Paying For Health Care the Hard Way

Here's the opening to a misguided but not-altogether-bad New York Times piece on why ObamaCare is unlikely to bring down health care costs:

Dr. Robert Colton, an internist in Boca Raton, Fla., has a problem, and he knows it. His patients come in wanting, sometimes demanding, tests and treatments that are unnecessary, just adding to the nation's huge health care bill. He even has patients, he says, who come in and report that their chief complaint is, "I need an M.R.I."

And what does Dr. Colton do?

"I do the damn test," he said. "There is no incentive for me, Rob Colton, to reduce overutilization. If the person wants it, what are you going to do, say no?"

And the new health care legislation, he says, is not going to make a bit of difference.

The piece goes on, making some reasonably good points about problems with the way care is doled out and paid for. But I think the author gives away the game in the second sentence, which ends with words "adding to the nation's huge health care bill." The nation's. Not the patient's. There's a huge difference between the two, and therein lies the problem.

Third-party payment systems, whether they work through private insurers or the government, result in massive overutilization of care because consumers aren't price conscious. When somebody else is paying, there's no incentive to find out what a procedure costs, or if it's really necessary. And the more the third party pays for, the bigger the problem. The result is that consumers end up thinking of health insurance as medical prepayment rather than as a hedge against major expenses. 

That makes medical care a collective expense, and thus a collective problem. ObamaCare, by reinforcing our clunky third-party payment system, only locks the country further into that problem. And that's why we have health wonks mulling the virtues of government-managed rationing:

One way to make those links is to do what some other countries do — say that there will be no payments for care that is not deemed the most cost-effective. But politicians shy away from such measures, Dr. Luce said. "That is not likely to happen soon, particularly at a national level," he said.

It would mean rationing, said Dr. Robert D. Truog a professor of medical ethics, anesthesia, and pediatrics at Harvard Medical School. "That's the word nobody wants to use. It's just a firecracker. Nobody wants to touch it."

The result is a crazy system in which, he points out, a government-appointed task force on screening mammography was explicitly forbidden to consider the costs of offering mammograms to women for whom the benefit is very small.

"The point is that as long as a health care system has anything less than an infinite budget, there is a need to decide which types of health care will be funded and which will not," Dr. Truog said.

Truog is right that limited resources inevitably place limits on care. But aside from the basic technocratic appeal of centralized efficiency rules, why should those limits be set centrally, by bureaucrats rather than by individuals and their doctors? 

As former Reason editor Virginia Postrel recently pointed out in The Atlantic, when government sets out rules determining which treatments are cost-effective and which aren't, the result is a politicized medical system that frequently ignores the varied responses individuals have to care. I'm all for deciding "which types of health care will be funded and which will not"; I'm just skeptical that the government is the entity best positioned to make those decisions.