• Stephen Parente’s grand bargain, ctd.

    Presuming you’ve read Don’s post and Parente’s column, my two key points are:

    1. It matters a great deal how defined contribution levels are set and how they grow. Would they erode relative to premiums? Relative to incomes? See competitive pricing posts. (Yes, I need to do a FAQ on this.)
    2. It matters a great deal how federal contributions to state Medicaid programs are set. Would they be tied to local economic conditions so that states are able to handle increased Medicaid demand during times of reduced state revenue?

    Finally, somewhat related to this, I tweeted the half-baked idea of allowing 55-64 year olds to enroll in a “defined contribution” like Medicare program. Then, at age 65, individuals choose to either remain in that program or to enter a CER/IPAB/ACO-driven “traditional” (neo-traditional?) public Medicare option. The question is, would this be viewed as a step down the slippery slope toward Medicare for all or would it be viewed as a step down the slope toward dismantling Medicare as we know it? Is it Medicare expansion or destruction? Tricky one!

    • I admit I have no idea what a “defined contribution” like Medicare Program” is (and yes I do have a Ph. D. in Economics and all the stuff that goes with it), so the following comments are based in part on that lack of knowledge.

      The idea that health care costs can be controlled by changing who makes the payments or shifting the burdens of those costs is just plain incorrect. It ignores the causes of rising health care costs and the fact that the U. S. health care system is highly inefficient compared to the rest of the world. The cause of the high and increasing costs are

      1. The fact that health care is price inelastic

      2. The aging of the population which increases demand for health care

      3. The “fee for service” structure which has incentives for health care providers to increase rather than decrease costs.

      If a “defined contribution like Medicare Program” will address these causes, that would be great. If, however, that concept like all the other concepts that have been proposed merely shifts costs from the public sector and employers to private individuals, then let’s say so and move on.

      There is no magic bullet that will infuse market control of health care costs unless the system itself is changed. I truly wish there was a way to just change the burden structure, or just change the tax structure or just change something in payment methods that would solve the problem at no cost to either providers, patients, the employers or government, but there is not.

      Of the three causes listed above, the first two are fixed and immutable only the third is subject to policy. We need to recognize that and move away from Ryan type plans and move towards fixing the system.

      • No disagreement with your broad thrust. Parente was clearly addressing federal health costs, not total costs. Defined contribution is just another name for premium support and its variants (vouchers, subsidies). It means nothing without clear definition as to how the contribution level is set, which was my point.

    • Both of these ideas only cut benefits and thereby cut access to health care and will have adverse health consequences. It doesn’t matter about the details of how rates and subsidies are set. The end result is to cut access to health care which means that the most vulnerable will suffer.
      These cuts do nothing to address the runaway costs of our “free enterprise” greed based health reimbursement scheme. The rest of the developed world manages to deliver better health at less than half the cost of the US system. It’s not magic, it’s regulation of prices and services.
      In the developing world, the World Bank (and others) have been promoting “patient responsibility” and fee for service to limit access to health care with predictable results of more morbidity and mortality. However, the NYT reported today of an “experiment” (nice to be a developing country and be subject to rich world “experiments) where they eliminated fees for prenatal and child care. The results were a stunning reduction in maternal and child morbidity and mortality. Yes, this increased costs but it is saving many lives. Do we really want to run the reverse of this experiment in the US where we make it more expensive to gain access to health care and have the result of increased morbidity and mortality?

    • A post by Don Taylor pointed to a New York Times column by David Brooks on the role of culture in cost control. One of the reasons that price is inelastic is the phrase “new and improved”. That phrase is so much a part of our psyche that we automatically assume that new is improved. Our belief in that phrase is particularly powerful when it comes to technology. We also buy into the phrase “you get what you pay for” and assume that what’s more expensive must be better. This type of thinking allows providers to charge more for services that are not new and improved but new and not improved.