Where is My Free Lunch?
By Arnold Kling
It seems to me that there is far too much discussion of cutting services, and not enough about how to control costs without affecting services (e.g., using the government’s purchasing power to reduce the amount the government pays for drugs, reducing the cost of insurance companies fighting over who pays bills, etc.). Costs that can be cut without reducing services need to come first, then, when those efforts are exhausted, we can think about the services themselves. But that doesn’t seem to be how we are proceeding.
In other words, let’s find the free lunch first, before we have to pay for lunch. Here are my remarks:
1. Note the distinction between cost reduction and cost shifting. For example, if government pays less for drugs, that shifts the costs of the drugs to someone else. It does not make drug development or drug delivery more efficient. I am not saying that it would be a bad idea to shift costs, but it is not really a free lunch.
2. On the issue of fighting over insurance bills, be careful what you wish for. If you want health care spending to go down, then you probably want the insurance companies to be tough, not soft.
3. Remember that every consumer’s cost is some health provider’s income. This will make the politics of beating down costs rather difficult. It may be worth trying, but public choice theory predicts that the doctors will generally win these battles.
4. For public choice and other reasons, when you want institutions to be efficient, market discipline generally works better than government regulation. How many examples can you cite of inefficient firms or markets that were whipped into shape by government intervention?
5. Any idea for holding down costs should be subject to rigorous testing. I worry that wonks will promote an idea as cost-reducing without ever having to prove their thesis. Romneycare was supposed to hold down costs by reducing emergency-room visits. However, emergency-room visits did not decline and Massachusetts health care spending has risen by more than the national average. Should this not be counted as a failure, at least on the cost front?
6. Remember that the Rand experiment found that patient cost sharing helped to reduce spending. That was a rigorous test.
7. When all is said and done, and as many inefficiencies have been wrung out of the system as possible, the main issue will remain that there are many procedures with high costs and low benefits. The process for deciding when to undertake such procedures is the crux of the heatlh care issue.