Monday, May 6, 2013

Fwd: qotd: Gerald Friedman: The Unhappy Marriage of Economics and Health Care

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-------- Original Message --------
Subject: qotd: Gerald Friedman: The Unhappy Marriage of Economics and
Health Care
Date: Mon, 6 May 2013 12:31:46 -0700
From: Don McCanne <>
To: Quote-of-the-Day <>

Unions for Single Payer health Care
May 6, 2013
The Unhappy Marriage of Economics and Health Care
By Gerald Friedman, Ph.D., Professor of Economics, University of
Massachusetts at Amherst

America's health care system is collapsing, and we can blame the
Economics profession. Most economists approach health care in the wrong
way, viewing it as a commodity like shoes or the laptop on which I
write. Instead, health care is an idiosyncratic commodity, subject to
uncertainty and "asymmetric information" leading to destructive
behavior. Trying to force health care into a box, treating it like other
commodities, economists have promoted cost sharing, market competition,
and insurance oversight of health care providers that have inflated the
administrative burden while denying ever more Americans access.

While other countries have controlled health care costs by restraining
administrative expenses and drug prices, ballooning costs in the United
States come from policies promoted by economists who have urged
governments and providers to control costs by making consumers
responsible for more of the costs even while raising administrative
costs and ignoring monopolistic pricing of pharmaceuticals. Viewing the
injured, sick, and disabled as "consumers," economists see insurance as
the source of rising costs because they are not responsible for the
costs of care they receive and, therefore, overuse health care. Rising
copayments and deductibles are intended to discourage "consumers" from
"abusing" health care, as if the victims of auto accidents or cancer
should shop around for cheaper, and competition among insurers while
limiting provider services by providing more administrative supervision.
Ignoring evidence that Americans are less likely to see doctors and
other health providers than are residents of other affluent countries,
these economists have blamed the high cost of our health care on
insurance which, they assume, leads to wasteful over-practice and the
provision of unnecessary health care services. Their solution is greater
cost sharing, more regulation of providers, capitation, and even the end
to insurance by substituting medical savings accounts for insurance.

For 40 years, many economists' have promoted increasing cost sharing
through higher copayments and deductibles, the replacement of
fee-for-service payment systems with capitation where providers are paid
a fixed amount for patients as in Health Maintenance Organizations, and
competition where multiple insurers offer a variety of plans catered to
individual consumer's interests and in competition with each other. Far
from limiting health care cost increases, these practices have produced
the worst of all worlds, rising costs along with restrictions on access.
Costs have risen because these recommendations have inflated the
administrative burden in health care, the costs of the billing and
insurance activities within provider offices as well as the cost of the
health insurance industry itself. While restricting access, limiting the
benefit to Americans of some of the dramatic improvements in health care
practice of the last decades, these practices have not bent the cost
curve or slowed health care inflation even while denying more and more
Americans access to affordable health care.

The waste involved in the current system has a redeeming feature: it
provides abundant space for an improved system that could improve access
and services even while dramatically lowering costs by eliminating
administrative waste. If we lowered administrative costs and drug prices
to the Canadian level, we could save nearly $600 billion dollars, more
than enough to provide coverage to all of the uninsured while improving
access for the millions of underinsured. If we see past the bad
recommendations of market-fundamentalists, we can improve health care
and save money. An outcome that even economists should favor.

Comment: Which comes first, economic theory or policy? Intuitively, it
seems that a solid understanding of economics should form the basis for
developing policies. The obvious flaw is that economics is not a hard
science, allowing you flexibility to choose economic theory that
conforms to whatever policy you favor.

In the United States we have relied heavily on economists who are
market-fundamentalists. They begin with market theory, and then they
establish policies that supposedly would provide us the greatest value
in health care. Yet we have ended up with a profoundly expensive, highly
wasteful system of mediocre-to-poor quality, while falling far short of
the goals of making health care affordable and accessible for everyone.

It seems unlikely that the market-fundamentalists would contend that
they choose policies first and then use market theory to reach their
goals. If so, then they would have to explain to us why they wanted
today's outcomes. So much for market fundamentalism.

Advocates of health care justice first choose policies that would ensure
quality care for everyone that is affordable for society as a whole.
Then they apply economic theory to achieve the goals of those policies.
Other nations have shown that this works.

In his article, Massachusetts Professor Gerald Friedman explains how we
can get it right - producing better health care while saving money - an
outcome that all economists should favor, that is if they are pure to
the art and science of their profession.

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