Cut the costs first

By Caroline Poplin


Yes, it can be done. We can — and should — reduce the extravagant prices, the highest in the world, that Medicare pays for some services, before we start to reduce the services themselves.

The just-concluded fiscal cliff fight included a nasty skirmish over Social Security cost-of-living increases, safe for now.

But Social Security is the “easy” entitlement. Actuaries predict modest future increases: benefits will go from about 5 percent of GDP now, to 6 percent in the 2030s (to cover the baby boomers), then back below 6 percent. No reason to panic.

With regard to Medicare, however, all bets are off. U.S. health-care costs (not just for Medicare but for everyone) have been rising faster than inflation for decades. If we did nothing, at some point health care would consume the entire economy. Before that, Medicare would take over the federal budget. Even today, Medicare and Medicaid are 20 percent of the budget, so Republicans are demanding big, permanent cuts.

Medical services

Surprisingly, politicians on both sides agree: the way to reduce cost is to reduce medical services. Most politicians believe that American health costs are high because Americans “demand” (their term) too many health care services — more than they need — because those services seem to be free when insurance pays.

For Republicans, the fix is the free market: people should buy whatever health insurance, or health care, they want and can afford. If all they can manage is cheap insurance with skimpy benefits, that is what they will have. By definition, costs are controlled.

Democrats believe the problem is fee-for-service medicine: doctors provide too many services because they are paid separately for each one. Therefore, the Affordable Care Act creates Accountable Care Organizations (remember HMOs?) to “manage” care. These one-stop-shopping health care organizations are accountable to payers, not patients: they are to be given global budgets to deliver health care “efficiently” to populations. ACOs use modern management techniques to align physicians’ incentives (their term) with those of the ACO to deliver the “correct” amount of care, “value” instead of “volume”, at lower cost. Well, maybe.

To an ordinary family, particularly one in the throes of a medical crisis, either approach looks like rationing. In a Republican world, insurance may simply not cover a costly service a loved one needs. A Democratic ACO may decide that a third-line cancer drug is too expensive for the extra month or two of life that it provides, on average, for a patient who has failed first-line treatments.

These decisions will be wrenching. I say, let’s do the easy things first.

‘Cost’ vs. ‘price’

Politicians today confuse “cost” and “price.” In a market economy like ours, everyone understands the difference: cost is what the seller pays, price is what the buyer pays. The difference is profit to the seller. Politicians assume health care is just like gasoline or groceries, and take current prices as a given.

But the U.S. health care market does not give us the lowest possible prices.

In health care, insurers are supposed to force down the price of health care services, so that they can compete for customers by offering lower premiums. But the real world rarely works this way: instead, insurers often pass along increased prices to consumers.

There is indeed vigorous competition among health care providers — hospitals, drug companies, doctors — but it is rarely competition on price. Instead, they compete on quality. A hospital claims it has the latest scanner; a drug company advertises a new, better painkiller.

All the other advanced democracies have found that only government is powerful enough to keep health care prices in line with costs, using negotiation or regulation. The result? They get health outcomes as good or better than ours, for a fraction of what we pay.

In fact, Medicare, because it already controls doctors’ fees and some hospital charges, costs less than commercial health care in the United States.

Caroline Poplin is a physician, attorney and policy analyst in Bethesda, Md. Distributed by McClatchy-Tribune Information Services.

Copyright 2013 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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