To Market, To Market, To Cut Fat Health Spending

Market competition is the only form of organization which offers a large measure of freedom to the individual.

Frank Hydeman Wright (1885-1974), University of Chicago Economist

March 11, 2012 – As everybody knows who reads these blogs knows, I often build them around one word. Today that word is “market.” Also as everybody knows, health reform boils down to an argument between those who believe in the government and those who believe in the market as the means to bring down health costs.

J.D. Kleinke

J.D. Kleinke – intrepid entrepreneur, government iconoclast, and Resident Fellow in the American Enterprise Institute – is a market man. In “The Myth of Runaway Healthcare Spending” (February 17, 2012, Wall Street Journal) and later in a March 9 Health Care Blog piece “It’s NOT the Economy”, Stupid!”), Kleinke seeks to put to rest the idea that government is necessary to put the brakes on health spending.

Bending Spending Downward

Using CMS data, Kleinke shows the rate of growth of health spending has come steadily down since 2002, well before the 2008 recession and the 2010 health reform law.

Kleinke gives three reasons for this downward bending of health care spending.

1) Medicine has gotten steadily better at controlling costs by introducing such things as $4 generic drugs and statins for the majority of the adult population.

2) Insurers and payers have grown smarter by having health care consumers share more of the cost burden.

3) Multiple market forces have converged to force prices down.

Kleinke maintains, given time and good sense, health prices will “normalize,” will drift down even farther, and price growth will eventually settle down somewhere near the rate of normal inflation.

Accelerating "Normalization" of Health Spending

This normalization can be accelerated, Kleinke says, if we will only:

1) change the tax code for all individuals, not just corporations and employers, get a tax break for health care expenditures;

2) allow people to shop in a competitive national market, just we now do for car insurance;

3) give the average American family $15,000, the amount they are spending now, and “turn them loose within a truly reformed insurance market, and watch what happens.”

Marketing 101

For Klienke, market delivery on these things is as simple as 1-2-3, as Marketing 101. Kleinke could be right, but I doubt if the Washington establishment would ever let that market happen.

As pointed out in a recent Wall Street Journal editorial, health decisions are too important to be left to people who receive care (patients), people who provide care (hospitals and doctors), people who pay for the care (taxpayers), and even for people who got the government involved in the first place (politicians).

Government Alphabet Soup

As every Washington-based politician knows, you can only trust the government establishment, the policy elite, management experts who ladle out that top down alphabet soup – HHS (Health and Human Services); CMS(Centers of Medicare and Medicaid), CMI (Centers for Medicare and Medicaid Innovation). IRS (Internal Revenue Service), PCORI (Patient-Centered Outcome Research Institute), CER (Comparative Effectiveness Research), PHM (Population Health Management), EBM (Evidence Based Medicine), IPAB (Independent Payment Advisory Board), SGR (Sustainable Growth Rate), ACOs (Accountable Care Organizations), EHRs (Electronic Health Records), EMRs (Electronic Medical Records), HIT (Health Information Technologies), and acronyms yet to come for those 168 federal agencies that will be required to administer the countless new rules for the Health Reform Law, alternatively known as PPACA( Patient Protection and Affordability Act) or as the ACA (Affordable Care Act), an oxymoric acronym of the first order, or for its chief architect and advocate – Obamacare.

Government programs rarely die. It is unlikely that Kleinke’s fantasy, or “J.D.’s Folly” as it known inside the Beltway, will ever come to pass.

Mother Goose and Market Gander

I am reminded of the Mother Goose nursery rhyme, with the fat pig standing for inflated health prices.

“To market, to market, to buy a fat pig,
Home again, home again, jiggety-jig.”

Under Kleinke’s market scheme, Motther Goose's rhyme would be rephrased to read,

“To market, to market, to buy a lean hog,
Free again, free again, government’s gone, hot digitty dog.

Tweet: CMS data indicates growth rate of health costs has slowed since 2002, giving lie to the myth that health costs are “out of control.”