In yesterday’s Wall Street Journal, Martin Feldstein, Ronald Reagan’s top economist and a Harvard professor, claims the current health care proposals are all about rationing.  I have to disagree. Excerpts from his article are below, along with my critique.

“Although administration officials are eager to deny it, rationing health care is central to President Barack Obama’s health plan. The Obama strategy is to reduce health costs by rationing the services that we and future generations of patients will receive.

“The White House Council of Economic Advisers issued a report in June explaining the Obama Administration’s goal of reducing projected health spending by 30% over the next two decades. That reduction would be achieved by eliminating ‘high cost, low-value treatments’ by ‘implementing a set of performance measures that all providers would adopt’ and by ‘directly targeting individual providers . . . (and other) high-end outliers.'”

First and foremost, it is important to recognize that the current system already relies on rationing. It uses rationing by price. If you can’t afford the treatment, or are one of the over 47 million uninsured, tough.

However, insurance companies like Aetna (AET) and United Health (UNH) will also routinely decide that a treatment is not covered because it is too costly. For many conditions, there are several potential treatment alternatives.

The major health care reform proposals (there are currently 4 on the table, and one more is still being worked on) plan on looking at which methods work best, and eliminating costly treatment options that don’t work very well (but which might be highly lucrative to the doctor and/or hospital) in favor of lower cost, more effective options. If that be rationing, sign me up.  Sounds like simple “best practices” to me.

“The president has emphasized the importance of limiting services to ‘health care that works.’ To identify such care, he provided more than $1 billion in the fiscal stimulus package to jump-start Comparative Effectiveness Research (CER) and to finance a federal CER advisory council to implement that idea.

“That could morph over time into a cost-control mechanism of the sort proposed by former Sen. Tom Daschle, Mr. Obama’s original choice for White House health czar. Comparative effectiveness could become the vehicle for deciding whether each method of treatment provides enough of an improvement in health care to justify its cost.”

Could, could, could — but Marty, you provide absolutely no evidence as to the probability of that occurring. If the CER finds, for example, that radiation therapy is more effective than surgery for the treatment of a certain type of cancer, and that radiation therapy is also 30% less expensive, it seems downright stupid to keep having doctors do a lot of that type of surgery. The surgeons might make less money, but that is not anything like the specter that has been floated of the government denying care to old folks.

“In the British national health service, a government agency approves only those expensive treatments that add at least one Quality Adjusted Life Year (QALY) per £30,000 (about $49,685) of additional health-care spending. If a treatment costs more per QALY, the health service will not pay for it.

“The existence of such a program in the United States would not only deny lifesaving care, but would also cast a pall over medical researchers who would fear that government experts might reject their discoveries as ‘too expensive.'”

There is nothing in any of the proposals that would prevent people from paying extra to get these marginal treatments, either by paying out of pocket or through supplemental insurance. It would not deny lifesaving care, it would simply decline to pay for every procedure, regardless of how expensive or how ineffective.

It might also focus researchers to look for treatments that bring down costs and are more effective. Those procedures would get a much bigger market share and would be very lucrative.

“One reason the Obama Administration is prepared to use rationing to limit health care is to rein in the government’s exploding health-care budget. Government now pays for nearly half of all health care in the U.S. , primarily through the Medicare and Medicaid programs.

“The White House predicts that the aging of the population and the current trend in health-care spending per beneficiary would cause government outlays for Medicare and Medicaid to rise to 15% of GDP by 2040 from 6% now. Paying those bills without raising taxes would require cutting other existing social spending programs and shelving the administration’s plans for new government transfers and spending programs.”

Note that government spending is about 20% of GDP now, so it is not just existing social spending programs that would have to be cut, but just about everything. That includes the military. Going on the current trajectory on health care spending has the potential to seriously harm national security.

“The rising cost of medical treatments would not be such a large burden on future budgets if the government reduced its share in the financing of health services. Raising the existing Medicare and Medicaid deductibles and coinsurance would slow the growth of these programs without resorting to rationing. Physicians and their patients would continue to decide which tests and other services they believe are worth the cost.

“There is, of course, no reason why limiting outlays on Medicare and Medicaid requires cutting health services for the rest of the population. The idea that they must be cut in parallel is just an example of misplaced medical egalitarianism.”

“Misplaced medical egalitarianism” — we are talking life and death here! Every year, 18,000 Americans die prematurely because they lack access to proper medical care. That is more than 6x as many who died when the Twin Towers came down.

Raising the deductibles and coinsurance for Medicaid? Just who does the good Harvard professor think is on Medicaid? Here is a news flash for ya, Marty — it’s poor people. This would result in rationing of the very worst sort, not you get treatment A instead of treatment B because A is more cost effective, but you get no treatment at all and just suffer or die.

If Grandma can’t afford the higher deductable and copayment then what happens? Does the plug get pulled? Does he seriously think that runaway medical cost inflation outside of Medicare and Medicaid is not a problem for the economy, even though costs in those two programs have already been rising slower than overall medical costs?

“But budget considerations aside, health-economics experts agree that private health spending is too high because our tax rules lead to the wrong kind of insurance. Under existing law, employer payments for health insurance are deductible by the employer but are not included in the taxable income of the employee.

“While an extra $100 paid to someone who earns $45,000 a year will provide only about $60 of after-tax spendable cash, the employer could instead use that $100 to pay $100 of health-insurance premiums for that same individual. It is therefore not surprising that employers and employees have opted for very generous health insurance with very low copayment rates.

“Since a typical 20% copayment rate means that an extra dollar of health services costs the patient only 20 cents at the time of care, patients and their doctors opt for excessive tests and other inappropriately expensive forms of care. The evidence on health-care demand implies that the current tax rules raise private health-care spending by as much as 35%.

“The best solution to this problem of private overconsumption of health services would be to eliminate the tax rule that is causing the excessive insurance and the resulting rise in health spending. Alternatively, Congress could strengthen the incentives in the existing law for health savings accounts with high insurance copayments. Either way, the result would be more cost-conscious behavior that would lower health-care spending.”

The result would be to push people out of group employer-sponsored plans and into the individual health insurance market. That market is FAR more abusive than the employer group market. That is where people get rejected for pre-existing conditions. That is where people get their health care coverage cancelled on the flimsiest of excuses as soon as they file a serious claim and actually need the insurance.

While I agree that the self-employed and those who are working for small businesses that don’t offer health benefits deserve a break, absent something reasonable to replace it, it would be reckless to dismantle the employer sponsored system. Now if you want to argue for scrapping the system and replacing it with a single-payer Medicare for All system, that would make a lot of sense.

Our current system is not something that anyone designed, but an outgrowth of wage controls during WWII, and is not what anyone starting from scratch would design. It is the system we have in place, and without a replacement it would be dangerous to get rid of it.

“But unlike reductions in care achieved by government rationing, individuals with different preferences about health and about risk could buy the care that best suits their preferences. While we all want better health, the different choices that people make about such things as smoking, weight and exercise show that there are substantial differences in the priority that different people attach to health.

“Although there has been some talk in Congress about limiting the current health-insurance exclusion, the Administration has not supported the idea. The unions are particularly vehement in their opposition to any reduction in the tax subsidy for health insurance, since they regard their ability to negotiate comprehensive health insurance for their members as a major part of their raison d’être.”

Funny, the AFL-CIO has long argued for a single-payer system, one that would completely eliminate that major part of their raison d’etre. It is not just about your preferences for spending more or less on health care. Demand is the combination of desire for something plus the ability to pay for it. If you are poor, your desire to live and not to suffer counts for nothing in the world that Dr. Feldstein inhabits.

“If changing the tax rule that leads to excessive health insurance is not going to happen, the relevant political choice is between government rationing and continued high levels of health-care spending. Rationing is bad policy. It forces individuals with different preferences to accept the same care.

“It also imposes an arbitrary cap on the future growth of spending instead of letting it evolve in response to changes in technology, tastes and income. In my judgment, rationing would be much worse than excessive care.

“Those who worry about too much health care cite the Congressional Budget Office’s prediction that health-care spending could rise to 30% of GDP in 2035 from 16% now. But during that 25-year period, GDP will rise to about $24 trillion from $14 trillion, implying that the GDP not spent on health will rise to $17 billion in 2035 from $12 billion now. So even if nothing else comes along to slow the growth of health spending during the next 25 years, there would still be a nearly 50% rise in income to spend on other things.

“Like virtually every economist I know, I believe the right approach to limiting health spending is by reforming the tax rules. But if that is not going to happen, let’s not destroy the high quality of the best of American health care by government rationing and misplaced egalitarianism.”

For starters there is a typo in the article, it is to $17 trillion, not billion. Leaving that aside, using his numbers, if we could just keep spending at 16% of GDP (keep in mind the next highest level of spending in the OECD is Switzerland at 11% of GDP, and everyone knows what a hellhole Swiss hospitals are), we are talking about a difference of $3.36 Trillion a year by 2035. That is a lot of money in my book.

Dr. Feldstein must have an awfully small circle of economists he knows (doubtful) to make that statement. There are few questions in economics that are universally agreed upon, and that is certainly not one of them. Taxing “platinum plans” might be a useful way to raise some of the revenues needed to help cover the uninsured, but to think just changing the tax code would solve the problem by itself is just plain silly.
The high quality of the best of American health care means little if it is only available to a tiny fraction of the population. If a few people ride around in Mercedes and Bentleys and most people have to walk does that mean you have a great transportation system? The claim that America has the best health care system in the world is not one that Dr. Feldstein should be making.

On every major public health indicator tracked by the World Health organization the U.S. is way down the list, and overall we rank neck and neck with Cuba, and far below places like France, Canada or the U.K. Sometimes when you pay the most, you get the best, other times it just means you are getting ripped off. The latter is clearly the case with the U.S. health care system.
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