Ezra Klein: All Public Choice Problems Are Not Created Equal

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February 19, 2007

All Public Choice Problems Are Not Created Equal

I remain continually confused by this critique. So Tyler posits that Medicare is unimpressive because it didn't cover prescription drugs for a very long time, and that's why we should stick with private insurance. I reply that Medicare was barred from doing so because insurers and pharmaceutical companies lobbied against it. Megan triumphantly argues that that's why we should stick with private insurers!

It's all a bit odd. Megan's chief point isn't without merit, but it rests on a different premise. The issue isn't whether "those problems will somehow magically fall away in their system." In fact, they will. Insurers will no longer block this government program from coming into being. The next set of problems Megan identifies -- that the plans will be too generous, or workers will want high wages, or bureaucrats will be overly cautious -- are different problems. Hell, they're not even different versions of the same problem. The first problem impedes a progressive program, the second set of problems enlarge it. And that's been the history of enacted welfare state programs -- vicious opposition to their creation, at which point they become largely (though not always) popular, bulletproof, and are often -- though again, not always -- expanded in ways I think useful.

In other words, not all public choice problems are created equal. So the analytical break point is whether you believe programs like Medicare or Social Security are fundamentally good programs that do a better job than their private sector counterparts. I argue frequently in the affirmative, taking Medicare itself, Medicare Part D's performance, and every other developed health system in the world as my examples. Indeed, I see the insurer's attempts to bar government competition as tacit confirmation of the point. Megan likely disagrees. That disagreement, however, is not the same as whether industry's ability to block program X is a an argument against overcoming their reluctance and implementing program X. Indeed, Megan submits that the the insurer's ability to block Medicare helps "make the current system suck," and then argues we should stick with the insurer's dominating everything. It's bizarre.

February 19, 2007 in Health Care | Permalink

Comments

You actually like Part D, or like a program like it in theory?

Posted by: Brian | Feb 19, 2007 9:01:20 PM

I dislike Part D, but it's a better/best issue. Part D is certainly performing above expectations, and it's better than the basic private market because the government is regulating the plans and the threat of further government involvement is holding their prices down.

Posted by: Ezra | Feb 19, 2007 9:36:30 PM

Come on, Medicare Part D is about throwing a lot of money at a problem - insurers are getting big sums to subsidize the program and nobody wants pissed off old people, least of all politicians. You could do much better than Part D as it's currently constructed. And it would also be expensive, probably more so than this.

I think Galt's comments are generalized and thus a bit hard to pin down, but I think she has a point. I think the "Medicare for All" proposals are very pie-in-the-sky and tend to ignore the hard parts in favor of something fairly utopian. Medicare's reimbursement policies have a lot of politics already in them; expanding the system will create an interest in yet more mischief (one can only speculate on contraception/Viagra/abortion... and that's just a really obvious one). Medicare is also costly and like all of health care, costs are rising, and there's a battle likely coming over reimbursement rates that won't be at all pretty... nor does anyone really want to discuss just how much of the federal budget Medicare already eats and just how much more expensive and expansion would be.

I also think that during Bush's Social Security debacle people made a very valid point - it's a mistake to lump Social Security and Medicare into the same thing. Social Security was put in place because the alternative was... nothing; Social Security doesn't really have a private sector counterpart, because 401 Ks and pension plans are not really the same thing. Medicare was partially about providing coverage for care because none existed, but some people did have coverage and many continue to supplement their policies with private insurance. If it was useful to make distinctions between SS and Medicare then, it continues to be useful now. Any discussion about a massive change to the way health care is paid for - never mind that the discussion really will also need to encompass how health care is delivered - will be a big, messy discussion, especially when so few people come to it (certainly right now) understanding the parameters or what's entirely at stake. There will be loads of political posturing and a large number of competing vested interests making vareious claims, many of dubious value that will still have terrific emotional appeal. Selling something like "Mediacre for All" won't be easy or simple and many devils lurk in the details. If progressives aren't willing to be up front about those challenges, and the fact that what may emerge would be a Frankenstein loved by absolutely no one, the rest of this is very wishful thinking.

Posted by: weboy | Feb 19, 2007 9:53:51 PM

I think the argument is pretty simple. There will be new medical treatments coming down the road (at least we hope). Government plans will be relatively slow to pick many of them up. A single-payer system will be relatively slow to pick many of them up. Now the one data point of prescription drugs is no *proof*, but the argument does not rest upon a conceptual confusion. To note that private insurers -- as an interest group -- were (possibly) partly behind governmental slowness does not change any of this. Nor does it mean that private insurers -- as a business -- will be equally slow.

Posted by: Tyler Cowen | Feb 19, 2007 10:36:11 PM

And the drug companies will go away? And the medical equipment companies? And the companies that make supplies? To say that a programme sucks worse than the private sector alternative because private companies lobby the government to keep it that way is, as I see it, to concede that private companies and other interest groups have the power to make government programmes suck in a way that the private sector does not--that the price signal has managed to prevent some major distortion. Unless you're planning to nationalise all of the companies that supply the sector, they will continue to lobby and distort things, as will the unions, etc. It's not a different problem; it's the exact same problem. Taking the insurance companies out of the equation removes a few distortions, but adds a lot more--witness New York's adventures with 1199, frex.

Posted by: Jane Galt | Feb 19, 2007 11:05:59 PM

Tyler says that government plans will be "relatively slow" to pick up on new treatments, but I don't see why that would be the case. Sure, if the treatments are massively expensive and extremely rare, it's unlikely they'll be much push for them to be covered, but if they're relatively commont treatments, are you telling me there won't be incredibly organized political pressure to get them covered? (ACT-UP is a pretty good example of how riled and organized citizens can get when their lives are on the line) And I don't understand why pointing out that the private insurers isn't relevant. The point is that under the old system you had an entrenched interest group whose future profits depended directly on being able to stymy the government's attempts to offer the new benefit. What is the entrenched group that is going to stand in the way of the future breakthrough treatments?

Posted by: Chris Hayes | Feb 19, 2007 11:12:37 PM

But this is, in ways, a self-negating critique. You well know -- indeed, you actually reference -- that Medicare has an almost instantaneous pick-up of new procedures. This was your other public choice problem -- that taxpayers make it too generous. Now, there was this category of thing that it didn't do and now does (pharmaceuticals), but the issue isn't, and never was, that they are too slow to greenlight the addition of treatments.

Your objection relies on how long it took a new program to be created in a legislative system with a bias towards inertia. That's fine. But the pressures faced by these programs once they're created is very different than what happens in advance of their creation, and the Medicare prescription drug analogy is, in many ways, an attempt to conflate those two, since we're talking about what happens once a medicare-for-all program is created. And since Medicare-for-All would specifically cover treatments and pharmaceuticals, if some new category of thing arises in the next few decades, it won't stop a private market from arising to provide it. The whole objection seems off-the-mark.

And the second portion here is just as bizarre. If we're agreeing, in this argument, that the private companies suck and are working towards sucky outcomes in the government, the last thing I want to do is throw up my hands and grant them their hegemony. Indeed, the private companies are battling against programs (or programmes, as the Economist-writer would have it ;-) that will reduce their ability to suck, and I'm perfectly happy to say that I'd prefer the enaction of those programs -- even if the private companies continue to fight them -- then to simply cede control to industry. What they can do to distort existing government programs is far less than what they can do in a market they control.

Posted by: Ezra | Feb 19, 2007 11:21:04 PM

Count me as a referral from bloggingheads.tv, as I was impressed with Ezra's intellect, although I disagree with him on many details. What you have here in this thread is an ideological fight, masquerading as a substantive one - whether one is so disposed for public or private programs is the gist of it. Ideology aside, in the language of this thread, when it comes to health care, both insurers and the government "suck." They suck in very different ways, however.

Since this is Ezra's site, let me enumerate a few of Medicare's faults which I think would be intensified in a "Medicare-for-all" system. The issue is that of monopsony power - which exists somewhat for the over 65 population now, but is mitigated overall from the provider point of view in that Medicare is but one payer in the total market. I'll illustrate with some examples from my experience. In 1999, my father was diagnosed with Multiple Myeloma. Our oncologist wanted to proceed with an autologous stem cell transplant, since my dad was in fairly good health otherwise - however, Medicare did not pay for that procedure - and would not until Oct. 2000. http://www.bmtinfonet.org/newsletters/issue51/medicare.html
Of note are the three pivotal studies which were published in 1995, 1996 and 1999. Expensive procedures usually require quite a bit of review by HCFA, now CMMS, since so much money is potentially on the line. Would a private insurer have paid for this? It's unknowable - but a private insurer has a somewhat more flexibility in allowing things on a case by case basis - and is somewhat more responsive to pressure since there is potential competition. And there is the possibility that different companies (or different plans) may have decided differently. We basically had no options in dealing with Medicare. Extend this situation with "Medicare-for-All" and you will have one entity making the determination whether a treatment is worthwhile paying for or not.

Another recent example is Vagus Nerve Stimulation for the treatment of depression - approved by the FDA in 2005, it was being paid for sporadically by private insurers, but just recently, CMMS decided that Medicare was not going pay for this - something another branch of the government approved.

So one could make the argument that the Medicare is penurious. However, people are arguing that Medicare is too generous, since Medicare costs are rising - too fast for the government's (and thus the people's) taste. Since the growth in spending was too high, in the last 3 years, I have experienced a decrease in Part B reimbursement in *actual* dollars. http://www.cbo.gov/ftpdocs/75xx/doc7542/09-07-SGR-brief.pdf
Medicare only represents a portion of my practice, so it's not the worst thing for me - however, in a "Medicare-for-All" scenario it would be a different scenario. Mind you, payments were cut for no other reason than maintain targeted growth rates, and thus political decisions about how much taxes to have and how much to spend on health care would be the sole determinant what I receive for my work.
Medicare works on a lot of levels - I agree with you there, Ezra, and wouldn't have a problem expanding access to it on some level. It certainly makes sense for retirees and disabled who don't may not have a lot financial options that younger folks might. But having the government be a large player is very different than making it the *only* game in town.

Posted by: umbrelladoc | Feb 20, 2007 6:17:54 AM

But this acts as if all activity by private companies is either good, or bad--as if they're either the heroes or the villains of some melodrama we're writing. The point that those of us who believe in free markets make is that private companies act well when price signals align their incentives with those of their customers, and badly when a government with wide areas of authority offers them opportunities for rent seeking.

Medicare is not only, as I understand it, slower than most of the private sector to pick up new procedures; it also, unlike the private sector, offers absolutely no recourse if you or your doctor disagree with its decision. The problem with Medicare is not the number of procedures it covers; its that its structure encourages overutilisation of whatever procedures it does cover.

Posted by: Jane Galt | Feb 20, 2007 8:33:10 AM

This is an interesting discussion, but most of it is completely off the mark.

The reason is that it takes seriously the idea that there is an actual private insurance "market" in the USA, like there is an automobile market or even fast food. That is not the case. Most people in the US have insurance through their employers. The employer does shop around with various companies, but employees are given a couple of different plan choices that are all offered by Aetna, or BCBS, or some similar company. Once that agreement is in place with the employer, the insurance company is a monopoly for the market representedy by the employees. Their choice, then, is to either participate or not.

There is the small amount of pressure that can be applied to the insurance company through HR, but in real life practice that's negligible, especially as companies get larger, making it harder for individuals who are unhappy to have their voices heard.

This system creates a situation in which people have marginally more recourse with private insurance than they do Medicare - and most of that exists only in theory rather than actual practice.

In terms of overutilization of approved treatments, this is exactly the criticism that is made about the private insurance companies' fee-for-service system. Since health service providers often get paid according to the number of tests and procedures they provide and since getting a private company's approval for any so-called "new" treatment is a nightmare, there is an incentive to continue with established tests and procedures, even when it becomes clear that a different drug or new procedure is more effective.

Under most UC plans out there, private insurance companies would not need to disappear. There would be adjustments, but as private companies I'm quite sure that their remarkably streamlined processes and cat-like reflexes in adapting to the ever-changing marketplace will allow these paragons of American entrepeneurial spirit and private ownership to continue offering highly responsive, efficient and profitable service to the American consumer.

O beautiful for spacious skies, For amber waves of grain. . .

Posted by: Stephen | Feb 20, 2007 9:12:56 AM

Jane - It strikes me that both of the things you mention are problems with Medicare (and not the only ones): the list of procedures it covers naturally lags behind innovations in delivery of care, due to the size and scope of its beaurocracy (something that expansion seems likely to exacerbate, not fix); and it creates incentives to overutilize certain things that will be paid without question. I think the bigger problem with your free market approach, though, is that a for-profit system may not be the best solution for delivering something like health care, which is ultimately about doing things not because they are profitable, but because they are the right things to do for people who need treatment. It may well be the case that the best way to deliver good health care to the most people is a way that does not maximize profit for private companies, and clearly favoring the latter over the former will both seem callous and mistaken, I think. While I don't love a government based solution like Medicare for All, I'm leery of saying that our alternative is being left solely to the mercies of free market players. They will need to be regulated, like it or not (and whether it's costly and unprofitable or not) and there will need to be some sort of public-private partnership to solve the health care crises we have - so that patient care is held up as the priority.

Posted by: weboy | Feb 20, 2007 9:17:32 AM

Would a private insurer have paid for this? It's unknowable - but a private insurer has a somewhat more flexibility in allowing things on a case by case basis - and is somewhat more responsive to pressure since there is potential competition. And there is the possibility that different companies (or different plans) may have decided differently.

What good is that? Once your condition is preexisting, you're stuck with the insurer you have, so if some other insurer might cover a treatment yours doesn't it's of no use to you. I don't see any reason to think that Medicare is slower to adopt new treatments than the insurance industry as a whole, or even less flexible (there is an appeals process), which are the important metrics.

As Stephen says, if there were an efficient private insurance market, including the ability to choose providers after diagnosis, and the information needed to make good choices, then private insurance would be worth preserving for the reasons given here. How would that happen?

Posted by: Sanpete | Feb 20, 2007 11:38:42 AM

Government plans will be relatively slow to pick many of them up….Tyler Cowen

In the first place you are making assumptions that may not be warranted and in the second place, apparently you are unaware of private insurance company formularies, which make the price of uncovered drugs prohibitively expensive. That's why so many are using Canadian firms already. You fail to appreciate that the bureaucrats who OK new procedures and drugs are not motivated by how much they can contribute to their company's profits but by how they can help the people.

private companies and other interest groups have the power to make government … Jane Galt

No, it says that private companies through their lobbying and bought-and-paid political allies have a way of preventing government programs from coming into existence or making those that do, like Medicare D, work to their own benefit and hence more expensive than need be. Compared to America's corporations, the weakened trade unions whose membership is at historical lows are relatively powerless.

The point that those of us who believe in free markets… Jane Galt

The point is there is no such thing as a free market, and the fear of "over-utilization" is a cruel joke to the millions who have no coverage. Every doctor currently deals with hypochondriacs who would waste his time and service. They're a known quanity.
In all scenarios with a single-payer, private insurance is still permitted. It's the same old story: the rich have more of everything including medial and the opportunity for replacement organs that will never be available to the less fortunate.

…Once your condition is preexisting, you're stuck with the insurer you have …Sanpete

You're pretty much screwed if you lose your job or the insurance company drops you. That's the "Free Market!"

Posted by: Mike | Feb 20, 2007 4:19:47 PM

Ezra,

Allow me to broaden Jane's point. The issue is less about strictly "private companies," per se, than people. There will always be stakeholders in health care that have concerns over the system's impact on their constituencies-- beyond pharma and biotech, such as doctors, nurses, disease advocacy groups, etc. All of these groups "lobby" government in some fashion, trying to push their concerns into changes in the system.

Single payer, where goverments makes economically rational, efficient decisions would be great in theory. In practice, however, that just isn't what happens. Government makes decisions that are inherently political, and the resulting system deviates from what is theoretically best for patients.

The slow changes in Medicare, addition of Part D 30 years late are just some examples. Let me point out another that recently went under the radar, and ask that you actually look into the details here. Right around Christmas, when everyone else was busy with families, Congress pushed through another classic midnight-hour piece of Medicare legislation-- which dealt with issues of physician compensation, pay-for-performance incentives, etc. No transparency, no discussion-- in the end, this stakeholder group got what they wanted, because they lobbied the right people.

Change in our government-funded health care system is driven by lobbying. That is fundamentally the problem with a single-payer system-- the stakeholders will shape the system, not the "health care elite."

Posted by: Wisewon | Feb 21, 2007 8:09:28 AM

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