Uwe Reinhardt

I have written and said for years that the U.S. is headed for a two- or multi-tiered health system. In fact, we have long had it, although never quite as blatantly as we have it in education and in the administration of “justice” (google, for example, Tulia, Texas).

Do we really believe that the health care experience of America’s millions of uninsured has been quite like that enjoyed by insured Americans? And is not rationing health care by price and ability to pay just as much “rationing” as is rationing by the queue?

The main driving force here is not health reform per se, but the widening income distribution in the United States, coupled with the inexorably rising health-care cost per capita. In fact, concierge medicine is hardly a new phenomenon. It started a decade ago, not at all to my surprise.

According to the Milliman Medical Index, the average cost of health care of a privately insured American family of four (excluding people over 65 years of age) is now $18,000. It ha

I would not be surprised at all if the health-reform bill, once implemented, will trigger some and perhaps quite a bit of migration from the employment-based health-insurance platform onto the individually-insured platform based on health insurance exchanges. The White House would be well advised to acknowledge that possibility and to defend it, as can easily be done.

Indeed, if memory serves me accurately, Stuart Butler or John Goodman would not mourn the erosion of the employment-based health insurance system either. Would they not favor a system of truly protable, individually purchased insurance policies in place of a system that tied individuals to particular jobs and offered ephemeral coverage? Why should small business be saddled with the problem of health insurance?

John Goodman complains that the White House and its allies on the Hill have marketed the health reform they passed as “all-gain-no-pain.” I leave aside the question how fair that accusation is, given that the sources of funding the plan – i.e., the pain -- were pretty clearly spelled out.

But John then invites us to a link which portrays the reform as all-pain-no-gain.

Is that proper?

In August 2008, Jack Hadley et al. ( ) estimated that, with the status quo of 2008 as the baseline, moving to universal health insurance coverage would increase total national health expenditures (NHE) by about 5%. That estimate, however, implied coverage of all then uninsured.

Other authors suggested that the increase might be higher, if one took into account certain dynamic effects – e.g., price increases – that might be triggered by a major insurance coverage (http://healthaffairs.org/blog/2008/09/04/covering-the-uninsured-springing-a-leak-in-the-cost-shifting-hydraulic/ and http://healthaffairs.org/blog/2008/08/25/covering-the-uninsured-cheap-at-twice-the-price/).

Focusing specifically on the Obama plan as presented during the presidential campaign, Roger Feldman (

Textbooks of microeconomics present as an ideal economic arrangement a perfectly price-competitive market that meets the following conditions: (1) There are so many buyers and so many sellers that not one of them has enough market power to sway prices one way or the other. (2) All participants in the market are fully and properly informed about the price and quality of the things being traded. (3) The sellers bear the full cost producing the things being traded and the buyers the full prices being charged for them. (4) It is easy and relatively costless for buyers and for sellers to enter and exit this market.

Such a market can be shown to have a number of properties that economists consider desirable, among them that prices charged will be as low as they can be.

Now, the providers of health care are the sellers in the market for health care covered by health insurers. But who are the buyers? Are they it the insured patients? Or are they the insurers paying on behalf of patients, when insurers for the most part do not know until long after the fact that a good or

House of Representative Minority Leader John Boehner, R-Ohio, said: "The thing I have heard more than anything over the last six or seven months is that the American people want us to scrap this bill. They have said it loud. They have said it clear."

I suspect he is right.

Of course, that leaves open two questions: (1) Do the American people actually have a good grasp what is in the bills passed by the Democrats and what would happen to them if health reform failed and (2) are the wishes of the American people actually mutually consistent, in the sense that they could be accommodated in a coherent health-reform bill?

As to the first question, I recall Humphrey Taylor of the Lou-Harris Group telling me that in a survey taken during in the 1990s a majority of respondents expressed approval of the main components of the Clinton health-reform plan, when they were not told that these were the chief components of the Clinton plan. When, at the end of the interview, respondents were asked whether they were familiar with the Clinton plan and, if so, what

You ask: “In his fiscal 2011 budget proposal to Congress this morning, President Obama focused mostly on the need to bolster the economy. Can the economy be improved -- in either the short or the long term -- without also reforming the nation's health care system? How closely are they related, and what and how much needs to be done on health care to positively affect the economy? “

So here’s my answer, in the form of a mini Econ 101 lecture:

At the risk of losing the mathematically challenged, let me summarize the problem we face in the first equation for gross domestic product (GDP) freshman encounter in Econ 101:

GDP = C + I + G + X - M

Here C stands for total national spending on consumer goods, I total national spending on investment goods (housing, business structures, equipment, R&D, Inventory buildups, etc.), G stands for the purchases of goods and services made by governments at all levels (thus it excludes mere transfer payments), X spending by foreigners on US made goo

In responding to this question, one can use either an economic or a cultural perspective.

From an economic perspective, I would support a national exchange. There would be enormous economies of scale in information systems alone. National exchanges also would have more bargaining clout with insurers seeking to be listed on the exchanges. Finally, I do believe that there is virtue in uniformity in a geographic space whose inhabitants think of that space as a “nation,” and not just some territory shared by separate, diverse groups.

As a former longtime Board member of the Teachers Insurance and Annuity Association (TIAA), I recall the difficulties of getting even small changes dictated by changing market conditions through 50 separate state insurance regulators. The legal bill alone was staggering, as TIAA literally had to hire legal teams in every state to get any proposed change past state regulators.

Now, on the cultural plane, I have found myself bombarded for decades now with the mantra that, in America “one size does not fit all

In the economic theory that inspires economists on the issue of employer-paid fringe benefits, they initially model a market that has fully adjusted to all known economic facts. Such a market is said to be “in equilibrium.” Economists then explore at what new, fully adjusted equilibrium that market would settle down if it were “shocked” (as the jargon goes) with some change in policy – e.g., a change in taxes. This analytic approach is called “comparative statics,” because it merely compares two equilibrium positions of a market.

Using that approach, there is a trade-off between fringe benefits and take-home pay in any well functioning labor market, even though it may not be 100% dollar for dollar. (It may be somewhat less or even more than a 100% trade-off).

Usually economists do not model the dynamic path that the market follows from month-to-month or year-to-year to reach that ultimate new equilibrium, although it can be done with differential-equation models. If economists did model change

Updated at 2:30 p.m. on Dec. 21. The sponsor of this blog asks us to comment on three facets of the reform, to wit: 1. How serious are the Medicare cuts to be used as a source for financing health insurance for younger, currently uninsured Americans? 2. Would reduction or elimination of the extra payments to Medicare Advantage plans slice into the benefits these plans can offer beneficiaries? 3. Would an independent Medicare Commission be effective in controlling Medicare spending better than Congress has been able to do? Let me address these three questions in turn. The Proposed Medicare Cuts There is something truly wondrous to hear people who in the past routinely have declared Medicare spending out of control – including the editors of The Wall Street Journal – now ring their hands over proposed cuts in the future growth of Medicare spending. The proposed “cuts” to Medicare will do terrible things, it is argued. The “cuts” wil

Among the cognoscenti in healthy reform, two rules have long being viewed as the sine qua non of successful health reform.

First, the reform should heap additional money on the providers of health care, lest they be displeased and sabotage the reform.

Second, the benefits from the reform should precede the pain of paying for them, lest the savvy public be displeased by the reform.

On first blush, Professor Blendon does have a point with his argument that the currently proposed reform runs the risk of violating both hallowed rules.

While the proposed reform does not actually reduce the flow of money to the providers of health care over the next decade – all cuts in provider payments under public programs are to be recycled back to providers to pay for newly insured Americans – it does not heap new money on them save, perhaps, for the health insurance industry. This runs dangerously close to violating the first rule.

Furthermore, because the White

Two features of Mr. Gingrich’s set-up stem stand out.

First, he does not offer a concise definition of fraud. Second, whatever he may mean by it, he seems to believe it occurs only or mainly in the public Medicare and Medicare programs.

Defined-benefit health insurance contracts, whether they are public or private, are among the most complicated contingency financial contracts. A third party promises to pay for all or a defined fraction of all expenses triggered by what is loosely defined as the “medically necessary” response to a perceived illness, real or imagined.

One should expect that such a contract would invite fraud and waste. Further-more, it is not easy to distinguish ex ante or ex post between waste and fraud.

Unlike, it seems, Mr. Gingrich, I believe fraud and waste are triggered by both public and private defined-benefit health insurance contract. We talk more about fraud in Medicare and Medicaid because these programs are at least semi-transparent. By contrast, the wo

Michael Cannon invites us to reflect on his throught-provoking statement, and so I shall.

It has been known for many years that, at the aggregate level, the use of health care as we define it is only one of numerous factors that drive the average health status of populations (what we call "population health"). In fact, in health-production-function work or other research on the drivers of population health status, health care per say is only a minor player. Education, nutrition and environment rank higher.

So it is true that if "population health" were our objective in health reform, we would could do better than merely to finance more spending on health care per se. For example, the blasphemous thought occcurs that more could be done for the health status of particular the lower-income and less well educated strata of the population if the Catholic church reallocated real resources drastically away from hopitals systems and towards parochial schools in inner cities.

Even so, these insights are not that helpful when an axious person visits

Let me state how touched I am by John Goodman's candor and modesty.

All of us, I am sure, will from time to time encounter situations or statement that push uas beyond our intellectual capacity. Usually, at meetings, we remain quiet about it, lest someone discover our intellectual limitations.

How refreshing then that John openly admits them, for all of us to see.

Uwe

It's funny how we all talk about it as if we knew what it was; but operationalizing it is quite a challenge.

The definition has at least two distinct dimensions: (a) the benefit package that is considered minimally adequate and (b) the fraction of discretionary income (disposable income minus estimated minima spending on food, housing, utilities, etc.) that is absorbed by health spending on that minimum package (out-of-pocket spending on it plus premiums paid).

So we would count as "uninsured" anyone who has less than that minimum package or spends mor than the normative percentage of discretionary inome on it or is characterized by both..

People who spend less than the normative percentage of their income on the benefit package (perhaps zero) but could afford it within that limit (perhaps with the help of subsies) would be called "self-insured).

Although any such forecast is a composite of guestimates, it was made under strict rules and we must take it at face value.

It will sorely disappoint the people who broke out the folks who broke out the champaign when Chicago lost the Olympic bid, it must be gratifying to the hardworking Senate Finance Committee members and staff--well, most of them anyways--and to the White House.

All the more so in comparison with the fiscal impact of the MMA 03 which will add close to $1 trillion to the deficit over 2010-19--more if one includes the $170 billion or so of extra subsidies to the Medicare Advantage plans.

Which must be kept in mind to counter the predictable howl of people who will wail about the Medicare "cuts" that will finance part of the subsidies to younger uninsured Americans. These "cuts" of course are not actual cuts, but merely reductions of increases.

The President’s overarching aim in the speech should be to present to the Congress and to the American people a realistic – and I emphasize “realistic” – picture of the situation in which American health care finds itself. It should be a sober speech, without rhetorical flourishes.

According to the Milliman Medical Index, total health spending for the typical non-elderly, privately insured American family has grown at an annual compound rate in excess of 8 percent throughout this decade.

By contrast, wages and salaries in the U.S. have grown at an average annual compound rate of only about 3 percent in the past decade and a half. At the moment, they grow at an even lower rate, if at all. And the fraction of Americans who are employed has been falling for most of this decade.

It is simple arithmetic that, if these trends continue for another decade – as they very well might -- more and more American middle- and lower-income families will be priced out of American health insurance and healt

Question to John Goodman:

Did your IQ also fall 15% when you wrote your post on health care in this round? Or did it stay up, because you were not thinking about health care when you wrote your post.

Just curious.

Best,

Uwe

There is no objective answer to this question. Different people may have different views on it, and each warrants respect.

All health systems are structured on an underlying social ethic on how the resources of the health system are to be financed and shared. Most nations articulate that ethic quite explicitly and allow it to be a powerful constraint on their health policy.

Unfortunately, we have never done likewise, which can explain why our health system embraces unbridled compassion and amazing callousness side by side.

Among the ethical questions nations must answer in structuring their health system are:

1. To what extent, if any, and should wealthier citizens be made to subsidize the purchase of health insurance and health care by less wealthy citizens, other things (health status, age, etc.) being equal?

2. To what extent, if any, and should healthier citizens be made to subsidize the purchase of health insurance and health care by sicker citizens, other things (wealth, age, etc.) being equal?

Age enters this consideration only bec