Of Rationing, Trade-Offs, and Morality

A lot has been said about health care since my last post, and not just in this space. Indeed, I hope my fellow contributors, along with my readers, will forgive this delayed response. I would have answered sooner, but I was busy tracking down the details of President Bush’s new health care plan.

I won’t talk about that plan here. (If you’re really curious to read my assessment, it’s posted over at the New Republic’s website.) Instead, I’d like to go all the way back to Arnold’s first response to me.

(Arnold, I hope you don’t mind if I use your first name. After this exchange, I feel like such familiarity is warranted.)

In that essay, Arnold, you graciously admitted you had no easy answer for what will happen to the working poor and the chronically ill – and suggested that might be a proper function for government. I appreciate the concession and take your word seriously. I’ll simply caution you that we’ve been trying to take that very approach for the last 40 years or so. And it hasn’t worked too well. The reason? Programs exclusively for poor people tend to be poor (because they lack powerful political constituencies). I guess you could also say that programs exclusively for the chronically ill tend to be chronically ill themselves. If you don’t know what I mean, I suggest you examine more closely the very checkered history of state high-risk pools – a supposed innovation to help the chronically ill that has a decidedly checkered record.

Now, conservatives typically respond to this explanation by asking why I have faith in government to take care of everybody’s health care if it can’t even take care of some people’s health care. My answer is that they do it, and do it well, abroad.

This brings me to the curious turn your initial response took. Having made your concession to me, you decided to attack the left more generally, citing in particular the writing of Jacob Hacker – whom, I’ve since noticed, you regularly criticize as intellectually dishonest. Readers can scroll back to see your whole explanation; I think you summed up your thesis when you said this: “Neither Jacob Hacker nor anyone else offers a credible way to achieve lower expenditures without restricting supply.”

With all due respect, I beg to disagree – and not just because I happen to be very familiar with Jacob’s work, which is extremely rigorous intellectually. (Last time I checked, Yale’s political science department doesn’t grant tenure to scholars of his absurdly young age if there’s even a whiff of dishonesty about them.) Since the argument seems to baffle you, though, let me give it a shot: Universal health care systems are inherently more efficient than our system, more so if they take the form of a single-payer system or some similarly streamlined system. So at least theoretically, it should be possible to give everybody affordable health care – for the same or even less money than we pay today – without rationing or otherwise restricting care any more than our present system does.

Now, you scoffed at this argument. Specifically, you suggested that the administrative overhead in private health insurance – a factor upon which critics of the industry frequently seize – can account for only a small difference in the difference in spending between the U.S. and nations that provide universal health care. Ergo, something else must be happening. True enough. But you were either being coy, or are seriously misinformed, if you think that’s supposed to be the only source, or even the most important source, of higher costs here. Myriad other factors come into play as well, starting with the hidden costs associated with having a system of private insurance companies competing for business.

There’s the extra billing personnel in doctor offices and hospitals. There’s the endless parade of benefit consultants that come through corporate offices; and so on. And then there’s the waste generated by insurance companies who compete not on the basis of who provides the best medical care, but on the basis who can avoid insuring the sickest patients. I think it was my friend Ezra Klein who really nailed this point not long ago: Critics commonly refer to the health insurance market as prone to failure, but it works just fine – if you consider that its main goal is to make profits for insurers. It just so happens that when insurers compete to make profits, they do things – like trying to cut corners on care for the seriously ill, or trying to avoid insuring such people in the first place – that make medical care less affordable, not more, for those who need it most. And it’s quite possible this also raises costs for the whole system, because when all the cost shifting is done, you end up paying more not just in various transaction costs and administrative hassles - think of the money spent on collection agencies, and corresponding legal fees, alone – but in transferring medical treatment from relatively affordable primary care settings to relatively expensive emergency rooms.

Now, the fact that you could theoretically have universal access at current U.S. spending levels, without rationing or restriction, doesn’t mean that’s what countries with universal health insurance actually do. And here, Arnold, you have a good point: Most countries I know do make at least some efforts to restrict the supply of medicine or otherwise ration care. Some do it through what are effectively price controls. Some do it with global budgets and other controls on the diffusion of technology. Some do it the way by using cost-sharing as a disincentive to coverage. Some do it by applying more scrutiny to new devices and treatments before approving them for use. Some use combinations of these approaches. And, of course, they all do it to varying degrees of intensity.

But, as I’ve argued elsewhere, the best information we have suggests the medical results in these countries are generally no worse, and in many cases generally better, than here in the U.S. And that’s without the access problems we have here. In other words, maybe every country does make trade-offs. But the trade-offs abroad are much more palatable.

In any event, if you think that folks on the left aren’t honest about what their schemes implicitly cede, I wonder if you’ve thought a lot about what some of your fellow travelers on the right have been saying. Conservatives who oppose universal health care, including many that call themselves libertarians and advocate schemes similar to the one you envision, go on and on about rationing abroad. Many of these stories are pretty exaggerated, but never mind that. What they never acknowledge is that rationing takes place all the time right here in the U.S. It happens implicitly every time we make people without health insurance wait in long queues that form at public hospitals and other charity providers. It happens explicitly every time somebody in a managed care plan has her physician’s request for a referral, procedure, or test denied. And under the system you advocate, in which there’d be even less cross-subsidy for the severely ill, it would happen even more.

Here I want to switch gears for a second and answer Clark’s question. Clark, you want to know whether, in my forthcoming book, I examine the price that all of us pay for a broken health care system – in the form of higher costs (borne broadly as premiums, taxes, and out of pocket expenses) than a more well-constructed system would force upon us. The answer is “yes” and “no.” Yes, in the sense that I talk about the way the system distributes high health care costs broadly, though not equitably or evenly; no, in the sense that I really do focus – at least for the purpose of illustration – on a handful of people who ended up in truly dire straits.

I don’t regret that focus, however. It was a deliberate choice on my part, to demonstrate not only what already happens to the unlucky souls left out of our health care system – but what can, in fact, happen to virtually any one of us if, like these people did, we suffer some form of physical or financial misfortune.

This brings me to a broader point, which, Arnold, I think gets back to your more fundamental argument – and that of the right, generally. One of the things I admired about your original essay (and book) was its frank admission that no health care system is perfect. I readily agree. On paper, there may be some magic combination of incentives and regulations and taxes and whatever other factor you want to throw into the mix – a combination that gets us to a perfect nirvana where everybody gets good health care, everybody can afford it, and the system is perfectly efficient economically, spending not a dime more on care that a well-functioning free market would allocate to it.

But I have no illusions that we can create such a system here right away. In my book, while I praise both Medicare and several systems abroad, I was careful not to mythologize them (as are many other advocates on my side).

But while every system has its flaws, some flaws are worse than others. And I’m willing to make a value judgment about which ones are.

If giving everybody affordable health care means creating an insurance system with some high level of moral hazard, which in turn drives up costs unnecessarily, passing along modestly higher bills to every member of society, I can accept that. Why? Because, while it’s hardly perfect, I prefer it to a system like the one we have now – or, worse yet, one like the system Arnold envisions - and what it does to the least fortunate among us.

Maybe, Arnold, you don’t believe the stories you’ve read or heard. Maybe you buy into one of the many myths circulating about the uninsured and underinsured these days – like the idea that most of these people are just too lazy or cavalier to take advantage of coverage perfectly available to them; or that even people without adequate insurance can always get adequate care through an emergency room; or that people who end up with overwhelming medical debt are probably there because of their own financial irresponsibility.

Well, I’ve met quite a lot of these people over the years. None of them are saints, but, then, who is? (Certainly not I.) But in all too many cases, they are all people of basically good faith and judgment, who went about their lives doing what they thought was proper and right for themselves and their families, and ended up with their lives being turned upside down. Even to the extent I could “blame” some of these people for bad decision-making, the consequences that followed – which, in the worst of cases, include financial ruin and medical catastrophe - seem wildly disproportionate to the offense.

Arnold, I don’t know whether you think a decent society allows that to happen. But I know that some of your ideological allies do. And I know that I disagree.

Also from This Issue

Lead Essay

  • Insulation vs. Insurance by Arnold Kling

    In this month’s lead essay, Cato Institute adjunct scholar Arnold Kling draws from his book, Crisis of Abundance, to argue that the health coverage most Americans enjoy is not insurance at all, but what he calls “insulation.” “The problem with insulation,” Kling argues, “is that it is not a sustainable form of health care finance… Insulation leads people to over-consume health care services. Americans make extravagant use of services that have high costs and low benefits.” Kling explains how real health insurance would work, and how it would help solve the crisis in health care, and explores how we could transistion to a system over time institutionally and culturally in order to resolve the inconsistent demand for insulation and affordable, effective care.

Response Essays

  • Abundance Is Insulated from a Crisis—For Now by Matthew Holt

    According to health care strategist Matthew Holt, Arnold Kling is correct that consumer insulation from the costs of “premium medicine” is partly responsible for the rising cost of health care, but Holt dissents from Kling’s solution. Holt examines what he takes to be the three main strategies for dealing with “the insulation and overuse of medical care in the U.S.”: a nationalized “single payer system; a system of “managed competition”; and “individual consumer control of spending at the point of service.” Holt argues that the latter two options face deep problems, and that a nationalized single-payer system “is the likeliest outcome in perhaps a decade or so,” even it is not politically feasible at present. “Kling has provided a decent analysis,” Holt argues, “but has proposed a solution that both ignores the political and cultural realities of the health care system, and probably wouldn’t even work in theory.”

  • Unhealthy Subsidies by Clark C. Havighurst

    Clark C. Havighurst agrees with Kling’s “diagnosis of what’s wrong with health care” in the U.S. “as far as it goes.” Havighurst goes further and digs into the reasons the U.S. health system “has evolved into an entitlement program under which everyone expects nothing less than the very best that ‘modern medicine’ has to offer.” Havighurst lays the blame at the feet of the government’s choice to subsidize the purchase of health care by “excluding the cost of employer-sponsored coverage from employees’ taxable wages and income” and lucidly details three different mechanisms by which the tax subsidy insulates workers, consumers, and voters from the costs of health care. Havighurst proposes that “something approaching [liberals’] goal of universal health coverage could be achieved by ending the current tax subsidy and offering refundable tax credits of, say, $6000 to families that spend at least that amount in health plan premiums or contributions to a health savings account.”

  • Yes, We Need Real Insurance … Real Social Insurance by Jonathan Cohn

    Jonathan Cohn, a senior editor at the New Republic, agrees with Kling that our current health care system doesn’t function according to the widely understood principles of individual insurance, but he doubts we’d do better at fighting rising costs and maintaining quality if citizens with “real” insurance were free to take price into account in their choice of care. “We have precious little evidence to believe that people can distinguish good care from bad care,” Cohn writes. And the notion that consumer choices will improve over time is, according to Cohn, “a lovely idea, but one that seems highly dubious.” Cohn argues that we need a broader notion of insurance — social insurance — to shield people not only against unexpected illness and harm, but against “genetic and economic bad luck.” Cohn argues that many nations do just fine in managing the cost/quality tradeoffs inherent in a state-controlled system of universal coverage, and that Americans would be happy with such a system “if only they knew how those systems really worked.”

The Conversation