August 7, 2006 9:42AM

Medicare and Overall Health Spending

MIT’s Amy Finkelstein argues that much of the increased use of technology in American medicine (what I term “premium medicine” in Crisis of Abundance) has been induced by Medicare, which reduced out‐​of‐​pocket costs and thereby increased the demand for care.


Perhaps the easiest place to grasp her work is at an archived presentation at the AEI, particularly the powerpoint slides that may be found as a link there. Also, see links given by Tyler Cowen.


Finkelstein compares the change in insurance coverage induced by Medicare across different states – in some states the elderly were relatively well insured prior to Medicare, and in other states they were not. Using this “natural experiment” methodology, she finds that Medicare accounts for a large share of the increased spending on health care since 1965. However, she does not find any corresponding increase in health. She does, however, argue that Medicare had a very large risk‐​reduction benefit, by saving the very sick from having to suffer huge financial costs.


To me, this suggests trying to maximize the insurance benefits of health insurance (reducing financial risk) while minimizing its distortionary effects. The proposals in my book would head in that direction.


My proposals are politically radical but economically sensible, as the research of Finkelstein reinforces. You can hear more about Crisis of Abundance at this this Cato event on August 29th, which also will feature journalist Sebastian Mallaby and Democratic wonk Jason Furman.

August 4, 2006 2:24PM

How Did You Like the Cybercrime Treaty Debate?

Perhaps you weren’t aware of the Senate’s debate over the cybercrime treaty. You would be like most people. The Senate quietly approved the cybercrime treaty yesterday.


The treaty is the product of years of diligent work among governments’ law enforcement departments to increase their collaboration. It lacks a dual criminality requirement, so Americans may be investigated in the United States for things that are not crimes here. And it applies not just to “cyber” crimes but to digital evidence of any crime, so foreign governments now may begin using U.S. law enforcement to help them gather evidence in all kinds of cases.


 But you already knew that if you were following the debate. You were following the debate, weren’t you?

August 4, 2006 11:15AM

Medicare Reform: It’s All about Control

Matthew Holt of The Health Care Blog takes a thoughtful stab at my recent paper on "pay-for-performance" and Medicare. 

Pay-for-performance is one of those hip health policy buzzwords that comes with a catchy acronym: P4P. The idea is that private insurers or the government can improve health care quality through financial rewards for providers who deliver what the payer considers "quality" care. P4P stands in contrast to "pay-for-volume," which is how third-party payers have traditionally paid providers.

My thesis is that P4P has promise, but is very, very tricky. A bureaucracy that rewards providers for what it considers high-quality care can actually encourage low-quality care for the poor saps who happen not to be the average patient. 

There's nothing wrong with P4P, so long as patients who are getting short-changed have the right to opt out (i.e., switch insurers). P4P's potential is sure to be lost if the Centers for Medicare and Medicaid Services (CMS) get into the game. For example, since Medicare's P4P scheme would be emulated by Medicare Advantage plans and other private insurers, many patients would have no escape.

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August 3, 2006 5:45PM

Not as Easy as Right and Wrong

Over at The American Prospect, Matthew Yglesias takes issue with the assertion I made yesterday that if Kansas is ever going to have peace over creationism and evolution, parents must be given the right to take their public education dollars and choose their children’s schools. Instead of forcing parents to support – and constantly fight to control – one school system, why not let them choose the institutions they want?


Yglesias argues that whether it’s parents or government that decides what children will be taught, kids will have no choice in the matter. The question to him, then, is “who is likely to teach most children the right stuff?” If it’s government, then there’s no need for choice.


That sounds reasonable enough. That is, until you consider how incredibly hard it often is to know, and to get people to agree on, what constitutes “the right stuff.” Creationists, after all, are just as sure that they are right about Darwin as evolutionists think themselves to be.


Of course, in education, Darwin is just the beginning: Is phonics‐​based instruction the right or wrong way to teach reading? Should American history be taught in a “traditional” way that focuses on the nation’s great achievements, or is it right to focus on the country’s flaws? What amount of time should students spend studying fine art instead of, say, physics? Is it wrong for a student newspaper to run an article critical of the school’s principal? And so on…


Clearly, when it comes to countless disputes in education, what is truly right or truly wrong is very difficult to know. With that in mind, we must answer the question: Is it better that government impose one idea of what’s right on all children, or that parents be able to seek freely what they think is right for their own kids?


At the risk of contradicting myself, I think the latter is the obvious right answer.

August 3, 2006 12:27PM

Republicans for Big Brother

The Cato Institute has noted for some time that conservatives and Republicans have abandoned their limited-government principles when it comes to health policy.  Examples can be found here, here, here, here, and here

The New America Foundation just made our job a little easier, by producing a paper titled, "Growing Support for Shared Responsibility in Health Care."  In this context, "shared responsibility" means allowing the government to force all Americans to purchase health insurance -- a power the Left has craved but no government had dared assume until Massachusetts did so this year.

The paper helpfully compiles a list of comments that Republicans and Democrats have made in support of this new expansion of government power.  The Republicans included:

  • Massachusetts Gov. Mitt Romney (no surpise there)
  • Former Bush HHS Secretary Tommy Thompson
  • California Gov. Arnold Schwarzenegger
  • Former Bush Treasury Secretary Paul O'Neill
  • Former House Speaker Newt Gingrich

One might add to that list the Heritage Foundation (whose health policy scholars wrote the Massachusetts mandate) and Ronald Bailey of Reason magazine. 

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