The Editors Respond to Healthcare Reform Plans: the Usual Suspects

The editorial boards of the nation’s newspapers have responded to President Obama’s announcment of a way forward on healthcare reform and the reactions have been much as you might have expected.

The New York Times characterizes the proposal as “a moderate plan” and observes:

Any competition between a new public plan and private plans would be waged on a regulated field of battle within a new health insurance exchange. Most reform proposals envisage the exchange as a place where individuals unable to obtain coverage at work and ineligible for existing public programs like Medicaid could buy policies that would be available to everyone without regard to pre-existing medical problems. Low-income people would get subsidies to help buy a private or public plan.

Opponents of a new public plan have raised the specter that it might have unfair advantages that would enable it to draw customers from private insurers and ultimately drive them out of business, leaving virtually all Americans enrolled in a full-fledged single-payer system, like Medicare. That prospect could be mitigated by appropriate ground rules.

The insurance industry is so desperate to avoid competition that it has already pledged numerous reforms and called for tighter regulation of the private market to expand coverage and control costs. But even with tighter regulation, Congress should include a public plan option to give consumers broader choice, provide a refuge for people who don’t trust private insurers to have their best interest at heart and serve as a yardstick for judging the performance of private plans.

As I pointed out yesterday I think that any public plan is likely to be a deal-breaker as far as the health insurers are concerned and the detente between the White House and the insurers may be short-lived.

The Times continues:

Private plans have done a poor job at restraining premium increases; they mostly pass rising medical costs on to the subscriber. A good dose of competition from a public plan with potentially lower administrative costs and no need to generate profits might be the right competitive medicine to improve their performance.

There are so many things wrong with these two sentences it’s hard to know where to begin. First, insurance simply doesn’t work that way. Premium prices must rise as medical costs rise. That’s the nature of insurance. What we have now isn’t insurance, it’s something more akin to a maintenance contract. That may be what people want but I don’t see any way that any foreseeable maintenance contract can give people whatever they want or think they need for a fixed price.

Moreover, competition between the public and private sector for artificially constrained healthcare resources has produced the nightmare we have now. It’s a bidding war and one of the bidders has very, very deep pockets. The notion that such a contest could result in reduced costs beggars belief.

The Washington Post correctly points out that while the increased costs of the plan are assured the reductions are hypothetical:

But it is important to note what wasn’t included yesterday. None of the interest groups signed up for a specific number; no one is saying who will sacrifice what, or how much. All are promising to “do our part,” but the actual share of the $2 trillion that would fall on each pair of shoulders was not laid out. What would make up the substance of the plan? That remains to be seen. How would the private sector be held accountable for this promise to reduce costs? That, too, remains to be seen.

As you might expect the Wall Street Journal is beyond skeptical:

Democrats have now acknowledged that the managed care dream will work only if government is the one doing the managing. That is, we can only control costs with a new government entitlement. More is less.

But you can only allocate a scarce resource in two ways: market prices or brute force. In health care the brute force will come as price controls and waiting lines for rationed services. The implicit assumption in the providers’ deal announced yesterday seems to be that the private companies will do the price controlling so the government won’t have to do it for them.

But when the savings prove illusory, as in the past, the feds will step in and order them to do so. To win a false reprieve for themselves and give cost cover to the politicians, these private CEOs are offering to make themselves even more unpopular with patients. By that point, most patients will have no choice but to assent, since most of them will be in one government program or another.

Just to recap my own position in bullet form:

  1. Healthcare costs too much in the United States. That’s the reason so many people are uninsured and unless we bring costs down not merely reduce their rate of increase that’s not going to change.
  2. Insurance plans have little motivation to control the costs of what they’re insuring. That’s the nature of insurance.
  3. There is no way to mandate universal coverage in the United States. Our circumstances are unique. We’re the only country in the world that shares a 1,500 mile land border with a country with a per capita GDP a quarter ours.
  4. Keeping our costs down by importing healthcare professionals from Third World countries where they’re desperately needed and more frequently than not educated with public money is immoral.
  5. The process by which we got where we are today began more than a century ago first by giving physicians the gatekeeper role for pharmaceuticals, then by severely restricting the number of physicians graduated by our medical schools, and was kicked into hyperdrive 40 years ago when Medicare was enacted. That’s when salaries in the healthcare sector began to grow substantially faster than those in the rest of the country.
  6. We can’t reduce costs by mandate. However, we can further reduce supply that way.

The only solution that I believe will really work to solve the structural problems with our healthcare system are a dramatic revisiting of the way services are delivered, starting with medical education and proceeding right along to who performs services, what degree of training is required, the role of automation in providing healthcare services, and what sort of oversight is required.

There is precedent for this kind of a revolution. It’s the kind of thing that happened just about a century ago and it’s high time we begin the process again.

11 comments… add one
  • PD Shaw Link

    Sitting in a state capitol, where I’m almost certain the state government employees have the best healthcare plan in the city, the notion that such competition helps anyone but state employees is ludicrous. Notice that a few weeks ago, the governor proposed raising employee contributions to their healthcare plan to help reduce the budget deficit. It appears to have failed due to union outrage. So I guess state healthcare will get funded by third parties (taxes on business and individuals; allocations from other government programs).

    True competition between public and private would require certain rules to apply to both, such as requring public programs to have the same capitalization and reserve requirements as private insurance.

  • Drew Link

    So I am pondering this statistic that we spend twice on health care for what we get compared to other countries. What gives? Musings:

    A first knee-jerk is that we are a rich country. I bet if we looked at housing expenditures per capita vs other countries we’d see the same. Of course we have more house per capita. Do we have more and better health care?

    Are elective procedures included in the spending stat? Is Angelina Jolie’s boob job evidence of the failings of our health care system? I don’t know.

    An obvious issue is that other countries flat out restrict expenditures. But then we get into outcomes. Do those restrictions really reflect lesser care?

    Do we overtreat? Do we practice defensive medicine? (YES) Do we over analyze…because we can?

    And just how are outcomes measured? Is that measurement accurate?? (Anecdote: our infant mortality rate is considered high. Of course that doesn’t measure the fact that babies who never make it to delivery in the other countries jimmy the stat. Or that a poor Mexican who goes into the desert and delivers a dead baby isn’t in the stat. You think that’s incorrect? Were you born yesterday??)

    I confess I don’t have the answers. But the obvious intent to indict our system by those who invoke such statistics just doesn’t pass the snicker test of a person who is experienced and has traveled the world and would not want to be caught anywhere in the world other than the US if in need of medical attention. Nowhere else. Period.

    expenditures are throttled in other countries

  • On most measures of healthcare outcomes we fare no better than other OECD countries and, frankly, I don’t believe that differing inclinations to treat sick babies accounts for the difference in spending. I think there’s an enormous amount of de facto bill padding AKA overtreating going on and despite the fact that many physicians deny practicing defensive medicine I think it’s obvious that they do.

    I believe that we spend more because provider salaries are higher and provider salaries are higher because they were heavily subsidized for a decade without a great deal of scrutiny. That creates a high basis for costs. Mere cost of living adjustments explain a lot of the rest.

    And I wouldn’t mind being treated in France or Germany. Those are the systems we need to be thinking about rather than systems like BNH.

  • Brett Link

    I haven’t really seen anyone call for a system similar to the NHS, not even among the people advocating for a single-payer system. We basically want universal health insurance, in part because you could get around the issue of mandates by simply having the public plan serve as a “default” if you don’t have private insurance.

  • Brett, unless one believes that a 15% reduction in costs, the best that can reasonably be expected from going to a single payer system will make the difference between affordable and unaffordable, then single payer alone won’t accomplish that. The question then becomes how can it be accomplished? Basically, I think there are two answers. One answer is that you go to to a full-fledged national health system and mandate cost reductions. The other is that you engage in structural reform to increase the supply of healthcare. If there are other answers I’m open to them. Simply upping taxes to give healthcare providers whatever they want won’t fly. We’re already paying too much for that to be viable.

    I favor a system somewhat along the lines of France’s which isn’t strictly a single payer system as part of a system of major structural reform but not without the structural reform. Nothing less is enough.

  • Anna Link

    There are two main arguments in favor of single payer health care.


    The first is the ethical moral argument. Health insurance companies make their profit by denying health care to sick people. That is immoral and unethical.


    The second compelling argument is economic. Our current system of for-profit corporate health insurance has created an unbearable economic burden on the nation.
    There are over 100 separate health insurance companies operating under different sets of rules creating a huge 30 % administrative overhead. For comparison, administrative overhead for Medicare is only 2%.

    By converting to a single payer system, we immediately save 300 billion dollars in administrative overhead.

    As a nation, we are now paying twice what other countries pay for health care, yet we do not have universal health coverage here in the US. 50 million Americans are without healthcare and 87 million Americans without health insurance at some point in the past 2 years. Almost half the bankruptcies currently filed in the United States are because of medical bills.

    Despite the costs we pay, the United States ranks LAST on a list of 19 industrialized nations in preventable deaths, and 29th of 37 in infant mortality. The World Health Organization ranks the US at 72nd for healthcare accessibility and efficiency. We can no longer maintain the status quo for the ways we currently provide and pay for health care.

    Medicare is a 40 year example of a successful single payer system which has an administrative overhead of 2%, not 30%.


    These two arguments in favor of a single payer heath insurance system (moral and economic) are so compelling, that one must conclude the only reason we don’t have single payer now is because of lack of representative government. The obvious conclusion is that our government does not serve the people who elected them. Rather, our elected government officials serve the special interests of the health insurance industry and other corporations who make massive campaign contributions.

  • Anna Link



    ** 2.6 Million New Jobs,
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    You can find out more about this study here:

    The press release is here:

    And check out this article, “No Reason to Demonize U.S. Single-Payer Health:

  • Drew Link

    “..frankly, I don’t believe that differing inclinations to treat sick babies accounts for the difference in spending.”

    Just an example of how statistics might not be accurate, not intended as a sole source cause…

    “I think there’s an enormous amount of de facto bill padding AKA overtreating going on..”

    That might be true, but it would sure an indictment of the prescribers: doctors. I know that the group my family uses is “old school.” Very conservative in their approach, whether its procedures or prescriptions.
    Over treating really would be an ethical lapse.

    “..and despite the fact that many physicians deny practicing defensive medicine I think it’s obvious that they do.”

    I’m surprised they deny it! (defensive vs over treating are different in my mind) My anecdote about the kid bumping his head is a perfect example. My father and grandfather (both were doctors) and friends I have who practice medicine all decry the sad need to practice defensively. And it costs money to do so.

    “I believe that we spend more because provider salaries are higher and provider salaries are higher because they were heavily subsidized for a decade without a great deal of scrutiny..”

    I’m not current, but I was aware at one point that procedures (surgeons) were disproportionately reimbursed for years. Trust me, internests and peds etc aren’t making mountains of money. Surgeons? They do well.
    Of course, as a person who has had two neurosurgical procedures, I wanted a happy, competant and well paid guy!!

  • It depends on the standard for “mountains of money”. The median salary for a pediatrician is about $175,000 (the mean is $188,000 which suggests a fairly low sigma) and the median salary for a general internist is $177,000 with a mean of $191,000, again suggesting a fairly low sigma. That may not be vast wealth by investment banker standards (time will tell if that remains the case) but it’s clearly more than three standard deviations over the median wage of around $24,000 (average $36,000) even taking the high standard deviation into account.

    This is something that really needs to be recognized. With physician salaries outstripping most people’s by so many multiples it’s hard to work up much sympathy even when some specialties are making significantly more than others.

  • Drew Link

    One of the reasons I am stridently free market is that debates on things like salaries become so beholden to personal values, as opposed to the collective vote of millions of free market transactions that shape wage and capital return stuctures. That said… are some musings and value judgments.

    Finance people: The current favorite whipping boys of the political class and media. But as we have seen, who has their hand at the till of capital is important. I invest on behalf of pension funds and endowments. That’s a very sobering thing to contemplate. To the extent one of those entities has pledged capital, I (my firm) have the retirement or, say, research dollars of these institutions in play. You have to pay people a lot to have the training, skill, judgment and guts to take that responsibility on. Tens to hundreds of millions are at stake. I’ve seen first hand what the incompetant can destroy…..

    Medical people: Much of the time, the services are straightforward. But as my father told me (I know, yet another doctor dad story) “50% -60% of the people I see aren’t sick. And if I tell them that they don’t want to hear it. But they want to be listened to; they want to be reassured. So we do, and send them on their way. But then we have the others…….that’s where you earn you money. These are people who are sick, and we treat them accordingly, or the people who are REALLY sick, and we get them where they need to be.” What is that worth? $175K?? I don’t know. But when I look at what plumbers, contractors, electricians, teachers, brand managers, TV anchors, baseball players etc etc make, I can’t get too excited about physicians salaries being “mountains.” I really can’t. I was only in the 9th grade when I heard a teacher moaning about how “I went to the doctor and he charged me $25 just to feel my throat.” I remember thinking “you idiot, its not $25 to feel your throat, its $25 for him to have the expertise to feel something wrong in your throat!!”
    And worth alot more than $24K.

    Sermon over…

  • Peter Duncan Link

    I think by making simple decisions to buy or not buy, consumers have changed entire industries — banking, travel, cell phones. A little pressure from consumers typically produces a lot of innovation that shifts products, competition, prices, quality, choices, and ultimately value. The problem with personal and corporate health insurance is that it has been built around providers, insurers, the government, employers — and not around consumers. We’ve ended up with spiralling costs and few consumer choices, primarily because many of the regulations and mindsets governing health care have inhibited the kind of broad-scale consumer innovation that’s happened in other industries.

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