Yes, the Oregon Health Study Matters

Josh Barro is the lead writer for the Ticker, Bloomberg View's blog on economics, finance and politics. His primary areas of interest include tax and fiscal policy, state and local government, and planning and land use.
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Jonathan Chait pushes back against the claim that the Oregon Health Study has major policy implications:

The Oregon study does not raise particular questions about the efficacy of Medicaid; it raises questions about the efficacy of medical care in general. Measuring the impact of medicine is just really hard to do, yet almost nobody would volunteer to follow this frustrating fact to its logical conclusion and forgo the benefits of modern medicine.

That's not the logical conclusion at all. Chait is right that the disappointing results from Oregon -- two years of Medicaid coverage did not demonstrate improvements in physical health compared with being uninsured -- say more about the value of health insurance in general than of Medicaid specifically. But there are a lot of ways to react to the finding other than ignoring it or deciding it doesn't matter if people have access to medical care.

In fact, there are components of Obamacare that aim to correct the exact problem identified in Oregon: We spend a lot of money on care that isn't effective, and we're not good at figuring out what spending is effective.

Obamacare appropriates money for comparative-effectiveness research, which helps doctors, patients and insurers make informed decisions about which treatments are worth the cost. It reforms payments in Medicare to pay providers for outcomes instead of procedures, which should incentivize providers to focus more on treatment quality than quantity. And it creates the Independent Payment Advisory Board, which is intended to help Medicare stop paying for things that aren't cost-effective.

There are two major problems with this approach. One is that it is politically vulnerable. Policies aimed at reducing the consumption of health care are unpopular, in part because patients don't trust claims that the treatments they want and used to get aren't useful. Republicans acknowledge that health-care costs are too high and that high costs are driven in part by overuse, but instead of working constructively toward solutions, they've attacked the Democratic approaches. Republicans are more likely to succeed at interfering with the unpopular cost-control components of Obamacare than the popular coverage-expansion parts.

The other major problem is that Obamacare relies mostly on bureaucratic approaches to achieving cost control. An upshot of the Oregon study is that health-care consumers possess a lot of information about what treatments are useful to them. People without insurance seem to be getting the most important treatments, and therefore roughly the same physical-health outcomes, as people on Medicaid. Ideas favored by conservatives, such as turning health insurance into a catastrophic coverage product while requiring most consumers to pay at the margin for more routine treatments, aim to capitalize on this information, while Obamacare generally doesn't.

Conservatives tend to talk about market-based approaches to health-care cost control as substitutes for bureaucratic approaches. But they can -- and should -- be complements. For example, extensive, publicly funded research on comparative effectiveness would make it easier for consumers with high-deductible health plans to figure out how to spend their health-care dollars wisely. The Independent Payment Advisory Board can lower Medicare reimbursement rates for overused medical specialists while higher deductibles would discourage patients from going to see those specialists when it wasn't necessary.

Liberals are tired of being lectured by conservatives about what's wrong with their approach to health policy because conservatives haven't been a productive partner in seeking a fix. And they're right to note that conservatives' preferred alternative to Medicaid expansion (leaving tens of millions of people uninsured) would be worse for quality of life.

But the lesson of the Oregon Health Study is nonetheless that there's cost-effectiveness information out there that Medicaid and other health insurers aren't exploiting. And even though conservatives have generally done a terrible job of explaining why, conservative ideas about increasing consumer direction in health care could help to exploit that information and make health care more cost-effective -- without repealing Obamacare or stopping the Medicaid expansion.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.