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The Long-Term Politics of Health Spending

I'm a bit more sold on taxing employer health benefits than some of the folks Alec McGillis quotes in this article. That said, this is a useful reality check:

While not taxing health insurance should in theory encourage employees to sign up for costly plans and spend more freely, they say the reality of how people consume health care does not conform with pure economic dictates.

The vast majority of health-care spending, they note, is on behalf of people who genuinely need care, not just those heading to the doctor because their insurance covers it. And the vast majority of treatments occur because doctors recommend them, regardless of patients' coverage. The key to restraining spending, they say, is getting providers to deliver care in more cost-effective ways.

It's an old saying, but a good one: The hospital's most expensive piece of equipment is the doctor's pen. People don't exhibit a lot of traditional consumer behavior in the aftermath of a pulmonary embolism, or a stroke. They don't have the expertise to make the decisions, the time to research them, or, in some cases, the cogency to make them. When someone walks into Best Buy to purchase a television, they might act like a consumer. When someone walks into an emergency room, they act like a patient. That's why we call them that.

That said, McGillis's article doesn't mention what I, and many others, consider the key benefit of separating health-care benefits from employment (which would be the long-run effect of ending the employer tax exclusion). People would actually know how much their health-care cost.

As angry as Americans are over health-care spending, just about none of them have any idea how much is being spent on their behalf. This graph from the Kaiser Family Foundation tells the tale:

workerspercentbenefits.jpg

The employee contribution is minimal. In Medicare and Medicaid, it's virtually invisible. For all that, people are still upset over health-care costs. Imagine if they actually paid the full price of their policies (which they do, through lost wages and taxes and so forth, they just don't realize it). That wouldn't change their behavior in the doctor's office. But it might change their behavior in the political arena. It's easy to avoid hard decisions when the costs of the status quo are hidden from you. And some of those hard decisions that are being avoided are the very decisions that would change how doctors act.

To put it another way, the central problem in our health-care system is political inertia. We have a looming fiscal crisis that we are not seriously confronting, much less averting. Reforms need to be evaluated not only in terms of their immediate impact on the system's costs, but also on their long-term impact on political incentives to further reform the system.

By Ezra Klein  |  July 31, 2009; 11:42 AM ET
Categories:  Health Reform  
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Comments

why not make it law to put the amount spent on health benefits be put on every pay check.

Posted by: JonWa | July 31, 2009 11:53 AM | Report abuse

Come on Ezra, all this talk about the succulent Gewapples high up on the tree is great, but it takes our eye off the lower hanging SP Pears. So people learn what it costs, so what. Those opposed to single payer can ignore the facts now. They can lie and spin and misrepresent now, so how's a little more info gonna get them to change?

To add to your collection of articles that show how hard it will be to get the docs to change, we have

http://www.washingtonpost.com/wp-dyn/content/article/2009/07/30/AR2009073004285.html

http://www.nytimes.com/2009/07/30/us/politics/30mcallen.html?scp=1&sq=McAllen%20Hospital&st=cse

Look, HR676 may be hard to pass, but it's a definite proposal that will get health to all at no more than we are now paying. All the Gewapples are complicated separate issues (fee for service, clinics, unnecessary tests, hospital infections, self-referrals, etc., etc., etc.) each of which has a constituency that makes a lot of bucks because of what you want to reform. Let's get the for profit insurers in our sights, and pull the trigger.

Posted by: lensch | July 31, 2009 12:18 PM | Report abuse

"That wouldn't change their behavior in the doctor's office. But it might change their behavior in the political arena. It's easy to avoid hard decisions when the costs of the status quo are hidden from you. And some of those hard decisions that are being avoided are the very decisions that would change how doctors act."

You've got this very incomeplete, as your analysis involved only the final piece of the health care purchasing puzzle: treatment. Health care delivery involves three choices:

-- Choice of plan
-- Choice of provider: physician, hospital, etc.
-- Choice of treatment

You tend to ignore the first two and solely focus on the third. But they're all inter-related, if they worked effectively.

Choice of plan: For all the talk about employee vs. employer share of cost, the more important dynamic is that employees don't have a say on which two plans are offered at his/her employer. If the money was put in their hands, with the right regulations, choice of plan could drive better behavior. (Lower cost plans in exchange for effective utiliztion restrictions. HMOs may not have been hurt so badly in the 90's if they savings went back to consumers, for example.)

Choice of doctors: This is one that I do believe requires heavy government participation, to provide greater cost transparency and simplification, along with ratings on quality- adherence to EBM, etc.

Choice of treatment: First, Ezra ignores the growing role of patients particpating in their own decision-making, along with policy experts believing its a part of the solution. More importantly, however is if you've gotten the first two elements right, it changes the dynamic for the third.

All three can impact getting value-based care, only the third involves physician decision-making. Comprehensive reform will address all of it, not just physician compensation.

Posted by: wisewon | July 31, 2009 1:54 PM | Report abuse

You don't have to get rid of the employer tax exclusion to separate health insurance from employment. You could just extend the tax preference to individually purchased plans. Then employees would have a viable alternative to their employer's plan and they could switch if it suited their needs. This would have the added benefit of making the insurance companies more responsive to individual consumers as opposed to the employers and Governments that they have contracts with.

I think consumers could respond rationally to purchasing health insurance. The argument about consumers not actin glike consumers when they are in the emergency room does not apply to purchasing health insurance. There is no reason for not making that market more consumer oriented.

A public option would make it less consumer oriented because it would bankrupt private insurers and reduce the options available to consumers.

Posted by: fallsmeadjc | July 31, 2009 4:24 PM | Report abuse

"It's easy to avoid hard decisions when the costs of the status quo are hidden from you."
This is essentially the republican argument for moving everyone into health savings accounts. When people with health insurance are sick, they go to the doctor. Most people don't visit their doctor for the fun of it. And, it seems you're very suspicious of the motives behind the doctor's plan of treatment. You tend to neglect that patient compliance is also a factor in determining the health outcome.

Posted by: goadri | July 31, 2009 4:31 PM | Report abuse

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