Ezra Klein is pushing back against the Healthcare Reform 2.0 talk with an interesting and I think wrong post at Vox.
both parties agree that the biggest problem in American health care is cost. The closest thing Republicans have to a health-care plan — Rep. Paul Ryan’s budget — is focused on cutting costs. Now leading Democrats tell Sarah Kliff that now that Obamacare is up-and-running they’re going to turn their attention to cost. It’s as if the point of having a health-care system is to spend less on it.
But both parties are wrong. Cost is not the biggest problem in America’s health-care system. Value is….
take Obamacare’s surprising success holding down premiums in its private insurance offerings. The innovation there is “narrower networks“: insurers are regulating where people can go for care more tightly. That cuts costs by cutting access to expensive providers. But while I think narrower networks are a good idea, there’s no evidence that they improve quality….
Value is defined as stuff divided by price of that stuff. In the framework that Klein is using, value is health divided by the cost of achieving that health. I think he is missing two very big things in his argument.
Reducing the denominator, in this case the cost of services by increasingly using narrow networks to exclude very high cost providers reduces costs. He is arguing that narrow networks for them to improve value have to also increase the numerator. That is a quick sleight of hand. So far all of the evidence has shown that narrow networks have the same value. As a basic matter of math, holding the numerator constant while shrinking the denominator makes the dividend bigger.
My six year is trying to teach herself long division and this basic concept is blowing her mind.
Secondly, and this is the more disappointing thing as I know Ezra knows better (given how much he was in love with Quality Health Partners at WonkBlog) but PPACA and the Centers for Medicare and Medicaid (CMS) have plenty of experiments that are seeking to improve total health at either budget neutral or budget positive terms. I know on the ACO models are aggressively trying to increase health while also decreasing costs. Some are succeeding at both counts while plenty more are succeeding at holding quality constant at lower costs. I know the Medicare penalities for re-admissions have been driving better health and lower costs. I know other care coordination efforts are ongoing; some will work, some will muddle through and others will be failures, but there are plenty of attempts to move both the end product (better health) and cost needles in oppositive and improving directions.
Will they all work? No, but there is a consensus that the value proposition for American medicine sucks, and plenty of ideas to change that value proposition so value increases by either better health, lower costs or both.
A future actuary?
@WereBear: As of last night, a future dancing butterfly doctor airplane pilot (all at the same time) and I know that I am her dad and I should encourage her, but I may elect not to get on that airplane on her first flight
The problem is that value is used in both senses: the total value of something and the benefit divided by the cost. Talking about “value” without saying which sense you’re talking about is inevitably going to lead to confusion. If you’re going to talk about both, you need to be careful to use different terms for the two things, e.g. total value and cost effectiveness. If you don’t, you’re either being incredibly sloppy or dishonest.
I suspect Ezrah didn’t think too hard about a defintion of ‘value’. At a guess, though, I’d say he might have meant that there is a certain degree of overtreatment in the health care system which doesn’t deliver much in terms of outcome and therefore ‘degrades’ the value of the treatment that is provided. In other words, his ‘definition’ of ‘value’ might be medical outcome.
But overall I agree, sloppy writing on his part.
I think Ezra’s using the term “value” here when he really means “quality.” You can get pretty good “value,” i.e., thing/cost of thing, while still getting poor quality. However, in defense of Ezra and contra your somewhat simplistic calculation of “value,” poor quality care is not a particularly good value at any cost.
Personally, I do not think the main problem with healthcare in America is the cost. The main problem with healthcare is that we pretend that a healthcare system can operate as a traditional free market. Anyone that has ever spent even 10 minutes in an ER, ICU, or nursing home,for that matter, can tell you that the free market principles do not, and cannot, apply. The same is true in other care venues, as well. The high cost of our system is a symptom of this problem and would resolve itself if we allowed healthcare to operate in a more natural way. Even armchair physicians know that treating the symptom rarely cures the patient, but that is what we continue to do in this country by fixating on reducing the cost of healthcare. It inevitably leads to uneven and/or low quality care and a chronically sick system.
Klein does not understand economics or health care enough to say much useful about healthcare reform. A lot of other people do. So, I think mistake for RM to use Klein’s superficial analysis as a springboard for discussion.
There are other good analysts who can write in plain English who offer a better starting point. Uwe Reinhardt is an example. I disagree with Reinhardt on some issues, but at least he understands enough so that starting from one of his pieces does not mean you have to start from confusion.
Main thing I got from Klein’s piece is that he finally got some basics about the implications of the Rand Health Insurance experiment straight. That is progress.
I’ve never seen much evidence that Klein understands the difference between economic costs, transfers, quasi-rents, reimbursements,and oligogoly, monopoly and monopsony market power, and other basic concepts needed to have a clear discussion of important next steps in health care reform.
@mb: In “traditional” free market (as in, the way Adam Smith intended it, not the robber baron deregulation bullshit it is commonly taken as these days), information is supposed to be low cost, readily available and understandable by all market participants. So unless somehow everyone gets an instant medical degree for the price of a box of cereal, health care can by definition not be a free market. Also, participants can leave a free market at any time, which, unless you’re really fed up with this world, is not a recommended course of action for health care.
@Calouste: Thanks. Everyone also has to agree on a single probability distribution that describes possible ‘state of the world’, which is jargon for what the true case is. In terms of health care, that would mean everyone would have to agree on same probability distribution that a person has a certain set of possible diseases, or that an extra day in maternity ward is needed medical care or is just an unnecessary care that the patient kind of feels good about. That is pretty strong requirement.
It is not just Adam Smith, who had a very keen intuition about why that assumption is needed, and he discussed it in most depth in his analysis of financial panics and bank failures. It is a necessary assumption in the math needed for arguments about how free markets can maximize social welfare. The informational assumptions needed for proper functioning of free market is something Brad DeLong emphasizes a lot in his blog.
Costs are still ridiculous, and I say this as a HCP. Yesterday I needed to get a refill on my Singulair (asthma drug). It’s been generic for a few years now. Called the local Kroger; they gave me a price of $479 (or thereabouts) for 90 tablets of the generic.This was cash price; I have a $2000 HSA to spend down before my insurance kicks in. I said no thanks, and called the Costco. $40.
Besides unmitigated greed, is there any possible explanation for this variation in price? And, had I had prescription coverage for this, would the insurance company have gotten a much better deal?
Holy shit, poor Ezra’s gone complete Villager on us — as “both parties agree” is Wonk for “both sides do it.”
Republicans DO NOT agree that the problem is cost — if Ezra was listening at all to what those hateful shites are saying he would know that they quite plainly state that the problem is that poor people and the blahs are too fucking lazy and if only they worked harder, they would be able to afford the prices the invisible handjob of the market dictates because markets should be free even though freedumb isn’t.
@mtiffany: Well, now, the GOP does agree that it would be problem if anything was done to reduce monopoly power rents, er… ‘costs’ so that poor and working class people could afford health care, that they are probably getting way too much of already. So, in that sense, I can see how both parties agree that ‘costs’ are a problem.
Thanks, @mtiffany, that’s exactly what I opened comments to say. One party thinks costs are the problem, and the other thinks the problem is the possibility that Those People might get some benefit that they obviously don’t deserve because they’re Those People.
Ezra, you’re too young to die as an individual, and be assimilated into the Broderist Borg.
What you don’t hear any talk about is the real cost driver: the five percent of the population that consumes fifty percent of our health care costs. Who are they? Generally old, sick poor people. So what do we do with them?
The rest of us are not consuming all that much health care relatively speaking and cutting costs for us is really nibbling at the margins. You want to truly cut health care costs? Come up with a plan for the five percenters.
And you never hear about that.
@elboku: I assume this is snark.
So, you are not an old sick poor person I gather. Please tell us your foolproof plan not to get sick. And I gather you are not planning to get old either (which if I maybe so bold, ia a rather disturbing and unusual plan you have there)? And you have acquired some kind of income insurance that will surely prevent you from ever becoming poor?
Do you understand the point of insurance?
@elboku: Just looking at my time sheet for the past month, and 70% of my time was devoted to figuring out ways to manage costs for the most expensive 2% of the population. There is very little easy there (hemophiliacs, cancer survivors, multiple chronic conditions, Cystic Fibrosis etc)