Different River

”You can never step in the same river twice.” –Heraclitus

February 3, 2006

Paul Krugman and VA Health Care

Filed under: — Different River @ 4:46 pm

Several blogging economists seem to have made a cottage industry debunking the New York Times columns of (formerly-respected?) economist Paul Krugman. Now, I guess it’s my turn. Krugman writes:

I know about a health care system that has been highly successful in containing costs, yet provides excellent care. And the story of this system’s success provides a helpful corrective to anti-government ideology. For the government doesn’t just pay the bills in this system — it runs the hospitals and clinics… our very own Veterans Health Administration, whose success story is one of the best-kept secrets in the American policy debate. … This high level of quality (which is also verified by objective measures of performance) was achieved without big budget increases. In fact, the veterans’ system has managed to avoid much of the huge cost surge that has plagued the rest of U.S. medicine.

The secret of its success is the fact that it’s a universal, integrated system.

Now the first paragraph has a grain of truth to it, but that last sentence is pure grandstanding. And what comes next is completely false:

Because it covers all veterans, the system doesn’t need to employ legions of administrative staff to check patients’ coverage and demand payment from their insurance companies.

This is completely false. It does not cover all veterans, and it does have “legions [pun intended?] of administrative staff to check patients’ coverage.” They have an entire web site devoted just to eligibility which states, in part “All Veterans are Potentially Eligible” (emphasis mine). There is an eight-level system of “priority” detailed here. It has categories like, “Veterans with service-connected disabilities rated 30% or 40% disabling” (priority 2) and “Veterans who agree to pay specified copay with income and/or net worth above VA Income Threshold and income below the Geographic Means Test Threshold” (priority 7 — which has FOUR “subpriorities,” only two of which are
currently in use).

Does Paul Krugman really believe they can determine eligibility under such complete rules with fewer administrative staff than it takes another health system just to look at someone’s ID card and take down their policy number?

In fact, the real “secret of its success” is the fact that, unlike other government health care systems, they get to pick their patients, and can limit the number of patients based on their budget. Contrary to popular belief — and Krugman’s statment — not every military veteran is in the VA system — the VA sets those eligibility requirements in order to make sure that the number of patients they have is limited to what thay can fit within their budget. In fact, only a minority of former military personnel are in the VA system.

Now, to be fair, Krugman does say one thing that is true and perhaps not so well-known:

Because it’s integrated, providing all forms of medical care, it has been able to take the lead in electronic record-keeping and other innovations that reduce costs, ensure effective treatment and help prevent medical errors.

They really do have a truly state-of-the art record-keeping system, and they actually do use it to save money. For example, if they get a deal on some drug (say, Nexium), they can switch nearly everyone on therapeutic equivalents (say, Protonix) within 90 days. All they do is send a message to every doctor who prescribed Protonix, given them a list of patients to whom they’ve prescribed it, and ask for approval to switch them to Nexium. It’s not mandatory, since everyone knows that two “therapeutic equivalents” are not really equivalent for ALL patients — but they say that about 95% of the patients switch.

Krugman also quotes someone who knows something true:

Moreover, the V.H.A., as Phillip Longman put it in The Washington Monthly, “has nearly a lifetime relationship with its patients.” As a result, it “actually has an incentive to invest in prevention and more effective disease management. When it does so, it isn’t just saving money for somebody else. It’s maximizing its own resources. … In short, it can do what the rest of the health care sector can’t seem to, which is to pursue quality systematically without threatening its own financial viability.”

In the private sector, the “churn” of people in and out of health insurance companies
makes it so that if an insurance company spends on preventative care, by the time the patient is around long enough to avoid a disease as a result, they are quite likely to be insured with another company. So you have a muted version of the classic “tragedy of the
commons” — you pay for preventative care, and some other company benefits from lower costs.

Think about it: If it weren’t for the “churn,” health insurance companies wouldn’t just cover preventative care — they’d require it. And they’d probably even require (say) blood tests to make sure you’re taking your preventive drugs (like blood pressure medicine). (Assuming preventative care is actually cost-effective, of course.)

(Hat tip: Tyler Cowen and Brad DeLong and Arnold Kling.)

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