The last Quote of the Day discussed Princeton Economics Professor Uwe Reinhardt’s New York Times blog entry on rationing in Canada and the United States. I (Don McCanne) wrote a response to his article, and he responded to my comments. That response follows.

The New York Times
Economix

Uwe E. Reinhardt
Daily Economist
April 29th, 2011

Len Charlap’s Comment No. 27 requests that I respond to Comment No. 9 by Don McCanne, even though Dr. McCanne did not explicitly called for a response.

I agree with Dr. McCanne that the role of queues can easily be misunderstood.

Given a naturally or artificially limited supply of a thing, queues arise when money prices are not allowed to rise to levels that shrink the demand for the thing to match the available supply. Other prices – e.g., the price of time (e.g., waiting in a doctor’s office) or discomfort prices (the disutility of having to put up with a physical impairment while waiting) then do the equilibrating.

In the case of naturally limited supplies – e.g., supplies of transplantable organs – neither of these prices equilibrates demand and supply and some administrative mechanism of rationing occurs. My former Princeton student, later leader of the U.S. Senate and then my co-teacher of a course on health policy at Princeton, told us how that works. It is less than perfect.

In the case of artificially limited supplies, one way to reduce the time-and–discomfort prices is simply to expand the supply of the artificially limited supply.

It is true that in the past I have criticized Canadian policy makers for not doing so. They responded that they are actually quite concerned over the issue and, in fact, have sought to understand the nature of their queues better through one (or perhaps even two) Royal Commissions on queues in health care.

Since that time, they have worked on what they call “evidence-based queuing,” that is, a form of queuing that uses queuing theory and seeks to minimize the physical harm of queuing, giving serious cases faster access than is available to less serious cases.

My Canadian colleagues tell me what Canadians do not want to do is to have their supply side driven by entrepreneurial forces that can easily flood the market with excess capacity and drive up costs. They cite the huge American literature on the excess use of imaging in the US as example.

Similarly, my Canadian colleagues tell me that what Canadians do not want to do is spend 17% (soon going on 20%) of the GDP on health care, especially when there is no evidence that it begets better overall health statistics (and often worse statistics), greater patient satisfaction, and moreover leaves millions of citizens without health insurance and spotty access to care, not even to speak of financial distress.

It is not hard to sympathize with them on that view.

http://community.nytimes.com/comments/economix.blogs.nytimes.com/2011/04/29/does-the-ryan-plan-curb-health-spending/?permid=9#comment9

The last Quote of the Day discussed Princeton Economics Professor Uwe Reinhardt’s New York Times blog entry on rationing in Canada and the United States. I (Don McCanne) wrote a response to his article, and he responded to my comments. That response follows.

The New York Times
Economix

Uwe E. Reinhardt
Daily Economist
April 29th, 2011

Len Charlap’s Comment No. 27 requests that I respond to Comment No. 9 by Don McCanne, even though Dr. McCanne did not explicitly called for a response.

I agree with Dr. McCanne that the role of queues can easily be misunderstood.

Given a naturally or artificially limited supply of a thing, queues arise when money prices are not allowed to rise to levels that shrink the demand for the thing to match the available supply. Other prices – e.g., the price of time (e.g., waiting in a doctor’s office) or discomfort prices (the disutility of having to put up with a physical impairment while waiting) then do the equilibrating.

In the case of naturally limited supplies – e.g., supplies of transplantable organs – neither of these prices equilibrates demand and supply and some administrative mechanism of rationing occurs. My former Princeton student, later leader of the U.S. Senate and then my co-teacher of a course on health policy at Princeton, told us how that works. It is less than perfect.

In the case of artificially limited supplies, one way to reduce the time-and–discomfort prices is simply to expand the supply of the artificially limited supply.

It is true that in the past I have criticized Canadian policy makers for not doing so. They responded that they are actually quite concerned over the issue and, in fact, have sought to understand the nature of their queues better through one (or perhaps even two) Royal Commissions on queues in health care.

Since that time, they have worked on what they call “evidence-based queuing,” that is, a form of queuing that uses queuing theory and seeks to minimize the physical harm of queuing, giving serious cases faster access than is available to less serious cases.

My Canadian colleagues tell me what Canadians do not want to do is to have their supply side driven by entrepreneurial forces that can easily flood the market with excess capacity and drive up costs. They cite the huge American literature on the excess use of imaging in the US as example.

Similarly, my Canadian colleagues tell me that what Canadians do not want to do is spend 17% (soon going on 20%) of the GDP on health care, especially when there is no evidence that it begets better overall health statistics (and often worse statistics), greater patient satisfaction, and moreover leaves millions of citizens without health insurance and spotty access to care, not even to speak of financial distress.

It is not hard to sympathize with them on that view.

http://community.nytimes.com/comments/economix.blogs.nytimes.com/2011/04/29/does-the-ryan-plan-curb-health-spending/?permid=9#comment9

Does the Ryan Plan Curb Health Spending?

By Uwe E. Reinhardt
The New York Times
April 29, 2011

My post last week, on the budget plan offered by Representative Paul D. Ryan, Republican of Wisconsin and chairman of the House Budget Committee, ended with the observation that the plan did not propose measures to control overall health spending in the United States, “nor does that appear to have been Mr. Ryan’s objective.”

The general idea is that, using whatever financial resources are available to them, patients or their loved ones will, of necessity, engage in a benefit-cost analysis and decide whether the anticipated benefits of end-of-life care exceed its expected cost to the household in terms of what that household has to forgo to buy the extra care. This is how markets work.

Economic theory suggests that, other things being equal, rich and less rich households will come to different conclusions on this question. If less money is available over all to spend on elderly Americans, it is the lower middle class that is likely to do most of the self-rationing.

Note that the Ryan plan proposes a means test to determine the federal contribution to Medicare — the very poor elderly will receive larger federal subsidies, although the size of these subsidies remain unspecified. But the middle and lower-middle class is likely to be on its own.

For reasons that escape me, many Americans do not regard rationing scarce resources through the marketplace, by price and ability to pay, as rationing at all, reserving that term for government withholding of marginally beneficial procedures, based on formal cost-effectiveness analysis.

I do beg to differ.

I have also applied the economist’s reasoning to an analysis of styles of rationing in Canada and in the United States and would be happy to hear what readers make of that. (See link below.)

http://economix.blogs.nytimes.com/2011/04/29/does-the-ryan-plan-curb-health-spending/

Uwe Reinhardt: “Keeping Health Care Afloat – The United States Versus Canada”:
http://www.princeton.edu/~reinhard/pdfs/MILKEN%20REVIEW%20CANADA%20vs%20US.pdf

9. Don McCanne
San Juan Capistrano, CA
April 29th, 2011

Professor Reinhardt’s discussion of rationing in the United States and Canada, available at the “an analysis” link in his article above (the “Keeping Health Care Afloat” link), is an absolute must read for those who really care about how we finance health care.

In a personal communication, Dr. Reinhardt has suggested that we have not been adequately forthcoming about the problems of rationing in Canada, especially the development of queues for non-urgent services. (“We” refers to the fact that I’m senior health policy fellow for Physicians for a National Health Program, an organization supporting single payer reform not unlike Canada’s.)

It is true that we tend to discuss the virtues of single payer while not emphasizing its deficiencies, but the virtues far outweigh the deficiencies and our message would be corrupted by including a disproportionate emphasis on the problems.

That said, we certainly do concede that rationing is an issue, but also we do, in fact, address it. First, we support separate budgeting of capital improvements with an emphasis on getting capacity right to avoid both under-utilization (queues) and over-utilization (the excesses described by John Wennberg and the Dartmouth group). Admittedly, that is always a work in progress, but merely making the effort does result in improvements in capacity.

We also support the science of queue management (how the long lines at airports were reduced after they became intolerable following 9/11). Monitoring capacity and making relatively minor adjustments as needed, along with queue management, has been very effective in avoiding excess queues in many nations.

Canada has been addressing this problem with some success. In fact, if you actually read the reports from the Fraser Institute that demonstrate excessive queues, you will see that in most instances the time intervals are very close to what the specialists believe are reasonable (joint replacement being an exception).

So what actually is the overriding problem of a system like Canada’s? It lies in the ideology of the public stewards of the health care financing system. When egalitarians who believe in government are in charge, efforts are made to attend to problems such as queues and fix them. When those who oppose government programs and prefer private markets are in charge, problems such as queues are allowed to compound for the purpose of driving support for privatization of the health care system (Alberta’s former premier, Ralph Klein, being a prime example).

So, Dr. Reinhardt, I hereby publicly confess that there are potential problems with rationing in a single payer system, but not nearly as severe as the U.S. style of rationing which causes massive suffering and death simply because we ration based on ability to pay. In fact, since all systems ration, selecting rationing that improves value in our health care purchasing might be better labeled as “beneficial rationing.”

Unfortunately, a new report released by the Commonwealth Fund this week shows that, although health insurance will be more affordable because of subsidies under the Affordable Care Act, about one-fourth of middle-income Americans who actually require significant health care will still not be able to pay for it, in spite of subsidies. Rationing by ability to pay was not eliminated by the Affordable Care Act.

Dr. Reindardt, you have also suggested that single payer works better in Canada than it would in the United States simply because Canadians are more egalitarian than we are. But look at the outrage expressed over Paul Ryan’s proposal to privatize our egalitarian Medicare program. Americans can be quite egalitarian when we have something good that works well for all of us.

Comment originally published on the New York Times website

Further comment: Uwe Reinhardt’s eight page article, “Keeping Health Care Afloat – The United States Versus Canada,” should be downloaded and saved to use as an important resource when responding to expressed concerns about rationing. It is available at the link above.

The most common reason given as to why the United States should reject a Canadian-style single payer system is that it would result in intolerable rationing. Reinhardt’s highly credible article explains in factual terms how rationing works in these two countries. Using Reinhardt’s facts, it is very difficult for me to see how anyone could have an opinion other than it is the United States and not Canada that has intolerable rationing.

By Jonathan Gruber and Ian Perry
The Commonwealth Fund
April 2011

Abstract:

Using a budget-based approach to measuring affordability, this issue brief explores whether the subsidies available through the Affordable Care Act are enough to make health insurance affordable for low-income families. Drawing from the Consumer Expenditure Survey, the authors assess how much “room” people have in their budget, after paying for other necessities, to pay for health care needs. The results show that an overwhelming majority of households have room in their budgets for the necessities, health insurance premiums, and moderate levels of out-of-pocket costs established by the Affordable Care Act. Fewer than 10 percent of families above the federal poverty level do not have the resources to pay for premiums and typical out-of-pocket costs, even with the subsidies provided by the health reform law. Affordability remains a concern for some families with high out-of-pocket spending, suggesting that this is the major risk to insurance affordability.

What are necessities?

The Family Economic Self-Sufficiency Standard (FESS) considers necessary expenditures as:
• child care
• food
• housing
• taxes
• transportation
• miscellaneous (calculated as 10% of other costs).

Exhibit 3. Percent of Households That Do Not Have Room in Budget for Health Care (after paying for necessities + subsidized premium + subsidized out-of-pocket costs at the 90th percentile)

At each reported income as a percent of poverty level:
<Poverty – 17.3%
101-150 – 10.8%
151-200 – 17.5%
201-250 – 26.2%
251-300 – 24.2%
301-350 – 17.5%
351-400 – 12.5%
401-450 – 15.3%
451-500 – 12.0%
>500 – 2.5%

Affordability generally increases as incomes increase, although affordability is particularly challenging for families at 201 percent to 300 percent of poverty with high out-of-pocket expenses (90th percentile). Because the actuarial value of available plans falls from 100 percent for those below the poverty level to between 70 percent and 73 percent for those in this bracket, about one-quarter of families in this income range with very high out-of-pocket costs cannot afford health care–related costs.

http://www.commonwealthfund.org/~/media/Files/Publications/Issue%20Brief/2011/Apr/1493_Gruber_will_affordable_care_act_make_hlt_ins_affordable_reform_brief_v2.pdf

Comment: 

By Don McCanne, MD

News reports on this new Commonwealth Fund study have cheery titles such as, “Health Reform Will Make Insurance Affordable for Nearly All Families.” These titles should be extended to include, “… But Not Health Care.”

Exhibit 3 noted above reveals that up to one-fourth of those with out-of-pocket costs at the 90th percentile level will not have enough money to pay for their necessities plus subsidized premiums plus subsidized out-of-pocket costs for their care. Even 2.5 percent of individuals with high incomes (over 500 percent of the poverty level – $111,750 for a family of four) will face financial hardship should they have greater health care needs.

Also of concern is that the assumption is made that all income beyond the necessities listed would be used for health care if financial hardship were to be avoided. Presumably that would mean no money for savings, for retirement, for higher education expenses, for vacations, for entertainment, nor for thousands of other preferences you might have for your spending. Is that the standard that we want to set? That we pay out what we need merely to exist and then almost everything else goes to pay for health health care if we need it?

Other exhibits in this report show that the outlook is worse for single individuals, for those living in states with a higher cost of living, and in the future it will be worse for everyone since affordability erodes further with the passage of time.

So what accounts for the cheery headlines? It is only subsidized health insurance that is affordable for most, but even there not all. Left out of the headlines is the fact that out-of-pocket expenses are not affordable for far too many.

Because the majority of people are healthy, the report concludes, “Fewer than 10 percent of families above the federal poverty level do not have the resources to pay for premiums and typical out-of-pocket costs, even with the subsidies provided by the health reform law.” The celebration is for the 90 percent who may have some funds left after paying for necessities plus health care. But isn’t the purpose of health insurance to take care of that 10 percent who face financial hardship in the face of health care needs? Or even the 2.5 percent who are wealthy and need health care but can’t afford it?

A properly designed single payer system eliminates for everyone financial hardship due to health care costs. Premiums are not a problem because the entire health care system is funded through equitable tax policies. Out-of-pocket spending is not a problem because first dollar coverage applies to all essential health care services and products.

Let’s all work to expose the deceptive rhetoric that the Patient Protection and Affordable Health Care Act has made health care affordable for almost everyone, when in fact, when you need health care, every last dime is squeezed out of you and that still isn’t enough for up to one-fourth of us with significant health care needs. In the same breath, let’s let the public know that there is a way we can do it – a single payer national health program.