Controlling Health Care Costs
The New York Times
November 18, 2004
Controlling Health Care Costs
By Hal R. Varian
Health care just keeps getting more expensive.It has been argued, with considerable justification, that a significant part of the increase in health care expense is a result of improved quality.
Economists have two magic potions to control prices and improve quality :
competition and incentives.
What is needed is experimentation with, and competition among, different ways of delivering health care: prepaid group practices, health maintenance organizations, traditional preferred providers, and other ways not yet thought of. The key is to give consumers a choice among different delivery systems, not just minor variations on a single theme.
Current practices offer perverse incentives. Employers often cover some fixed fraction of the cost of each plan. (Stanford economist Alain C.) Enthoven… argues that it would be better to have the employer cover the entire cost of the low-price plan, and let the employees who choose higher-priced plans cover the additional costs themselves.
…it seems clear that more choice, more competition and stronger incentives would be good medicine for the health care industry.
http://www.nytimes.com/2004/11/18/business/18scene.html
Comment: Just in case you believe that we have moved the reform debate beyond failed models, we haven’t. But Enthoven and colleagues are still beating the drum for an experiment with competition amongst health care middlemen, integrated with delivery systems.
The fact that this article was published in the business section of The New York Times implies that the concept has some credibility. But California has completed an extensive and expensive period of experimentation with this model and it has failed miserable.
Admittedly, Enthoven claims that the experiment wasn’t valid because comprehensive, integrated systems were under-represented in the experiment. But even large urban areas would have difficulty corralling providers into enough truly integrated but completely separate systems to be able to provide multiple, readily accessible, comprehensive systems. He believes that part of the problem lies in the fact that most providers contracted with many loose networks, and they really couldn’t effectively compete against themselves. As an example, in his model, a major hospital would be a part of a single integrated system. Since hospitals must be accessible, how many hospitals can compete in one service area when patients are limited to the hospital that is a part of their integrated system? Enthoven’s refinement of the failed model of competing plans simply cannot work because of the logistical hurdles.
And if Berkeley professor Varian (the author) believes that the primary reason for the increase in health care costs is quality, he must have isolated himself from the great body of health policy literature. It is no wonder that he supports such a highly flawed model that has already failed experimentation in the marketplace. He missed the whole show.
The business community should be interested in a model that controls costs
,improves efficiency, provides better incentives for quality, and eliminates the benefit plan problem for employers. The health policy literature indicates that a single payer plan would accomplish those goals. You would think that the editors of the business section of The New York Times might want to publish such a concept in the interest of promoting an informed discourse on reform, especially reform that serves the interests of business.
Or shall we simply continue on the easier path of living with our political preference for perpetuating a system characterized by waste, inefficiency, mediocrity, and staggering costs in health care?