U.S. Health Care Debate #throwbackthursday

In this week’s #throwbackthursday feature, Rick Vanden Bergh, Director of the UVM Janus Forum, reflects on Christy Ford Chapin’s Ensuring America’s Health: The Public Creation of the Corporate Health Care System. Chapin’s research explores the evolution of the healthcare system in the United States since the 1930s. Vanden Bergh comments on this piece and its insight into factors that help explain why healthcare costs are difficult to contain in the American system. What do you think?

“Several years ago, the Janus Forum sponsored a debate on the appropriate role of government in our healthcare system to contain accelerating costs. The Janus Forum debate highlighted that critics of our healthcare system have very different views on how to best contain costs.  During the debate, David Corn argued for a move to a single payer model.  He thinks that the centralized approach of a single payer model will drive down costs by eliminating the private insurance profit motive and by introducing a democratic process for the single payer to ration healthcare services.  Arnold Kling argued for a move toward a greater role for markets.  He emphasizes that a portion of healthcare expenditures reside in a “gray area,” meaning that they are nonessential, and that similar to any other “gray area” product or service, he thinks decentralized market processes provide incentives for healthcare providers to drive down costs in order to attract consumers that must decide whether the service is worth it.

In her book Ensuring America’s Health: The Public Creation of the Corporate Health Care System, Christy Ford Chapin highlights the ongoing debate about the cause of accelerating costs. Chapin demonstrates that the US system did not emerge spontaneously from market processes, but rather it arose from a combination of maneuvering by the American Medical Association and private insurance companies as well as government policy choices. She states that our current system is not a market based system but rather an “insurance company model” which began in the late 1930s.  She argues that the insurance company model creates perverse incentives for service providers to offer as many services as possible to generate fees, and that this is an important cause of accelerating costs. Interestingly both Kling and Corn agree with Chapin’s main thesis, and both would eliminate the current insurance model.  However, Kling and Corn disagree about the appropriate solution.

I tend to agree with Kling that if governments would allow for a greater role for decentralized market processes then we would see innovation by healthcare providers that leads to cost containment while maintaining or improving quality. It is interesting to note that since the Janus Forum debate took place at the beginning of 2009, government policy has moved the overall system further away from a market based system.  During this time, based upon aggregate data, I don’t see significant improvement in cost containment.  For example, according to data collected by the Centers for Medicare & Medicaid Services (www.cms.gov), health care expenditures totaled 16.3% of total gross domestic product in the United States during 2008 and government programs paid for 54.3% of the total.  The most recent published figures available through CMS are for 2015.  They show that total health care expenditures increased to 17.8% of gross domestic product, and government programs paid for a larger share of 55.1%.  I think these aggregate numbers suggest that the challenge of containing costs still exists and the debate over how to address the challenge will continue. Maybe David Corn is right and a move to a single payer system would contain costs better.  While I don’t claim to have the answers, I would like to see at least some experimentation with decentralized market based processes.  Perhaps the US state governments will conduct these experiments. A state like Vermont is most likely going to experiment with a centralized single payer system.  Perhaps another US state will experiment with more decentralized markets.  If some states adopt single payer while others move toward markets, then we might just be able to resolve this debate by paying close attention to the outcomes.”