More Government Intervention for Smaller Government?

Posted: June 28, 2011 in Budget, Cost Effectiveness
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In her article today, Froma Harrop repackages some of the Obama administration’s arguments for governmental regulation of health insurance markets with a new twist.  She claims that government can help promote Medicare and Medicaid efficiency via more involvement in the regulation and research of health care provision.  She cites information asymmetry,  the principle-agent problem between medical providers and consumers, and our current fee-for-service system as the primary reasons why liberalizing America’s public health insurance system  is a bad idea and government should further intervene in insurance markets and medical service provision.

She goes on to say:

…What patients and doctors need is a U.S. government website run by an enlightened, well-intentioned policy elite that studies various treatments for the same condition and compares their performance. That’s how we can find effective, less costly care.

In essence she argues government should further limit the services covered  under Medicare and Medicaid, using comparative effectiveness research (CER) to choose more cost-effective treatments in an effort to curb spending or decrease the opportunity costs of using tax dollars for a more expensive procedure with similar outcomes.  She further declares it absurd that conservatives oppose such measures, which could justly be called “death panels” if they did not produce equal outcomes to more expensive treatments and administering health care did not require the recipient’s consent.

I have to agree with Harrop on the absurdity of conservatives rejecting public investment in CER, given the current public health insurance system.  Ideological conservatism is deeply paternalistic.  Those of the “compassionate conservatism” vein should gladly accept the adoption of a system of expert doctors deciding how to optimize the public subsidization of health care.  Both replacing Plato’s philosopher kings with “medical kings” and saving money are consistent with conservative thought.

Now here is why libertarians should support subsidization of CER:

Say the patient insists on getting the $50,000 treatment because it takes two hours less. The insurer (be it government or private) pays $10,000, and the patient comes up with the $40,000 difference. Thus, consumers have the freedom to obtain whatever expensive regimen they want, but others don’t have to subsidize their extravagant care.

If we keep the structure of our fee-for-service health care system (a big ‘if’), libertarians should gladly accept public subsidization of CER, provided that the research costs do not outweigh the long-term savings of discovering a comparable, but cheaper, medical service.  CER encourages less public health care spending (read: less redistribution) for equally effective treatments, decreases the costs of health care rather instead of shifting health care costs onto the poor, and promotes innovation in many health care markets.

Of course, most libertarian visions of health insurance markets involve substantially less government intervention, less public subsidies, and a move towards pure capitation (or for moderates: bundled payment or outcome-based payment)  and away from fee-for-service provision.  That “big if” is a pretty enormous assumption, but a move towards CER is nonetheless a pragmatic move towards less government spending.


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