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Pat Moynihan's Blarney On Health Care


Economic Viewpoint

PAT MOYNIHAN'S BLARNEY ON HEALTH CARE

Contrary to Senator Daniel Patrick Moynihan and the Republican National Committee, there really is a health-care crisis. The GOP believes that government- mandated health coverage would be a cure worse than the disease. Moynihan, the Senate Finance Committee chairman and a Democrat, presents a different, more subtle argument.

According to Moynihan, the supposed health crisis is really a social crisis. Social pathologies such as drug abuse, teen pregnancy, and family breakup have nothing to do with flaws in the medical system, but they nonetheless show up as medical costs. Many other health problems reflect diet, lack of exercise, self-inflicted damage from smoking and drinking, and gross income inequality--again, issues that are social rather than medical. Also, an aging population raises medical costs.

Finally, argues Moynihan, health care has a bad case of "cost disease" because health care is mostly a service and thus its wages keep outstripping its productivity. This is the impact of "Baumol's Law," a subject that I addressed a few columns ago (BW--Nov. 15, 1993). Professor William J. Baumol contends that real costs in services tend to rise relentlessly since real productivity in the services is stagnant.

NO CHECKS. Moynihan surely has a point about the social costs of health-care inflation. And he is at least partly right about Baumol's law. Even so, that hardly exhausts the causes of health-care inflation. In truth, our current health system is inefficient and prone to inflation, quite apart from Moynihan's issues, because of the way we organize and pay for it.

To begin with, most health procedures are reimbursed item by item and paid by third parties--insurance companies or government. This gives patients little incentive to hold down costs, while hospitals and doctors have every incentive to maximize them. In response, our fragmented system sets up futile games of cops and robbers. Many providers try to maximize their cost base (and hence their reimbursements) by purchasing very expensive equipment or complicating treatments. Insurers and government reviewers respond by second-guessing health professionals. All of this is staggeringly expensive.

In addition, insurance companies try to restrain costs by discriminating against people likely to get sick. This adds yet another layer of private bureaucrats who are unnecessary in a universal system where everybody is automatically covered. There are no underwriting or marketing costs in, say, Medicare. Our system also spends tens of billions of dollars yearly processing claims--costs that do not exist in a universal system where everyone is covered and doctors are paid a salary and hospitals get a fixed budget. Finally, the fact that some people are not insured at all leads many to be treated in expensive venues such as emergency rooms or to delay care until they are far sicker and more costly to treat.

DIVERTED ENERGY. Doctors and nurses spend ever more time filling out forms or arguing with utilization reviewers. Hospital executives spend ever more time jousting with the cost-containment cops. The ironic result is less and less money available for actual care. In the end, so much overhead is piled onto every hospital bed that insurance companies cannot afford to let hospitals treat sick people. The system attempts to improve "efficiency" by throwing people out only hours after surgery or by looking for preexisting conditions and other excuses to deny coverage.

This form of cost-inflation and care-cutting has nothing whatever to do with Baumol's law or with an aging population or with teen pregnancies. It is the product of an insane system of insurance and financing that is crying out for reform. How can anyone as smart as Moynihan say this is not a crisis?

The senator is certainly right that society could cut its medical costs if it reformed welfare. He is right that we would be healthier if we smoked less, exercised more, and had a narrower gap between extremes of wealth and poverty. He is partly right about Baumol's law--nursing care, for example, does become more expensive over time. Yet many medical technologies, such as earlier detection, less invasive surgery, and miracle drugs, raise productivity and hence lower costs.

Surely we could make progress on Moynihan's social fronts but still address the anomalies in the way we organize and finance the health system. Universal coverage would also address two of Moynihan's other valid concerns. People would no longer stay on welfare in order to get Medicaid. And universal coverage--either through the Clinton plan or a single-payer system-- would, by its nature, give greater emphasis to prevention.

The Clinton Administration recently moved welfare reform to the head of the legislative queue, in deference to Moynihan. Lately, the senator has been less obstreperous on the health issue. It's not clear whether he is having second thoughts or whether he and the Clintons have struck a deal. Intellectually, Moynihan is a deft provocateur, but his airy dismissal of the health crisis is pure mischief. The ills of the health system are multiple, and the cure will be equally complex.ROBERT KUTTNER


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