Business Guru Embraces Reform. Should We Nitpick Why?

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THE TREATMENT APRIL 13, 2009

Business Guru Embraces Reform. Should We Nitpick Why?

You may not have heard of Regina Herzlinger. But corporate America has. And it thinks she has something important to say.

I'm not sure I agree. But I'm even less sure I should point that out.

Confused? Let me explain. Herzlinger is a professor at Harvard Business School, author of countless works on health care, and a fixture on the corporate lecture circuit. In books like Market-Driven Health Care, she has made the case for "consumer-directed health care"--the idea, broadly speaking, that having people shop around more actively for medical care and medical insurance will make it all more affordable while simultaneously improving quality.

When Herzlinger makes this case, she generally suggests her approach to health care reform is the antithesis of what most liberals want. She, after all, is in favor of letting the market run things. Liberals (a category that includes me) are in favor of letting the government run things. Etc., etc.

While that caricature isn't entirely true--lots of liberals believe in the virtues of competition, as long as it's regulated properly--her views have a lot more in common with conservatives. Her rhetoric also fits nicely with the preconceptions of the business community. 

So it's pretty significant--as either a sign of how conservative opinion has already changed or as an indication of how it might change in the future--that today the Atlantic carries a post by Herzlinger called "Why Republicans Should Back Universal Health Care." The message of the post couldn't be more unambiguous:

The time for universal health insurance coverage has come. Everybody
seems to know that--except for the Republicans, all too many of whom
cling to traditional denunciations of universal coverage as socialism. ...

There's a massive constituency behind the policy. Buffeted by the
recession and the threat of losing their employer-provided health
insurance, the American people want universal coverage. Much of the US
business community wants it too. CEOs rarely say "Know what I love
about my job? Buying health care." The chore is so unrewarding--corporate buyers have failed to create effective cost or quality
improvements--that many small business CEOs simply skip it. As a
result, millions distort the efficient allocation of labor in our
economy by opting for jobs in dying, big companies that offer health
insurance, rather than productive ones in small companies that do not.
Furthermore, our employer-based health insurance system forces American
businesses to pack our massive health care costs--about 70 percent
greater as a share of GDP than other countries'--into the cost of
their exports, a huge albatross in a globally competitive economy.

Hezlinger is absolutely right about that last part. The Republican Party leadership may not be interested in what I would call comprehensive health care reform, but corporate America increasingly is. And if that interest in reform is both tentative and tepid, statements like these from Herzlinger will embolden it. That's a good thing.

What's not so good is the argument that follows this declaration. The Democrats, she says, want to rely on government to lead reform. A better model, she suggests, is the one Switzerland developed:

The Republicans could instead offer a consumer-controlled universal
coverage system, like that in Switzerland, in which the people, not the
government, control how much they spend on health. There are no
government health insurance programs. Instead, the Swiss choose from
about 85 private heath insurers. Rather than being stuffed into the
degrading Medicaid program, the Swiss poor shop for health insurance
like everyone else, using funds transferred to them by the government.
The sick are not discriminated against either--they pay the same
prices as everyone else in their demographic category.

The underlying problem here isn't Herzlinger's belief that Switzerland's health care system works. It's her description of why Switzerland works.

Far from the market utopia her rhetoric suggests, Switzerland's insurance system is highly regulated. As Princeton economist Uwe Reinhardt, who knows more about the world's health care systems than just about anybody, wrote in the Journal of the American Medical Association (subscription only):

The superior performance of the Swiss health system is not necessarily
attributable to the role of consumer choice in that system. One can
just as plausibly ascribe that performance to the pervasive government
regulation that guides the Swiss health system. In fact, the Swiss
health system in its current form reminds this author of nothing so
much as the Clinton health security plan, which also called for market
driven consumer choice within a framework of government regulation.

Maggie Mahar, an accomplished author and expert in her own right, echoed those thoughts on the Century Foundation's Health Beat blog:

the truth is that Swiss patients have relatively little say over
either the cost or the quality of the care they receive. Prices are
regulated by the government, which also tries to make sure that
consumers are getting value for their health care dollars by selecting
which drugs, devices and tests insurance will cover. In fact, it is the
very visible hand of a smart, largely efficient government that
accounts for Switzerland’s relative success.

Mahar's use of "relative" here is deliberate; the Swiss system is not flawless. Among other things, even though government requires insurers to make coverage available to everybody over 25 at the same price, regardless of medical condition, sicker people have gravitated to some plans--pushing up their premiums--while the healthy have gravitated to others--reducing their premiums. In other words, Herzlinger is wrong when she states flatly that "the sick are not discriminated against." (You can read about this problem in this report from the Commonwealth Fund,  which has financed some of my own research abroad.)

Overall, though, Herzlinger is right that Switzerland's system is preferable to ours. If her advocacy of that makes conservatives more comfortable with the idea of universal coverage, who am I to complain? 

Note: To be fair, there really are places where Herzlinger would part company with the Democratic leadership, starting (I assume) with the importance of creating a public insurance plan that competes with privates insurers. From the description she makes in the Atlantic article, it sounds like she wants a system more or less like the one Senator Ron Wyden has proposed. Wyden's bill is a bipartisan effort that many liberals reject outright. Of course, I'm not among them. I think the Wyden bill, although flawed, has a lot to recommend it.

Update: Matthew Holt has more.

--Jonathan Cohn 

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posted in: the treatment, business, education, health, labor, law, politics, social issues, technology, person career, regina herzlinger

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