Conservatives on Health Care – They Get It Wrong, Again

Why Can’t They Have Better Arguments?

A gentleman by the name of Alain Enthoven, who is a Professor Emeritus at the Graduate School of Business at Stanford, and who describes himself as a health economist who helped design the premium support concept 30 years ago has taken to the Op Ed pages of the Wall Street Journal to proclaim

What Paul Ryan’s Critics Don’t Know About Health Economics

Now The Dismal Political Economist has certainly been a critic of Mr. Ryan plan for senior health care, and while he proclaims to know quite a bit about health economics,

see Here and Here,

and he is certainly interested in learning things he did not know about health economics.  So here is some of what Mr. Enthoven says.

It's clear that Medicare-spending growth must be curtailed and eventually limited to the growth rate of GDP—if not below.

Uh, no, that’s not right.  With the aging of the population the growth rate on spending on health care will be greater than the growth rate of the economy as a whole.  Consumer spending patterns change, in part with demographics and the aging demographic will result in faster growth for health care spending.

 Health care in America is extremely wasteful. A 2005 report by the National Academy of Engineering and the Institute of Medicine found that 30-40 cents of every dollar spent on health care are spent on costs associated with "overuse, underuse, misuse, duplication, system failures, unnecessary repetition, poor communication, and inefficiency

Well, that’s true, but then The Dismal Political Economist and everyone else knew that.

At the root of the waste and excess is Medicare's open-ended fee-for-service system

Really, Medicare spending is high, but the majority of health care spending is in the non Medicate sector.  Medicare has a small fraction of the system and get’s all the blame?  We don’t think so.

A better way to encourage accountable care is the "premium-support" model proposed by House Budget Committee Chairman Paul Ryan, among others. This is a managed competition model in which government would make a defined contribution and beneficiaries would have a choice from a variety of health plans with no discrimination based on health status. Standard coverage contracts would make comparisons possible for ordinary people. Competition would drive health plans to innovate in ways that cut waste and improve quality. And the use of exchanges would drastically reduce marketing costs, so insurance companies would not be taking 20% off the top, as is currently the norm.

So firms would compete for Senior’s business, but have no marketing costs.  Amazing how they would do that.  Sorry Mr. Enthoven, but marketing is the main way competitors engage in competition. And competition is the key to the Ryan plan.

But the reality is that most waste identification and cutting is local. These 15 central planners are unlikely to do as good a job as hundreds of doctors and managers in local delivery systems working with incentives to improve value for money for their enrolled members

No, that’s not correct.  Doctor’s and managers would have no more incentive to reduce costs than they have today.  This is still the fee for service system that Mr. Enthoven so roundly condemns at the beginning of his article.

Mr. Enthoven, like everyone else who has weighed in on the side the Ryan Plan fails to answer the two basic questions.

1.      If Private Insurance was going to control costs, why hasn’t it done so in the Non-Medicare sector of health insurance?

2.      If this is such a great plan, why wait 10 years, why not do it now.

So at the end of the day The Dismal Political Economist admits that he may not know all there is to know about health economics, but he sure does know more than Mr. Enthoven.