Fallacies in Healthcare Reform (Updated)

As I read the New York Times editorial this morning on financing healthcare reform:

If health care reform falls apart again in Congress, the most likely cause will be failure to agree on how to subsidize coverage for tens of millions of uninsured Americans. The cost will almost certainly be at least $1 trillion over the next decade and perhaps much more, depending on how generous the reform might be.

It occurred to me how many out and out errors, fallacies there are in the discussion.

For example, why do so many people not understand that the number of uninsured that’s bandied about includes both illegal immigrants and those who are able to afford insurance but elect not to have it, presumably because they’re young and healthy? The number comes from the Census Bureau and if you’ve got the inclination you can search through my recent posts for the link. The Census Bureau does not identify legal status but the number of foreign born who don’t have insurance is quite large. You do the math. It’s the reason I don’t believe that healthcare reform can be disaggregated from immigration reform. It is not intellectually honest to cite the figure of 46 million uninsured and then claim that you don’t plan to insure illegal immigrants.

Another fallacy is that we know how to reduce costs in healthcare. We don’t. For example the NYT’s statement:

Our preference would be to extract savings from the bloated, inefficient health care system — but also to raise revenues from a wider pool, preferably from well-to-do Americans who could be taxed more for a badly needed reform that would benefit all Americans.

in my opinion reflects an artifact. We pay for procedures. That’s how our healthcare system works. Further we subsidize healthcare to the tune of 50% or more, much of it through Medicare and Medicaid which pay for procedures. Of course we get more procedures. If you subsidize something, you get more of it. BTW, that’s part of the reason for my opinion of the frequently noted fact that much of healthcare spending is in the last year of life. If we stopped subsidizing healthcare for the elderly (something I don’t recommend), we might be able to disentangle the need from the effects of the subsidy but as it is we can’t. Given the choice between pauperizing themselves and their family and performing that one additional unproven procedure, I suspect that a lot of elders would forego that extra treatment. I further suspect that if we only subsidized healthcare in the first year of life most healthcare spending would be on obstetrics and neo-natal.

Here’s another error: the notion that we can magically reduce the number of people whose care we’re subsidizing by subsidizing the care of more people. That’s implicit in the Times’s statement above. Contrariwise, I think that we’re more than likely to create a positive feedback condition under which an ever-increasing number of people’s healthcare is being subsidized to an ever-increasing degree.

And another: we can afford just to do nothing. We can’t. At the present rate of growth healthcare spending by the government is either going to produce an unsustainable level of taxation or an unsustainable level of debt or both.

I welcome other suggestions for errors and fallacies about healthcare reform in the comments. Please note that controversies are not errors, they are disagreements, frequently on priorities. When you disagree with somebody else’s priorities, it’s generally not an error on their part, simply a difference of opinion.

Update

Here’s a little data to support my claim made above of the artificiality of the “last year of life” statistic. Here’s a graph of the per capita spending for some OECD countries broken out by age demographics:

All sorts of interesting things leap out at you from this graphic. First, note how much more we spend on people aged 65 and above. Coincidence? If you think it’s because elders in, say, Germany are substantially under-treated, I’d like to see some evidence of it. Not anecdotes, real evidence. Second, note that if we reduced the spending on those 65 and above to its relative proportion in other OECD countries, we wouldn’t be so completely out of line with what they’re spending and IMO we wouldn’t be complaining about the high cost healthcare now (remember that the cost of healthcare insurance necessarily follows the cost of healthcare). Kind of makes you wonder about the “Medicare for all” notion, doesn’t it? Ceteris paribus it would bankrupt us.

And note that we actually pay less for those aged 0-64 than Germany, France, or Britain. ‘Splain me that, Lucy.

Update 2

I’ve been thinking more about the graph, wondering especially if it’s possible that Germany’s division of spending is the artifact. Although the idea is somewhat appealing, I don’t think so and here’s why: Japan. Despite its modernization Japan continues to be a Confucian country and elders are revered and taken care of so I don’t think that Japan is managing its healthcare system to reduce healthcare for elders. And Japan’s relative spending is more like Germany’s than it is ours. Consequently, the question is why are we spending so much treating the elderly? I think it’s an artifact.

Update 3

James Joyner makes this point in a post on the “ecological fallacy” in the healthcare reform debate:

But here’s the thing: most of us aren’t viewing this debate in the aggregate but rather as individuals. Most of us have the sense that ourselves and our families would be worse off in a system where the government was even more influential and even more people were free riding. Statistics about national level costs and outcomes don’t address that concern.

In reference to something he discusses in the body of the post, although I’m sure that France’s and the Netherlands’s systems are very good for those countries, I don’t think they’re transferrable. Neither France nor the Netherlands shares a 1,500 mile land border with a country with a per capita GDP a quarter of theirs, for one thing.

Update 4

Megan McArdle ends an interesting post on Medicare administrative costs with this:

My critics will want me to explain why, then, Europe can do it cheaper. The answer is threefold. First, most European nations have better governance than we do–the American political system is a Public Choice disaster. Second, they pay people less money in a way that’s hard to replicate here (and even if it wasn’t, would be a one time savings that wouldn’t check the rate of growth). Third, we’re still driving quite a bit of product innovation. Our messy, organic, wasteful, unfair, irrational system allows experimentation, and they cherry pick the best results. If we stopped doing this, their system would stop looking so good.

As the graph above shows major OECD countries only “do it cheaper” for their component of healthcare we already subsidize here. How this translates into an argument that we should be subsidizing more people in order to save money eludes me.

Update 5

Steve Verdon takes the theme of administrative costs and riffs on it at OTB:

For the sake of argument let us assume that Medicare’s administrative costs are lower than those of the typical health insurance company. Does this imply that Medicare is more efficient than the private company? I’ve been skeptical of this view point since one thing I’ve learned in economics is that firms want to maximize profits. You don’t do this by wasting money. In fact, at the profit maximizing level of output the firm is minimizing its costs. So, does it make sense that a health insurance firm is going to spend money it doesn’t have to on administrative costs?