Band-Aids on a Broken Leg

Paul Krugman has a column in the NY Times yesterday titled Patients Are Not Consumers in which he seems to defend the Independent Payment Advisory Board which is part of the “health care reform” passed by Congress in 2010 with much fanfare, most of which has not yet gone into effect, but will at some date in the future and will do things which may or may not be beneficial, or may make no significant difference.

Krugman says that, “We have to do something about health care costs, which means that we have to find a way to start saying no.” While I have no argument with the first part of that assertion, I have to quibble with the second part. France, Germany and England all spend somewhere about half what we do on health care, getting better results, and what part of their cost restraint consists of “saying no?”

He more or less explains his assertion with, “we can’t maintain a system in which Medicare essentially pays for anything a doctor recommends.” Except that is precisely what most developed countries do, although they don’t, as he points out, have systems which, “gives doctors and hospitals — who aren’t saints — a strong financial incentive to engage in excessive care.”

He then goes on to address the IPAB specifically, and I apologize for the long block quote here, usually I let you go read the piece for yourself, but…

Hence the advisory board, whose creation was mandated by last year’s health reform. The board, composed of health-care experts, would be given a target rate of growth in Medicare spending. To keep spending at or below this target, the board would submit “fast-track” recommendations for cost control that would go into effect automatically unless overruled by Congress.

Before you start yelling about “rationing” and “death panels,” bear in mind that we’re not talking about limits on what health care you’re allowed to buy with your own (or your insurance company’s) money. We’re talking only about what will be paid for with taxpayers’ money. And the last time I looked at it, the Declaration of Independence didn’t declare that we had the right to life, liberty, and the all-expenses-paid pursuit of happiness.

First, a couple of things about the “board.” Not all members are “health-care experts.” Some are on the board “ex officio” due to their legislative positions, and some are “individuals representing consumers and the elderly.” Note, too, that their recommendations “go into effect automatically unless overruled by Congress.” This is Congress avoiding responsibility for any backlash that results from costcutting.

And backlash there will be. There are some restrictions on what steps they can take to control costs, namely anything that will control costs.

The proposal shall not include any recommendation to ration health care, raise revenues or Medicare beneficiary premiums, increase Medicare beneficiary cost sharing (including deductibles, coinsurance, and copayments), or otherwise restrict benefits or modify eligibility criteria.

That leaves one thing and one thing only, reduce the amount that Medicare will pay to doctors and hospitals for procedures and treatments, otherwise known as “price controls.” We have tried this before. Price controls didn’t work under Nixon, and to the extent that we have tried them under Medicare they have not worked there either. Every time a scheduled Medicare payment cut has approached, doctors have threatened to leave the program until Congress has knuckled under and “postponed” the payment cut.

Price fixing of Medicare might work if the services were being provided by separate providers, but what keeps those providers from simply raising the prices to non-Medicare patients when the Medicare payments are cut? There is no law against that, as evidenced by the difference between what they charge insurance companies and patients who are paying out of their own pockets. So the less Medicare pays, the more everyone else does and overall health care costs remain high.

Meanwhile, more medical providers drop out of the Medicare system.

Krugman excoriates Ryan for “cost shifting” medical expense onto seniors, but then he slips this little gem into his discussion of reducing the cost of Medicare. “…bear in mind that we’re not talking about limits on what health care you’re allowed to buy with your own (or your insurance company’s) money. We’re talking only about what will be paid for with taxpayers’ money.”

Softer than Ryan’s language, but it amounts to the same thing. And I seem to recall that at one time not only was he in favor of universal health care, he was pressing for single payer. Now he says that, "...the Declaration of Independence didn’t declare that we had the right to life, liberty, and the all-expenses-paid pursuit of happiness." Wow.

The problem is not how we pay for Medicare, or how we pay for medical care overall. The payment system is not the problem. The problem is the health care delivery system itself, and all of this tinkering around with methods of payment simply is not going to solve it.

Krugman even mentions in his piece a "system that gives doctors and hospitals a strong financial incentive to engage in excessive care," and then ignores that problem and addresses a solution of making payments to that system that merely shifts payment from government to individual, while maintaining the "strong financial incentive to engage in excessive care."