What Was Wrong With HMOs?

Say the word "HMO" and most Americans start reaching for their revolver. But most people who look at health policy and health economics agree that the HMOs were actually on to something, and that there really needs to be more scrutiny of which procedures are actually helpful and more emphasis on prevention rather than costly treatment. One question is why didn't this work out better? Paul Krugman's theory:

[I]f costs are to be controlled, someone has to act as a referee on doctors' medical decisions. During the 1990's it seemed, briefly, as if private H.M.O.'s could play that role. But then there was a public backlash. It turns out that even in America, with its faith in the free market, people don't trust for-profit corporations to make decisions about their health.

Tyler Cowen's response:

In my view what people objected to was not the for-profit status of HMOs per se but rather that they could be told they can't get all the care they want. That view will remain.

I don't think Cowen's got this right. Or, rather, while people will naturally always want "all the care they want," people's desire to obtain health care is large part a result of their interaction with the health care system. If I'm feeling ill and want the doctor to prescribe me some antibiotics, but then he says "no no no, you have madeupitis and if you take antibiotics you'll die" then suddenly it seems I don't want the antibiotics anymore. Medical treatment isn't fun, people don't just want treatment for no reason. If you convince them that the treatment isn't useful, they really won't want it.

But that means the person saying "no" needs to be credible, needs to be someone you trust. And I agree with Krugman that a representative of a for-profit company probably isn't it. The company has good reason to deny you coverage that may really be useful -- they just don't want to pay. And if the circumstances are right, it can even be in the HMO's interest for you to do. That's an ugly business and naturally people react differently to being told "no" by a company like that than they would to being counseled by someone they trust.

I think the real question for liberals looking for cost controls is whether the government can play that role. In many countries, public employees and public agencies really are trusted as custodians of the public interest in the necessary sort of way. And in America some public employees and agencies are trusted like that -- the military is treated with extraordinary respect and deference, as are firefighters and in some communities the police are. Vast power is granted to the Federal Reserve with a general sense that it's well-staffed by well-meaning people who can be counted on to do the right thing. But most agencies don't attract that level of respect. The challenge would be to build not just a public agency, but a public agency that people think of as being like the Fed or the Marines, rather than one like the DC Child and Family Services Agency. That's a tall order, but not necessarily an impossible one.