Monday, November 29, 2010

All costs are linked

From Austin Frakt:

It’s convenient to think about health care costs and expenditure organized in two sectors, public and private. But one deceives oneself in thinking they’re independent. A principle problem with control of public health care spending is that public prices can’t deviate too far from private ones. If they do, Medicare beneficiaries will experience access problems, as Medicaid beneficiaries already do.

I think that this is entirely correct. Presuming that the same procedure is being done, it is reasonable to expect that people would prefer to be paid more. When the cost differential is low then it isn't worth putting a lot of effort into trying to attract the higher yield business. But as soon as prices deviate enough, you would expect doctors to compete on non-financial grounds. Speed of access comes immediately to mind.

I still find it odd that the United States socializes the medical care that is the most expensive (end of life care) and not that of inexpensive groups (like 20-something adults). Perhaps that is simply needed due to issues of poverty and ill health in old age. But these sorts of tensions cannot be good.

Tyler Cowen appears to agree:

The differential payment rates across Medicare, Medicaid, and private insurance are becoming unsustainable more quickly than I had anticipated; see for instance the link in #4. Further reforms will be required more quickly than had been anticipated, but it's not obvious how such reforms should proceed. It's hard to either upgrade the Medicaid (and Medicare) rates or to downgrade the private insurance rates. Monitor this one closely, because it is likely to prove the breaking point of our health care status quo, with or without the Obama plan. (This is our version of the ticking time bomb within the eurozone, namely that natural rates of growth split apart a distortion, increasingly, over time.)

I think that these arguments mean that private health care costs will move back into the debate sooner rather than later. Add in the fast growth of health insurance costs and you can immediately see that pressure is going to come from many directions.

Of course, the idea of the Bowles-Simpson Deficit Plan to tax health insurance plans would actually accelerate the tensions here by making private plans even less affordable (which could have a huge impact on the lower middle class).

It's a complicated system with a lot of moving parts. But I think economists are right to worry about these costs diverging as much as they currently are.

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