Diabetics and Bagels

What do diabetics and bagels have in common? Almost nothing. However, the market for bagels might be useful for testing ideas about health care reform.

I imagine that the market for diabetic care is about a thousand times more complicated than the market for bagels. So why not use the bagel market to experiment with hair-brained payment schemes think tanks propose to inflict on unsuspecting patients?

Here's the argument: a) if a payment scheme doesn't work for bagels, it probably has no chance of working for diabetics either; b) the social cost from being wrong is far less if we are experimenting with bagels; and c) just as the FDA requires drug companies to experiment first with rats, we should require policy wonks to try their ideas out on some relatively simple, inanimate product – and a bagel is just as good as any.

All this is brought to mind by a recent missive from Karen Davis, president of the Commonwealth Fund. Karen says we pay doctors in the wrong way. That is true, but Karen is not suggesting that third parties butt out. She wants them to butt in – becoming even more meddlesome than they already are. Since she's not sure what the right answer is, she calls for third parties to experiment with many ideas.

With hope that we do not cause unnecessary harm to either bagels or patients, I propose some mental experiments in form of the following challenges.

The Bagel Challenge for the Commonwealth Fund: Take some part of the market, and have a third-party payer set delicatessen prices and pay at least 90 percent of the customer cost for fresh bagels (no more than 24 hours old). Show how the payment scheme would work, with no greater excess supply or excess demand from day to day and week to week than we have today. Feel free to make liberal use of pay for performance, best bagel practices, computerized bagel records, bagel utilization review, etc. Note: You don't have to actually implement the scheme. Just make a plausible case for how it would work.

The Diabetes Challenge for Other Readers: Here is a far more productive challenge for everyone else. Start with a common insurance pool for diabetics in which all payments and all decisions are made by the insurer. Ignore catastrophic expenses and consider only routine care. Now begin to individualize the pool – giving patients more control over the dollars they are spending along with the power to individually negotiate prices and switch providers. Continue doing this as long as there are quality improvements and cost reductions. When no more improvements are possible, stop.

Here's the question: At the stopping point, does the market for diabetic health care look like the market for bagels? Or, does the insurer retain control over some of the money and reserve the power to restrict some patient behavior? And if there is a residual role for the insurer, why is this good? (That is, why do all the original members of the pool benefit?)

I don't expect to hear from Commonwealth any time soon. I hope I hear from others, however. If you want to submit a mathematical model, that's fine. In fact, it is preferable. If your response is verbal, keep it short and pithy.

For Karen Davis' letter, go to http://www.commonwealthfund.org/aboutus/aboutus_show.htm?doc_id=559687.

For the NCPA's vision of how real markets would produce diabetic care see the final chapter of Handbook on State Health Care Reform at: http://www.ncpathinktank.org/email/State_HC_Reform_Book_conclusion.pdf

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