To Your Health, Part 2

When economists attack . . .

I finished the first part of the book by Liran Einav and Amy Finkelstein and wrote about it here. I should say before I finalized this installment, I read this book review by my friend and fellow substacker Merrill Goozner. I have stolen a few of his tasty bits, such as deriding the book’s recommendations as “Medicare Lite.” Merrill writes exclusively on health care, and he knows much more about it than me. Here are two more reviews, if you want to dive even deeper.

Now I’m into the second half of the book and I realize what the game is. When I got to their chapter on a “health budget,” I got so angry I had to put the book down.

It works like this. The first part is eloquent on problems in the existing U.S. health care system. The authors celebrate what they take to be an implicit “social contract” favoring some level of universal coverage (limited, as it turns out). There are quite a few sorts of problems, and you can’t necessarily cover everything in one book, but the authors’ selection of deficiencies proves to be telling.

They choose to focus on how the piecemeal structure of a gigantic system — 17 percent of the entire U.S. economy — as a product of endless, uncoordinated, incremental reform, leads to numerous gaps and exceptions in public support for the health care that people need.

They ignore the causes of why the U.S. system costs so much more than health care in other countries, with little to show in the way of comparative benefits. They suggest our higher costs here are due to the great pace of medical innovation, as if other countries did not have access to the same advances. Economizing on total health care spending by looking to the higher differential costs of U.S. medical care is dismissed in a paragraph, along with nostrums that advances in pharmaceutical research require enormously expensive prescription costs for patients. Most of the criticism is aimed at Medicare and Medicaid. Private insurance coverage gets a pass. It is odd that the Affordable Care Act is hardly mentioned throughout.

Gaps are wired into public programs that allocate and withdraw coverage precipitously, often without warning, according to age, income, one’s particular health care needs, and one’s place of residence, among other irrational features. You can get coverage for kidney dialysis but not for staying healthy enough to avoid the need for dialysis. The public system is built on sound-bites that politicians feed to an ignorant public, at the same time attempting to limit costs that might otherwise entail tax increases that would cause that same public to take umbrage.

The complexity of the system imposes huge compliance burdens on the public and entails widespread, foregone, vitally essential treatment and common medical bankruptcy. The authors are eloquent on the merits of sweeping all of this away with universal, basic insurance coverage under which everyone would be automatically enrolled, much like Medicare for those reaching age 65, with no premiums, co-payments, or co-insurance of any kind.

The questions start to pile up, once they begin to motivate their ideal replacement. It’s a two-tier system. The bottom tier of basic coverage is the universal, “We’ve got you covered,” part. Beyond that, we’re on our own, left to the mercies of private insurance companies. Their basic coverage is deliberately minimalist, not to say barren, ostensibly to keep public costs down. There is a warm anecdote of obtaining bare-bones, effective emergency care for a child while on a trip to the Peoples Republic of China. Merrill points out how their budget numbers don’t work.

Possible add-ons are frequently derided by the authors as gold-plating, unworthy of public support. The phrase “air-conditioned private rooms where avocado toast is served” floats by. Not for you peasants. One chapter is entitled “A shack, not a chateau.” (Similarly sappy literary touches can be found throughout the book.) At one point, extra coverage is described as a private room with “plush carpeting, high-speed Internet, and fresh-squeezed orange juice.” There are repeated references to research that discounts the health benefits of health insurance, even of medical treatment. But these concerns are pushed aside, because in order to make their case, the authors have to justify some kind of universal coverage.

The authors tout the virtues of cost-effectiveness analysis and cost-benefit analysis. In other words, benefits could be set by economists. This is not just bad health care analysis; it’s bad economics. A wise man once told me that when someone wants to kill a program, they propose it be subjected to cost-benefit analysis.

Economists like to refer to incentives, but never to their own incentives. The incentive for elite, university economists is to crap on U.S. social insurance with nostrums about the national debt or cost-benefit analysis, the latter meaning the funding of their own research. That gets you accolades from reactionary and centrist politicians and financial support from private interests that want to keep their tickets on the private sector health care gravy train. Such economists by the way are themselves beneficiaries of government largesse, in form of tax-supported university budgets and government research grants.

When I was in grad school, in the 1980s, someone pinned a clipping to a board in the department, quoting the Nobel Laureate Wassily Leontief, who referred to the rising generation of economists as “idiot-savants,” referring to their reliance on math. Leontief was no slouch in math himself, by the way.

Basic coverage would include what Einav and Finkelstein call “primary care,” emergency care, and preventive services. If you’re wondering what would be included in primary care, you’re not alone. Primary sounds like most of what you need, but who would decide what is primary? Is getting a doctor’s appointment in two weeks primary, and what about having to wait for three weeks? The authors don’t provide their own preference. They don’t really have a plan. They have concepts of a plan.

The answer to who decides is the same villains who gave us the current system, with all its peculiarities in coverage: your U.S. Congress and state legislatures. In the authors’ words, the difference is that now there would be a “policy process.” So their argument is not internally consistent. Somehow the way in which the existing system was formed would not recur in the determination of what is basic and what is not. Near the end of the book, they promise to tell you how it can actually be established, but that is limited to anecdotes of how basic, public coverage came about in a few other countries.

Spending in the basic, free universal system would be capped in a so-called health care budget. So the old wine of deficit mania and entitlement caps is poured into the new bottle of skinny universal coverage. This is a formula for public health insurance austerity. The real target is the components of Medicare, spending for which is open-ended. We are told it does not compare favorably to the defense budget, for instance, which is said to be fixed. Ha ha. Clearly, the authors’ familiarity with defense spending is rudimentary.

At the same time, the authors favor the Medicare Advantage program, presently serving forty percent of Medicare beneficiaries and costing more than half of Medicare in toto. In other words, they favor the further privatization of Medicare. The offsetting trade is everybody gets unconditional basic care, no co-payments, automatic enrollment.

As I pointed out previously, leaving everything not “basic” to individual resort simply transfers problems in existing public programs to the private sector: all the issues of consistency and rationality of coverage would be assigned to profit-seeking entities. The benefit is that it would be confined to a much smaller segment of the health care market.

Presumably, the motive of cost-control by for-profit companies would hold down national costs, but even in principle, this would be deceptive. The presumption is that private insurers would more effectively ration treatment than public programs whose spending, as in Medicare, is open-ended. There is no reason to believe that. Health care would be rationed by price, as it is now in the private system, which many find objectionable. Eliminating a public benefit is thought to “save money,” but in reality, it imposes that same cost on the patient, either in the form of personal outlays or foregone care. Like I said, this is bad economics.

Meanwhile, there is not word one about the sources of the rapid growth in total health care costs. It is not unnecessary treatment. The authors acknowledge the difficulties of sorting out which treatments are more justifiable than others. It is the prices that providers of medical care are allowed to charge, chiefly doctors, specialists, medical device manufacturers, and Big Pharma, over and above their own costs of production. Economists call these excesses “rents.” This is not hard to verify.

Everybody likes to talk about the evil inscos, and indeed they suck, but they are just intermediaries. A while back I looked up the numbers on components of U.S. health care spending. Insurance companies are only a limited share of the total. As I said, glossing over this under the pretense of suggesting a universal coverage scheme is bad economics. Doctors for our own Veterans Administration are public employees, but nobody finds them living under bridges. They do all right. Doctors don’t have to make half a million dollars a year to keep body and soul together, or to provide medical care, though they do have their own medical school debt and liability insurance premiums to worry about. Those expenses can be crammed down too.

Health care providers of all types in other countries manage to function without enormous compensation. My friend Dean Baker has pointed out the merits of allowing people to use their health insurance to pay for care in other countries. As it is, people find a vacation to Thailand can end up financing a health care procedure with a prohibitive cost in the U.S. People out west save a bundle using Mexican dentists. As Bernie Sanders points out, buying drugs from other countries, the same brand names that carry exorbitant prices in the U.S., would save patients and the government a lot of money.

To be fair, most any system would have some kind of split between tax-financed, basic coverage and privately-financed add-ons. All the action is in how each sector is organized. What is “basic” and for what you might have to pay extra.

How a reform of the sort proposed in the book plays out would depend on the broader political context. A skinny, basic system would result from an interest in cutting public spending and benefits. That’s why I hope Musk and Ramaswamy don’t read this book. I doubt they read books, but they still might hear of it. It would give them a better story to commence with the hacking away. We would hear about those air-conditioned private rooms where avocado toast is served.

It is conceivable that a new system could be sold by getting wrapped up with some limited benefit expansion for those with the lowest incomes and the most serious health problems, as the authors’ approach would probably do. This was the gambit in previous forays in Social Security reform: tying overall cuts with some bon-bons for the least well-off. The clear target in both cases is the working class.

In a more liberal political atmosphere, one hard to see at present, “basic” could be more encompassing. In the end, however, preventing anyone from buying something beyond what is publicly supported seems elusive. There will always be tiers. The trick is in precluding as much of the supplementary care as possible in a better-endowed public system. This is what we do to some extent, fading in my estimation, with U.S. primary and secondary education. Like publicly-supported health care, that system is also under pressure.

Basic coverage, its magnitude aside, could be provided in a variety of ways. It need not be single-payer. Universality does not preclude a role for private insurance companies, nor does the profit motive preclude universality. “Medicare for All” is an empty box. Nobody would want to be confined to Medicare coverage, because you would still be exposed to the risk of catastrophic medical costs. As noted above, Medicare spending is more in Medicare Advantage (private plans) than in basic Medicare.

Piecemeal reforms have the disadvantages described by Einav and Finkelstein, but that is how we mostly get any reform. It pays to make the pieces bigger, as Bernie would do by adding dental and vision components to Medicare.

The incoming Congress may have the votes to repeal ObamaCare, but it will lack the votes to enact a replacement. There will likely be no repeal without a companion replacement. Likely, but not undoubtedly.