By Gerald Friedman, Ph.D., Professor of Economics, University of Massachusetts at Amherst
Unions for Single Payer Health Care, May 6, 2013
America’s health care system is collapsing, and we can blame the Economics profession. Most economists approach health care in the wrong way, viewing it as a commodity like shoes or the laptop on which I write. Instead, health care is an idiosyncratic commodity, subject to uncertainty and “asymmetric information” leading to destructive behavior. Trying to force health care into a box, treating it like other commodities, economists have promoted cost sharing, market competition, and insurance oversight of health care providers that have inflated the administrative burden while denying ever more Americans access.
While other countries have controlled health care costs by restraining administrative expenses and drug prices, ballooning costs in the United States come from policies promoted by economists who have urged governments and providers to control costs by making consumers responsible for more of the costs even while raising administrative costs and ignoring monopolistic pricing of pharmaceuticals. Viewing the injured, sick, and disabled as “consumers,” economists see insurance as the source of rising costs because they are not responsible for the costs of care they receive and, therefore, overuse health care. Rising copayments and deductibles are intended to discourage “consumers” from “abusing” health care, as if the victims of auto accidents or cancer should shop around for cheaper, and competition among insurers while limiting provider services by providing more administrative supervision. Ignoring evidence that Americans are less likely to see doctors and other health providers than are residents of other affluent countries, these economists have blamed the high cost of our health care on insurance which, they assume, leads to wasteful over-practice and the provision of unnecessary health care services. Their solution is greater cost sharing, more regulation of providers, capitation, and even the end to insurance by substituting medical savings accounts for insurance.
For 40 years, many economists’ have promoted increasing cost sharing through higher copayments and deductibles, the replacement of fee-for-service payment systems with capitation where providers are paid a fixed amount for patients as in Health Maintenance Organizations, and competition where multiple insurers offer a variety of plans catered to individual consumer’s interests and in competition with each other. Far from limiting health care cost increases, these practices have produced the worst of all worlds, rising costs along with restrictions on access. Costs have risen because these recommendations have inflated the administrative burden in health care, the costs of the billing and insurance activities within provider offices as well as the cost of the health insurance industry itself. While restricting access, limiting the benefit to Americans of some of the dramatic improvements in health care practice of the last decades, these practices have not bent the cost curve or slowed health care inflation even while denying more and more Americans access to affordable health care.
The waste involved in the current system has a redeeming feature: it provides abundant space for an improved system that could improve access and services even while dramatically lowering costs by eliminating administrative waste. If we lowered administrative costs and drug prices to the Canadian level, we could save nearly $600 billion dollars, more than enough to provide coverage to all of the uninsured while improving access for the millions of underinsured. If we see past the bad recommendations of market-fundamentalists, we can improve health care and save money. An outcome that even economists should favor.
http://unionsforsinglepayer.org/articles/2013-05-05/the-unhappy-marriage-of-economics-and-health-care
Comment:
By Don McCanne, M.D.
Which comes first, economic theory or policy? Intuitively, it seems that a solid understanding of economics should form the basis for developing policies. The obvious flaw is that economics is not a hard science, allowing you flexibility to choose economic theory that conforms to whatever policy you favor.
In the United States we have relied heavily on economists who are market-fundamentalists. They begin with market theory, and then they establish policies that supposedly would provide us the greatest value in health care. Yet we have ended up with a profoundly expensive, highly wasteful system of mediocre-to-poor quality, while falling far short of the goals of making health care affordable and accessible for everyone.
It seems unlikely that the market-fundamentalists would contend that they choose policies first and then use market theory to reach their goals. If so, then they would have to explain to us why they wanted today’s outcomes. So much for market fundamentalism.
Advocates of health care justice first choose policies that would ensure quality care for everyone that is affordable for society as a whole. Then they apply economic theory to achieve the goals of those policies. Other nations have shown that this works.
In his article, Massachusetts Professor Gerald Friedman explains how we can get it right – producing better health care while saving money – an outcome that all economists should favor, that is if they are pure to the art and science of their profession.