Don’t let doctors’ incomes derail healthcare-cost reform

By Felix Salmon
February 24, 2013
Sarah Kliff and Matt Yglesias both have good summaries of Steve Brill's monster Time article on healthcare costs.

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Sarah Kliff and Matt Yglesias both have good summaries of Steve Brill’s monster Time article on healthcare costs. Both of them correctly point out that the heart of the piece is about negotiating power: who has it (Medicare); who doesn’t have it (the uninsured); and how the lack of negotiating power on the healthcare-consumer side inevitably leads to sky-high costs.

Yglesias says that the natural conclusion from this is that either Medicare should cover everybody — which would massively increase Medicare costs while massively decreasing overall healthcare costs — or else that rates should be set by the government, even if the bills are paid privately. He also says that Brill “rejects both of these ideas”.

Weirdly, Brill’s rejection of these ideas comes not in his conclusion, but higher up in the piece — a mere 22,000 words in — when he explains that if we reduced the age that people were eligible for Medicare, then that would save a lot of money. He then continues:

If that logic applies to 64-year-olds, then it would seem to apply even more readily to healthier 40-year-olds or 18-year-olds. This is the single-payer approach favored by liberals and used by most developed countries.

Then again, however much hospitals might survive or struggle under that scenario, no doctor could hope for anything approaching the income he or she deserves (and that will make future doctors want to practice) if 100% of their patients yielded anything close to the low rates Medicare pays.

Weirdly, in 24,000 words which include a lot of railing against the large salaries enjoyed by hospital executives, Brill never supports or clarifies this assertion: he never says how much money doctors deserve, how much they actually make, or how high physician salaries would need to be in order to make future doctors want to practice. That last one, in particular, seems very unconvincing to me: the world is full of highly-qualified doctors who would love to be able to practice in the U.S. for much less than the current going rate.

In his conclusion, Brill says — again, without adducing any evidence whatsoever — that “we’ve squeezed the doctors who don’t own their own clinics, don’t work as drug or device consultants or don’t otherwise game a system that is so game able”. It’s a bit weird, the degree to which Brill cares so greatly about keeping doctors’ salaries high: he certainly doesn’t think the same way about teachers.

If the only thing preventing Brill from embracing sensible reform is a worry about doctors’ salaries, then surely the obvious solution is to address doctors’ salaries as part of a broader healthcare-cost reform. Given the path-dependency of such things, my idea — and I’m coming at this from a very naive position, I’m no healthcare wonk — is that we should simply allow insurers to outsource their cost negotiations to Medicare.

For any given medical procedure, Medicare pays the least amount of money, and rich foreigners pay the most, with insurers being somewhere in the middle. Here’s my idea: any healthcare insurer should be allowed to get rid of its cost negotiators, and instead be able to get Medicare to pay for all procedures on its behalf. Medicare would then bill the insurer, which would pay the Medicare-negotiated rate plus a small premium for Medicare’s time and effort, maybe 2% or 3%. (If insurers start defaulting on the amount they owe Medicare, then the premium would have to rise, to cover credit risk.)

The basic idea here is that all Americans should have access to Medicare’s discounted rates — either by being eligible for Medicare, or else by signing up for health insurance with an insurer who allows Medicare to negotiate on its behalf. All of this would be voluntary, of course. If you want your insurance to cover the kind of things that Medicare won’t pay for, then you can do that. But if you think that Medicare-quality coverage is good enough, then you should be able to get it, at only a modest premium to what Medicare itself pays.

Would doctors be paid less, under such as system? Possibly. But that shouldn’t prevent the change from happening, and maybe the government should simply step in to top up doctors’ salaries where necessary. At the very least, I think it’s incumbent upon people like Steve Brill to say exactly how much they think doctors should be paid, and how much is too little. Because of all the problems with U.S. healthcare costs, the problem of underpaid doctors is never likely to be anywhere near the top of the list.

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