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I'm a Stein's Law Guy Living in a Stein's Law World


The strongest argument against health reform, in my estimation, is the argument from cost. The expansion of coverage to 40 million people is a concrete expense. The cost controls are entirely speculative. There's a not insignificant possibility that the expected increase in spending will manifest and the promised cost controls will not. Fred Hiatt makes this argument on the op-ed page today. Tyler Cowen has made it in the past. I'm sympathetic to it. But it leaves me with one question: Do you believe in Stein's Law?

Stein's Law is the dictum named for the economist Herbert Stein. If something cannot go on forever, he's reported to have said, it will stop. Look at the graph atop this post. It cannot be the case that we will let health-care spending literally consume 100 percent of America's gross domestic product before the end of the century. Health-care spending cannot continue to increase at this rate. Thus, it will stop.

The question, in a Stein's Law world where the day of reckoning is inevitable, is whether it matters if the cost controls promised in this iteration of health-care reform fail. In 2006, the health-care system spent $2.2 trillion. Adding $100 billion per year to that sum -- which will be roughly the number if health reforms end up costing $1 trillion over 10 years and aren't able to save a dime -- is a very small increase. Its primary impact would be to move the inevitable day of reckoning forward in time. Maybe we would have finally dealt with cost in 2031, but now we address it in 2022. Why is that a problem?

Indeed, I'd argue it's preferable. The system is currently biased toward the worst form of cost control: rationing by income. Every year, we contain costs by quietly letting 2 million or so more people fall into the ranks of the uninsured. And why not? It does not require an act of Congress. It does not require a war with a powerful interest group. The same cannot be said for cutting provider payments, implementing comparative effectiveness research, founding a public plan or bargaining with pharmaceutical companies. And so the system, which prefers to avoid conflict, prefers letting people lose their coverage to changing how providers practice medicine, because letting people lose their coverage does not require conflict. It's government. As Tom Geoghegan has said, it likes the quiet life.

In a Stein's Law world, we admit that the day of reckoning is imminent. The question is how we'd like it to look. And I'd prefer that the system not be quietly biased toward saving money on the backs of individual people as opposed to providers. Our incentives have gotten a bit insane when you need 60 votes in the Senate to let Medicare bargain down prescription drug prices but no one ever needs to approve a 10 million rise in the ranks of the uninsured. If we agree that hard choices are imminent, we should also be able to agree that there's a utility in setting up incentives for Congress to make them well.

(Graph credit: The Congressional Budget Office.)

By Ezra Klein  |  June 22, 2009; 2:07 PM ET
Categories:  Health Economics , Health Reform  
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Thanks, Ezra. You constructed a very polite version of "The politicians are all cowards," without actually going there.

Posted by: donovong | June 22, 2009 3:13 PM | Report abuse

Anyone who publishes a graph of an economic projection to 2082 is nuts. Come on Ezra, I got a bridge I'd like to sell you.

In 1998, the CBO projected surpluses for the next 10 years.

Posted by: lensch | June 22, 2009 4:12 PM | Report abuse

Something I never see discussed is the cost savings to society from providing early treatment to the people who now lose their jobs and their health coverage when they get a life threatening ailment like cancer. If we get them cured and back to work (which is certainly what they want) they'll be taxpayers again instead of consumers of government services. Often it would keep a whole family off the dole at least on a long term basis. The financial benefits to society from universal coverage will be significant.

Posted by: JJFAHL | June 22, 2009 5:19 PM | Report abuse

Usually I am no fan of Fred Hiatt. But, in his Op-Ed, he got it right.

How should we put it without hurting your feelings Ezra? I cannot, so here is the Truth:

President Obama, Dems and his supporters are ‘deceiving’ America. He is no different than Bush-Rumsfeld-Wolfsan crowd who sold that Iraq war would only cost $100 Billion whereas the number is more neat to 1 Trillion.

I suspect President Obama knows this. If he does not, then we have even more serious problems. But knowingly he is still pushing this ‘lie’ (the lie that ‘his savings’ will finance the health care insurance increases) and double downing on that. We will see that tomorrow in his Press Meet too.

Why do I say that? For God’s sake, just check how many ‘man hours’ are spent on increasing the insurance coverage compared to how little Congress is talking about financing. As Fred says, ‘savings’ being so insure, we need upfront discussion and finalization of that part instead of how to spend that money! We are all busy counting our chickens before eggs hatch….

Shameful. Obama’s Washington is same old as like Bush’s and he is not changing that. Worse he is abetting the disastrous traits of earlier regime.

Posted by: umesh409 | June 23, 2009 2:10 AM | Report abuse

Myth - "It will be very expensive to get good health to everyone."

Fact - Actually there's a way we can have better universal health care at no more than we are now paying (see 5. below). Here are the facts (cf.

1. We waste $100 - $200 Billion a year on the high overhead of insurance companies.
2. We waste $200 - $300 Billion a year on doctors filling out forms for insurance companies.
3. I don't know the compliance cost of patients fighting with insurance companies, but it must also be in the 100's of Billions.
4. We pay the highest drug cost in the world to drug companies that spend twice as much on profit and three times as much on "marketing" as they spend on research. This is about another $100 Billion each year.
5. Because of the above, we could give Super Medicare (few limitations, no co-pays, no deductibles and complete drug, dental & mental coverage) to everyone at no more cost per person than we are now paying.

Other countries with single payer systems get better health care as measured by all the basic public health statistics and they do it at less than half the cost per person. If we build on our rotten system, we will get a health care system with rotten foundations.

Posted by: lensch | June 23, 2009 9:35 AM | Report abuse

Its not Stein's law, its freakin marginal utility.

Posted by: gorak | June 23, 2009 1:26 PM | Report abuse

Here's the basic problem with our approach health care reform: There's no constituency for tough choices.
(quote stolen from my political philosophy professor at New College of Florida, Eugene Lewis)

Posted by: arnoldob | June 23, 2009 1:47 PM | Report abuse

I don't understand why people keep talking as though the model we are using to pay for healthcare has any hope at all of surviving. The expense of adding uninsured to it is a pittance compared to the continued escalation in overall health-spending that it will do *nothing* about.

The Massachusetts plan (mandatory, private insurance) was not designed to control costs at all and its major beneficiaries have been private insurance companies, doctors, and hospitals. The newly insured can barely afford the copays ...if they can find a doctor to accept them.

Adding a "public option" to a dysfunctional, bankrupting model is not going to do anything but accelerate the national bankruptcy that is already in progress.

Why does everyone equate Single-Payer with "taxpayer financed"? The UK, the favorite whipping boy of single-payer opponents, is the only country where care is 100% financed. In most countries, employer contributions constitute the bulk of the funding, supplemented with varying degrees of public money. In France, which has the highest rate of satisfaction, wage earners are assessed only three-quarters of a percent of wages for the government provided part of their care. The net result is that employers and individuals spend less than they do here and everyone -- workers, non-workers, retirees -- are covered.

Posted by: Athena_news | June 24, 2009 1:58 AM | Report abuse

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