How to Deal With Rising Healthcare Costs

Russ Mitchell weighs in on the subject of healthcare today, and specifically the problem that healthcare technology is driving prices up so far and so fast that at present rates it won't be all that long until there's any money left over for anything else. Mitchell's solution comes from James Robinson, a corporate health policy expert at the University of California-Berkeley, and is, in a nutshell, better healthcare for the rich.

What we need, he says, is a real menu of health care packages, so people can choose from a variety of programs matching their needs with their ability to pay, from basic Mazda to luxury Mercedes. Employees (and the government, for the uninsured) can decide what packages they'll provide for how much.

By coincidence, I'm in Berkeley myself right now, and took the opportunity to have coffee yesterday with Lance Knobel and Brad DeLong. This very question came up: Brad painted a picture of people having spare eyeballs and kidneys stored in perpetuity in a hospital basement somewhere, which could be used to replace the existing ones if they failed for whatever reason.

Brad, of course, knows a lot about the healthcare problem, having been intimately involved in the original Clinton plan from the early days of the Clinton administration. And he knows how intractable these sorts of problems can be. His solution is similar to Robinson's, but tries to make quality healthcare available to everybody, and not just to the rich. How does he do that?

I'm sure I'll get the details wrong, but in a nutshell, Brad would like to see a health insurance plan or plans in which the deductible is very large: 20% of any individual's pre-tax income in the previous year. Insurance would have to be insurance, against catastrophically large medical expenses, as opposed to the present situation, where consumers have no real skin in the game and therefore no incentive to try to drive down prices.

Where consumers do pay their own money, Brad notes, as with laser eye surgery, prices have a tendency to come down quite impressively.

Brad's system isn't perfect, of course. The cost of very expensive procedures would probably not come down much, since people would be losing their entire deductible anyway. It would be hard to ban supplementary insurance products which protected people against the risk of losing their entire deductible. And many people might end up not getting necessary healthcare because they didn't want to pay for it.

But it's still a very interesting idea which tries to seriously tackle the problem of health-cost inflation – an area where the present health plans from Democratic presidential candidates are quite weak.

Update: Brad elaborates.