The Politics of Cost Control

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Is it fair to worry that the Democrats included an end-of-life counseling provision in the health care bill because they're planning to push Grannie off the ice floe as soon as they can get naional health care passed?  No, and yes.  No, because I don't believe that they want to bamboozle people into ending their lives before they should.  It's quite clear from what Obama has been saying that he thinks there is a great deal of unnecessary care, particularly late in peoples' lives, that makes them worse off, or at least, no better off.

But though the implication that the Democrats are heartless technocrats is thoroughly wrong, I think the worry underlying it is legitimate.  First of all, Obama has made a number of missteps that paint a worrying picture of what he thinks an "unnecessary procedure" is.  Or at least worrying for seniors and other important voting blocks.  It is actually entirely true that if you're focused on cutting costs, you would never install a pacemaker in a 99 year old woman.  The number of quality-adjusted-life-years you could expect to get out of that procedure is not high.  Meanwhile, she's very likely to die on the table, wasting thousands of dollars and the last days of her life.  If Obama is serious about bending the cost curve, he will create some sort of agency that will say no.  And it's no good saying, as you do to under-65's, that this rationing will only apply to bonus care for people who currently lack insurance.  Cutting costs means taking options away from seniors.  You may think that they would be better off without those options.  But they clearly don't.

The other reason I think the worries are legitimate is that as the government is on the hook for more medical costs, its incentives change.  The fact is, it wouldn't be hard to manipulate a significant number of sick people into forgoing a lot of expensive care.  The Obama administration's point, which is well taken, is that it's problematic to give doctors financial incentives to bias their advice towards treatment.  The problem is, it's also problematic to give them, or their employers, incentives to bias their advice towards undertreatment.  Every compensation scheme on the table does one or the other.  And I think Americans are inherently more comfortable with a bias towards proaction than inaction, even if the latter is cheaper and more restful.

Insurance companies already have those undertreatment incentives, but it's hard to act on them.  Right now, people know that their insurance companies would love to provide self-serving "end of life" counseling that would encourage sick people not to waste so much valuable money.  But they are limited by, first, competition--an insurance company that tried to do this too blatantly would suffer horrible publicity and ultimately lose business--and second, the threat of lawsuits and/or regulation.

People aren't trusting the free market as much as they're trusting various institutional arrangements, some within the market and some outside of it, to protect them from the perverse incentives of any insurance company.  Once the government has the perverse institutional incentives, the institutional checks are fewer, more ponderous, and worst of all, often create huge new problems.  The institutional checks we have accumulated have now so encrusted the government that it's ever-harder to make changes, or for that matter, to get anything done.  As my father is fond of pointing out, adding federal money to a project now adds an average of five years time-to-completion while the project managers jump through various procedural hoops.

Medicare basically free rides on this; Medicare reimbursements are tied to, and broadly reflect, the private reimbursement system.  (Yes, I know there are a lot of crazy exceptions--Medicare reimbursement policy is an enigma wrapped in a puzzle placed inside a labyrinth and shrink-wrapped with red tape.  But what Medicare pays for and what private insurance sector pays for are not, in toto, wildly different.)  If the public sector atrophies, the scope for manipulation broadens, because the information about what's available outside the public sector shrinks.  Nor is this just crazy speculation.  I actually think it's pretty reasonable when  conservatives worry that the Dutch attitudes towards euthanasia are influenced by the burden old people and severely disabled children put on the public purse.  I don't see how they could fail to be.     

So I don't think it's crazy that Rasmussen is reporting that 51% of people now trust their insurance companies more than the government to handle their health care.  In fact, I expect that number to go up.   This is not, as some libertarians would have it, because the free market is Teh Awesome, while the government is Teh Suck.  It's because the two institutions are, on this particular question, balancing each other.  In doing so, they are creating cost inflation.  But they're preventing something that many people legitimately believe is worse.

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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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