The economics of managed care
Here is my latest NYT column and these are some relevant excerpts:
Conceived in its broadest form, managed care can be run by the government, as in Britain, or left in the hands of a regulated private sector. Because the United States already has substantial private-sector capacity, and because many Americans are suspicious of government controls, the private route is the most likely option. Individuals would choose among competing providers – and those providers would try to offer the most appealing bundles of services, relative to cost.
The current tax exemption for health insurance benefits could be modified to encourage more cost-effective delivery systems, including forms of managed care that meet quality standards. For the elderly, the current Medicare fee-for-service method could be transformed into voucher programs for managed care treatment. Of course, people could go outside their network for additional services, if they were willing to pay.
It’s not well advertised, but the Obama plan would move in this direction. Many people receiving new health insurance coverage would be enrolled in Medicaid, which already relies on managed care for about half of its patients.
On a national scale, effective managed care will require the right mix of reputation and regulation to enforce provider commitments, and will need some reframing and renaming to make it palatable. It could accurately be called “competitive, choice-based single-payer coverage.”
…On the other hand, for reasons of perceived fairness, some people may be more willing to accept a “no” answer on health care from a government agency than from a private company. If so, we run the risk of limiting our care choices just because we’re more squeamish about one kind of “no” than another.
You'll note that this is a proposal to come after the Obama plan (or whatever else we do), not in lieu of it. It's not a competing idea but rather a recognition that rationing is coming in one form or another, even if some of the cost control proposals work.
There was not nearly enough space to deal with numerous points, including the following:
1. What are the pluses and minuses of competitive managed care offers vs. government-run single-payer systems? Or compare voucher-based competitive managed care — for seniors — to a much stronger Medicare advisory board. Under the former scenario, individuals choose, upfront, which services won't be reimbursed. Under the latter scenario, "experts" make that choice for everyone, subject to the constraints of politics. Which will lead to better outcomes?
2. I suspect the biggest problem with the voucher-based idea is when patients need to switch providers, say if they dissatisfied or if they are moving geographically. To what extent would the required regulations here mimic some of what the Obama plan does to insurance companies? Or could we just transfer how Medicaid handles managed care right now?
3. If people do not trust their managed care providers, can we expect a mutual, cooperative, or non-profit form in those markets? If so, how many of the advantages of markets over governments do we lose?
4. What are the ethics of converting fee-for-service Medicare into vouchers for managed care? In theory the role of government is to provide public goods, not private goods. Which health care treatments for the elderly can be considered public goods and which not? Is there an argument that paying more and more and more falls under this category of public goods? I am skeptical on this point. I think we have been pioneering a revolution in government, namely by assigning most expenditures to private goods. In the long run that is simply not sustainable.
Few people would think that a ne'er do well brother would be justified into taking $50,000 from you to prolong his life (with p = 0.17) for another three months. (Bryan Caplan has made a similar point.) So why do we approve of comparable transfers through the public sector?
5. I am struck by how many people, over the last year, claim we don't know how to make cost control work. There is plenty of evidence that managed care lowers the rate of cost growth, we just don't want to do it.
I also should note that the ideas of Arnold Kling were an influence on this column.
Addendum: Arnold Kling comments.