It’s Not Just Patients’ Exposure to Costs

In a post at RealClearPolicy on controlling the cost of health care in the United States, James Capretta reveals that he is yet another economist who doesn’t understand the health care system in the United States. Or the one in Switzerland for that matter. Yes, Switzerland has a system that provides universal coverage based on private insurance companies. But Switzerland is a small, consensus-based country in which every policy of any scope is approved by a direct popular vote. When something becomes the law in Switzerland, you can be confident that it represents the consensus of Swiss public opinion. Additionally, incomes in Switzerland are much more equal than in the United States.

You can contrast Swiss policies with those in the United States but suggesting that because it works in Switzerland it should work in the U. S. is not well-founded.

His prescriptions open mildly enough with suggesting that pricing in health care be more transparent:

First, the federal government can help patients become autonomous consumers of medical services by simplifying the process of price comparisons. The market today is opaque, with pricing that is impossible for the average consumer to compare across providers. The federal government could help consumers by creating a list of standardized services for which pricing must be provided by all relevant facilities and clinicians. The prices attached to each item on the standardized list would cover exactly the same set of services needed to address the patients’ needs, and thus allow for apples-to-apples price comparisons. In addition, insurers should be required to make “referenced-based” payments for those services when provided out-of-network at the average of the rates they have negotiated with their preferred providers. These steps would allow consumers to become active shoppers for many medical services that can be purchased in discrete packages in non-emergency situations.

That won’t do anything about costs but it’s benign. Then he goes off the rails by proposing that Americans should have more skin in the game:

Second, the government should move toward defined contribution payments for subsidized insurance coverage instead of open-ended payments. In particular, in Medicare and in job-based insurance, plan enrollees should get a fixed level of support toward insurance enrollment that is not tied to the overall costs of the plans they select. In Medicare, this means a “premium support” model. In job-based coverage, the federal tax break for employer-paid premiums should be capped to encourage firms to provide fixed levels of support at the maximum tax-preferred level.

What he’s missing is that in the United States most health care demand is created not by patients but by physicians and there is next to no evidence that most patients are capable of economizing prudently. What the evidence actually supports is that patients may economize foolishly, resulting in an overall increase in services required.

A premium support system does not encourage or discourage insurance companies in the U. S. from doing anything for two reasons: 1) most corporate plans are self-insuring—insurance companies are only administrators and bear no risk; 2) insurance companies’ percentage of the take is presently capped.

On the surface the facts on the ground respecting the U. S. health care system suggest that Medicare For All is a better solution. My reservations about it are mostly that, confronted with angry constituents unable to get the health care they want and facing long waits for what they can get, politicians will inevitably raise reimbursement rates. How do I know that? They’ve been doing it for 50 years.

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