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April 09, 2012 7:45 AM A Question for “Cost Control Before Coverage Expansion” Advocates

By Austin Frakt

A fairly standard position is that we should implement more cost control before embarking on coverage expansion. A variation on this idea is that getting costs down will itself help expand coverage, not all the way to universality, but a bit.

I’m skeptical that a “cost control first” approach is politically viable, but let’s put politics aside. Here’s my question: how much cost control is enough? In other words, if you think cost control should precede coverage expansion, at what level of health spending would you be ready to move on to coverage expansion?

Recognize that one can always make an argument that we spend too much on health care. Today health spending is about 18% of the economy, with Medicare itself consuming 3.6% of GDP. Back when the total was only 15% or 12% or 7% of the economy and Medicare was just 3% or 2% people said we spent too much too. Where’s the line at which we began spending too much? If we bring spending down to that level, whatever it is, would we finally have consensus that it was time for coverage expansion? If so, why didn’t such a consensus exist in the early 1990s or the 1980s or at any other time in American history? (Ironically, the answer is that some were concerned that coverage expansion of the types proposed would slow health spending and the incomes it funds.)

Also recognize that some contend we have received great value from health spending (Cutler, Murphy/Topel). Still others think we can rationally spend a great deal more than we do (Hall/Jones). Maybe we don’t spend enough, though people differ on this point. If you’re one of them, I’m talking to you. I want to know what level of health spending you think is appropriate.

Before you answer, a word of caution. If you attempt to address the issue of how much cost control is enough, be careful with an argument based on efficiency. Our health system is inefficient, I grant you. Evidence of a lack of productive efficiency is that we have under-use along side over-use. One approach to addressing this is through reforms that reduce incentives for over-use (e.g., paring back the employer-sponsored health insurance tax subsidy, changing how Medicare pays providers, etc.) and reforms that aim to reduce under-use (e.g., expansion of coverage for low-income populations, reforms of the insurance market so that participation by those with health care needs is easier). Baicker and Chandra argue that one cannot say how much health spending is the right amount in the presence of productive inefficiencies. Maybe there is another argument they or I have not considered. What is it?

So, if you think you know what level of health spending we should aim for, tell me what that level is, and tell me why that means coverage expansion should wait. I’d really like to know. Putting all my cards on the table, I don’t really think this is a debate driven by how much we spend, but one driven by how much we tax. If you think taxes are too high then it is convenient to be able to say we also spend too much on health care, at least through government programs. But what if we don’t? What if it is allocatively efficient to spend more or at least productively efficient to spend differently, but, in any case, not less?

[Cross-posted at The Incidental Economist]

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Austin Frakt is a health economist and an assistant professor at Boston University's School of Medicine and School of Public Health. He blogs at The Incidental Economist.

Comments

  • SaySomething on April 11, 2012 1:39 AM:

    Coverage expansion IS an aspect of cost control. Putting everyone in the risk pool, including and especially the "healthy" (aka the not-expensive to cover) actually hedges risk making it cheaper to cover everyone (as long as these people pay into the system).

    Oh yeah, and removing health insurance profit from the equation helps both aspects as well.

    In other words, both cost and coverage are handled in one fell swoop with single payer.