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Medical Rationing and the Most Appropriate Health Care System

|Includes: AET, CI, HUM, UnitedHealth Group Inc. (UNH)

Health care as an economic good occurs in limited supply.  Providers contribute a finite number of units of service, and payers are supposed to determine what these units are worth.

Rationing as an issue is incontrovertible, argues the health economist Uwe Reinhardt. It would occur both in a single payer system and one that’s fully market-based.  The reform debate should, therefore, address the value of dollars spent.

"As I read it,” he notes, “the main thrust of the health care reforms espoused by President Obama and his allies in Congress is first of all to reduce rationing on the basis of price and ability to pay in our health system.  An important allied goal is to seek greater value for the dollar in health care, through comparative effectiveness analysis and payment reform."

Better value should lead to better outcomes.  

But which mechanism is best at determining that value?  A centralized, top-down system, or one that's bottom-up and consumer-driven? 

The current system is already highly centralized. Its private sector elements cannot compete under the same market rules as other industries.  Insurance laws, for example, prohibit interstate competition.  In 2008, economists from the University of Minnesota published a study indicating that allowing people to buy insurance across state lines would reduce the uninsured population by 12 million.

And consumers can only make value-based decisions on a limited basis, and without much consequence.  High-deductible health plans are an attempt at this. Market penetration, though, is low, and high-volume health care users, such as the elderly, utilize Medicare and other traditional forms of insurance.

So, if rationing occurs regardless of the system, then Prof. Reinhardt is correct: Rationing, by itself, is an irrational point of contention.  He's also correct in that the debate should instead address value. 

But insofar as the conversation is about the most appropriate system, aren't we already debating value?  Arguments about rationing stem from perceptions of what sort of value the system produces.

Whether that system is top down or bottom up, price will always factor into its decision-making process.  Rationing is a byproduct of price.

Wouldn't true reform be a concession that the centralized approach has failed?

Maybe the economics aren't quite bad enough that lawmakers would accept this. 

Or, maybe the debate hasn’t yet progressed to address how the competing systems would function in detail.  If that’s the case, we’re a long way from thinking of what value means.