The China Price in Healthcare

Tyler Cowen on healthcare cost control:

The politics of Medicare are such that Ryan’s idea, paying for care entirely through private plans, costs more. That’s not due to a market failure, but a political one. Congress likes to spend money; insurers, providers and beneficiaries like to receive it. Congress spends even more when it can satisfy those interests under the guise of a seemingly pro-market, pro-competitive program.

The way to turn the Ryan plan into genuine cost control is to offer people a choice of 5-10 “public options,” some of which involve converting future Medicare benefits into current or future cash.

I try to avoid talking about America’s health reform because a lot of people know a lot more about it than I do. But the idea of having medicare funds convertible into cash, which Cowen here proposes, has always been one that I liked. Though I imagined the deal as more like something where low medical bills would be transferred into higher social security payments, with some sort of floor and ceiling on the amount transferred.

The reason I like this idea is two-fold.

1. Insurance puts some perverse incentives into a market, where a purchaser is attempting to “get his money’s worth,” by receiving services valued higher than his or her premium. By rewarding people for cost savings you should get less demand for unnecessary tests, which people ask for because “they are paying for it.” (A number of my family members are medical people, and they say this happens constantly).

2. The China-price has been doing a lot of great things for medical devices recently, which America has been unable to take advantage of because of the lack of a pricing system for healthcare. If consumers were incentivized to compare cost and need as opposed to using cost as a stand in for quality and demanding the attention of Dr. House, then Chinese medical devices could quite likely find a larger market in the US.