Code Red: Two Economists Examine the U.S. Healthcare System

December 15, 2009

Alberta, Leonardo DiCaprio, and the KISS Principle

Filed under: Uncategorized — David Dranove and Craig Garthwaite (from Oct 11, 2013) @ 10:24 am

About two months ago, the University of Calgary and the Alberta Health Service (AHS) asked me to prepare a report on “procuring health services.” To put it simply, AHS was not pleased with its rules for paying for certain surgery services such as cataract surgery and joint replacements. They specifically asked me to propose new rules for paying for cataract surgery. I asked my colleagues Cory Capps and Leemore Dafny to work with me and we submitted our report at the end of November.

Last week, I travelled to Calgary where I presented the proposal to a conference of academics, regulators and stakeholders. It was frigid outside (below zero no matter how you measured it) and I expected an icy reception from the surgeons. But the meeting was cordial and productive.

The university also arranged for a press conference. I didn’t imagine that any reporters would actually come, but there were at least a half dozen and two camera crews. Issues like how to set payment rules for surgical procedures can make or break a healthcare system yet barely attract any media interest in the United States, where the press seems enthralled by the politics and personalities of the legislative process. But there I was, facing the Canadian media including one reporter who was a dead ringer for the Fantastic Four’s Ioan Gruffudd – also known as the Welsh Leonardo DiCaprio (I am not making this up), explaining the nuances of gatekeepers, second price auctions and quality warrantees. The next day newspapers across Alberta carried the story and included many of the economic details.

After spending two months delving into the minutiae of payment rules, I appreciate more than ever that we cannot predict the impact of any health reforms by reading the legislation. The legislation provides only the broad outline for health reform – the detailed rules that make or break the legislation are worked out behind the scenes. I wish this meant that we could count on some of my colleagues, like Joe Newhouse and Jon Gruber, to set the rules. But as Joe recently reminded me, every rule affects a constituency, and every constituency has a direct line to a Congressman, and every Congressman has leverage over the rule makers. More than anything else, this is why I fear sweeping legislative reform. Unlike in Alberta, where empirically-based analysis seems to carry more weight than interest group politics and the media are concerned about both, the American rule-making process, done behind closed doors and far from the scrutiny of a disinterested media, offers untold opportunities for abuse.

As we consider our options for expanding insurance coverage, we should follow the KISS principle: Keep it Simple Stupid. Insurance exchanges are not simple. Public options are even more complex. So is trying to operate Medicare side by side with a private market for under 65 year olds. Whatever the economic merits of these proposals (exchange – good/expanded Medicare – bad) implementation is likely to be treacherous. Pay or play is fairly simple. So are tax subsidies for low income Americans. We can do a lot of good with a few simple rules. And maybe that is as far as we should go without blowing up the whole thing.

1 Comment

  1. I stumbled into your blog through the Kellogg website. I am a Calgarian, and am refreshed to hear an outsider’s perspective on the strength of our government and media, both of which I (and I’m sure many other Albertans) take for granted.

    Thanks for your perspective!
    Stephanie.

    Comment by Stephanie Setiawan — December 30, 2009 @ 11:19 pm


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