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Different rooftops
As the system gets gamed, the costs will be much, much higher than the CBO is estimating.
Arnold Kling explains his words in more detail. Elsewhere:
If you think of the social cost of this bill it's well below $900 billion. If we could collect in tax revenues all the dollars in savings and new wages that people will get because of this bill, it would bring the cost well below $900 billion.
Jonathan Gruber explains his words in more detail.
Posted by Tyler Cowen on November 12, 2009 at 06:22 PM in Medicine | Permalink
Comments
Clearly this calls for a bet.
Posted by: Nick at Nov 12, 2009 7:15:55 PM
Indeed it does. My money would be on Kling's position.
Posted by: Noah Yetter at Nov 12, 2009 7:20:10 PM
Klein's 1st two questions focus on cost control. Gruber's answer is a long-winded "no" or if you're feeling generous "we're not sure." Near the end he basically says that we don't know how to control cost, but if we cover everyone I'm sure we can figure it out.
I can not figure out how he comes to the conclusion that the cost will be well below $900billion given those answers.
Shouldn't Brad DeLong be looking at that article and asking "why oh why can't we have a better press corp?"
Posted by: Andy at Nov 12, 2009 7:31:44 PM
They're both right. If something like the bills under discussion passes and remains in force without modiciation, Kling is right. However, it won't. Once the fact that costs remain out of control becomes apparent, it'll have to be tackled. Once that is done, Jonathan will be right.
Posted by: Simon Kinahan at Nov 12, 2009 7:46:11 PM
The reason costs will come down, and this has not been discussed, is that reimbursement rates for hospitals and some providers have been increased in order to subsidize non-compensated or charity care. This leads to a number of distortions. Hospitals will be reimbursed for tertiary services at a much higher rate because congresspersons need to subsidize rural and inner city hospitals. (These distortions and subsidies lead to such things as high end private ambulatory surgicenters and heart hospitals because the federal subsidy is such a large umbrella.) Now that everyone pays their way via insurance, the indirect subsidies could be removed or lowered. Look for tighter bargaining by the government now that everyone pays.
Posted by: Bill at Nov 12, 2009 8:54:19 PM
Simon
Thats like saying that the stimulus bill will cause deficits but when the deficits become apparent, the legislature will act again to solve it.
Are we now including in the consequences of a policy, future policies/actions by legislature? That would seem to broaden an awful lot of policies
Posted by: Contemplationist at Nov 12, 2009 8:56:35 PM
Gruber is just crazy.
What is the correct level for health spending? We have an aging population that wants to spend more money on health care. Why not just demand that education cost less, or energy, or land prices.
His claim that the Cadillac tax will actually increase income is crazy math. While many employees may switch to taxable income rather then untaxed benefits, that additional income will be taxed. How he can claim that changing the form of compensation, and taxing the change, is an increase in income is crazy math. Not to mention that he first claims no reduction in health care expenditures but then claims that premiums will decline for non-group insurance buyers. That seems to have a conflict.
Then he say he wants price controls on health care. When has that worked?
Then he admits the truth. Once the government controls the system, politicians can dictate, ration, health care as they see fit. He is advocating centralized control, Soviet style, of the health care system.
Gruber is telling the truth, give the government control, give them the power, and they will ration health care as they see fit because, as he says, we treat people too intensely.
Posted by: DanC at Nov 12, 2009 11:23:55 PM
if we wish rational decisions to be made, we must remove the coercion and distortion from the system. we must tie costs and benefits together. we must avoid hiding the true costs of things, as well as the true benefits of things
Posted by: Al Brown at Nov 13, 2009 12:50:20 AM
Bill is wrong
Cost will not come down.
Reimbursement rates for uncompensated care is a problem, but so is low reimbursement rates for medicaid. Poor people who go to inner city hospitals and rural health centers generally qualify for medicaid if they just apply. But the current reimbursements make it difficult to attract staff or deliver quality care in these communities.
In any case, the money that was sent to providers will now be spent as subsidies for insurance coverage. Net savings are an illusion and create disincentives to work because of high marginal tax rates.
The current system does misallocate resources, because the government is not very good at allocating resources.
With the government cutting costs across the board what incentive will inner city and rural health care providers have? They will still seek subsidies for the same reason they seek subsidies today - low reimbursements.
And what makes you think that potential doctors, nurses and others will not see the tight price controls and just choose other career paths.
Posted by: DanC at Nov 13, 2009 12:51:50 AM
Welcome to Stag Nation.
http://finance.yahoo.com/tech-ticker/article/370351/Pelosi's-Health-Care-Bill-Would-Dampen-Medical-Innovation-Carl-Schramm-Says?
Posted by: Andrew at Nov 13, 2009 5:48:57 AM
Gruber is a "health economist."
He is not an economist.
Posted by: Critic at Nov 13, 2009 7:35:08 AM
@Dan, I've represented hospitals and HMOs and know what I'm talking about.
Posted by: Bill at Nov 13, 2009 8:52:04 AM
Simon,
Yeah, that's exactly how every other area of government spending works. I mean, look at how the DoD, once confronted with cost overruns, etc. reigned in spending. :)
Posted by: Seward at Nov 13, 2009 9:10:43 AM
Critic,
Gruber is a "health economist."
He is not an economist.
You may want to reconsider that.
Posted by: Bernard Yomtov at Nov 13, 2009 9:46:31 AM
Arnold Kling is right. The current solutions offered are complicated and rife with unintended consequences.
We have failed to define the central problem. Instead of insuring based on the probability that something bad like a broken leg or cancer will happen, we prepay for routine medical expenses and get insurance against bad things happening. Employees think they are getting a "good deal" when they can walk out of a doctor's office with only a $20 co-pay.
Let insurance companies do what they do best, charge premiums based on the probability that the consumer will need expensive future care for some illness. Get them out of the business of negotiating rates for mammary exams and amoxycilin and administering payments for routine procedures. How much cost could be saved by the average doctor practice if they did not have to deal with co-pays and charge paperwork for routine visits?
On a related topic. I have noticed that both the House and the Senate have headlined that insurors will not be allowed to deny coverage to anyone with a pre-existing condition and that because of community rating the obese forty year old diabetic with high blood pressure will be paying the same rate as a forty year old who competes in triathalons. That's called "fairness". But insurors are permitted to charge higher rates for people who smoke. So a 25 year old in perfect health will pay a surcharge because of his habit. Sounds "fair" to me.
Posted by: Steve C. at Nov 13, 2009 10:15:28 AM
Bill could have represented God but he is wrong.
More insured typically means more utilization. And not everyone will pay their way through insurance. The cost of the insurance will be a free good that is subsidized by others. Any argument that this will lower the demand for services is wishful thinking.
Well run inner city hospitals quickly enroll indigent patients into medicaid. That reduces the uncompensated care but they still struggle with low compensation rates.
Who are the people, Bill, that get uncompensated care. Illegal residents and people who qualify for benefits if they apply are the two biggest groups. How are these groups helped by the changes? They either will remain uninsured or they will have their care paid for by the government with subsidized insurance.
The way we pay for indigent care will change but there is no evidence that total costs will decline. If anything history shows us that if we increase the insured we see an increase in utilization. And cost pressures increase.
Health care is like a ballon. Push on it in one place and it tends to bulge somewhere else.
Perhaps you have faith that the government will be able to use wage and price controls to control costs. Why you have such a faith is beyond any rational understanding. They don't work. And trying to make an ever more complicated set of rules and bureaucratic controls, which is what government control always becomes, will not solve the problem.
Lord I hope you were better at expressing rational views in court documents, with all due respect.
Perhaps are health care system and hospitals are in such poor shape because they were advised, too often, by people who always seek a bureaucratic solution. And then bragged that they helped shape the current disaster.
Perhaps some old style hospital bureaucrats want to return to the days of cost plus pricing. Perhaps they think they can manipulate the government into a better deal. Perhaps they are out of touch with reality.
Posted by: DanC at Nov 13, 2009 11:07:33 AM
Bill,
don't worry about DanC...he has made it abundantly clear from previous posts that he knows absolutely nothing about health care.
what really scares me is that this health care debate is being driven by people like DanC...people who are long on opinion and short on knowledge.
Posted by: An MD at Nov 13, 2009 12:23:09 PM
I would tend to distrust Gruber's analysis, simply because he admits that even if the government plan didn't control costs, it would still be a great thing. His bias in this matter is clear.
He's right, however, that once government has control over the health care system, it will eventually have to contain costs. However, what he doesn't say is whether cost containment will actually lower demand for health care. It won't. The ultimate result, then, is the same as what other countries experience who constrain costs through price controls or other regulatory means - shortages. Fewer services available to people who want them, longer waiting lists for care, fewer research dollars spent on innovation, etc.
There are ways in which governments can ration care other than by imposing strict wage and price controls. For example, they can ration care by bottlenecking diagnostic services - lower the number of MRI machines available, and you make it harder to get an MRI scan. That will reduce the number of procedures carried out as the result of problems uncovered by MRI.
Governments can also ration care through suppression of new technologies. A major reason why health care has gotten more expensive is because there are many more treatments and devices available today. In the past, a treatment for a badly arthritic knee might have been a brace and some pain medication. Now you can get expensive artificial knees, and people demand them. By increasing regulatory hurdles on new devices and treatments, you can keep them off the market and raise the cost of developing them, discouraging further innovation. Or, you can simply decide that people cannot have artificial knees or the new technology of the day, because it's too expensive, and delist it as an approved treatment.
Whether all this is a good thing is another question. To my way of thinking, all of this is a very good reason why you do not want the entity paying your health care bills to be the same one regulating health care. The conflict of interest is unavoidable and destructive.
Posted by: Dan H. at Nov 13, 2009 12:33:55 PM
What exactly is it that you experts think needs to be known?
Do the reformers actually know it?
Posted by: Andrew at Nov 13, 2009 1:53:49 PM
Medical care is unlike any other product; just listen to the experts, academics, and economists.
But wait a second, if it is so different from fundamentals, then how are the economists so sure they can predict the outcomes?
Posted by: Andrew at Nov 13, 2009 1:57:32 PM
So, only a person with deep knowledge of the medical industry is qualified to debate how they will be required by the government to spend their money on it. Okay.
Here's a fun game, you guys can come up with a questionnaire that you think a person qualified to discuss the issue should know.
Or we can compare scores on those I find with Google. So far most of them seem to be variations of the CNN quiz. No cheating.
http://www.cnn.com/2009/HEALTH/08/20/health.care.quiz/index.html
8/8
Posted by: Andrew at Nov 13, 2009 2:15:14 PM
Bill* and An MD,
If DanC is wrong then write a response as to what in his posts is wrong.
Look I don't know enough about health economics to know if DanC is right or wrong, but your lack of content certainly doesn't help convince me he is wrong. In fact the absence of a rational argument reduces my estimate that you actually have one.
Trying to argue from authority is pathetic.
*Bill I respect your first post, which was substantive.
Posted by: Dan in Euroland at Nov 13, 2009 3:43:41 PM
DanH
I agree with you.
However Gruber does imply that he wants wage and price controls when he says "You need someone with the political ability to set rates to controls costs."
As for an MD, I have no idea who this is. But feel free to attack my points.
As for Bill, he seems to be a very nice man who has ideas that are in sharp contrast with my own. Written words often seem sharper then I intend them but I think Bill has a misplaced faith in government and bureaucracy. I really do think Bill has much to add. Even if it is frustrating to see him constantly say that he is an expert without demonstrating that expertise. Moreover in the past, even when I agreed with him, he disagreed with me. Whatever.
Posted by: DanC at Nov 13, 2009 6:06:30 PM
For the record, I've never claimed or implied that I know how to fix the spaghetti mess that these people have created, just that they don't know either.
I know how I've fixed it for me, and that is through high-deductible insurance with an HSA. And Alex posted that this sector has contained costs so it may be a good reform, just as theory says it should be. However, the fear is that this will become one of the "unqualified" insurance plans that the reformers make history because they don't know what insurance actually means.
Posted by: Andrew at Nov 15, 2009 9:31:16 AM
