Controlling Healthcare

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Will the Medicare cost control measures in the Senate healthcare bill actually stick?  Past history says they might, but Tyler Cowen is skeptical.  Sure, some cost-control measures have made a difference for a few years at a time, but the long-term growth rate of Medicare has been pretty steep regardless.  Plus there are these points to consider:

1. The period of Medicare cost savings, in the early to mid 1990s, coincides roughly with a more general period of cost savings in health care, due to managed care.  This was soundly rejected by the American public, both in their roles as consumers and voters.

2. There will be more and more older voters in the years to come.

3. We should give at least some consideration to a “mean reversion” theory, by which current cost savings increase the pressure for future splurges.  I don’t want to push this view too hard, but the aggregate data, as I eyeball them, seem to imply “do not reject” for this hypothesis.

For what it’s worth, I don’t really disagree.  Not much, anyway.  But I’d make a few points in rebuttal.  First, past measures haven’t really been intended as long-term game changers.  They’ve mostly been small compromises here and there meant to save a bit of money as part of some larger deal.  And even at that, they have made a difference.  Just not a big one.

Second, you have to start somewhere.  The private sector has shown itself completely unable to slow healthcare spending even a little bit, so why not support the current efforts to try something else?  If they don’t work, they don’t work, and we’ll have to try something else.  But there aren’t a whole lot of compelling alternatives out there right now.  (And no, I don’t really consider tort reform or HSAs compelling alternatives.  Your mileage may vary, but I haven’t seen any evidence that the former would have a big effect or that the latter would provide decent coverage.)

Third, and most important, the biggest reason for rising healthcare costs is the simple fact that Americans want more healthcare.  They’ve made this crystal clear through both the private market and the ballot box.  It seems plain that spending will slow down only when we’ve collectively decided we’re spending enough, and for that to happen people have to understand just how much we’re spending.  Employer-based insurance hides this, which is why European national healthcare systems have had a little more luck than we have at controlling expenses: in Europe, the money spent on healthcare is right out in the open and subject to bruising political battles every year.  The cost of higher healthcare spending is higher taxes, and that acts as a natural brake.  The current healthcare reforms in both the House and Senate start to make that clear.

Not everyone will find this persuasive.  But the alternatives all seem like pie in the sky, combinations of special pleading and ideological utopianism.  The national approach, conversely, has a long track record in other countries and holds out at least some hope of controlling costs in the real world.  Right now, it’s the best model we’ve got.

UPDATE: That said, this is not encouraging news.  If we can’t even stop ourselves from watering down the best cost-control measures before the reform bill is even passed, what chance to we have of holding on to them when they actually start to bite in?


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