Tuesday, September 05, 2006

Krugman on Government Paid Health Care; Echidne on Everything Else

A good article, behind the dratted paywall. But I can give you the gist of it fairly easily. Krugman points out that we have one stellar example of good medical care funded and delivered by the government, and that is the Veterans' Administration (VA) program, and then we have an example of a new program that isn't doing very well at all, and that is the Medicare Advantage program. Guess which one the conservatives are pushing and which one they're trying to kill away?

I'm sure you guessed correctly:

I've written about the V.A. before; it was the subject of a recent informative article in Time. Some still think of the V.A. as a decrepit institution, which it was in the Reagan and Bush I years. But thanks to reforms begun under Bill Clinton, it's now providing remarkably high-quality health care at remarkably low cost.

The key to the V.A.'s success is its long-term relationship with its clients: veterans, once in the V.A. system, normally stay in it for life.

This means that the V.A. can easily keep track of a patient's medical history, allowing it to make much better use of information technology than other health care providers. Unlike all but a few doctors in the private sector, V.A. doctors have instant access to patients' medical records via a systemwide network, which reduces both costs and medical errors.

The long-term relationship with patients also lets the V.A. save money by investing heavily in preventive medicine, an area in which the private sector — which makes money by treating the sick, not by keeping people healthy — has shown little interest.

The result is a system that achieves higher customer satisfaction than the private sector, higher quality of care by a number of measures and lower mortality rates — at much lower cost per patient. Not surprisingly, hundreds of thousands of veterans have switched from private physicians to the V.A. The commander of the American Legion has proposed letting elderly vets spend their Medicare benefits at V.A. facilities, which would lead to better medical care and large government savings.

Instead, the Bush administration has restricted access to the V.A. system, limiting it to poor vets or those with service-related injuries. And as for allowing elderly vets to get better, cheaper health care: "Conservatives," writes Time, "fear such an arrangement would be a Trojan horse, setting up an even larger national health-care program and taking more business from the private sector."

Government involvement in health care takes different stages. The minimum one, present everywhere in the world, is the government as a provider of rules and regulations about health care provision. The intermediate stage has the government pay for some services but the delivery of health care is by private firms. This is the way Medicare and Medicaid in this country operate. The next stage includes at least some actual provision of services by government-operated institutions. The VA is an example of that in the United States and the National Health System (NHS) in the United Kingdom. The NHS is of course a much larger provider system, covering almost all Britons.

Conservatives are very much opposed to government ownership of delivery systems and somewhat less opposed to government funding of private delivery. At least their mates get a cut in the latter... But from an economic point of view, the question of the most efficient way of delivering government-funded health care is a little bit more complicated. As Krugman points out, there are clear health benefits from continuity of care, and the VA system can guarantee that today. Still, continuity of care is available through the market, too.

But here is the basic question to be answered: Does competition between private firms for government funding provide care more efficiently than a government-owned and -operated delivery system? The extreme right and the extreme left answers to this question would be Pavlovian, I suspect, and would ignore the fact that the question must be answered by looking at actual evidence.

Most of this evidence suggests that competition in medical care may not guarantee low prices. This is because consumers have trouble judging prices. How do you judge prices of different care options when you can't really understand the quality implications? How do you judge prices when you are scared, unconscious or extremely unwell? How do you compare physicians in the skills and expertise they provide? How do you even know what treatments you need, except when the person who is going to sell you the treatment has told you about your needs? See how very tricky this all is?

Economists call the relationship between a provider and a patient one of agency: the provider is the patient's agent. But the provider is also the seller of the final treatments and stands to benefit from those sales directly. Because of the obvious scope for conflicts, medical care has traditionally tried to isolate the patient-provider relationship from direct monetary considerations. This solution, however, tends to make both parties in the relationship insensitive to the cost issue. It also means that most direct competition in the past has been in the seeming quality of care*, rather than in its price, because higher quality benefits both the patient and the provider.

If we insist on competition in lower prices, what might happen? Maybe the prices can be lowered by competitive bidding and better practices. But it might be as easy to alter the package of services that is being offered, even if such alterations are not good for the patient. How can the patient really tell that the quality is now less than before? Or it migh be possible to "cherry-pick" or "cream-skim" the market by picking the cheapest cases as customers of a particular firm.

In the context of Medicare, the government-funded health care system for the elderly, the cherry-picking would mean trying to offer care packages to the elderly which look more attractive to the healthier ones. This is pretty much what Health Maintenance Organizations (HMOs) did in the past when first becoming participants in Medicare. Once there were no more cherries to be picked, the HMOs lost any further interest in participation. But note that market competition of this type would leave the most expensive cases outside the private provision system, which would now seem more effective and cheaper, even if it wasn't.

On the other side of the market vs. government debate is the question of the costs of bureaucracy. A government-operated health care firm doesn't have to care about competition, and layers of additional bureaucracy can add benefits to the workers who manage the system. No profit requirement exists for such firms, and this can lead to inefficiency. Why try for low costs and high quality if there is no punishment for failing to reach either? The answers would depend on the motives of the bureaucrats and on the way they are being reimbursed.

Clearly, the whole question I'm jabbering about here is an empirical one. We can go out and find data and we can study the data. It's not a religious question, and the correct answer is not to assume that praying to the gods of free markets is always the right thing to do.
*By the "seeming quality of care" I mean additional resources. Consumers regard high-technology medicine and the availability of more advanced diagnostic services as higher quality of care, although they really are measures of inputs and not of outcomes.