A glowing description of "patient-centered medical homes," but they still don't understand "marginal product."

Knee replacements are cost-effective. But the people who get the benefits are the people who bear the cost.

Of all the arguments for national health insurance, the absolute worst one is the idea that a single buyer of health care can lower the social cost of care by exercising strong bargaining power. The Physicians for a National Health Program, for example, argues that a monopsonist (single buyer) will be able pay doctors, nurses, hospital personnel and other providers below market rates. [Doctors who want the government to stick it to doctors? Medicine seems to attract more than its share of masochists.  The only thing worse is an economist who hates economics. Read on.]

Paul Krugman, writing in The New York Times, uses a similar argument to advocate a public plan option in President Obama's government-run, government-regulated health insurance exchange. A public plan, he writes, would have the "bargaining power needed to bring down health care costs."

So what's wrong with this way of thinking?

Social cost is the sum of all the individual costs. That is, it's the cost to me plus the cost to you plus….. etc., summing over 300 million people. In doing the summation, we can't omit whole groups of folks. Although this may come as a surprise to some, doctors really are people! So are nurses. So are hospital personnel. Squeezing the incomes of providers shifts costs, but it doesn't lower them. It makes patients better off (in the short run) and providers worse off. But that does not lower cost for society as a whole.

As Gregory Mankiw explained in a recent New York Times editorial, if we want to shift costs, we do not need monopsonistic buying power. We could simply impose a tax on all the providers and use the proceeds to subsidize the health care purchases of patients. Good for patients and bad for doctors, perhaps. But since the gains and losses cancel out, the benefits for society as a whole are nil.

The obverse of a monopsonist is a monopolist. Suppose the federal government awarded a single company exclusive rights to sell domestic wine. The monopolist would certainly raise the price to consumers. But does this mean the social cost of wine would be higher? No. The consumer's loss is the seller's gain. The cost of production remains largely unchanged.

Social cost, in general, is independent of the prices people pay. The social cost of the production of a good or service is the value of the resources used to produce it.

The reason why economists — from Adam Smith to the current day — do not like monopolies and monopsonies is that they misallocate resources. Under monopoly, for example, too little of the monopolized good will be produced. Too much will be produced of other goods and services. The same is true of monopsony.

Another problem with monopsony in health care is that in the long run you get deterioration in quality. Suppressing doctor incomes encourages bright young people to enter professions other than medicine. In Britain, a very high proportion of doctors are immigrants — trained in some other country. Increasingly, that is true in the United States as well.

For nearly a decade, the University of Michigan Health System has been using a program in which patients report errors to a hospital "risk-management" program before filing suit. The hospital investigates and, if warranted, issues an apology and an offer of compensation to the patient. If the patient turns that down, he or she can go to court. The vast majority settle. The system moves quickly, sometimes catching errors before they're reported.

Obama has distilled his position to three principles: reduce cost, ensure quality and provide choice, including a public insurance option.

Hyperphagia: It keeps you wanting more.

Looking good: "160,283 children 18 and under had cosmetic interventions in 2008."

Only 26% of Massachusetts voters say their health reform has been a success.  37% say it has been a failure.

Private clinics are booming in Canada.  Woman pays out-of-pocket rather than wait a year for an MRI scan.

Health Savings Accounts appeal to the uninsured.  As a percent of new accounts the uninsured are 40% (Assurant), 33% (EHealth Insurance) and 37% (AHIP).

52% say people with unhealthy habits should pay more for health insurance.  76% say a person's health is within his/her own control.

Dr. David Blumenthal, a Harvard professor and key health advisor to President Obama: "The more people have, the more of it they tend to spend on healthcare." But as a nation's wealth increases and standards of medical care become higher and more costly, the lowest income groups get priced out. Government controls are needed to push down healthcare costs (and by inference, standard of care) to a level that everyone, including the poor, can afford, or to what government can afford to provide to everyone equally. The goal is not only universal coverage but also a similar healthcare experience for everyone, regardless of ability to pay (New England Journal of Medicine, March 8, 2001).

On the Rhetoric vs. the Reality of Reform

Dr. Ezekiel Emanuel, a health policy advisor in the Office of Management and Budget and brother of Rahm Emanuel, the president's chief of staff: "Vague promises of savings from cutting waste, enhancing prevention and wellness, installing electronic medical records, and improving quality are merely 'lipstick' cost control, more for show and public relations than for true change." (Health Affairs, February 27, 2008.) True change must include reassessing the promise doctors make when they enter the profession. The Hippocratic Oath is partly to blame for the "overuse" of medical care: Physicians take the "Hippocratic Oath's admonition to 'use my power to help the sick to the best of my ability and judgment' as an imperative to do everything for the patient regardless of the cost or effects on others." (Journal of the American Medical Association, June 18, 2008.)

On Strongarming to Get Support

Dr. Emanuel: "Every favor to a constituency should be linked to support for the health care reform agenda. If the automakers want a bail out, then they and their suppliers have to agree to support and lobby for the administration's health reform effort." (Health Care Watch, November 16, 2008.)

On the Real Reason for Computer-Guided Medical Care

Dr. David Blumenthal, who is formally, National Coordinator of Health Information Technology: The real importance of computers is to deliver "embedded clinical decision support," a euphemism for computers telling doctors what to do. If controls are too tight, physicians may resist the government encroaching on their treatment decisions: "many physicians and hospitals may rebel - petitioning Congress to change the law or just resigning themselves to…..accepting penalties." (New England Journal of Medicine, April 9, 2009.)

On Overproviding to the Healthy and Underproviding to the Sick

Nancy-Ann De Parle, director of the White House Office of Health Reform: "We have to get to a system of keeping people well, rather than treating the sickness."

Dr. Blumenthal: "Government controls on health care spending are associated with longer waits for elective procedures and reduced availability of new and expensive treatments and devices." It is "debatable" whether the timely care Americans now get is worth the higher cost.

Surprise finding: Frequent, vigorous exercise boosts heart risk.

Can quilting prevent dementia?  Maybe.

How do you know that costly seafood entrée is really Chilean Sea Bass? Many restaurants are deceptive.

Why do dieters find it so hard to lose weight? Because they often compensate for low-calorie foods with larger portions.