‘Rationing’ Health Care: What Does It Mean?

Today's Economist

Uwe E. Reinhardt is an economics professor at Princeton.

As the dreaded R-word — rationing — once again worms its way into our debate on health care reform, it may be helpful to relearn what is taught about rationing in freshman economics.

In their well-known textbook Microeconomics, the Harvard professor Michael L. Katz and the Princeton professor Harvey S. Rosen, for example, put it thusly:

Prices ration scarce resources. If bread were free, a huge quantity of it would be demanded. Because the resources used to produce bread are scarce, the actual amount of bread has to be rationed among its potential users. Not everyone can have all the bread that they could possibly want. The bread must be rationed somehow; the price system accomplishes this in the following way: Everyone who is willing to pay the equilibrium price gets the good, and everyone who does not, does not. [Italics added.]

In short, free markets are not an alternative to rationing. They are just one particular form of rationing. Ever since the Fall from Grace, human beings have had to ration everything not available in unlimited quantities, and market forces do most of the rationing.

Many critics of the current health reform efforts would have us believe that only governments ration things.

When a government insurance program refuses to pay for procedures that the managers of those insurance pools do not consider worth the taxpayer’s money, these critics immediately trot out the R-word. It is the core of their argument against cost-effectiveness analysis and a public health plan for the nonelderly.

On the other hand, these same people believe that when, for similar reasons, a private health insurer refuses to pay for a particular procedure or has a price-tiered formulary for drugs – e.g., asking the insured to pay a 35 percent coinsurance rate on highly expensive biologic specialty drugs that effectively put that drug out of the patient’s reach — the insurer is not rationing health care. Instead, the insurer is merely allowing “consumers” (formerly “patients”) to use their discretion on how to use their own money. The insurers are said to be managing prudently and efficiently, forcing patients to trade off the benefits of health care against their other budget priorities.

These thoughts popped into my head as I sat as a guest in the White House East Room during last week’s ABC News town hall meeting. There a neurologist suggested in his question that the president and his policy-making team seek to impose rationing of health care so that more lower-income Americans can receive it, all the while refusing to countenance that rationing for their own families.

One must wonder where people worried about “rationing” health care have been in the last 20 years. Could they possibly be unaware that the United States health system has rationed health care in spades for many years, on the economist’s definition of rationing, and that President Obama and Congress are now desperately seeking to reduce or eliminate that form of rationing?

Let me remind rationing-phobes what they would find in the huge body of research literature and media reports on our health system, should they ever trouble themselves to read it:

  • Many Americans without health insurance or very high deductibles routinely forgo prescribed medicine or follow-up visits with a doctor because they cannot afford it, risking more serious illness later on.
  • A 2008 peer-reviewed study by researchers at the Urban Institute found that health spending for uninsured nonelderly Americans is only about 43 percent of health spending for similar, privately insured Americans. Unless one argues that the extra 57 percent received by insured Americans is all waste, these data imply rationing by price and ability to pay.
  • A few years ago, The Wall Street Journal featured a series of articles reporting how often uninsured middle-class Americans are charged the highest prices at pharmacies and in hospitals, and how sometimes they are hounded over medical bills to the point of being jailed for failed court appearances.
  • Studies have shown that solid middle-class American families — even ostensibly insured families — can lose all of their savings and sometimes their homes over mounting medical bills in the case of severe illness.
  • In its report Hidden Cost, Value Lost: The Uninsured in America, the prestigious Institute of Medicine a few years ago estimated that some 18,000 Americans yearly die prematurely for want of the timely health care that health insurance makes possible and that can prevent catastrophic illness.
  • A recent study by an M.I.T. professor found that uninsured victims of severe traffic accidents receive 20 percent less health care than equivalent, insured victims and are 37 percent more likely to die from their injuries.

Need I go on?

As I read it, 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. As I reported in an earlier post on this blog, even the Business Roundtable, once a staunch defender of the American health system, now laments that relative to citizens in other developed countries, Americans receive an estimated 23 percent less value than they should, given our high health care spending.

To suggest that the main goal of the health reform efforts is to cram rationing down the throat of hapless, nonelite Americans reflects either woeful ignorance or of utter cynicism. Take your pick.

Comments are no longer being accepted.

Rationing must be discussed openly in the health care reform debate.
However, it is the third rail of health care politics.

the proposed fee schedule for 2010 for radiologists and cardiologists is 21% less than this year! Instead of being reimbursed 36.00 per RVU, CMS proposes to reimburse at 28.00 per RVU. These reductions are the first signs of removing economic incentives for medical practice.

Please give us your thoughts about capping the number of work units and how this will put RATIONING on steroids?

there will be few radiologists and cardiologists working after they hit the magical cap number.

lbeville radiologist

“Rationing” = “let them eat cake” for people who like the status quo and are happy with the system for whatever reason, like that neurologist in the Town Hall meeting, the AMA, the insurance companies and the other “have mores”.

Baffled Observer July 3, 2009 · 8:59 am

I have an elderly conservative friend who will, in one breath, lament that his veteran’s benefits and Medicare don’t cover more of his medical expenses–and in the next, will denounce “socialized medicine” as proposed by President Obama. He has socialized medicine, and would like to have more. What he opposes is the extension of those benefits to others.

As a physician, every day I see the consequences of rationing based on inability to pay. Especially with the financial crisis, my patients are losing their jobs and insurance benefits, they can’t afford the copays for medications, tests, and procedures, and they end up putting off care.

The worst type of rationing is rationing based on ability to pay instead of based on need. In medicine, we “triage” care to give the closest attention to those who need it most not those who have the most generous insurance package.

I’ve shared some anecdotes about my patients here:

//www.socialmedicine.org/2009/06/20/community-health/why-the-fear-health-care-rationing-is-already-here/

It’s so refreshing to read rational analysis. Thanks for helping to expose the cynicism and selfishness of those opposing health care reform.

Utter cynicism, absolutely. I’ve been saying for years, not as eloquently as Uwe E. Reinhardt, that the insurance companies are making many health care decisions. When I see these new ads on television or hear my “moderate” Republican congressman say that health care should be between a doctor and a patient, I have to shake my head.

This year I changed as many of my prescriptions as I could to generics because we’re on a fixed income and can’t afford the co-pay on third tier meds. My doctor was not in favor of this and indulged me against her better judgment. The generic cholesterol medication is not doing the job so far and we are tinkering. I give this example to show that the insurance companies are indeed rationing in spite of their protestations. If they spent less money on television advertising opposing health care for all, perhaps medications wouldn’t be so expensive.

william golden md July 3, 2009 · 9:12 am

Yes – Dr. Reinhardt is correct

My blood pressure goes up when I hear about “market solutions” to health costs — ie indirect rationing for the vast majority of the population — but little political heat for the politicians when most still have rudimentary health insurance (espensive health events hit only small numbers at any one time)
But the other side of the rationing coin is the artifical price controls on physician time — primary care is dying because the price is not set to attract professionals to do the work … it is not worth the stress, risk and energy to produce the product.

Michael Gonzales July 3, 2009 · 9:18 am

I wish logic and evidence and the fundamental principles of economics were enough to sway people who oppose health care reform. As the old saying goes, “It’s impossible to get a person to understand something when his livelihood depends on his not understanding it.” Almost all of the loud voices in this “debate” are stakeholders in the status quo: insurance company employees, doctors, hospital administrators, lobbyists, lobbyists, lobbyists. Who am I forgetting? Oh yes, patients, whose needs are ignored or manipulated in this system.

23% less and it shows. 23 cents of every dollar goes to waste, profits and greed. Unfortunately, what Congress is coming up with will only continue this practice and possibly raise this percentage even more. No single-payer system coupled with “for profit” health care is still going to ration care and cost Americans more than then in countries with public, single-payer health care. What Congress has on the table now would fine people $1000 for not buying a health care policy, taxing what a employer provides in health care benefits, setting up state co-ops (not national, so in low population states health insurance premiums might actually go up and continue to climb), no plans to negotiate the price of medications, end the tax deduction for medical expenses, etc. In the end, the winners will be health insurance companies who now have 300,000,000 people covered (more money for them) because every will be required to have insurance. The wealthy will still have unlimited access. And the middle class will see a phantom tax increase (tax on benefits).

And after all of these changes, health premiums will continue ti rise, people will have less money to spend (buy insurance, tax on benefits), thus eroding even more salaries and disposable income. It is no small wonder why Wal-Mart has come out supporting health care reform; it pushes most of the health care/insurance cost burden onto the average American citizen and effectively keeps the current system in place. The winners corporate America, private health insurers. The losers the taxpayer. Again, by 2020 we’ll all be back here again wondering why the United States health care is even worse, but more expensive as the 23% today would be near 40% by then.

Hey, anything goes. These people have to defend the fiduciary duty of American companies to enrich their shareholders! So what if people die in the process? They are not shareholders, are they? It is all legal, right? So what are you complaining about?

Do you guys realise just how much the rest of the developed world is laughing at your inability to get your act together on this? The rest of us solved this one fifty years ago.

Doesn’t everyone realize that this type of rationing is happening ? Those of us with health insurance are well aware of the limitations in treatments built into the plan. And then there are all of those without insurance who certainly realize something is rationing it for them. Why don’t the supporters of health care change point this out to the clueless who keep harping about “government rationing” ? Every single time such a stupid question is asked it should be shut down with the statement that it already is being rationed by the HMOs.

Wow, GREAT article! At least someone is starting to hit the nail on the head. And an easy read for the rest of us.

Very well put. Thank you – Roger L. Albin, MD

The problem with rationing as it is now is that it isn’t rational. Many people now with similar jobs and incomes are separated in their access to health care by employer-provided insurance. The insured person does not have the ability to pay without the insurance; the uninsured person simply doesn’t have the ability to pay. The “ability to pay” argument is a crock.

We working poor who are uninsured get no health insurance, but unemployed (and maybe never employed) people have government insurance, generally because they give birth to dependents for whom they similarly cannot cover the costs of being alive. The unemployed have no ability to pay — to participate in the rationing scheme — but nevertheless are able to thanks to the state.

Like I said, rationed, but hardly rational.

Well, yes, either we can have rationing done by the government or the marketplace. Personally, I prefer the freedom and choices provided by the market. Too bad there is so little of it presently, with the government responsible for roughly half of all health care spending, tax policy that promotes linking employment to insurance and a damper on competitiveness by prohibiting the purchase of insurance across state lines.

Having followed and reported on Uwe’s writings and speeches over the last 30 some years, I know that he is both a scholar and an entertainer who believes that the government should have a big role in rationing and providing health insurance to everyone. As his post shows, he believes in making all Americans, not just those on Medicare, Medicaid, VA health care and SCHIP rolls dependent for health insurance and health care on Nancy Pelosi, Harry Reid, Ted Kennedy, Al Franken and, of course, President Obama.

Of course, we have lots of precedents that show how well politicians dependent on campaign contributions ration health care to the dependents of both federal and state programs.

Simply put, there are few more highly politicized, poorly run programs than state and federal rationing schemes.

The question that big government believers never discuss is whether politicians or regulated markets do a better job of rationing. They prefer to discuss rationing vs. non rationing, because they can point to the failures of the markets, which have been disastrously distorted by the same politicians that they want to put in charge of our health insurance and health care.

And the big government, single-payer fans always neglect to point out the huge successes of our flawed regulated markets. Millions of us have survived premature births, bouts with potentially fatal accidents and illnesses and, yes, rationing by the markets, thanks to our health insurers and providers. We’ve lived long and productive lives because our parents and we have invested in health insurance and haven’t been dependent on, say, New York’s state senate, for our health care.

And why don’t the big government advocates make big deals of government-provided health care? Why don’t they take close looks at the poor quality of care provided for decades by state mental health institutions, prisons and the VA health care system?

It is so easy for Uwe and Paul Krugman to cry about the failures of the health markets without pointing out how distorted they are by politicians and special interests. It is so hard for them to provide intellectually honest discussions about the health insurance options facing Americans.

Question, are you willing to have your access to care cut 30% or more so that illegal immigrants and people who blew off their opportunities to get free educations can have the same access to care that you do? Do you want to live in Ted Kennedy’s Government HMO, which would make the HMOs of the 1990s look like benevolent dictators?

I’m not.

when people say ‘rationing’ they think, and mean, centralized planning and government bureaucratic restrictions. that this has steadily slipped into every facet of economic, family and community life is somewhat beyond the point. people, when they see it baldly put, have an understandable aversion to recreating the disasters of central planning and administration; however, the promise of power and the coercive energy of the state still beckon them to short-term selfish gain when they are presented the opportunity to be temporary dictators, empowering later tyrrany unwittingly.
These economists, with their technical use of the term – interesting and creative and even sensible for a certain kind of analysis – are becoming the mouthpiece, the apologists, for the political asperations of others. Perhaps even for themselves, because economists always imagine that they will be called upon to directly wield the puppet power of the central administration – wisely and justly, they must think – if they just please the right people.

Quislings all.

One of the ways the Democrats have suggested to pay for extending coverage to the uninsured is to cut Medicare and Medicaid (again). What do they think is going to happen? That doctors and hospitals will welcome medicare patients who will now mean less revenue? Nonsense! It is already hard to find doctors who will accept Medicare and Medicaid; this will result in even fewer doctors who will take new patients on Medicare or Medicaid. The result will be more people without adequare medical care, not more even coverage.

It is time to look at rolling Medicare and Medicaid into one public system, along with a public plan for the non-elderly. In other words, a single-payer system for all US citizens and LEGAL immigrants. The for-profit insurance companies could survive by offering supplemental insurance policies to cover whatever the public plan did not.

Mr. Reinhardt is one of the most respected names in health economics and I’m glad to hear from him in this debate. Finally someone is talking about the real solution to health care costs. It’s not preventive care which may be cost effective but not cost saving. It not that physicians get paid too much – the entire cost of physician pay to the system is 10% and a 25% cut to physician pay will only cut spending 2.5%. It’s not a problem that can be fixed with electronic medical records.
The real problem is that medicine has been too successful at offering goods and services and we now have more to offer than the average american can afford. Not everyone gets to live in a mansion, not everyone gets to eat at a 5 star restaurant every night, not everyone gets all the education they want at an elite private school. Housing nutrition and education are arguably as much a right as health care. Yet all americans seem to think that it is their right to have everything medicine has to offer.
I agree with Mr. Reinhardt that there are some things that are not as great value in medicine than others. The devil is in the details though as there really are few studies to direct us and the studies we have are often biased or are applicable to a narrow group of patients and can not honestly be generalized to more diverse populations.
Take for instance carotid endarterectomy for asymptomatic carotid disease. We have randomized trials that show it reduces stroke by 50% in people with >70% carotid stenosis and it is the most common vascular surgical procedure. Yet all the trial data was done in peole under 75y who were fairly “healthy”. How do we apply this to the >75y population where alot of CEA gets done. to enjoy the benefits of CEA you have to live 5y. How many >80yo patients with carotid disease live greater than 5y? It may vary well be a wash. We could do a trial but that will take 10y to get the answer. We could deny it to the 80yo’s but some 80yo’s are healthier than others and just try and see how the AARP will tolerate that. It also may be effective for them.
Pudits make the “value” thing in medicine thing seem so easy. “Value” in reality is not binary and the “value” to one individual may be different depending on their life goals and expectations.
The depressing thing in all this is that the only real way we can fix health care costs is to ration in a more logical way than we do now (besides insurance status rationing other forms of rationing we have now include out of pocket for cosmetic health care and strict need based waiting lists for rare organs in transplant – we have plenty of rationing). The rub will be that as soon as we start doing this the “haves” (aka the medicare population) will cry foul at losing what they already have and their lobby the AARP will weigh in – then you will see the real 800 pound gorilla in this whole thing.
Rationing more intelligently is the only real solution to this problem. But it will be very difficult and political. Our leaders know this and no one is talking about it because it will be as politically explosive as tax increases.
One other solution to consider – make all the physicians government employees saleried without productivity and take away the publics ability to sue them (have oversite panels that judge when someone has actually be wronged instead of the jackpot justice from juries that know nothing about medicine and can be swayed by emotion). In this system physicians would be motivated to do as little as possible, as opposed to the system we have now that motives doing as much as possible, and the number of tests and procedures and perscriptions will fall significantly. This is not because doctors are unethical capitalists but rather because much of what we do in medicine is unclear. If there is something you could do that might help but yu are not sure the doctor will give it a try if they get paid to do it. If they are saleried the culture will change to one of “well I’m only going to spend my time doing this if it really helps for sure”. Most doctors don’t do things they know won’t help. The devil is in figuring out what’s worth doing. Time to motivate doing less.
Hope you read this and understand.

Eduardo Siguel, MD, PhD July 3, 2009 · 10:24 am

There is a bit of intellectual fraud or hypocrisy in many discussions about alleged dangers of government intervention in health care, focusing on rationing or price controls or comparative effectiveness instead of redesigning the system to get more value. Some authors claim the government seeks to deny care or interfere with the “free choices” of physicians and patients. For readers, it may appear difficult to detect fallacies, but writers ought to know better.
Dr. Uwe E. Reinhardt makes excellent points and should be mandatory reading.
Our current system of health care relies heavily on rationing, choice restrictions, tricky (I would call it unethical) behavior manipulation (via misleading advertising, inadequate time to decide, unnecessarily burdensome paperwork), whether it is corporate insurance (self or otherwise, most corporations with over 300 employees are self insured, sometimes hiring outside administrators to manage the system), federal employees insurance, or government programs (such as Medicare).
As a physician for over 30 years, I reviewed over 10,000 clinical cases. I participated in a task force to review HIPAA, medical care, payment systems and Health IT. During the meetings we had with representatives of payors, I learned that they use over 100,000 medical necessity and related rules to decide when to pay or reject a claim. As a patient (seeking care for family members), I found it extremely difficult (frequently impossible) to find appropriate treatment. My son had cavities and his dentist insisted on general anesthesia. It was very difficult to find a dentist that would treat him without anesthesia (the task was feasible as we found out by doing it). Every dentist I saw gave me conflicting advice about cavities, crowns, teeth repair, implants, cleaning, orthodontics, etc. Every physician I consulted on complex matters gave me conflicting and frequently incomplete advice (some of which I considered incorrect or suboptimal). My insurers and paperwork make the tasks of finding health providers extremely time consuming and frequently impossible. I find their lists of providers to be inadequate, as providers appear to disagree on coverage or are booked. Arbitrary rationing is everywhere.
My list is endless. Experts in behavioral and speech therapy are practically impossible to find. Getting reasonable opinions and discussions on substantial or difficult medical issues is impossible. If my PSA is high, top physicians may insist on a biopsy and treatment (as some did, while others disagreed). The physicians do not have the time to discuss likely factors of a high PSA, or statistics on the likely consequences of alternative treatments. The same applies to most conditions. Minor ailments are frequently incorrectly diagnosed or remain mystery conditions. A skin disorder is an allergy for one, a fungi infection for another. In my experience, more than 95% of patients receive suboptimal care. Critical diagnostic factors are not measured; critical treatments are not discussed. For example, for patients with heart disease, I recently attended CME (continuing education) courses promoting the value of measuring CRP. I told a speaker that, according to my analysis, recent studies cast doubt on the value of CRP; instead, there are better things to measure in blood. However, in my experience, huge financial forces shape what is allowed for reimbursement and what is denied. These are not individual (patients) market forces or price, but special interests artful in the science and art of getting things covered by payors (insurance) or convincing patients and doctors to order them via articles published in journals, CME courses, committees that create “best evidence”, etc. Each case may be different, that is why the government ought to help to simplify the system and improve outcome and value.
Currently the health care system is inefficient and ineffective. Medical care (diagnosis and treatment) can be vastly improved using better models and computers to transform the art of diagnosis and treatment into a science. Health care delivery is still approached as it was 50+ years ago. We need a redesign of the system. Time and motion studies. Checklists. Uniform standards (for consent, HIPAA forms, procedure sequence, things to do, etc.).
My child twice developed similar symptoms. Once he was seen at a high tech ER in the US (his pediatrician’s office was closed). He went through multiple stages, seen by different providers (triage, nurse, etc.). After attempting to measure his BP with a machine designed for the overweight, inserting a thermometer rectally to get “accurate temperatures” and a very quick exam by the doctor, the diagnosis was a potential blood disorder that required a consult and many tests. I refused; a few days later his pediatrician called it an unknown virus. Under similar conditions, in a foreign ER, he was seen directly by a doctor (no triage or nurse), without access to health IT, BP automatic measuring devices, or high other tech. The doctor spent a long time carefully examining him before calling it a viral infection.
Today medical practice and health care delivery are archaic, chaotic, inconsistent. The result of thousands of rules, care is highly rationed in ways that fail to produce value or improve outcomes. More than a federal option, what we need is federal uniform standards. Uniform consent, HIPAA and related forms (saving billions to providers). Uniform billing and accounting systems. Uniform guidelines (not mandatory) for optimal sequential diagnosis and treatment. Checklists for all common conditions and most procedures. Uniform modules with well-defined input and output, and uniform data base formats for health IT. Emphasis on value, what we get. Behavior modification and greater responsibility (to emphasize not-smoking, not overweight, not drug abuse, etc.). A pricing system that allows patients to make tricky ethical decisions about their lives. Should the government decide that it is worthwhile to spend millions on organ transfers for drug addicts or alcoholics but pennies on speech therapy and health education for kids? Should the government decide that it is worthwhile to spend 1 billion to add a few months of life to a few people using drug ZX22, or should we spend 1 billion to implement new cancer treatments likely to add years of life to most people (even though the manufacturer of ZX22 will lose money and will not be able to make promised payments to lobbyists). The government tasks is not “to reduce rationing on the basis of price and ability to pay in our health system” as Dr. Uwe E. Reinhardt apparently suggests in Rationing’ Health Care: What Does It Mean?, Thenewyorktimes.com, 7/3/09, but to extract more value from our ability to pay (there will always be rich and poor). Price should be a factor, used to shift ethical decisions about the value of life to individuals instead of the government, and should be used to encourage system designs that deliver more value (better outcomes) for the same costs (because resources will always be limited). We need a combination of market forces based on price and information, government helping to provide information (which in health care is extremely expensive and complex), government assisting to implement uniform standards (which market forces push against).

In the US, about 90% of the total spending on health care is taken care of by third parties. Most individuals do not fend for themselves. It is not as if people who do not have health insurance go without health care. Agreed, they get less than those who have health insurance, but it is a Freudian slip to say that they go without health care.
I think health care is hardly rationed in the US. This is the reason why it spends more on health care than other countries. More responsibility should be assigned to individuals. Instead, I find an increasing tendency to think that we cannot afford healthcare if we pay for it individually.

Learn more at //www.aafter.com

Very well said, but, unfortunately, it will be convincing only to the already convinced.. Republicans and insurance companies have mastered the art of disinformation. People generally are very easily misled. The Obama team’s attempts to explain the situation logically are bound to fail. Only appeals to emotions at the gut level are successful – witness the “Reagan democrats.”

Excellent analysis and right on. Of course, health care by definition is extremely rationed in the US, with so many uninsured. All of this is just semantics.
The reason we need a national health care system is because of its clear benefits to the people and to the economy, nevermind that it obviously will be rationed.

What we need is:

1) A basic insurance requirement for EVERYONE
2) This basic insurance should covers preventive medicine and primary care without bells and whistles, i.e. 95% of what medicine is about.
3) additional private insurance must remain available to pay for additional conveniences.

For instance, when I had an accident in Britain in the 80s I received hospital treatment under the NHS rules. It did not cost me a single penny, nor was there even a mechanism to reimburse the NHS for the considerable expense (operation and hospitalization for almost 3 weeks). I received excellent treatment, although cost-cutting measures included a bed on a large ward with 25 patients in one large room. Believe me, its not a big deal and I had no trouble surviving. If someone wants a private room, then I think that private insurance to cover that would be in order. That is just one example of rationing that would not impair patient care, but cut costs considerably.
I later worked as a physician in the UK myself and I never felt for one minute that I was not able to provide the best possible care to any of my patients, rich or poor, because of rationing.
Public health care works like a charm and it is so much cheaper than the dysfunctional rip-off the American health insurance industry is practicing. Wake up and send them out of town!