Mangled Care?
I was surprised by the editorial "Medical Meddling" in the December REASON. I am shocked that Virginia Postrel would even suggest that managed (rationed) care has anything to do with the market. Indeed, were it not for a discriminatory tax code favoring employers rather than employees, managed care would not exist. Managed (rationed) care is therefore a creation of the federal government, not a market phenomenon.
When an employer, rather than an employee, makes the decision regarding a health plan, the veterinary ethic of medical care replaces the Hippocratic ethic. In fact the only difference between managed (rationed) care and veterinary medicine is that the owner of the poodle loves the animal.
Organizations such as the American Medical Association are guilty, as Postrel charges, of lobbying for non-market-based health care funding schemes. The Association of American Physicians and Surgeons favors medical savings accounts (not mentioned in Postrel's editorial) as a way to put the purchasing power in the hands of the person to receive the medical product/service.
I do not blame the managed-care companies for seizing the day and profiting from a discriminatory tax code--the feds deserve all the blame. I do not, however, pity those same companies for suffering from the regulation, litigation, and red tape that comes with any deal made with Leviathan.
G. Keith Smith, M.D.
Edmond, OK
It is distressing to see how little understanding REASON has for free markets in medicine. Virginia Postrel states that managed-care plans have to find ways to encourage quality lest they lose their customers. Wrong. The customer for managed-care plans are employer benefits managers, whose first and only concern is price. To restore a free market in medicine, the consumer and customer need once again to become one and the same--the patient--and the patient needs the right to fire his insurer, without incurring a huge tax penalty.
Fee for service is not necessarily a "system with strong incentives to overtreat and overtest." The incentives come from third-party payment. Patients spending their own money have the incentive to be prudent consumers. When medical care was mostly paid for by patients, the hospital bill for an appendectomy was the equivalent of 10 days' wages for a common laborer ($149 in 1960). Now it's at least a couple months of take-home pay for a middle-income person (about $3,000). They still do the procedure the same way, and the patient is generally home faster.
The opposite of communism is not fascism. What we need is patient-purchased, patient-owned, catastrophic insurance, with most bills paid directly by the patient, possibly via a medical savings account. The answer to the question about who should be favored, the insurer or the doctor and the hospital, is none of the above. Medicine is for the benefit of the sick.
Jane M. Orient, M.D.
Executive Director
Association of American
Physicians and Surgeons Inc.
Tucson, AZ
In her defense of managed care Virginia Postrel makes an unfortunately common error--she mistakes the ostensibly private nature of an industry as proof of its free market nature.
Managed care was only a minuscule part of the health care system prior to World War II and would likely be so now if not for the tremendous distortions in the medical market brought about by the actions of government. Most important, the tax code promotes employer-provided, first-dollar coverage. Employees believe that they are spending somebody else's health care dollar, which leads to health care inflation through poor consumer discipline and lack of consumer pressure on providers. The government's provision of similar first-dollar coverage through Medicare and Medicaid leads to the same end.
The result is that employers or the government are the real consumers of health care, not patients. The resulting health care inflation has generated a move to ration care through managed care and various public sector rationing mechanisms. Managed care is further favored by a variety of governmental policies such as an only recently expired law mandating an HMO option for employees in businesses offering health care coverage, relaxed antitrust provisions for managed care, and direct government subsidization of private managed care companies through lucrative contracts with Medicare and Medicaid. Would managed care survive in a true free market? Perhaps. I would have no qualms with it if it did. However, we'll never know the answer until we repeal government's unfortunate control over our medical system.
Mark Schiller, M.D.
San Francisco, CA
Virginia Postrel replies: It's interesting that none of the physicians accusing me of heresy criticize the trend that prompted my editorial: the passage of state and federal laws interfering with the rights of managed care organizations to freely contract with physicians, patients, and insurance buyers. Too often, support for freedom of contract goes right out the window when the contracts in question affect one's own profession.
Space limitations preclude a rehearsal of the enormous and often complex economic literature on health care markets. But a few points are worth noting. First, contrary to Dr. Smith's assertion, health care markets, while distorted by the tax code, are in fact markets. What matters most is competition, and there is plenty of that. Doctors compete for patients. Insurance providers, including managed care organizations, compete for customers and physicians. And, believe it or not, employers compete for employees. Anyone who actually hires people knows that one of the first questions a prospective employee asks after a salary offer is, "What sort of health insurance do you offer?" It is not the case, as Dr. Orient suggests, that employers can just stick employees with lousy health care benefits and never pay the consequences. Her class-warfare story of evil managers and downtrodden workers doesn't wash. Even Dr. Schiller's thoughtful letter, with which I largely agree, ignores the very important effects of competition. It is not exactly accurate that "employers...are the real consumers of health care, not patients." Employers who want to keep their employees- -and most do--have strong incentives to act as reliable agents for their interests, and company benefits specialists may actually have better information about health care plans than workers could gather individually.
Second, in a competitive context, "rationing" is another word for trade-offs. We make them every day in every kind of market. Physicians may wish they could have a blank check to get paid for every possibly beneficial procedure, but as long as someone is paying the bill, that someone will impose limits. Medical savings accounts, if they work as advertised, would encourage patients to consume less in medical services--to self-ration. Dr. Orient argues that this check would prevent the extremely well-documented overtesting and unnecessary surgeries associated with fee-for-service medicine. Certainly, direct payment would have some effect. But who pays is not the only issue. Patients don't have as much medical knowledge as physicians, on whom they must rely to recommend treatments, and physicians are not immune from economic incentives. This doesn't mean that they deliberately overprescribe, only that they do not scrutinize costs as carefully as they might otherwise. Back in Dr. Orient's good old days, to take a famous example, there were an awful lot of unnecessary hysterectomies.
Third, there is considerable evidence that patients want both first-dollar coverage (hence, for instance, the large market for "Medi-Gap" insurance) and someone else's expertise in helping them buy health coverage. The model that says that in an undistorted "free market" everyone must buy his or her own personal insurance and only in large-dollar "catastrophic" form is dictatorial. It ignores the advantages of specialization--I might very well want my employer, or some other group I trust, to act as my agent in dealing with health insurance--and it pretends that everyone has the same risk preferences. Why exactly is catastrophic coverage the only acceptable kind? The life insurance market is diverse, as is the mutual fund market or, for that matter, the haircut market. The notion that health care must be delivered in only one form may suit the tastes of some physicians, but it ignores their patients.
Trying to redistort the health care market, through new tax gimmicks or regulations on managed care practice and contracts, is tempting for physicians who would prefer to practice fee-for-service medicine. It is not, however, good policy. Dr. Schiller's prescription is correct: Our policy goal should be to remove distortions, not to dictate the shape of health care delivery. As he suggests, we don't know what medicine would look like in an undistorted market. But it might very well include managed care.