From: DGS4@psuvm.psu.edu
Newsgroups: alt.politics.bush
Subject: Re: Efficiency
Date: 2 Sep 92 16:08:09 GMT
Distribution: usa
Organization: Penn State University

In article <1992Sep2.144824.13820@aio.jsc.nasa.gov>, cessna@kn5f.jsc.nasa.gov
(Mark Taylor Evert) says:

>Absolutely correct!   Although I strongly disagree with Clinton's approach
>to health care, I am just as disappointed that the Republicans were not
>more agressive in attacking the rising cost of health care.   As I see it,
>the health industry is not competitive in terms of cost.  After all, with
>most of the costs being covered by insurance, people don't shop around for
>the cheapest service...opting instead for the best facilities.  This has

The definitive study on this, the Rand Health Insurance Experiment, finds
a significant, yet small effect of direct out-of-pocket payments on health
expenditures.  Currently, Americans pay about 25% of their personal health
expenditures out-of-pocket.  The Rand study indicates that even if we raise
that to 95%, total health expenditures would fall by only 12%.  In addition,
unless it is coupled with re-distribution and changes in public health
insurance, this burden will fall largely on the poor and ill.


>led to hospitals competing based on the technology it has available, which
>is often underutililized.   Other situations like yours also play into the
>game.   Add to this the direct cost of medical malpractice insurance...and
>the indirect cost of unneeded tests and procudures that are done as a CYA

Both the direct costs and the indirect costs are estimated to be only a small
portion of the problem, even by the AMA.  The best estimates are maybe
10 to 25 billion.

>by doctors to avoid suits, and I've pretty well described why costs have
>not been kept under control.   To be fair, insurance companies have tried

Not really.  Inefficient administration of insurance due to the needs to
underwrite and claims review in a private insurance market, and the
subsequent costs our multiple-payer health insurance system is estimated
to add 50 to 100 billion to our costs, dwarfing the malpractice issue.
Payment systems which reward high-tecg procedural care, even where not
indicated adds another 80 to 240 billion, according to most estimates.


>to initiate programs (HMO's, Preferred Network, etc) to reduce costs, but
>this has been met with resistance from both doctors and consumers.  A

In fact, recent studies show that although HMOs have lowered the level
of costs (in part due to reduced hospital care, in part due to enrolling
a healthier population), they have not reduced the rate of growth of
costs.  Other recent innovations, such as utilization review, are
actually estimated to have increased costs.

>totally free market medical system, along with tort reform is what is
>needed.

A "totally free market medical system", which I'd like to see you describe
or define, would collapse from its own inefficiency in a decade.  I've posted
on this in a number of previous threads.  Health care may be, like national
defense, one of those cases where the free market does not function adequately.
The role of uncertainty, asymmetric information, significant externalities,
large economies of scale, and other factors may mean that a second-best
solution involving government intervention is the optimal solution.

Dennis G. Shea, Penn State
<<DISCLAIMER>>
Ain't nobody's bizness but my own. I'll be happy to accept all
the credit for anything I've written.  It's funny, however, how
employers only acknowledge the profitable ideas.
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