John Goodman on Health Care Regulation
a well-gamed system
All government regulations face a persistent problem. By their very nature they are trying to keep people from acting in their own self-interest. Either they try to keep people from doing what they want to do, or force them to do something they don’t want to do.
Health care is very heavily regulated. The consequence is that a lot of resources are used to game the system. For example, think of doctors making sure that procedures are “coded” in a way that maximizes reimbursement.
But perverse incentives are everywhere, and everyone is involved in gaming the system.
Patients have an interest in over-consuming, since someone else is paying the bill. If doctors get paid fee-for-service, their interest is in overproviding – since the more they do, the more they get paid. If doctors are paid a fixed sum, they have an interest in providing less care. If insurance premiums are unrelated to expected medical care, insurers have an interest in underproviding to the sick and maybe even overproviding to the healthy.
Of course, these divergent interests are well known. That is why the system is so highly regulated. In fact, almost every health care regulation is designed to thwart these very types of self-interested behavior in one way or another. However, no one in the system, including the regulators themselves, has a self-interest in making sure the system works the way almost everyone thinks it should work. So, regulations often make things worse.
As I have often pointed out, the longer a system stays in place, the more it gets corrupted by gaming.
For regulation of an industry to have a reasonable hope of success, it must be constantly updated to maintain its social purpose in response to private sector actors who find ways to undermine it and circumvent it
And I say that when markets fail, use markets.
One reason we have deregulated so many industries (airlines, trucking, banking, oil and gas, etc.) is because even imperfect markets often achieve social goals better than trying to achieve them with imperfect regulation.
Another problem is that as people learn to game a system, they develop a stake in that system, which makes them resist reform. So even if we all agree that our health care system is wasteful and inefficient, in the end each of the major constituents will fight tooth and nail to keep it in place.
My own view, expressed in Crisis of Abundance, is that the main reason that our health care system wastes resources is that collectively we undergo many procedures that have high costs and low benefits. To change behavior, we would have to either put more financial responsibility directly on the individual choosing the procedure or else install a very cold-blooded system of government rationing of medical procedures. Neither approach would be politically popular, so here we are.
the game is optimized for unsustainable results (i.e. everyone gets everything, and no one pays anything)
substacks referenced above:
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"All government regulations face a persistent problem. By their very nature they are trying to keep people from acting in their own self-interest."
No. Some regulation is to avoid shared commons problems and externalities like pollution. Maybe these fit his description but in health care another reason is especially common. People want to improve their health but don't have sufficient knowledge to get there. Regulation helps identify drugs, treatments, facilities, and experts most likely to help and not harm. It is to avoid what happened to Steve Jobs when he got cancer. It is to avoid thalidomide.
Obviously, not all regulation is perfectly successful, some not at all, but much of our government regulation is NOT trying to do as John Goodman says.
Re "over-consumers" - my elderly parents are over-consumers - and my father a gleeful over-consumer - of medical services. I won't get into tedious details, but this over-consumption, at least in their naive hands, has definitely not always been in their self-interest.