Before we start cutting costs for premature babies, very sick children, the elderly, or cancer patients, we should first save money on treatments proven to be not only less cost-effective, but less effective full stop. US health care has huge reservoirs of costs associated with this type of thing. Good evidence suggests that hundreds of billions of dollars a year are available.

      The problem, however, is that for every management strategy that research has shown to be wasteful, there are squadrons of doctors, researchers, hospital executives, business people, and their employees who will see loss of income. The lower level of spending may not hurt patients, but it will hurt all those who receive income — often a lot of income — from providing that management. And those people are often very generous in their relationships with politicians of all stripes and very adept at lobbying, PR, and advertising defending their position.

      That makes engaging in rational care — not rationing of care — very hard to do. It is so much more politically tempting to cut care to low income people, the soon to be elderly, and other people who are much less well connected and powerful. The fact that that approach also works well with certain ideologic strains in US politics makes it doubly tempting.

    • “The most common argument against government funded health care is that it will lead to “rationing”. I have always found this a mystifying response, because health care is rationed right now – by cost.”

      I don’t know of anyone who disagrees with that. The argument is not that rationing does not exist, but rather what form of rationing we should use. Rationing via government committee is not at all the same thing as rationing on price. I have always found it mystifying that people ignore that.

      • Replying to your query above here because the blog seems to have cut off comment up there.

        I am not sure what you are interested in specifically, or how unfamiliar you are with international data from WHO and academic sources regarding health outcomes. Aaron published a blog entry here last October touching on the question of quality and cost in the US , and reposted a reference to it recently.

        I would guess you are familiar with the fact that in many indices of overall health — life exptectancy overall and at any given age, infant mortality, maternal mortality, child mortality, premature deliveries, etc. — the US lags behind most developed nations, consistently ranking in the high 20’s to high 30’s internationally. You may be less aware of the fact that a comparison between British health data and US health data showed that the bottom economic quintile in Britain has better health indices than the top quintile in the US, suggesting that this goes beyond issues of poverty and of access to care.

        You are no doubt aware that in the health care systems of almost every developed nation other than ours — regardless of whether using private insurance, government insurance, or nationalized health care providers — government or pseudo-government agencies set both prices and coverage for health care, ruling what care is covered and what payments are provided for care.

        In addition to the WHO data on results, there is a large body of data looking at outcomes for specific disease conditions, studying both mortality from those diseases and outcomes following diagnosis of particular diseases, including longevity after diagnosis, return to work and disability, hospitalizations, and so on. This includes data on coronary artery disease, congestive heart failure, respiratory disease, liver disease, renal disease, cancer, trauma, and other conditions. In every category except cancer — and there are some questions about cancer data, lead time issues, and quality of life issues — the US is far down the list or in dead last when compared with groups of advanced EU states or with the highly developed English speaking countries.

        That is what I mean when I say that countries with systems based on control of medical care through government or pseudo-government management boards attain better results as measured by endpoints of almost every type. As Aaron indicates in his post, the US leads in money spent and leads most countries in access to high tech devices and care, but trails in almost all other indices, including outcomes.

        • I’ve no quarrel with the gist of your comment, but I suggest that “quasi-government” may be a term more apt than “pseudo-government.”

        • For starters, it is very hard to take any argument about comparing national health care systems seriously when the first things you cite are WHO rankings, and raw life expectancy and infant mortality. Life expectancy is a ridiculously bad way to assess health care quality, and cross-national infant mortality numbers are basically useless because of differences in the way births are recorded.

          A less crude look at the data suggests that the US does very well in some things, not so well on others, but in general our quality is comparable to that of other countries, but at a much higher cost. It is not accurate to say there is a significant difference in effectiveness. If you want to argue that we don’t get good value for our money you would be right, but that doesn’t appear to be the argument you are making.

    • You may have specific people or specific objections in mind when you say you don’t get people’s blanket opposition to cost-effectiveness analysis. But conscientious conductors of CEAs acknowledge that they study efficiency only. That is, they tell us how to maximize health-related utility, but not how to distribute it equitably (unless we think maximizing = equity).

      From this perspective, there are four major problems with pure CEA that philosophers and ethically sophisticated health economists have identified:

      1. Aggregation: CEA permits small benefits to lots of people to be summed up to outweigh large benefits to a smaller number of people. Oregon’s Medicaid rationing prototype in the late 80s is a good example: it would have covered tooth cappings and TMJ splints but not appendectomies. Dollar for scarce dollar, providing appendectomies was not cost-effective.

      2. Discrimination against the disabled: Suppose I am disabled and you are not, but we are each otherwise healthy. Now suppose we both develop a life-threatening disease, but scarcity allows for saving only one of us (the person saved will be restored to his pre-illness condition and if saved we’ll live the same number of years). CEA will every time say you should be saved, because saving you generates more QALYs.

      3. Priority to the worst off: CEA cannot explain why we should give priority to the worst off. Suppose I generate .3 QALYs per year and could be brought to .5. And suppose you generate .8 QALYs and I can be brought to full health (1.0). But we cannot do both. CEA tells us to flip a coin, since from the standpoint of the maximizer, .2 QALYs for you is the same as .2 for me. But some find that not quite right.

      4. Fair Chances vs. Best Outcomes: Suppose you and I are both at 5. Either I can be helped or you can, but not both. I can be brought to .9, and you can be brought to .93. CEA says we should help you, but some believe we should flip a coin here. They argue that the small difference does not justify disregarding my equal claim to be helped simply because you stand to gain just a little bit more.

      These are big problems, and no one has a good solution. The problem of aggregation is particularly sticky, getting us (and my own research) deep into the philosophical weeds. Pure CEA may be a good guide to understanding efficiency in resource allocation, but efficiency is not all we care about.

      An excellent introduction to these issues can be found in Peter Ubel’s book _Pricing Life_.

      • Thank you for bringing these issues to my attention and for the book recommendation.

        I would like to think that we can achieve agreement at least on the form of rationing in which we approve Treatment A but deny Treatment B because research shows that A is at least as effective as B but costs less. Of course, as Pat S points out above, those who have a vested interest in Treatment B may never agree.

      • As I understand the concept, QALYs consider only the benefit of treatment to the patient. What about the benefits that radiate out from the patient? Suppose Patient A has a higher QALY score then Patient B but Patient A is childless and Patient B has four school-age children. Is it really more cost-effective — to society — to save A rather than B? Or suppose that B is a physician and A is a banker? I foresee ethical issues in rationing that go far beyond anything addressed by QALYs.

        I am troubled by the ethics of market-based, price-based rationing but I’m equally troubled by the complexities of rationing by a committee of experts. Will it turn out that market-based rationing is the worst possible way to ration health care — except for all the others? Better the devil we know…?

        I’m not decided; I’d like to learn more. Perhaps the truly insurmountable complexities occur only at the margin, and the degree of rationing we need to make health care sustainably affordable will fall comfortably within that boundary.