The Wrong Health‐​Care Fixes

For example, in his inaugural address, Obama pointed out that our health‐​care system is “too costly,” and called for reform that will “raise health care’s quality and lower its cost.” But, how does Obama expand coverage, increase covered treatments and control costs, all at the same time?

Sure, there are efficiency savings to be had here and there. But even Obama’s new budget director, Peter Orszag, just told Congress that savings from things like greater emphasis on preventive care are unlikely to be realized for years, if at all. In reality, any health‐​care reform will have to confront the fact that the biggest single reason costs keep rising is that the American people keep buying more and more health care.

At its most basic, no one wants to die. If a treatment can save our lives, or increase quality of life, we want it. This problem becomes even more acute when someone else is paying. Right now, consumers pay only about 15 cents out of every dollar spent on health care in this country. The rest is paid by government (50 percent) or insurers (35 percent).

One study by MIT’s Amy Finkelstein suggests that the prevalence of insurance itself has roughly doubled the cost of health care. So, if Obama succeeds in expanding insurance coverage, it’s very likely to increase the cost of care.

Ultimately, controlling costs requires someone to say “no,” whether the government (as in single‐​payer systems with global budgets), insurers (managed care) or health‐​care consumers themselves (by desire or ability to pay). No matter, someone’s bound to be unhappy.

Or, how will Obama follow through on his pledge to prevent insurance companies from discriminating against people with pre‐​existing conditions? The two most commonly suggested reforms here — laws to mandate “guaranteed issue” (requiring insurers to accept all comers, regardless of their health) and “community rating” (forbidding insurers from basing premiums on risk factors, such as health or age) — would undoubtedly make it easier for some people to get coverage. But each would also raise insurance costs for the young and healthy, making it more likely that they’d go without coverage.

New York, for example, imposed community rating in 1993 — and the next year roughly 500,000 people canceled their insurance, according to a study by the actuarial firm of Milliman & Robertson. So Obama’s attempts to cover more people could end up increasing the ranks of the uninsured.

This will leave him with two unpalatable choices. He can revert to the individual mandate that he opposes — in effect denying the young and healthy the choice of opting out of the higher premiums. Or he can try to cut the cost to those young and healthy individuals by increasing subsidies — adding to the already substantial cost of his plan.

Finally, consider the question of quality. Many reformers, including Obama, talk of having an independent government panel study the comparative effectiveness of various treatments and establish standards of practice for providers. Yet history suggests that there is no way to insulate such a body from politics: Oregon tried to devise a scientific list of effective treatments for its Medicaid program in the 1980s — but the proposal collapsed within weeks under an assault by politicians and special‐​interest lobbyists.

Nor is “quality” always clear — each of us has a different idea of what quality means. For example, a surgeon will tell you that the only way to ensure a cure for prostate cancer is a radical prostectomy — cut it out. But that procedure’s side‐​effects can severely impact quality of life — so some people prefer a procedure with a lower survival rate, but fewer side effects. Do Americans really want a committee of bureaucrats deciding which choice represents “quality?”

Obama will certainly find the politics of health‐​care reform to be tough. But getting the policy right may be an even harder job.