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Monday, December 14, 2009

Small Biz Health Care Daily: Health Care Economics, Part III

As noted in “Small Biz Health Care Daily” posts last week, what’s missing from the current health care policy debate in Congress is sound economics.

Today, The Wall Street Journal’s editorial page shows, in a piece titled “The ‘Cost Control’ Bill of Goods,” how politics and the media have worked to override common sense economics when it comes to the push for more government in health care.

The entire piece warrants reading, but here are a few key points:

• “[OMB Director Peter] Orszag proposed another option, citing academic research observing that as much as 30% of health spending is ‘waste’ that doesn't affect outcomes. He argued the country could save $700 billion a year without harming quality—more than enough to pay for universal coverage. Thus cost control migrated from Orszag theory to free political lunch.”

• “A field as dynamic and innovative as U.S. medicine, in which costs are largely driven by new technologies and better ways of caring for patients, is rife with complexities and uncertainties. But no one bothered to strike that note of caution when Washington was hopped up on a cost-control gambit that was too painless to be true. The new cost-control apologists concede that there isn't any actual plan for controlling costs: Throw enough speculative policies against the wall, they say, and some breakthrough will stick. Yet Mr. Orszag's no-less-confident predecessors spent decades trying to pull down Medicare spending with little to no success. Technocracy rarely if ever works as intended.”

• “Even if Mr. Orszag's Princeton and Yale Ph.D.s really do cook up some hope-and-a-prayer savings plan, it will invariably offend one constituency or another and Congress will block it. Thereupon the political class will do what it always does when costs run over: Tighten price controls across the board, before moving on to denying patient access to costly treatments that will be defined as ‘wasteful.’ That is, ration care.”

• “One liberal sage noted in a 2007 paper that ‘four decades of empirical research’ have shown that insulating people through third-party insurance coverage ‘from the full cost of health care has been responsible for anywhere from 10% to 50% of the large increase in health expenditures.’ Ultimately, he concluded, increasing cost-sharing would give individuals a direct stake in more prudent purchasing, as opposed to today's invisible health dollars that vanish as more expensive premiums, foregone wages and higher taxes. Those are the words of Jason Furman, now the White House deputy economic director who seems to have been put into witness protection.”

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

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