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Health Economists May Be Getting The Supply-And-Demand Framework All Wrong

January 26, 2021

Topics: Quote of the Day

By Alan Weil, Adam Gaffney
Health Affairs, January 26, 2021

Have health economists been underestimating supply-side constraints when making predictions regarding cost and utilization for universal health coverage programs, such as Medicare For All? That’s certainly what Dr. Adam Gaffney, a pulmonary specialist from Cambridge Health Alliance and Harvard Medical School, and colleagues posit in a new policy paper published in the January 2021 issue of Health Affairs.

As Gaffney and co-authors note in their paper, “focusing only on the impact of health care reform on government expenditures is short-sighted.” On the supply side, there’s a natural limit to doctor and nurses’ time as well as the number of hospital beds in a given facility.

Their analysis suggests that while first-dollar universal coverage expansion would increase ambulatory visits by about 7-10% and hospital use by about 0-3%, modest administrative savings could offset the costs of these increases.

On this episode of A Health Podyssey, Alan Weil and Adam Gaffney take listeners through health reform economics 101 before sharing the implications of the paper, ultimately questioning whether health reform is too focused on a demand-side framework.

Alan Weil, Health Affairs Editor-in-Chief: “If we free up physicians’ time, we say, ‘Oh, there’s going to be more utilization,’ and in a fee-for-service world, more utilization is more cost, but if you change how a physician spends time from administrative tasks to clinical care, they’re more productive and that actually isn’t a new cost to the health care system. That’s a more efficient use of the money we have, and it actually, once you move out of a fee-for-service world, that isn’t a cost-creating phenomenon.”

Adam Gaffney, former president of PNHP: “We do need to actually plan so we can have supply when we need it, and not just where it’s revenue-generating.”


Reader Comment:

By Don McCanne, M.D.

This Podcast is really important because it answers President Biden’s question he asked repeatedly during the campaign, “How can we pay for Medicare for All? We can’t afford it.”

Ironically, he has chosen the most expensive method of expanding coverage. On top of what we are already spending, he is going to give more taxpayer subsidies to the private commercial insurance industry – the source of the highest prices, and, even worse, the source of profound administrative waste, both their own and the administrative burden they place on the health care delivery system.

Medicare for all would greatly reduce the administrative waste by eliminating the private insurers, saving hundreds of billions of dollars, plus prices would be set at a lower level – enough to cover costs plus fair profit margins.

But the most important reason that single payer Medicare for All would be affordable is explained in this Podcast. Listen to it if you haven’t, and then encourage President Biden and his advisers to listen to it as well.

https://www.healthaffairs.org…


The Health Affairs article, “Pricing Universal Health Care: How Much Would The Use Of Medical Care Rise?” by Adam Gaffney, David U. Himmelstein, Steffie Woolhandler, and James G. Kahn was previously covered in the Quote of the Day, “We can easily afford to include everyone in Medicare for All”:
https://pnhp.org…

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About the Commentator, Don McCanne

Don McCanne is a retired family practitioner who dedicated the 2nd phase of his career to speaking and writing extensively on single payer and related issues. He served as Physicians for a National Health Program president in 2002 and 2003, then as Senior Health Policy Fellow. For two decades, Don wrote "Quote of the Day", a daily health policy update which inspired HJM.

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