We Told You So: Death Panels Edition

Howard Dean cautiously praises ObamaCare, while delivering a few damning blows against it.  After saying that it is a good thing to delay the employer mandate until 2015 (presumable, it’s not a bad idea, just one that takes more than four years to implement), he goes on to challenge the Independent Payment Advisory Board.

One major problem is the so-called Independent Payment Advisory Board. The IPAB is essentially a health-care rationing body. By setting doctor reimbursement rates for Medicare and determining which procedures and drugs will be covered and at what price, the IPAB will be able to stop certain treatments its members do not favor by simply setting rates to levels where no doctor or hospital will perform them.

There does have to be control of costs in our health-care system. However, rate setting—the essential mechanism of the IPAB—has a 40-year track record of failure. What ends up happening in these schemes (which many states including my home state of Vermont have implemented with virtually no long-term effect on costs) is that patients and physicians get aggravated because bureaucrats in either the private or public sector are making medical decisions without knowing the patients. Most important, once again, these kinds of schemes do not control costs. The medical system simply becomes more bureaucratic.

Welcome to the Tea Party, Gov. Dean.

My motto is “Everything I know about economics, I learned in engineering school”.  One of the things that engineering school taught me is that efficiency matters.  There is a maximum efficiency to something like the Carnot cycle, but you can always find more inefficient ways of doing things.  Good chemical engineers are able to reduce inefficiencies in their processes (e.g. by adding heat exchangers or re-designing reactors to result in a higher yield), and it will take less energy or starting material to make a final product.

The same ideas apply to health care economics.  When you add layers of bureaucracy, you increase the costs to get the same result.  You will always have some inefficiency, but adding unnecessary steps to the process only ensure that you’re going to get less product for the same input.  If only Howard Dean had joined in with Gov. Palin four years ago, we might not be saddled with the equivalent of a bill that mandates alchemy.

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Filed under Economics, ObamaCare

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