The New York Times has a startling and important story today on American health care, all the more interesting because the implications of the piece, not fully explored by the paper, suggest that reforming health care markets rather than a government takeover could drive costs still lower and put America’s most pressing domestic problem onto a glide path to success.The conclusions are tentative, the evidence partial, the interpretations controversial and the picture is mixed, but health care economists seem to think that health spending fell more than it “should” have during the recession, and it fell even among those whose ability to get care wasn’t affected by the recession.One factor economists studied was in some ways the most promising for future reformers: an “explosion of high-deductible plans.” High-deductible plans mean that consumers pay a lower premium but are responsible for their own costs up to a certain amount. People enrolled in these plans cut their spending on health care by an average of 14 percent, reports the Times, and the percentage of the public enrolled in these plans rose from 3 percent in 2006 to 13 percent in 2011.Bitter blue clingers won’t like to hear it, but this reinforces one of the main talking points of market oriented reformers: that when consumers care about their health costs, costs fall and the entire system responds to incentives to deliver health care more efficiently.High-deductible plans are a common sense alternative insurance policy that work very well for a lot of people. For single young adults in particular, a high-deductible, catastrophic health care plan makes a lot more sense than conventional coverage. Such plans allow individuals to insure themselves against catastrophic events at reasonable rates, and as they become common they introduce a powerful form of competition and price signaling to the health care system as a whole.If the Supreme Court cripples Obamacare, the further spread of high deductible plans offer a way to cut insurance costs for individuals, employers and government and over time they will help us develop a health care system that is the wonder of the world.Another feature driving down costs: the movement toward “accountable care”, paying providers on the basis of quality rather than quantity of services delivered: it’s not how much you treat your patients, it’s how well those patients do. One of the most positive features of Obamacare is its emphasis on accountable care; but as these studies show, accountable care came in before Obamacare was adopted and could be part of a new, post-Obamacare health regime. Whatever the court rules, this needs to be part of the future.Another source of savings is interesting, though not quite as encouraging: old drugs are going generic faster than new ones are coming on line. This drives health costs down as more and more diseases can be treated with cheaper generic drugs, but it also suggests that the pace of pharmaceutical innovation has slowed. That is not surprising, given the truly vicious forces arrayed against the discovery and marketing of new drugs: cumbersome regulatory and testing protocols that, even when followed in good faith, don’t offer drug makers protection from lawsuits; different national testing and licensing regimes all over the world; pirating… the list goes on.Pharmaceutical innovation will probably return, especially if we adopt laws to promote rather than to punish a pursuit that offers untold benefits not only to those alive today but to our heirs and descendants unto the end of times. But we should also be thinking more, and doing more to promote innovation in service delivery: how to deliver the medical services that we already have more effectively and more cheaply. The promise of accountable care and high-deductible plans is that they stimulate and reward exactly this kind of innovation. We need a health care system that promotes these innovations more effectively than any grand plan can; that means thinking about a market based system with features to protect and cover the poor.The problems of American health care are not insoluble, nor do they require a single titanic Great Fix. Aligning incentives better, clearing the path for true market forces to work, and meeting the needs of the poor and the chronically ill in humane and responsible ways are not things we can’t do. In interesting ways, some promoted by the left and some by the right, we are doing some of those things now.Put all these forces together with tort reform to curb the malpractice lottery and the defensive medicine that goes with it, and the rough outlines of a solution to our health care issues begin to appear.Health, government, and education: those are the spheres of American life where productivity is low, demand is high, and costs have been rising explosively for a generation. Beneath all the polarization, anger and sense of stale dissatisfaction in our society, interesting things are happening in all three spheres as we move away from the limits and constraints of blue model approaches.
Health Care Shock: Costs Fall