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June 9, 2009

The Wall Street Journal explains why the Obama administration’s predicted cost-savings in the health care sector are mostly illusional. And, worse than that, making cost reductions a priority will hurt the development of the quality of medical treatments which to a large part is possible thanks to ‘costly’ experimentation. Furthermore the story points out that the data typically used to back up the claim that large cost reductions can be realised through identifying and eliminating ‘waste’ rather than decreasing quality of care comes exclusively from the Medicare section of the health system. The editors contrast those data to the findings of Professor Cooper from the University of Pennsylvania’s Wharton School who has collected data from the entire sector, not Medicare alone:

[Professor Cooper] found that the areas with the highest quality spend the most on medicine, whatever the mix of private and government funding. Areas with disproportionately high Medicare spending, generally in the South, correlate with the lowest quality — but at the same time, with very low private spending. […] He argues that the less-is-more theory is based on the flawed premise that when a region’s outcomes did not improve as spending increased, the difference is simply classified as “waste” — even if it isn’t. That’s the 30% figure Mr. Orszag likes to cite.

Hmm, disproportionately high Medicare (ie government) spending correlates with low quality and with low private spending. Intriguing, isn’t it. That almost sounds like the greater the the involvement of government in the health sector the lower the quality. And yet Monsieur Orzag cites Medicare-only data to back up his plan to burden the entire population with the introduction of Government Inefficiency TM into their health care options.

What the WSJ article doesn’t make very clear is the downside to the individual when their health insurance becomes a matter of the government. Sure, some might say, it will be financially inefficient and improvements in therapies might be slowed but that’s a low price to pay if you want to make sure that everyone is enrolled – everyone should have health care. There are several things flawed in this logic, the French Cowboy says. Let me point them out and also address the disadvantages of a ‘public solution’ different from the cost aspect:

1. Medicare and Medicaid are already available to persons who are not in the financial position to pay for their health expenses. Are those working perfectly? Certainly not. But that doesn’t mean they cannot (or shouldn’t) be reformed and it certainly doesn’t mean that the rest of the nation should be enrolled in a similar programme.

2. If you don’t want to pay for health insurance you shouldn’t be forced to. Yet a government-run programme will ultimately demand mandatory participation in a nation-wide health care system. You won’t be allowed to opt out. Especially not if you are healthy because then you’re likely to contribute a positive net amount of money which will be badly needed.

3. A government-run health care system will amount to a generational Ponzi scheme. Less money will go into the pot than will be taken out of it with the deficit being pushed over to the next generation. It will be unsustainable.

4. The sick are worse off in a strictly government-run system. Everyone wants the best possible treatment when sick. In a market health system you will be able to pay more to receive better care. In a government-run system you won’t even have the option for better treatment. You will be given the therapy that is statistically the most effective and that doesn’t surpass a certain cost threshold.

Every body reacts differently to a given therapy. Even if one method works 90% of the time it doesn’t mean it will work with you. To find the treatment best suited for your idiosyncratic case is something that is done with time and patience. Both will be in short supply in a government-run health sector. Doctors will be buried in work (because they will be rationed as well) and will have no incentives to actually ‘care’ for their patients as this will only mean extra work, not extra pay. Besides, the 90% method might be the only one covered by the government-run insurance.

The WSJ had another story a few weeks back in which they described how this type of problem can be observed in a decision on Medicare:

Desperate to prevent medical costs from engulfing the federal budget, the program’s central planners decided last week to deny payment for a new version of one of life’s most unpleasant routine procedures, the colonoscopy. This is a preview of how health care will be rationed when Democrats get their way.

At issue are “virtual colonoscopies,” or CT scans of the abdomen. Colon cancer is the second leading cause of U.S. cancer death but one of the most preventable. Found early, the cure rate is 93%, but only 8% at later stages. Virtual colonoscopies are likely to boost screenings because they are quicker, more comfortable and significantly cheaper than the standard “optical” procedure, which involves anesthesia and threading an endoscope through the lower intestine.

Virtual colonoscopies are endorsed by the American Cancer Society and covered by a growing number of private insurers including Cigna and UnitedHealthcare. The problem for Medicare is that if cancerous lesions are found using a scan, then patients must follow up with a traditional colonoscopy anyway. Costs would be lower if everyone simply took the invasive route, where doctors can remove polyps on the spot. As Medicare noted in its ruling, “If there is a relatively high referral rate [for traditional colonoscopy], the utility of an intermediate test such as CT colonography is limited.” In other words, duplication would be too pricey.

I don’t know about you, but the French Cowboy would prefer to have the option of non-invasive screening. A virtual colonoscopy is unpleasant enough, but you would have it done to make sure you are healthy. On the other hand, allowing a camera through your derrière is something you would only agree to once the presence of pathologic tissue which has to be removed has been confirmed – or if you can’t afford paying yourself for the non-invasive alternative.

With all the talk about health care cost we shouldn’t forget that they are only bad when truly wasted. Costs can mean prolonged lives or better living quality for diseased persons. Or they can mean valuable experiments that will allow for improvements in treatments. A health system regulated by the government will almost by definition be inefficient. Individuals will lose their freedom of choice and everyone from the nurse to the hospital management to the pharmaceutical industry will be more or less comfortably stuck into a rigid health system that desperately tries to cope with huge expenses and too little income. Freedom of choice allows for competition and improvement. Government regulation imposes a one-size-fits-nobody corset.

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