Private v Public
The Hidden Columnists--Paul Krugman Edition (26 Dec)

With the 2006 mid-term elections starting to hot up (as they say in the UK), health care is shaping up to be a major point of discussion. Professor Krugman's column for Boxing Day--Medicine: Who Decides? (full column available to Times Select subscribers)--takes on the one of the biggest points of the debate--private versus public stewardship of managing health care costs and insurance.

But to get health reform right, we'll have to overcome wrongheaded ideas as well as powerful special interests. For decades we've been lectured on the evils of big government and the glories of the private sector. Yet health reform is a job for the public sector, which already pays most of the bills directly or indirectly and sooner or later will have to make key decisions about medical treatment.

That's the conclusion of an important new study from the Brookings Institution, "Can We Say No?" I'll write more about that study another time, but for now let me give my own take on the issue.

[...]

... if costs are to be controlled, someone has to act as a referee on doctors' medical decisions. During the 1990's it seemed, briefly, as if private H.M.O.'s could play that role. But then there was a public backlash. It turns out that even in America, with its faith in the free market, people don't trust for-profit corporations to make decisions about their health.

Despite the failure of the attempt to control costs with H.M.O.'s, conservatives continue to believe that the magic of the private sector will provide the answer. (There must be a pony in there somewhere.) Their latest big idea is health savings accounts, which are supposed to induce "cost sharing" - that is, individuals will rely less on insurance, pay a larger share of their medical costs out of pocket and make their own decisions about care.

In practice, the health savings accounts created by the 2003 Medicare law will serve primarily as tax shelters for the wealthy. But let's put justified cynicism about Bush administration policies aside: is giving individuals responsibility for their own health spending really the answer to rising costs? No.

For one thing, insurance will always cover the really big expenses. We're not going to have a system in which people pay for heart surgery out of their health savings accounts and save money by choosing cheaper procedures. And that's not an unfair example. The Brookings study puts it this way: "Most health costs are incurred by a small proportion of the population whose expenses greatly exceed plausible limits on out-of-pocket spending."

Moreover, it's neither fair nor realistic to expect ordinary citizens to have enough medical expertise to make life-or-death decisions about their own treatment. A well-known experiment with alternative health insurance schemes, carried out by the RAND Corporation, found that when individuals pay a higher share of medical costs out of pocket, they cut back on necessary as well as unnecessary health spending.

So cost-sharing, like H.M.O.'s, is a detour from real health care reform. Eventually, we'll have to accept the fact that there's no magic in the private sector, and that health care - including the decision about what treatment is provided - is a public responsibility.