Health Boards

Describing the health care vouchers plan from Ezekiel Emanuel and Victor Fuchs, Ezra Klein describes a part of the system that's relevant to a lot of other reform proposals:

Big decisions within the system are made not by Congress or by insurers, but buy a Federal Reserve-style National Health Board that has, in turn, twelve Regional Health Boards. These commissions, staffed by a variety of experts who're appointed by the president and confirmed by the Senate, will define benefits, carry out research on effectiveness, figure out risk adjustment, and so on (in this, the plan has shades of Tom Daschle's plan).

The con of this proposal is that if you describe it as "decisions made not by elected officials, but by largely unaccountable political appointees" it doesn't sound so good. But if you describe it as "decisions made by appointees insulated from political pressure like the Federal Reserve system" it does sound good. Which is another way of saying that the Federal Reserve system works well, even though it doesn't sound (to me, at least) like something that would work very well.

Unfortunately, I'm not really sure that we as a society have a great grasp on why the Fed does work well. In principle, it's an appealing model that could be applied to various other questions where it seems better to keep congress in more of a supervisory role rather than a direct policymaking one (issues that have a technical dimension or where the geographic nature of congressional constituencies is inappropriate, etc.) but it also holds the potential for disaster. You wouldn't want the Bush FEMA team making these kind of decisions, and you also wouldn't want it to become the locus for constant congressional battles. What you want is something like, well, the Federal Reserve appointments where even Bush has felt obligated to pick people like Ben Bernanke who are genuinely well-qualified and well-respected. What you fear, though, is that this would become a "revolving door" scenario where industry lobbyists go to work as regulators, do favors for industry, and then cash in with cushy jobs once they leave government.

Comments

Which is another way of saying that the Federal Reserve system works well, even though it doesn't sound (to me, at least) like something that would work very well.

It works well for certain interests. Not as well, though, for the people who are in the percentage of the workforce that the Fed keeps unemployed on purpose.

Posted by dj moonbat | June 17, 2008 2:27 PM

Consider a local bank that is allowed to print money, but also borrows from you at some nominal interest rate. Clearly, they'd prefer to borrow the money, then print a ton of new money so that their debt inflates away. You, knowing this, are less likely to let that bank borrow your money. If the government could guarantee they wouldn't inflate away your loan, both you'd be able to lend to them and the government would be able to borrow at a low interest rate. This is all that Fed independence does.

While it would be nice if Fed independence also guaranteed competence, I don't know that that's the reason why we want an independent fund. The story above, called "the time inconsistency problem" by economists, is the reason.

Posted by cure | June 17, 2008 2:35 PM

Consider a local bank that is allowed to print money, but also borrows from you at some nominal interest rate. Clearly, they'd prefer to borrow the money, then print a ton of new money so that their debt inflates away. You, knowing this, are less likely to let that bank borrow your money. If the government could guarantee they wouldn't inflate away your loan, both you'd be able to lend to them and the government would be able to borrow at a low interest rate. This is all that Fed independence does.

While it would be nice if Fed independence also guaranteed competence, I don't know that that's the reason why we want an independent fund. The story above, called "the time inconsistency problem" by economists, is the reason.

Posted by cure | June 17, 2008 2:38 PM

The difference is simple, it is in the style of appointment. The Fed Governors are appointed for fixed terms, whereas normal political appointees serve at pleasure (and are removed at pleasure). This is a crucial difference. Someone who has a fixed term has independence, and cannot be made to resign or fired if the President or the administration doesn't like what they are doing. A regular appointee can.

Also, oversight and rejection or confirmation by the Senate takes on a lot more significance when you are talking about fixed terms. Since the appointees would possibly outlive the administration that appointed them, there would be a lot more careful vetting of them.

Also, the Fed has NOT worked well always, and when it has screwed up it has had demonstrably catastrophic results. Everyone agrees that the Fed is a BIG DEAL, so people tread more carefully than they would, say, with FEMA (until now). This proposed Health Board would not have that advantage.

Posted by MrProliferation | June 17, 2008 2:38 PM

"Health Care Boards"

Bad idea politically, at least the label. Obama has to be very careful he doesn't propose anything that sounds like a new layer of bureaucracy. Part of what killed HillaryCare was those huge flow charts.

I like opening Medicare and/or the famous "health care plan the president and members of congress all have" to everyone, and slapping on a means test so it is not too expensive. You could write that law in three sentences.

While bad policy, Obama's refusal to endorse mandates makes him a lot more electable! A minority of people like their health care just the way it is, and they could be swayed by the right ads about losing their current plan and being forced into "government-run" healthcare.

Posted by Jim | June 17, 2008 2:56 PM

While the Fed is in practice supposed to be immune from political pressures, its not the way it works in the real world. Haven't the last few months taught you anything, MY? Or do you know the same amount as McCain does about economics?

Posted by Joe Klein's conscience | June 17, 2008 3:18 PM

I worked at the Fed until recently, and my thoughts are:

1. The Fed works well as a monetary-policy-making body. A bunch of really f-ing smart people (some political appointees but also a ton of people working for them) working in Washington know a ton and do great work. I'm somewhat less sanguine about the district presidents, which seem like an anachronism in a globalized world (not to mention that their quality varies greatly).

2. The Fed has been much less effective as a regulator of the financial markets, but that probably goes without saying. But the problem that plagued the Fed--that it was unclear what exactly was within their scope/charter to address--certainly could affect a health care board.

3. The Fed does a decent job operationally, in the sense that the money gets where it needs to go and the buildings don't get blown up (you'd be amazed how many people it takes to do this; in the branch where I worked this was easily 60 percent of employees). But as an organization, the Fed is horribly inefficient and not exactly immune to the typical bureaucratic problems (no incentive to innovate, very slow to adapt to changing conditions, etc.) that for whatever reason, people do not associate with the Fed.

Posted by bottomofthe9th | June 17, 2008 3:52 PM

I worked at the Fed until recently, and my thoughts are:

1. The Fed works well as a monetary-policy-making body. A bunch of really f-ing smart people (some political appointees but also a ton of people working for them) working in Washington know a ton and do great work. I'm somewhat less sanguine about the district presidents, which seem like an anachronism in a globalized world (not to mention that their quality varies greatly).

2. The Fed has been much less effective as a regulator of the financial markets, but that probably goes without saying. But the problem that plagued the Fed--that it was unclear what exactly was within their scope/charter to address--certainly could affect a health care board.

3. The Fed does a decent job operationally, in the sense that the money gets where it needs to go and the buildings don't get blown up (you'd be amazed how many people it takes to do this; in the branch where I worked this was easily 60 percent of employees). But as an organization, the Fed is horribly inefficient and not exactly immune to the typical bureaucratic problems (no incentive to innovate, very slow to adapt to changing conditions, etc.) that for whatever reason, people do not associate with the Fed.

Posted by bottomofthe9th | June 17, 2008 3:54 PM

Have we learned nothing from the last seven years? If this type of system had been established under Bill Clinton's watch, Dumbya would have ruined it on his. Colonel Chimpy would have appointed ideological cronies who would have ruled against every medical procedure in sight. Chimpy Cocoa-bananas would have said things like "The panel of experts feels that annual check-ups are a waste of funds, so they have been cancelled."

Posted by Eric | June 17, 2008 4:17 PM

We already have "Health Care Boards" setting medical standards, they just aren't accountable to anyone. They are essentially elaborate ad-hoc panels from various parts of the health care industry. Things like:

http://www.jointcommission.org/

Liberals should dislike them because they are not answerable to the government or the people. Conservatives should dislike them because they are not market driven. They do not lose money if they set standards too high. They do not lose power if they set standards too low. There is no economic or political driver to get them to function optimally.

I imagine that they are good people doing what they believe is their best, but it is an ill-conceived system.

The biggest problem in our health care is that no one loses money from setting standards too high. As long as hospitals or insurers are held to the same standard as their competition, they don't care. There is no downside for erring "on the safe side". But every error on the safe side uses resources that could be applied to some other health care problem, raising costs. High costs essentially deny care. Those harmless decisions "to err on the safe side" cause harm.

Contrary to popular belief, insurers do not act as a countermeasure to this. They act to prevent providers from going beyond standards of care, but as long as their competitors are held to the same standards, they don't care what those standards are.

Posted by Njorl | June 17, 2008 4:25 PM