Choice-based Medicare cost controls

Let’s say it’s 2027 and I’ve just turned 65.  I fill out a Medicare application on-line and opt for a plan with superior heart coverage (my father died of a heart attack), not too much knee coverage and physical therapy (my job doesn’t require heavy lifting), no cancer heroics (my mother turned them down and I wish to follow her example), and lots of long-term disability.

Is that so terrible an approach?  Is it obviously worse than having the Medicare Advisory Board make all of those choices for me?

Over the next few days you will read a lot of “downgrade and dismiss” directed at Paul Ryan and his plan and indeed it is quite possible his proposal is not a workable one (I haven’t read it yet).  But don’t fall for the downgrade and dismiss bait, keep on returning to the question of how much individual choice should be allowed into health care cost control.  Why not divvy up the cost control work between the Board and some degree of individual choice across Medicare benefits?  You don’t have to combine that choice with the cost-increasing aspects of Medicare Advantage-like plans.

Many ACA defenders simply do not want to enter into a debate where the framing is “we’re all for cost control, when it comes to Medicare benefit selection it’s a question of government board vs. individual choice.”

I can think of a few reasons why individual choice will sometimes fail as a method of cost control:

1. Individuals have serious misconceptions about the science, or the badness of a particular condition, even in light of government or other third-party advice.  Or perhaps individuals simply do not understand the nature of all of the choices at hand.

2. Perhaps an individual will choose “no coverage for lung cancer,” but the government cannot precommit to the outcome of no coverage.  Of course as cost control becomes more pressing, we’ll have to learn precommitment for at least some issues, one way or the other, so this cannot be a decisive objection. The entire premise behind the discussion is that we cannot cover all treatments through government subsidy.

3. Over time, perhaps a government Board can rebalance the mix of coverage better than an individual can.  People age, possibly lose some mental faculties, science advances, costs change, and so on.

Those are good arguments.  They are good arguments for a mixed system.  They are not good arguments for ruling out all individual choice of benefits.  They are not good arguments for ruling out a scenario like that outlined in the first paragraph of this blog post.

Here is Megan McArdle on the difference between boards and individual choice:

It seems quite likely to me that vouchers are going to be better at controlling health care cost growth than a central committee.  Every committee decision that cuts off a potentially useful treatment (and I’m afraid it can’t all be back surgery and hormone replacement therapy) will trigger a lobbying explosion from affected groups.  Each treatment is a decision with a small marginal cost to the taxpayer; it’s in aggregate that they become expensive.  Which means that the congressional tendency is always going to be to override–and while there are supposed to be structural barriers against this in the bill, they aren’t very strong . . .

Whereas if you put the decision about what treatments to cover in the hands of the patient, the lobbying you face is to increase the overall value of the voucher.  To be sure, this will have a larger (and therefore more powerful) group behind it.  But it will also come with an enormous pricetag, making it much harder for our politicians to rationalize the decision.

There are lots of comments from Reihan here.  Ezra associates the Ryan reforms with Medicare Advantage.  Maybe so, and maybe that’s bad, but we return to how much individual choice should we allow into health care cost control, with or without the cost-increasing aspects of the Ryan plan.

We shouldn’t let “downgrade and dismiss” distract our attention from that fundamental question about individual choice.


That's why he's the man. They need to come out with a one-time Nobel Prize: The Memorial The Man Prize. Give it once and then retire it.

Now on to Paul Ryan: he stoops to conquer. Remember, he is still a politician.

>> Is it obviously worse than having the Medicare Advisory Board make all of those choices for me?>>


1) Imagine you have a disease for which all authorities agree on the best and most efficient course of treatment and which is very expensive.

2) Individuals are not competent to figure out which diseases they are likely to get. Doctors are probably not competent either. That's why we get insurance - to deal with the unknown.

It's important to distinguish between cost savings achieved by making the system more efficient and cost savings achieved by setting a maximum cost.

Working for a more efficient system is the best course. We spend twice as much per capita as any other country, and our results are worse than many. That's where we should be concentrating our energies, not hoping the market fairy will fix all problems

"That’s where we should be concentrating our energies,"

But not in ways that lock in the current system that brung us. That would be the worst of all approaches.

Not sure why you say risks for health outcomes cannot be determined by patients OR doctors. Obviously there are very obvious risk factors for many diseases.

ha! couldn't agree more

@Cliff surely you don't think doctors would actually agree on the best coverage, beyond as much of it as possible.

I am a physician and can tell you that life is un predictable. Risk factors apply to groups not to individuals. No insurance company is going to write multiple disease and treatment specific policy without tremendous overhead. Our problem is that we are paying for expensive health care infra structure with regressive payments - same health insurance cost for a millionaire as a secratary. Whatever way tou dice it healthy people have to pay for a sick person's care.

I agree. We need to make health care less rather than more complicated. That is an advantage to single payer to me.

Just so. If I select very poor coverage for lung cancer to save money up front (and maybe I do this knowing I really do have low risk factors for lung cancer), this doesn't help me very much a few years down the line when I actually GET lung cancer anyway.

I don't want to have lung cancer and be told "sorry, we can't give you much treatment because you didn't buy a good program for this disease ahead of time", and telling me "you made the right choice here because you never smoked, ate well and exercised, you just got unlucky" isn't going to make me feel any better at all.

. . . except what happens in 2029 when you slip down a flight of stairs and need both knees replaced? Are you just s.o.l., or will we need to increase your voucher because now you need a plan that is both heart+ and knees+?

. . . I'm skeptical that "individual choice" in medicine will ever result in significant cost savings because individuals tend to be pretty bad rational market participants. Part of that is the lack of transparency about the effectiveness of treatments and their costs, and some of it comes from uncertainties about (and wide range of) potential outcomes. But a large part of it comes from the fact that the price elasticity for acute medical care is pretty low. (For example, while your "no cancer heroics" directive is reasonable -- I have one too -- such mechanisms tend to fall apart when dealing with care for a spouse or a child, where how much you spend is determined pretty much by how much you have to spend.)

He'd pay more for the knee replacements. The same way that you are going to need to pay more for 'premium' or 'experimental' or whatever the 'panels' are going to call the procedures that they don't reimburse for political reasons.

Somebody would pay for them, anyway.

But who is that "somebody"? And what if they don't have enough money? Does he just suffer with untreated busted knees then?

And if somebody will pay for it anyway, then what incentive does he have NOT to cheap out on everything in the first place.

I don't think falling down the stairs can lead to knee replacements, for what it's worth.

Not immediately, but if you tear up your cartilage badly enough doing it, you can end up with arthritis down the road as it wears away faster.

I guess we'll never know if we never even try. Knowing about all the incredible waste in the system, I find it hard to believe anyone would be willing to pay for it out of their own pockets. "You need back surgery" "How much does it cost?" "Uh... maybe you should try physical therapy first"

...and then six months and $50,000 in therapy costs and lost wages later, "You need back surgery".

Too often trying to make the patient control costs results in outcomes that are penny-wise and pound-foolish.

If your worst case scenario for a health care reform plan is "something might happen that someone might have to pay out of pocket to treat" then it is impossible to have any system other than "we pay for every medical expense."

If knee replacement costs less than his plan's deductible for catastrophic care, then yes, he will be SOL, if by this you mean "will have to pay his own money for medical treatment, like almost every other thing he buys." If it costs more, then his plan will cover the excess amount. I mean, I'm no insurance expert, but isn't that the point? When I have a deductible of 5000 bucks it's because I know I can pay 5k -- but I still want insurance to cover the rest in case I get something that costs 100k. And, if you can't afford the yearly rates for health insurance with a low enough deductible that you could afford to pay it -- then we should subsidize it, as I believe the proposed plan states.

But who walks around with a deductible that is higher than what they can afford to pay? If you can't afford your deductible or the amount you would have to pay without it, then why not just cancel the insurance and save yourself the cost?

Ok, but how is the system you describe making the system any more efficient? If I have to pay a deductible (or copay) for medical care I'll defer a lot of it, but that's not necessarily a cost saver. Deferred preventative care often leads to higher costs later on when things get infected / infections spread / side effects get worse / unfixed damage leads to greater failures...

Two words: "adverse selection." I'm all for discussing individual choice and allowing it to the greatest extent possible. But you simply cannot discuss it without discussing its effect on pricing and risk pools in a private market, and how to control that.

I would second SRB's comments and add that to the extent you think people can accurately predict which forms of coverage they are likely to need and request "premium" coverage for those conditions the cost could go up even if they choose low-cost coverage for myriad conditions they are highly unlikely to develop. Moreover, there is the decision-point question of when people make the decision about which conditions are covered, which is complicated. Real cost savings will probably depend upon a cultural shift that encourages people to behave more like your mother and decline expensive "heroic" treatments with little hope of success - particularly late in life.

On a second point, standard "vouchers" violate the basic principle of insurance, which is to insure against catastrophic loss - not average losses. "Insuring" against average losses through a complex government system is simply an inefficient form of wealth redistribution.

two more words: moral hazard.

I am already in a highly regulated health care coverage environment where I have little choice over the coverage I get. It's called "group coverage" through my employer. I'm grateful for the coverage, but also quite aware that I pay more than I "should" because of the many, many employees in my plan (I work for a state government) who are actively engaged in grossly unhealthy patterns of behavior, chief among them smoking cigarettes and obesity.

No plan for getting health care spending in the U.S. under control while improving health outcomes (or at least not making them worse) unless it is serious about incentivizing wellness.

err, that should have read "will work" just before "unless"

There's a bunch of stuff aimed at incentivizing wellness in the PPACA. It's all tinkering at the margins, but it's there.

if you REALLY want to incentivize wellness, one of the single best things you could do is fix agricultural policy to make healthy food cheaper, and stop implicit subsidies for unhealthy food. A lot of people are eating a lot of what is most available, affordable, and that they have the time and skills to prepare... which is often just terrible for you. But that's a whole other kettle of fish.

"But it will also come with an enormous pricetag, making it much harder for our politicians to rationalize the decision."

There goes the right again, living in some strange fantasy world or just being downright dishonest and evil. If I remember correctly, the drug bill during the Bush administration cost a fortune, but it passed. It passed because the drug companies benefited from it, and so they funnelled huge amounts of cash to politicians to buy votes.

Vouchers will cause insurance companies to buy, on a permanent basis, politicians who make decisions about vouchers. It's that simple. This is not about individual choice (good) vs government choice (bad). Vouchers are about the government creating a system which encourages kick-backs, from insurance companies, to politicians. The right is all for it, because they always on the side of "free" enterprise, i.e. corporations, vs individuals, all the time pretending they are empowering individuals.

Yes, obviously Tyler is evil and in the pocket of the insurance companies. If only we had single payer healthcare, all special interests would be vanquished forever.

No that"s Megan who is dishonest or evil.

Btw, Tyler is a director of the Mercatus Center. Google who takes part in financing that think tank

The prescription bill passed mainly because pills were treated differently than other medical procedures and needed to be brought into the fold. All the research I've seen shows strong benefits from treating pills like any other medical option. That the government has a funding problem and that politicians are always corrupt is mostly a separate issue.

And yet the republicans blocked any plan to let Medicare use their purchasing power to negotiate drug prices.

Tyler, sounds reasonable. But what happens if you get some form of cancer that is very treatable, i.e. where survival rates are very high ? In your story, you have no cancer coverage and you basically go bankrupt trying to pay for all of it. What happens then ? The main problem I see is we can pretend that we allow individuals a lot of choice and then if people end up making the wrong choice en masse, we still have to make up the difference either way. That said, nobody is more familiar with one's medical history than an individual themselves and so allowing some individual choice is probably a good idea.

If it's very treatable then it isn't that expensive. Come on folks, not everything costs infinity with equal likelihood of happening.

"If it’s very treatable then it isn’t that expensive."
What is your factual basis for such a statement? Particularly in regards to Stage 1/2 cancer treatment versus the 'salary' of a Medicare recipient? Lets not play softball with the facts. One can argue, "such is the risk, the larger benefit of increased choice outweighing it." But you cannot dismiss away such concerns with, "oh it wont cost that much."

No. Some things are very treatable and expensive. Several cancers like prostate come to mind. Many chronic diseases are readily controlled, but with fairly expensive therapies.


So you are defining "very treatable" as "the technology exists"? That's a very uneconomic definition. Everything is treatable at some cost.

Really? I'm pretty sure that there are many diseases that are basically untreatable. Meaning that there do not exist any treatments that have a decent probability of curing the patient.

Some things aren't treatable at any cost. If you get Ebola you basically just take your chances.

Contrast with prostate cancer where you've got a nearly 100% chance of survival if treated, but the drugs required for treatment are expensive. Or compare to modern AIDS therapy.

Okay, so now we are using a binary definition: everything is either treatable (at some cost) or completely untreatable. So again, what is the definition of "very treatable"? I agree with Andrew above that the phrase implies the treatment is cheap. What else could it mean?

Treatable means that your prognosis is good, if given the right treatment.

A broken leg is very treatable at reasonable cost.
Aids is (now) very treatable at a high cost (but used to be an untreatable death sentence)
Advanced brain cancer is basically untreatable now, no matter how much money you throw at it (you might live a smidge longer, at enormous cost and discomfort, but likely not much).

Really? My wife's brain tumor was very treatable, perhaps even curative. Her neurosurgeon removed the vast proportion of it, and she had a 3 day post-operative hospital stay. Our out of pocket expenses for that year were about $6,000. According to the EOBs I saw for that year, providers (MRIs, radiologists, physical therapists, follow-up visits) billed our insurance company to the the tune of upwards of $90K, of which they were re-imbursed MAYBE 40%, so $36K? What exactly was the "cost" of the procedure? $36K, $90K? No one knows, or at least is willing to actually confess to--which is really the biggest stumbling block for consumers. All I know is that's not my definition of "cheap."

Andrew, you obviously have no knowledge or experience when it comes to cancer treatment. My daughter had Hodgkin's lymphoma as a teenager. It's considered one of the most highly treatable form of cancer. It was still extremely expensive. Treatable does not equal cheap. I am astonished at the amount of ignorance careening around this comment thread. Ideology clearly trumps known facts around here.

No, he explicitly defined "very treatable" as "the treatment will probably work". How you jump from that to "the treatment will probably be cheap" is your business, but I'd like to see some logic. There's plenty of medical treatments that are both effective and expensive -- that's the problem. They're effective, so to deny them to patients that need them makes you a death panel, but they're expensive, so to provide them to patients that need them makes you a source of rising health-care costs.

Chris, perhaps you are unaware that was responding to Andrew, who wrote: "If it’s very treatable then it isn’t that expensive." If you think there's a big difference between "isn't that expensive" and "cheap", in the context of this discussion, I'm happy to go with Andrew's original phrase. And he is still mistaken. Overall, I think you agree with my rebuttal of his logic. "Very Treatable" does not correlate with "isn't that expensive".
In response to your second point, unless a relatively expensive treatment increases in cost over time -- due to higher than inflation price jumps -- it does not make that treatment a source of RISING health care costs. As we know from widely available data, the growing and exorbitant cost of health care in the U.S. has very limited relationship to treatment outcomes. It has more to do with huge operating overhead/profits of insurance companies and the stranglehold big Pharma has on both political parties in Congress.
If you are advocating excluding expensive treatment from insurance policies, I wonder what you would advocate as the purpose of health insurance? Would you exclude most cancer treatments? Transplants? Care and rehab for spinal and brain injury victims? If so, I think you find yourself in a very small minority.

BTW, health care costs are rising both because of the power of health care providers (this is why the US versions costs twice as much as the same thing in the rest of the world), but ALSO because more better therapies are constantly being invented. Cardiac care after a heart attack is now FAR more intensive than it was 30 years ago, because we know a lot more about monitoring hearts, medicating them, and operating on them. Survival rates have gone up, but so have costs. The whole western world is facing rising health care costs, the US is just getting it worse.

You obviously know nothing about cancer treatment. When you sit in the chemotherapy chair, then come back and offer us some insight. As it stands now, many types of cancer are treatable. These treatments are also quite expensive. Most people earning beneath the US median income cannot save enough money to pay for them.

And don't fool yourself about private insurers not denying care. For my particular kind of cancer, it is possible to do an assay to see what type of chemotherapy will be most effective. Ironically, Medicare pays for it - but most private insurers do not. It makes perfect economic sense. From the standpoint of Medicare, it makes more economic sense to get it right the first time with cancer treatment - rather than paying for the initial chemotherapy *and* a recurrence. From a private insurer's standpoint, it makes more economic sense to kick the can down the road, hoping that the next insurer (or Medicaid) will pay for a recurrence.

But hopefully you, and others in this comment thread making all sorts of blanket, uninformed decisions about this disease, never have to find out about it firsthand.

It's funny you say that "no one knows their family history better than a person". I'd call complete B.S. on that. Families are always hiding things, changing things, etc. Oral history is extremely susceptible to fiction. We'd be much better off having a nationalized system where someone was actually recording your family history and using it to help you make informed decisions.
US citizens do not make informed decisions about their health. Their employers buy their health plans and they use them. Pretending that the US publicy is suddenly going to step up, take on a more difficult issue than voting, and make informed decisions that actually drive down costs, is at best ridiculously optimistic.

It seems to me that the costs of healthcare would go up with this type of approach. You would have doctors spending all their time trying to figure out what people are covered for and less time actually being doctors. This stuff is hard enough now as it is with the current insurance schemes. Kind of like the anti-commons problems mentioned here earlier.

Regardless, I have not read the full proposal but the paragraph in today's WSJ that really struck me with respect to this plan was the one that suggests that people will chose a private plan from a federally operated exchange and:

"The gov't would pay insurers up to a certain amount each year to help cover the cost of premiums, but that total would rise at the rate of overall inflation, not at the higher rate of health-care inflation"

So, say you are an insurance company - knowing that the premiums can't rise at the real rate of inflation and that a very high percentage of health care costs for an individual are in the last couple years of life - why would you be interested in getting into this market?

Why would doctors spend any time figuring out what patients are covered for? Do they do that now? I don't think so.

Yes. You wouldn't believe how much time and effort a doctor spends wrangling with insurance companies over payment for this or copay for that or that wasn't really covered or you didn't do such-and-such a test before this-and-that procedure or you didn't backflip along a tightrope over a lava-filled crocodile pit before you did that spinal tap. (Medicare is, in his opinion, better in this respect than private insurance: they tell you what they're going to pay for which procedure, and then they pay it. Period, end of story.)

And you wouldn't believe how much time my wife spends wrangling with the state agency here over what is and isn't covered for a particular patient. Because the state is short of money but coverage is in the law, the tactic they use is to try to wear down the provider with delays and multiple, non-specific requests for 'more information' (they also seem to lose faxes at an amazing rate). And she is absolutely, no-question, NOT ever allowed to give the patient the special 'provider only' phone-number to lobby on their own behalf.

You should try dealing with a private insurance company. I guarantee you that its worse. Which has a higher customer satisfaction rate?

(That is my father's experience, at least.)

I'm not sure there's much if any difference between the stingyness factor of private vs. public insurance.

If individuals are able to insure for different types of treatments you wind up with a situation where each individual will have their own set of insurance requirements. Right now, a doctor/hospital can say that x insurance company will cover y procedure, or medicare covers 80% of the cost of something. Add in individual choice and there is now another level of complexity and a whole new slew of insurance plans. Plans for supposedly the same thing (say lung cancer) from different companies may cover different procedures. Having the choice is good, but the average, or even above average insurance consumer has no clue what all the treatment alternatives are, how much they cost, what the latest technologies are and what the best way to bundle these in an insurance plan would be.

Many medical practices now have an office staffer whose primary job is submitting claims and contacting all the different health insurance companies (while learning several different "languages" of letter/number codes that various insurers use for procedures).

(Of course, THE answer is longevity research and cryonics to get us over the hump, back to your regularly scheduled bickering)

1. Individuals have serious misconceptions about the science, or the badness of a particular condition, even in light of government or other third-party advice. Or perhaps individuals simply do not understand the nature of all of the choices at hand.
How could individuals ever understand the nature of all the choices at hand?

If people were rational, I would be a lot more libertarian. But in a country where people have to be told to wear seatbelts (!), I have not so many qualms about removing individual choice in life-or-death situations.

So anybody who doesn't naturally make the same risk/reward judgments that you do should be forced to comply?

I wear my seatbelt (and have since long before they were mandated). But sometimes I ride my bicycle without a helmet, which I'm sure is statistically more dangerous than an equivalent amount of time driving without a seatbelt. Why? Because sometimes I get sick of the uncomfortable helmet and like to feel the wind in my hair like when I was a kid. The risk is worth it. To me. I also enjoy outdoor activities that I am sure are riskier than seatbelt-free driving (e.g. mountain biking on rugged, rocky trails). Again, I judge the risk to be worth it. Para-gliding looks really cool, but the risk-reward seems to high, so I haven't taken it up. But I wouldn't dream of passing laws to remove individual choice in the matter.

If the government were providing healthcare, would you be OK enforcing 'rational' behavior by banning para-gliding along with mandating seat-belts?

The risk is not actually worth it. You're just a bad judge of what the actual expected cost is. We all are bad judges, more or less, of our own behavior.

This is a good reason to privatise healthcare. Now my seatbelt or helmet is no of your business.

And when you crash and split your head open, and your insurance doesn't cover the costs of brain surgery, we just let you die, right? We don't admit you to the ER.

Please show your work. I'm particularly interested in how you know, better than Slocum, the actual payoff, to Slocum, of the wind in his hair and nostalgia factor.

Exactly. He has no idea how much I enjoy that, just as he has no way of judging whether the enjoyment/risk ratio is positive for cave-divers, mountain-climbers or back-country skiers. Are people who engage in those activities irrational and bad judges of their own behavior? Should the government step in and ban them for their own good? Or consider motorcycles. Riding a motorcycle (by definition without a seatbelt, airbags, crumple-zones, etc, etc) is always *much* more dangerous than driving without a seatbelt. Should motorcycles be banned for the good of their 'irrational' riders?

I propose to lock Neal in his house for all time. The outside world is much more dangerous than he thinks.

"Is that so terrible an approach? Is it obviously worse than having the Medicare Advisory Board make all of those choices for me?"

No such option currently exists. Try to find one. If you wanted to have one created, it needs to be done with a lot of transparency. We need to avoid the credit card kind of complexity where all the details are hidden in fine print. You also need to decide what to do about the free rider problem when 20 years from now you get some cancer requiring expensive treatment and decide you want it but cannot afford it. While I would be perfectly willing to let you die since you made that choice, that is not generally what our country does.

Also, Megan's argument would make sense if we had evidence that private insurance controls costs better than Medicare. It does not.


The point is that it controls the government's cost: we will spend $15,000, because that is the amount of the voucher. Capping spending at a given amount does usually succeed in capping spending at that amount.

Capping does not succeed when you try to cap a significant lot of people. People kinda vote.
When at some distant future a mass of of seniors realise that their vouchers are insufficient to purchase a decent plan, guess what the government will do. And no, it will not order insurance companies to lower prices :)

Supposing the cap stays, then you are rationing medical care, with those who are unable to top up the voucher
on the short end of the stick.

Someone has to have the short end of the stick. There is nothing, literally nothing that is free here.

Also, rationing is always in effect.

Where was this argument when Republicans were screaming about Death Panels last year?

I agree, rationing is always in effect. Of all the rationing there is, rationing based on who can
afford care is the worse. Rationing via vouchers is rationing based on who can afford care. Therefore, rationing via vouchers is the worse.

We can cap the amount of money Medicare spends, too. Instead of guaranteeing coverage, give it $453 billion a year.

Again it controls cost only in the sense that price controls control inflation.

Look right now Medicare doesn't cover dental care. That controls costs in an upfront and transparant way. If you're a senior you know that dental isn't covered. You know that if you want dental covered you need to shop for a dental plan. All above board.

If a Medicare Advisory Board identifies true efficiencies, then everyone wins as one health dollar will buy more positive health outcomes. If a Medicare Advisory Board controls costs by scaling back benefits then just like dental care that's transprant and upfront. If seniors feel Medicare is getting too grouchy they can either advocate more money to Medicare (in which case I'm sure the Tea Party Republicans will fight them or at least make them pay for it elsewhere) or they can start buying bigger 'supplemental plans'.

The problem with the voucherized system, though, is that it's not up front. Why does your plan cover only 3 rounds of chemo but not four? Is it because you picked the wrong plan? Is it because the vouchers are too stingy? Ask the insurance company and they will tell you the latter, ask your congressman they will tell you the first. Who knows which is the truth and who knows what policy will 'fix' that? More money to vouchers or more shopping around the insurance plans offered or maybe rgulating the insurance companies?

I like your overall point but your example is bad and can be countered with concerns for adverse selection. What if your hypothetical plan was less about what is covered and more about the payment structure:
- all health care costs up to $12,000 per year are paid for out of pocket
- insurance plans covers costs from $12k to $20k with a 20% co-payment
- costs above 20k covered with 5% co-payment
- death panel decides when you have entered "end-of-life" treatment and payments are capped at the cost of bare bones hospice care. No surgeries or home care covered.

I'd be happy with that plan if I could receive in cash the difference between its cost and the cost of a Medicare plan.

Your proposal is fine for someone who has either a high income or high net worth. What about the poor worker who has four kids, a wife who stays at home, and is just making it on $35K a year. No way he can afford to have anyone in his family get sick when the costs are going to run up like that. This is where the failure of the proposal lies. All of us who comment on Tyler's blog can afford your kind of solutions; over 80% of Americans cannot.

I think Dave is saying that people should be able to choose their payment structure, and (I'm assuming) that the available payment structures should be means-dependent.

But then we are in adverse selection land again.

There's much less adverse selection between payment plans than between coverage choices.

There will always be things that end up not covered. We can create a system where we pretend this doesn't exist and people find themselves in this state mysteriously, or we can create a system where this is up-front and well understood.

I don't see how choice works to create efficiency in a global sense in this situation. Yes, I can see how choice can reduce my costs if I'm better than the average person at picking my option. I successfully choose an option which covers what I eventually get and doesn't cover what I don't get. However, my ability to save money (not to mention the insurance company profits) comes directly from other people choosing poorly and picking a plan which doesn't cover their condition. Where does any overall efficiency come from?

It seems to me that this is just moving risk from the government budget onto individuals where it no longer shows up on a balance sheet and calling that savings.

Good point.

Let's say I buy heart disease protection and you buy cancer protection, based on our family histories and other information.

In time I have heart problems and you have cancer, and we are both covered. OK, but from the point of view of the insurer nothing has been saved. The payouts are the same as if we had both bought more comprehensive coverage. So why wouldn't the total premiums the insurerer collects to begin with have to be the same?

So it looks like we save no money, and have more risk.

Two comments. First, Tyler has often said on other matters that if a policy cannot reasonably be expected to be implemented well in the real world of politics, then it is not a good policy choice, no matter what the underlying economic theory might be. Show me about 10 Republican Senators and maybe 50 Republican reps who are willing to even begin a discussion about separating individual choice from privatization -- then maybe I will give this policy option more attention. Second, picture how the marketing geniuses at large insurance companies will try to exploit irrational fear, as opposed to efficient macro health care decisions.

Why does Tyler continue to quote Klein (other than mutual exchange of references) as some sort of authority?

His column description be "left wing politics, its policy fantasies and plenty of it".

As of as not, he's wrong. Consider "The cost of health care is the cost of treating sick people.". Actually, the cost of healthcare is "treating sick people", but its also the cost of maximizing their chances of staying well. Has he never heard of innoculations or prophylaxis?

Tyler, basing your healthcare on your parents experience is foolish. Too small a sample and too little correlation.

Ummm. We have individual choice now in the individual market. The empirical result is huge prices and the choice of no insurance. Maybe with government subsidy we'll get to choose insurance for one random possible old age health problem. Get something else and die 19th century style. Awesome.

Wow, cut and paste is a bad idea

Why does Tyler continue to quote Klein (other than mutual exchange of references) as some sort of authority?

His column description should be “left wing politics, its policy fantasies and plenty of it”.

As it is, and as often of as not, he’s wrong. Consider “The cost of health care is the cost of treating sick people.”. Actually, the cost of healthcare is “treating sick people”, but its also the cost of maximizing their chances of staying well. Has he never heard of innoculations or prophylaxis?

Tyler, basing your healthcare on your parents experience is foolish. Too small a sample and too little correlation.


You're making the same fundamental error that underpins far too much of our discussion on healthcare... you will not in 2027 be turning to Medicare for service you will be handing them your risk, your choices are irrelevant.

2. Perhaps an individual will choose “no coverage for lung cancer

But it's very unlikely anything like that would be offered. There are non-bleeding edge, out-of-patent treatments for lung cancer, and I'd expect any policy would cover those. And we might also reasonably expect some policies to cover expensive cancer treatments only in situations where there is a real prospect for a cure (or a n-year survival) but not where there is only the prospect for a short life extension (e.g. no bleeding-edge treatment for terminal, stage 4 cancers).

And here's the solution to the pre-commitment/adverse selection problem. If you select a policy that does not provide a particular form of coverage, the government *will* step in -- but only after you exhaust all your own resources first (the same approach as currently used for Medicaid nursing home coverage). So you can run the risk of going with cheapo insurance with minimal coverage (or no insurance at all), and the government will be your backstop -- but only after you have spent your resources down to the poverty line.

So more elderly Americans in poverty. Great. Why would anyone want to live anywhere else?

Show me about 10 Republican Senators and maybe 50 Republican reps who are willing to even begin a discussion about separating individual choice from privatization — then maybe I will give this policy option more attention.

Show me about 10 Democrat Senators and maybe 50 Democrat reps who are willing to even begin a discussion about separating themselves from the leftwing orthodoxy of single-payer— then maybe any policy option will get more attention.

Manchin, Webb, Warner, Tester, Rockafeller, Baucus, Lieberman, Johnson, Conrad, Pryor (AK). Off the top of my head. Most of these directly undercut the public option in statements or votes, or otherwise were heavily engaged in hedging on the ACA bill.

Most of those 50 congressmen lost in 2010. See: Blue Dogs.

Show me about 10 Democrat Senators and maybe 50 Democrat reps who are willing to even begin a discussion about separating themselves from the leftwing orthodoxy of single-payer— then maybe any policy option will get more attention.

Uh, everyone who voted for the noticeably non-single-payer PPACA?

Uh, everyone who voted for the noticeably non-single-payer PPACA

And how many expected it to be a "first step"?

Way to move the goalposts.

Your initial question was show me people who were "willing to even begin a discussion about...". So we show you people who not only had that discussion, but cast votes in favor of it... and so NOW you shift the goalposts to "show me people who's darkest desires of their hearts include..."

Shouldn't the burden of proof go the other way? Shouldn't proponents of free market health care point to some success on cost savings? Single-payer proponents can point to dozens of examples of universal coverage at lower costs.

I'm not philosophically opposed to a free market solution, but there isn't a lot of evidence that it can work.

Shouldn’t the burden of proof go the other way? Shouldn’t proponents of government health care point to some success in the last fifty years? Market proponents can point to dozens of examples of the market providing better service at lower cost.

I’m not philosophically opposed to a government solution, but there isn’t a lot of evidence that it has worked.

Well, in this country we have the VA and Medicare that both provide good results for below the private market costs. Basically every other rich country in the world has better public health stats than the U.S. and has either an entirely public government system, a massively regulated private system that conservatives in this country would still call communist, or a hybrid.

The private system in this country gives us double or more the health care costs of any other rich nation with worse to much much worse public health indicators. Where's your evidence again?

Part of the difficulty is that we don't spend much money on comparative effectiveness research and it's hard for the average person to sort through treatment options (and one can make the same statement for many MDs which is why medical outcomes are not terribly good in the country). Everyone recognizes that the long term costs of medical care in this country must be dealt with and it cannot be in a band aid manner. This leaves two paths forward: national health care (if the rest of the world does it there must be something to it) or using the current private sector delivery system in a more efficient manner (if this is not an oxymoron). I'm agnostic on either approach (mainly because I'm selfishly going to get my Medicare in two years and am exempt from Congressman Ryan's solution) but the only private approach that I've seen that makes any sense is the Fuchs/Emanuel voucher program that brings everyone into the system using a national sales tax to fund it (best explanation is in the New England Journal of Medicine but you have to have a subscription, otherwise look here: ).

This approach sets a base of care for everyone. Those of us who want additional benefits can purchase it (so it's still not quite equal for everyone). This has the added feature of getting all employers off the hook for health insurance expenditures, doing away with Medicaid and Medicare (though current Medicare folks would still be covered since they would oppose any change to their benefits, a fact that Congressman Ryan implicitly acknowledges) and the debate about the amount of the sales tax would set the threshold for care. Other than the political difficulty of a new tax I've not seen any cogent argument as to why this would not work.

What if the choices are like elections, where you don't have a real choice but it makes you feel happy and in control? Think shampoo.

or think jam, where you'd prefer 5 choices to 50 (from nudge, I think?)

"Is that so terrible an approach?" Yes, it is terrible in the case you have BOTH heart disease and cancer history in your family and need to be covered for both but can afford only one.

In such a case you will be FORCED to make a choice but Is that a real FREE choice?

Of course. In what way is it not a free choice? Not that it is a likely choice someone would have to make.

If a mugger puts a gun to your head you are still perfectly free to choose whether you prefer handing over your cash, or having them blow your brains out. What is there to complain about here?

(and don't be dumb, some people absolutely have high risk factors for both heart disease and cancer. Obesity is one (and no, obesity is not always a free choice), and it is perfectly possible to have one grandparent who died of a heart attack, and another of pancreatic cancer. In fact, that would describe me.

Tyler: "I fill out a Medicare application on-line and opt for a plan with superior heart coverage (my father died of a heart attack), not too much knee coverage and physical therapy (my job doesn’t require heavy lifting), no cancer heroics (my mother turned them down and I wish to follow her example), and lots of long-term disability"

I second srb's concern about adverse selection, and in fact, I would probably question whether the above paragraph is the single correct framing of the individual choice versus medical panel.

This is obviously a contrived Rawlsian thought, but suppose that my goal is to diversify the risk of being born with a given genetic endowment that may predispose me to certain illnesses. I.e. somehow before I even know what body I'm going to be born into, I decide whether or not I would like to be covered in the case that I need expensive treatments for some debilitating disease(s) based on the expected lifetime premium. If I can subsequently opt out of such a plan when I discover that I am not susceptible to the disease, then the plan would collapse from adverse selection. So if one believes that the health care system is at least partly designed to diversify that risk (as opposed to thinking of the payments as charitable transfers from the economically fortunate and healthy to the economically unfortunate and unhealthy), one would want to separate out this "endowment effect" from the individual choice you describe above.

It seems to me like we already have 'choice' (or do in theory at least). There's already supplemental insurance that can be purchased by seniors who want coverage for some of the co-pays and such of Medicare. If the advisory board makes serious cuts in Medicare, there's no reason why the supplemental market couldn't/wouldn't grow on its own. For example, what exactly is stopping someone from offering a supplemental insurance policy that covers "stuff the Medicare board declines to pay for"? As far as I can tell absoutely nothing except the fact that maybe the market would not support such a product because most stuff Medicare won't pay for doesn't do much but costs quite a bit.

IMO there's a bit too much hysteria about the board. People seem to think that the current Medicare system is just a blank check that pays for anything you can get a doctor to write a prescription for. It doesn't.

For what it's worth, most seniors I know do have supplemental insurance and say that Medicare is pretty terrible.

We aren't going to save any real money fiddling with what is and isn't covered.

All the real savings in every other system comes from using the government pulpit to slam down on what doctors, hospitals, and drug makers charge. Sometimes that's letting them charge less volume, sometimes its less price, but it gets done. Medical providers make less money and have lower qualities of life, end of story.

It slightly slows the pace of growth in medical treatments and sometimes leads to some waiting list issues, but the outcomes are close enough to our own system that its workable. There is no zero trade off solution. Both me and my father would both be dead today if medical science hadn't advanced exactly as quickly as it did, coming up with treatments just in time to save us both. Maybe that doesn't happen under government health care, but it would also mean lots of people get treatments they need that already exist and it costs our country half what it does now.

This is an interesting question, actually. Let's allow the point that lowering reimbursements, cutting into bigPharma margins (etc) will stiffle innovation. How much innovation stiffling will we put up with to have all of our current medical technology more cheaply? If the rate of advancement in DALY-adjusted life expectancy is cut in half, but costs are also cut in half, is America a better palce to live?

My sense is yes. I'm thinking that marginal improvements in length of life aren't worth the marginal costs.

Does anyone know of analysis that has been done on this?

The "problem" is that life is sacred, so you can't say something like I'd rather have people die a year sooner if it saves us 10% of GDP.

I put problem in quotation marks because as inconvenient as that is, I can think of some other problems we might have if life wasn't sacred to the populous.

We're not just talking about length of life but quality of life.

Big pharma actually does relatively little work on drugs that save lots of lives because it isn't that profitable except for the handful of most common diseases. Even then they prefer drugs that you keep taking indefinitely to mitigate risk (e.g., cholesterol pills) because these represent ongoing revenue streams vs. one-and-done fixes. A large amount of the pharma research is on things like ED and heart burn that restore previously-lost bodily functions. Those are where the real money is.

University researchers arguably do the bulk of the "life saving" medical type of work.

Households and banks made choices regarding contracts about future states -- call them mortgages. Ex post, housing prices fell and the government bailed out the banking sector. Tyler's proposal will lead to some overestimating their need for minimal coverage, and then we will hear stories about old people uninsured and the government will bail them out too. This will so obviously fail the commitment problem it is not serious to talk about it.

"Sometimes that’s letting them charge less volume, sometimes its less price, but it gets done. Medical providers make less money and have lower qualities of life, end of story"

Well health care spending has grown faster than the economy. By contrast that means income earned from providing health care has grown faster than income earned by providing everything else. Ergo that means while 'medical providers' may feel that their quality of life has gone down, it hasn't. And the evidence seems to back that up. Lots of people are trying to get into the medical field in one form or another. The so-called construction worker studying to be a nurse or medical aide, for example. Few people are leaving the medical field for others. Nurses aren't quitting to get into, say, being administrative assistants. Of course this doesn't mean that everyone is gaining at the same rate. No doubt some doctors are seeing what would have been income gains for them 30 years ago go to a small army of helpers and others who now do some of the things they would have done in an earlier age.

This leads me to an observation I've made several times about the 'sky is falling, by 2025 10,000% of our budget will go to Medicare! meme. The economy grows so much on average. Health, which is a piece of the larger economy, has been growing faster than that. I'm almost certain these projections are based on assuming the economy grows at a certain steady pace while health grows at its historically rapid pace. But this makes no sense. If a piece of the economy continues to grow faster than the entire economy, then that piece becomes more and more of the economy. If it keeps growing faster, then the entire economy itself must start growing faster than it has.
Or the piece will stop growing so fast.

Either way the scarey budget lines must be under-estimating future revenue or over-estimating future expense. It's probably impossible to say exactly how the projectins will be wrong but it's logically impossible to say the projections can be right. I'd like love to see Tyler or anyone else seriously address that little 'problem' with the entitlement reform narrative.

I don't think the problem is necessarily constantly escalating medical costs so much as it is demographics.

Yes, demographics matters but it's a small part. Even Kotlikoff (of "Coming Generational Storm" fame) has recanted, and admits that new studies accurately show the problem is 90% increasing medical costs and 10% demographics.

Seems like a big problem then in the forecasts. We assume medical costs tomorrow will be real expensive because over the last ten years they've gone up very fast. Why? Gas was going up really fast in the late 70's, by that reasoning it should be $20 a gallon now. But it isn't, we had periods where it stopped going up, went down, then up then down etc.

Likewise plenty of things we spent little or nothing on in the past we spend a lot now. No one rented movies in 1970 and few people bothered to actually pay for TV. Now people pay a lot for stuff to watch on their TVs.

When they added drug benefits to Medicare, many projections turned out to be wrong. First the coverage of drugs allowed spending in othe rparts of Medicare to go down (seniors not skipping their pills as much made for fewer complications that ended up in a hospital). But also because the rate of new drugs tapered off. As fewer new drugs came on the market but old expensive ones started going generic the cost of drugs did not rise as much as it did in the past. This is a really, really big problem with doom and gloom forecasts for Medicare.

Gas and TV's are optional. If they get too expensive we just don't buy them.

Some medical care is optional.

A lot of it, though, we view as necessary to civilized and humane living. If we keep developing more and more expensive therapies at some point we have harder dilemmas than "I guess we need to invest more in solar technology and public transit"

Your proposal for an individually designed, choice based insurance policy (more heart coverage, less knee, no lifting) presumes that an insurer could construct a portfolio of such diverse policies, sacrifice the law of large numbers which underlies insurance, avoid risks of adverse selection. Essentially, what you are asking for is an individually rated policy, which will have high transaction costs the moment you involve an underwriter trying to assess your unique risk.

If individually rated policies were such a good idea, the market would have presented it to you before now, rather than group rated and group designed policies.

It might be possible. But I'm skeptical, because if someone comes to me and says "I want more heart attack coverage," that probably means he's more likely to need more heart attack coverage, and I will price the plan accordingly. (Even if I don't on day 0, I'll learn this over the course of several years.)

I'm willing to listen to see how a privatization plan would work, though.

There are various taste preferences that could legitimately be captured by an insurance market. As a crude example, one person might value quality of life and another might value quantity of life. The first person would accept a much higher risk of death in exchange for trying to keep his leg.

Dan, I think you are agreeing with me, just that you would price in the adverse selection risk, and ask more premium for the self selected risk. I didn't say that there couldn't be a market, but it would be more inefficient relative to other alterantives.

As to a private market alternative limiting extreme event or futile care at end of life, if you wanted a private market alternative, you could agree with an insurance company that if the probability of recovering from a procedure does not exceed x% probability, you would not undertake it.

And, that insurance company could even use the guidelines being developed by the government on this question.

But, then the question becomes: who do you trust more: an insurance company with a profit motive in denying care OR the government if the same program were part of Medicare.

That would depend: if Ryan were the head of HHS, I would buy in the private market; if Grassley were the head of HHS, I would stay in the government program and become a Tea Partier so I could shout death panels.

But, of course, we will never get there under Medicare because there is always someone shouting death panels.

I had a similar thought on reading Tyler's remarks. Seems to me, if I'm in the business of selling insurance, and someone comes to me saying "I'd like cancer coverage, but I don't need anything else", my alarm bells are gong wild: "this guy is going to get cancer; I'm going to lose my shirt here!" So his premium is going to be really high, despite extremely limited coverage.

Seems like everyone loses.

The Democrats don't like Ryan's proposals because it has a vision of a limited government that protects people's life, liberty, and property. They would rather have an all-powerful government that makes choices for people, steals 'the rich' people's property, and does a bad job protecting life (death-panels, abortions, weak national defense). This is an ongoing battle between the forces of liberty and tyranny, everyone, so man up!

Yes the only reason a person wouldn't like Ryan's proposal is because they embody Pure Evil(tm).

It's not going to do such a good job at protecting life - the lives of the rich, perhaps, but no one else's.

I sure hope you aren't teaching *my* kids.

You haven't seen "death panels" until you've dealt with private insurance companies and their policies on cancer treatment coverage (as just one example.) But ideology is so much more comfortable.

If it is 2027, and Ryan's package goes into effect in 2022, you won't have much to worry about Medicare. Your solution will be to cut back on your current consumption, save more for your own medical care and forget about such a thing as social insurance, be good to your kids and suggest that they reserve a room for you and your wife in their basement.

I can still remember when I was young, very young, sitting in the backseat of my parents car, listening to them talk about how they and my other brothers were going to pay for my dad's father's hospital and nursing home care. For all those who think Medicare isn't worth it, I suggest that you engage your grandparents in a discussion about how the world was before Medicare. It is an interesting social experiment you can conduct in your own backyard.

Thank goodness Medicare covers nursing homes. ... oh no, wait...

Cliff, Medicaid covers nursing home care. So, you're making an argument for Medicaid?

But, while you're at it, this does prove another point, and thank you for the opportunity.

Here it is:

Under medicaid, you have to have no assets. So, what happens is that the kids who have a parent in a nursing home funded out of the parents estate watch very carefully that the nursing home doesn't provide activities that have no benefit. I know. I monitored my dad's care, and was on the nursing home for providing therapy to "make him walk" when he had a neurological impairment they were unaware of and only if they had divine powers would they have been able to make him walk. But, they sure would have liked making some money doing it!

That should read: "they and my dad's other brothers"

I think the problem here is that 'choice' is actually getting turned on its head.

Consider the current style of reform. Basically Medicare covers procedures that establish some economical relationship to patient health outcomes. OK so a Advisory Board may suggest cuts that lowers Medicare's coverage of some things. No problem, you can today buy supplemental coverage or simply save money and pay for uncovered things OOP.

Under a choice system, though, you're basically guessing what you're going to need and what you're not. What happens if people are good at guessing?
Then the 'reform' fails. People who will get cancer pile into the private plan that promises to pay for all things cancer. People who won't get cancer but want lots of new agey therapies will pile into the plans that offer that....... they either all go bankrupt or all insist that Congress increase the 'voucher'. Remember in the span of less than 30 days Republican Congressmen voted to borrow nearly a trillion dollars to keep Gordon Gekkos from going broke. You're going to tell me they won't do the same to keep grandmas on their cancer therapies?

If the 'choice' system works, though, people are screwed. If people who are going to get cancer opt not to buy the 'cancer policy' because it's a bit more expensive...well then the insurance company makes lots of money on the voucher AND the gov't saves lots of money but the people who get cancer are screwed.

The advisory board, though, seeks to find true cost savings by finding things that work and eliminating or consolidating things that don't. If they cut too deep, individuals can choose to supplement using their own funds or taxpayers can vote to provide more either as direct cash aid to seniors or by easing up on the cost savings.

The issue is that if freebies ("true cost savings") are not enough, stuff people legitimately want is going to have to be denied to them. Should they be able to choose what they get, or should someone choose for them?

How is it 'denied to them' when nothing is stopping private insurance from selling policies that cover things Medicare doesn't cover? In fact, not only is nothing stopping private insurance from doing this, it is happening today!

The issue, I think, is when under the rubric of choice you start saying things like "I want MY Medicare to cover, say, dental. In exchange I'll give up lung cancer". Then you start getting people who do get lung cancer basically priced out of everything while money is being spent on dental coverage, which isn't really needed at all.

A fairer way to do things is to say that Medicare covers some base amount of coverage. If we don't have the money, we lower that base amount. If we do have the money we raise the base amount. Beyond that everyone is free to get whatever additional coverage they want on their own. The idea is that it's a safety net. Once you decide how high your safety net is, you don't need much gov't *above* the safety net. People who want added coverage are perfectly free to get it now. If you think that poor seniors can't afford it then talk about giving them some type of cash assistance or grants but beyond that you don't need a 'choice program' since you already got choice. That being the case, Ryan's plan seems unnecessary.

One interesting thing here is how tyler's post falls for the same sorts of bias' that make individual's determining what type of health coverage they want just as problematic as an advisory board. "Risk factorology" is what some researchers have deemed an obsessive focus on risk factors as a predictor of health outcomes. Yes, family history does have some impact, but the amount is tiny in relation to numerous other issues, social setting, status etc. have just as much of an impact. This is not meant to be a discussion about what causes diseases and what doesn't, but to acknowledge that an availability bias that uses these simple factors to make decisions about what health care to take out is just as unproductive as an advisory board making these decisions. It may even be more unproductive since individuals lack the market power that an advisory board can have to negotiate rates.

The panels are going to puzzle that out for us?

Tyler isn't just talking about his family history. He's talking about what is the best mechanism to facilitate the revelation of the knowledge?

The experts: Not only did they give us this fiscal cluster futz, they've given us hospitals where you go in for a hangnail and come out dead of superbugs. Now the ever-optimistic technocrats promise to give us better experts. I'm not optimistic.

My point is that neither side has truly revelatory knowledge. The individual does know if they are obese, have constant back problems, etc., but the experts know the most cost effective treatments, those that are overused, etc. We should not seek to make the claim that individual choice is a prior necessarily better for the individual, people are beholden to a lot of biases that lead to poor decision making. My point was that if you were to say "Hey, my father died of a heart attack," therefore I should get heart coverage, this would be somewhat of a waste of health care dollars without a lot of other information, and even then you can't be that confident you will die from one, as well. Maybe your father grew up in a stressful household, ate 3 servings of red meat a day, forgot to drink his one glass of wine a day. Unfortunately, a lot of individuals without medical or public health knowledge deem this sufficient grounds to make an "informed" decision about health coverage, when it is just subjectivity masked as objective reasoning.

Well, obviously people are biased in favor of unhealthy foods and making poor nutritional decisions. Enter the government Nutrition Board, full of experts to tell people what they can and can't eat.

Did the experts give us these hospitals, or did the patients demanding antibiotics for the common cold give use these hospitals? Would these be the same patients that we're arguing can accurately predict what insurance coverage they need?

How would the overlay of genomic information help or hurt these proposals? Genomic testing is identifying risk factors for a whole host of treatable, chronic diseases (for example, afib, aneurysms, type II diabetes, inflammatory bowl disease, breast, colon, and endometrial cancers). Does knowing one's risks help direct the patient to obtain a better insurance product? I can envision different scenarios depending on who does or does not have the information.

Genomic information only takes us so far. Yes, there may be a statistical correlation between certain types of genomes and certain diseases, but without understanding the mechanism behind it, it is like claiming you know how your car works by saying that their is correlation between turning the key and the car starting. There is way more going on, and much more in regards to the proper health insurance coverage. My point is a broader, more social level focus, one that is less individualistic may be more preferable.

From an economic perspective, though, what is the good of this? Say we know at some point in the future 30% of people will have X. That's great. Telling us that some test will tell you which 30% will get X....well what exactly does that do?

If those 30% of people pile into insurance packages designed to cover X, well then private insurance either will demand bigger vouchers to cover X...inwhich case there's no cost savings. Or they will simply stop covering it. In which case you have more or less the same impact as an 'advisory panel' deciding that X won't be covered.

Choice, either by individuals just guessing what they will get or by getting real knowledge (say by genetic tests) doesn't really address the fact that if X costs $Y to treat then the cost of X is going to be 30%* Population*$Y. The cost savings of the Ryan plan is basically a rather wicked lottery that depends on people who are going to get X choosing wrongly and ending up not being covered for X when they are old.
Welcome to Republican Death Panals: ThunderDome edition.

If 30% of people are very likely to get X cancer, then it's wiser to pay more for certain preventive measures against X cancer that don't make sense for people with lower risk. At a limit, if I could tell you with 100% accuracy who was going to get breast cancer, they could get mastectomies now and completely avoid the risk.

We need to be careful, though, because often "more testing" just leads to "more costs" with no improvement in services.

Obviously, there will be plenty of political will to allow folks who opted out of lung cancer coverage to die when they unexpectedly contract lung cancer despite the existence of some more effective, cheaper therapy that we can't predict today.

No one forces you to undergo cancer heroics under Medicare today, and the heroics that are subsidized are proven to be effective. I tend to think, like you apparently do, that the benefits of treatment are often given too much weight, but the general idea of "all the care you want that's likely to be worth the cost as judged by your physician" is sound. There is potential cost savings in rewarding you for opting out of treatments, but you run into moral hazards.

Can someone remind me what the administrative overhead is for Medicare vs a typical private insurance plan?

My bet is that when the currently under-55s start to find that things aren't covered by the plans available through vouchers, they will lobby Congress to include coverage by law, in the same way that certain items today (e.g., breast cancern screening) are subject ot political pressures.

...and the insurance premiums will not be affordable. How can anyone buy into Congressman Ryan's plan when normal insurance underwriting for seniors will have to price insurance out in the stratosphere?

Or else not cover everything?

Why wouldn't individuals purchase health insurance the same way they purchase health care, i.e. with the advice of a doctor? I go to the doctor to ask what treatment I should get for sickness A, why wouldn't I go to them to ask what type of insurance I should purchase to cover me in case I get sickness B or C? Now, perhaps there are financial or actuarial factors I should consider as well, but when I buy insurance for other things, I consult experts on that as well.

In the medical industry, it seems like we've already solved the problem of "laymen don't have enough information" -- ask doctors. And especially since "ask doctors" is precisely what the government would be doing to come up with recommended treatments anyway, it doesn't seem like it would be any worse -- and the doctors we ask may have less incentive to give answers that happen to coincide with their research grant goals. And remember, this is the same government who decided that the biggest part of the food pyramid for decades would be "bread." Whatever increase in individual error occurs with personal choice seems less than the systemic errors government health directives have "achieved." I submit there is a moral difference between a government rule (or suggestion) that turns out to be wrong, and have negative health impacts -- and a personal decision with the same result.

What is wrong here? If Medicare doesn't cover X, well it doesn't cover X. If X is a good thing it's not like it's illegal to buy it on your own.

Medicare doesn't cover most dental procedures. Are seniors not allowed to go to the dentist? Of course they are, they just use their own money or buy their own dental insurance.

If the gov't is 'wrong', just use your own money or buy supplemental insurance to cover whatever it is that isn't covered.

As I pointed out, people seem to think this is something new, it isn't. Medicare does not work by just covering everything and anything you can get a doctor to write a script for.

What relevance does your comment have? We are talking about the FUTURE when tough policy decisions will have to be made.

In the future Medicare may cover X but not Y. If Y is 'useless' then no one will care. If Y is great then people will buy Y on their own.

Either via supplemental insurance or out of their own pockets.

Right now Medicare doesn't cover some stuff that's useful but does cover lots of stuff that is. As a result there's a modest market for supplemental insurance.

If the Advisory Board does a hatchet jot in the future and slashes lots of stuff, then that market will grow. If it doesn't, then it won't.

Again what exactly is so tough here? Why exactly is the Ryan plan any real improvement on the current plan?

In the future Medicare may cover X but not Y. If Y is ‘useless’ then no one will care. If Y is great then rich people will buy Y on their own.


Maybe, maybe not. Today Medicare doesn't cover dental or vision. Seniors buy glasses and go to the dentist.

What works is that Medicare provides a base amount of coverage. If you want more then you can buy it on your own. If you think some things are beyond the reach of poor seniors you can opt to campaign to put them into Medicare (thereby driving up its cost) or work to get seniors some type of cash assistance.

What happens with a 'choice' program, though, is that you get some people who have cancer but don't get coverage because they 'guessed wrong' and opted for a plan that had all types of fuzzy benefits for things like 'holistic healing'. These people are left out in the cold while gov't spends money on people who don't have cancer and enjoy 'luxury benefits' at taxpayer expenses because that's 'choice'.

It would be a lot more sensible and much more 'choice empowering' to just say "look, we'll cover 90% of what's standard in cancer, everyone is on notice that you either need to live with that or seek your own supplemental coverage or savings if you want to have the 10% of stuff that's the most expensive and least effective".

People here are reading that statement as the gov't telling people they can't have the 10%. It's not, it's just saying it won't pay for the 10%. If you KNOW Tthat now then you have all the choice in the world.

I agree with you? :)

I asked my dentist what insurance I should get. He said he didn't give a shit. I'd still be paying him full boat. I don't go to him any more.

You're assuming that there'd be a lot of personal choice when, as we all know, there won't be simply because there isn't now and the medical industry likes to keep it that way. Paul Ryan's plan simply aligns the incentives of the medical and insurance industries against taxpayers while pushing through no important reforms to the way we regulate healthcare.

Let’s say it’s 2027 and I’ve just turned 65. I fill out a Medicare application on-line and opt for a plan with superior heart coverage (my father died of a heart attack), not too much knee coverage and physical therapy (my job doesn’t require heavy lifting), no cancer heroics (my mother turned them down and I wish to follow her example), and lots of long-term disability.

This set of selections by Tyler gives away what the real issue is here: de-socializing health risk. By electing not to pay for coverage he mostly doesn't expect to need or want anyway, Tyler is wisely maximizing the value of a theoretical voucher for himself. He expects to need some kinds of care but not others.

But what about people who need all of these kinds of care? They will be left with the same budget constraint that Tyler has assumed here, but will have to choose to live with disability (no knee care) or die of heart disease or cancer. All because the average person doesn't have to pay for care he doesn't "need."

Consumer choice in the face of a budget constraint is the same thing as "sick people don't get all the care a doctor says they need, but it's cheaper for healthy people." I understand that libertarians are fine with this, but most people aren't.

Your plan, just like Paul Ryan's, is simply no longer Medicare. It's not "downgrade and dismiss," it's acknowledging the simple truth that Ryan's plan doesn't "save" Medicare, or "cut" Medicare, it completely eliminates Medicare and replaces it with a new voucher-based system.

If you want to have that debate, fine, but be honest about it. Don't use "save" and "cut" when you mean "replace with something different."

Of course, I think you'll find that people like Medicare just fine, and are willing to sacrifice flexibility for the stability and convenience of single-payer. Mr. Ryan should look the American people in the eyes, tell them his plan involves cutting them a check and throwing them out into the mercy of the for-profit insurance system, and see how they react. My guess is he'll lose that debate. Badly.

Mr. Ryan should look the American people in the eyes, tell them his plan involves cutting them a check and throwing them out into the mercy of the for-profit insurance system, and see how they react. My guess is he’ll lose that debate. Badly.

His, too. That's why he hasn't done that already.

I just don't see how individual choice is going to result in lowered costs. We are biased by all kinds of unrelated factors - going up vs going down an escalator for example - and individual choice in care would likely result in the creation of more "conditions" and "diseases" that aren't. Just as osteopenia related to osteoporosis. We would have treatments that shopped around to create prescriptions & related insurance plans.

If you want to provide individual choice, it seems a better method would be to simply offer a small cash rebate for those able to keep their expenses below average, say a 1% cash rebate for each 2% they can keep their costs below average. Averages would have to vary by age and be recomputed each year, but it would make a lot more sense than individuals trying to assess their own medical probabilities and dealing with getting them wrong. People would have an incentive to limit costs but could decide whether it is worth it to them on a case by case basis.

The only problems with this that I see are:

1. Many people will be below the average because, well the average is the average. A person may be smoking, eating red meat every day and drinking a storm but because this year he doesn't get anything too bad he gets a 1% cash rebate while his neighbor whose a health nut is unlucky enough to get cancer. Why are we giving this guy a cash rebate? We could use that 1% to help the guy with cancer.

2. If you try to target the rebate towards the 'worthy' then you start getting lots of administrative costs (you gotta take a blood test to prove you really did stop smoking) as well as start getting issues of overbearing gov't and/or business.

I don't really agree with that, Boonton. If the rebate is enough to incentivize people to change their behavior, then the overall cost of delivering care will be lower (err... assuming that having a bunch of relatively healthy 99-year-olds is actually cheaper overall than having them die of heart disease at 72. I dunno.). It's the whole idea behind wellness plans (although my understanding is that cash rewards are not enough, by themselves, to significantly change behavior).

We could trial run this very, very simply. Just pass a law that says Medicaid and Medicare grow at the rate of CPI. If we can't hold to that, then it is unlikely that we could hold the vouchers to the CPI rate. Government costs for health care will grow until the competing interests for the pool of resources pushes back enough to put an end to it.

Actually Yancey we are already trial running it. It's called the Obama Health Plan.

Only it doesn't cover those on Medicare but those without any coverage. If you don't have coverage the basic plan is that you buy your own insurance with gov't help depending on how much you make. In order to sell insurance in the exchanges plans must offer certain min.s like not excluding people or charging them sky high premiums for pre-existing conditions but other than that there's your 'trial run' of the Ryan plan.

As for 'passing a law' that Medicare grow at CPI. Well it just doesn't work like that. Medicare works as an entitlement. If you show up at the hospital grasping your heart and you're 67 Medicare gets billed. You could say that Medicare will get tougher about what it will pay for. It will negotiate lower rates from docs and hospitals, decline to pay for stuff that's expensive and doesn't have a track record of working very well etc. That's great but then again you're back at the Obama plan, just increasing the pressure a bit.

Partially, perhaps, but Congress has already decided to spend the savings before they are actually proven to be politically possible. In fact, all the history of the last 40 years suggests the savings won't be realized.

That's actually fine. If the bill cuts $100B but some future Congress decides to spend $90B....well believe it or not there's nothing Congressman Ryan can do to tell the Congress of 2050 not to spend something. If some future Congress votes to spend well future voters have to live with that. Maybe medical care will continue to make great advances relative to everything else and future voters will be happy to spend more on it.

As for history, well actually various Medicare reforms have produced savings. The only notable exception is the 'doc fix' which keeps getting put off but that wasn't a reform so much as a mathematical error accidently written into law which no one wants to correct with one shot (but even that did lower spending relative to baseline).

I hate to say it, but this line of attack on the health bill is probably the most absurd thing I've ever seen.

It's basically an argument of the form "Because a spending cut won't stand in the future, we must abolish the spending cut today. If you don't agree, then you're against cutting spending"!

I mean, think about it really. Apply it anywhere else in your life.

Charlie Sheen won't stay sober, therefore he should get high right now!

There's no way I'll go my whole life without driving drunk, therefore I should drive drunk right now!

Take things one day at a time man. If bill A cuts $500B, then that's fine. If someone comes along and proposes bill B to spend $500B, well just oppose that. That's a problem with bill B, not bill A, really.

At the end of the day there's nothing that can really stop a spending cut that passes today from being reversed tomorrow. By definition all spending cuts happen in the future since money spent in the past can't be recovered, the present is just a thin sliver of time, most spending happens in 'the future' hence that's where most spending cuts can only happen.

Now the bill that passed, IMO, seems to have a good mechanism for starting some real spending cuts. Congress has a say but in the manner that was done in the base closing up or down vote on everything and not nit picking it by lobbyist demands. The cuts start not with denying people service but with moving towards a pay for performance type system where health care providers get paid for managing patient health rather than being paid for each procedure....even ones to correct conditions that could have been prevented originally such as post-operative infections.

Might those spending cuts end up as spending elsewhere, say on Stimulus II or a NASA mission to Mars? Maybe, but hey what are all those Tea Party Congressmen doing if that happens? Might Congress say no we want to go back to paying for medical procedures that don't work or ones, like post-op infections, that could have been avoided? Yea but that would require a new bill, new debate, new gamesmanship between Congress, lobbyists, the White House etc.

Now the thing that's hopeful here is that it seems like the health care system pays quite a bit without getting much outcome. That means in theory it should be possible to find a lot of saving without actually cutting real benefits. If you don't believe that, though, then you're basically asserting that Medicare is already highly efficient and, well, medical care just costs a lot. Well if that's the case then expand Medicare to cover everyone.

I actually support the Medicare changes in ACA, so you basically wasted your time writing your reply to me. What I didn't support was the extension of the entitlements without any proven way to pay for it.

Tyler Cowen: "no cancer heroics"

Then you're a fool.  My dad died of cancer recently.  Had sworn off "heroics" because he'd seen the horrible struggles of family members with chemotherapy. But, the doctors convinced him, and he lived 3 additional *fantastic* years. My youngest son will remember him as a result.

What he hadn't anticipated is that things change.  Chemo is nothing like it was thirty or even ten years ago. Enduring it, in many cases, is barely the equivalent of a mild flu.  And your life circumstances change and you may suddenly find that you really value a few extra years of life. What you are advocating is the equivalent of prearranged suicide. Absurd as well as utterly reprehensible as a general principle.

A while ago (I can't find the blog now) I saw a proposal that seems to me to be a serious proposal to contain healthcare costs: The federal government would calculate QALYs for every new and relevant patentable invention.  It then offers the inventor a fixed dollar amount per QALY based on the expected total QALY benefit for all citizens. If the inventor agrees, the IP goes to the public domain and the technology (equipment, drug whatever) is covered by Medicare/Medicaid.  If not, the inventor can take his chances in the market, but the technology will not be covered by government programs.  No more rents, and inventors can reduce their risk.  The public could purchase some technologies before phase III trials (or earlier) at a discount and carry those trials out ourselves (it's not rocket science).  This would have the additional benefit of encouraging R&D by small scale inventors and university researchers.

I'm not saying that IP protections aren't excessive.  But that's a tough battle to fight. And big pharma isn't developing a lot of useful stuff anyways and they are extremely cost ineffective, so the loss of leaving absurd levels of patent protection in place might not be that bad.

Tyler did not define "cancer heroics". I would regard you father's treatment as more standard protocol. I don't know exactly what Tyler meant -- I think he was vague on purpose. The question is, do we want insurance companies to define that term in order to exclude a particular (costly) treatment protocol? Tyler avoided consideration of this issue

But lots of people do think of chemo as "heroics," because it used to be a horrific ordeal which in some cases did little more than turn the last few months of life into a living hell.  I assumed that's what Tyler was referring to but I could be mistaken.

I might have assumed something slightly different. To me "cancer heroics" implies undertaking some torturous and drawn out -- often experimental -- protocol with very limited chance of survival and/or no quality of life at the end of treatment. But I don't know if that's what Tyler meant. I can only guess.
By the way, I hate to even employ the term "experimental", since insurance companies will often deny treatment by employing that work in the loosest sense.

Oops thought I took out the "fool" comment. Over the top and rude. I apologize.

Let's say your private insurance company -- which is in business primarily to earn a profit for its execs and big investors -- has access to your and your family's medical history (yes, they do!). They will more than like charge outrageous premiums for your premium heart care coverage, and would charge very little if you chose knee coverage (since they will know you're not engaged in risky activities and have no history of joint problems). As for "cancer heroics", how many insurance companies pay for that sort of treatment now? Maybe you have more faith in Aetna, Blue Cross, etc. than I do, but I would not thrust their bureaucrats to make health care decisions for me. And they will make the decisions -- not your doctor. I want to make my own medical decisions, along with my family and medical caregivers. Medicare has a 3% overhead; most insurance companies are at 20-30%. Insurance companies will always make their decision based upon their financial interests -- the bottom line. I do have more trust in the much more transparent Medicare system. With private for-profit insurance companies, the odds are you will either pay very high premiums, or get less care.


You are living in some fantasy world if you think you can predict what care you will want in ten+ years when you do not understand what choices you will have then. Also, how do you define cancer "heroics" or "superior" heart care? Write that policy verbiage for me. If making these definitions were even possible, why would the insurance industry not have already offered these products tailored to someone's preferences?

They have not offered theses policies because they are about as plausible and feasible as the Tooth Fairy. Even if you could find a doctor who can look 10+ years into the future and guess what options medicine will provide and communicate them successfully to you (you cannot), you do not know what you will choose then. I have seen multiple people swear off dialysis or intubation when it is some future abstract notion only to enthusiastically embrace it when it becomes indicated. In the real world, outside of libertarian think-tank fantasies, people change their minds when faced with the reality of slipping away due to kidney failure or a tumor. That's how most humans deal with life.

Seriously when someone writes this during debate about health care policy:
"I fill out a Medicare application on-line and opt for a plan with superior heart coverage (my father died of a heart attack), not too much knee coverage and physical therapy (my job doesn’t require heavy lifting), no cancer heroics (my mother turned them down and I wish to follow her example), and lots of long-term disability."
they are functioning at the level of the drunk undergrads shooting the breeze and solving the world's problems at 2 AM in their dorm. Please get real.

More specifically, write that policy verbiage limiting yourself to "superior" heart care, for instance, and show it to us so we can see how this might work.


It's worse than that. The only way for the plan to work is for people to guess wrong and end up screwed.

If they guess wrong and the gov't lets them 'do over', then the cost savings will disappear.

if they guess correctly, then the 'choice plans' will be very expensive (i.e. the 'cancer plan' will discover everyone who signs up is someone who will get cancer). Either gov't will have to dramatically increase the voucher in which case cost savings disappears or people get screwed when the company's running the plans suddenly start cutting coverage for basic services that were originally part of the 'choice'. (I.e. the 'cancer plans' will suddenly announce only two rounds of chemo will be covered).

In other words we have Death Panels coupled to a lottery system.....not a fun lottery but the Shirley Jackson type of lottery!

The only way for the plan to work is for people to guess wrong and end up screwed.

Well, someone can guess wrong and never get the heart attack they paid insurance against, nor the cancer they didn't.

As for the "Death Panels", even if we have no privatization like the Ryan plan, it is still a lottery, and I don't see why the public version is any more fun.

Someone who opts to not get coverage for heart conditions who then never gets a heart attack didn't 'guess wrong', he guessed right.

But therein lies the problem. Suppose these two policies are on the table:

A - Doesn't cover heart attacks but does cover lots of minor things like dental cleanings that Medicare doesn't normally cover.

B- Covers heart attacks.

Two people choose A. While the one guy who 'guessed right' is enjoying dental cleanings at taxpayer's expense, the guy who guessed wrong is out in the cold when he gets a heart attack.

Keep that in mind. The gov't is paying for teeth cleaning for one guy while ignoring the 2nd guy. Yea ok people will say that's how the cookie crumbles but it won't stand politically. They will make some provision for the 2nd guy, then you have moral hazzard. Choose the policies with the 'goodies' because the gov't won't really let you die if you get something really bad.

The only way for this plan to save money is if people guess wrong and screw themselves. If they all guess correctly then the plans become very expensive.

Now consider the alternative:

Medicare -It covers 80% of standard approved care.

Now you have choice. You know whats covered and there's no guessing. If you're happy with it then take it even though you may be on the hook for 20% if you get something really expensive. If you want more then by all means buy private insurance that offers to cover that 20% and/or services not approved. You know, you decide.

The lottery is NOT there. No one is getting nice benefits at taxpayer expense because they guess correctly. If you want a policy that coveres 'nice things' you buy it yourself otherwise you do without it.

OK we need to reduce spending. So now Medicare will pay 79% of approved services and/or tighten up on approved services. You still have the choice to up your supplemental policies or save more if you want to spend more. Instead of turning social insurance into a game where some strike it big and some loose it big, it should be a baseline safetynet for all with the debate about how high that sefety net should be.

Someone who opts to not get coverage for heart conditions who then never gets a heart attack didn’t ‘guess wrong’, he guessed right.

You misread what I wrote. Try again.

And, yes- a public system is still a lottery- you are hoping you don't get something not covered by the system. Don't pretend that one system is more likely to cover something the other won't. You don't know that, and neither do I.

OK but the current system is more explicit.

Look, Medicare doesn't pay for dental care. If you're a senior, what do you do for dental care?

You do without, or you buy it directly or you buy dental insurance.....or you can make a political argument that coverage should expand to include dental care.

In Ryanland why doesn't senior A have dental care? Well maybe its because the vouchers are too skimply. Maybe its' because they choose the wrong type of policy. Maybe there's something wrong with the insurance market so the 'right type' of policies aren't being offered in the voucher market. You really don't know.

Let’s say it’s 2027 and I’ve just turned 65. I fill out a Medicare application on-line and opt for a plan with superior heart coverage (my father died of a heart attack), not too much knee coverage and physical therapy (my job doesn’t require heavy lifting), no cancer heroics (my mother turned them down and I wish to follow her example), and lots of long-term disability.

This makes sense in a repeated-game scenario where you can lose big in one round and make it up later, and the overall outcome looks like the expected value. Health care for the elderly doesn't fall into that category. Once you lose big -- say heart problems despite the odds, and you either die or are financially wiped out -- you're out of the game. You don't get to make it up by staying cancer-free for another decade.

There's a social insurance aspect to Medicare. Out of a million people, we want to treat all of the expected 5,000 who develop a certain type of cancer -- not just the 4,000 who decided to insure against cancer instead of strokes this year.

There’s a social insurance aspect to Medicare. Out of a million people, we want to treat all of the expected 5,000 who develop a certain type of cancer — not just the 4,000 who decided to insure against cancer instead of strokes this year.

True, but, what do you do about the 1000 people who couldn't be treated for something else because you treated those extra 1000 with the cancer who guessed wrong? In other words, there are always going to be tradeoffs.

Treat the most serious conditions that can be treated the most effectively and cheaply. Personal choice doesn't really enter into this; it's just the choice to block yourself now from treatment you don't yet know if you will need in the future. If you're right it does nothing (because you wouldn't have gotten that treatment anyway, since you didn't need it) and if you're wrong you have screwed yourself over.

Ultimately we may end up with something like the British system of saying "treatment X is too expensive and not effective enough, we won't cover it, pay for it yourself or do without" and some people will probably be upset by that, but as long as the decisions are evidence-based, it will be hard to second-guess them effectively (except when the state of the art advances).

The individual non-doctor contemplating what conditions he might have in 5 years is completely not qualified to make that kind of call. I'm not really even sure most doctors could; it seems like it would require a pretty high level of statistical knowledge in addition to medical.

I don't know where to start...What a falacy, what foolishness, what hubris, what a brilliant overlay of ideology onto what can be solid work of scientists and actuaries.

Let's start with falacy... If we could predict what disease we'll get, that would help in so many ways. But, I'm not sure we can with any level of accuracy. And if we currently have the capacity to do so, let's help actuaries do that even better than they have in the past.

Foolishness... What are the implications?.. A 65 year old chooses wrong, and he just dies because he thought he'd have heart disease instead of cancer? That's not really compassionate or effective.

Hubris.. well, see foolishness above. And think back... Did your dad know he was going to have a heart attack?

Ideology... Speaking of "knowing you're going to have a heart attack," perhaps we save a bit of money by limiting the amount of money we spend on illnesses where choices are available. If you smoke, you get crappy health insurance that doesn't cover lung cancer or other pulmonary diseases. Sure, you can have health insurance if you're morbidly obese, but you won't get coverage for insulin and other long term implications of that disease. And, you get the 'normal' coverage back 10 years after you quit smoking or when you've brought your weight down to an appropriate size.

But then that can be ridiculous. Pregnant? You got yourself into that one... You pay for it. Sexually transmitted disease? Ditto.

Maybe we should bring our costs down the old fashioned way... by preventing the ways that interests are gaming the system for their own benefit. Think about drug companies and their capacity to write into the Medicaid Drug Coverage the fact that the government can't negotiate better pricing for itself. And doctors gaming the system by referring tests to their own clinicis and 'hospitals' (see McAllen, Texas via Atul Gawande)

Great post. Only needs a single word change in the sentence "I can think of a few reasons why individual choice will sometimes fail as a method of cost control" - change "sometimes" to "usually" and it's all set.

If this is so great, why hasn't the free market done it?

Not that I believe the insurance market is free. But the point still stands. You're saying that increasing choice will lead to lower prices, when in fact, more than likely the opposite would be true. And it still depends on informed consumers making complex decisions that they don't screw up in such a way that the government has to bail them out. That's exactly the sort of market that governments excel at. The general populous has been hostile to the idea of chosing their police and fire insurance, and my guess is that ultimately the only reason they tolerate the "free" market in health care is that their employer makes all the choices for them.

It did, but assholes keep trying to drag people like me into their nightmare.

It's all about #2. No credible denial of claim can exist if our justification is participants chose coverage poorly. The forces that create a need for medicare won't allow this to stand.

Yes, it is all an illusion, because irrespective of how T feels, someone will be making exactly these decisions. The truth is not that social insurance covers all ills in all cases. The truth is that social insurance in part serves to spread costs and in part exports responsibility for cost mitigation to a faceless bureaucracy so we can pretend the whole process is scientific or socially just or whatever.

I'm clearly too far down the comment trail to have any influence BUT:

I think the best discussion of why I find this line of argument to be wrong comes in Daniel Carpenter's book on the FDA, "Reputation and Power". There, he discusses how at the start of the 1900's, before the existence of a strong FDA, many people believed in the so-called 'right to self-medication'. Most medicines on the market did nothing helpful, and many were actively dangerous. He has some great examples like Cufohedake Brane Fude... anyway, it's a fun read.

The point is that, from a libertarian perspective, you often start off with the premise that people have a right to control their own bodies, etc. etc. But in fact, when people had complete control over their own health care, they were mostly killing themselves with patent medicines and nostrums. Most people (I'd bet including Tyler) think something like the FDA is justified because people don't just have wrong ideas about medicine, they have really really wrong ideas about medicine. That creates a role for government to not only inform people about expected side effects, etc. but actually regulate pretty strongly, refuse to allow drugs on the market, etc.

If your reason for thinking that the FDA is a justifiable organization is that people have really really bad ideas about how medicine works (and see the people panicking about radiation all over the world if you want a salient example of why you might think that), then turning around and saying that individual choice is likely to work because people have good ideas about medicine is problematic. At least, I want more information about why you think individual choice about medicine is precisely bad enough to allow for the existence of the FDA to structure choices, but precisely good enough to justify more choice. IMO, if you ratchet up effect #1 in Tyler's analysis enough to allow for the FDA, you've pretty much gotten rid of most of the room for 'the right to self-medication' in your worldview.

Of course, maybe Tyler is an 'abolish the FDA' sort of guy. That's not the impression I have, but I shouldn't speak for him.

I'd be willing to bet, if such a thing could be conclusively determined, 90%+ of what you are talking about is just historical progress and the FDA is the just-so story some people find convenient.

Why do you think that, Andrew? The market didn't force car companies to install seat belts, the government did. Upton Sinclair didn't force meat packers to clean up their act, he forced government to force meat packers to clean up their act. There are some counter examples I can think of (airlines really stress safety, for instance, although the govt plays a big role there, too), but I'm not willing to bet on the free market when it comes to consumer safety.

It's not likely people would opt to not cover heart disease. I guess it's possible, and you are just pulling out an example, but unrealistic examples don't work.

What's more likely in my opinion is that companies would opt to screen out people who need heart (or cancer or diabetes) coverage. They would probably be prohibited from doing this outright but they could do it in a more subtle day. Imagine a plan that advertises itself as offering lots of 'goodies' like reduced gym memberships, massage therapy, 'aromatherapy' discounts etc. Someone who feels they are pretty fit and healthy at 65 may be very much inclined to such a plan. Someone whose had, say, by-pass already done is probably going to worry that such a plan pays for all those goodies by making the only 'in network' cardiologist one whose 150 miles away.

Result, you get lots of people in the 'goodie' plan and other people in the 'sick plan'. The 'sick plan' costs more and most people who don't know they are sick will opt for the 'goodie' plan because that appears to be cheap. Those who don't get sick will be winners enjoying their massages and flirting at the gym while those that do will be the losers.

If the plan works, it only works because enough people are losers to cut costs.

Which again begs the question, why should the social safety net be turned into a game where people can win and loose like it was a casino? Look define a base level of care just as social security has a base level of retirement. Beyond that you're free to 'choose' as you please. If you want to pay for supplemental policies that offer lots of goodies, then do so. If you don't then don't. The only decision we need worry about is what level are we willing to live with as a 'base level' of care relative to whatever costs are.

Heh, insurance companies already play that game. Look up Tonik.

I just instituted the MR Nuclear Safety Institute. Prior to the MRNSI there have been several nuclear incidents. We have put a stop to all that nonsense.

Are you arguing that, if Tokyo Electric Power understood that a magnitude 9.0 earthquake was a significant risk within, say, the next 100 years, they would have built higher seawalls around their nuclear plants, making regulation unnecessary? I guess that's possible, but there are tons of examples of companies running exactly those sorts of risks. I think it's a far safer bet that, if the government of Japan understood that the risks of a massive quake were higher than they had previously understood, they would have mandated that TEP take more preventative measures.

This sort of fine-grained control over what exactly you want covered doesn't strike me as a great idea. Suppose you skip the lung-cancer coverage because you don't smoke. And then you get lung cancer anyway. It's rare, but it happens. Now you're in a bit of a spot. And for what? Lung-cancer coverage wouldn't have cost you much anyway because you're a non-smoker. Even if you have a desk job, you can still injure your knees. And you're going to have to pay a premium for heart coverage because of your family history.

Shop around and get the highest deductible you can reasonably afford, sure. But don't try to outsmart the actuaries. There are information asymmetries at play, yes. But on balance they probably favor the insurer more than they favor you.

It's hard for me to believe this a serious discussion.

There is no market for medical care. My doctor will not tell me what a particular procedure will cost. My hospital will not tell me what a particular surgery and stay will cost.

I can't shop for medical care efficiently.

Instead of arguing that vouchers are better than ACA, why, libertarians and free marketeers that you claim to be, oh why, don't you argue for those changes that might actually make medical care a free market.

Why don't you argue for the importation of drugs and the end of the restricted American market for drugs?

Why don't you argue for abolishing the rules concerning only doctors prescribing drugs?

Why don't you argue for lowering the barriers to the use of foreign trained doctors in America?

Why don't you argue for enlarging what nurses can do?

And, in line with the above thoughts, why don't you argue for means testing of medical benefits. Something like first 10% of your last year income + assets goes to medical before government/insurance programs kick in.

Anything else is just BS.

I think this is an argument for health care exchanges, or coops. Consumer-level price discrimination in medical treatments has always seemed like a chimera to me. I think some kind of highly regulated high deductible plan could do some good on the margins, but the core problems with spiraling health care costs have to do with the way care is administered and coordinated. Changing the consumer incentives won't on its own change the providers' incentives - and that's what we need to do.

"Is that so terrible an approach? Is it obviously worse than having the Medicare Advisory Board make all of those choices for me?"

Well, it's not so terrible, if your faculties are still sharp, and it's as simple as that. If it's more complicated, if there are parties with an incentive to cheat you acting against your interest (and such people often target the elderly), and if it's intentionally obfuscated to increase profits and reduce the amount of care provided, then yeah, it could be pretty terrible.

Why not reduce coverage based on age? Informally, that is done a bit now, sometimes at the behest of the patient. But why not just limit Medicare coverage for serious, life threatening illnesses to get individuals up to a set age, say average life expectancy. After that, only routine, non-life threatening treatment would be covered, such as prescriptions, repairing a broken hip, or palliative care, hospice care, etc.

Which Came First, The Cheese Or The Rats?

When I was younger and discussing politics and world affairs at the dinner table one night with some colleagues, my dad (a "simple" farmer), who had been listening quietly, sat back and offered, "Where there's cheese, there's rats." I wasn't sure if he was talking about the farm or politics, but his observation was correct and describes the "problem" that has befallen US healthcare. I'm sure that economists will recognize that what dad was saying was the people respond to incentives. If the politicians in DC offer free healthcare, there is no incentive for people to turn it down - so they consume more of it than they would if they were paying for it themselves. In a similar manner, when these politicians are offering money to doctors to provide healthcare services, they provide more services as long as doing so remains profitable. What you economists call the "equilibrium point" is no longer determined by the suppliers of the goods and the demanders of the goods, but is distorted by some genius in a federal office building.

The fact is everyone wants individual choice - and, as long as someone else is paying the tab, they will invariably choose as much as they can get. But it's becoming evident that we don't live in Pan's Neverland and we can't keep insisting that someone else (whether that be our so-called "rich" contemporaries or future generations) foot the bill for things that we want, but cannot or will not pay for. Unlike Peter Pan, we must grow up, face our responsibilities and accept that, in a world of scarce resources, we must make choices.

So, back to the initial question, "Which came first, the cheese or the rats?" When we had rats in our barn, mom said it was because they found food there and that if we would get rid of whatever it was that attracted them and clean up our mess, they would disappear. In an effort to pander for votes, the politicians in Washington have been putting out this entitlement cheese for the last 50 years, turning otherwise honest and hard-working citizens into rats looking for an easy meal. It's natural to seek the path of least resistance and satisfy our immediate needs at the lowest cost, but to continue to do so - rather than to make the choices and sacrifices that define us as humans - when the evidence is overwhelming regarding the unsustainable nature of our current entitlement mess wil leave us all like rats on a sinking ship.

You have framed the argument as one between the British system (government boards control treatment options), the Swiss system (everyone must buy basic insurance of their choice using government money), or some mixing (as in Germany). This is not an important argument. Every liberal I know would be happy with any of the three systems I mentioned. The actual argument in the United States today is should people's finances determine the kind and quality of medical care they receive.

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