Robert “No Relation to Paul” Samuelson on Health Care Policy

Robert Samuelson provides a few insights worth repeating:

Almost everyone agrees that we ought to “fix the health care system” – a completely meaningless phrase despite its popularity with politicians, pundits and “experts.” Indeed, it is popular precisely because it is meaningless … Unfortunately, tinkering isn’t enough. As everyone knows, health care spending has risen steadily. In 2004, it totaled 16 percent of national income, up from 7.2 percent in 1970. Spending will continue to rise, if for no other reasons than that the population is aging and the average annual health costs for someone 65 and older ($7,910 in 2003) are – surprise – more than twice those for someone 35 to 54 ($2,966). As health insurance becomes more costly, the number of uninsured, now about 46 million, may grow. Worse, health costs may depress wage gains, raise taxes and squeeze other government programs … Americans generally want their health care system to do three things: (1) provide needed care to all people, regardless of income; (2) maintain our freedom to pick doctors and their freedom to recommend the best care for us; and (3) control costs. The trouble is that these laudable goals aren’t compatible … Disliking the inconsistencies, we hide them – to individuals. We subsidize employer-paid health insurance by excluding it from income taxes (the 2006 cost to government: an estimated $126 billion). Most workers don’t see the full costs of their health care; a reported Bush proposal to add new tax subsidies would magnify the effect.

On this subsidy aspect, I agree, but also note the wise comments from David Altig as to alternative interpretations of the rising share of national income accruing to health care. But as Max Sawicky (who I often steal clever quotes from) notes, Samuelson goes awry here:

Every attempt to do so has failed. Consider the “managed care” experiment of the 1990s. The idea was simple: Herd patients into health maintenance organizations or large physician networks; impose “best practices” on doctors and patients to encourage preventive medicine and eliminate wasteful spending; and cut costs through administrative economies. For a while, it seemed to work. From 1993 to 1997, private insurance premiums rose only 2.6 percent annually. But managed care upset doctors and patients. It restricted personal choice. Some coverage denials seemed inhumane or inept. After a political backlash, managed-care organizations relaxed cost controls. Now, some say that because the “market” has failed, greater government control is the answer. Private insurance has high overhead costs and generates too much paperwork. True. Still, there’s not much evidence that over long periods government controls health spending any better. From 1970 to 2003, Medicare spending rose an average of 9 percent annually, reports the Kaiser Family Foundation. In the same years, private insurance costs rose 10.1 percent annually.

As Max notes:

He notes that Medicare (per enrollee) spending grew “only” 1.1% slower than private insurance costs. But, this was over 33 years (1997-2003), meaning that, relative to their 1970 levels, private insurance costs are 40% higher than Medicare’s. The problem with health care inflation is not this year or the next – it’s what happens over coming decades. In this context, small changes add up.