Monday, July 20, 2009

Why We Should Not Ration Healthcare

Peter Singer’s provocative NYT op-ed “Why We Must Ration Health Care” suggests that we can get more for our healthcare dollar by using rationing to explicitly limit the treatments and patients that we are willing to cover for specific ailments.

You have advanced kidney cancer. It will kill you, probably in the next year or two. A drug called Sutent slows the spread of the cancer and may give you an extra six months, but at a cost of $54,000. Is a few more months worth that much?

If you can afford it, you probably would pay that much, or more, to live longer, even if your quality of life wasn’t going to be good. But suppose it’s not you with the cancer but a stranger covered by your health-insurance fund. If the insurer provides this man — and everyone else like him — with Sutent, your premiums will increase. Do you still think the drug is a good value? Suppose the treatment cost a million dollars. Would it be worth it then? Ten million? Is there any limit to how much you would want your insurer to pay for a drug that adds six months to someone’s life? If there is any point at which you say, “No, an extra six months isn’t worth that much,” then you think that health care should be rationed.

Further, rationing might be done on the basis of age, life expectancy, current health status, or dollar cost of a given treatment. If we’re truly dealing with a resource of limited quantity, one where there’s just not enough to go around, rationing is one possible response. In certain carefully delineated areas, treatment really is scarce: there are only so many donated organs to go around, and these must be allocated carefully to obtain the maximum benefit. But, most healthcare does not face a hard supply limit—it is merely expensive. Expensive healthcare is a problem, for the individual and for society, but it is not solved by rationing (limits on quantity), any more than it is solved by artificial price controls. Rationing is a solution to a different problem.

The first problem is that Singer conflates rationing with allocation. We can and do allocate, on the basis of need and on the basis of ability to pay. That’s led to a lot of unfortunate outcomes: potentially catastrophic bills, large numbers of people uncovered or undercovered, and a lot of non-optimal behavior (e.g., forgoing inexpensive prevention, resulting in expensive emergency visits). The solution to the unthinkable outcomes resulting from the current system is not rationing, which results in more unthinkable outcomes. To do so is to let the problem win; this is a poor response to a large challenge; this mismatch between the complaint and the prescription is the second problem with Singer's argument.

There are three potential complaints one might have with a good: 1) there isn’t enough of it, 2) it costs too much relative to income, or 3) it costs too much relative to the benefit it delivers. Rationing helps with (1), but actually makes the other complaints worse. Why? If we restrict the quantity available below the free market solution, we will also tend to increase the price, both explicitly due to greater scarcity and smaller scale. We will also pay implicit welfare costs by the inability to obtain a freely chosen alternative. We're not dealing with a group (1) situation. Healthcare is merely very expensive relative to both income (group (2)) and in places relative to the quality of the care (group (3)); these problems require a totally different response.

The better response to problem groups (2) and (3), where there are either poor solutions or exceptionally costly solutions, is to use the expensiveness as a guide of where to attack and direct our research dollars against these areas. We may then end up paying a lot in the short run, but driving costs down sufficiently over time. This will tend to happen as procedures become routine, drugs slip into the public domain and more cost effective processes and policies are put into effect. Currently, there are large potential cost savings for many of the top 10 chronic ailments, including various organ failures and deficiencies that currently require lifelong medication and or equipment support. Diabetes, kidney disease, obesity and heart disease represent nearly three quarters of healthcare expenditures and can be usually be prevented. Further research is needed to make treatment of the remainder of these problems less expensive than they currently are--but there's a lot of built in room for improvement.

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