Health Care: A Question of Distributive Ethics?

A debate over the direction of healthcare reform is roiling the Democratic Party as it weighs whom to nominate for President in 2020. But the party does appear to have coalesced around a basic idea. “We believe that health care is a human right, and we are going to fight for a system that is based on human needs,” said progressive champion Senator Bernie Sanders at a recent campaign stop. Joe Biden’s campaign offers a similar line: “We all believe that health care is a right.”

Uwe E. Reinhardt’s Priced Out: The Economic and Ethical Costs of American Health Care, espouses the same theme. The German-born Princeton economics professor, whose book was published posthumously by Princeton University Press, maintains that the conversation about health care should be one of “distributive social ethics.”

Reinhardt asks at the outset, “To what extent should the better-off members of society be made to be their poorer and sick brothers’ and sisters’ keepers in health care?” Throughout the rest of the book, he tiptoes around an answer that was succinctly stated nearly 150 years ago: “From each according to his ability, to each according to his needs.”

Americans Pay More

The first half of his book is devoted to explaining the American healthcare system in all its complexity. Reinhardt’s synthesis of data on health costs, spending, and outcomes is useful to anyone with an interest in this area of public policy.

For example, it’s common knowledge that the United States spends more on health care as a share of its economy than any other developed country. Reinhardt builds on that knowledge with graphs comparing the prices of certain medical services across nations. Take the average price of an appendectomy: about $2,000 in Spain, $6,000 in Switzerland, $8,000 in the United Kingdom, and almost $16,000 in the United States.

These data illustrate Professor Reinhardt’s famous explanation from years ago for why health spending is so high here: “It’s the Prices, Stupid.”

The author largely blames these high prices on administrative overhead, the proliferation of everything from billing clerks and insurance staffers to pharmacy-benefit managers and coding consultants. Some 95 percent of the growth of the healthcare workforce between 1990 and 2012 was in administration, according to a Harvard Business Review article Reinhardt cites.

He has a point. He highlights a McKinsey study from 1990 showing that Americans used $390 less in health services per capita than did Germans, but spent $737 more in higher prices. The Americans’ overhead tab was $360 per capita higher. It would be interesting to see what the corresponding numbers would be today, 30 years later.

Reinhardt also notes that America’s convoluted prescription-drug marketplace drives up the price of health care. All the various middlemen in the drug supply chain eat up about $41 of every $100 in consumer spending on drugs. Pharmacy-benefit managers are at the center of this web of middlemen, negotiating secret “discounts” from manufacturers that they in theory share with insurers to reduce overall premiums. But the bigger the discount, the bigger their cut. Reinhardt sums up the broken incentives well: “Given this secret rebate flow, one wonders what incentives the PBMs actually have to help keep drug prices low for consumers.”

He goes on to express consternation at the wide variation in prices for various medical services. The average published charge for a knee replacement at a hospital between 2008 and 2011 was nearly $42,000. The negotiated private insurance average was $23,000, and the price Medicare paid was just under $12,000. “Total chaos reigns,” says Reinhardt.

The Reflexive Call for Greater Government Control

The author uses this discrepancy to argue, not for more price transparency (which could allow market forces to bring those prices to some sort of equilibrium), but for “uniform fee schedules applying to all providers and all insurers within a state.”

One state, Maryland, has just such an “all payer” system. According to new research from the Manhattan Institute’s Chris Pope, Maryland’s price controls haven’t reduced health costs, nor have they led to more efficient care, or care that’s better in quality. What they have done is allow incumbent providers to keep competing providers from entering the market. And they prevent private insurers from negotiating potentially lower rates with hospitals. The system has allowed the state’s hospitals to charge Medicare 40 percent to 60 percent more than hospitals in other states charge—hence, its staying power.

Reinhardt also posits that uniform fee schedules and rules furnish “ideal platforms for the smart application of health information technology, which can lower administrative costs.” Britons subject to the UK’s government-run, single-payer National Health Service would take issue with that statement. As an investigative report of Britain’s health IT published by Politico in late July concluded:

For nearly 20 years, the British government has launched one initiative after another to build a digital records system that will improve care at its famed National Health Service. But its clinicians still struggle with a dearth of communication among care team members, leading to prolonged wait times for appointments, confused patients and needlessly repeated tests and procedures.

In the ensuing chapter, on who pays for health care, Reinhardt needles those who substantiate their view that Americans are instinctively opposed to socialized medicine by pointing to the Veterans Health Administration—the “system for Americans we claim to thank and adore.” Absent from his brief allusion to the VA is any mention of the litany of recent scandals plaguing the agency: long wait times for care, doctors hired despite histories of malpractice, and the like.

Having established the shortcomings of the American healthcare system, Reinhardt returns to his framing of the provision of health care as a question of “distributive ethics.” He expects his readers to adopt his premise that health care is a “social good,” and says his ideological foes wish for a system where “health care is rationed by income class.”

As his widow, Princeton health-policy scholar Tsung-Mei Cheng, writes in her Epilogue to this volume, “Uwe passionately believed in universal health coverage, that is, health insurance that provides affordable and timely access to needed health care for all regardless of the individual’s ability to pay, as a moral imperative.” (Emphasis in original.)

In other words, health care is special. It shouldn’t be subject to the laws of supply and demand, or the basic economic problem of scarcity. But willing something to be does not make it so. Every other good and service in our market economy is “rationed” according to price and ability to pay, even necessities like food and shelter.

When prices have been allowed to connect willing buyers to willing sellers in a competitive marketplace, long-term costs have gone down while quality has gone up. Look at the markets for air travel, or phone service, or computers, or televisions.

And where have prices risen inexorably? In areas where government interference and subsidies are most prevalent: health care and education.

Reinhardt’s Three Fixes

Over the last 30 pages of his book, the author explicates the Affordable Care Act of 2010, (widely referred to as Obamacare by supporters and detractors alike) as well as the Republicans’ failed legislative bids to replace the law in 2017. This will be familiar ground to anyone who has followed the healthcare wars over the past decade. Reinhardt’s three potential fixes for Obamacare, though, are of interest.

The first would expand insurance subsidies to those who make up to 500 percent or 600 percent of the federal poverty level. That’s nearly $129,000 or almost $155,000 for a family of four. California has taken that suggestion to heart and has decided to subsidize exchange coverage for those making up to 600 percent of poverty.

The second would increase the financial penalty for going without coverage. Congress has gone in the opposite direction; in late 2017 it zeroed out the penalty, a change that became effective early this year.

His third suggestion (“in my view . . . the best approach,” he writes) is to repeal the individual mandate but forbid people who decide to go without insurance from purchasing coverage at Obamacare’s regulated rates for a certain number of years.

This is not far from the “continuous coverage requirement” the GOP included in its 2017 replacement proposals, which Reinhardt panned. The Republican health-reform plans would’ve allowed people who stayed current with their premiums to keep their coverage from year to year without undergoing medical underwriting, even if they developed a chronic condition or other expensive health issue. If they let their coverage lapse for more than 63 days, then insurers would essentially be free to charge them whatever the insurers wanted for one year. After that, they would be allowed to again purchase coverage at regulated rates, where the insurers could charge the old and sick no more than five times what they charged the young and healthy. (Obamacare set that ratio at three to one.)

Reinhardt, by contrast, proposes locking people out of the community-rated market for years, or even for life, if they failed to maintain continuous coverage.

Beyond Obamacare

At this point, amid the Democratic effort to unseat a Republican President, the health-policy conversation has largely moved beyond the Affordable Care Act. Few Democrats are extolling the virtues of Obamacare. Progressives on both the campaign trail and in Congress are agitating for a complete government takeover of the health-insurance system in the form of what they call “Medicare-for-all.” More moderate Democrats—including the self-appointed guardian of President Obama’s legacy, former Vice President Joe Biden— are calling for a public option, a new government-chartered insurer that would compete against private health plans and eventually drive them out of business.

Republicans, meanwhile, haven’t coalesced around a healthcare plan. They’ve more or less abandoned their quest to repeal Obamacare. President Trump has promised to release a “really fantastic” health-reform plan before Americans vote on whether or not to rehire him. Republicans on Capitol Hill seem to want to ignore the issue altogether.

Reinhardt, for his part, didn’t believe that Medicare for All would be possible in the United States. The Epilogue of Priced Out quotes from a 2007 article he wrote: “In the end, each nation must decide which style of rationing—by the queue or by price and ability to pay—is most compatible with its culture.”

Market economies apportion goods and services by using price signals. Over time, quality and value improve.

Command economies apportion goods and services by the queue. Over time, shortages materialize, and quality dissipates. That’s been the experience of other countries with government-run, single-payer health care.

America’s healthcare system isn’t perfect. But its relative reliance on market forces, and the existence of the potential for earning a profit, are big reasons why Americans have access to more cutting-edge treatments, procedures, and drugs than their counterparts in the government-run Canadian and British healthcare systems. Market forces and the profit motive also give providers an incentive to aggressively treat Americans when they get sick. That aggressive approach is among the reasons that Americans post better cancer survival rates than Canadians or Britons.

Uwe Reinhardt offers plenty of useful insights into what’s wrong with the U.S. healthcare system. But adopting Priced Out’s proposed remedies would destroy much of what’s right about that system.

Reader Discussion

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on September 04, 2019 at 07:35:35 am

Well, yes and no. To focus only on the next-to-last paragraph, describing how American healthcare is better than the British or Canadian version, it depends very much on the criteria you use to choose. If we use those of the OECD, no, it is not, despite spending a great deal more money. It's the prices, stupid. It is one thing to say that health care should be rationed by price - agreed. It's another thing to say that America does a good job of pricing healthcare . It doesn't. Would less government regulation improve America's prices? In theory, of course. But in practice, we know that the not exactly unregulated British and Canadian systems already do a much better job. Personally, I like the French version even better, because it is much less state-centric. But that's another story.

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Alan Kahan
on September 04, 2019 at 10:20:26 am

The US health care system is not exactly free market. Barriers to entry of additional supply are everywhere, from provider licensing requirements to certificate of need laws. These are militantly defended by existing suppliers, for obvious reasons. Repeal these laws, and watch a thousand MRI flowers bloom, for example. There is no reason why there should not be a MRI facility in every shopping mall. There is no reason why a corps of "less than full MDs" should not be created to provide medical services. Say a 2-year condensed med school program to specifically train MRI specialists, who would be capable of reading MRI results and differentiating among cases that warranted further review by a more highly trained, more expensive physician. Or a 2-year "minor/routine surgery" curriculum: does a surgeon really need a course in pathology or virology or endocrinology in order to competently perform an appendectomy? Things like this will allow a tremendous influx of competing providers that will result in lower prices.

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on September 04, 2019 at 13:45:41 pm

Distributive justice is complicated. Universal health care needs a simple, easily understood justification. The simple justification for universal health care in the US is that decency demands it. It is indecent for a country as wealthy as the United States not to provide universal health care at some reasonable level to all of its citizens.
One objection to universal health care is that it is too expensive. I agree that the cost of guaranteeing that every person have the highest health care would be exorbitant. Medical technology has become so advanced that some medicines and procedures cost hundreds of thousands of dollars a year. Citizens cannot support the cost of giving those treatments to everyone who might benefit from them. But that is not an excuse to withhold broad health care at a reasonable level to everyone.
Inoculations, care for common ailments, repair of broken bones and diseased organs, and preventive medicine should undoubtedly be covered. The cost would be relatively low. Decades ago, a county in Texas gave free flu shots at shopping malls. Hundreds of people were inoculated by a few workers in a few hours. Current pricing of procedures is not fair and reasonable. Rounding off numbers, I received a medical bill yesterday for $1200; my health insurance paid $500, and I owe $100. My primary reason for having medical insurance is protection against price gouging. Health care is almost 18% of GDP. Economies produced by minimizing bureaucratic procedures would result, I believe, in better healthcare overall at a cheaper price.
An objection to giving substantial but not complete medical care is that people could not agree about exactly which procedures would be included and which excluded. I think that is a political problem, not a theoretical one. In innumerable other institutions, people make decisions that involve give and take because they respect the different values of the people affected. The US Congress achieves much less than it should because it is infected with a thirst for power, resentment, and partisanship.

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Al Martinich
on September 04, 2019 at 16:47:53 pm

A few quick libertarian thoughts:

1.) To answer the question the question that is the title of this post, is health care a question of distributive ethics, the answer is "yes, among many other things." The problems of health care are largely those many other things, some of which may occasionally have priority over distributive ethics.

2.) An orphan issue in health care debates is that it is not only healthcare that is expensive, it is health care policy. There are certain traits of health care policy that are quite costly that are not really caused by any infirmity in the heath care system:

a.) Ideology is expensive. Certain types of reformers think that the healthcare system must not only address the provision of healthcare services, it must also "send a message" or provide symbolic declaration of some cultural value or other. These ideological accessories cost money.

b.) Unrealistic expectations are expensive. It is a fallacy that a possible outcome is achievable, no matter how unlikely, if only sufficient resources are spent to attain them. Policies that view particular outcomes from the perspective of entitlements perpetuate this fallacy, and it wastes a lot of money.

c.) Sentiment is expensive. When outcomes are assessed against their ability to cause emotional distress, rather than the practical likelihood of achieving them, expenditure decisions become emotional, irrational, and profligate.

d.) Corruption is expensive. The vast amounts of money spent on healthcare engender innumerable opportunities for fraud, misuse, rent-seeking and graft. This only seems to become apparent after the fact, despite the fact that it is inherent in human nature.

e.) Ignorance is expensive. Is it more expensive for an airline to have its aircraft engines maintained by trained mechanics or by people who have a few ideas about how they think the engines should operate? The difficulty with healthcare policy is there is practically no one with the depth and breadth of knowledge to maintain and design global improvement for such a complex, intricate, and expansive system, yet this seems to be no impediment to policy makers who are self-sure that they know the one or two things to change to produce a system that is fair, inexpensive, innovative, high quality, accessible, compassionate, etc, etc.

3.) Senator Sanders's statement that "[w}e believe health care is a human right" has enormous appeal when unexamined. However, even the minimally curious may inquire as to what is meant by the term "health care." Is futile care health care? Is non-cost-effective care health care? This is to say nothing of more practical queries into what health care entails; aroma therapy? Christian Science? healing crystals? psychiatric surgery? Is it health care if it provides only a transient, subjective benefit, imperceptible to anyone but the recipient? Do I have a right to something I can be named but not described? If so, how do I know when that right is preserved or violated?

4.) One significant reason that American health care is so expensive is that it contains many expensive attributes that society is willing to pay for. If people were unwilling to pay for air ambulances, there would by fewer air ambulances. If people were unwilling to pay for engineered antibodies in the treatment of auto-immune diseases, we would not treat auto-immune diseases with engineered antibodies. If the equity markets were unwilling to risk a third of a billion dollars to develop a treatment for pancreatic cancer, we would not have that treatment for pancreatic cancer. The notion that health care would be universal, accessible, and "fair" if were not for "greed" is magical thinking.

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on September 05, 2019 at 10:14:19 am

Yep - there IS such a company. it is called CDI - Center for Diagnostic Imaging - and its imaging services are quite good and MUCH less expensive.
As an example: an MRI at a local hospital would be $5,000 as the hospital is permitted to charge a "facilities charge" according to Federal Regulations. At the local CDI, I obtained an MRI for just under $1,000.
When speaking with my insurer as to a possible savings on my "co-pay" for obtaining the service at a lower rate, the insurer informed me that would not be possible. One wonders exactly what the insurer negotiated with the hospital. Still, my actual out-of-pocket was lower with CDI.
It appears that the insurers have no incentive to support independent providers.

BTW: While some may assert that Canadian and British medical prices are lower, one MUST recognize that wait times are significantly longer in those countries than here in the US. The MRI I received at CDI was provided within TWO days of my request.

Also, a medical imaging company that I worked for was able to sell a disproportionately high number of imaging machines in the "hinterland" area near the border with Canada as thousands of Canadians would cross the border to obtain imaging services in the US without having to wait for up to three months in Canada.

Gee - it seems availability is something that medical consumers place some value on.

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Image of gabe
on September 05, 2019 at 11:39:29 am

Great and useful topic, Thanks for sharing
Bookmarking the website for future reference.

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طراحی سایت
on September 05, 2019 at 15:57:25 pm

Thanks. I had never heard of this company before, and yet they have facilities in my area! And yes, availability, which = supply. Nearly every discussion of "distributive ethics" that I read signally fails to mention the basic fact that such an ethics is practical only where there is a sufficient quantity of whatever it is to distribute. I live in an area with possibly the country's greatest concentration of physicians, hospitals and medical facilities, yet wait times here for getting appointments with certain specialists for certain diagnostic work are months long, proving that there just isn't enough supply to distribute right now.

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Law & Liberty welcomes civil and lively discussion of its articles. Abusive comments will not be tolerated. We reserve the right to delete comments - or ban users - without notification or explanation.