Managed Care: Get Used to It

Tyler Cowen: 

We may not like it, but third parties — the government and insurance companies — won’t be able to pay for all the care that people desire. Yet the aging of the population will ensure that medical costs will spiral. Douglas W. Elmendorf, director of the Congressional Budget Office, has said that the administration’s cost-control proposals do not “reduce the trajectory of federal health spending by a significant amount.”

We need to think carefully about how to say no without breaking the better side of our health care institutions. For all the complaints, managed care does not seem to hurt actual health care outcomes, whether pertaining to life expectancy or recovery from disease, according to a series of papers by David Cutler, an economics professor at Harvard, and co-authors.

It’s time to consider which forms of managed care — relabeled, if necessary — are likely to maintain the flow of innovation while keeping costs under control.

For all of managed care’s problems, national bankruptcy would be considerably worse, and that’s where we’re heading if we don’t rein in health costs. We are already experiencing some preliminary symptoms. In addition to the financial burden of Medicare and Medicaid, rising insurance premiums in employer-provided plans are absorbing a large share of what might otherwise be wage increases. That makes us poorer and keeps us from buying safer cars, eating healthier food and investing as productively as we can. Health gains that accompany prosperity are largely invisible, so we tend to neglect them.

Conceived in its broadest form, managed care can be run by the government, as in Britain, or left in the hands of a regulated private sector. Because the United States already has substantial private-sector capacity, and because many Americans are suspicious of government controls, the private route is the most likely option. Individuals would choose among competing providers — and those providers would try to offer the most appealing bundles of services, relative to cost.

The current tax exemption for health insurance benefits could be modified to encourage more cost-effective delivery systems, including forms of managed care that meet quality standards. For the elderly, the current Medicare fee-for-service method could be transformed into voucher programs for managed care treatment. Of course, people could go outside their network for additional services, if they were willing to pay.

It’s not well advertised, but the Obama plan would move in this direction. Many people receiving new health insurance coverage would be enrolled in Medicaid, which already relies on managed care for about half of its patients.

On a national scale, effective managed care will require the right mix of reputation and regulation to enforce provider commitments, and will need some reframing and renaming to make it palatable. It could accurately be called “competitive, choice-based single-payer coverage.” Perhaps there will be a jazzier, less foreboding name.

The notion of using the market to experiment with cost-control methods isn’t likely to be wildly popular. Still, it is better than relying on the federal government. It’s far from obvious that Congress, inflexible and besieged by lobbyists, will make better decisions. Congress also tends to promise cost control up front but to postpone significant action indefinitely. Nor is it clear that electing politicians to choose a plan for people collectively is better than letting each person choose a plan directly.

ON the other hand, for reasons of perceived fairness, some people may be more willing to accept a “no” answer on health care from a government agency than from a private company. If so, we run the risk of limiting our care choices just because we’re more squeamish about one kind of “no” than another.

The real challenge is to change our fundamental attitude toward health care. We live in a world where we can spend virtually everything we have on more and better treatment. The question is not managed care versus the status quo, but which opportunities — and the restrictions that go with them — we are prepared to accept.

When will we acknowledge that our government — or, for that matter, our insurance companies — can’t pay every bill? We’re in denial, and the longer we wait, the more painful the solution will be.

Posted via email from Jim Nichols for GA State House