Winging it on healthcare reform

December 15, 2009

“Armchair Economist” Steven Landsburg had a chance to talk with Obama healthcare guru David Cutler of Harvard. His conclusion:

In Professor Cutler’s view, there are three ways to fix things: First, European style rationing, which almost no economist favors (largely because there’s no way to tell whether the government is getting the quantities right). The second option, which Professor Cutler prefers, is revising the payment system to create better incentives. I agree that this would be a very good option if you could figure out how to accomplish it, and I agree that there might be a way to make it work, but I’m not convinced that Professor Cutler (or anyone else) has yet figured out how to do it. The third option is the one I tend to favor—more patient autonomy. I’ve indicated some ways this might work in an earlier post. Professor Cutler is skeptical of this third option on the grounds that—well, he didn’t put it quite this way, but essentially his argument was that a lot of patients are stupid. That’s probably true, and it means that this option is imperfect also.

The great Arnold Kling tosses in his two cents:

My disagreement with Cutler is more than mere gut instinct. Cutler and I might agree that there is overuse of medical procedures with high costs and low benefits. We might agree that incentives affect this. However, Cutler is confident that central planning represents the solution, not the problem. He believes that remote bureaucrats can measure health care quality well enough and implement compensation schemes that are fine-grained enough to achieve significant improvement.

I suspect that he has no administrative experience either in business or government. Suppose that you told him that middle managers in America make many mistakes and often are compensated for doing the wrong things. As an academic, he would think in terms of having experts in Washington design better compensation schemes for middle managers. It would never occur to him that what works in theory fails in practice, because it incorrectly assumes that central planners have superior knowledge and face zero political constraints, and that in a dynamic environment the planners will stay one step ahead of those with an incentive to game the system.

3 comments

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“…essentially his argument was that a lot of patients are stupid. That’s probably true, and it means that this option is imperfect also.”

All these people talk as though there is some cure for mortality. We all will have “our appointment in Samarra.” However, until and unless someone finds a cure for our mortality, the individual health care consumer, spending his own money (be it HSA funds for ordinary, routine care or premiums for catastrophic insurance coverage), is the best judge of cost v. benefit. After all, who better to bear the cost than the consumer, who the risk than the mortal individual? That, by the way, would hold true even where a poorer consumer might avail himself of a medical voucher type of subsidy, if he could retain any unused funds for his own future medical benefit. He would spend such funds in miserly fashion, so as to stretch their effect as far as possible.

Posted by ColoComment | Report as abusive

Good point about centralization vrs the local managers! It is the individual Hospitals that feel the bite of the expense. Medicare can imagine that the Hospitals are inefficient, and give them inadequate reimbursement rates because they are abstacted from the true expense by the manipulated cost report and resulting idealized base rates. Also patients(women, no one will say it 5-1) will overuse/abuse healthcare without the reason, not ration, of the physician or healthcare expert as a shield.

Posted by Ben | Report as abusive

Big point = we all should have the right to ‘life’ as a basic premise. That was the one of the top items in the constitution. That one can die in America of ‘terminal poverty’ is Dickensonian. That we assign the current distribution of services, ‘rationing’. of another kind to PROFIT making insurance companies harkens back to the slave trade in the American past.

Just dump the sick ones overboard, keep on sailing and raking in those profits. The

Health Insurance system is immoral, and has utterly failed. Greed is not a good regulator to pair with matters of life and death.

Posted by frank | Report as abusive