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The Public Option Leads to Government Domination of Health Care

This month saw the very happy news that cancer rates are sharply down in the United States. As with any medical trend, the underlying reasons are multiple, but one is the appearance of new drugs on the market. Particularly promising is a whole new class of drugs that use the body’s immune system to attack cancer. The mechanisms by which such drugs work were not even understood 20 years ago.

The larger point is that medical innovation saves lives with discoveries that we did not even dream about when we were young enough not to need them, but then become available to lengthen our old age. Not only are these discoveries made principally in the United States, but they are also brought to market largely by U.S. companies. Moreover, the higher drug prices here spur innovation, while many other developed nations use government coercion and/or monopoly power to pay less for these life-saving treatments. Thus, this kind of medical news should remind us that many other countries free-ride on our medical system.

These sorts of innovations can only help patients, of course, if the medical system can effectively deliver them. Here again, the decline in cancer deaths in the United States should remind us of the many virtues of that system. It is true that almost all nations spend less on health care than the United States. But their rate of cures for serious diseases is generally lower. For instance, the vaunted NHS in Britain does far worse on cancer survival rates than the United States.

It is also true that the overall life expectancy of people in the United States is lower than in many other developed nations. But our relative success for cancer should remind us that that there are many causes of lower life expectancy other than medical treatment. For instance, we welcome very large numbers of poor immigrants, who may have grown up with poor childhood medical care that even good adult medical care cannot wholly ameliorate. And even some groups of native-born Americans face social pathologies that shorten lives. Inner-city violence and largely rural opioid abuse are good examples. The better comparison, therefore, would be similar groups that do not face such social pathologies. And here the news is encouraging. For instance, as I note in my book, Accelerating Democracy, Asian women, who have the highest life expectancies overall, generally have higher life expectancies here than in their home nations.

The relative success of the U.S. medical system underscores the dangers of putting it under government control. I have written in the Wall Street Journal of the danger of the single-payer system. A government monopsony over health care will predictably result in artificially low prices for drugs and medical services. The final result will be a slow degrading of the health care system that will hurt the poor as well as the rich.

But single-payer programs like Medicare for All face an uphill battle for popular support, as Elizabeth Warren has painfully learned. There is a reason that Barack Obama sold the Affordable Care Act with a promise, albeit a false one, that if you like your health care you can keep it. Even people who consider themselves good modern liberals are conservative in the sense they do not like to have things taken away from them. “If you like your health plan, you can’t keep it,” is not a campaign slogan well-designed to win a majority.

The much greater danger comes from the so-called public option that would allow anyone to enroll in Medicare or a program that looks much like Medicare. That is a much more politically attractive program. It does not state upfront that the candidate is coming for your health insurance. Indeed, by stressing the word “option” it builds on the idea of choice. And the sheer radicalness of single-payer ideas makes the public option look more moderate.

And yet the public option will lead to government control with the same ultimate losses to innovation and good care as the single-payer system. There is no reason to believe that the public option will engage in fair competition with other insurers or provide fair compensation for medical services. Political constituents will demand low-priced insurance, and the public option will use its enormous bargaining power and perhaps the coercive power of government to pay very low rates of reimbursement.

Because of its low upfront cost to users, the public option will lead some private actors to drop their coverage. They and their employees will decide it is better to have the government insure them than to pay the costs of coverage themselves. In excellent testimony before Congress, Scott Atlas of the Hoover Institute recently provided an excellent example of this crowding-out effect: “Consider the experience in Hawaii. Only seven months after offering Keiki Care in 2008, the country’s only state‐wide universal child health insurance, the program was ended. In fact, over 80 percent of those taking up the program already had private insurance.” It should not surprise us. Even the ACA led to some crowding out. That is why Obama’s promise that you could keep your health insurance if you liked it turned out to be untrue.

Because of its low reimbursement, the public option will also shift more health care costs to others in the system. As Atlas notes, this also happened in Hawaii. Thus, the result would be a death spiral for private insurers who will have to raise rates even as they compete against below-cost insurance. The spiral ends in single-payer—not by outright elimination of the competition, but by stealthy undermining.

The only way to guard against the success of this politically attractive, but disastrous policy for health care is for the Trump administration to make the private health insurance market more efficient and therefore less expensive. To its credit, it has already required more transparency in pricing which may help hold down costs. But bolder reforms are needed, particularly deregulation of the medical profession. For instance, the government should make it easier for nurses and physician assistants to perform at lower cost the work that doctors are now unnecessarily required to do.

But friends of liberty should not be taken in by apparent choice afforded by the public option. In opposing it, the life you save may be your own.

Reader Discussion

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on January 30, 2020 at 08:10:29 am

McGinnis portrays the public option as a gateway to government but the present system is a gateway to runaway rent seeking. There has to be something better than either, and there is.. The goal is to limit the role of government to the areas of health care that the market cannot handle and leave the rest to the private sector. The way to do that is through universal catastrophic coverage It was Milton Friedman's favorite solution to the health care conundrum. See here for a full discussion: https://www.niskanencenter.org/universal-catastrophic-coverage/

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Ed Dolan
on January 30, 2020 at 10:25:24 am

should remind us that many other countries free-ride on our medical system

The whole world free-rides on our medical system, our economic system, our defense system and our technology. Part of me was secretly cheering on Obama's efforts at de-hegemonization, because if that ever does happen, all other countries will be much worse off and it couldn't happen to a more deserving bunch. Nobody, and I mean nobody, wants China as a hegemon, not even regionally.

Commenter Ed Dolan's proposal (Friedman's proposal) will never work in actual political reality. Words are elastic and "catastrophic" will be progressively mutated to encompass everything.

And I do favor some state strong-arming to rationalize (in favor of the consumer) the pricing disclosure and payment system in US medical care, having just had a most unsatisfactory experience in attempting to obtain some prices before consuming medical services. The doctor's office could not tell me. The lab could not tell me. The hospital could not tell me. The insurer could not tell me. Nobody I spoke with had the knowledge to answer my questions. All they know is what the billing software tells them to do. Here is an instance where "AI" (if that's what you can call it) actively works against economic rationality and efficiency.

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QET
on January 30, 2020 at 10:53:08 am

The true answer to your pricing question is: they would not tell you. They could, but they don’t want to nor, under current law, are they required to. That needs to change.

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John Chamberlain
on January 30, 2020 at 11:08:05 am

You may be right, but they sure played the part of ignorance convincingly! After all, I was only dealing with the people who pick up the phones.

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QET
on January 30, 2020 at 12:15:20 pm

I hardly think a medical system that is threatening the country and individuals with bankruptcy is "a qualified success." There are far too many so-called specialists who charge from a minimum of $300. a visit and up. Worse, all that I have encountered pretend an expertise far beyond what they know. I never have run into one who frankly admitted that there was not any existing remedy. Rather the standard procedure is to offer something with an appoitmentto come back in six weeks for another fee. I went to one who was listed as a clinical professor at the medical school appropriately in the LibertyForums headquarter city for a bowel problem. The culmination of the process was a colonoscopy even though I was far above the age. There result was simply ringing the cash register for the doctor, the hospital, and the medical. school. The upshot is that I have adopted a one strike and you are out system-if the first proposed remedy does not work, drop the fraudster. What is needed is more review of doctors' actual results.

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John Braeman
on January 30, 2020 at 12:44:26 pm

You may be right but there is no reason to suppose that doctors in any other country know any more or have any better results. In no other country on Earth does the healthcare system have to deal with a very large population composed of many sub-populations with vastly different diets and lifestyles, many of which actively work against preventive care. Any healthcare system having to operate under US conditions is going to necessarily cost more, no matter how the bills are paid.

And I fail to understand how you can consider a diagnostic test related to your ailment to be a kind of fraud just because the results came back (it seems) negative (which is good news, right?). Sure, there are providers here who seek to line their pockets. But if that is the price we must pay to avoid a disaster like the NHS then we should pay it. The perpetual hope that there is some way that "government" can excise all the bad without adversely affecting the good should by now be recognized for the pipe dream that it is.

But your new consumer choice policy is exactly what Ed Dolan is getting at and is exactly what all of us are going to have to do in some fashion in order to control the costs of the "routine" medical care we all need. In my own case I was initially directed, by my (new) insurer, to a facility that I deemed to be substandard, overcrowded, understaffed and unclean. But their prices were cheap which is naturally why my insurer only had them in its approved network. So I opted to go to the facility I have always used and pay the $100 "fine" my insurer charged me for going out of network. I can afford it. I think nothing of dropping $100 on a new coat that I don't really need, but I am going to balk and whine and excoriate Republicans (because it is always only Republicans who are excoriated in this matter) because I had to pay $100 for something much more important to my life and well-being? So I, too, exercised my choice as a consumer, in this case by being willing to pay more for superior service.

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QET
on January 30, 2020 at 13:21:12 pm

As to the notion of reforming American healthcare, here are a few postulates:

1.) Ideology is expensive. If we are going to use to healthcare system to promote some policy preferences with only tangential relevance to health, it will make the cost of "healthcare" increase.

2.) Unrealistic expectations are expensive. Miracles are difficult to price into a functioning healthcare market.

3.) Competing interests are expensive. The healthcare system does not want what is best for for the patient, and often neither does the patient. Everyone wants what is good enough for the patient while also benefiting other interests.

4.) Excellence is expensive. That last 3% of performance in the healthcare system consumes a very disproportionate amount of resources.

5.) Novelty is expensive. Efficiency often requires time and refining of processes, not yet available to innovative interventions.

6.) Bureaucracy is expensive. Bureaucracies tend to grow, not by increasing usefulness, but rather by consuming more resources to compensate for inefficiency, diminishing returns, and self-interest.

7.) Convenience is expensive. If people demand to have an urgent care clinic every couple of blocks, or to be able to schedule joint replacement surgery when they want, it will involve cost.

Now, which of these should we do without?

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z9z99
on January 30, 2020 at 13:49:23 pm

I think your Seventh Postulate to be somewhat in error. Right now, convenience is exactly what we don't have. By now there should be an MRIs R Us in every shopping mall in this country. But to build a MRI facility in most locales you need a "certificate of need" from the local state junto, because otherwise the "local" hospital which does have one (and which might be 30 - 50 miles away) would see a drop-off in its MRI business.

Deregulate the provision of medical services, allow many different "less than full MDs" to provide routine examinations and diagnoses and to prescribe medications, even to stock them in the same facility so you don't have to drive somewhere else--do all of this and investors will pour money into enterprises that establish and manage these services because the demand will be large and constant. Revenue is guaranteed. But competition will mean lower costs.

That's the theory. We need to give it a chance to prove itself in practice. There will be horror stories of missed diagnoses, to be sure, but until we try it we won't know whether in the aggregate its good outweighs its bad.

We want a convenience store an fast food joint on every block and we have that, and it seems to keep costs in check.

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QET
on January 30, 2020 at 15:27:54 pm

I intentionally used the word "convenience" instead of "availability." It seems that you are using the concepts interchangeably. It is indeed the case that increasing availability of healthcare services might result in both increases in convenience and increases in competition, and in fact that the effects of the latter might mitigate the costs of the former. This however is quite different than saying that increasing convenience does not increase costs. There are several mechanisms by which convenience may increase upward pressure on costs, such as by increasing overhead, duplicating capacity, and affecting demand. It is for, example possible for a single provider, say a hospital, to increase convenience by opening its own urgent care clinic, and impose a surcharge for the convenience, since the additional capacity does not affect competition.

The proper consideration for convenience stores is not whether they keep the prices charged by supermarkets in check, it is whether prices for the same items are higher in the convenience store, or say, the airport. Simply put, people are willing to pay for convenience, they do not demand convenience because it is cheaper. The issues regarding availability are not quite straightforward. As mentioned, they affect demand, but the net effect on overall cost is unclear. Early treatment of a common symptom might be totally unnecessary, or it may prevent deterioration of a serious condition. Home IV therapy is likely to be more convenient for the patient as well as less expensive due to differences in overhead between a person's home and a hospital infusion center. The cost savings however result from the differences in cost of providing the service, not the convenience of the service.

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z9z99
on January 30, 2020 at 17:20:55 pm

QET:

There IS an MRIs-R-US. it is called CDI - Center for Diagnopstic Imaging.

Here is the kicker.

I chose CDI for a imaging session. I did so because it charged $1,000 for the scan as opposed to $5,000 at the Medical Facility (aka - hospital). The higher price is actually permitted (if not encouraged) by the Feds. The justification is known as "facility costs."

BUT the REAL KICKER IS THIS:

My insurance did not want to share the savings resulting from the lower price scan with me. In effect, I paid (almost) the entire $1,000 cost as this approximated what my co-pay would have been. Gee, who has the incemtive here to lower costs? apparently not the hospital nor the insurance company. Only me and guess what, consumer choice can only take you so far if no one else is interested in lowering costs. I mean real costs not the inflated costs that insurers claim to be paying.

Much like, prescription drug prices where the costs appear to be pulled from some uncontrollable administrative vortex or a Ouija Board. Does anyone know how much the Pharmacy Benefit Manager actually pays for the drugs? I was told by my pharmacist, upon complaining the my new insurer was charging me 9 times the price (now under medicare) that my previous insurer charged, that the insurer paid $800 for what is a generic drug that has been off patent for 20+ years. Really?
Or that another drug is offered at $15 on A Street but at $115 on B Street - one quarter mile away - both generics - or that the insurers Serive Staff are unable (unwilling0 to provide a client with accurate pricing / co-pay data UNLESS of course you use their in-house mail order pharmacy. (Great - unless your State does not permit mail shipment of opioids).

As for cost vs convenience - I guess it all depends upon what the cost actually is - not the inflated costs that serves only to enhance the profits of insurers and MOST IMPORTANTLY Pharmacy Benefit managers.

Does anyone really know what drugs cost? Or why the same drug made by the same generic manufacturer may vary by a factor of 10+?

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gabe
on January 30, 2020 at 18:09:03 pm

Thanks. I think you mentioned CDI before in another comment thread where I also used the MRI example. I looked it up and there are a few in my general area. I have never had an MRI so maybe that's why I had not heard of them.

I don't understand your experience, though. You went to a place that charged $1K and your insurance co. still made you pay the $1K co-pay you would have paid anyway if you had gone to the hospital facility? If so, I think it a function of the software/AI that providers and insurers use for billing & payment. The operators of the computers can do nothing except input the fields shown them and the output spits out. The decisions are made across the board by upper level people and the software isn't configured to handle all the possible variations in circumstances that can occur, and no human being is empowered to decide differently in a particular case. Configuring the software to permit that kind of case by case approach would make it more expensive and would also result in the need for more operators as each case would take longer to resolve. So while it would be in the insurers' interests to encourage people to find lower cost providers by sharing the savings with them as you said, across their entire base of insureds they probably figure that such insureds are too few and far between and that they save more money overall by disallowing case by case discretion.

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QET
on February 02, 2020 at 11:16:16 am

You make an excellent point re different subgroups. But you missed the point about what you term the diagnostic test. The big difference between UnitedStates and European doctors is that the latter do not have the incentive of theAmerican system to stretch out the number of visits. Countries such as Switzerland, the Netherlands. and Germany do not have British-type NHS, but still have high grade treatment at much lower cost. In Germany when I was a visiting professor I had a precancerous growth on the top of head removed for about $60; in the U.S. the same fhing ended up costing $2400.

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John Braeman

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