A very good post from Brad De Long on long-term health care cost drivers. In essence, he says that the views of the right and left on what to do about health care costs will be overwhelmed by the reality of the high cost of treating chronic diseases like diabetes.
It’s an excellent set of observations, but I’m not sure I agree with the conclusion, that both views become somewhat irrelevant. I believe that the prevalence of chronic diseases will play into the hands of conservatives, who will blame the victims for their lifestyle choices, and use that as a basis for limiting coverage of treatment. Diabetes in particular lends itself to that, since its incidence is higher in lower socioeconomic groups.
Below are excerpts from the post, which is worth reading in its entirety:
On health care issues, you see, economists divide into two subtribes….
Those economists on the left tend to think that the real big problem with American health care is adverse selection: Those who know they are healthy and likely to stay that way skimp on purchasing insurance. Insurance companies work like dogs to avoid selling insurance to people who are expensively sick or likely to get expensively sick. As a result, a huge amount of people’s work-time and information technology processing power are wasted on the negative-sum game of trying to pass the hot potato of paying for the care of the sick to somebody else…Ultimately, this line of thought goes, single-payer national health insurance is the best option, for the administrative and bureaucratic inefficiencies introduced are vastly outweighed by the reduction in the gaming the system that goes on under our current plan…
Those economists on the right tend to think that the real big problem with American health care is moral hazard: that patients soak up scarce and valuable doctor and nurse time even when there is no benefit to the visit, and that doctors use up vast resources conducting tests and procedures that do patients very little good. And, this side argues, patients do this because their copays don’t penalize them enough for wasting health professionals’ time and doctors do this because their bottom lines don’t suffer when they carry out barely effective, expensive, and inappropriate procedures….
The prescription of the right-wing subtribe of economists is to create hard incentives: regulate the insurance market so that the only policies allowable are high-deductible and fixed-reimbursement polices that make doctors feel in their purses the costs of the procedures they recommend, and that make patients feel in their purses the costs of the health professionals’ time that they pointlessly soak up. Let insurance companies segment their market so that patients who make unhealthy lifestyle choices–who smoke, who get fat, who drink enough to pickle their livers, who give themselves diabetes by drinking Pepsi–feel the costs of those lifestyle choices in their insurance premiums. If the right-wing diagnosis is correct, this prescription would do a lot of good, because the gains from curbing moral hazard would be much bigger than the side-effects: dry mouth and additional adverse selection….
And now Marit Rehavi comes by with an additional reason to despair. For according to her reading, as America ages and as American society changes an increasing share of the increase in health care costs is going to be driven not by increases in adverse selection by insurers or by moral hazard driven by doctors ordering inappropriate and barely effective care, but by expensive chronic diseases and risk factors driven by long-term lifestyle choices. Nationalizing the health insurance sector won’t diminish the costs in 2050 of treating the lung cancer that the twenty year-old staring smoking today will develop. Increasing copays won’t reduce the costs of treating the diabetes that the five year-old today with a two-coke and three-twinkie-a-day habit will develop in 2045.
Neither prescription will be very effective as a remedy to cost drivers like these. Our irresistible force is our belief that health care should not be rationed by price. Our immovable object is the unwillingness of American taxpayers to be turned into an IV drip bag for the health sector that the health sector itself controls. What happens when these meet is a crisis, which cannot be averted no matter whether we adopt the right-wing prescription, adopt the left-wing prescription, or muddle through.