August 27, 2014

What is "Waste" in Health Care Anyway?

After President Obama's big health care speech this week, we have been talking here at Concord about how he makes it sound as if all we have to do to cut health care costs is cut the “waste” and “abuse” that no one should want anyway. That’s how he can claim his plan would reduce federal health spending without cutting any federal health care “benefits” -- because it wouldn’t cut any spending that actually “benefits” people.

The problem often in Washington however, is that one man’s “waste” is another man’s precious benefit. And when politicians traditionally talk about cutting "waste, fraud and abuse," they do so, in part, to duck the hard choices required to make real progress on the nation's long-term fiscal problems. That is why one of the foundational agreements among all of the members of the Fiscal Wake-Up Tour is that we can't solve our problems simply by cutting those items. (By the way, you can now watch a special set of videos on our website featuring the Fiscal Wake-Up Tour panelists speaking about health care reform.)  

When talking about health care and waste, the term does take on a bit of a different meaning. There is overwhelming evidence that a lot of our nation's health care spending is "wasteful" in that we spend substantially more on health care than every other developed nation and don't appear to have better health outcomes. Furthermore, even in this country there is a tremendous geographic variation in spending that is not tied to better health outcomes. (Another chance to link to the New Yorker article by Atul Gawande!) Finally, even wasteful spending that doesn't benefit patients, benefits someone in our massive health-care-industrial-complex that soaks up one out of every six dollars of national economic activity.

So what we really need to do to inform the health reform debate is to better define terms and the grey areas between them, and then get the administration and the other policymakers in town to explain exactly what it is they would cut and what they would not.

To get the process started, here is a suggested “workbook” for policymakers to “fill in” that could really help us better understand what it is they’re proposing and better figure out whether we’re willing to accept the tradeoffs their policies imply. 

FILL-IN-THE-DETAILS INSTRUCTIONS from “EconomistMom’s Health Care Reform Workbook”:

Step 1: Consider this spectrum of the value or wastefulness of health care spending, from most beneficial down to most wasteful:

“Valuable Benefits”: many people like them, and they’re essential;

“Unnecessary Benefits”: many people like them, but they can live without them;

“Unworthy Benefits”: some people might like them, but they are “uneconomic” in that they wouldn’t pass a cost-benefit test;

“Beneficial Waste” (not necessarily an oxymoron): only a few people like them, and they fail the cost-benefit test miserably, because there’s a lot of “deadweight” loss in getting the “benefits” to those few people;

“Complete Waste”: no one “likes” them because the spending is completely thrown into the wind–pure and utter waste.

Step 2: List specific examples of health care spending that you consider to fall under each of the five categories above. (e.g., “Medicare spending that goes toward X procedure; tax break to those households making $_____ or more; reimbursement for "Y" device where manufacturer happens to be based in Congressman's district.”) More points/extra credit given for greater specificity and more examples.

Step 3: “Draw the line” somewhere within the list above that allows you to fill in these blanks:

“Our plan, by having the federal government stop paying for/subsidizing any health care spending below the line, is estimated to reduce federal health spending by $___ billion over the first ten years AND $___ billion over the next ten years. Coupled with a sustainable new source of revenue from [name the sensible revenue-raising policy], our plan would expand health coverage to ___ million more Americans, including/not including (circle) illegal immigrants, in a deficit-neutral or (better yet) even deficit-reducing manner over the first ten years and beyond.”

Step 4: Listen to the cheers or the boos…

Step 5: If cheers outweigh boos, CONGRATULATIONS. You’ve just come up with a fiscally-responsible bill that might actually pass. If boos outweigh cheers, go back to Step 1.

Ok, so who’s gonna try first? President Obama? We’ll even let you have Mr. Orszag take the test for you.

--Joshua Gordon and Diane Lim Rogers