The Electric Commentary

Friday, June 17, 2005

Krugman and Kling

Charles is apparently on vacation.

It's a strange day today. First, Neal Stephenson pops up in the NYT, and then I almost completely agree with Paul Krugman. He writes on Ohio's coingate scandal, which I wrote about here. Pauly K makes the point that a united government is more likely to be scandal ridden as there is little opposition to impose oversight:

Now, politicians and businessmen are always in a position to do each other lucrative favors. Government is relatively clean when politicians are sufficiently afraid of scandal to resist temptation. But when a political machine controls all branches of government, and those officials charged with oversight are also reliably partisan, politicians feel safe from investigation. Their inhibitions dissolve, and they take full advantage of their position, until the scandals become too big to hide.

In other words, Ohio's state government today is a lot like Boss Tweed's New York. Unfortunately, a lot of other state governments look similar - and so does Washington.

Meanwhile, Arnold is arguing with both Krugman and with his own co-blogger Bryan Caplan about health care. In TCS he writes about the benefits of higher administrative costs:

The incentive to treat expensive or complex illness is similarly lacking under capitation. Thus, it is not surprising that capitation-based systems, such as HMO's, produce friction when patients have severe needs. Under capitation-based systems, as long as you are reasonably healthy, you can get the care that you need. However, once you develop an expensive illness, you run into conflicts with the budget constraints of the health care supplier. The recent Canadian Supreme Court decision giving Quebec citizens the right to obtain private health care shows what happens when the supply of health care is based on a fixed budget with rationing. The court found in favor of a plaintiff who had to wait a year for hip replacement surgery, saying that he should have had the right to seek care elsewhere.

The opposite problem exists in the United States, where effort is the primary basis for compensation. Under our system, a patient who requires a lot of procedures represents a cash cow, not a cash drain, to medical suppliers. We pay for procedures, and so we get lots of procedures. The question is whether the procedures that we get are necessary and cost-justified.

How can suppliers be incented to balance costs and benefits in choosing treatment plans? One solution is to study the results of different treatment approaches, in order to identify the best practices, based on criteria of costs and benefits. This information can be used to construct guidelines, and doctors can be compensated according to how well they adhere to guidelines. That is what I call process-based compensation.


  • Krugman shares a great view on health care and how the health care system is affecting individuals and there coverage.

    By Anonymous Blue Cross of California, at 8:47 PM  

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