Monday, March 22, 2010

The Health Care Vote, One giant Step for Medical Central Planning

The partisan vote on the Obama-Pelosi healthcare bill was, to borrow an out of space analogy, one small step for health care, one giant step for universal health care coverage.

Two of Connecticut’s U.S. House Reps. secure in their sinecures -- John Larson of the impregnable 1st District and Rosa DeLauro of the 3rd District, both Democratic bastions -- sensed as much as the vote drew to a close.

DeLauro was especially ebullient, jumping up and down, flashing that world conquering smile of her’s, her noggin spinning with the heady perfume of victory. Larson, about to burst into song – Happy Days Are Hear Again – contended himself with “We are happy warriors!”

President Barrack Obama and his Chicago gang – one of whom is shown above in a suggestive pose – watched the vote countdown from the Roosevelt Room in the White House. When the vote total hit 216, there were, according to propaganda chief Robert Gibbs, "cheers and clapping ... high five for Rahm, hugs all around."

The measure passed by means of a legislative gerrymander in which the senate bill was routed through the House, accompanied by amendments to “fix” the senate bill and then signed into law by the president. Notable holdouts such as Bart Stupack and his handful of abortion conscious congressmen were bought off by assurances from the White House that abortion funding would not find its way into the final product. He would be advised not to bet the House on it.

Republicans gnashed their teeth, certain that the political jihad would lead, eventually, to a Republican resurgence at the polls. They may be right. The content of the bill, as well as the Democrat's inattention to proper protocol and constitutional niceties very well may permanently alienate an aggressive opposition.

In Connecticut, Republicans were not mute. Sam Caliguri, who along with Justin Bernier is vying for Chris Murphy's seat in the 5th U.S. House District, immediately challenged Murphy to a mano a mano debate on the virtues of the Pelosi-Obama health care bill. Connecticut’s congressional delegation, solidly Democratic, voted in lockstep in favor of the bill.

The most serious objection to health care central planning will not fit on a bumper sticker.

In a free market, individuals who make their own spending choices reveal the aggregate value they place on goods and services. Markets draw on this critical mass composed of individuals spending their own money to allocate resources productively and efficiently.

In government controlled markets, agents of the state decide which goods and services are to be purchased and at what price. In such an allocation system, aggregate individual price signals are missing, and because of this, central planners cannot know what consumers value most. It does not matter in the least what the product or service is, whether it be widgets or health care.

Health care planners will insist they can use cost benefit or comparative effective analysis to determine what patients should receive which treatments. In any economic transaction, someone must determine which product or service is worth paying for. When central planners pick up the tab, market allocations are distorted. Seeking to provide all benefits to all patients – or, in the health care utopia envisioned by legislators who enthusiastically voted for a trimmed back version of Obamacare, moving resources from each according to his means to each according to his needs – central planners usually end up bankrupting the public treasury.

The Obama administration plans to address these allocation difficulties though a clumsy Patient-Centered Outcomes Research Institute and a Medicare Committee founded on the astoundingly absurd premise that every patient is average. In the central planning model, analysis takes the place aggregate individual price signals, and the distribution is made not by buyers and sellers in the market but by proficiency experts – very proficient in capturing monetary resources and far less efficient in allocating goods and services.

The central premise of the central planner is deficient. In health care, clinical research supporting allocation decisions is conducted on patients who are as much alike as possible; but in the real world, outside research institutes and Medicaid committees, patients respond differently to different treatments.

In the short run, patients serviced by number crunching bureaucrats will not receive appropriate treatments. In the long run, expenditures determined by bureaucrats will fatally distort medical innovation, because research and development activities will no loner be responsive to individual price signals generated by a free market but only to “needs” deemed appropriate for the median voter by highly politicized superintending governmental agencies.

These objections will not make DeLauro less effervescent or Larson, before entering public service the co-owner of an insurance agency in a state that used to be called the insurance capital of the world, less of a bantam rooster spouting campaign talking points.

11 comments:

Craig T said...

For private goods, the market mechanism described in this post is the best way to allocate resources. The individual buying decisions of many consumers properly set prices for toothbrushes and determine how resources should be allocated.

Health care is, I think, a public good (or at least close to a public good). People can easily consume health care anytime simply by going to a hospital - it is morally hard to exclude people from health care. Likewise, the consumption of health care does not adequately express the cost of what is being consumed. Treating sick people early actually reduces costs in the long run, so consumption of health care can lead to lower costs. That is not a pure private good.

Public goods often have lots of waste (like in road-building and national defense). Still, this is the cost of providing this public good - we can only try to reduce it. Anyway, I see plenty of waste in private goods...

Fuzzy Dunlop said...

Don,
You bemoan a system in which patients are serviced by number crunching bureaucrats, and, consequently, will not receive appropriate treatments. This sounds strikingly close to what we have now. What is the difference, really, between a government bureaucrat and one working for Aetna or Anthem? At least the government bureaucrat is, theoretically, somehow accountable to the public. It is striking to me that people are so fearful of government bureaucrats making decisions that affect them, but are so complacent with corporate bureaucrats possessing a similar level of control. You say that the central premise of a central planner is deficient. I say that we are already governed by a thousand corporate central planners, accountable only to their bottom line.

You also said "In a free market, individuals who make their own spending choices reveal the aggregate value they place on goods and services. Markets draw on this critical mass composed of individuals spending their own money to allocate resources productively and efficiently." The problem is, that we don't have a system that bears any resemblance to this right now. There is a barely existent individual market, and it only works for people in near perfect health. Individuals are not galloping about making their own spending choices, because their choices are made for them by their employers who provide them with benefits.

Finally, I'm curious whether you prefer a system in which individuals with preexisting conditions can be denied coverage. If you do, then the point I am about to make has little bearing. But I have yet to hear a Republican say that they are in favor of allowing insurance companies to continue denying coverage to individuals based on preexisting conditions. So my question is this: Mathematically, how do you make this work without an individual mandate? As I explained in an earlier post, you cannot prohibit this sort of discrimination without a complementary requirement to obtain coverage, because without a mandate, there is no longer any moral hazard. I'm disturbed, as I have yet to hear a Republican offer an answer to this, which leads me to logically conclude that what most are not saying, is that they DO prefer to go back to a system in which insurance bureaucrats can be denied coverage for a preexisting condition.

Don Pesci said...

Fuzzy,

Well, but there is a very good reason why a private market would be more attuned to the aggregate value placed on goods and services than a public distribution system such as Medicaid, soon to be bankrupt. When individuals rather than bureaucrats are in charge of distributing dollars, costs are more properly and efficiently directed to needs. People belaboring the insurance companies for overcharging oddly do not figure in this datum: Fifty percent of health care is government delivered. The question is – how much of it do were want to surrender to federal bureaucrats who are now making decisions that adversely affect both insurance and medical care?

Most Republicans have come round to the view that a) care should not be denied for pre-existing conditions, and b) everyone should be covered.

The Ryan plan does both and makes both Medicaid and Social Security solvent in about sixty years.

My main fear is just that – insolvency throughout the whole medical distribution system. I do not think that any of the Democratic plans address this issue.

My own preferences are unimportant. I feel like Augustine of Hippo in the 4th century when news was brought to him of the fall of Rome.

He wept. For a long while now, events have been in the saddle, and they ride men.

Glad to know you are still stirring in the world. And none of what you write is blathering.

Don Pesci said...

Craig T makes some very good points above also. But the central dilemma is this: In a government run system, where decisions regarding the distribution of goods and services are not tied to individuals who make choices by freely purchasing goods and services, how do you know whether what you are financing is too expensive or unnecessary? The signals from the market place are missing. The absence of these signals also affects research and development, which in a private market is directed by aggregate dollar choices made by individuals. Here in Connecticut, and elsewhere in the nation, government officials are very much interested in directing public dollars to green industries. Suppose the market does not enthusiastically embrace the idea of green technology; suppose some other state gets the jump on Connecticut and produces a superior product. What happens to the dollars? It’s a problem.

Paul BDz said...

Fuzzy Dunlop said: "At least the government bureaucrat is, theoretically, somehow accountable to the public". Name one example at any level of government where a buraucrat is held accountable. They can't be voted out of office. If they get caught committing a criminal act, they can be prosecuted. Otherwise the merrily spend their career carrying out rules and regs and retire with a nice fat pension that hasn't been funded.

The dilemma is: how do you get healthy people to buy insurance so that their premiums keep overall premiums down, without a mandate, which many people find distasteful (on TV news last night a reporter interviewed a bunch of people who don't currently buy health insurance, and they all said they would rather pay the fine - it's cheaper)yet still have reasonable coverage for all, including those with preexisting conditions? Otherwise you end up with a situation similar to waiting until your house is on fire to buy fire insurance.

Fuzzy Dunlop said...

I think that what we will discover going forward, is that there was much more agreement about healthcare than people were able to discern with the background din of death panels and Beckanisms. We will also see that there are still moderate Republicans out there who are going to look at this rationally and recognize that it is better than what we had. Hopefully, they will work diligently to improve it going forward.

As an example, I was surprised the last night to find out that my father, who is a Republican and small business owner (about 10 employees), and whom has never been accused of being an Obama supporter, actually said he was happy health reform passed. The reason is that a few years ago, he was forced to make the decision not provide benefits to his employees any longer. This was a calculated decision at the time, as he knew that all of his employees had spouses who could provide coverage. However, a few years later, he is faced a situation where, through marriages and divorces, and the addition of new employees, some employees no longer have benefits. He himself is in a situation where, should his wife lose her job, he would also lose coverage (and due to his age, would almost certainly be unable to obtain individual coverage for the few years before he is eligible for Medicare). The bottom line is that he is relieved on two levels now; one, because he himself does not need to worry about losing coverage, and two, because his uncovered employees will likely be able to obtain coverage on their own now.

I would also add, that for the reasons exemplified by this personal anecdote, this bill really helps small businesses with under 50 employees, because they no longer need to focus so myopically on providing healthcare to employees. Another benefit, is that people will no longer be forced to work for big business just to get benefits. I do not mean to say that people will become welfare queens; rather, more people will be able to strike out on their own, should they want, and start a new business. As a lawyer, one benefit I see is for small firms. It will now be easier for entrepeneurial lawyers to leave big law and strike out on their own, as they won't face the nearly impossible burden of finding affordable health benefits on their own. This may have the unintended consequence of actually reducing the cost of legal services for many people.

This all brings me back to my original point. If you say "Obamacare" or "Healthcare reform" to an average person, there's a fair chance they will have a negative response. But when you mention the individual elements of reform, there is generally broad support.

This will work to Democrats advantage if they can spin it right. Moving forward, they will undoubtedly run on the positive, almost universally agreed upon elements of the bill. I would advise, however, that in the meantime, they would also do well to pursue one specific issue that they can find bipartisan support for. The most obvious issue that comes to mind is tort reform. A platform that includes a partisan health care bill with individually agreed upon elements along with a bipartisan reform bill that reduces malpractice costs, would be very powerful.

Btw, I called my insurance agent this morning and finally told him what I really think of his wife and to go f&8k himself. Too soon?

Fuzzy Dunlop said...

Paul BDZs....
You asked for examples of bureacrats who have been removed... I think that Michael "FEMA Director During Katrina" Brown most immediately comes to mind.

And I think you identify the dilemma fairly well, and your waiting to buy homeowners insurance until your house burns down example aptly describes the problem of moral hazard.

But at the risk of sounding insulting, I think the problem is that many Americans don't think critically enough to understand the need for a mandate. You said that most react with distaste when asked what they think of an individual mandate. But they react equally with equal or greater disgust when asked what they think of preexisting condition denials. They don't realize though, how complicated (or, some might say, elegantly simple) the issue is, because, as you say, you cannot have one without the other. It's plain old fashioned arithmetic.

The odd thing about the mandate, and the responses it gets, is that it doesn't change anything for the vast majority of Americans who already have health insurance. They will not fall under the mandate, because they would have insurance anyways. This is another disturbing but basic disconnect that happens between reality and perception when people discuss issues surrounding health care reform.

Don Pesci said...
This comment has been removed by the author.
Don Pesci said...

Fuzzy,

Gee, a lawyer who favors tort reform. There's a miracle. I remember a time, not long ago, when Chris Dodd was leading the fight for tort reform; this was before he got caught up in the Obama moment. Most of the lawyers, I recall, were cool to the idea.

How do you feel about re-routing taxes collected for social security and Medicaid and Medicare to individuals so that they may use the funds to purchase insurance plans across state lines and in foreign dominions, not excluding socialized insurance plans in, say, Canada or England? That would answer the problems I raised in the blog. It would reconnect dollars and aggregate decision making. Every dollar spent would then be “vote” for private or public plans.

I’m not sure how to advise you on the insurance call. It’s imprudent, if nothing changes. And if Obamatopia becomes a reality, there will be no one home to answer the phone.

Best wishes to you and you Dad. Sounds like the kind of guy I’d like to have a beer with.

Fuzzy Dunlop said...

Unfortunately, not all of us lawyers are reaping millions from filing massive class action lawsuits.

I have long felt that medical malpractice should be subject to a regulatory scheme similar to our system for workers' compensation, whereby patient-plaintiffs have a lower burden of proof to establish malpractice and are compensated more quickly, and, in return, damages and awards are capped according to a statutory formula lessening the risk of massive payouts and premium increases for doctors.

Paul BDz said...

Fuzzy, I think almost all reasonable people agree that there are areas of health insurance that need reform - coverage for pre-existing conditions, no denial or recission of coverage. But two things: insurance is the symptom, not the cause of the problem. Second - my objection to the "Obama" plan has to do with how it's going to be paid for, or more accurately how it's NOT going to be paid for.

For example, using ten years of tax revenue to cover six years of expenses to make it budget neutral is an accounting fraud. If private entrprise used the same accounting rules as our Congress, they'd be in jail for fraud.

And then to top it off, the projections are contingent on future Congress' acting responsibly. I heard one Democrat say on the radio that future representatives will act responsibly about health care. PULEEZE! They can't see past the next election.

The next step is going to be cost control. The CEO of CIGNA was interviewed on the radio. He said MA is a bellweather in that after 3 years, the program is broke and they have to control cost. He expects the new Federal program to be on a similar timetable. So I guess, watch this space.

BTW, I agree with your comments on med mal.