HCA 531 Health Policies Questions

HCA_531   
Unit  1  additional  reading:  
 
http://www.nejm.org/doi/full/10.1056/NEJMp1204516
 
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Health Politics
and Policy
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4th edition
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A J. Litman, and Leonard S. Robins
James A. Morone, Theodor
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Australia • Brazil • Japan • Korea • Mexico • Singapore • Spain • United Kingdom • United States
9781133819202, Health Politics and Policy, Fourth Edition, Morone/Litman/Robins – © Cengage Learning. All rights reserved. No distribution allowed without express authorization.
Health Politics and Policy
Fourth Edition
James A. Morone, Theodor
J. Litman, and Leonard S. Robins
Director of Learning Solutions:
Matthew Kane
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Printed in the United States of America
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9781133819202, Health Politics and Policy, Fourth Edition, Morone/Litman/Robins – © Cengage Learning. All rights reserved. No distribution allowed without express authorization.
CHAPTER 1
Values in Health Policy: Understanding
Fairness and
H Efficiency
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Deborah
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,
Stone
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Deborah Stone introduces us to the two most important
values in health care. We can’t have all we
want of both fairness and efficiency, so we have to
Nthink about tradeoffs between them. In the process
we learn a more fundamental lesson: how to think about values in health policy.
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Two powerful ideals—fairness and efficiency—tower U simple of the two, and more often taken for
over health policy. These ideas unite us around lofty
granted as an incontrovertible value in health
goals, only to divide us the minute we get down to A policy.
details. That’s not only because there is an inherent
tension between fairness and efficiency, but also because each has multiple meanings. Different interpretations of fairness and efficiency define different
kinds of community. They draw different boundaries, gather different memberships and offer different levels of inclusiveness. In the shadow of these
grand ideals lurk many dilemmas for those who
would use them as yardsticks for policy evaluation.
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EFFICIENCY
Let’s start with efficiency, for though it is less inspiring than fairness, it is the more deceptively
Efficiency is another word for a bargain. It is getting the most for the least, or, in slightly more economic terms, producing the most output for a given
input. All policy reformers promise to give the country a bargain. Every person with a program to peddle promises that this program will save more than
it costs. Efficiency is one of those motherhood values that everybody is for, so long as no one spells
out exactly what it means—but it papers over a lot
of conflicts.
The idea behind efficiency is engagingly simple:
First, we measure the costs and benefits of any
program, proposal, or procedure. Then, with measurements in hand, we can compare them and choose
the course of action with the highest ratio of benefits
to costs.
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9781133819202, Health Politics and Policy, Fourth Edition, Morone/Litman/Robins – © Cengage Learning. All rights reserved. No distribution allowed without express authorization.
CHAPTER 1 Values in Health Policy: Understanding Fairness and Efficiency
There are lots of problems with this vision, but
the most basic is the core assumption that efficiency
is an empirically measurable fact. I want to suggest,
instead, that efficiency is a concept that must have
and come from a point of view. Efficiency can be
judged only with reference to a vantage point, and
vantage points are particular, not universal.HWith
multiple vantage points come multiple efficiencies.
I
Efficiency is not the one best way to do things for
G Effisociety as a whole (as Pareto would have it).
ciencies, like politicians, are tied to constituencies.
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Let me illustrate with five examples.
The Waiting Room
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A doctor’s waiting room is set up to be efficient.
S a
With long training and very expensive expertise,
doctor is a valuable resource. A doctor can’tHknow
in advance how much time each patient will need,
A
so to use the resource most efficiently, the receptionist schedules patients so that there are always
N several waiting in the waiting room. The doctor never
has an unused minute. The patients kill aI lot of
time. You know the drill—how much time have
C you
killed in doctors’ waiting rooms in your life? (I venQ
ture to say it is more time than you have bought
yourself by reducing your cholesterol.)
U
The waiting room game is efficient only if we reA
gard it from the doctor’s point of view. The doctor,
as a resource, is being used to the max. His or her
time is never wasted. Now look at it from the pa1
tients’ point of view. Some of their time is always
1 syswasted. In order to say that the waiting room
tem produces the most medical care for the
0 least
amount of time, we have to ignore all the patients’
5 time
wasted time. Or we have to value patients’
much less than the doctor’s time. Or both. T
The point is simple. One person’s efficiency is
another person’s waste. Even if we think thatSorganizing medical care so that patients wait for doctors is the most efficient use of medical resources
for society as a whole, we still buy societal efficiency at the cost of lots of wasted time for lots of
people. Somebody is hurt. The doctor’s waiting
room is a good metaphor for the core notion of
25
efficiency itself—every gain and every loss belongs
to somebody.
The Million-Dollar Catheter Lab
Under the headline “Doctors Say They Can Save
Lives and Still Save Money,” the New York Times ran
an article touting the Geisinger Foundation in Minnesota as the wave of the future. The Geisinger
Foundation had figured out how to increase efficiency in medical care. Among its tricks was a grand
version of the waiting room game. The health plan
avoided “duplication of costly equipment” by doing
all cardiac catheterizations at one hospital. “This
does mean,” the New York Times allowed, “that some
patients have to travel up to 100 miles for major
procedures that in a less efficient system might be
available at a community hospital.”1
It might be more efficient to have only one cardiac
catheterization lab for the entire community served
by the Geisinger Foundation, but we shouldn’t leap
to that conclusion before we tally up all the costs of
centralization. First, there are the costs of patients’
time; then the time of their spouses, friends, or
whomever accompanies the patients; then the travel
and lodging costs for all the people who have to
travel so far from home. There are the emotional
costs of making this procedure into an even bigger
deal than it already it is by embedding it in a trip
away from home. There may be still more costs associated with leaving home—paying someone else
to mind the kids, for example, or the burden to yet
another relative who comes into the home to mind
the kids. One can imagine an infinite chain of disturbance: John needs a cardiac catheterization, his
wife Janice goes with him, her sister Janeen takes
time off from work to mind their kids, Janeen’s husband Arthur eats out because Janeen’s not there to
cook, Janeen’s colleagues work harder to fill in for
her, and some of Janeen’s work doesn’t get done,
with attendant costs to her employer.
A full efficiency calculus has to take into account
all these points of view—the points of view of all the
people who are affected by the remote location of
catheterization labs. Tracing out such chains of
9781133819202, Health Politics and Policy, Fourth Edition, Morone/Litman/Robins – © Cengage Learning. All rights reserved. No distribution allowed without express authorization.
26
PART ONE Ideas and Concepts
consequences is rather like doing genealogy: We can
decide to go only so far as our great-grandparents,
but drawing those limits is an arbitrary decision.
This represents what I call the boundary problem
in efficiency measurement. How do we know where
to draw the boundaries in including the ramifications and costs of any way of organizing medical
care? There are no natural or correct or obvious
boundaries, because people live embedded in social
networks, just as they are born into unbounded genealogical trees.
The Paycheck
Every paycheck is an expenditure to a hospital and
a livelihood to an employee, and therein lies a tale.
Whether that paycheck goes on the output side or
the input side of an efficiency ratio depends on who
is doing the accounting.
We could adopt the point of view of the hospital
CEO, and say we are trying to measure efficiency
from the point of view of the hospital. How much
input does it take to produce our output? To the
CEO, the paycheck is input, and she or he wants to
write as few paychecks as possible and keep each
one of them as low as possible.
But the hospital is also a community institution
and a major local employer. To the governor, the
mayor, and even the neighbors, the hospital’s role
is not only to make sick people well but also to provide economic stability to the neighborhood. From
the point of view of the local community, each hospital payroll check is output many times over. It
means a livelihood to a hospital employee and her
family. Because employees will spend most of their
paychecks, each check means revenue to local businesses and, in turn, paychecks to those businesses’
employees.
Robert Reich, the former secretary of labor, has
made a career on the idea that economies produce
not only goods and services, but jobs. Reich has
taught us that while labor counts as “inputs” to production in classic market models, employment is also
an economic output. Societies whose economies produce more employment for their members are
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usually better off than those whose economies produce less.
Thus, President Bill Clinton was only half right
when he said in his first inaugural address that we
can’t fix our economy without doing something
about health care costs. The half he didn’t mention
is that our health care system is the strongest part
of our economy in terms of jobs. Between 1988 and
1992, in the run-up to the Clinton presidency, jobs
in health care grew 43%, while jobs elsewhere in the
private sector inched up a paltry 1%.2 Thanks
largely to a graying population, jobs in the health
sector are projected to increase almost twice as
fast as jobs in all industries—27% compared with
14%—over the next several years.3 There’s a nasty
double bind here. Health care expenditures are eating up our GNP and raising the cost of American
goods, but every health care expenditure is income
to someone employed in the health sector, or to
someone employed by someone who makes things
for the health care sector. We can’t get a handle on
health care costs unless we are willing to put a lot
of people out of work.
There’s another wrinkle to the paycheck story.
Jobs, on balance, probably contribute to people’s
health: Paychecks feed families. Jobs give people
pride, satisfaction, something to do. For the lucky
employees of large businesses, jobs provide health
insurance and access to medical care. To be sure,
not all jobs provide decent wages, stress-free
work, or even safe and healthy work, much less
health insurance. But to the extent that jobs do
provide these things, reducing the input side of
health production by reducing paychecks doesn’t
necessarily increase the ratio of output (health) to
input (dollars).
Only from the vantage point of someone whose
vision stops at the hospital walls does cutting staff
increase efficiency. From a wider community vantage point, such as the mayor’s, the efficiency calculus is much different. To extend the analogy, insofar
as health analysts look only at the efficiency of
health providers, they neglect all the important ways
health activities are outputs to the communities in
which providers provide.
9781133819202, Health Politics and Policy, Fourth Edition, Morone/Litman/Robins – © Cengage Learning. All rights reserved. No distribution allowed without express authorization.
CHAPTER 1 Values in Health Policy: Understanding Fairness and Efficiency
The Leaky Bladder
To talk about producing health care most efficiently
requires us to think that health care production can
be analyzed like widget production. The most important difference is that medicine works not by
people doing something to inert objects, H
but by
people interacting in a relationship. Trust and
I
warmth in the relationship contribute to better diagnosis and more effective therapy. Without G
getting
sentimental about old fashioned doctoring,
G it is
probably fair to say that time and talk are the two
great healers. When time and talk are treatedSas inputs in a production process, to be measured
, and
minimized, medical care will suffer.
Economists traditionally measure productivity in
manufacturing as output per labor hour. In the
S service sector, this definition becomes something like
Hsince
“number of people processed per labor hour,”
handling people is what service industries do.AThus,
hospital productivity is measured in patient days.
N
Extra personnel, such as more nurses or ombudspersons, no doubt add to patients’ comfort andI sense
of well-being, and maybe even to their health;
C but
they lower productivity statistics because now there
Q of
are more workers spread over the same number
patients.
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If we adopt the point of view of the consumers,
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patients, and families instead of the CEOs, productivity looks very different. In choosing a hospital or
a nursing home for a relative, you would look for a
1 that
high staff-to-patient ratio. The very qualities
make hospitals and other human services more
1 attractive to consumers—more useful and helpful to
0
them—make them less productive in efficiency
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statistics.
What happens when we use economic notions
T of
efficiency to re-shape health services and drive down
S its
costs? Consider New York’s effort to reduce
spending for home care during the 1990s. New York
has the most extensive and generous Medicaid
home care program. In 1991, 63 cents of every Medicaid dollar spent nationally on home care were
spent in New York.4 The state department of social
services decided to apply Scientific Taylorism to
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home care. The department devised a system of
defining precise client needs—such as feeding, toileting, and bathing—and designated an amount of
time necessary for each task. The goal was to pay
home care workers only for the time necessary to do
these instrumental tasks and to cut out the unproductive or “dead time.” The dead time is the time a
home care worker spends chatting with the client—
schmoozing, joking, just being together in a human
relationship. Under the new system, an elderly
woman whose chief problem is incontinence would
no longer be eligible for a full-time live-in attendant.
Her allotment of care would be ten-and-a-half hours
per week.That was apparently the time it took to service someone without bladder control. The department thought of paying for her care in the same way
an auto mechanic would figure out how much time
it takes service a car with a leaky gas tank. The pursuit of instrumental efficiency reduced this woman
to a leaky container that needed mopping up.5
In health care, it is hard to tell what efficiency is
because we don’t know what “output” is in the first
place. We use some crude population measures,
such as infant mortality and life expectancy, but
these are not good measures of a health system’s
output since they are influenced by lots of factors
besides medical care. Researchers in the field of
outcomes research have come up with a host of indicators about specific treatments, such as survival
rates for cardiac bypass operations or recurrence
rates for urinary tract infections. Others have
developed “report cards” to measure organizational
performance on such indicators as consumer satisfaction, delivery of preventive care, and administrative efficiency.
Most of what the health system produces is not
so easily definable and measurable—things such as
better functioning, lowered risk of future disease, reduced pain, education about caring for oneself,
and, let us not forget, reassurance, hope, and a
sense of well-being. Health researchers are going to
be hard-put to provide consumers with this kind of
outcome data.
Pain control, peace of mind, dignity, hope,
and other important features of medical care are
9781133819202, Health Politics and Policy, Fourth Edition, Morone/Litman/Robins – © Cengage Learning. All rights reserved. No distribution allowed without express authorization.
28
PART ONE Ideas and Concepts
notoriously hard to measure. And when the only incentive is to score well on the measures, that which
is measurable drives out the unmeasurable. Suppose, for example, that all the outcome studies
found that waiting a month or two to investigate a
mildly suspicious breast lump had no discernible
impact on survival rates among women whose
lumps turn out to be malignant. Health plans might
save money—without sacrificing longevity—by reducing their capacity for ultrasounds and biopsies
and making women (and their anxious families)
wait a few months for diagnoses. The outcome data
on those plans would look just fine to regulators
and consumers. The price would look good, too.Yet
the human costs and benefits—private terror versus
peace of mind—would not be measured, much less
factored into the efficiency calculus.
These are some of the traps that await the health
care efficiency experts. Without carefully specifying
whose costs count, what kinds of costs we want to
control, and what kinds of output we want from the
medical system, we end up simply shifting the burden and producing all kinds of perverse results.
The Cost-Ineffective
TB Program6
Paul Farmer, doctor, anthropologist, and international medical activist, was troubled by the large
number of cases of drug-resistant tuberculosis in
Haiti and Peru. When he and his colleague Dr. Jim
Yong Kim tried to interest the World Health Organization in funding public health campaigns
against MDR-TB (multi-drug-resistant tuberculosis,
as the disease is nicknamed), they learned that
WHO had deemed treating the disease in developing countries as not cost-effective. Indeed, it did cost
about $15,000 per person to treat a patient with
MDR-TB. Treating the simpler forms of TB that do
respond to standard antibiotics was much cheaper.
And so, in the deadly jargon of policy analysis,
WHO had declared in one of its manuals: “In settings of resource constraint [read: poor countries],
it is necessary for rational resource allocation to prioritise TB treatment categories according to the
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cost-effectiveness of treatment of each category.”7 In
other words, doctors like Farmer and Kim were supposed to ignore patients with MDR-TB because
they could cure more people by putting all their
resources into treating those with ordinary TB.
With WHO’s seal-of-disapproval for treating
MDR-TB in developing countries, it was nearly impossible for Farmer and Kim to raise money to support their programs. They were so committed to
treating the disease, though, that they went ahead
treating a small number of patients, begging and
borrowing the money and drugs to do it. (At one
point, they were “found out” by Brigham and
Women’s Hospital; they had taken $92,000 worth
of drugs from its pharmacy to Haiti and Peru. But
they never intended to steal; they had a philanthropist in their corner who wrote a check to the
hospital, with a note saying he thought the hospital
“ought to be more generous toward the poor.”) They
were determined to prove that at least the disease
was curable. And they were incensed by the way
that cost-effectiveness analysis, as they saw it, “rationalized an irrational status quo: MDR treatment
was cost-effective in a place like New York, but not
in a place like Peru.”
Farmer and Kim had been buying some drugs
to treat MDR-TB in different places. They noticed
that one of the drugs, manufactured by Eli Lilly,
cost $29.90 per vial at the Brigham and Women’s
Hospital in Boston, $21.00 a vial in Peru, and
only $8.80 per vial in Paris. When their Paris supplier suddenly refused to sell them any more
drugs, a light bulb went on: The price of drugs is
set by the pharmaceutical manufacturers, and they
set radically different prices for different markets.
If that were true—and it still is—then the “cost” of
treating MDR-TB wasn’t a given. The “cost” in
cost-effectiveness analysis was an artifact of the
drug manufacturer’s pricing policies.
Dr. Kim, Dr. Farmer, and their allies browbeat,
jawboned, and negotiated. They persuaded some
manufacturers to lower their prices for the MDR-TB
drugs, and persuaded one of them, Eli Lilly, which
had a patent on one of the most effective drugs, to
donate large amounts of its drug. Suddenly, the cost
9781133819202, Health Politics and Policy, Fourth Edition, Morone/Litman/Robins – © Cengage Learning. All rights reserved. No distribution allowed without express authorization.
CHAPTER 1 Values in Health Policy: Understanding Fairness and Efficiency
of curing a case of drug-resistant TB plummeted
from $15,000 a year to $1,500 a year, and cure
rates were very high.
But it wasn’t enough to get one or two companies to lower prices for a small amount of drugs.
Farmer and Kim set about trying to change the market for MDR-TB drugs, to change the entire H
system
of supply and demand. They knew they needed
I to
get someone to manufacture large quantities of
Gwith
these drugs for less money. They joined forces
other non-profit organizations to stimulate smaller
G
drug manufacturers to make generic versions of
S
MDR-TB drugs. In order to convince generic manufacturers to develop and produce the drugs,
, they
had to show that there was a market for them,
meaning that a lot of TB projects would use (and
buy) them. They masterminded a plan to getS
MDRTB drugs listed on WHO’s official list of “essential
H
drugs,” a list that in itself symbolically signaled a
A
market demand. If a drug were on WHO’s essential
list, then firms should manufacture it regardless.
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Farmer and Kim’s public health coup turns costI
effectiveness analysis inside out. Cost-effectiveness
and cost-benefit analyses depend on knowing
C the
cost of whatever outcome you are trying to produce.
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You’ve got to plug some price into your equation.
But if cost is simply a matter of what a supplier
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charges, then it, in turn, depends on the power relaA the
tionships between buyers and sellers. When
World Health Organization evaluated the costeffectiveness of treating MDR-TB in developing
1
countries, it took the price of drugs as a given—
1 Imsomething fixed, inherent, and unchangeable.
plicitly, then,WHO also took as a given the political
0
economy of pharmaceuticals—the dominant market
5
position of large American pharmaceutical companies, the monopoly pricing permitted by American
T
patent protection, the power of manufacturers to
dictate prices, and WHO’s power to dictateSwhat
diseases public health programs would treat, and
therefore which drugs they would purchase.
If instead, we regard the cost of inputs as themselves outputs of a political-economic system, then
they are not objective measures, and the cost-benefit
analysis that derives from them is no more objective.
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Prices and cost-effectiveness judgments are captives
of the political status quo, and cost-effectiveness
analysis is a recipe for preserving the current distribution of resources.
FAIRNESS
Elsewhere in the world, medical insurance is called
“sickness insurance” and it covers sick people. In the
United States, we have “health insurance,” and as
befits its name, insurers strive to weed out sick people and cover only the healthy. This is about as perverse a system as one can imagine, and one that
poses an extraordinary puzzle: Why and how does
a country’s political system produce a health-policy
sub-system whose result is absolutely antithetical to
its public purpose? The result can only be explained
as a long history of political conflict between worldviews about fairness and equity. This conflict is
vividly illustrated—quite literally, illustrated with
photographs—in the advertising campaigns of
health insurance and other interest groups.
In the late 1980s, the trade associations of the
health and life insurance industry sponsored an advertising campaign to persuade the public that “paying for someone else’s risks” is a bad idea. In one of
these ads, a photo of a worker in a hard hat and tool
belt straddling the girders of a steel tower was captioned “If you don’t take risks, why should you pay
for someone else’s?” Another ad showed a young
man and woman playing basketball one-on-one,
and asked “Why should men and women pay different rates for their health and life insurance?” The
choral refrain at the bottom of each ad in the series
went “The lower your risk, the lower your premium,” and the small print explained the relevant
facts. For example,
Women under 55 normally incur more
health care expenses than men of the same
age, so they pay more for individual health
insurance than men. After age 55, women
9781133819202, Health Politics and Policy, Fourth Edition, Morone/Litman/Robins – © Cengage Learning. All rights reserved. No distribution allowed without express authorization.
30
PART ONE Ideas and Concepts
generally have lower claims costs, so they
normally pay less for individual health insurance than men of the same age.
That’s why insurers have to group people
with similar risks when they calculate premiums. If they didn’t, people with low risks
would end up subsidizing people with high
risks. And that wouldn’t be fair.
In 1991, with Bill Clinton running on a platform
of universal access to health care, The Prudential Insurance Company ran a very different sort of ad
campaign. In the New York Times, Wall Street Journal, and many news weeklies, readers saw a photo
of a chest X-ray with a large white mass in the lower
right quadrant. Though most readers couldn’t interpret the X-ray, the caption explained its significance:
“Because he works for a small company, the prognosis isn’t good for his fellow workers either.” The
small-print text went on to explain how one employee’s serious illness might cause a small company
to be charged “excessively high premiums” come renewal time, and how the company might even be
forced to drop its health insurance coverage. Prudential, readers were assured, didn’t consider this situation fair, and so it was backing legislation to
“regulate the guidelines and rating practices of insurers.” Offering a rather different interpretation of fairness from the one in the trade association series a
few years back, Prudential opined: “After all, a small
company shouldn’t be forced to drop its health plan
because an employee was sick enough to need it.”
These advertisements have many layers of meaning. On the surface, the issue is how commercial insurers ought to price their health insurance policies.
Just below the surface lurks the struggle over health
insurance reform proposals in the states and
Congress. But the underlying question is whether
medical care should be distributed as a right of citizenship or as a market commodity. If, as “the loweryour-risk-the-lower-your-premium” series commends,
we charge people as closely as possible for the
medical care they need and consume, then we are
treating medical care like other consumer goods
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distributed through the market. If, like Prudential, we
are unwilling to throw sick people and their fellow
employees out of the insurance lifeboat, if we think
that perhaps the healthy should help pay for the care
of others, then medical care becomes more like
things we distribute as a basic right, such as education.These advertisements symbolize two very different logics of insurance: the actuarial fairness
principle and the solidarity principle.
At a still deeper level, these advertisements offer
competing visions of community. They suggest how
Americans should think about what ties them together, and to whom they have ties. In one view, no
one else should feel an obligation to pay for the
medical care of those who get injured while doing
constructive work for society. Similarly, women of
childbearing age are exhorted daily to assure the
health of their babies, even those not yet conceived;
yet no one else should finance their extra medical
care, least of all the men with whom they are creating the next generation. Alternatively, says the Prudential ad, we should not abandon those who are
sick or attached to people who are sick; sick and
healthy, we are all one community.
Many things go into the making of community.
Communities share a common culture and a way of
perpetuating it. They establish processes for governance, conflict resolution, and self-defense. But above
all, the people in a community help each other. Mutual aid among a group of people who see themselves
as sharing common interests is the essence of community. A willingness to help each other is the glue
that holds people together as a society, whether a simple peasant community, an urban neighborhood, or
a modern welfare state. What distinguishes the mutual aid in the modern welfare state from that in peasant societies is largely a matter of scale: the number
of people encompassed in the mutual aid network,
the complexity of the rules that govern how we aid
one another, and the variety of goods and services
that we provide.
All mutual aid systems are based on a communal
agreement—why, when, and to whom should people
give up something of their own and offer help? This
is not to say there is no conflict over redistribution in
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CHAPTER 1 Values in Health Policy: Understanding Fairness and Efficiency
a community; on the contrary, the agreements are
constantly under challenge, the communal boundaries are always being re-drawn. But there is also a
core of stable expectations about when people can
expect help from one another.
In most societies, sickness is widely accepted as a
condition that should trigger mutual aid; the H
American polity, however, has had a weak and wavering
I
commitment to that principle.The politics of medical
G over
insurance can only be understood as a struggle
the meaning of sickness and whether it is a condition
G
that should automatically generate mutual assisS
tance. This is more than a cultural conflict, however—more than a fight over meanings. The ,private
insurance industry, the first line of defense in the U.S.
system of mutual aid for sickness, is organized
S idea
around a principle profoundly antithetical to the
of mutual aid. Indeed, the growth and survivalHof the
industry depends on its ability to finance health care
A that
by charging the sick and convincing the public
“each person should pay for his own risk.” N
Actuarial fairness—each person paying for his or
I
her own risk—is more than an idea about distributive justice. It is a method of organizing mutual
C aid
by fragmenting communities into ever smaller,
Q that
more homogeneous groups. It is a method
leads ultimately to the destruction of mutual
U aid.
This fragmentation must be accomplished by fosterAthan
ing in people a sense of their differences rather
their commonalities; it emphasizes responsibility
for self rather than interdependence within a com1
munity. Moreover, insurance necessarily operates
1 is
on the logic of actuarial fairness when it, in turn,
organized as a competitive market.
0
Both social and commercial health insurance are
5
mechanisms for pooling savings and redistributing
funds from healthy premium-payers to sickTones.
However, they operate by two fundamentally differS
ent logics—the solidarity principle and actuarial
fairness.
The Solidarity Principle
Social insurance operates by the logic of solidarity.
Its purpose is to guarantee that certain agreed-upon
31
individual needs will be paid for by a community or
group. This is the logic of mutual aid societies and
fraternal associations, as well as government social
insurance programs. Having decided in advance
that some need is deserving of social aid, a society
undertakes to guarantee that the need is met for all
its members. The argument for financing medical
care via social insurance rests on the prior assumption that medical care should be distributed according to medical need.
If medical care were financed like most market
goods, by charging people for exactly the goods and
services they consume, medical care would only be
partially distributed according to need. Those who
are sick and need care would come forward to purchase it, but only those who could afford it would
actually receive care. In addition, some who are not
sick but who have plenty of resources might try to
purchase care as well. People who could not afford
to buy care would not receive any, regardless of their
need for it.
Social insurance unties the two essential connections of the market, the link between the amount
one pays for care and the amount one consumes,
and the link between the amount of care one buys
and one’s ability to pay. Under a social insurance
scheme, individuals are entitled to receive whatever
care they need, and the amounts they pay to finance
the scheme are totally unrelated to the amount or
cost of care they actually use. (Of course, to the extent there are coinsurance and deductibles in a social insurance scheme, the amount a person pays is
slightly related to the amount one consumes.)
Of course, even social insurance doesn’t guarantee that medical care is distributed exactly according to medical need. Need, after all, is a rather
elusive concept, all the more so in medicine. Unlike
most consumer goods, the value of medical care depends on its being customized. Whether someone
can benefit from a particular medical procedure
doesn’t hinge on personal “tastes and preferences,”
as classical economic theory would have it, but
rather on a correct match between a medical procedure and the person’s pathology. The degree to
which social insurance results in allocation of care
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32
PART ONE Ideas and Concepts
according to need is mediated by the professional
skill of medical personnel in matching procedures
to pathologies. Many other factors influence the distribution of care as well, such as local professional
norms about the appropriate use of procedures, the
supply of medical facilities and personnel and
equipment, and ownership of diagnostic and therapeutic facilities, such as imaging centers and dialysis clinics.8 All of these factors mean that even
under a system of pure social insurance, medical
care will not be perfectly distributed according to
medical need. But the ideal of the solidarity principle is that we should strive to distribute medical
care according to medical need, and to limit the influence of one’s ability to pay.
The solidarity principle doesn’t require that medical care be distributed equally in the sense that
everyone gets the same amount. Social insurance is
not a fixed-shares arrangement, where each contributing member gets an equal slice of the pie.
When people “pool their risks” and their savings in
social insurance, they are taking their chances that
they may never become sick or need expensive care,
and that most of their contributions will go to help
the members who do incur a need for expensive
care. As in any lottery, they pay into the pot, regardless of whether they ultimately get to draw out of it.
In fact, only some members of a risk pool will get
sick enough to need care. Since only those who get
seriously sick will receive a payout, the others necessarily pay to help them. Thus, redistribution from
the healthy to the sick is built into insurance. Payouts are made on the basis of need (or loss incurred), not on the basis of contributions to the
scheme. Health policy analysts and corporate benefits managers frequently discover with great alarm
that a small portion of insured people accounts for
a huge proportion of claims expenditures, as
though this skewing means that something is amiss.
But subsidy from the vast majority of insured people to a small minority is precisely what is supposed
to happen in insurance. Such skewing is what people agree to when they join a social insurance riskpool. They accept it because they don’t know, when
they join, whether they will be on the giving end or
the receiving end, and they want to protect themselves in case they are part of the unlucky minority.
They accept it, too, because they believe that sickness is one of those contingencies when society
should rally around the individual.
H
Actuarial Fairness
I
Commercial insurers—that is, private firms selling
G insurance as a profit-making venture—operate on a
G deep contradiction. They provide for pooling of
and mutual aid among policyholders, much as
S risks
social insurance does; yet they select their policy, holders, group them, and price their policies acS
H
A
N
I
C
Q
U
A
1
1
0
5
T
S
cording to market logic. When they speak of equity,
commercial insurers espouse the principle of actuarial fairness: Premium rates should be differentiated so that “each insured [person] will pay in
accordance with the quality of his risk.”9 By quality
of risk, insurers mean the likelihood a person will
incur whatever loss he or she is insured against. In
life insurance, they are principally interested in factors that might affect life expectancy; in health insurance, they are interested in factors that affect or
predict a person’s use of medical care.These include
one’s occupation, hobbies (since some are very dangerous), family medical history, personal medical
history, and any medical information such as family
history or a genetic marker that predicts disease,
even if the disease hasn’t yet occurred.
Insurers assert that actuarial fairness requires them
to seek the most complete risk information on applicants. An insurer has the “responsibility to treat all its
policy holders fairly by establishing premiums at a
level consistent with risk represented by each
individual policyholder.”10 To accomplish this task,
insurers must have the “right . . . to create classifications to recognize the many differences which exist
among individuals.” People who have diseases or serious risks to their health are in a sense getting a more
valuable insurance policy than those with lesser risks,
so they ought to pay more for the extra value. Or, to
see the matter another way, if insurers did not identify people with higher risks, separate them from the
general pool of policyholders, and charge them more,
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CHAPTER 1 Values in Health Policy: Understanding Fairness and Efficiency
insurers would be causing a “forced subsidy from the
healthy to the less healthy.”11 “An applicant presenting a low risk of loss to the insurer should not be required to subsidize another applicant who presents a
higher degree of risk.”12
Here is the crux of the conflict: The very redistribution from the healthy to the sick that is theH
essential purpose of medical insurance under
I the
solidarity principle is anathema to commercial insurers under the actuarial principle. Tellingly,G
insurers virtually never use the word “subsidy” without
G a
pejorative modifier such as “coerced,” “forced,” or
S
“unfair.” Although all insurance entails a subsidy
from the lucky to the unlucky (whether luck
, concerns car accidents, diseases, or fires), commercial
insurers eschew subsidy from one “class” of policyS
holders to another. “Class,” in insurance jargon,
means risk class, or a group of people with H
similar
probabilities of becoming sick (or perhaps more acA
curately, with similar probabilities of generating
costs to the insurer). To commercial insurers,
N subsidy is not what they pursue, but the unwanted result of their failure to segregate peopleI into
homogeneous risk classes.
C
If the actuarial fairness principle could be perQ infectly implemented, if we had perfect predictive
formation and precise rating, each person would
U pay
for himself. This, of course, would be the antithesis
A
of insurance. In fact, in a world of perfect predictive
information, there would be no need and no market
demand for insurance, because no one would stand
1
to gain by “beating the odds.” Since each insurance
1
policy would be priced according to the medical
care actually consumed by each policyholder, people
0
would do better to pay for their care directly and
5 and
avoid paying for the administrative expenses
profits of insurance companies. And since the
Tprice
of insurance would be the same as the price of
S to
needed medical care, those who couldn’t afford
pay for their own care couldn’t afford to pay for insurance either. Insurers rarely acknowledge that actuarial fairness undermines the solidarity principle
of insurance—the very reason to have insurance—
but the ultimate conclusion of the logic of actuarial
fairness is clear. In the words of Robert Goldstone,
33
vice president and medical director of Pacific Mutual
Life Company,
In theory, every individual should have a different rate, based on a multivariate analysis
of every possible health condition and risk
factor that can be evaluated.13
Actuarial Fairness and the
Politics of Exclusion
To put the matter simply, the U.S got a “health insurance” system instead of a “sickness insurance” system because our government fostered privatization
of the social welfare function from the beginning.
Because government allowed the private sector to
provide the first line of defense against illness, and
because the private sector operated on the logic of
actuarial fairness, the door was open for a politics of
exclusion.
The first battles over insurance company underwriting practices concerned race, specifically the use
of race as an underwriting criterion in life insurance.
As early as the 1880s, several states tried to prohibit
life insurance companies from charging higher rates
to blacks than whites.14 Insurers found it quite easy
to avoid public interference with their “scientific principles.” In 1900, Frederick Hoffman, then chief statistician of The Prudential Company, wrote that many
states had passed laws “compelling Industrial [life insurance] companies to accept Negro risks at the same
rates as those charged the white population. Fortunately,” he boasted, “the companies cannot be compelled to solicit this class of risks, and very little
business of this class is now written by Industrial
companies, practically none by the Prudential.”15
In the ensuing century, there have been more
battles between the public and private sectors over
race and other social groupings. In the late 1960s
and 1970s, the property insurance field was
plagued by the issue of “redlining”; the racial composition of a neighborhood became an explicit factor in determining the availability of mortgages
and property insurance. Also in the 1970s, activists
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34
PART ONE Ideas and Concepts
challenged the use of gender as a factor the price of
life and disability insurance, as well as automobile
insurance. Disease-based interest groups (notably
Tay-Sachs Disease, Sickle Cell Anemia, and DES
mothers and daughters) challenged the use of “their
disease” as a criterion in underwriting life and health
insurance, and succeeded in winning protections in
several states. In the late 1980s, the dominant underwriting issue was life and health insurers’ use of
sexual orientation as a proxy for AIDS risk and then
HIV tests.
For the most part, insurers have been able to
block restrictions on their underwriting criteria, either by defeating bills and regulations or by inserting narrow language to permit the use of criteria that
are “actuarially sound.” What risk classification and
segregation insurers cannot accomplish through direct medical underwriting, they can often accomplish through targeted marketing or pricing.
Prudential’s early strategy of simply not soliciting
Negro business was the prototype. Today we see
HMOs and other managed care plans featuring their
maternity and fitness club benefits when they market plans to employee groups; they market to the
young and healthy. Some health plans quietly avoid
contracting with physicians in minority neighborhoods, another way of making their insurance inaccessible to populations against whom they cannot
discriminate outright.
And finally, commercial insurers by-and-large
have been able to capture public regulators. Most
state insurance departments and commissions are
controlled by men who come from commercial insurance and will return to lucrative jobs there. They
share the insurers’ worldview in which equity is actuarial fairness. In the 1980s, when the battle over
HIV testing by health and life insurers was largely
perceived as a struggle about the inclusion of gays in
the insurance lifeboat, a state commissioner told the
Office of Technology Assessment (emphasis added):
“We encourage insurers to test where appropriate because we don’t want insurance companies to
issue policies to people who are sick, likely to be
sick, or likely to die.”16
H
I
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G
S
,
S
H
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A
When public regulators see their job as protecting
private health insurers from covering sick people,
we get a system of “health insurance” instead of
“sickness insurance.”
It is not going to be easy to eradicate the actuarial fairness principle from the American insurance
system. We have had nearly a century of industry
promoting the “each person should pay for himself” principle as the ideal of fairness. The public
servants who are responsible for regulating insurance generally believe in this principle as both a
matter of fairness and a matter of financial necessity. Actuarial fairness makes sense as a business
strategy in competitive insurance markets. With
this combination of elements, it will be extraordinarily difficult to prevent insurers from engaging in
implicit and explicit underwriting within any foreseeable system based on market competition
among insurers.
Efficiency and fairness are fine aspirations for
public programs, but no one should be lulled into
thinking they are neutral criteria for judging the
virtues of health care systems or reform proposals.
They are more like empty packages, craftily giftwrapped with glitter and bows, tempting us to
imagine their contents. Political actors, stakeholders in the complex world of health insurance, conduct much of their politics by offering visions of
what might be in these boxes under different political and economic scenarios. When the boxes are finally opened, some people will be showered with
useful and lucrative gifts; others will go away
empty-handed.
1
1
0
5
T STUDY QUESTIONS
S 1. What are some examples that demonstrate
that efficiency is a subjective concept?
2. What are some of the costs pertaining to
centralization of (medical) procedures?
3. How does the ‘boundary problem’ arise in
the measurement of efficiency?
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CHAPTER 1 Values in Health Policy: Understanding Fairness and Efficiency
4. How can rising health care costs be seen as a
positive development? Whose perspective
would this require one to adopt?
5. Why is it difficult to identify (much less
measure) health ‘outputs’?
6. Why is it important to treat health input costs
H
as products of a particular politico-economic
configuration, rather than absolute? I
7. What are the actuarial fairness and solidarity
principles? What is their relevance to G
the
finance of health care?
G
8. Develop an opinion: Which principle—actuarial
S
fairness or solidarity—orms a superior basis for
insuring health care? Why? Note the strengths
,
and weaknesses of each principle.
9. Why are there limitations on the extent to
S
which health care can be matched to patient
need, even under a system governed byHthe
principles of mutual aid?
A in
10. In what sense do commercial insurers act
ways that, taken to their logical conclusion,
N
would render insurance superfluous?
I
11. How has the issue of insuring populations
become racially charged?
C
NOTES
Q
U
A
1. Erik Eckholm, 1991, A1.
2. Robert Pear, 1993, A1.
3. US Department of Labor, Bureau of Labor Sta1
tistics, Bulletin 2601, “The 2006–07 Career
1
Guide To Industries,Table 3 (www.bls.gov/oco/
cg/print/cgs035.htm, visited Jan. 15, 2006).
0
4. Bennett, 1992, p A1.
5. This story is from the New York Times 5
article,
ibid.
T
6. I take the details of this story from Kidder,
Sfrom
2003. All quotations in this section are
this book unless otherwise noted.
7. World Health Organization, Treatment of Tuberculosis: Guidelines for National Programmes.
2nd ed. Geneva, 1997, quoted in Kidder,
2003, p 141.
35
8. Hillman, B.J., et al., 1990, 1604–8
9. Bailey, H.T.,T.M. Hutchinson, and G.R. Narber,
1976.
10. Clifford, K., and R. Iuculano, 1987.
11. Clifford, K., and R. Iuculano, ibid.
12. Hoffman, J.N., and E.Z. Kincaid. 1986–7.
“AIDS: The Challenge to Life and Health Insurers’ Freedom of Contract.” Drake Law Review
35: 709–71.
13. Goldstone, R., 1992.
14. James, Marquis, 1947.
15. Hoffman, F.L., 1900.
16. Statement made at a meeting (February 17,
1987) of the Advisory Panel to the Office of
Technology Assessment for its study, Medical
Testing and Health Insurance (US Congress,
1988). I was a member of this panel.
REFERENCES
Bailey, H.T., T.M. Hutchinson, and G.R. Narber. 1976.
The Regulatory Challenge to Life Insurance
Classification. Drake Law Review 25: 779–827.
Bennett, James. 1992. “Home Care in New York, A
Model Plan, Awaits Cuts,” New York Times
November 20. p A1.
Clifford, K., and R. Iuculano. 1987. “AIDS and
Insurance: The Rationale for AIDS-related Testing,”
Harvard Law Review 100: 1806–24.
Eckholm, Erik. 1991. “Doctors Say They Can Save
Lives and Still Save Money.” New York Times March
18. p A1.
Goldstone, R. 1992. “Substandard, Not Inferior.” Best’s
Review 92 (March): 24–8, 90.
Hillman, B. J., et al. 1990. “Frequency and Costs of
Diagnostic Imaging in Office Practice—A
comparison of Referring and Radiologist-Referring
Physicians. New England Journal of Medicine 323:
1604–8.
Hoffman, F.L. 1900. History of The Prudential
Insurance Company of America (Industrial
Insurance) 1875–1900. Prudential Press.
Hoffman, J.N., and E.Z. Kincaid. 1986–7. “AIDS: The
Challenge to Life and Health Insurers’ Freedom of
Contract.” Drake Law Review 35: 709–71.
9781133819202, Health Politics and Policy, Fourth Edition, Morone/Litman/Robins – © Cengage Learning. All rights reserved. No distribution allowed without express authorization.
36
PART ONE Ideas and Concepts
Kidder, Tracy. 2003. Mountains Beyond Mountains: The
Quest of Dr. Paul Farmer, A Man Who Would Cure
the World. New York: Random House.
James, Marquis. 1947. The Metropolitan Life: A Study
in Business Growth. New York: Viking Press.
Pear, Robert. 1993. “Health-Care Cots Up Sharply
Again, Posing New Threat,” New York Times
January 5. p A1.
H
I
G
G
S
,
US Department of Labor, Bureau of Labor Statistics.
Bulletin 2601, “ The 2006–07 Career Guide To
Industries, “Table 3 (www.bls.gov/oco/cg/print/
cgs035.htm, visited January 15, 2006).
US Congress. 1988. Advisory Panel to the Office of
Technology Assessment for its study, Medical Testing
Health Insurance.
S
H
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1
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5
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9781133819202, Health Politics and Policy, Fourth Edition, Morone/Litman/Robins – © Cengage Learning. All rights reserved. No distribution allowed without express authorization.
CHAPTER 2
Markets and Politics
H
Thomas
I
G
G
S
,
Rice
S
H economists think about the two most important concepts
In this chapter, Thomas Rice explains how
A
in health care economics—markets and government.
N
I
produced using the least costly set of inputs. FurtherC
more, the profit motive encourages firms and wouldQ
be firms to be innovative in developing new products
and techniques to meet future consumer demands.
U
MARKETS
Economists have shown that if certain assumpA of
Since the publication by Adam Smith of Wealth
tions are met, then a market economy will result in a
Nations in 1776, economists have been enamored
with markets.This is understandable. Smith and sub1
sequent analysts demonstrated that markets can,
1
through an “invisible hand,” make the self-interested
actions of disparate individuals result in—at least by
0
some definitions—an “optimal” allocation of soci5
ety’s resources.
The logic of markets is now well understood.
T People “demand” the things that they want most, ensuring
S serthat they purchase the market basket of goods and
vices that maximizes their “utilities” given their limited
budgets. Suppliers produce only those things that are
demanded by consumers, and in doing so must use inputs as efficiently as possible so as to price their products low enough to attract buyers. Thus, people are
able to buy the things they desire, and these things are
state called “Pareto optimality,” named after Italian
economist Vilfredo Pareto. Under Pareto optimality, it
is impossible to make someone better off without
making someone else worse off. This might seem to
be an odd criterion for optimality, but upon reflection
it is logical. If an economy were not in Pareto optimality, then it would be possible to make someone
better off without harming another person. But if
that were the case, then things hardly would be optimal. Rather, changes could be instituted to help those
who might benefit without resulting in any harm to
others. Only when no such changes are any longer possible would the economy be in a Pareto optimal state.
Aside from its reliance on certain assumptions,
it is critical to understand Pareto optimality does not
address issues of equity or the desirability of the
37
9781133819202, Health Politics and Policy, Fourth Edition, Morone/Litman/Robins – © Cengage Learning. All rights reserved. No distribution allowed without express authorization.
38
PART ONE Ideas and Concepts
distribution of income that results from the workings of a competitive economy. Thus, a market outcome in which one person has nearly all of the
output, and another has almost none, could still be
consistent with Pareto optimality. In fact, this can
easily occur if the former person begins with the
vast majority of initial wealth or input. Amartya Sen
makes this point graphically:
An economy can be [Pareto] optimal . . .
even when some people are rolling in luxury
and others are near starvation as long as the
starvers cannot be made better off without
cutting into the pleasures of the rich. If preventing the burning of Rome would have
made Emperor Nero feel worse off, then letting him burn Rome would have been
Pareto-optimal. In short, a society or an
economy can be Pareto-optimal and still be
perfectly disgusting.1
Although it might seem desirable to transfer
wealth from the rich person to the poor person, doing so cannot be viewed as improving the economy
from a Pareto optimality standpoint because the
change will involve making the rich person worse off.
In summary, under a market-based economic
model, competition is designed to enhance efficiency; it does not necessarily improve equity. In
thinking about the impact of markets on health care,
we will need to consider both the applicability of the
model’s assumptions as well as any concerns we
have about the resulting distribution of wealth.
implications for health policy would include the following key requirements:2
■
H
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G
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S
H
A
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Q
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1
1
0
5
T
ASSUMPTIONS UNDERLYING S
THE SUCCESSFUL
OPERATION OF MARKETS
There is no single agreed-upon list of assumptions
about which the competitive economic model is
based. A simple, abbreviated list emphasizing the
■
■
Individuals are rational; they know what goods
and services are likely to make them best off;
and they can effectively use available information to achieve this best-off position given their
wealth.
Individuals’ tastes for goods and services are
predetermined and cannot be unduly influenced by physicians or other providers.
The distribution of wealth is approved of by society, and furthermore, individuals care only
about their own resources and not those of
others.
What happens if these conditions are not met (as,
I will argue, is the case in health care)? One policy
alternative to markets is government intervention in
the marketplace. Government can try to correct imperfections through direct regulation or control, or
alternatively, institute policies to counteract some of
the potentially undesirable consequences of market
competition. To make this more concrete, suppose
that direct-to-consumer advertising results in patients demanding prescription medications from
their physicians that are both medically inappropriate and cost-increasing—resulting is poorer health
and higher costs. A way to address this problem
might be to further regulate the content and extent
of such advertising (as was the case in the past). A
different strategy would be for government to engage in its own advertising campaign to counteract
what it believes to be misleading messages from industry. Sometimes both strategies are employed. In
the case of cigarette smoking, government has
banned or severely limited various types of advertising, and concurrently, created its own advertisements aimed at convincing smokers to quit and at
others not to start.
The alternative to government action is for government to do nothing. Even if markets do a poor job in
some areas, government might perform even worse.
There are several possible reasons for this. Government officials may lack the expertise of those in the
private sector. Moreover, they may be beholden to
9781133819202, Health Politics and Policy, Fourth Edition, Morone/Litman/Robins – © Cengage Learning. All rights reserved. No distribution allowed without express authorization.
CHAPTER 2 Markets and Politics
39
special interests, particularly those that contribute
materially to these officials’ power or wealth. And
even in the absence of such undue influence, government is often inefficient because it does not face competition for the services it provides.3
Over the years many economists have weighted in
over this issue. Henry Sidgwick (1887) onceH
stated
that, “It does not follow that whenever laissez-faire
I
falls short government interference is expedient;
G in
since the inevitable drawbacks of the latter may,
any particular case, be worse than the shortcomings
G
of private enterprise.”4 More than 100 years later,
S
Mark Pauly expresses a similar view when noting
that “a government staffed by angels could undoubt,
edly do a better job than markets run by humans”5
he is less sure when humans run the government.
S is
Charles Wolf (1993) adds, “The actual choice
among imperfect markets, imperfect governments,
H
and various combinations of the two. The cardinal
Amareconomic choice concerns the degree to which
kets or governments—each with their respective
N
flaws—should determine the allocation, use, and distribution of resources in the economy.”6 We Iwill return to the issue of how markets and government
C can
work together to improve the health care.
Q
U
A
MARKETS IN HEALTH
CARE: ARE THE
ASSUMPTIONS MET?
1
1
This section briefly reviews evidence drawn from
0
health care systems about the three assumptions
underlying markets, discussed earlier.
5
T
Assumption No. 1: Individuals are rational;
they know what goods and services are likely
S to
■
make them best off; and they can effectively use
available information to achieve this best-off
position (given their wealth).
In most areas, health included, individuals tend
to act fairly rationally and know what is best for
themselves, at least as evaluated by conventional
norms. There are obvious exceptions. People ride
motorcycles without helmets. Some desperate people in developing countries sell their own organs,
a practice that reduces rather increases their economic status.7 Others kill themselves when an objective observer might have viewed the person’s
circumstances as remediable. In general, though,
government does not interfere too much with markets to deal with these issues; rather, it lets people
make good or bad decisions for themselves.
A more troubling issue is people’s ability to successfully use information about health-related issues.This involves both care and coverage decisions.
They face at least two types of problems. One relates
to the concept of the “counterfactual.” Counterfactual questions are those that are hypothetical in that
they concern what would have happened if history
had been different. Questions such as these can
never be answered with certainty. Some examples in
health: “Would the problem have gone away if I had
left it untreated?” “What would have happened if I
had sought the care of a specialist instead of a primary care physician?” And “Would the result have
been different if I had seen a different primary care
physician than the one I sought?”
In this regard, Burton Weisbrod has written that,
For ordinary goods, the buyer has little difficulty in evaluating the counterfactual—that
is, what the situation will be if the good is
not obtained. Not so for the bulk of health
care . . . Because the human physiological
system is itself an adaptive system, it is
likely to correct itself and deal effectively
with an ailment, even without any medical
care services. Thus, a consumer of such services who gets better after the purchase
does not know whether the improvement
was because of, or even in spite of, the
“care” that was received. Or if no health
care services are purchased and the individual’s problem becomes worse, he is generally not in a strong position to determine
whether the results would have been different,
9781133819202, Health Politics and Policy, Fourth Edition, Morone/Litman/Robins – © Cengage Learning. All rights reserved. No distribution allowed without express authorization.
40
PART ONE Ideas and Concepts
and better, if he had purchased certain
health care. And the consumer, not being
a medical expert, may learn little from
experience or from friends’ experience . . .
because of the difficulty of determining
whether the counterfactual to a particular
type of health care today is the same as it
was the previous time the consumer, or a
friend, had “similar” symptoms. The noteworthy point is not simply that it is difficult
for the consumer to judge quality before the
purchase . . . but that it is difficult even after
the purchase.8
Decisions about whether to obtain care, what to
obtain, and from whom to obtain it present extraordinary challenges to the consumer because markets
are ill equipped to assist in answering counterfactual
questions. But consumers also face a second set of
challenges involving which health plan, hospital, or
physician generalists and specialists to choose.
We focus here on choosing a health plan. There
are many types of health plans available in the
United States, including health maintenance organizations (HMOs), point-of-service plans (POSs),
preferred provider organizations (PPOs), traditional
or indemnity plans, and new-fangled “consumerdriven” health plans. Usually HMOs, POSs, and
sometimes PPOs are referred to as examples of
“managed care” while indemnity and consumerdriven plans are not. If consumers are going to
choose the plan type that is best for their own
preferences and circumstances, it behooves them
to understand managed care—not just general
issues but very particular ones, such as whether
they can seek care directly from specialists and
even what financial incentives their doctors and
hospital face.
When surveyed, however, most consumers do not
understand even rudimentary issues, such as the difference between fee-for-service medicine and managed care plans.9 Consumers are particularly bad at
understanding certain key features of their own
health plans. One US survey, for example, found that
whereas 62% of plan members believed that plans
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had to approve specialty referrals, in reality approval
was needed just 28% of the time.10
An area in which consumers need to be particularly skilled at using information is “report cards”
on their health plans. People often obtain these report cards from their employer, and then are supposed to choose a health plan by weighing such
factors as quality, convenience, flexibility, and
costs. Currently, there is no one standard report
card format.
Good report cards should be easy to understand.
Some items, such as satisfaction ratings, are comprehensible to most people, but other elements are
more problematic. It is not clear, for example, that
consumers know how to make effective use of information on utilization rates for alternative services, or
that they understand the relative importance of survival rates from high-incidence (i.e., heart disease)
versus low-incidence (i.e., kidney failure) diseases.
As a result, more recent iterations of report cards
tend to be somewhat simpler than previous versions, presenting a limited number of items and often rating health plans by showing, say, between one
and five stars for each measure of quality. Even then,
consumers often do not know how to interpret the
information being presented.11
Some of the early work on consumer response to
health plan report cards was discouraging: not only
did people not understand the report cards, but
their availability did not seem to draw people to
better-rated health plans.12 There is some evidence
that things may be beginning to change, however.
One recent study that examined employees of General Motors found that although there is no evidence that people gravitated to health plans that
receive high report card scores, there is evidence
that they avoid plans with low scores. One limitation with the study, however, is the difficulty of determining whether the report cards themselves, or
alternatively, other attributes of the health plans
that receive low scores, cause people to move away
from such plans.13
Challenges remain if we are to rely on the market to develop and disseminate report cards.
Marc Rodwin notes a number of problems with the
9781133819202, Health Politics and Policy, Fourth Edition, Morone/Litman/Robins – © Cengage Learning. All rights reserved. No distribution allowed without express authorization.
CHAPTER 2 Markets and Politics
report cards in use today. One problem is that they
ignore key aspects concerning how health plans operate such as the stringency of utilization review
and the financial incentives that providers face. Another is that many of the tasks previously performed
by health plans have now devolved to capitated
physician groups, whose performance is onlyHoccasionally available from report cards. A third Iis that
report cards—in order to simplify—tend to be agG pargregated and not focused on performance for
ticular medical conditions. It is the management
G of
chronic conditions, however, that are perhaps the
S
most important barometer of the success of a health
plan since most serious illnesses are chronic
, ones
and because they are responsible for the large
majority of health care costs.14
S
Assumption No. 2: Individuals’ tastes
H for
goods and services are predetermined and cannot be unduly influenced by physicians orAother
providers.
N
I genEconomists often have a peculiar view of the
esis of human preferences or tastes. They are
C believed to be endemic to the individual—that is,
Q
something that is not influenced by the environment
in which a person exists. (This may seem U
odd in
light of the way in which advertising tends to work.)
A inIn economic theory, according to Lester Thurow,
■
dividual tastes and preferences “simply exist—fully
developed and immutable.”15 This is what Kenneth
1
Boulding has referred to as the “Immaculate Conception of the Indifference Curve,” because 1
“tastes
are simply given, and . . . we cannot inquire into the
0
process by which they are formed.”16
5
How else could one account for the following
statement by Nobel Prize winners George T
Stigler
and Gary Becker, who write that, “[T]astes neither
S
change capriciously nor differ importantly between
people. . . . [O]ne does not argue over tastes for the
same reason that one does not argue over the Rocky
Mountains—both are there, will be there next year,
too, and are the same for all men.”17 (Becker has
also written that, “preferences are assumed not to
change substantially over time, nor to be very different
41
between wealthy and poor persons, or even between
persons in different societies and cultures.”18)
One natural application of this theory of the sovereignty of consumer preferences is the firm belief
that physicians cannot “induce” demand among
their patients, convincing them to receive services
they would not want had they the same medical expertise as the physician. Perhaps no topic in health
policy has generated more disagreements among
economists, as well as between economists and
other disciplines.
The existence of physician-induced demand would
be at odds with a health care marketplace that is operating competitively. Two examples will help clarify
why this is the case. Economists would normally expect that an increase in physician supply would lower
prices, but that is not necessarily the case if physicians
induce demand. Furthermore, we would also expect
physicians to supply fewer services if they are paid
less per service, but again, this would not necessarily
be true if demand inducement were present.
Unfortunately, whether demand inducement
exists and is an important element of the health care
marketplace is terribly difficult, if not impossible, to
demonstrate—there are many reasons for this,19
but the most important is simple: to know for certain if physicians are inducing demand, we would
have to know what patients would demand if they
knew as much about medicine as the physician—
but testing that appears to be nearly impossible.20
The types of policies a society might develop
regarding physician supply and payment depend
crucially on beliefs about the importance of demand inducement. If the amount of patient demand
induced by physicians is negligible, then policy
makers may wish to encourage the training of more
physicians and payment on a fee-for-service basis.
In contrast, if demand inducement is commonplace, then physician supply should perhaps be
controlled, and physicians paid in a way whereby
they do not have an incentive to provide more services (e.g., salary or capitation). A similar argument
can be made about the appropriateness of public
policies aimed at regulating the diffusion of medical
technologies.
9781133819202, Health Politics and Policy, Fourth Edition, Morone/Litman/Robins – © Cengage Learning. All rights reserved. No distribution allowed without express authorization.
42
■
PART ONE Ideas and Concepts
Assumption No. 3: The distribution of wealth
is approved of by society, and furthermore, individuals care only about their own resources
and not those of others.
Markets are not designed to solve problems of
income distribution. Rather, the outcome of the
competitive process will be a distribution of income that is highly correlated with how many resources an individual brought into the process in
the first place. Clearly then, if there is dissatisfaction with income distribution, government needs
to intervene.
Where disagreements arise is how to intervene. If
one believes Assumption No. 1 (“Individuals know
their own interests”), then cash subsidies are the
best method because individuals would know the
best use of additional monies. If there is some doubt
about the assumption, then it might make more
sense to provide poorer people with additional
wealth through services—e.g., health care, housing—than cash. An equally important reason to provide services is that wealthier people are much more
likely to willingly pay taxes or voluntarily contribute to charities if they know that their contributions will be used in the way they intend. As David
Collard notes, “any reader who believes himself to
be entirely non-paternalistic in his concern is asked
to perform the following mental experiment. I notice that my neighbour is badly fed and badly
clothed so I give him some money which he then
spends on beer and tobacco. Do I feel entirely
happy about this or do I somehow feel that my
intentions have been thwarted?”21
A final assumption is somewhat more abstract,
but gets at some of the key differences between markets and regulations. It is the assumption that individuals care only about their absolute wealth rather
than how it compares to others. This goes by the
technical economic term of “externalities of consumption.” If there are positive externalities of consumption, then person B is happier if person A has
more wealth. If there are negative externalities,
person B would be less happy, probably due to
envy. A casual observation of human nature is that
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people often exhibit positive externalities toward
those who have little, and negative externalities toward those with more than them—consistent with
the quotation by H.L. Mencken, who reputedly defined “wealth” as “any income that is at least one
hundred dollars more a year than the income of
one’s wife’s sister’s husband.”22
This seemingly abstract issue becomes real when
one considers a new scarce medical technology that
is only available to the very rich. Is society made
better off by allowing them to purchase it? The concept of Pareto optimality would give an unambiguous “yes”—allow someone to be made better off so
long as no one is made worse off? But if people care
about how they compare to others, then providing
something to a wealthy person that a poor person
cannot afford could indeed make the latter psychologically worse off. Thus, allowing the former to
purchase it has ambiguous implications for overall
social welfare.23
A similar and perhaps less abstract example of
a positive externality of consumption is altruism—
your consumption of a good, like medical care,
might not only you better off, but me better off as
well. Since markets underproduce positive externalities of consumption, one would expect that
external channels would be necessary to produce
the “right” amount. as discussed in the following
section.
REGULATION IN
HEALTH CARE
An alternative to allowing markets to operate unencumbered is to regulate them. There are various theories regarding the motivation for regulation. The
traditional viewpoint is sometimes called the “public interest” model, which hypothesizes that regulations are instituted to help the public. An opposite
viewpoint—sometimes called the “economic theory
of regulation” (and not terribly dissimilar to “public
9781133819202, Health Politics and Policy, Fourth Edition, Morone/Litman/Robins – © Cengage Learning. All rights reserved. No distribution allowed without express authorization.
CHAPTER 2 Markets and Politics
choice” theory in political science) is that regulations
are instituted to serve special interest groups.24 For
example, it has been claimed that the American
Medical Association and affiliated organizations
used their political power to keep HMOs out of the
medical marketplace during the middle of the 20th
H but
century—not as a way of preserving quality
rather to further increase physicians’ incomes.I25 Undoubtedly, there is an element of truth in both theoG the
ries of regulation: some do appear to serve
public interest and some don’t. And some classic
G political theories suggest a “life cycle” of regulatory
S
agencies—governments create regulatory agencies
with good public-interest intentions (often ,after a
tragedy or a crisis), but, over time, the regulators
slowly fall under the political influence of the most
interested groups or parties (who continue toSlobby
the agency long after the general public has stopped
H
paying attention).26
A en“Regulation” is a rather vague term, however,
compassing many different strategies, some
N of
which intervene in market activity far more than
I the
others. Stepping back for a moment, consider
various ways that government can intervene
C in a
market. One can come up with any number of continuums of government involvement. One Q
useful
set, developed by Philip Musgrove, lists fiveU
types,
ordered from the least to most intrusive: (1) provide
information; (2) regulate, e.g., set rules for A
private
providers; (3) mandate, e.g., stipulate that private
entities act in a certain manner, such as requiring
1
employers to provide health insurance coverage;
1 gov(4) finance with public monies; and (5) have
ernment provide services directly.27
0
It is perhaps noteworthy that “regulation” ap5 see
pears on this list as the second-least intrusive.To
why this is the case, consider the case of health
T insurance. Private markets can indeed provide coverage, but they are imperfect because they willSstrive
to avoid the most costly individuals who, if they had
to pay their expected costs (plus a “loading fee”),
would not be able to afford coverage. If, as is the
case in most countries, policy makers find this unacceptable, there is a continuum of approaches.
One would be to regulate the market—for example,
43
require that insurance be “community rated” so that
everyone is charged the same premium, and that
there be “open enrollment” so people are not excluded from coverage because of their health status.
This essentially permits a hidden network of cross
subsidies to develop—when everyone pays the
same price the good risks (healthy, young, and affluent) subsidize the poor risks (ill, old, and poor).
This is what Deborah Stone called the solidarity
culture in Chapter 1. A more intensive way for government to become involved would be to directly finance the insurance, because in doing so, it will
undoubtedly set very stringent rules (e.g., coverage
requirements, fee controls, or global budgets). The
most intrusive involvement, of course, would be to
replace the private insurance market with governmentprovided coverage.
Up till now the discussion has implied that regulation is solely carried out by government, but that
is not necessarily the case. To give just two of many
possible examples, health plans exercise regulation
when they require physicians to obtain permission
before hospitalizing a patient, or require a patient
to obtain a referral from a “gatekeeper” primary care
doctor before consulting a specialist.
There is an important distinction between “microregulation” and “macroregulation.”28 Microregulation implies direct observation and, potentially,
control over the organization and/or individuals
being regulated, whereas macroregulation is more
indirect: setting the ground rules and stepping back,
letting the organization and/or individuals choose
how to respond. Other developed countries rely on
macroregulation much more than the United States,
using such tools as regional global budgets, where
private entities (hospitals, nursing homes) must act
under strict financial limits (say an annual budget)
but do not face much direct oversight. The United
States relies much more on microregulation that is
carried out privately. Examples include utilization
management techniques such as pre-certification
requirements for hospital stays, monitoring physicians’ utilization patterns, and the like. Many Americans are surprised to learn that while foreign
physicians face more stringent fiscal constraints
9781133819202, Health Politics and Policy, Fourth Edition, Morone/Litman/Robins – © Cengage Learning. All rights reserved. No distribution allowed without express authorization.
44
PART ONE Ideas and Concepts
(from macroregulations), they enjoy considerably
more professional autonomy over medicine itself
than their American counterparts (who face a wide
array of intrusive microregulations).
POLICY CHOICES
Economists often distinguish between two broad
sets of policy levels: those aimed at the demand side
of the market, and those targeting the supply side.29
In general, those espousing market solutions tend
to favor demand-side policies, while those who believe in greater government regulatory action tend
to favor the side.
Demand-side policies seek to improve the workings of the price mechanism. To illustrate, economists often cite inefficiencies in the health care
system due to overinsurance, which, it is claimed,
cause people to consume services that they don’t
value very much. This theory, originally applied to
health care markets by Mark Pauly, postulates that
society incurs a “welfare loss,” estimated by some to
be on the order of 10% to 30% of total health care
costs in the United States.30
The idea behind welfare loss is as follows. Economic theory postulates that people will purchase
goods so long as the utility they confer to a person
exceeds the price. Insurance brings down the price
of services—sometimes to zero—meaning that people will find it advantageous to use services even if
they convey very little utility. In such instances, the
social costs of producing the services may far exceed the utility a person derives from its consumption.31 If one compares the costs and benefits, it is
argued that the former exceeds the latter, leading to
a welfare loss on part of society.
Patient cost-sharing is one way to reduce the welfare loss of overinsurance. If people have to pay
more for services, then they will, it is theorized, demand only those services that convey higher utility.
Indeed, cost-sharing requirements are rising rapidly
in the United States as a way of trying to quell the
increased demand for services—although this is
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also a simple way to shift costs from larger payers
(employers, governments) to the consumers themselves. For example, in the two-year period between
2001 and 2003, average annual deductibles for innetwork services in PPOs rose by 60%.32
A related strategy called “consumer-driven health
care is spreading rapidly.”33 The basic idea is to have
the consumer bear the economic consequences of
the insurance and utilization choices they make.
Consumer-driven health plans often provide a
choice of coverage and relatively large deductibles.
They are often touted as an alternative to managed
care because, rather than having an HMO say “no”
to patients, these plans provide financial incentives
for people to say “no” to themselves. Their success
will depend on many factors. Most crucial are challenging issues surrounding favorable selection (i.e.,
healthier people joining them, leaving sicker individuals in the risk pools of other plans, which could potentially cause their premiums to spin out of control)
and consumers’ ability to make informed choices
about whether to seek services in the face of large deductibles.
A final issue about demand-side strategies
concerns equity. Robert Evans and colleagues eloquently state the issue:
[P]eople pay taxes in rough proportion to
their incomes, and use health care in rough
proportion to their health status or need for
care. The relationships are not exact, but in
general sicker people use more health care,
and richer people pay more taxes. It follows
that when health care is paid for from taxes,
people with higher incomes pay a larger
share of the total cost; when it is paid for by
the users, sick people pay a larger share . . .
Whether one is a gainer or loser, then, depends upon where one is located in the distribution of both income . . . and health . . .
In general, a shift to more user fee financing
redistributes net income . . . from lower to
higher income people, and from sicker to
healthier people. The wealthy and healthy
gain, the poor and sick lose.34
9781133819202, Health Politics and Policy, Fourth Edition, Morone/Litman/Robins – © Cengage Learning. All rights reserved. No distribution allowed without express authorization.
CHAPTER 2 Markets and Politics
The alternative to demand-side policies are those
focused on the supply side. As Joseph White explains in Chapter 19, most developed countries rely
far more on supply-side policies. These include
global budgets, control of the diffusion of medical
technologies, limits on the number of hospital beds
H inand physicians, hospital and physician payment
centives, practice guidelines, and utilization review.
I
Supply-side methods have two main advantages
G reover those aimed at the demand side. First, with
spect to efficiency, informational problemsGoften
make demand-side policies less effective. As noted
S
above, consumers often do not respond to information about health plan quality by choosing, more
cost-effective plans. Second, unlike demand-side
policies such as increased patient cost-sharing, those
S In
aimed at suppliers are not, by nature, regressive.
short, proponents of these policies claim that
H they
are more effective at controlling costs and more eqA
uitable across the population.
Supply-side approaches do have their problems,
N
however. Several of the methods just noted, especially
I
limits on technologies and hospital beds and funding,
may result in long waits for services. Conversely,
C reliance on price—the key market mechanism—tends
Q
to result in shorter waits because services are rationed
on ability to pay. It is difficult to generalizeUmuch
more than this, however, because waiting times vary
A own
a great deal between countries, and each has its
way of grappling with the problem.
1
1
0
MARKETS AND REGULATION
5
IN HEALTH CARE SYSTEMS
T
Beyond the broad statement that the United States
S and
tends to rely more on markets in health care
other countries, more on regulation, few generalizations are possible.This isn’t surprising. Every nation mixes markets and regulation. As James
Morone describes in the Introduction, more than
half of all health care spending in the United States
is by government; and private providers (if not private
45
financing) play a dominant role in most developed
countries.
It should be apparent by now that markets and
governments are not all-or-nothing propositions.
Rather, they need to be used in conjunction with
each other. Private markets help assure that government is not too inefficient or too beholden to special interest groups; government helps ensure that
insurers do not select only the healthiest people,
that providers are available to the general public,
and that people can afford access to care (to name
just a few things). The real issue is the balance between the two.
Can we say unambiguously what this balance
should be? Unfortunately, the answer is no. There
are at least four reasons why countries may want to
approach these issues differently:
■
■
■
Different countries want different things from
their health systems. Some may want to emphasize access, others cost control; some opt for efficiency over equity, and others the opposite.
Moreover, historical and cultural factors are
critical determinants of how different countries
health services systems have developed, making
it risky to suggest that any one country’s system
be replicated by others.
It is probably impossible to come up with an
agreed-upon set of weights among the different
outcomes. How does one weigh, for example,
the short waits (a characteristic of the marketbased US system) against the equity of health
system financing (a characteristic of the government-controlled British system)? Selecting between such clashing values is the heart and soul
of politics. When it comes to these basic tradeoffs, the often heard plea—“can’t we get beyond
politics?”—is a sure sign of political naïveté.
It is also hard to characterize the countries according to the reliance of each on markets versus regulation. Germany offers a good example. Although
there is little explicit government involvement in
health care financing (which is largely left up to
the insurers, which are called “sickness funds”),
there is a great deal of government oversight and
9781133819202, Health Politics and Policy, Fourth Edition, Morone/Litman/Robins – © Cengage Learning. All rights reserved. No distribution allowed without express authorization.
46
PART ONE Ideas and Concepts
direction, particularly on the supply side. Further
complicating matters is that health systems
change, sometimes fairly rapidly. Both Great
Britain and the Netherlands, for example, went
from fairly non-market-like systems to ones relying
much more on competition; then both nations
stepped back from the market somewhat.
■
Although cross-national measures of access and
costs are reasonably good, little is known about
the quality of care provided in different countries.
Ultimately, we should see markets and regulation
as tools that can be combined in very different
ways. Each choice involves complicated trade offs
between different values such as equality, efficiency,
freedom, solidarity, fairness, and the acquisition of
wealth. Economists perform a vital function by developing empirical comparisons of the performance
of countries that rely on alternative mixes of markets and regulation. But, in the end, basic health
system choices involve more than evidence and
computation. They require nations to make judgments about their own ideals.
STUDY QUESTIONS
1. What is Pareto optimality? How can the
concept be applied to health care?
2. What are the three key assumptions underlying markets, according to Rice? Where does
the health care ‘market’ fail to meet these
criteria?
3. What are some ways government (and other
actors) can affect the demand side in health
care? How can it impact, or regulate, the
supply side?
4. Can health plan report cards be improved,
to allow for a more informed health care
‘consumer’?
5. What ways can the U.S. be seen to microregulate health care? What are some alternatives to microregulation?
6. What is the theory behind consumer-driven
health plans? How can they keep health
care costs down?
7. At the very end of the article, the author
mentions six values that a health care system
can chose to emphasize. What are they?
8. Develop your own view: Which values in
the preceding answer do you think are most
important?
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S NOTES
, 1. Sen, A.K. 1970. Collective
S
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Q
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2.
3.
4.
5.
6.
7.
8.
Choice and Social
Welfare. San Francisco: Holden-Day, p 22.
For a fuller discussion—including fifteen
assumptions—see T. Rice, 2003. The Economics of Health Reconsidered. Chicago: Health
Administration Press, p 6.
For further discussion of “government failure,”
see: Wolf, C., Jr. 1979. “A Theory of Nonmarket
Failure: Framework for Implementation Analysis.” Journal of Law and Economics 22 (1):
107–39; and Wolf, C., Jr. 1993. Markets or
Governments: Choosing Between Imperfect Alternatives. Cambridge, MA: MIT Press.
Sidgwick, H. 1887. Principles of Political Economy. London: MacMillan, p 414.
Pauly, M.V. 1997. “Who Was That Straw Man
Anyway? A Comment on Evans and Rice.”
Journal of Health Politics, Policy and Law
22 (2): 467–73 (quotation on p 470).
Wolfe, 1993 (endnote 3), p 7.
Goyal, M., R.L. Mehta, L.J. Schneiderman, and
A.R. Sehgal. 2002. “Economics and Health
Consequences of Selling a Kidney in India.”
Journal of the American Medical Association
288 (13): 1589–93.
Weisbrod, B.A. 1978. “Comment on Paper by
Mark Pauly.” In: Competition in the Health Care
Sector: Past, Present, and Future, edited by
W. Greenberg, pp 49–56.Washington DC: Bureau of Economics, Federal Trade Commission,
p 52.
9781133819202, Health Politics and Policy, Fourth Edition, Morone/Litman/Robins – © Cengage Learning. All rights reserved. No distribution allowed without express authorization.
CHAPTER 2 Markets and Politics
9. Isaacs, S.L. 1996. “Consumers’ Information
Needs: Results of a National Survey.” Health
Affairs 15 (4): 31–41.
10. Cunningham, P.J., C. Denk, and M. Sinclair.
2001. “Do Consumers Know How Their Health
Plan Works?” Health Affairs 20 (2): 159–66.
11. Hibbard, J.H., and J.J. Jewett. 1997. “WillHQuality Report Cards Help Consumers?” IHealth
Affairs 16 (3): 218–28.
12. Hibbard, J.H., and J.J. Jewett. 1996. G
“What
Type of Quality Information Do Consumers
G
Want in a Health Care Report Card?” Medical
S
Care Research and Review 53 (1): 28–47; and
Chernew, M., and D.P. Scanlon. 1998. “Health
,
Plan Report Cards and Insurance Choice.”
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13. Scanlon, D.P., M. Chernew, C. McLaughlin,
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15. Thurow, L.C. 1983. Dangerous Currents: The
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16. Boulding, K.E. 1969. “Economics as a Moral
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17. Stigler, G.J., and G.S. Becker. 1977. “De
1
Gustibus Non Est Disputandum.” American Eco1
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18. Becker, G.S. 1979. “Economic Analysis and
0
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ed. by L. Levy-Garboua. Beverly Hills,
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19. For a more complete listing and discussion see
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Rice (2003), Chapter 3.
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21. Collard, D. 1978. Altruism and Economy: A
Study in Non-Selfish Economics. Oxford: Martin
Robertson & Co., p 122.
47
22. This quotation was obtained from: Frank,
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Oxford University Press, p 5.
23. For further discussion of this and other examples, see: Reinhardt, U.E. 1992. “Reflections
on the Meaning of Efficiency: Can Efficiency Be
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24. For one of the earliest and most readable essays on the economic theory of regulation, see:
Stigler, G.J. 1971. “The Theory of Economic
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Management Science 2: 3–21.
25. Kessel, R.A. 1958. Price Discrimination in
Medicine. Journal of Law and Economics 1(1):
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26. Downs, A. 1993. Inside Bureaucracy. Long
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World Bank.
28. For a discussion of this distinction, see Rice, T.,
“Macro Versus Micro Regulation,” in Regulating
Managed Care: Theory, Practice, and Future Options, ed. S.H. Altman, U.E. Reinhardt, and
D Shactman (San Francisco: Jossey Bass, 1999).
29. A good discussion of one aspect of supply vs.
demand-side policies, involving cost-sharing, is
in: Ellis, R.P., and T.G. McGuire. 1993.
“Supply-Side and Demand-Side Cost Sharing
in Health Care.” Journal of Economic Perspectives 7 (4): 135–51.
30. Pauly, M.V. 1968. “The Economics of Moral
Hazard: Comment.” American Economic Review 58 (4): 531–7.
31. Feldman, R., and B. Dowd. 1991. “A New Estim…

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