Obamacare Exacerbates the Tragedy of the Healthcare Commons (Can We do Better?)

It is common sense that people take care of their own property better than community property, often times referred to as “commons.” Because community resources are finite (say, grazing land in a pastoral society), overgrazing (and too little maintenance) is bound to occur absent any collaborative agreements. Moreover, one person’s conservation efforts cannot overcome all the other self-interested parties’ perverse incentives. Economists call this the tragedy of the commons. Unfortunately, Obamacare proponents (and LBJ for that matter) did not understand how the tragedy of the commons would boost health care spending. Medicare, Medicaid and Obamacare plans are all examples of attempts by government to expand the health care commons — rather than encourage individuals to sustainably manage their own health care resources with appropriate incentives.

Health care consumes nearly one-fifth of our national income and is rising at twice the rate of income growth. Public programs like Medicare and Medicaid account for about half of that spending. Medicare alone is likely to consume 9 percent of our economy within 75 years if efforts to contain costs fail. Considering Medicaid and private medical spending, health care will consume well over one-third of our gross domestic product (GDP) by the dawn of the 22nd Century. Spending growth of that magnitude will significantly erode Americans’ standards of living. Taxes will skyrocket to support public spending, while take home pay will further plummet as a greater portion of wages go towards private health care spending.

Health care is not something most of us use every day in the same manner we buy milk, bread or a new coat. Monthly premiums may be the size of our mortgage payments, but we generally don’t derive as much benefit as shelter from our home. Medical costs are highly concentrated among a few individuals, whose care far exceeds their ability to pay out of pocket. About half the population currently spends less than $500 annually on actual medical care. By contrast, 20 percent of patients account for 80 percent of all medical bills. The least healthy 5 percent of the population consumes about half of all health care dollars, while the sickest 1 percent consumes a whopping 20 percent. An economic theorem called the law of diminishing marginal returns suggests much of that care is of little benefit, but it’s hard to deny care that’s even wasteful to those in need. At the same time, some treatment costs are exorbitant compared to their paltry benefits, mostly because the funds being spent are from OPM – other people’s money, from the community health care pool.

Taxpayers’ goodwill, their willingness to pay and ability to pay for other peoples’ medical care is a finite resource. From this everyone uses a little (and yet often pays out of pocket), while a few gorge from the community trough, with little regard for what they spend. As a society, we could spend our entire GDP on health care and still not cure every disease or achieve immortality. The logical question is: how much is enough? For instance, how much of lifetime medical spending should be borne out of an individual’s lifetime earnings; and how much of that individual’s dollars should be poured into the community pool? And finally, how much resources should people with varying degrees of need be allowed to syphon out of the community pool?  And how much should personal responsibility be used to determine access?

A recent commenter on the Health Policy blog made a case for using the late Elinor Ostrom’s, Design Principles for Common Pool Resource Management, to design a better health care system. Ostrom, a Nobel Laureate, was an economist who studied collaborative institutions that managed common resources. Her work is respected both by Liberals and Libertarians. Ostrom identified common characteristics of successful institutions and how they prevented community resources from being exploited and depleted.

Ostrom largely rejected all-powerful government bureaucracies as inflexible and ill-suited to protect resources. Rather, she found communities composed of individual beneficiaries with clearly-defined rules for providing and consuming community resources was a much better arrangement. Other requirements include clearly-defined resources with clearly-defined limits (i.e. defined contribution). Collaborative arrangements must allow stakeholders a say in management, with gatekeepers and monitors accountable to the beneficiaries. A graduated series of sanctions must punish rule breakers. Conflict resolution and arbitration must make it easy to settle disputes without bureaucracy. Control of community resources must remain with the community.

The average American family is spending a huge chunk of its income (in tax dollars and on health plans) on other peoples’ medical care. Our health care system encourages people to go years without a cheap doctor’s visit and forgo cheap generic drugs, only to consume intensive medical resources with impunity when their conditions inevitably worsen. For those who make it across the threshold from neglected health to poor health, there is little to restrain them. Many hospitals, doctors, drug makers and device makers conspire to clear cut the health care landscape of every resource they can seize. Patients are their willing co-conspirators. Consumers themselves can police some of this behavior, while those same consumers can cooperate with each other and allocate resources far better than government-mandated bureaucracies.

How would such a system work? Let me know what you think.

A description of Elinor Ostrom and her Design Principles for Common Pool Resource institutions can be found on Wikipedia.

A version of this Health Alert also appeared on Town Hall.

 

 

Comments (45)

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  1. Barry Carol says:

    I keep hearing that 75%-80% of our healthcare spending relates to the management of chronic diseases and conditions such as CAD, CHF, COPD, hypertension, diabetes, asthma and depression along with cancer which can often be driven into remission after very expensive treatments. Virtually all of my own claims are in this disease management category. I can’t think of anything that would change in the drugs I take or the periodic tests I need if I had to pay for my care out-of-pocket. Whether the costs of my drugs or my tests would be lower or not if I were paying out of pocket I don’t know as I’m already getting care at Medicare rates.

    I recognize that some conditions such as diabetes caused, in large part, by obesity, poor diet and lack of exercise, lung cancer caused by smoking and alcohol and drug addiction caused by too much consumption and abuse of alcohol and drugs happen mainly because of bad personal behavior. The question is what should the consequences be for those individuals in terms of how much they pay for care or what treatments they should reasonably expect to receive paid for by others?

    In terms of medical practice, we see lots of defensive medicine as doctors try to protect themselves from potential lawsuits in our litigious society. I don’t know how we address that in the absence of substantive medical tort reform. Presumably, though, if patients had to pay for more of these diagnostic tests out of pocket, they would decline them if the doctor explained that they were marginally useful at best and he could then document in the chart that the patient declined the test.

    End of life care is another big area where high costs for marginally useful or even futile care are common. Yet, too many people don’t have a living will or advance directive and too many adult children just can’t let go as long as someone else is paying the bills. Doctors, for their part, are often reluctant to provide an honest prognosis without holding out false hope or saying we’ve reached the point that there is nothing more that we can do or explaining to family members that we’re now doing more TO the patient than FOR the patient and he’s suffering as a result.

    Doctors can probably justify just about any care as at least marginally useful. Yet, most families couldn’t afford to pay for most of such care out of pocket whether it has the chance of extending the patient’s life with decent quality of life or not. It’s hard to envision expecting patients or family members reaching the point where they explicitly say that’s in the best financial interest of our family for me or my loved one to die.

    Finally, I note that in Taiwan, which has a single payer system, if the authorities deem that a given individual is overusing the healthcare system, they are brought in for a talking to. I find it hard to think that Americans would find such an approach acceptable in our society. I don’t know what the ultimate answers are. I do know that if the solution were easy, we would have implemented it a long time ago. Finally, I’ve heard healthcare experts in other countries say that the U.S. has great doctors, great hospitals, and great scientists and we’ve produced lots of medical intervention. They also say that we just don’t know when to stop as the end of life approaches.

    • Al says:

      “I do know that if the solution were easy, we would have implemented it a long time ago.”

      Simple answer in two words. Free marketplace.

      This does not mean that government cannot regulate, subsidize or do a lot of things. It only means that the underlying health marketplace should be free.

    • Jerome Bigge says:

      We could repeal prescription laws and likely save more than a hundred billion dollars a year if not more. Those with chronic diseases (treatable, not curable) really do not need to see a doctor more than once a year if even that often.

      However, because doctors enjoy a legal government enforced monopoly over access to medical drugs, they turn this to their own economic benefit by requiring more frequent office visits. The insurance companies like this too because it justifies higher premiums which result in higher profits. The hospitals like it because they get more use out of their expensive technology. Also, the doctors, ordering more “testing”, get more favored treatment from the hospitals. In effect the entire US health care system is driven by those seeking more and more money from the rest of us.

      Repealing prescription laws means that people would only visit doctors when they felt it was worthwhile. They’d only have the testing they felt was worthwhile. They would only purchase the level of health insurance that they felt was worthwhile. Then too, without prescription laws, the so called “shortage” of primary care physicians (those who diagnose and prescribe) would completely disappear.

      There is also the factor that patients (the ones paying) would more likely choose generics instead of brand names (which the drug companies encourage doctors to prescribe) which would also save money. Without government enforced monopoly, US health care costs would be in the same “ballpark” as the rest of the developed world now enjoys.

  2. Ron Greiner says:

    Nobody can tell us how much Medicaid cost per person in each state in 2015. Nobody can tell us how much Medicaid cost per person in each state in 2014. I would think it would be easier to determine how much Medicaid cost in 2015 than to determine how much Medicaid will cost in 2025 because we don’t know what is going to be invented.

    Why is there no transparency with the taxpayers’ money? If New York is getting 3 times more per person for Medicaid than other states we all should know this information.

    Devon worries about individuals not knowing about the cost of healthcare because they are spending other peoples’ money. It is just as bad when the taxpayers don’t know how much they are spending for Medicaid in the states.

    What is the reason for the big secret?

    I think it’s a giant con job and we are all just a bunch of suckers being led by the nose into Socialism for the common good. Socialism has never worked but I’m sure we will be better at it than the Soviets.

    • Barry Carol says:

      Ron — While I’m certainly not an expert on Medicaid, there are a few reasons why it’s so much more expensive in NY than in any other state. First, NY provides a number of optional benefits that Medicaid doesn’t require. The cost of those benefits is, I believe, covered by state taxpayers and even to some extent by county taxpayers. There is also a lot more institutionalization in NY than in other states which means more people in nursing homes and more spent on mental health services, Since NYC has a large number of academic medical centers, there is also probably more routine care that takes place in expensive settings than in other states. Boston has the same issue on that score. There is also a lot of fraud in NY as there is in FL.

      I don’t know what the answers are for NY in particular as it relates to Medicaid but I do think a more sensible approach to end of life care would be helpful. Greater investment in data analytics to detect fraud before we pay for it would also be money well spent in my opinion.

    • Devon Herrick says:

      Devon worries about individuals not knowing about the cost of healthcare because they are spending other peoples’ money. It is just as bad when the taxpayers don’t know how much they are spending for Medicaid in the states.

      Maybe that’s why Ostrom didn’t trust government bureaucracies to manage common pool resources. In fact, when I took development economics, one of the tenants my professor taught (a self-described liberal) was that governments always want control of common resources and it’s better to assign property rights to individuals. His examples included the British carving up territory and allocating it to African tribes. His point was the chief and his family would generally lobby for control on behalf of the tribe. It was always to divvy up individual plots to individual families with full property rights. The professor had many other examples of where bureaucracies either made bad decisions or administered resources for political advantage. Medicaid is no different in many ways.

    • Jerome Bigge says:

      Medicaid costs are going up because increasing life spans means more and more people will live long enough to spend their last months, years, etc., in a nursing home. Then doctors usually put “lifespan” first over patient comfort.

      Many people would no doubt choose “comfort” over “lifespan” if they were given the choice. I know I would. Life in a nursing home isn’t much better than being in prison when you get down to it. In both cases you are helpless and someone else makes all the decisions for you. You have little choice in food, you have no privacy, and you are treated like an “inmate” by the staff. It’s better to commit suicide when that “time” comes…

  3. Ron Greiner says:

    “There is also a lot of fraud in NY as there is in FL.”

    Of course there is because nobody knows how much the taxpayers are spending. With a Socialist running for President you would think there would be one investigative reporter in America that would inform us all on the current costs of the biggest expense that the Nation is paying.

    Jeb Bush said he trusts the Florida legislature with billions of Medicaid dollars. Senator Aaron Bean is the Chair of the Health Policy committee. Bean used to be the Chairman of the Board of Florida Health Choices which was Marco Rubio’s creation in 2008 for the State to go into competition with the Private Sector selling health insurance. After millions of taxpayer dollars and all these years they have brought in a total of less than $2,000. I was at the board meeting last month and they have less than $300,000 left which is less than this year’s employee expense. Marco bragged about this in his book and it will be going bankrupt in a couple of months so lets don’t make Rubio President.

    Last year Aaron Bean wanted to run a billion dollars through Florida Health Choices but the Florida House said, “NO!” I don’t trust any of these politicians because they are all after the money and are corrupt. The money should go straight to the citizens and not the companies that buy the politicians. We don’t have Free and Open Markets but instead we have Fascism. The young people in America prefer Socialism to Fascism.

    Email Donald Trump and tell him about Rubio’s Florida Health Choices going belly up before the Presidential Election. Maybe Marco should be asked about Florida Health Choices at the next Presidential Debate.

    • Devon Herrick says:

      I did a study of Medicaid in New York State a few years ago. At that time, Medicaid in NY was a $50 billion enterprise. It’s gone up since then. The state looked at Medicaid as an economic development program. Hospitals were Medicaid managed care plans, schools, nursing homes and home care providers were all encouraged to maximize federal funds. It there was a federal dollar available, New York state didn’t care how it was spent. They’d throw in a matching dollar just because it was a way to prop up their bloated health care system. At the time there was an article in the New York Times about a Brooklyn dentist who billed for 1,100 procedures to Medicaid in one day. As I recall, counties were not even allowed to look for fraud — although that was (supposedly) about to change.

      • Barry Carol says:

        How long ago was that Deveon? It’s a $54 billion enterprise (+8%) now so maybe NY is finally starting to show some interest in controlling cost including moving beneficiaries into managed care plans run by private insurers.

        We’ve seen a quite a few hospital closings in NYC in recent years so some of the excess capacity of hospital beds is finally being removed from the marketplace.

  4. The big ham says:

    Florida health choices financials are easy reading 😄
    Looks like in 5 years they have spent about $3 million and brought in $2 grand.

    Nice return on investment Mr. Rubio .
    http://myfloridachoices.org/resources/

  5. Ron Greiner says:

    Here is another politician running for President, Kasich. Reports the Columbus Dispatch, ” Kasich was questioned about expanding Medicaid expansion.

    “Kasich said the federal money through the Medicaid program allowed Ohio to not only treat the mentally ill, but also provide health care to the working poor who did not have health insurance coverage, saying “we leave no one behind,’” Dispatch Washington bureau chief Jack Torry writes. “But (former Florida Gov. Jeb) Bush quickly struck back, saying while he admires Kasich for spending more money on drug treatment and mental health, he said “expanding” the health law known as Obamacare “is what we’re talking about.’”

    Kasich says he has a big heart so he expanded Medicaid in Ohio. Kasich says all of those billions of tax dollars are just coming back home. KASICH sounds exactly like CEO of Blue Cross screaming for $51 Billion in Medicaid money “earmarked” for Florida. The Blue’s CEO says if we give him the $51 Billion he will give us value. Watch this 2 minute video and you can prove to yourself that Kasich was trained by this Blue Cross CEO.

    Florida Blue Cross spends more on politicians than any other entity in the Sunshine State, that’s value!

    Got the Blues? paying too much?

    https://www.youtube.com/watch?v=4xA0Go15cCI

  6. Bob Hertz says:

    Devon, your sentence about ‘the law of diminishing marginal returns means that much of health care is of little benefit’ does not ring right with me.

    Of course the care provided to someone near death is going to be of little economic benefit.

    But health care does not obey economic laws. I look at a British prof named Robin Hanson, who says that we give our elders health care due to (essentially) tribal loyalty and
    generosity.

    Spend time in a VA hospital as I did when my father was ill. Vast amounts are spent on men who will never work again, and in many cases have not been working for years. The whole enterprise has little economic benefit. But we maintain it, and in utter defiance of the economic law that you cite.

    • John Fembup says:

      “But health care does not obey economic laws”

      Sure it does. You’re not thinking this through.

      One of the fundamental economic laws is that incentives matter. When providers have an economic incentive to provide service, they provide service. The examples you cite (the elderly and the VA) do not refute economic law – they illustrate economic law.

      Economic incentives exist to provide care for our elderly and veterans. Those incentives afford access to medical care, because providers of care receive compensation for giving the care. Incentives matter.

      As a nation we refuse to permit our elderly and veterans to go without care. You need to recognize that is a political decision, not an economic decision. This political decision did not rescind the laws of economics. Instead, it led to the creation of different economic incentives to achieve the political objective.

      in other words, the treatment of our elderly and veterans is completely consistent with economic laws. Incentives matter.

      • Devon Herrick says:

        As a nation we refuse to permit our elderly and veterans to go without care. You need to recognize that is a political decision, not an economic decision.

        That is why we are exploring whether a collaborative approach to pool resource management would be better than Medicare’s 50-year old entitlement bureaucracy (and health insurance bureaucracy). If the pool of resources is finite, a defined contribution and defined benefit would be better protect the pool. It would not be depriving people of their rights, it would be recognizing resources are finite. A lot of young people would likely agree to forgo some of the wasteful care in old age in return for more take home pay while raising families. But, then again, it should be the decision of the participants. The way I imagine it would work is not necessarily how the participants would imagine it.

      • Al says:

        You are so correctJohn F. if one understands the incentives one can predict the future.

  7. Jimbino says:

    It’s even worse. A person spending OPM has no financial incentive to cross the Cuban or Mexican border to seek health care, even if it’s much cheaper. He might well do it if he’s spending his own cash money or if the treatment were measurably better. The sick fact about Obamacare is that you don’t have the option to seek either cheaper or better health care across the border, since Obamacare shares with Medicare and Medicaid the prohibition of using your insurance dollars to pay for overseas care that may be both cheaper and better.

    Obamacare thus promises to keep inferior medicine and higher prices alive and well in the USSA.

    • Devon Herrick says:

      It may also be that when people demanding more control, society would no longer need all the regulations (to protect them) that make medical care expensive. We look at the medical industrial complex and assume that is the only way to structure medicine. But the current structure is a byproduct of lobbying by the AMA, public health care programs and the nature of what third-party payment does to an industry.

      A retired doctor I know once told me that physician care is a cottage industry that has hardly changed in 100 years. That’s not quite as true today as it was when he told me a decade ago. But he had a point.

      It’s hard to imagine what medicine would look like if the unlimited pot of money people expect was no longer available and people had to be more careful with their allocation. Absent bureaucracy, new innovations would spring up that could improve their health when young, but maybe limit intensive spending when old. The result could be a longer life than benign neglect when young and intensive care when old.

    • Jerome Bigge says:

      Obamacare exists because the insurance companies profit from it. The AMA supports it because doctors profit from it. The hospitals support it because they profit from it. The drug companies support it because they profit from it.

      For most people it’s a “bad deal” in that with the massive deductibles effectively you end up paying the entire bill unless you have something “major”. Prior to Obamacare you could buy coverage for what most people used in health care services. For really major stuff you ended up filing for bankruptcy. Which still happens because with stuff like cancer you’ll be unable to work and will lose most everything anyway. Of course the hospitals and doctors hated having “eat the costs” so to them Obamacare means they’ll get paid even if you end up bankrupt.

  8. Rodney says:

    The only reason why healthcare is the way that it is today is because of Greed. Plain and simple. Every year insurance rates go up what is allowed goes down and more out of pocket is pushed yet the companies profit in the Millions. Now with Medicare the reason it is the way that it is, is that the Government is what is running it. It is a fixable problem yet it will never get fixed as long as the Government is running it.

    • John Fembup says:

      “The only reason why healthcare is the way that it is today is because of Greed.”

      That’s like saying the only reason airplanes crash is because of gravity. It doesn’t really explain anything.

      Is there some reason that people you consider greedy end up in “healthcare” as opposed, to, say, the entertainment business? Or professional sports? Or social media? Or telecommunications? Or entrepreneurs? Or investors? Etc, etc.

      Or perhaps you could name a time in human history or name a civilization, in which people were not greedy.

      I say the beauty of an economic system which rests on exchanges between willing buyers and willing sellers, is that it forces greedy people to come to agreement or no one gets what they want.

      That principle also helps explain the horror of an economic system in which some greedy people take it upon themselves to define what things other greedy people should have, how much they should pay for them, and how much they should earn.

      You would not want to be one of those, would you Rod?

      • Devon Herrick says:

        Rodney and John…

        Actually, I don’t think of “greed” as being a problem as much as an oversized sense of entitlement being a problem. As in I’m entitled to that $1000 per month drug because it’s marginally better than the $100 per month drug; or our drug company is entitled to charge $1000 per month for our drug because it’s marginally better than the older drug that sells for $100 per month. (I’m not trying to beat on drug makers, I just needed an anecdote)

        We are all self-interested. In a system where money is flowing freely, the knee jerk reaction of self-interest and sense of entitlement is to raise prices and pass price increases on down the line — all the way to the consumer. This works because the consumer (i.e. worker) doesn’t realize they’re paying anything other than deductibles and copays.

        However, in a system where the consumer is paying cash, they too are self-interested and temper the self-interest of the provider with bargaining power. Bargaining power is ultimately the ability to say “no” and deprive the provider of business.

      • Jerome Bigge says:

        US health care is a legal monopoly enforced by the government. It is also so in the rest of the developed world. However, in the rest of the developed world the government is on the side of the people. Here in the US the government is on the side of the wealthy and the corporations along with the professional classes. Our political system was designed that way from the start.

        Our “Revolution” really wasn’t. It was a rebellion against the King and Parliament over taxes. These are “facts” you weren’t taught in school. Schools exist to “indoctrinate” people the way government, business wants them indoctrinated. To obtain an “education” (know the truth), you have to have a public library card and be willing to educate yourself. No institution of “education” will do it for you.

    • Al says:

      Rodney, what is greed? Let us say it is an intense desire for money.

      Let us also say that this greedy person that builds wonderful bridges at a good price want’s more money than he ever will need so he keeps building wonderful bridges at a good price. Is that bad?

  9. Scott Jones says:

    There are two factors which, although they clearly relate to incentives, arenot mentioned above and which have a profound impact on the cost of healthcare — prepaid healthcare and the notion that one cannot successfully access the healthcare system unless one has prepaid healthcare.

    We do not have medical insurance in this country, in the sense that we have auto insurance, home insurance, life insurance, etc. Rather, we have various forms of pre-paid healthcare. Whether you pre-pay your own with income taken from your paycheck by your employer, pre-pay your own forty years before you need it, or pre-pay someone else’s, medical insurance is always a misnomer.

    Were medical insurance actually treated as insurance, the healthcare landscape would change dramatically. For example, if you choose to drink heavily, smoke, and skydive, your life insurance rates go up. Why shouldn’t your health insurance rates? If you are a lousy driver and have had several accidents, your auto insurance goes up. So if you take lousy care of yourself, have bad genes, and are in and out of the hospital several times a year, why shouldn’t your health insurance rates go up? My homeowners insurance will not pay for me to paint my house if it weathers, or trim my trees if they hang over my roof. So why should my health insurance pay for my maintenance blood pressure or diabetes medications?

    We do not have medical insurance…we have pre-paid healthcare. And all the subsequent economics which logically flow from that distinction create most of the problems we now have. Were we not so pusillanimous (nod to Donald Trump — Im sure that’s what he meant) about the consequences of our own choices and the realities of our own existence, we would move to actual health insurance.

    • Barry Carol says:

      There are a number of complexities that make healthcare and the need for health insurance different from other areas of the economy in my opinion. While, in theory, I would be delighted if a free market in healthcare could actually work for people, I don’t think it can, at least for lower income people which I define as probably the bottom half of the income distribution.

      The problem is that many, if not most, of them couldn’t afford to fully pay for healthcare within a high deductible of, say, $5,000 per person per year. Even if the cash price of an MRI is $500 instead of $2,000, they still may not be able to afford it. By contrast, someone who rents a modest apartment and doesn’t have many possessions doesn’t have to carry renters insurance and doesn’t have to insure the property itself as that’s the landlord’s responsibility. If he has few assets and is essentially judgment proof, he doesn’t need to carry car insurance either no matter how bad a driver he is. If he can’t afford necessary healthcare, though, he’s at risk of dying before his time because he may not have access to even the $100 per month drug he needs let alone the marginally better $1,000 per month drug.

      I know that bad personal behavior can shorten lives whether they have good access to healthcare or not. I don’t really care if smokers die seven years earlier than non-smokers because they chose to smoke. It doesn’t bother me if people who choose to abuse alcohol or drugs or eat way too much and exercise way to little die prematurely because those are personal choices that could have been different. At the same time, if someone has a bad genetic makeup that causes an autoimmune disease that can be corrected by a specialty drug that costs $75,000-$100,000 per year, I think they should have access to it whether they can afford it or not.

      I think it would be helpful if doctors made it part of their job to be at least somewhat aware of the cost of various treatment options that they might recommend. How they choose to communicate cost related issues is up to them but their decisions to order tests, prescribe drugs, admit patients to the hospital, refer them to specialists, consult with patients and perform procedures themselves means they influence virtually all healthcare spending even if only about 10% of that spending winds up in their pockets after paying for practice overhead. Their practice patterns have financial consequences and I think they need to at least attempt to be wise stewards of society’s limited resources that we can afford to spend on healthcare including healthcare for those who can’t afford to pay even a reasonable cash free market price. Low income people should have access to subsidized health insurance as well and not have to depend on charity.

      • Al says:

        Doctors do what patients want most so if a patient wants a doctor to help reduce expenditures he will. But why should the patient want the doctor to reduce expenditures if he has nothing to gain?

        It strikes me that you want to add a lot of responsibilities to doctors while controlling their prices. They don’t care what you want because you aren’t paying them, someone else is. Then again perhaps you sufficiently support third party payer which is how physician responsibilities become additive even though the patient has no say and doesn’t care.

        Frankly a lot of what you want cost money. So does replacing worn tires. That is where my concern lies. By you increasing the price of healthcare you are making it less likely for this family to have enough money to replace their tires. That increases their risk of dying or being injured just like certain health care concerns do. But in the case of the worn tires this family might not only kill themselves, but me as well.

  10. The big ham says:

    One thing to remember about socialism – or coercion of any kind – is it fails eventually. Human beings have a desire for liberty and a need for personal property rights. In fact, the origins of government lie in the need of agricultural communities to protect themselves from violence and theft. So it is particularly ironic that in more recent times, it is the government itself that has more frequently played the role of Robin Hood.

    When you start taxing people at extreme rates to pay for socialist “benefits,” when you start telling them which schools their children must attend, when you start giving jobs away to people based on race instead of ability… you quash human freedom, which bogs down productivity and if continued for long enough leads to social collapse.

    I find it amazing that 30 years after the collapse of the Berlin Wall, the West continues to implement laws that mimic all of the failed policies of our former “communist” foes. Our current president won the election by promising to “spread the wealth around.” We don’t have to look to Eastern Europe or the Soviet Union to find a society destroyed by coercion, socialism, and the overreaching power of the State. We could just look at Detroit…

    In 1961, the last Republican mayor of Detroit lost his re-election bid to a young, intelligent Democrat, with the overwhelming support of newly organized minority voters. His name was Jerome Cavanagh. The incumbent was widely considered to be corrupt (and later served 10 years in prison for tax evasion). Cavanagh, a white man, pandered to poor underclass minority voters.

    He marched with Martin Luther King down the streets of Detroit in 1963. (Of course, marching with King was the right thing to do… It’s just Cavanagh’s motives were political not moral.) He instated aggressive affirmative action policies at City Hall. And most critically, he greatly expanded the role of the government in Detroit, taking advantage of President Lyndon Johnson’s “Model Cities Program” – the first great experiment in centralized urban planning. https://en.m.wikipedia.org/wiki/Model_Cities_Program
    Mayor Cavanagh was the only elected official to serve on Johnson’s task force. And Detroit received widespread acclaim for its leadership in the program, which attempted to turn a nine-square-mile section of the city (with 134,000 inhabitants) into a “model city.” More than $400 million was spent trying to turn inner cities into shining new monuments to government planning. In short, the feds and Democratic city mayors were soon telling people where to live, what to build, and what businesses to open or close. In return, the people received cash, training, education, and health care.

    The Model Cities program was a disaster for Detroit. But it did accomplish its real goal: The creation of a state-supported, Democratic political power base. The program also resulted in much higher taxes – which were easy to pitch to poor voters who didn’t have to pay them. Cavanagh pushed a new income tax through the state legislature and a “commuter tax” on city workers.

    Unfortunately, as with all socialist programs, lots of folks simply don’t like being told what to do. Lots of folks don’t like being plundered by the government. They don’t like losing their jobs because of their race.

    In Detroit, they didn’t like paying new, large taxes to fund a largely minority and Democratic political agenda. And so in 1966, more than 22,000 middle- and upper-class residents moved out of the city.

    But what about the poor? Well I say in the War on Poverty, the poor have lost the most. In July 1967, police attempted to break up a late-night party in the middle of the new “Model City.” The scene turned into the worst race riot of the 1960s. The violence killed more than 40 people and left more than 5,000 people homeless. One of the first stores to be looted was a minority owned pharmacy.

    https://en.m.wikipedia.org/wiki/1967_Detroit_riotf
    https://m.youtube.com/watch?v=r2_VX2nymRs
    The largest minority owned clothing store in the city was also burned to the ground. Cavanagh did nothing to stop the riots, fearing a large police presence would make matters worse. Five days later, Johnson sent in two divisions of paratroopers to put down the insurrection. Over the next 18 months, an additional 140,000 upper- and middle-class residents – almost all of them white – left the city.

    And so, you might rightfully ask… after five years of centralized planning, higher taxes, and a fleeing population, what did the government decide to do with its grand experiment, its “Model City”? You’ll never guess…

    Seeing it had accomplished nothing but failure, the government decided to do more of the same. The Model City program was expanded and enlarged by 1974’s Community Development Block Grant Program. Here again, politicians would decide which groups (and even individuals) would receive state funds for various “renewal” schemes. Later, Big Business was brought into the fold. In exchange for various concessions, the Big Three automakers “gave” $488 million to the city for use in still more redevelopment schemes in the mid-1990s.

    What happened? Even with all their power and money, centralized planners couldn’t succeed with any of their plans. Nearly all of the upper and middle classes left Detroit. The poor fled as well. The Model City area lost 63% of its population and 45% of its housing units from the inception of the program through 1990.

    Even today, the crisis continues. At a recent auction of nearly 9,000 seized homes and lots, less than one-fifth of the available properties sold, even with bidding starting at $500. You literally can’t give away most of the “Model City” areas today. The properties put up for sale represented an area the size of New York’s Central Park. Total vacant land in Detroit now occupies an area the size of Boston. Detroit properties in foreclosure have more than tripled since 2007.

    Every single mayor of Detroit since 1961 has been a Democrat. Detroit has been a major recipient of every major social program since the early 1960s and has received hundreds of BILLIONS of dollars in government grants, loans, and programs. We now have a Democrat president, who is promising to do to America as a whole what his political mentors have done in Detroit.

    Those of you with a Democratic political affiliation may think what I’ve written above is biased or false. You may think what you like. But there is no way to argue that what the government has done to Detroit is anything but a horrendous crime. You may think what I’ve written above is merely a political ploy. Perhaps so, but politicians drive macroeconomic policy. And macroeconomic policy determines key financial metrics, like the value of a currency and key interest rates.

    The likelihood America will become a giant Detroit is growing – rapidly. Politicians now control the banking sector, most of the manufacturing sector (including autos), the media, health care and the production of electricity (via cap and trade rules). These are the biggest threats to wealth in the history of our country. And these threats are causing the world’s most accomplished and wealthy investors to actively short sell the United States – something that is unprecedented.

    Let’s make America great again.

  11. L. Brody, M.D says:

    I really like this article. And it points out something I overlooked even though I am familiar with Ostrom’s work.
    Private individuals can spend their health insurance monies better than the bureaucracies. For those unable to allocate funds to health insurance, mandatory Medicaid enrollment, in order to get medical care would be a possible solution. This would at least protect taxpayers from waste fraud and abuse somewhat.

    The taxpayer/voter may not be at wits’ end. With insurance you don’t know what you have until you make a claim. You do know however, that premiums go up, deductibles are atrocious, and you can’t keep your doctor and you are not saving any promised amounts. In the meantime, bureaucracies expand and are costly to maintain or dissolve.

    • Jerome Bigge says:

      The problem is that each insurance company not only has different policies, but even with any insurance company they will have different levels of coverage to confuse things even more.

  12. Wanda J. Jones says:

    ALL–This section is really deep and important. I hve only a few points to add.

    1. The larger the number, the leas meaning it has. That our government plans in billions and trillions automatically means they do not know where the money is going and what it will buy. “Transparency” means nothing if dollars flow up to Washington and down to–what? States, health plans, community groups, families, or individuals? I actually think that money flowing through busineses have the greatest chance of being spent wisely, as there is consstant give and take among employers and employees. The best techniques are having a contractual relationship with selected area providers, which comes with a promise of paying negotiated rates, in exchange for a seat on the Board’s finance committee. Think about it. Market relationships really do work well.

    2. When people are sick, they are in no position to bargain on price or content of their care. Neither is the family. Rather than wait until the terminal phase of an illness, members might be invited to plan ahead on how much care-giving will be offered within the family, and how much the enrollee commits to ending harmful addictions.

    3. Care of people in groups tends to improve compliance, understanding and health status. Group appointments in rehab, pregnancy, cancer, etc., are effective and a great way of extending the reach of scarce medical professionals. Tracking and supporting people at risk for various chronic conditions, and paying for care reflecting the stage of illness are now feasible because of the Cloud, and because of the learning that has occurred already with so many care management processes.

    4. The Curative era of medicine is now with us. Stem cells are one branch, management of the immune system is another, 3_D printing of tissues and organs is another. Cure truncates the chronic disease expen-ditures that otherwise continue on until an expensive terminal phase. Patients and families can learn about these and advocate for these at the time of a diagnosis.

    5. Patients, healthcare executives and health plans have a great opportunity to help patients by learning about advances in medical practice that are being adopted too slowly. For example, only 28% of physicians use the vaginal approach to a hysterectomy, rather than, say, 95%. Same is true of most abdominal procedures. Refuse to have an “open field” procedure if there is another approach available. Look at how back surgery can be done through a keyhole, closed by a bandaid.

    6. Take comfort in the rapid rise of computer use by the public. When information flows that freely, and the tools are so easy to use, we see doctors being reachable through the Internet, regardless of patient location. This will be–ere long–a principal avenue for mental health counseling, for example.

    So notice how costs are already being squeezed out of the system. but our successes in saving low birth weight babies, or correcting heart malformations or saving Zika babies can create unfunded future obligations.

    Everyone in healthcare should do what they can to see that dollars flow as directly as possible from those who earn them to those that need them, not passing through out whole governmental apparatus between those points. The government’s largess is the government’s control.

    Now–Everybody out for yoga!!

    Wanda J. Jones, President
    Ensign & Jones
    San Francisco

    • Doctom says:

      Ms Jones I have to take exception at many of your points as being overly simplistic and in many cases providing incorrect assumptions.
      Your comments place a very simplistic outlook on some very complex issues facing medicine today and how healthcare is delivered.

      1. Your first point harkens back to the days of HMOs which most will agree were wholly unsuccessful. It requires physicians to accept negotiated fees to provide services with little regard to the quality of care. Quality physicians refused to support the HMOs because they were lumped in with physicians who needed the contracts the HMOs offered to survive. Unfortunately, reimbursement today does not factor in the level of experience and training when paying for services. A qualified and superior surgeon with outstanding outcomes receives no more reimbursement than a surgeon with average or below average outcomes.

      The employer (who typically will have to foot the bill) will be more interested in the lowest cost provider while the employee will expect the provider with the best possible outcomes.

      2.Though it is not possible to determine a person’s need for medical expenditures sans a crystal ball, how would you expect the medical community and insurers to deal with the patient who has reached the pre-determined ceiling of care-giving as determined by the family? Do we just turn the patient out into the street or take them into the woods for the beasts of the forest to complete the life cycle?

      3. Group care opens a whole new can of worms. How do you recommend getting around all the HIPPA regulations that protect personal health info? How do you ensure compliance with care recommendations without the care “group” accessing sensitive personal care information?

      4. We are no where close to being in the “curative era of medicine.” All of the examples you cite are either still in early research stages or have limited use in providing medical treatments. Those elements of your statement that are in clinical use (stem cell and immune modulation) are extremely expensive and do nothing more than front load the high cost of providing care.

      5. To say that trans vaginal hysterectomies should be performed in 95% of all procedures is to show a grave naivete of the complex decision making necessary to determine the appropriate approach to a major surgical procedure.

      Laparoscopic and orthoscopic surgery have made incredible inroads in all aspects of surgery, but to make the statement that one should refuse an “open field” procedure again belies the lack of knowledge and understanding of the complexity and completeness of the entire informed consent process when discussing surgical options with patients.

      Only limited types of back surgery are safely and properly handled through your “keyhole” approach. You make it sound like it should be a universal standard for spinal procedures. Many of these “keyhole” procedures are fraught with less than desirable results and can have long-lasting painful sequelae. Don;t believe all that you see in the ads on TV.

      8. Our medical center has experimented with internet evaluations for mental health evaluations for some time. It has been an abysmal failure. I am affiliated with a rural hospital where one would expect this technology to provide a service not otherwise available except in large urban hospitals. It hasn’t worked and it has been expensive for a hospital that has limited financial resources to maintain the services it does provide and continue to serve its community.

      Add into that the security for access to and maintenance of privacy for medical records and the internet can and does present its own unique set of dangers; just ask the administration at Hollywood Presbyterian Hospital how they feel about paying the $17,000 bitcoin ransom to regain access to their medical records.

      Costs are not being squeezed out of the system. The comments I made above more than demonstrate that.

      Providers and hospitals are spending hundreds of thousands of dollars on EHR which, to date, have shown very limited benefit in providing improved access to information sharing.

      I do agree however, that the government needs to get the hell out of healthcare. Will that ever come to pass? Highly doubtful. Its all about control and big government needs big control.

      • Barry Carol says:

        Doctom — Thanks for your very informative comments above. I’m curious about your view of the impact of defensive medicine on healthcare costs and the extent to which we’ve made progress over the last ten years or so toward a more sensible approach toward end of life care including getting through to adult children who frequently insist on expensive futile care because they can’t or won’t let go.

  13. Bob Hertz says:

    Devon, you finish one of your interesting post with the comment that ‘Bargaining power is the ability to say ‘No.'”

    Of course you are totally right, but I must ask rather gently if you are writing from America.

    Our Medicare system cannot say “no” to any drug which has the slightest effectiveness. Our nursing homes cannot say “no” to any patient no matter how comatose. When insurance companies said “no” to certain breast cancer treatments some years ago, (which proved largely ineffective) they were pilloried in public opinion and defeated in the courts.

    The single payor systems that save money abroad do so in part because they do have bargaining power, i.e the ability to say ‘no.’

    I tnink that this ability to say no has to be collective, not individual. I need look no further than the mirror for an example. I have written a lot about health care rationing…..but when I was diagnosed with non-acute leukemia last summer, I first had 5 days in intensive care for $33,000 (paid by the insurer), and then several rounds with expensive drugs. (I am doing fine, thanks) The thought of bargaining was utterly absent from my mind. I was grateful to and totally dependent on my oncologist.

    No one is perfect, Devon, but I do sense that you have not been through such an experience, thus your confidence in personal bargaining as a cure for health care costs.

    • Ron Greiner says:

      Bob, you write, “I think that this ability to say no has to be collective, not individual.”

      Health insurance is a CONTRACT between an individual and the insurance company. The individual decides what treatment to pursue with his physician’s advice. What is better for society has nothing to do with anything.

      It is illegal for Americans over the age of 65 to purchase health insurance in the land of the free. We have a way to pay for medical care called Medicare. Medicare is not insurance. People fought Medicare suggesting that people like you in the future would want to decide medical care based on what is better for the common good. The common good financially is for these old useless eaters to die and quit wasting limited resources.

      Doctors take the Hippocratic Oath which is based on the individual and not what is best for the common good. When we leave the Hippocratic Oath we enter into Veterinarian Ethics which is what is best for the owner, master or the common good. After all, nobody is going to spend $1,000 to cure a pig worth $500.

      The wolf is at the door. Socialism and the common good is becoming the thought for America. I suspect that someday soon we will wonder if gallbladder surgery is worth the expense on somebody who has no value to Society with more and more people wanting your “collective” to just say NO!

      It will be back to the good ole days when Clint Eastwood in Desperado said, “Twenty dollars will make you die!”

      https://www.youtube.com/watch?v=JbrSABVFKOA

      • Barry Carol says:

        “Health insurance is a CONTRACT between an individual and the insurance company. The individual decides what treatment to pursue with his physician’s advice.”

        Right you are, Ron. And the insurer decides what services, tests, procedures and drugs it will cover under the terms of the policy. That coverage may not include very some expensive specialty drugs that are only marginally better or more convenient to take that a much cheaper alternativ4 long available in the market.

        If the patient can find an alternative policy that covers the more expensive drug(s), the premium will be higher to reflect that more comprehensive coverage. Maybe the patient can afford the higher premium and maybe he can’t. Even freedom has its limits. No?

        • Ron Greiner says:

          “cover under the terms of the policy.” that is exactly correct and it has always been that way. My consumers are covered unless it is “experimental” and I have never had a claim that wasn’t paid because of that clause, that I am aware of, and I have all a lot of claims.

          My clients knew that they had a quality product and I’m sure that their premium might have been more than some managed care program with a smaller deductible. But, insurance is a contract that both sides have legal responsibilities. If you have a contract that the insurer makes all decisions and their decision is final and binding on you, then you got what you paid for. If your insurance company takes away your right to sue, like Golden Rule that the NCPA people used to love, then you got what you paid for.

          But to say that the insurance company is in control is not true unless your contract permits such abuse. You know, like those employer-based plans which under ERISA you have diminished legal rights to begin with.

    • Devon Herrick says:

      Bob, Glad to hear you are doing fine. I don’t think $33,000 for intensive care plus high-priced drugs is a problem — unless you’re doing it every year (or every few months). There are many other treatments that have a much higher cost per life year saved. I also don’t think cancer patients would necessarily have to bargain on their own behalf. You probably don’t actively bargain when you go to the store; the store is competitive and you’re benefiting from the comparison shopping of all shoppers that came before you and will come after you. Plus, your insurer bargained for services and prices.

      If our society had a goal of actually controlling spending it could do much more to lower costs. CalPERS told doctors, hospitals and enrollees that 46 hospital’s in California charged less for joint replacement than the others. Enrollees were responsible for all costs above a reference price. Patients’ doctors helped steer them to the value hospitals. Within a year, the high cost hospitals began matching the price of the value hospitals.

      A professor I had years ago told me a story not unlike yours, where a family member (an in-law) was diagnosed with cancer in a South American country. His wife negotiated the price of treatment in cash. The hospital lowered its price and offered a package deal. The patient recovered and it made for an amusing anecdote.

      • Barry Carol says:

        I think health insurance companies and PBM’s are free to exclude certain very high cost specialty drugs from their formularies that may only be marginally better or more convenient to take than much cheaper alternatives. The three biggest PBM’s, Express Scripts, CVS-Caremark, and Optum Rx, all manage drug benefits for more people than are currently on Medicare.

        CMS, if it were allowed to negotiate prices with drug companies, would find that it’s bargaining power isn’t worth much if it’s not prepared to say no to coverage sometimes but invite the drug manufacturer to come back with a lower price.

        Separately, on the hospital side, reference pricing is a good idea and it should be used more broadly in my opinion.

    • Jerome Bigge says:

      The national systems also can strike better bargains because the providers effectively become employees of the state. Note that both Medicaid and the VA have the legal right to negotiate prices with the drug companies. Medicare is legally prohibited by law from doing so. Private insurance is too divided to have any effective negotiating power.

  14. Paul Nelson says:

    It is possible to use the Design Principles for Managing a Commons for a new nationally supported Institution for reducing the excessively annual increase in the cost of our nation’s healthcare industry. The proposed institution would focus on the determinants of HEALTH for 800 communities of @400,000 citizens. The initial phase for its focus would bring together the local resources required to sponsor equitably available and culturally accessible Primary Healthcare for the citizen of each community. Eventually, this collaborative process would also focus on the other community wide determinants of HEALTH, as in homelessness, adolescent fertility/obesity and early childhood education.
    .
    SEE http://www.nationalhealthusa.net HOME PAGE.

  15. Bob Hertz says:

    quick political note to Big Ham:

    I think that Democrats have been running San Francisco and Chicago about as long as Democrats have been running Detroit.

    But the three cities are shall we say in different straits.

    This is not to excuse the corruption under Kilpatrick and the idiotic pension management in Detroit…. but something is going on beyond party affiliation.

    • The big ham says:

      Chicago is not far behind with there current BBB bond ratings. San Fran benifits from the fact that 30% of the California population is already on Medicaid …By my point of the artical was Detroit went way to the left where Bernie wants us to live.

      • Barry Carol says:

        NYC is thriving despite a very liberal mayor and high taxes while upstate NY is struggling despite lots of republicans in the state assembly and senate representing them. The hollowing out of manufacturing severely hurt the upstate NY economy and it’s probably not coming back anytime soon. NYC has a strong financial sector while technology and media are growing rapidly and there is a very large top flight education and medical sector as well. SF has similar attributes though the tech sector is more important there and financial services are less important. Chicago is the capital of the Midwest but on the government side, the problem today lies with the democrat dominated government in Springfield not the mayor of Chicago or the republican governor who is trying to reform the pension system but is being stymied by democrats at least for now.