McFadden on the Prescription Drug Program
By Arnold Kling
Nobel Laureate Daniel McFadden writes,
My overall conclusion is that, so far, the Part D program has succeeded in getting affordable prescription drugs to the senior population. Its privatized structure has not been a significant impediment to delivery of these services. Competition among insurers seems to have been effective in keeping a lid on costs, and assuring reasonable quality control. We do not have an experiment in which we can determine whether a single-product system could have done as well, or better, along these dimensions, but I think it is reasonable to say that the Part D market has performed as well as its partisans hoped, and far better than its detractors expected.
Does this mean that Part D proves that privatization will be effective in other segments of the health-care market? Here, I think caution is advised. First, the success of Part D depends substantially on thoughtful and muscular management of the market. The former head of Medicare, Mark McClellan, and a dynamic, no-nonsense 75-year-old government bureaucrat, Abby Block, bullied insurers to make sure there were, in her words, “no bad choices.”
…consumer-directed health care works only if consumers can understand the consequences of their choices. In much of medicine, providers are the agents that guide consumers through these choices. If consumer-directed health care is to be effective, these providers must give sound advice on both the health and financial consequences of alternative choices. This is possible if the incentives to providers and consumers are right, but the design of such markets should not be left to chance.
McFadden clearly does not believe that consumers in unregulated markets will make good health care decisions. He credits regulators, not consumers, for the success of the market-oriented approach to the prescription drug program.
My view differs. But, at the very least, the strong early regulation helped to keep the program from dying in its cradle from an outbreak of anti-market hysteria that might have taken place had the benefits not been force-fed to seniors.