"Rationing" Is Not "Socialism" But Is Essential for Cost Control

I hope to provoke a good discussion on the health care debate by sharing a few thoughts. Rather than focusing on specific provisions that may be in the legislation (particularly because Congress itself hasn't figured them out yet), I want to explore some more fundamental questions. In what I hope will be merely the first installment on this topic, this entry argues that rationing is an essential mechanism for controlling the cost of health care. Without effective rationing, health care costs would likely be far higher than they are now and will almost certainly overwhelm us within a few decades.

Opponents of reform efforts have argued that President Obama "will ration your health care," as though rationing is part of the scary socialist nightmare that some see lurking around the corner. Much more recently, Republican Senator Chuck Grassley of Iowa (whom some consider to be critical to any bipartisan deal) stated in an interview with NPR that we need to slow down the process because "we want to make sure that seniors don't get health care rationed." That is classic fear-mongering. The undeniable fact is that we have always had rationing of health care--we should be asking how to implement it in a fair and cost-effective way.

Peter Singer, a bioethics professor, recently wrote that "[h]ealth care is a scarce resource, and all scarce resources are rationed in one way or another." Traditionally, medical care was performed on a "fee-for-service" basis, and providers were rewarded for extending every feasible treatment under the circumstances, with little regard to cost--so long as the patient could pay. Even under a fee-for-service model, medical services are rationed: You get the level of care that you can afford. As Economics Professor Uwe Reinhard noted, "free markets are not an alternative to rationing. They are just one particular form of rationing." (In this article, John Butler discusses other forms of rationing besides price, including rationing by denial, rationing by delay, and rationing by dilution.)

Beginning in the late 1960s, the "managed-care revolution" injected a gatekeeper in between the doctor and the patient with the aim of keeping costs in check. All managed-care plans ration health care services through one mechanism or another. For example, many HMOs generally rely on "utilization management" (or "utilization review") to determine what treatments or services are covered under a patient's plan, using "medical necessity" as the touchstone. Whatever the method, managed-care organizations have to come up with some way to restrict health care services in order to bring down costs--otherwise, they are not "managing care" at all. As Justice Souter observed in Pegram v. Herdrich (a 2000 Supreme Court decision addressing the ability of a patient to sue her insurance company for allegedly breaching its fiduciary duty), "no HMO organization could survive without some incentive connecting physician reward with treatment rationing."

Even assuming that managed-care organizations have a beneficial role to play, it is obvious that they have not done enough. Health care spending in America is out of control. In a 2007 report, the Congressional Budge Office (CBO) found that per capita spending on health care has grown much faster than per capita GDP over the last four decades. In 1965, total health care spending was less than 6 percent of GDP. By 2007, it rose to 16 percent. Peter Orszag, the Director of the Office of Management and Budget (and formerly the Director of the CBO) testified that we spend nearly twice the amount spent per capita than France, Canada, and Germany--and nearly two-and-a-half times the amount spent in the U.K., Italy, and Japan.

And it is only going to get worse (and fast), unless we make some serious changes. The CBO projects that, absent dramatic legal reforms, we will spend 25 percent of GDP on health care costs by 2025 and 49 percent of GDP by 2082. For the visual learners among us, here is a graph reflecting the projecting spending on health care as a percentage of GDP:








In a 2008 report, the CBO found (and most analysts agree) that "the bulk of the long-term rise resulted from the health care system’s use of new medical services that were made possible by technological advances, or what some analysts term the 'increased capabilities of medicine.'" Other factors (such as aging of the population, the rising prevalence of obesity, administrative costs, and the practice of "defensive medicine") taken together "appear to explain less than half of long-term spending growth."

David Brown of the Washington Post recently wrote an article examining the changes in treatment for coronary heart disease. He observed that the chance of dying from a heart attack has dropped from 30-40 percent in the 1960s to about 6 percent today. But the price for that improvement has been hefty. Over that same period, "the charges for treating a heart attack marched steadily upward, from about $5,700 in 1977 to $54,400 in 2007 (without adjusting for inflation)." Furthermore, according to that article only about half of the improvements in outcome can be attributed to increased spending on medical care; the other half "is the result of a more favorable 'risk profile' for Americans--less smoking, lower cholesterol, better blood pressure."

Rationing care (on some other basis besides price) is the only feasible way to control costs. It is also necessary in order for President Obama to accomplish his other stated objectives for health care reform--including "assuring affordable, quality health coverage for all Americans." As Dr. Arthur Kellermann observed in a recent interview with NPR, "in contrast to other wealthy countries, we don't ration medical care on the basis of need or anticipated benefit. In this country, we mainly ration on the ability to pay. And that is especially evident when you examine the plight of the uninsured in the United States."

I wholeheartedly agree with Professor Singer that "[t]he debate over health care reform in the United States should start from the premise that some form of health care rationing is both inescapable and desirable. Then we can ask, What is the best way to do it?" There are no easy answers, but we will certainly never escape the crushing burden of health care costs unless we begin to discuss the tough questions, like:

(1) What is the minimal level of care to which all individuals should be entitled?
(2) Assuming that "medical necessity" is not an effective standard in containing health care costs, what standard should we use?
(3) Should we consider how much longer a patient is likely to live, even if the treatment is successful?
(4) Who should decide in particular circumstances whether a specific course of treatment should be allowed?

Hopefully we can have a great exchange of ideas on these and other questions here. I encourage everyone who reads this to participate, either by posting entries, making comments, or sending emails. Together, we can save the world before bedtime!