Small Steps and Health Care Costs

Hey all you deficit hawks out there. Atul Gawande, the person of the year when it comes to health care, has a long article on the cost-cutting proposals in the health care reform bill (hat tip Ezra Klein). Gawande’s main point is that the long list of pilot programs and other initiatives in the bill are probably the best possible way to reduce costs in the health care system (which, if you missed the implication, is the only way to control long-term government spending–that or eliminating Medicare).

Indeed, it’s hard to see what else the bill could have done. Remember, we have a largely private-sector health care system (both insurance and delivery), which means the government cannot simply order providers to charge less. A single-payer system might be able to take such draconian steps, but Mitch McConnell, who claims, “Two thousand seventy-four pages and trillions of dollars later, this bill doesn’t even meet the basic goal that the American people had in mind and what they thought this debate was all about: to lower costs,” is the last person who would vote for single payer. And the Republicans are similarly against anything that allows the government to use the one big lever it does have–Medicare–to force lower cost levels.

So the only political option is incremental reform through small programs that experiment with different ways to change the incentives of private-sector actors at the margin. And, Gawande says, this is the only option that has a chance of working, anyway:

“Which of these programs will work? We can’t know. That’s why the Congressional Budget Office doesn’t credit any of them with substantial savings. The package relies on taxes and short-term payment cuts to providers in order to pay for subsidies. But, in the end, it contains a test of almost every approach that leading health-care experts have suggested. (The only one missing is malpractice reform. This is where the Republicans could be helpful.) None of this is as satisfying as a master plan. But there can’t be a master plan.”

More generally, Gawande’s article is about how the government can help. There’s the big story of how government pilot programs helped nudge the free market toward more efficient food production at the beginning of the twentieth century, and the little story of Rory Lewandowski, a government “agricultural extension agent” for Athens, Ohio, who helps farmers solve their problems. President Obama wants to convince Americans that government can be part of the solution. There are tens of millions of Americans who cannot be convinced by any amount of evidence or argument. But still, when it comes to long-term health care costs (and, therefore, the long-term national debt), it’s the only chance we have, since the system we have now isn’t solving the problem.

(I’m sure someone will argue that if we simply cut the government out of health care altogether the free market would solve our cost problem by itself. I don’t see that, since that just means we would all be in the ever-expanding individual market, which isn’t solving our cost problem. But even if making people individually liable for the cost of their health care could control costs, it would also have the effect of sentencing poor, sick people to death because they cannot afford health care.)

About James Kwak 133 Articles

James Kwak is a former McKinsey consultant, a co-founder of Guidewire Software, and currently a student at the Yale Law School. He is a co-founder of The Baseline Scenario.

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