Wise words

I seem to be having a Mark Pauly fest. So be it. He’s got some wise things to say, some of which he said a long time ago. He, with colleagues, wrote the following, for example, in a 1991 Health Affairs paper:

Any proposal for national health insurance must, in our view, ultimately be based on principles of efficiency and equity. […] Efficiency […] reflects a set of choices in which the resources used to furnish all goods and services yield maximum value to consumers. This definition of efficiency includes the valuation of quality, and the tradeoff with cost, as part of the objective to be sought. […]

[A]n efficient system does not necessarily have the lowest budget cost. The most cost-constraining system is the one that incurs no cost, but this is obviously not desirable. Nor is a strategy that has contained costs in other countries necessarily desirable for the United States. Similarly, our system’s “failure” to achieve a zero rate of growth in real cost, a rate equal to the growth of gross national product (GNP) (which would keep health care’s share of GNP constant), or a rate as low as a regulated system in some other county, is not necessarily a deficiency. The appropriate objective is the right rate of growth in cost. That rate, in turn, depends in large part on the value that informed consumers attach to costly but beneficial new technology and to the use of health services. If a costly new technology is valuable in relieving pain and discomfort or in reducing morbidity or mortality, a high rate of growth in cost–and the rising fraction of GNP that may accompany it– are cause for cheer rather than concern. The higher cost reflects the greater benefits of higher quality. Whether rising expenditures are desirable depends on a comparison of value to cost.

Equity has a less precise meaning; neither economics nor logic can prove that one person’s definition of fairness is necessarily superior to that of another. It is generally agreed, however, that horizontal equity (equal treatment of persons with equal real incomes) is desirable. A person should not be able to pay lower taxes simply because he or she can obtain health insurance in connection with employment. It is also generally agreed that any income redistribution through the tax system should be from those with more to those with less–vertical equity. But precisely how tax rates and public benefits should change as real income increases is much more debatable. We believe our country’s current mildly progressive tax structure and highly progressive distribution of government welfare and transfer benefits should be maintained, and that the current regressive system of tax subsidies to health insurance is an anomaly to be corrected.

The whole paper (ungated) is worth reading. If you think the above are just vague generalities, you’ll appreciate the paper, which is a fairly detailed proposal for reform. It’s not a proposal that would likely fly politically. However, if one takes the long view, the ACA does include many features that step toward, not away from, what Pauly, et al. propose. In other words, the ACA may be the most politically viable version of the “Pauly plan,” or darn close to it. (It’s debatable.)

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