Rhetoric vs. Reality in the Health Care Debate

Is it "rationing" when consumers decide how to spend their own money?

Ronald Bailey | June 23, 2009

Last week, the Democratic leadership in the House of Representatives unveiled their discussion draft of a sweeping bill to reform America's health care system. The bill would create health insurance exchanges and a government insurance scheme, require insurers to sell insurance no matter a purchaser's health status, set minimum benefit standards, subsidize insurance purchases to families up to 400 percent of the federal poverty level ($43,000 for an individual or $88,000 for a family of four), mandate that all Americans carry health insurance, and impose price controls on what doctors and hospitals may charge. The Democratic leadership hasn't the faintest idea what its reform proposals will cost.

The draft bill also would establish a public-private Health Benefits Advisory Committee to recommend covered benefits and an essential benefits package. This is the only section of the bill that mentions the word "rationing." It declares that "the Committee shall take into account innovation in health care and ensure that essential benefits coverage does not lead to rationing of health care." Of course, it would be helpful to know what the bill means by "rationing."

Earlier in the week, New York Times economic columnist David Leonhardt set out to explain what rationing is. First, let's acknowledge that Leonhardt does identify many dysfunctional aspects of our current health care system, including how we reimburse primary care physicians and specialists.

But in the article, Leonhardt claims that "health care rationing rhetoric overlooks reality." Leonhardt asserts that health care is already being "rationed." Since this is so, those who warn against proposed government health care rationing, according to Leonhardt, are either confused or liars. Such people, Leonhardt explains, are deploying "a clever set of buzzwords that tries to hide the fact that societies must make choices." The phrase "societies must make choices" is the first hint of how confused Leonhardt is about the concept of rationing. Rationing is all about who gets to make those choices.

Leonhardt goes on to cite what he thinks are three supposedly telling examples of rationing. "We ration spots in good public high schools. We ration lakefront homes. We ration the best cuts of steak and wild-caught salmon," he writes. Which one of those examples doesn't fit? Figuring this out is another key to Leonhardt's misunderstanding of the debate over health care rationing.

Next up he cites the dictum of one of capitalism's great defenders, economist Milton Friedman: "There is no such thing as a free lunch." True. But Leonhardt follows up this insight by writing: "The choice isn't between rationing and not rationing. It's between rationing well and rationing badly." Does Leonhardt think that lakefront homes are rationed badly? Steaks? Or for that matter clothing, restaurant meals, shoes, cars, computers, or airline tickets?

Moving beyond lakefront homes and steaks, Leonhardt eventually gives readers three examples of current health care "rationing." The first example is that employers are forced to decide between paying higher wages or providing higher health care benefits to their employees. He notes that the tradeoff between wages and benefits is often "invisible" to employees and thus it appears to them that their compensation is not increasing much.

Of course, the way to avoid this kind of "rationing" would be to just pay the employees all their money and let them buy their own health insurance. Thus health insurance would become "rationed" just the same way that we ration cars and cellular telephones. Allowing consumer choices in health insurance and health care will also help drive down prices and increase the range of health insurance products in just the same way consumer choice operates in other areas of our economy.

The current provision of medical care to the uninsured is Leonhardt's second example of rationing. This example is closer to the mark since health care for the uninsured is already mandated and/or paid for (Medicaid and SCHIP) by federal and state governments. He notes the poor quality of care that such people receive without musing for a moment that such poor government-funded care might be a harbinger for what "universal" health care would become.

Leonhardt's third alleged example of current health care rationing is the "failure to provide certain types of care, even to people with health insurance." The fact that certain health insurance policies chosen by individuals and/or their employers don't cover certain treatments is no more "rationing" than it is when people choose not to eat a USDA prime steak or pay tuition for a private college education.

On the other hand, Leonhardt is right to say that our dysfunctional health care system misses opportunities to offer good treatments to people in need. The current system misses those opportunities, in part, because there is so little competition and thus very little incentive for health care providers to supply information to consumers. Consumers can competently choose between complicated computer technologies and evaluate automobile performance because competitors are motivated to supply consumers with relevant information. The same kind of competitive dynamic could work with the provision of health care and health insurance.

So if Leonhardt gets it so wrong, what is rationing? Leonhardt is correct when he writes, "In truth, rationing is an inescapable part of economic life. It is the process of allocating scarce resources." The crucial question that Leonhardt misses is that "rationing" depends on who is allocating the scarce resources. It's not rationing if an individual decides to spend his money on a 16-ounce steak—but it is rationing if he can only purchase a USDA prime rib eye when he has a coupon issued from a government agency. In other words, true rationing occurs when individuals are forbidden from spending their money on products or services they want to buy.

Imperfect as private health insurance markets are, if a customer doesn't like the decisions made by Blue Cross Blue Shield, Kaiser Permanente, or Golden Rule insurance bureaucrats, he can look elsewhere for his health insurance coverage. But if the government health care scheme becomes a monopoly, when the bureaucrats at the new Health Benefits Advisory Committee decide that a treatment should be withheld, that treatment will be withheld. That's rationing.

"Americans should get the first chance to limit their own health spending," Rep. Jim Cooper (D-Tenn.) observed recently. "Once they learn the true cost of what they are buying, share a larger portion of the cost, and can judge the benefits—if any—of treatment options, then they will choose more wisely than the government." He's right. Congress should think about "rationing" health insurance and health care the old-fashioned way—through the market.

Ronald Bailey is Reason magazine's science correspondent. His book Liberation Biology: The Scientific and Moral Case for the Biotech Revolution is now available from Prometheus Books.

Comments

I\'m Fucking Sick!|6.23.09 @ 3:14PM|#

To reiterate. Stop. This. Fucker.

Rich|6.23.09 @ 3:15PM|#

No, those who warn against proposed rationing are ill, ignorant, or unclean.

Yakov|6.23.09 @ 3:31PM|#

I miss the Soviet Union.

rhofulster|6.23.09 @ 3:34PM|#

Agree with Leonhart that the primary function of the market/price system is to ration goods and services. Vehemetly disagree that gov will ration health care better than the market.

|6.23.09 @ 3:39PM|#

""""Leonhardt's third alleged example of current health care rationing is the "failure to provide certain types of care, even to people with health insurance." The fact that certain health insurance policies chosen by individuals and/or their employers don't cover certain treatments is no more "rationing" than it is when people choose not to eat a USDA prime steak or pay tuition for a private college education. """

So if America votes for national health care we wouldn't call it rationing because we chose to have it? Or if your employer decided to choose the national health care plan it wouldn't be rationing either?

I say it's a fallacy to think the concept of rationing is based on the actions of the reciever, not the provider.

If you went on a cruise ship and they rationed water and food, it wouldn't really be rationing because you chose to take the cruise?

Some Guy|6.23.09 @ 3:39PM|#

Imperfect as private health insurance markets are, if a customer doesn't like the decisions made by Blue Cross Blue Shield, Kaiser Permanente, or Golden Rule insurance bureaucrats, he can look elsewhere for his health insurance coverage.

The problem is that this is not actually true due to the tax structure and the pricing schemes that pretty much mandate that you use insurance selected by your employer. If you're working for a large enough company, you might have 2-3 choices.

|6.23.09 @ 3:40PM|#

Nice article.

I wanted to drop a line regarding a GREAT resource that objectively analyzes the Canadian health system (it's by a Canadian). Please check it out if you get a chance. I would draw your attention to page 86 of the study.

http://www.fraserinstitute.org/commerce.web/product_files/HowGoodisCanadianHealthCare2008.pdf

|6.23.09 @ 3:42PM|#

"""No, those who warn against proposed rationing are ill, ignorant, or unclean."""

He's not saying national healthcare won't ration, that's important to note. He's just claiming that it already happens. The last I checked, we are not to happy with the rationing of care commercial insurances, and current government plans already do. We don't want more rationing. I think that's vaild.

kinnath|6.23.09 @ 3:44PM|#

The market will ration goods and services or the government will ration goods and services. That's it, there are only two choices -- this is totally indepenent of what the goods and services are.

Chad|6.23.09 @ 3:49PM|#

Imperfect as private health insurance markets are, if a customer doesn't like the decisions made by Blue Cross Blue Shield, Kaiser Permanente, or Golden Rule insurance bureaucrats, he can look elsewhere for his health insurance coverage

And what you will find is the same bureaucrats making the same decisions, behind a different desk. What is the point of a choice that isn't a choice?

In any case, this is my opinion:

1: Health insurance is a necessity

2: Health insurance contains and intrinisic and massive market failure - a moral hazard - regardless of who pays for it

The conservative/libertarian idea for handling the moral hazard is to load up so many deductibles and co-pays that people being to self-ration their health care. The problem with this approach is that even with co-pays and deductables that are bankrupting people left and right (defeating the entire point of the insurance in the first place), the market failure has barely been reduced, if at all.

It is obvious now that this idea just doesn't work in practice, because there is no amount of co-pays and deductables which seem to give a reasonable balance between the concept of insurance and the reduction of over-consumption due to the moral hazards.

Timmy|6.23.09 @ 3:50PM|#

Go the fuck away Chad!

Barry Loberfeld|6.23.09 @ 4:00PM|#

"Rationing" refers to government's doling out pieces of the same pie, since there is no longer any market that allows for the baking of new pies, i.e., industry growth of the product/service. This is the meaning of socialized medicine.

From Liberalism: History and Future:

For about a hundred years, America has been a nation of accumulating medical controls. Each new regulation was passed with the same justification made for the previous one: This measure will sufficiently correct the failings of the free market and thus save the free-market system. And the result? Today's "crisis in health care" -- as the welfare statists themselves call this iatrogenic disease. The more band-aids are applied, the more wounds appear! And with nothing but band-aids in their bags, these "liberals" (often the same aging advocates of past regulation) can now prescribe only covering the patient head to toe -- i.e., the final move to the outright socialization of all medicine. What this says about the microcosm of medicine is obvious; what it means for our mixed economy is ominous.

alan|6.23.09 @ 4:05PM|#

The market will ration goods and services or the government will ration goods and services. That's it, there are only two choices -- this is totally indepenent of what the goods and services are.

David Leonhardt should know better. There is a nuance to the term ration in economics when ration is by edict versus by the price mechanism. But, of course, he knows better, he works for the NYT and that is the dead give away he is being less than candid.

Ghetto Man|6.23.09 @ 4:18PM|#

"1: Health insurance is a necessity"

No it ain't.

|6.23.09 @ 4:37PM|#

"""There is a nuance to the term ration in economics when ration is by edict versus by the price mechanism."""

But the reasoning for rationing is to keep their costs down. I Don't think the price mechansim only applies to the end user.

""""Rationing" refers to government's doling out pieces of the same pie, since there is no longer any market that allows for the baking of new pies, i.e., industry growth of the product/service"""

Government is not the only body that can ration, therefore the primise is not correct.


Ghetto Man, insurance is not necessary, health care is more tricky. Certainly, if you are severly injured, health care is necessary.

However, there are some in government that thinks health insurance is not only necessary, but should be mandatory.

I'm not a fan of government care, I'm less of a fan of mandated government care.

|6.23.09 @ 4:45PM|#

Government is not the only body that can ration, therefore the primise is not correct.

I don't see how a private entity operating in the marketplace can ration any good or service. This would mean that, indeed, only government, by exercising coercive powers over producers and suppliers, can ration.

If I'm missing something, please explain. And, no, just because not everyone can afford something doesn't mean it is rationed.

Ghetto Man|6.23.09 @ 4:45PM|#

"Ghetto Man, insurance is not necessary, health care is more tricky. Certainly, if you are severly injured, health care is necessary."

No, it is not. I have a homeless friend who was in the hospital for nine months. He had shoulder surgery and they also spent time adjusting his meds. He paid nothing. Nothing.

tarran|6.23.09 @ 4:50PM|#

If I understand Chad correctly, when the government limits the entry of new providers into a field (thereby driving prices ever higher) and subsidizes some consumption (thereby driving prices ever higher), it's market failure.

Let me guess, the people who died when the Army Corps of Engineers' levies broke in the aftermath of Hurricane Katrina were killed by the market failure too.

Thank God the U.S. government is in charge of food distribution, otherwise we would be starving in the streets!

|6.23.09 @ 5:24PM|#

A marketplace allocates scarce resources with alternate uses. The government rations. These are not the same.

Basically, almost anyone can choose to eat prime rib eye steaks daily. And if everyone made that choice, the marketplace would reallocate resources so enough cows are raised to accommodate that desire. There isn't a finite number of cows available, and that's it.

The reason people don't all make that choice is because they have higher priorities for their money -- they want to pay rent, and have a car, and electrical service, and so on.

But if we turn steak provision over to the government, we'll have rationing and a fixed number of steaks regardless of demand.

Same deal with health care.

|6.23.09 @ 6:04PM|#

Experts are dumbasses.

|6.23.09 @ 6:12PM|#

I have noticed that more and more people of a lefty bent are using the word "rationing" as a synonym for "(scarce) resource allocation." And thank you, prolefeed, for reminding us that they are NOT equivalent, as well as pointing out the reason why.

We have to keep the spinmeisters from redefining common words for their political expedience! Such redefinition impoverishes our language.

Rationing and markets are both mechanisms for resource allocation. But they are not equivalent, as rationing operates by assigning all decisionmaking power to a central authority (unless you count as such power the option to accept or refuse one's ration), while market commerce diffuses the decisionmaking power to pairs of market participants -- the buyer and the seller.

A more colloquial use of "rationing" labels the occasions when a seller has a limited quantity of a good and correspondingly decides to limit the amount he will sell to any individual buyer (usually in the face of anticipated strong demand). If indeed the seller is the sole source of the good, he becomes the "central authority" determining its distribution, and so the use of "rationing" is appropriate. But usually, neither is the seller the sole source, nor is there a lack of alternative goods. So the situation is only "rationing" for those who are can't or won't deal with someone else, or who can't or won't entertain alternatives (or paying higher prices). Still, I think it is the uncritical use of "rationing" to describe that kind of situation, which gives today's lefty spinmeisters the opening to assert that the market is "just another form of rationing," rather than to acknowledge that rationing and markets are peer members of the general class of resource allocation mechanisms.

|6.23.09 @ 7:19PM|#

Health care is not an economic commodity. If the government accepts responsibility for health care as it does for protection and security of the nation and regulation of commerce and health standards for food and drugs, the standards must be universal.
Insurance does not offer better health care even when it offers accessibility to services. Those who can afford to can buy organ transplants or cosmetic surgery, care that is insignificant to preventive medicine and common sense long term care of chronic diseases to which anyone may be susceptible.
Health care is either as valuable a commodity as energy or gold, or it is a public responsibility as much as non-polluted water, air, or soil.

|6.23.09 @ 8:32PM|#

The problem with this article is that there is nothing preventing those folks who decide to not have insurance from showing up sick and dying in the hospitals. Additionally, there are lots of folks who simply can't afford insurance in any case for any price, they work at those minimum wage jobs to help the author get his cheap fast food and WalMart junk. They will always be serfs who make his life quite comfortable for a very reasonable cost to him. Serfs are really useful.

If the author was intellectually honest, he would immediately call for the banning of all non-insured from all medical facilities because they made the "decision" to not have insurance so they clearly don't deserve to get it for free. Of course, this is the logical result of his argument and totally unacceptable to anyone beyond the crazies that take this kind of article seriously.

|6.23.09 @ 8:35PM|#

Health care is an economic commodity. People have to study, train, and make long-term investments of time and effort to provide health care. They expect and -- if they do an honest job of it, they deserve -- compensation, and they shouldn't have to perform unless compensated (or unless they donate their skills to charity). The development, production, and distribution of drugs are all economic activities. People who could be doing other things with their lives devote their time and effort to such pursuits, most in the expectation of satisfactory compensation.

People who claim that health care isn't a collection of goods and services as in any other industry, which is therefore immune to normal economic laws and should be handled differently, are ultimately declaring that either the producers or the consumers, or both, should be slaves of health care. Who will be forced to toil, in order for someone else to receive health care? The doctor? The admissions clerk? The fellow on the drug manufacturing line? The poor devil somewhere in middle America who flips burgers and pays taxes into the health care system? Sorry, but slavery is at least as unacceptable as substandard (or no) health care.

Sam Grove|6.23.09 @ 8:46PM|#

Health care is not an economic commodity.

Health care is the provision of certain kinds of goods and services delivered by those with expertise in the field.

Health care costs because the providers of said care have the same biological requirements and like desire as other humans. These needs and desires are met by production and distribution of goods and services.

Now, if you would, explain how health care is not an economic commodity.

Bet you can't do it.

Sean W. Malone|6.23.09 @ 9:04PM|#

"Health care is not an economic commodity."

OF COURSE IT IS...

Good grief. I think I'm just going to troll Reason for the next several months repeating this mantra:

The laws of economics are immutable, and function regardless of what is being traded.


Jesus H. Titty-fucking Christ... Call medicine whatever you'd like, but it is a scarce good that has to be produced by some people in order for others to benefit, which requires humans to engage in activities of exchange............. which means..... Economics applies.

scottsievers|6.24.09 @ 12:37AM|#

If you are uninsured and does not have insurance, you should check out the website http://UninsuredAmerica.blogspot.com - John Mayer, California

|6.24.09 @ 4:06AM|#

"Consumers can competently choose between complicated computer technologies and evaluate automobile performance because competitors are motivated to supply consumers with relevant information. The same kind of competitive dynamic could work with the provision of health care and health insurance."

This statement misses a major fact of human health. We do not always know the best (whether best mean most effective or most efficient) way to treat a given ailment or condition. Doctors disagree and patients disagree. The human mind influences how we perceive the effectiveness of a given treatment, even if that treatment is just a placebo.

Many of you have heard the two guys on the radio program "Car Talk" discussing the strange noises the callers' cars make and the incompetence and/or dishonesty of some mechanics. If it is so difficult for consumers to decided on the cost/benefit of having a mechanic perform some procedure on their car to fix a problem which the mechanic may or may not have correctly diagnosed, imagine how much more difficult it is for that same consumer to decide on the best treatment for a seriously sick child. The surgeon recommends one type of treatment, and the homeopathic doctor recommends something much different. Tell me how that consumer is going to get the information he/she needs to price out the best treatment for that child. The child is much more intricate than the car, and the costs of choosing the wrong treatment are much higher.

Fluffy|6.24.09 @ 8:32AM|#

If the author was intellectually honest, he would immediately call for the banning of all non-insured from all medical facilities because they made the "decision" to not have insurance so they clearly don't deserve to get it for free. Of course, this is the logical result of his argument and totally unacceptable to anyone beyond the crazies that take this kind of article seriously.

Actually, prior to 1986, hospitals in the US did not have to accept patients who could not pay, even for emergency services.

Are you seriously arguing that in 1985 the entire United States was made up of "crazies"?

And where were all the uninsured people dying in the streets in 1985? I was alive then but don't remember seeing them. I was in high school so I didn't get around much, but I think I'd remember seeing people dying of infectious diseases, covered with flies, lying on the sidewalks near the hospitals.

Chad|6.24.09 @ 8:59AM|#

Consumers can competently choose between complicated computer technologies and evaluate automobile performance because competitors are motivated to supply consumers with relevant information. The same kind of competitive dynamic could work with the provision of health care and health insurance.

Uhh, you do realize that 80% of people cannot even calculate simply compound interest, correct? So no, the vast majority of people cannot discern the difference between the details of complex insurance schemes. And the "relevant" information provided by competitors is almost always so full of spin and hyperbole (though literally true in some context, so they can't be accused of fraud) that the average consumer has no hope of sorting it out.

It's funny that you chose cars and computers as examples of people being rational, even though we all use Windows because everyone else does (yet another market failure based on path dependance and network effects), and we all drive SUVs because the commercials say so (just plain ignorance and a prime example of conspicuous consumption).

stuartl|6.24.09 @ 9:43AM|#

Ahhh, Chad knows best for everyone. He should make all of our decisions for us because 80% of people are not smart enough to.

Sadly he is in the 76.368942 percent who doesn't have a clue about how economics works.

Chad, this may come as a surprise, but some of us are quite competent at making our own decisions. Even the ones that don't know how to make technical evaluations can make intelligent decisions. How? By seeing that all of their buddies driving GM's pay far more in repair costs than their buddies who drive Toyotas. When you learn that Joe bought a high powered garage computer, but never could get the video drivers installed properly, and Fred bought a Dell (or Apple or whatever) and it worked out of the box, you are more likely to follow Fred's example. The acts of a small percentage of consumers making good choices for themselves drives companies to meet demand.

Health care is no different. I use doctors and insurance companies with good reputations. When I get a good or bad recommendation I listen. Even if only a few percent of people make similar choices, companies will listen. They always want to drive up profit.

Chad|6.24.09 @ 10:23AM|#

By seeing that all of their buddies driving GM's pay far more in repair costs than their buddies who drive Toyotas.

Thanks for proving that YOU are incapable of making rational decisions, and worse yet, not even knowing that you are irrational. Your sample size is too small to draw a statistically meaningful trend. This is actually a very common flaw in human thinking.

I would suggest you read Nassim Taleb's "Fooled by Randomness", because you certainly have been.

David Small|6.24.09 @ 10:41AM|#

It's the Chad effect. Basically, if you make decisions that he disagrees with then you should be forced to conform with his ideal. It's the same liberal hypocrisy regarding of diversity ideas - different ideas are great as long as they coincide with mine.

Is Windows the best operating system on the market? Absolutely not. Does it meet a reasonable range of needs for the vast majority of users over a wide range of hardware for the right price? Yes, it does.

But since Chad has more refined tastes when it comes to operating systems, everyone at the very least is wrong, but more than likely are idiots.

Chad|6.24.09 @ 12:26PM|#

Actually, Dave, I use Windows for the same reason almost everyone else does...everyone else uses it!

However, the two core assumptions of free market theory - that people are rational, and rational choices among individuals lead to optimal outcomes, have clearly been demonstrated false in countless cases.

stuartl|6.24.09 @ 12:46PM|#

Your sample size is too small to draw a statistically meaningful trend. This is actually a very common flaw in human thinking.

Chad, I repeat that you simply do not understand economics (or individual freedom). Of course when one person uses the results of people around him there may be random effects, but since most people use the results of recommendations, their results in the aggregate matter.

Evolution only works on small samples too, and yet it works. A small advantage spreads through an entire population remarkably quickly. Even if only 5% of customers care deeply about something, an intelligent company will move to support the need.

My experience with GM vs. Toyota may have been a small sample. But since lots and lots of people had the same results, the market deserted GM. And it doesn't matter if the preferences are rational in your opinion or not. If many prefer fins on cars, even though you think it is irrational, those people are right for themselves. You are not. You may think my preference for the way a BMW drives is irrational, unnecessary, and wasteful, but it for my purchase, so you are wrong.

I'm guessing you are very young, as you get older you will discover that virtually every product gets better over time.

|6.24.09 @ 12:59PM|#

I agree that the market could certainly help with healthcare, however there is one important trend that can't be ignored.

Insurance exists to spread risk, some people with high risk, some with low, plenty in the middle, but it balances out. However, insuers have gotten very good at getting rid of the high risk people. Thus you are left with healthy people with insurance, and sick people without (or getting government insurance).

I'm totally open to suggestions on how to fix this,

But so far the only thing I've heard is an individual mandate, combined with making insurance companies take all applicants. You could still combine this with pricing based on lifestyle choices, but not on pre-existing conditions.

I'm open to suggestions on another way to get around this problem.

David Small|6.24.09 @ 2:19PM|#

Chad, first, just because you can't divine why someone does what they did, does not mean that it was wholly irrational. That's pretty arrogant. Second, irrational decisions are completely acceptable within a market based system - only there are repercussions. Of course, with such distortions as subsidies and bailouts it's easy to see how someone could have thought otherwise.

Kroneborge, insurance does not exist to spread the risk in a collectivist fashion. It's a hedge for individuals against unforeseen loses. It is only our current incarnation of insurance to pay for every little medical expense with it. Would you use your home insurance to fix a leaking sink?

That not withstanding, it is excessive regulation which curtails insurance providers from providing truly risk based health insurance.

|6.24.09 @ 2:38PM|#

That's pretty arrogant.

That's Chad.

|6.24.09 @ 2:39PM|#

"""I don't see how a private entity operating in the marketplace can ration any good or service. This would mean that, indeed, only government, by exercising coercive powers over producers and suppliers, can ration."""

I'm just not sure how being denied a service because of cost effectiveness by the government is different than when a commercial insurance denies a service because of cost effectiveness. Both deny service claiming money as the issue, yet we only say the government is rationing? The actions are the same and for the same reason.

DJP|6.24.09 @ 3:08PM|#

Our health care system is screwed up, I think we can all agree on that.

For one, there is the situation where the consumer chooses health care without regards to its price since the insurance company pays for most of it. But the insurance company also gets giant discounts built in to their provider relationships.

The end result is that anybody not tied in with health insurance for whatever reason, or who decides to pay cash, pays incredible amounts of money.

Case in point: I have a high-deductible health insurance policy, so I pay virtually 100% of all my health care costs out of pocket. I just had a 7 minute talking visit with a doctor and got a bill in the mail for $200. This was after waiting an hour despite having an appointment scheduled. Such a rate would make even an expensive law firm blush. The talk I had with the doctor was no more enlightening than what I learned from my own research online.

David Small|6.24.09 @ 3:12PM|#

TrickyVic, the difference is that the procedure/drug is still available for a price to the consumer in a free market. Also, the individual has the option to pick an insurance policy with coverage of their choosing.

|6.24.09 @ 5:12PM|#

Kroneborge: You have put your finger on one of the key reasons why "insurance" should not be at the heart of health care. At some point people are diagnosed for a condition and -- especially if it is a chronic one -- someone probably has to pay for treatment for an indefinite time: an open-ended bill. Insurance works best when it pays off fixed (or capped) expenses/losses on a one-time (or limited time) basis.

For chronic conditions or open-ended expenses, it is better just to drive down costs as much as possible and pay the resulting bill, perhaps on an installment basis (or from a special savings account, into which one has already been making regular payments). The best way to drive down costs is free-enterprise competition, not government fiat informed by central planning. This is, in part, because a central planning agency could almost certainly not keep up with the many interlocking factors that combine to lower (or raise) costs of any particular product or service, much less the entire constellation of products and services.

Tristan Jackson|6.25.09 @ 1:38AM|#

This video uses the Miltons free lunch point to make the opposite point Leonhardt was making:

http://www.youtube.com/watch?v=IQh--oWAR4Q

|6.25.09 @ 7:23AM|#

I'm sorry but what ever happened to discussions of tort reform and loser pays rules to reign in medical (and other) costs? Doctors and hospitals waste money on unnecessary tests and procedures in order to avoid malpractice suits. Too many frivilous suits clog our courts and drive up the costs in every area of healthcare.

Before there can be any meaningful discussion of "reform" we need to allow doctors and hospitals to operate freely and give their patients choice in their care.

All politicians should be forced to get their care in the VA hospitals before they consider any additional government involvement in healthcare.

jtuf|6.25.09 @ 8:11AM|#

I pay for health care out of pocket, which lead to the most amazing events the other day. I went to the local hospital to fulfill a prescription. When an employee there learned that I was paying out of pocket, she suggested that I go to a chain store for a better price. I went to the chain store, were the pharmacist told me the price of the drug before I committed to buying it. Based on the price, I decided to fulfill that perscription this month, but to ask the doctor to prescribe one of the older equivalent drugs the next time I see him. These older drugs sell for $4 for a one month supply as compared to $220 for a two weeks supply of the newer drug. Health care costs go down when consumers bother to ask about prices.

Deb Slatter|6.25.09 @ 1:34PM|#

Great. Article. I strongly recommend the following article. It a suburb application of logic and basic economic to illustrate the main problem with the health care market.
http://www.americanthinker.com/2009/06/looking_for_competition_in_all.html

|7.3.09 @ 5:26PM|#

Ronald, I'm disappointed by this column. You usually have great insights informed by understanding the nuances of the situation. But you are far afield here.

You need to start with a clear definition of rationing. I think you intend that it be "resource use decisions made or significantly constrained through mechanisms other than price by an entity other than the direct consumer." Given that the insurance companies control costs by limiting available care in some fashion, including making direct decisions about what treatment will be covered, this fits the definition of rationing.

Some Guy makes the correct point: For most insured individuals, there are few or no alternative choices of insurance companies because insurance is tied to employment (and insurance is and should be a relative minor factor in our job choices.) This situation is amplified by the difficulty of gaining an individual plan if you have a significant health issue. That's why so many are trapped in the plan they have.

Further, we ration among plans based on income. Those with higher incomes generally have more beneficial plans. Unfortunately, demand for health care is largely inelastic and even inversely related to income (it appears much like a Giffen good.) Markets may not be the best mechanism for allocating resources for this very unique good. (I'm a very strong advocate for market-based decentralized allocation schemes, even testifying as an expert witness on behalf of such proposals.)

One alternative solution is to create a regulatory scheme similar to that used for energy utilities at the state level. Health care providers could be allowed a set profit margin and investment decisionss and costs would be reviewed. While costs are not kept to a minimum as evidenced by utilities' practices, the ability to control market prices, both by utilities and health care providers, is simply too strong to be defeated by normal market forces.

So the question is whether we should have rationing by private-industry bureaucrats who are largely unaccountable to anyone other than corporate shareholders, or by public bureaucrats who, while not always responsive, are somewhat accountable to our democratically elected representatives. I know where I stand on this issue given this choice.