Smart vs. Dumb

by Reihan Salam

Remember that conversation we had a while back about why it’s better to praise kids for making an effort rather than for being smart? This occurred to me as Paul Krugman through around phrases like “smarter approach” and “dumbing down” in his latest column:

Limiting health costs, therefore, requires a smarter approach. We need to work harder on prevention, which can be much cheaper than a cure. We need to find innovative ways of managing health care. And, above all, we need to know what works and what doesn’t so that Medicare and Medicaid can say no to expensive procedures with little or no medical benefit. “So-called comparative effectiveness research” is central to any rational attempt to deal with America’s fiscal problems.

As Joshua Cohen, Peter Neumann, and Milton Weinstein observed in the New England Journal of Medicine in 2008, however, there’s a wrinkle:

Studies have concluded that preventing illness can in some cases save money but in other cases can add to health care costs. For example, screening costs will exceed the savings from avoided treatment in cases in which only a very small fraction of the population would have become ill in the absence of preventive measures. Preventive measures that do not save money may or may not represent cost-effective care (i.e., good value for the resources expended). Whether any preventive measure saves money or is a reasonable investment despite adding to costs depends entirely on the particular intervention and the specific population in question. For example, drugs used to treat high cholesterol yield much greater value for the money if the targeted population is at high risk for coronary heart disease, and the efficiency of cancer screening can depend heavily on both the frequency of the screening and the level of cancer risk in the screened population.

That is, it’s complicated. To say that “we need to work harder on prevention” isn’t smart. It’s a platitude. As Krugman took care to write, prevention can be cheaper than a cure. It can also be more expensive than a cure. And “working harder,” like good little bureaucratic Stakhanovites, isn’t always the best way to yield results. As for “what works and what doesn’t,” the answer is often that it depends. I strongly believe that comparative effectiveness research can be good and useful. As the politicization of NICE has demonstrated, however, it is far from a panacea. 

But finding “innovative ways of managing health care” is not a process that can be managed by fiat through a centralized authority. If a group of earnest, hard-working public sector workers took it upon themselves to work harder on creating innovative consumer goods with no hard budget constraints, do you think they’d ever do better than a diverse, ever-changing, highly decentralized array of competing profit-seeking firms when it comes to delivering high-quality, low-cost products? 

How do we find innovative ways of managing health care? We could facilitate business model innovation by creating a more open approach to the health safety net, in which we offer limited defined contributions towards the purchase of health insurance. This will provide strong incentives for beneficiaries to purchase the most cost-effective policies, and for providers to contain costs. This is the vision that James Capretta and Thomas Miller have been advancing, and it is based on the simple premise that it is better to rely on “searchers” rather than “planners.” 

Of course there is rationing in this approach! But the rationing happens explicitly and transparently, and not through a politicized process. Taxpayer can afford to offer this much towards the purchase of a decent package of medical benefits. You are then obligated to find the provider that works best for you. 

Some will say that politicized rationing is better, as it gives citizens voice rather just the option of exit. I’d suggest that voice works better in some domains than others, and that the voice exercised in this domain can’t be that of each individual citizen but rather that of professional guilds, the pharmaceutical industry, and other pressure groups. A diversity of private providers is more likely to combat institutional isomorphism, provided the regulatory burdens are light. Or so we hope and expect. We can’t know all of this a priori. But the idea that these are easy questions because some people are smart and others are dumb is, well, dumb. 

Paul Krugman spends part of his column making fun of Mike Huckabee, and with good reason. But I do wonder if Krugman is suffering from his failure to seriously engage with arguments and ideas he finds uncongenial.