Last month, Cato released a paper titled, “Does the Doctor Need a Boss?“ by Arnold Kling and me. Our friend Greg Scandlen called it “one of the most offensive papers I’ve ever read.” Scandlen is one of the leading lights of the consumer-directed health care movement. He is a senior fellow at the Heartland Institute, founder and director of Consumers for Health Care Choices, a former Cato health policy scholar, and has written for health policy journals such as Health Services Research and Health Affairs. I invited Scandlen to exchange thoughts on the issues raised. Click here to read my initial post, and here to read what others said about Scandlen’s comments. Below is Scandlen’s first response.

Hey, Michael, thanks for giving me a chance to respond. You are right that we agree on far more than we disagree. You wrote, “I imagine we agree that fee-for-service, capitation/​prepayment, and everything in between should have to compete without government favoring any one payment system over the others. Likewise, solo practitioners, HMOs, and everything in between should compete on a level playing field. And I suspect Scandlen would agree with our policy recommendations: that we should deregulate the medical profession, and let consumers control their health care dollars and choose their own health plan.”

Absolutely. But let’s try to learn from experience. We’ve already tried what you are suggesting. Indeed, rather than tilting in favor of fee-for-service medicine, the federal HMO Act of 1974 massively subsidized “health systems that use capitation/​prepayment — which encourages coordinated care.” Mr. Nixon’s dream turned into a nightmare for millions of Americans who were denied the care they needed by remote managers who didn’t know them, didn’t know much about medicine, and had incentives to undertreat patients due to the very capitation arrangements you are embracing.

That led in turn to the predominance of Managed Care in the 1990s, which all but eliminated fee-for-service medicine in the private sector. Instead, we had a labyrinth of networks, utilization review, prior approval, rationing, and limits on benefits, all imposed by corporations that were driven by efficiency concerns rather than patient care.

True, this all held down health care costs dramatically. But is that the purpose of a health care system? Holding down costs is easy, as we have seen in Europe – don’t provide any services. Simplest thing on Earth. We could also hold down transportation costs by not providing transportation, housing costs by not providing housing, food costs by not providing food. I suppose in some eyes all of this would be considered a success.

The problem is not, and has never been, that we pay a fee to get a service. That is precisely what we do in every other area of our economic lives. We pay a barber a fee and he cuts our hair. We pay a mechanic a fee and he changes our oil. We pay an accountant a fee and he prepares our taxes. None of it is particularly inflationary and none of it leads to poor quality.

That is because we are controlling our own money and we don’t like to throw it away. The same thing can happen in health care. In fact, the same thing IS happening in health care in “consumer driven” approaches. People are becoming more engaged, choosing more convenient and lower cost treatments, and saving a ton of money.

Now, I have no problem with people taking their money and using it to buy “capitated, coordinated care” if that is what they prefer. But I would urge you and Arnold Kling not to invest too much of your retirement funds in such companies. I expect not many people would choose such a model over having a real doctor.

Thanks, Greg. I’ll be posting a response sometime soon.