Thursday, March 12, 2009

Different This Time?

The good news is that President Obama hasn't let the current economic situation make him lose sight of the imminent need for health care reforms. The question is whether he has the resolve and insight to push the most important ones through.

The health care forum kicked off by him on March 5 has generally been well received. News commentators and political pundits have contrasted the atmosphere of open discussion and hearing of all the interest groups with the behind-closed-doors formulation of the ill-fated 1993 Clinton plan. How well the new approach works depends partly on how the working group discussions have been structured, and whether all the ideas could be aired and properly debated.

In these open discussions there are hopefully safeguards to ensure that special interests can't through mutual compromises squelch good ideas that adversely affect them. For example, payers and patients stand to enormously benefit from an increased supply of doctors; a properly designed public health insurance plan that fairly competes with private plans; reform of tort laws including restrictions on jury shopping and imposition of malpractice caps; and using a cost-benefit criteria to evaluate drugs. But these measures can reduce excess earnings of doctors, private insurers, trial lawyers and the drug companies respectively. So they all decide to "respect" each other and downplay such proposals.

Another danger in open discussions is the advance warning and preemptive opportunities available to special interests and the lawmakers that they have influenced or bought. Five senior Republican senators have already affirmed their GOP group's opposition to the public option, declaring, "..forcing free market plans to compete with these government-run programs would create an unlevel playing field and inevitably doom true competition... Ultimately we would be left with a single government-run program controlling all of the market.”

Huh? If private plans are more efficient and / or offer something better than the government program then why should they be wiped out? I don't much doubt the prediction, since the experience in France and Germany indicates that about 80%-90% of the people will go for the basic government plan (though 90% of the French also buy supplemental private insurance.) It's because a properly administered government -run plan can deliver better value than private profit-seeking entities, but then that's a sound reason to change the system. Note the "properly administered" qualifier - Paul Krugman repeatedly points out the success story of the government run Veteran's Health Administration in the Clinton years. Then services deteriorated and scandals like at Walter Reed emerged in the subsequent Bush era.

On this issue of public programs it is a little disturbing to see Obama appearing less than resolute and making conciliatory noises at the outset. He says he understands the objections because "...if a public option is run through Washington and there are incentives to try to tamp down costs, (then) private insurance plans might end up feeling overwhelmed.” Why? A March 12 item by Reuters quotes conservative experts who assert it will be "almost impossible to create a level playing field (between a public and private insurers)" but give no reason to support this.

Still, there are two encouraging aspects that makes the present reform thrust much more likely to succeed than the 1993 effort (other than the over-hyped closed-door versus open-door contrast):
a) A sadder, wiser, more anxious public is less likely to be taken in by those Harry and Louise ads. And a more dire health care situation has made the push for reforms much stronger.
b) Obama has rightly focused on the very high costs of US health care as an even bigger issue than extending coverage to all the uninsured. That should force participants to come up with solutions for more efficient and cost-effective health care, instead of simply shoveling more taxpayer dollars to outrageously priced providers.


Anonymous said...

Like I said earlier, the gov't only has a hammer as a tool. Therefore, everything looks like a nail. You can keep hammering down the doctors' rates; you can keep forcing big pharma to reduce prices; you can mandate insurance companies to keep premiums low. At best, Walter Reed can be run better but they will not come up with a cure for cancer.

The innovation is almost always coming from the private sector.

Where I think the answer lies is in reforming the delivery system. We must structure it where more procedures are performed on a package basis. And if the patient wants the bigger package, he can elect to buy better insurance, or pay out of his own pocket.


Sandip Madan said...

Government payments are lower than those by private insurers and much less than what is demanded of the hapless uninsured. But they are higher than what is paid in other developed countries.

Why should private profit-driven innovation always be assumed to trump government sponsored and funded measures? The latter put a man on the moon, and first created the internet. Private companies may find it more profitable to create a new anti-wrinkle cream for the well-heeled, or me-too drugs, rather than an original cure for deadly cancers.

I agree with your emphasis on package payments rather than the fee-for-service system that adds to costs and even rewards mistakes.

Anonymous said...

After spending billions to go to the moon, we say "So what?" After spending billions to create the internet, we say "So what?" It will be upto private companies to commercialize the moon and the internet. The gov't has no creativity to produce anything of value from going to the moon and the internet. Yes, we need gov't to provide the basic infrastructre, but not let the referee take over the basketball game.

But coming back to my thoughts of how we must bring medical costs under control is reverting back to the Relative Value Sytem (RSV). This was the system insurance paid docs decades ago where we took a certain procedure, measured how much time an av. doc took and paid that amount. So a tonsilitis took one hour; you multiplied it by an average rate of $200 and paid that.

Where we have transgressed is going into the UCR, usual and customary rates. This allowed docs to charge according to zips and next thing you know, everyone was charging what the Manhattan doctor was doing. This was done by adding more and more procedures on to simple problems.

So if a doctor knows he is only going to be paid X for a knee replacement, he will only do what's necessary. He can explain to the patient that insurance will only pay X and if he wanted to do extra and recover faster, it would be coming out of his own pocket.


Sandip Madan said...

To me the govt-as-referee analogy isn't very applicable, the the govt actually created the internet and put man on the moon, and not simply create rules and regulations for the private sector that did the job. A better analogy going the other way could be that the government funds the "right" type of major drug discovery and lets the private sector manufacture (under licence) and distribute these.

Your idea about reverting from UCR to RVS makes a lot of sense to me.

Anonymous said...

Let's take the man on the moon. After hundreds of billions all you have is a flag pole and a few footprints on the lunar surface. Did any products come out of it? Did it do anything to make life better for the average human? So the govt can make all these grand plans and spend your money, but what good will it do?

It took private companies to create satellites to make for your cellphones. And GPS units to help me get to work faster. It takes private companies to know what to market and know when to stop.

The problem with gov't trying to run business is that it will not know when to stop, when it has made a mistake, and will have to make things to suit everybody. If gov't made shoes, it would make size 8 for everyone. If you were a size 10, you would have to cut your toes off to fit them. This literally happened in the Soviet Union where the govt set a goal to make 10 million pairs of shoes. There were 6 million right ones and 4 million left ones. The sizes were all averaged out, and the whole exercise was a waste of time.

Take a look at the Amtrak. The gov't insists it knows whats best for the consumer so it builds these trains to nowhere. Americans simply want to drive cars so why must officials insist. No! They will keep pouring money into it. They don't know when they are wrong because they have unlimited funds. Now they will tinker with the price of cars or the price of gas to force people on these trains. Now Nancy Pelosi and Harry Reid will build another train from San Fran to LA and Las Vegas. Private companies will make mistakes but they will run out of money when they do. Markets are much more efficient in deciding what's needed. Gov't should just be the rule maker to make sure all the parties are playing fairly.


Sandip Madan said...

The technologies and applications you mention - satellite, GPS, cell phones, etc., not to speak of the internet were first developed by the government or its agencies and then transferred for commercial and civilian use.

Most mass transport in other developed countries is publicly owned and operated, and doing much better than the US infrastructure.

Plucking examples like the old Russian shoe story even if true (first time I'm hearing it) tells nothing. There are any number of true private sector examples: AIG, Madoff, U.S. automakers... you get the picture.

Anonymous said...

Well, that's the point I'm driving at. With the gov't having spent so much money to develop these, they don't have anything to show for it. They don't have a cell phone that works, and private companies regularly send up satellites into orbit and a fraction of NASA. And look at the Soviets. After winning the race in space, the gov't has bankrupted the nation because it hasn't allowed the private sector to function.

And tell me what the Europeans have besides their trains, snobby wine tasting. They have a lower standard of living; they have lower productivity; they live in tiny cubicles. That's because they refuse to acknowlege that markets work and think everything needs to be rationed.

They think like Malthusians. He was the guy lived a century ago and predicted that because of the increase of human population, and the "static" resources on the earth, everyone will be dead by around 1930. Well, the population has more than tripled and standards of living have risen. That's because one of the greatest books that has ever been written by Adam Smith allow markets to function. Yes, prices of a commodity may rise for a while, but the rise allows investment to find the supply. Eventually, prices will drop and everyone is better off. Well, gov't and Malthusians think they have to ration resources and only use the hammer to control prices. That is so unimaginative. They don't realize the markets will eventually bring supply in line with demand.

And what about AIG? There will be many more private companies failing. In fact, that is the function of the market. To fail those that made bad decisions. In fact, the gov't is making a bigger mistake to bail them out. Govt should not pick winners and losers. Bailing out GM and Chryler is another mistake. Toyota has clearly won and gov't should not interfere. Liberals don't understand this is a cruel Darwinian process and want to rescue everyone.

Yes there will be many private failures and that's the market. But gov't never fails and politicians will continue to pour money into failed projects to prop them up.

And take a look at Madoff. That's another failure of gov't to supervise. In particular, the SEC which is an arm of the govt should have spotted this. So markets haven't failed but gov't has failed to referee the game properly.


Sandip Madan said...

Those private services wouldn't even exist without the government creating the underlying technology and initial infrastructure.

At least you acknowledge the need for more regulation and oversight in regard to Madoff and non-bank financial institutions. As Krugman said today in NYT the US model is now severely tarnished.

We aren't talking of US vs Europe overall. In health care and mass transport their system is far better and more efficient. Let the private insurers compete with the government run plan on the same terms i.e., no difference in expense to the tax-payer. If they're better than the government as you maintain they'll do fine.

Anonymous said...

No one doubts we need gov't. But there is no doubt private companies can do things cheaper and more creatively. So govt should run the SEC and enforce laws, but not run the New York Stock exchange. They should run the FDA but not a drug company. They should run the Dept of Transport but not GM. You can see the mess they're making at GM by interfering in market supply and demand laws. It's like that king of Denmark several centuries earlier who ran out to the shoreline and commanded the sea to stop rising. Moments later he was deluged by the tide.

Gov't trying to run business violates separation of powers doctrine. Political and commercial interests should be kept apart. Neither should corporations try to influence elections. That's why we separate legislative, judicial and executive branches. So when gov't enters the insurance business, it will have both legislative and executive capabilities. If it's losing marketshare, it will simply change the rules. If it runs a drug company it will simply pass all it's drugs through. Separation and balance of powers is the key to maintaining a civil society.


Sandip Madan said...

"No doubt private companies do things more cheaply and ceatively?" There are many who disagree, and many examples to the contrary. Two Bush era examples are Blackwater security (costs 3 times as much as the US army personnel would) and Katrina no-bid private contracts for housing, etc.

GM made a mess by itself, without any government interference. The merits of government efforts now to bail out GM are of course being debated.

I know of no "separation of powers doctrine" about public vs private sector, only about the executive, judicial and legislative functions not being concentrated into a single entity. A public insurance program can be something as simple as expanding our Medicare for seniors into Medicare for all.

I don't see it conflicting with separation of powers, as the program run by the executive (HHS) will still be subject to legislative oversight by Congress, and to judicial challenge just like other public programs.

kenrod said...

You cite two perfect examples of what I'm talking about. Just because something is labelled "private company" doesn't mean it's abiding by free market principles. In both Blackwater and Katrina cases they are no bid contracts. And while I can somewhat excuse Bush for using Blackwater to protect state secrets, it wasn't meant to make policies in general. And as you can see, when there's no competition you get abuse and corruption. And gov't, by their very nature, are no competition and have absolute power. Therefore, they must control only one aspect of the decisions.

And take the case of GM, the gov't is making an absolute mess in intervening. Nobody who believes in free markets says there can't be failures. In fact, I believe it should be part of the equation. The market should be able to sort out the winners and losers, not the gov't. The math is simple. There's worldwide production capacity of 33 million cars, and only a demand of 9 million. Someone has to go. Now the gov't has stepped in at the cost of tens of billions in order to "save jobs." Such bleeding hearts. It would have been better to send all these employees a paycheck for life than to keep these obsolete plants open. Moreover, the gov't is going to politicize production by forcing GM to make green cars whether the market wants it or not.

And if you think a private company failure is bad, just wait til you see a gov't failure. If the gov't just let GM fail, that would have been the end. Other companies would have filled in the gaps. But now the gov't will pump in endless amount to keep it afloat because it has an endless amount of money at the cost of taxpayers, and at the peril of hyper inflation.

And you don't need a constitutional lawyer to tell you about separation of powers. By definition, if you have have the power to legislate, execute and judge, then you have a monopoly on power. The gov't has its hands full just being the judge, let alone trying to innovate and run businesses.

Sandip Madan said...

It's great that you emphasize the need for competition in a free market economy. Many people wrongly associate "free markets" simply with operations by unregulated or less regulated private companies, even if they face no competition. Some of these beliefs seem to have been deliberately played upon by Bushies who wanted to favor their cronies.

I share many of your concerns about bailing out GM. But bankruptcy can be a highly inefficient and tortuous process for GM. It's not just high social costs of unemployment of GM and supplier company workers, but the economic cost of taxpayer dollars being spent on their benefits and healthcare.

So done wisely, there are merits from a US economic standpoint to the government trying to help out through a "prepackaged bankruptcy" or voluntary reorganization where everyone makes adequate concessions in a "win-win." Whether all constitients (labor, bondholders, etc.) agree so it can work out remains to be seen.

But if the governmet is to pump in funds I see no problem in them imposing conditions and development priorities that guard against shortsighted management decisions like the ones that landed GM in this mess.

Anonymous said...

And that's my point. Why should the gov't be pumping in funds and telling it what to do. GM has failed and Toyota has won. What business is it of the feds to interfere in free markets.

Besides, how the govt is coming in is a terrible example of heavy handedness. There was 27 billion in GM at the start of this year. The gov't came in with another 27 billion but the existing shareholders now own 10%, and the feds own 50%. Now how is that fair? Then they elect members to the UAW. Now are these members beholden to the gov't or the workers. I mean the gov't has made a mess of this and set bad examples for years to come. We have allowed the weak to survive, which is against natural law.

But this also adds to my point as to why gov't should be in business. It has unlimited resources and contaminates the free market process. When we start this, the Auto cos wanted 5 billion, then it went to 30 billion, and now to 60 and still counting. And the feds will keep pumping it in and running companies that have slim demand for their products.

Anonymous said...

My last paragraph was meant to read, "Why gov't shouldn't be in business."

Sandip Madan said...

Freudian slip? :-) We've moved far afield of healthcare. As I said an unstructured bankruptcy has high costs, and in GM's case they may be looking for a win-win alternative.