Consensus on Health
by John Goodman
Issue 123 - January 7, 2009
Big business has a plan. The health insurance companies have a plan. Tom Daschle has a plan. Max Baucus has a plan. Teddy Kennedy is about to have a plan. And the chattering class is exuberant over the idea that a consensus is emerging on health reform. With respect to the twin problems of cost and quality, just about everyone seems to hold these positions:
Consensus Point No. 1: |
I AM NOT AT FAULT. |
Consensus Point No. 2: |
Somebody else is at fault; and, not to put too hard an edge on it and you may have to read between the lines to see this, but a reasonable inference is that DOCTORS ARE AT FAULT. |
Consensus Point No. 3: |
Again, not to put too hard an edge on it and you may have to read between the lines even more diligently, but once you do you will surely conclude that we must FORCE DOCTORS TO CHANGE THE WAY THEY PRACTICE MEDICINE. |
 Seeing all this agreement makes me so giddy I want to immediately go rewatch "Twelve Angry Men" for the umpteenth time.
Consider by way of analogy my treating the NCPA employees to Caesar salad for lunch. Why Caesar salad? Because I find that people can think more clearly about salad than they can about health care.
Now because the salad is free to the employees, I can't let them order whatever they feel like ordering. The moral hazard problem would be too great. And because of the problem of bilateral bargaining with asymmetric information, I can't let prices be agreed to willy nilly. So I make a list for the chef of ingredients and prices I'm willing to pay. For example, so many sprigs of Romaine lettuce at x cents a pop, so many croutons at y cents, so many raw eggs at z cents. Then there's the task of stirring the dressing, the task of sprinkling the Parmigiano Reggiano cheese, the task of tossing, etc. - each with its own respective price.
Yet when we all sit down to eat, the salad is not very good. For one thing, the lettuce is wilted. (I forgot to specify nonwilted lettuce.) The croutons are stale. (I forgot to specify fresh ones.) The dressing isn't consistent. (I skimped on the fee for stirring.) There are no anchovies. (I left them off the list.) And the quality of the ingredients is inconsistent. (Every price I selected was, of course, the wrong price.)
Lessons From Our Lunch.
Question: What is dumber than asking a chef to prepare a salad by pre-determined, individually-priced tasks?
Answer: Holding conferences, giving speeches and writing papers deploring the fact that the chef's preparation was uncoordinated, not cost-effective, not of high quality and not adhering to best practices.
Question: Is there anything dumber than complaining about the chef?
Answer: Yes. Thinking we can make things better by improving on the list of tasks and the list of prices.
Question: Once we are in this silly predicament, is there a way out?
Answer: Yes.
(a) Liberate the chef. Let him propose ways of repricing and repackaging his services and accept every offer, consistent with higher quality and lower cost.
(b) Liberate the diners. Let them manage their individual shares of the cost and be free to enter into any contract they choose to negotiate with the chef.
With any luck, eventually we will get a real market.
John Goodman is president of the National Center for Policy Analysis
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