In his column, David Brooks asks why candidates seem unwilling to discuss slowing the growth of medical costs:
Medicare and rising health care costs…are bankrupting this country. Let me tell you the brutal truth. Nobody knows how to reduce health care inflation. There are two basic approaches…
The first, included in ObamaCare, is to have an Independent Payment Advisory Board find efficiencies and impose price controls…
The second approach, favored by me, is to scrap the perverse fee-for-service incentives and use a more market-based approach.
Over at the Ezra Klein blog, Sarah Kliff apparently prefers the former. She claims that many countries successfully control costs using price controls!
We have a lot of examples to look at where governments have successfully held down the rate of health-care cost inflation. Most of them do that through some version of price controls, where the government sets the rates that doctors can charge for various services.
As Sarah’s own graphic illustrates, the United States’ growth rate in per capita health expenditure is 3.3%, which is actually below the OECD average. By comparison, the average annual growth was 4.0 across developed countries from 2000 to 2009. Moreover, the United States was about the same as Australia, and lower than New Zealand, the United Kingdom and Canada, the countries we are most similar to in terms of culture and language. The United States has been at or below the OECD average for decades. For instance, from 1990 to 2000 the United States experienced per capita health expenditure growth of 3.2 percent, compared to the OECD median of 3.1 percent. The U.S. also doesn’t have the long waiting lists that characterize countries that use price controls to control spending.
The United States spends more on health care than other developed countries. However, most people don’t realize we’ve been as successful at controlling the growth in spending as other counties. We spend too much — and there are many needed reforms. As Brooks writes, there are really only two ways to control costs. These are: put bureaucrats in charge and impose price controls and distort the market; but consumers in charge and let them make trade-offs.
I agree with Devon…
When did fee-for-service become something other than free market? In a free market there would be many options to pay for services. The oroblem is the third party between the provider and the one receiving service. Of course, in a free market, that would be an option, too.
Maybe we ought to try a free market first before we determine it does not work. Just a thought.
It looks like Sarah was hoisted by her own petard.
There do not have to be trade offs. Right now no one selects medical care based on price, so there is no incentive for providers to compete on price or innovate. Since the consumer of healthcare is not the purchaser you get this perverse system. The only other system like it is higher education, which also has the same inflation problems.
But there are OBVIOUS examples to how a market system would work. Cosmetic procedures. Laser eye surgery for instance has dropped in price, significantly, while the dollar is weaker and everything else is more expensive, medical care astronomically so, this procedure rarely covered by insurance is cheaper. Because people pay for it out of pocket and so providers compete on price and have strong incentive to innovate.
Breast implants and other cosmetic procedures are the same, a luxury for the rich has become accessible to the middle class, for the same reasons.
People will say “People aren’t going to shop around on price when going to the emergency room so that will not work.” BS. You think insurance companies when paying for breast cancer reconstruction don’t benefit from lower prices and innovations obtained through market forces? You think insurance companies paying for laser eye surgery for the severely visually impaired do not benefit from the lower prices everyone else gets?
More or less every tool, procedure, or device used in emergent care where the consumer would not be shopping around is also used in non-emergent care where the consumer could be shopping around. In this case a rising tide lifts all boats and if there were more competition on price between healthcare providers it would lower prices for both emergent and non-emergent care.
The cosmetic surgery industry is a prime example on how market forces and consumer driven healthcare work to keep inflation in check.
Interesting post. Ezra Klein has a very liberal thought process when it comes to the role of the govt and the populous.
Price controls or unbalanced competition (like what we have now) in multi-sided markets will always increase prices. Fair competition, or subsidies (bleh), are the best option.
This should be a consumer-driven market right? then why let bureaucrats control everything about it? If price controls are imposed, then we are opening doors for the government to continue making decisions and controlling everything about our system. If we let consumers take charge, then perhaps we can start talking about progress…
I agree with your approach Dr. Goodman, but I believe we also need to address the administrative failures on the parts of the insurance companies!
Shouldn’t insurance companies be controlling the healthcare costs though? They are paying for a majority of the care.