|Selected news articles which highlight important policy issues.||
News: Weekly Archives
News for the week of 12-29-2006
Health Care Gold Mines: Middlemen Strike it Rich
New York Times columnist Paul Krugman often argues that Medicare and other government health programs are more efficient than private providers because they have lower administrative costsi.e., they cut out advertising and the need for "middlemen" to monitor costs.
This article, from the Wall Street Journal takes up the issue of cutting administrative costs and makes some interesting observations:
A lot of the money that goes to healthcare middlemen is well spent. It allows employers to combine their purchasing power for leverage with hospitals and drug makers. It harvests data to uncover which new procedures are valuable and which aren't. Middlemen offer healthcare expertise to employers who don't have it and don't want to hire it.
As the article notes, many middlemenlike PBM's who offer companies drug coveragedo offer valuable services. And public programs like Medicare engage in cost shifting, passing along administrative costs to private providers, much like the way the IRS passes administrative costs to taxpayers by making them annually struggle through a blizzard of tax forms. Government run health care systems in Canada and the U.K. are also notorious for underinvesting in health carehence the long waiting lines for many services, and health care rationing. These are costs to the system too, but Krugman and others tend to downplay them to make singlepayer health systems look rosier than they really are.
So why are there so many middle men, and so many administrative costs in both public and private health care programs? Thirdparty payers (i.e. employer provided health insurance, and programs like Medicare and Medicaid) create a moral hazard for both patients and doctors to game the system to their advantage. If you want fewer middlemen, and lower administrative costs, put more power and responsibility directly in the hands of consumers.
Millions save money on Medicare Program
The Democrats, as part of their "100 hours" agenda, have promised to pass a bill requiring the Secretary of Health and Human Services to negotiate with manufacturers for the Part D drug benefit. While it is not clear how these negotiations would be conducted, especially in the absence of a Medicare approved drug formulary, the Democrats seem determined to pass the bill and it may have the votes to reach the President's desk.
In the meantime, it is well worth remembering that the drug benefit routinely scores highly in surveys of seniors, with approval rates hovering in the 7580% range. The AP weighs in with another article showing that, warts and all, the program appears to be working well:
"I would say I'm very impressed with the whole thing. I have no complaints," said Goundry, a resident of Chesapeake Beach, Md. "It's meant a tremendous savings. I know other people who are saved by it. I mean that. They don't hardly pay anything." Goundry is like millions of seniors who say they are happy with the benefit, which cost the federal government about $30 billion in 2006. But the program affects seniors and the disabled differently, depending upon their income and health. There are many people who believe the program could be improved. Just down the street, at the Chesapeake Care Pharmacy, Wesley Copeland is not so impressed.
Having a debate about prices in a vacuum seems a bit absurd. The government can certainly limit the prices it pays for any goods and services – but those limits will, in turn, impact the availability of those items, i.e. create shortages.
The better question, it would seem, is one of value. And here seniors have voted "with their feet" to join Part D and seem very happy with its structure (tweaks notwithstanding). In a less partisan world, Congress would be working on expanding the market-based success of Part D rather than dismantling it.
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