Can America Do Better? Insights from Health Economics

The WPBA’s first event from its yearly lecture series brought three of Penn’s health care professors together on one stage. On September 23rd, Patricia Danzon, Scott Harrington, and Mark Pauly fielded questions gathered by the WPBA from health care experts and national figures such as Noam Chomsky, David Cutler (Harvard economist and health care advisor to the Obama campaign) and Brad DeLong (UC Berkeley economic historian and former Deputy Assistant Treasury Secretary in the Clinton administration). The questions addressed the national debate on improving access to health care in the United States, the destructive cost spiral exhibited by our current system, and improvements that can be made. Through the evening, the panelists exposed the lack of specificity in current policy arguments and the necessity of carefully considering the metrics we use to evaluate any health care system.

On the topic of access, Mark Pauly began by exposing the inadequacy of using the phrase “universal” health care in a health care policy debate. In the United Kingdom, the government pays. Universal health care could be public sector-subsidized but employer-based. Or a country could follow a voucher approach, with tax credits and financial incentives. All three options can provide “universal” care, suggesting that the phrase is more a feel-good buzzword rather than a specific policy solution.

The cost-effectiveness of our current system provided the second topic of debate. Patricia Danzon noted that the data used to support claims of low productivity in our current health care system is not always directly relevant. Poor health outcomes are not just a function of hospital care, but of lifestyle, nutrition, accidents and violence. These latter factors lie outside the reach of our current system, so other information may be more useful for conducing policy evaluations. The U.S. has a higher frequency of expensive procedures, for example, and the U.S. is superior in access and newness of drugs.

Scott Harrington noted the difference between reducing the level of spending per year and reducing the growth rate of new spending on health care. The expansion of managed care in the 1990s reduced the rate of spending, he noted, but became less effective over time. Cutting the level of spending is a problem of misaligned incentives, where doctors have the incentive to spend as much as necessary to meet metrics of medical value and impact, rather than cost/benefit financial metrics.

The panelists offered a few solutions over the course of the night. Ms. Danzon argued that the United States can do a better job of evaluating new drugs before we reimburse for them, and assess old as well as new drugs. Electronic prescribing and records are essential for future efficiency, she added. Mr. Harrington suggested a financial incentive to make healthy lifestyle decisions, although he noted the difficulty of implementation.

On the structure of the health care system, Ms. Danzon pointed to Germany’s unique risk-balancing system among “sickness funds” (similar to HMOs). Consumers choose which fund to use, and one fund is compensated by the others if it ends up with a higher-risk group of customers.

At the close of the debate, the panelists also encouraged the audience to question their own role in our current health care system’s inefficiency. The real impediment to improved cost efficiency is that in the United States, the population on a whole simply does not want limits to their own care, and do not want to give up money to cover the uninsured. In a country with a psychological bias against cross-subsidies, the debate over the best consumer-choice and care-provision systems is likely to continue for years to come.

Related posts:

1. Patricia Danzon, Scott Harrington, & Mark Pauly (“Can America Do Better? Insights from Health Economics”)
2. Jacob S. Hacker: Insights from the Democratic Health Policy Expert
3. Barriers to Health Care Access in Philadelphia By Marla Gold, Dean, Drexel School of Public Health

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