Once again, James Pethokoukis of U.S. News & World Report’s Capital Commerce blog suggests to Alaska Gov. Sarah Palin (R) that if she aspires to higher office, she needs to read Arnold Kling’s Crisis of Abundance.
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Health Care
Can Congress and the President Coordinate Care?
Paul Testa of the New America Foundation has kind words for the briefing paper that Arnold Kling and I coauthored, “Does the Doctor Need a Boss?” He notes “how similar the authors’ core arguments and ideas were to other calls we’ve heard for delivery system reform from across the political spectrum.”
But Testa loses us here:
The emerging consensus on the means as well as the ends of delivery system reform create can lay the foundation for broader health reform. It’s up to Congress and the Obama Administration to build off that foundation bringing in the necessary pieces of cost, coverage and financing reforms to create a truly sustainable health care system that works for all Americans.
As Kling explains in this Cato podcast, Congress and the president are the wrong people to direct delivery system reform.
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Of Cab Fares and Health Care: Markets with Uncertainty Require Competition between Payment Systems
Last week, I was late for a briefing on Capitol Hill. Some would say that was because traffic snafus caused by the March for Life blocked the usual route from the Cato Institute to Capitol Hill, requiring our cabbie to circle back to Cato and take another route. I say the real reason was the D.C. Taxicab Commission.
The D.C. Taxicab Commission requires all cabbies to use the same fare system. Until recently, the commission required cabbies to use a zone system. Under the zone system, the fare from Cato to Capitol Hill was the same flat rate, no matter what route the cabbie chose or how long the ride. If a cabbie encountered a traffic obstruction that slowed him down, then he bore the cost of that lost time. He received no additional money for waiting in traffic or taking a longer route, and the lost time meant that he would collect fewer fares. Therefore, a cabbie that charges according to zones, or any fixed price per trip, has an incentive to learn about and avoid significant traffic obstructions.
Recently, however, the D.C. Taxicab Commission required all cabs to switch from zones to meters that charge by the minute and by the mile. Under the meter system, the passenger bears the cost of delay, because meters charge additional money for every extra minute and every extra mile. Therefore, cabbies have little incentive to learn about and avoid significant traffic obstructions.
In sum, if our cabbie were paid a fixed price for taking us from Cato to Capitol Hill, he probably would have paid more attention to traffic conditions — on the radio, his mobile phone, etc.. He would have known that the usual route was blocked, because he would have borne the cost of delay. But because the D.C. Taxicab Commission requires him to use a meter, he cared a lot less about delay.
The problem is not the meter system. The old zone system probably had its own perverse outcomes, perhaps dead zones where you couldn’t catch a taxi or cabbies who drove too fast. The problem is that the DC Taxicab Commission dictates a single payment system for all taxis. Absent that mandate, cabbies would use different payment systems and competition would force each to offer better service. “Zone” taxis would slow down and pick up fares in more areas, while “meter” taxis would try to avoid unnecessary delays.
Incidentally, that’s the same reason America spends too much on health care and so few Americans have electronic medical records.
The federal government is the largest purchaser of medical services and it effectively dictates a single payment system for most providers. Medicare pays providers on a fee-for-service basis, which is akin to paying cabbies on the basis of meters. (The federal tax code further encourages fee-for-service payment by insulating consumers from the cost of their health insurance.) As a result, doctors and hospitals have little reason to invest in things (e.g., comparative-effectiveness research, electronic medical records) that help avoid unnecessary services, because Medicare pays for unnecessary services. In contrast, prepaid group plans like Kaiser Permanente receive a fixed amount per patient, which is akin to paying cabbies on the basis of zones. Kaiser conducts comparative-effectiveness research and provides electronic medical records to its enrollees because Kaiser bears the cost of unnecessary or duplicative services.
Markets use competition between different payment systems to improve quality and reduce costs, particularly in markets with uncertainty. That form of competition is usually lost when government runs the show.
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Coordinated Care Versus Government
With such a diversity of health care options, some say that health care lacks coordination and integration. But does that failure to coordinate care indicate a failure of markets or government?
In today’s Cato Daily Podcast, adjunct scholar Arnold Kling, who recently co-authored the Briefing Paper, “Does the Doctor Need a Boss?,” discusses why a private overseer would be more beneficial to patients and doctors than a government bureaucracy.
“My view as a market person is that we really don’t know what the best health care system is yet,” says Kling. “…Let’s allow some trial and error experimentation by the market and let the market determine what the best system is.”
Kling is the co-editor of EconLog, a weblog devoted to economic issues and author of several books, including Crisis of Abundance: Rethinking How We Pay for Health Care.
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Medicaid for All?
Back on January 8, the Wall Street Journal ran a fantastic op-ed on Medicaid by the American Enterprise Institute’s Scott Gottlieb. Excerpts:
Accumulating medical data shows that Medicaid recipients’ poor health outcomes aren’t just a function of their underlying medical problems, but a more direct consequence of the program’s shortcomings.…
Now Medicaid is to receive a bolus of federal money, probably as part of the fiscal stimulus plan — the figure whispered in Washington is $100 billion — with no obligation that the program does anything to reverse its decline.…
The troubling evidence about the quality of Medicaid patients’ services is a cautionary tale for Mr. Obama as he sets about to administer more of our health care inside government agencies. Turning Medicaid around should be the least we demand before turning over more of our private health-care market to similar government management.
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Week in Review
Cato Scholars Comment on Obama Inauguration Speech
When Barack Obama stepped to the microphone as President of the United States on Tuesday, he addressed a number of key policy issues, including government spending, terrorism and responsible leadership. After two years of examining candidate Obama’s rhetoric and policy proposals, Cato scholars weigh in on Obama’s first words as president:
John Samples, director of Cato’s Center for Representative Government, offers his take on what he considers the major theme of Obama’s speech: Responsibility. Samples writes:
Obama’s modest demeanor suggests an understanding of his own limitations. If that is true, he may turn out to be more a politician and less a priest, a president content to live within the laws and achieve marginal changes in public policy.
But I wonder. Living in Washington, DC, I have recently had reason to recall Samuel Johnson’s remark about Shakespeare: “In his plays, there are no heroes, only men.” Obama seems to be telling a different story, a tale about charismatic heroes and utopian aspirations. When the talking stops and the doing begins, one question will be answered: Do Americans really want to live out a play where there are no men, only heroes?
In his inaugural address, Obama promised to eliminate government programs that don’t work. Daniel T. Griswold, director of Cato’s Center for Trade Policy Studies, says cutting farm subsidies is a great place to start:
If Senator and candidate Obama could not see the need to end our failed farm policies, it is hard to imagine many if any other programs that will come to an end under his administration.
Director of Information Policy Studies Jim Harper breaks down Obama’s rhetoric on foreign policy and terrorism:
Read the rest of this post →I regret that he raised terrorism again because of the benefit it gives terrorists (knowing that they are in his head). But if it is going to be raised, I can’t think of a better way to do so — no reference to any specific group, just a declaration to anyone considering terrorism: You will lose.
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House GOP Insists Pelosi Hold States to Same Bailout Rules as the Big Three
Here’s an excerpt from a letter that House Republicans sent today to Speaker Nancy Pelosi:
We applaud your recent decision to require the “Big Three” automakers to submit a restructuring plan to Congress before either chamber would consider legislation providing additional federal aid to the auto industry. Unfortunately, the $87 billion allocated for more Medicaid money for states doesn’t appear to hold them accountable for ensuring that the tax dollars are spent wisely. Similar to what was requested of the automakers, we believe it is necessary to require our nation’s Governors to submit formal budget plans for their respective Medicaid programs detailing how additional funds will be spent before Congress considers any legislation to provide a temporary increase in the federal Medicaid match.
Seems reasonable, especially since the states’ irresponsible behavior is what got them into this mess in the first place.
The governors will probably squeal over such a requirement, which would indicate either that they have no plans for how to spend the money or that they would rather not share their plans publicly.