Municipalize Medicine?

The New Yorker‘s Atul Gawande on “What a Texas town can teach us about health care“:

McAllen is in Hidalgo County, which has the lowest household income in the country … McAllen has another distinction, too: it is one of the most expensive health-care markets in the country. Only Miami—which has much higher labor and living costs—spends more per person on health care. In 2006, Medicare spent fifteen thousand dollars per enrollee here, almost twice the national average. The income per capita is twelve thousand dollars. …

President Barack Obama said in a March speech at the White House. “By a wide margin, the biggest threat to our nation’s balance sheet is the skyrocketing cost of health care.” …

El Paso County, eight hundred miles up the border, has essentially the same demographics. … Yet in 2006 Medicare expenditures … in El Paso were $7,504 per enrollee – half as much as in McAllen. … There’s no evidence that the treatments and technologies available at McAllen are better than those found elsewhere in the country. … Nor does the care given in McAllen stand out for its quality. … The primary cause of McAllen’s extreme costs was, very simply, the across-the-board overuse of medicine. …

In a 2003 study, … Elliott Fisher, examined the treatment received by a million elderly Americans diagnosed with colon or rectal cancer, a hip fracture, or a heart attack. They found that patients in higher-spending regions received sixty per cent more care than elsewhere. … Yet they did no better than other patients, whether this was measured in terms of survival, their ability to function, or satisfaction with the care they received. If anything, they seemed to do worse. …

In an odd way, this news is reassuring. … If we brought the cost curve in the expensive places down to [the cheap place] level, Medicare’s problems (indeed, almost all the federal government’s budget problems for the next fifty years) would be solved. The difficulty is how to go about it. …

It was a depressing conversation—not because I thought the [hospital] executives were being evasive but because they weren’t being evasive. The data on McAllen’s costs were clearly new to them. … Local executives for hospitals … have only the vaguest notion of whether the doctors are making their communities as healthy as they can, or whether they are more or less efficient than their counterparts elsewhere.

Hmmm. McAllen’s overuse is paid for by the whole nation now.  But if it was funded locally, raising McAllen’s tax rate over El Paso, and putting it at a competitive advantage at attracting workers and employers, I’ll bet McAllen’s political and business elites would know about the problem, and try to deal with it.  They might succeed, reducing local overuse, or they might fail, making McAllen whither into an object lesson for other towns to avoid.  Either way, local feedback would reduce local overuse.

We’d expect the same if McAllen’s taxes were sky high from trash collectors going into folks’ houses to collect trash.  Municipal services are sometimes wasteful, but overall competition and comparability keep them in line.  Few municipalities build unused roads, but Congress more often builds roads to nowhere.

Some expect national regulators will reign in spending by flagging some treatments as wasteful, but this seems unlikely.  Obama may be popular, but on medicine he isn’t remotely as popular as doctors. Surveys show the public thinks the main problem is “Americans don’t get the tests and treatments they need” … “because drug and insurance companies make too much money”; “insurers should pay even if their doctor recommends a treatment that has not been proven to be more effective than a cheaper one.”  Medical spending may have to bankrupt the U.S. before its citizens will admit they spend too much.

But I do see a U.S. political compromise with a better chance to rein in spending growth: municipalize medicine.  We have now nationalized half the industry, we strongly and nationally regulate the other half, and we face a correlated risk of national bankruptcy if we choose badly on national medical policy.  Instead, consider letting government take full control of the industry, but at a municipal level, with minimal national regulation and so minimal correlated risk.  Some municipalities will find ways to cut overuse, and others will fail, but failures can then emulate successes. Instead of a disastrous national extreme eventually teaching the nation one very expensive lesson, local disasters can convince nearby folks piecemeal that they spend too much on medicine.

We could require municipalities to give universal coverage, and require national standards so businesses could avoid dealing with differing local regulations. But we should otherwise give municipalities wide discretion on cost control measures. They could receive federal funds, but depending only on demographics, and usable for other purposes; the key is for local folks to pay for local practice variation.  Municipalities should be empowered to charge new residents higher prices, just as insurance companies now charge for pre-existing conditions.  (Perhaps the districts folks leave should pay districts they go to.)

While its no one’s first choice, my libertarian friends prefer this proposal to the status quo.  Progressives should like its universal coverage, full government control, and strengthened local communities ties.  Conservatives should like its cost reduction prospects and reduced national control.  Maybe the medical reform debate should be less about government versus private control, and more about centralization versus decentralization.

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  • Psychohistorian

    This seems interesting, but municipal populations are emphatically not exogenous.

    If you’ve got a town of twenty-something non-smokers, they’re going to pay next to nothing for limited, catastrophic health care, and that means people outside that town are going to be paying a lot more. This is doubly true because if I do get a serious condition, I can move!

    If, however, you have a community of the elderly, may God have mercy on your budget. Similarly, if you’ve got a community of the urban poor, well, they’re pretty much SOL (at least if you’re replacing existing federal programs – if they still have Medicaid there isn’t so much of a problem).

    It’s an interesting idea, but it seems like you need serious barriers to entry/exit or some requirement of uniformity if you’re going to have small, local health care. You might consider distributing nationalized health care funds on a municipal basis with an algorithm or seriously disinterested third party (using a formula, not handpicking), but this might run into a serious collective action problem.

    If (and this if is kind of as big as, “If we had a panacea as cheap as aspirin and cold fusion power and a pony!”) you could ensure fund distribution would be immune to political interference, this would capture most of the benefits of your municipal idea and avoid some of the biggest drawbacks.

  • http://macroethics.blogspot.com nazgulnarsil

    it’s harder to throw money into a hole in a small town. someone might actually trip over it and start asking questions.

  • diogenes

    Gwande’s article is excellent — I think a lot of people in medicine feel this is by far one of the biggest problems. I agree with Robin’s idea that a lot of experimentation is necessary to figure out whats going to work, rather than trying to come up with a national plan at once — something at a state level may be more administratively and statistically feasible than at a municipal level. However cost-control didn’t come from top-down (govt), but bottom up (medical institutions and culture).

    That is, something I think Robin glosses over is that Mayo and other low-cost areas were formed due to cultural expectations rather than traditional economic incentives. There starting conditions and current state is completely different than that of high cost areas and they would require a different incentive system than a high cost region.

    The current, wonderful economist developed incentive system — probably did more to encourage wasteful behavior than anything else What do you think was going to happen when you severely devalue physician time — and increase the value of procedures/tests. You get more procedures and tests, by basically lowering physician’s threshold for the need for an additional test or procedure.

    For all your rants on the harms of medicine — I’m surprised you haven’t posted on the amount of unnecessary procedures/tests conducted that can be potentially attributable to the current economist-developed incentive system. SURELY, some healthcare economist somewhere — must have tried to estimate this effect.

  • http://t-a-w.blogspot.com/ Tomasz Wegrzanowski

    You seem to be willing to try absolutely everything you can think of just to avoid admitting that European style single payer national insurance is the best way to go.

    One obvious problem with this solution is that while demographics are pretty consistent on national and state level, they differ a lot on city level, so there will be cities with poor old sick people that will be completely screwed.

    Another problem is that this is a hugely unproven solution, while single payer national health care has plenty of good evidence of working.

    If UK experience with local councils, and what I know about US (local) vs European (national) school systems is any indicator, local solutions do a lot worse jobs than national systems, but I don’t have strong evidence here. This isn’t really a surprise as city or local council cannot really hire independent experts in medicine to run the system properly, so it will simply delegate all decisions to doctors, introducing severe conflicts of interest. A bit like Iceland-sized country trying to run a global banking system..

  • Constant

    … European style single payer national insurance is the best way to go.

    Google socialized medicine, visit a few links on the first page, you’ll see it’s hardly a slam dunk in favor of socialized medicine.

    So much for the evidence. Theory also gives one pause. We are supposed to believe that socialization, which fails so regularly and so spectacularly in every other part of the economy, works in medicine because of special considerations (the usual argument is that patients are ignorant of medicine and so a market in medicine, which places the choices in the hands of the patient, can hardly work; never mind that this would apply to any other field involving expertise, which is pretty much the entire economy).

  • http://hanson.gmu.edu Robin Hanson

    Psycho, education is now run locally even though places vary in whether they have kids. I said in the post “they could receive federal funds, but depending only on demographics.” Demographics can include gender, age, and other features that predict health.

    Tomasz, as others have noted, it is far from obvious U.S. citizens would accept central bureaucrats overruling their doctors about what treatments they need; the likely outcome of single-payer in the U.S. is sustained growth of costs via overuse.

  • http://www.BetterCEO.com John Seiffer

    You say >>Municipalities should be empowered to charge new residents higher prices, just as an insurance companies can charge for pre-existing conditions<<

    But why should insurance companies be allowed to cherry pick the risk like that? Health care is not bought (or sold) like a consumer good. It’s in the consumers best interest to need none of it. That alone makes it a strange animal.

    Secondly, in America we value two things about our economy. We want it to be efficient (meaning allow willing buyers and sellers to conduct their transactions as they see fit). But we also want it to be fair – so we outlaw price gouging in a disaster regardless of the fact that a lumber yard might find buyers willing to pay 10 times the normal price for plywood to board up their house before an impending hurricane.

    Those tow values – economic efficiency and economic fairness are in conflict at certain times. Dealing with health care is one of those times and so far in this country the conversation has for decades been slanted toward efficiency (as defined above – not actually efficient) and not fairness. I think it’s time to swing the pendulum the other way.

  • http://williambswift.blogspot.com/ billswift

    The anti-gouging laws are the only economic regulations that I’m aware of that might actually be stupider than rent control. How is it “fair”?

  • Cyan

    far from obvious U.S. citizens would accept central bureaucrats overruling their doctors about what treatments they need

    Do central bureaucrats overrule doctors in the VA health system, a single-payer U.S.-government-run insurer? If so, do the U.S. citizens involved accept it?

  • http://ssmag.wordpress.com a_c

    The problem with the current system is not that we have a free market in healthcare, but that our market is far from free. The incentive systems are all screwed up. Patients have to go with the insurer that their employer mandates, regardless of how they are treated. Insurers try their best to avoid paying for medical procedures, but it’s doctors who are harmed by this, not the patient. Doctors try to do as many procedures as possible, but it’s the patient, not the insurer, that takes the fall.

    Basically, you have the patient, the insurer, and the doctor. In every combination, A gets to decide how much B screws over C, rather than having his actions feed back on himself. No wonder the market is screwed up.

    One way to fix this would be to have doctors bill by time, not procedure, and have insurance be an after-the-fact reimbursement of a percentage of the costs. If a doctor does too many procedures, they eat the costs and the patients go elsewhere. If the insurer fails to pay up on time, the patient picks another insurer. THAT’s the way the free market is supposed to work

  • Floccina

    I have long thought that it is a problem that much of the over regulation in medicine is at the state level but most of the money comes from the federal level.

  • Floccina

    a_c another way to address that would be to pay a lump sum on diagnosis.

  • https://torontopm.wordpress.com Paul Hewitt

    “One way to fix this would be to have doctors bill by time, not procedure”

    I’m reminded of the joke where the patient complains about the doctor’s charge for a simple surgery and asks for an itemized bill. The doctor provides it showing 1 hour of surgical time – $250, knowing where to cut – $4,750, Total $5,000.

    Health care issues are extremely complex, requiring much more thought than this. We should not be looking to the “market forces” to perform the “efficient” allocation of these resources. Market forces are highly overrated.

  • barghest

    I think public municipal health care will be no better than the glory that is public municipal education.

  • Constant

    Paul Hewitt:

    Health care issues are extremely complex, requiring much more thought than this. We should not be looking to the “market forces” to perform the “efficient” allocation of these resources.

    That, complete with the scare quotes around “market forces” and “efficient”, is a common sentiment, something I would expect to hear from a typical humanities professor or Digg commenter. What makes it interesting is that you are apparently the proprietor of “Toronto Prediction Market Blog.”

  • Dagon

    “municipal” is just another tick on the slider from “global” to “individual”. It seems attractive because it’s closer to “individual”, not because it’s good on it’s own.

    Any redistribution policy (which regulated health care / insurance absolutely is) based on geographic location is going to have problems. The larger the aggregated geography, the less obvious the mobility problems. The smaller the geography, the less obvious the redistribution problems.

  • https://torontopm.wordpress.com Paul Hewitt

    Constant,

    What should also be obvious is that we have universal health care in Canada. It used to work properly (without market forces), but it does not any more.

    What I meant was that “market forces” don’t work as well as everyone thinks. Those that think market forces are the answer to all allocation problems live in a dream world, and a very old one at that (1776?). Would you be willing to accept your “efficient” share of health care resources, subject to the “free” market forces? I think most of you got a taste of the efficient allocation when HMOs were introduced. Now, if you lose your job and get seriously ill, you’ll lose your house too. Now that is an “efficient” allocation of resources, but not a particularly fair one.

    The problem with the free market, neoclassical model is that we aren’t all homogeneous participants. Forgot also, the real world isn’t perfectly competitive. Oh yeah, information isn’t perfect, markets don’t always clear and we aren’t always in equilibrium. There are several other invalid assumptions, but it doesn’t matter at this point of the argument. Even if all of the neoclassical assumptions held true, the resource allocation may be efficient, but it will not necessarily be “fair” from a social welfare point of view. I think most people would like a “fair” health care system, don’t you?

    In Canada, the debate is whether to even allow private health care. It is deemed to be too important to ensure that all citizens receive at least basic health care. Interestingly, our system rations resources not by their monetary cost, but by their time cost (the patient’s). A better way would be to charge a nominal user fee to eliminate the frivolous health care visits.

    In the US, it might be a good idea to ban media ads that urge you to “ask your doctor whether this or that drug is for you.” Talk about wasting health care resources!

    I’m probably out of my word allotment…

  • http://www.QandO.net Bryan Pick

    John Seiffer:

    Health care is not bought (or sold) like a consumer good. It’s in the consumers best interest to need none of it. That alone makes it a strange animal.

    Isn’t it in the consumer’s best interest to need nothing? I enjoy eating, but I doubt I would interrupt what I’m doing several times every day to make meals if I didn’t have to.

    Secondly, in America we value two things about our economy. We want it to be efficient (meaning allow willing buyers and sellers to conduct their transactions as they see fit). But we also want it to be fair – so we outlaw price gouging in a disaster regardless of the fact that a lumber yard might find buyers willing to pay 10 times the normal price for plywood to board up their house before an impending hurricane.

    You may recall that hurricanes in the Gulf of Mexico interrupted gasoline supplies to the entire region. Thanks to officials promising to crack down on “price gouging”, many gas stations kept their prices low and simply ran out of gasoline.

    Let’s say that during one of these shortages, one of my loved ones has a medical emergency. I need to get gasoline so I can get my loved one to a hospital.

    But when that emergency happens, others have already drained the gasoline from the gas stations dry at the artificially depressed price — maybe just for the psychological comfort of knowing they have a full tank (especially if they anticipate that the gas station will actually run out), maybe because they want to go on a leisurely drive.

    So there I sit, begging for someone to “gouge” me, while all the stations are empty because the artificially lower price essentially forced a first-come-first-served rationing. Is that fair?

  • https://torontopm.wordpress.com Paul Hewitt

    John Seiffer:

    But why should insurance companies be allowed to cherry pick the risk like that? Health care is not bought (or sold) like a consumer good. It’s in the consumers best interest to need none of it. That alone makes it a strange animal.

    Actually, the thing that makes it a strange animal is that the buyer (potential patient) knows more about his/her health than the insurance company. This is the information asymmetry issue. This presents a problem to the profit seeking insurance company. They need a method of determining each patient’s health situation, so that a fair premium can be set (they make a reasonable profit and you obtain a reasonable amount of insurance against health risks).

    If you try to legislate or restrict the insurance company from “cherry picking”, they will want everyone to be required (no opting out) to be insured, and they will set the premium for all equal to the premium for the “average” healthy patient. If opting out is allowed, the healthiest patient will decline the coverage, raising the average premium for the remaining insureds. Then the next healthiest will opt out, and so on. Eventually, only the sickest individual will remain in the plan, paying a premium equal to the worst case cost of treatment (i.e. cost of his house). This is the adverse selection problem in information economics.

    For the most part, it is in the consumer’s interest to remain healthy and not require the insurer to pay out for health care. However, there are situations in which this is not so. If the consumer is fully covered for everything, he may not take quite as good care of his health as he would if he were not covered. Accordingly, the risk of health problems rises, resulting in higher premiums. This is the moral hazard problem, again in information economics.

    To combat this issue, insurance companies often put in co-insurance and deductible clauses. This puts some of the onus back on the patient to take better care of himself. It can also be used to get consumers to identify their level of healthiness. When choosing a policy, the healthier consumers will opt for high deductibles and co-insurance, whereas the sickest individuals will not. This is the concept of “self-selection”.

    As you can see, information economics has an awful lot to say about the health care problem (and many others). I’m sure Robin can fill in the missing pieces.

  • http://retiredurologist.com retired urologist

    @Floccina: another way to address that would be to pay a lump sum on diagnosis.

    Medicare has had it for years, called the “diagnosis related group”, , used to pay hospitals a lump sum for patient care. It’s part of the problem.

    BTW, the Mayo record that Gawande mentions for controlling Medicare expenditures includes recommending radical prostate surgery for octagenarians, . Recent long-term clinical studies show that no recognized treatment of prostate cancer increases life expectancy. Perhaps they’re cutting corners somewhere else, but their savings are not necessarily based on better medical care.

  • http://retiredurologist.com retired urologist

    Addendum: these links should have appeared in my comment above.

  • http://entitledtoanopinion.wordpress.com TGGP

    I’m surprised Robin didn’t link to his earlier post on home based group insurance:
    http://www.overcomingbias.com/2009/04/homebased-group-insurance.html

    retired urologist’s links still aren’t showing up. Is WordPress removing them?

  • Alan

    For a Texas neurosurgeon’s perspective of the health care crisis (and ideas for reform), see the recently published book “Flatlined,” by Guy Clifton, M.D.

  • Billy Wilder

    The whole world looks in wonder and puzzlement at America’s socialised government. After all, wouldn’t it be more efficient to have each individual organise and pay for his own governance?

    It’s the same story with police and fire services. Why this inefficient, Communist system whereby the evil, all-controlling Man oppresses the people by providing peace of mind and cheaper services? It would be better to call the insurance company when a madman is holding you at gunpoint. They can then assess whether or not you need assistance, and send out a bunch of forms a couple of weeks later. That’s only if you have a job, of course.

    In reality, America’s healthcare system is the laughing stock of the world, as is the absurd attachment of cold war ideology to this issue alone. Why doesn’t the US adopt a national healthcare system? For no good reason.

  • Diogenes

    I think the benefits of municipalizing healthcare have been overstated. Atul has given an extreme example of differing efficiencies but most are going to lie within 5% of each other. Hence any savings will be correspondingly minimal.

  • http://hanson.gmu.edu Robin Hanson

    My proposal was explicitly constructed as a compromise, but interestingly few commentators seem interested in such things. Folks seem mainly interested in declaring their favorite option, and my proposal therefore fails to please most because it is no one’s favorite option. This suggests that the blogsphere is a poor place to craft compromise.

  • Constant

    This suggests that the blogsphere is a poor place to craft compromise.

    That’s a very specific generalization. How about, “compromise is hard”, “not a lot of people are interested in compromise,” or your own suggestion, “politics isn’t about policy”.

  • Floccina

    @retired urologist
    Medicare has had it for years, called the “diagnosis related group”, , used to pay hospitals a lump sum for patient care. It’s part of the problem.

    I had in mind giving the money to the patients so they can shop around. The idea has lots of verification problems and is an invitation to corruption but what we have now is not so clean.

    Clearly it would not work to give the provider money on diagnosis.

  • Floccina

    My proposal was explicitly constructed as a compromise, but interestingly few commentators seem interested in such things. Folks seem mainly interested in declaring their favorite option, and my proposal therefore fails to please most because it is no one’s favorite option. This suggests that the blogsphere is a poor place to craft compromise.

    Actually Robin I do like your suggestion as a compromise. I like it even more for charity/welfare. Each community/group of people would elect a charity/welfare distributer who would decide how money should be distributed to the poor. He would accountable to the people who elected him a very small electorate like 10K people per charity/welfare distributer might be best.

  • Jim Babcock

    Where health care is concerned, talking about dollars can be misleading. If we take a step nearer, ignore the currency for a moment and look at the resources that money represents, we notice a few things. The US does a lot of extra, unnecessary medical care. This represents a surplus of doctors; the medical procedures that have great benefits are presumably already covered, with many doctors to spare, leaving the rest to waste their time on hopeless cases (like end-of-life care) and frivolous cases (like cosmetic surgery). US hospitals do a lot of unnecessary tests; this represents a surplus of lab technicians and equipment. We prescribe many pharmaceuticals with negligible benefit; this represents an excess of chemical manufacturing capacity.

    But the thing is, demand for medical care is not constant; it spikes during a natural disaster or a pandemic. In order to have enough doctors to respond to a crisis, we have to keep them busy somehow between crises. Suppose there were an outbreak of something like the Spanish Flu of 1918. In order to test populations for it, we’d need far more lab technicians than could be justified by ordinary circumstances; in order to treat it, we’d need far more doctors than could be justified by ordinary circumstances; and in order to synthesize enough drugs to deal with it in time, we’d need far more pharmaceutical manufacturing capacity than could be justified by ordinary circumstances.

    The only thing in the medical sector that’s true waste is the bureaucrats and salespeople. Cutting costs may be good, but not all costs are alike.

  • NE1

    What is the timescale of poor health care? What is the timescale of local business growth? If they don’t match with the timescale of a politician in power, we can’t expect to match incentives.

  • diogenes

    Robin, several posters mentioned that at a municipal level, the administrative overhead and the statistics don’t seem to work out. However, maybe at the state level, although the fine-grained feedback on local variation may get blunted. However — Gwande’s article really seems to me to lay blame on local cultural problems rather than a traditional economic incentive problem per say.

    On the other hand the blogosphere problem isn’t the best place to craft compromise — maybe having a direct question for discussion at the end of the post would help. Especially on controversial topics. Volokh posters often try and limit the scope of discussion/comments.

  • Oliver

    It seems that the critical factor is to have comparisons and an incentive to experiment and learn from others, regardless of how this is achieved. So the main conclusion is that you need several sources of funding that compete with each other. Not too many so that dealing with the multitude of payers causes too much hassle, but more more than a handful.

    But if you base this on municipality you create an incentive for municipalities to lower health care costs by handing chronically ill people a one-way ticket to a nice sunny place.

  • Josh

    We could require municipalities to give universal coverage, and require national standards so businesses could avoid differing local regulations.

    What businesses?

    But we should otherwise give municipalities wide discretion on cost control measures.

    The game is entirely what those “national standards” would be. Without strong enough regulations, the concept of universal coverage could be made meaningless by high deductibles or poor coverage. As regulation became stronger, there would be little room for municipalities to go above and beyond, which would make the system very uniform. So allowing wide discretion on cost control measures conflicts with the mandate for universal coverage mentioned earlier.

    Municipalities should be empowered to charge new residents higher prices, just as an insurance companies can charge for pre-existing conditions. (Perhaps the districts folks leave should pay districts they go to.)

    That would create some barriers to labor mobility; the severity of those barriers would increase with the discretion to charge higher prices to new residents. And again, there is a trade-off: reducing that discretion would lead to people moving to towns with better insurance if they got sick.

    While its no one’s first choice, my libertarian friends prefer this proposal to the status quo. Progressives should like its universal coverage, full government control, and strengthened local communities ties.

    That’s because the most important details are absent. Progressives are most likely imagining strong regulation to ensure universality of coverage. Libertarians are most likely imagining weak regulation. We don’t even know if private insurance would be outlawed.

    How about equality? Poor individuals tend to cluster together, and small municipalities would be less able to bear the overhead required. Federal funding could help to level the playing field, but we all know it wouldn’t be doled out fairly. Geography is a weird way of clumping people to share this particular risk.

    Maybe the medical reform debate should be less about government versus private control, and more about centralization versus decentralization.

    A certain amount of decentralization could help, but I don’t think we should decentralize using geography. Maybe there is another way?

    Also, government control is important. Private health insurance companies can take advantage of the bounded rationality of their counterparties and imperfect competition arising from their large provider networks, which can lead to excessively high profits and administrative costs. You could tax them, but what would you do with the money? If you give it to lower-income individuals, you’re just subsidizing them again. The only way to overcome this problem is to roll up your sleeves and start a competing company for the benefit of patients and doctors. This could potentially be done in the market: doctors and patients could work out a scheme wherein they share ownership of an insurance company. But if doctors and patients are going to send zillions of proxies to negotiate complicated contracts anyway, why not have the public start it and use government as the forum for those negotiations? That’s what the government is there for.

  • http://hanson.gmu.edu Robin Hanson

    Josh, wide discretion only conflicts fatally with an expansive concept of universal coverage, one that knows exactly who should be treated when and how. Mobility barriers based on pre-existing condition surcharges should be no higher for municipalities than for employers; the same barriers exist in both cases. Medicare payments are already doled out far from fairly due to local practice variation; why is a federal payment to municipalities based on demographics less fair? And why point out that government is important; my proposal puts the entire industry completely in government hands; why isn’t that enough?

  • Josh

    Josh, wide discretion only conflicts fatally with an expansive concept of universal coverage, one that knows exactly who should be treated when and how.

    That’s no discretion! You can go from there to wider and wider discretion, until municipalities have the discretion to offer no coverage at all. My point is that there is a tradeoff: the more discretion, the less uniform the coverage. Universal coverage implies a certain degree of uniformity beyond simply paying for insurance.

    Mobility barriers based on preexisting condition surcharges should be no higher for municipalities than for employers; the same barriers exist in both cases.

    That’s a good point. Are there preexisting condition surcharges in the group market, though? To be honest, I don’t know what regulations there are on employer-based insurance, but I know the market for it is very different from individual insurance. Is the group market required to provide maternity care, for example? I don’t think employers can charge new employees more, but there is usually a fixed enrollment period.

    Even if the regulations on town-based insurance were the same as employer-based insurance, there would be other problems relating to pooling risk by geography. For example, it would create incentives for rent-seeking: towns could try to compel their unhealthiest members to move away.

    Medicare payments are already doled out far from fairly due to local practice variation; why is a federal payment to municipalities based on demographics less fair?

    Because, as far as I know, people still have the option of leaving their town without penalty, whether temporarily or permanently, if they wish to escape local practices. In addition to the unfairness, the federal funding ensures a large degree of centralization: the government will have to decide, for example, whether an aging community will receive more funding than a young, healthy one.

    And why point out that government is important; my proposal puts the entire industry completely in government hands; why isn’t that enough?

    You were saying maybe the debate should be less about private vs. government control. But I think that part of the debate is very important and probably isn’t overemphasized.

    I thought your idea was interesting, and I gave them some thought. Sorry if that didn’t come through! Geography just strikes me as a poor way to decentralize things for the reasons I’ve already mentioned. Decentralization itself could create room for some compromise, though I don’t think you’ve really specified what that compromise would look like. The compromise is all about how much coverage the decentralized pools would have to provide, not just whether they would have to provide coverage; their discretion to reject new applicants or charge for preexisting conditions; their source of funding; and whether private insurance would be illegal.

    • http://hanson.gmu.edu Robin Hanson

      [Note our new threaded comment feature!]

      El Paso now spends half of what McAllen spends without running afoul of federal rules on what is acceptable coverage. So clearly there is a lot of scope for local feedback to reduce spending even with current levels of spending discretion.

  • http://hanson.gmu.edu Robin Hanson

    Josh, yes of course there is a tradeoff between discretion and central rules. Employers can and do consider employee health when hiring, and deciding what wage to offer. They also can and do encourage unhealthy employees to leave. Since governments are almost all geographically defined, I see no other way to decentralize via government than geographically. There is the fully private option, but this was intended as a political compromise, and that private option does not seem an acceptable compromise to most. Yes of course this proposal isn’t fully fleshed out. If someone were interested in doing so, I’d be happy to help.

    • Josh

      Employers can and do consider employee health when hiring, and deciding what wage to offer. They also can and do encourage unhealthy employees to leave.

      Are you sure? I’m almost positive both of those actions are illegal. Anyway, a better response than the one I had earlier is that employer-based insurance isn’t ideal either.

      Since governments are almost all geographically defined, I see no other way to decentralize via government than geographically.

      You could pool people together randomly and then have them vote, via proxy if necessary, on a menu of policy choices. Or you could vote on a metric for well-being, propose a few different plans, and then set up a betting market to decide which plans were likely to lead to the highest well-being. The highest-ranking plans would be then administered for several of the random pools. There are lots of other ways to do it.

      • Kenny Evitt

        Robin – your blog isn’t the venue to determine the political palatableness of a reasonable sideways policy-tug.
        Josh – yes, yes, your criticism and your proposals are all well and good, but they’re as a improbable as Robin’s innocuous suggestion. And just because something is illegal, doesn’t mean it doesn’t frequently occur, more so for illegals acts that are hard to identify and lightly punished.

  • http://retiredurologist.com retired urologist

    Discussions of healthcare reform infrequently look at the question of who will provide the care. Robin Hanson has, in several earlier posts, pointed out that allied-health entities (physician assistants, nurses, midwives, etc.) deliver equal or superior care to that of physicians. These studies involve mostly uncomplicated health issues. For more serious problems, one prefers an especially intelligent, especially well-trained, especially skilled attendant. What will attract such individuals to the field of medicine? One powerful intangible attractant is respect for the occupation, which is rapidly disappearing, and for disciples of Hanson, has vanished. Money comes to mind, yet most participants in this blog, and indeed the general public, feel that doctors are overpaid. Compensation for individual physician services diminishes every year and with each “reform”, perhaps a factor encouraging unnecessary interventions. In my college class, those who completed accounting and began practice as a CPA at age 22, working 40-hour weeks, out-earned their classmates who opted to be surgeons until the surgeon reached about age 55, working 60-80-hour weeks, including nights, weekends, and holidays. What would encourage someone with the requisite potential to see the choice of medicine as having the greatest utility? I readily understand that healthcare costs are out of control. At the same time, experienced doctors are dropping out at unprecedented rates, and about half of all US medical school applicants are accepted, down from about 1-in-20 in my day. I’m out of the game as a provider, but I dread to think that as a consumer, my surgery will be performed by the low bidder.

    • Josh

      Compensation for individual physician services diminishes every year and with each “reform”, perhaps a factor encouraging unnecessary interventions . . . healthcare costs are out of control . . .

      I keep hearing stuff like this. Where is all that money going?

      • Alex J.

        Conceivably to:
        Treatments that aren’t subject to medicare/medicaid price limitations.
        Treating people who wouldn’t have gotten treated before. (Say, cases w/ only small benefits.)
        Treatments that didn’t exist before.

  • http://retiredurologist.com retired urologist

    @Josh:

    Note that I said “compensation for individual physician services diminishes every year…”. I’m referring to the government-mediated agencies, Medicare and Medicaid, and their price codes for specific services. For example, I was reimbursed $2600 in 1979 for a certain surgical procedure that I performed, in 1979 dollars. When I retired in 2005, I was being reimbursed $700 for the same procedure, this time in devalued 2005 dollars. The difference in purchasing power is about 8-fold. Note that I could not collect any more than this Medicare allowance to make up the difference, even if the patient volunteered. As Casey Stengel often said: “You can look it up.”

  • Josh

    Note that I said “compensation for individual physician services diminishes every year…”

    And yet the price of medicine is going up. Is it new technology? an aging population? drugs? Maybe we’re not spending enough on services. I happen to think primary care is especially neglected. But something has to give, since we can’t spend 120% of GDP on health care.

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