What to do about Medicare: the heart of the controversy

Here’s Michael Hiltzik, columnist for the Los Angeles Times:

To be charitable, the free-market rationale for sticking enrollees with more of the bill is that as consumers with “skin in the game” they’ll be more discriminating about the services and treatments they demand, thus holding down costs. Unfortunately, the consumer-driven model has been widely discredited: Studies suggest that strapped patients forgo not only ineffective but effective treatment, that they lack the expertise to judge what’s necessary and what’s not, and that consumers are vulnerable to multimillion-dollar ad campaigns by drug and device companies pushing them into uninformed decisions.

Here’s distinguished economist Alain Enthoven:

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.” Medicare is especially vulnerable to waste, fraud and abuse.

No amount of price cutting or central-government dictates will mitigate these problems. Their cure requires detailed local knowledge, incentives and fundamental organizational change so that curing them is in the interest of providers and patients.

As Thomas Sowell pointed out long ago in his wonderful book A Conflict of Visions, disputes such as these are unlikely to be settled by logic or by empirical evidence. You either believe that most people are able to conduct their affairs competently, or you don’t.

Cross-posted to Newmark’s Door.

 

Craig Newmark

Associate Professor of Economics, North Carolina State Univ.

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