Greg Mankiw in his blog of July 7th, 2009 posted the following story that puts the need to monitor Medicare and Medicaid’s expenses into perspective.  Perhaps the answer to healthcare’s costs may be not enough oversight.

Costs versus Efficiency

Advocates of government-run health insurance like to point to Medicare’s low administrative costs (which, as I noted yesterday, is a controversial claim). But even if that factual claim were true, the argument would hardly be dispositive as to the greater efficiency of a publicly run system. As I put it in my recent Times article, “True, Medicare’s administrative costs are low, but it is easy to keep those costs contained when a system merely writes checks without expending the resources to control wasteful medical spending.”

A reader finds support for this position in some recent testimony by Malcolm K. Sparrow, Professor of the Practice of Public Management at Harvard’s Kennedy School of Government. Professor Sparrow suggests that greater administrative costs aimed at uncovering medical fraud might be money well spent. Here is an excerpt:
The units of measure for losses due to health care fraud and abuse in this country are hundreds of billions of dollars per year. We just don’t know the first digit. It might be as low as one hundred billion. More likely two or three. Possibly four or five. But whatever that first digit is, it has eleven zeroes after it. These are staggering sums of money to waste, and the task of controlling and reducing these losses warrants a great deal of serious attention….By taking the fraud and abuse problem seriously this administration might be able to save 10% or even 20% from Medicare and Medicaid budgets. But to do that, one would have to spend 1% or maybe 2% (as opposed to the prevailing 0.1%) in order to check that the other 98% or 99% of the funds were well spent. But please realize what a massive departure that would be from the status quo. This would mean increasing the budgets for control operations by a factor of 10 or 20. Not by 10% or 20%, but by a factor of 10 or 20.

The bottom line: Low administrative costs are not to be confused with high administrative efficiency. In other words, administrators are not necessarily a deadweight loss to the system.

Needless to say Health Care is an issue that touches everyone. The new administration is looking to move toward a new methodology for curtailing the costs associated with keeping America healthy. According to the National Coalition on Health Care nearly 18% of Americans (46 Million) do not have health care. The issue is extremely frustrating for everyone involved. While I have heard many arguments both pro and con with regard to how to pay for the programs that have been promoted, I have not heard how the Health Care system would handle an additional 46 million participants. If the current US population is hovering around 300 million, how would the system handle a 15% increase in patient needs without an additional immediate increase of 15% more doctors, hospital beds, nurses, appointments, referrals, medications, pharmacists, etc, etc, etc.

Perhaps that’s why so much emphasis is being placed on upgrading the “systems capacity” of the Health Care system. If there can be a database available of “similar” outcomes based upon a specific course of treatment, perhaps this will help curtail the costs now currently incurred.However, what happens to those individuals with unique and unidentifiable illness. (Ever watch House?) Needless to say there will be those that don’t fit the model. What then?

The question that still remains is how do you upgrade the number of doctors within the system if it takes college, medical school, internship, and residency before one becomes available. More importantly, what happens to insure that you have a qualified specialist looking after your specific ailment? If it takes 10-12 years to get a student through this process, do we wait until 2021 before we allow an additional 15% of the population into the system?

All of this is predicated on the fact that this new system will reduce costs and provide greater numbers of Americans Health Care, no doubt worthy of inconveniences. The question that remains is how to pay for this system. The sites below reflect some of the opinions currently circulating.

Greg Mankiw’s Blog, The Healthcare-Competitiveness Fallacy

Greg Mankiw’s Blog, June 1st, 2009, It’s a Tie

Organizing for America, Healthcare

Robert Samuelson looks at the President’s fiscal policy.