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3rd Prd 8:20

Edward L. Glaeser

Mass. health care debate pits cost vs. quality — and young vs. old

Though education spared Massachusetts the fate of other former industrial states, like Michigan, we have an odd way of showing that our future depends on human capital. In 2001, the Commonwealth spent $8.3 billion (in current dollars) on education and a larger but still comparable amount, $10.8 billion, on health care. But in Governor Patrick’s 2013 budget, the gap is far wider: The $15.2 billion for health care is more than double the $6.9 billion he proposes for education.

This comparison hints at the stakes as the House and Senate discuss bills to restrain health spending. Unless lawmakers succeed, rising medical spending threatens to crowd out everything else, including the schooling that will determine Massachusetts’ economic future.

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There are critical trade-offs in our policy-making. One is between services that primarily benefit the young, such as education, and those that, like health care, disproportionately help older citizens.

We have to rethink the balance we’ve struck between young and old — which means more than just investing in education. The state’s much-discussed health care mandate also creates an implicit transfer from young to old. When young healthy people are forced to buy health care insurance, they pay rates that don’t adjust fully for age. Even though they generally earn less, younger people subsidize older people with typically greater health care needs. Restraining health care spending will make room for other priorities, such as education, that address young people’s needs more directly.

Yet this brings up a second critical trade-off, between promoting quality — which often means paying for private initiative — and controlling costs — which can often require more public control over publicly financed services.

Controlling spending is hard in our current hybrid health care system. Forcing costs is often far easier in a purely public system, yet it typically comes with substantial compromises in quality. For example, K-12 schooling is for most children publicly funded and publicly provided — the pure public option demanded by progressives during the national health care debate. The decline in state spending shows how easily taxpayer pressure leads to cost-cutting in a such a model. In Massachusetts, Proposition 2½ constrains localities, and state legislators cut costs to balance budgets in the face of voter antipathy to tax increases.

The results don’t look like any progressive ideal to me. The pure public option’s problem is quality, not costs; 48 percent of our eighth graders were not proficient in mathematics in 2011. Charter schools provide some choice, but even there, spending per pupil is rigidly checked.

We have to rethink the balance we’ve struck between young and old.

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In contrast, the hybrid health care system provides vast public funding for privately provided services — a practice that unleashes the genius of American innovation, which can produce an unlimited array of procedures. Improving access to this system saves lives, though at a cost: Our landmark reforms have improved health outcomes; one study finds that since 2006 Massachusetts residents have typically gained, relative to the nation, an extra one-quarter of a day free from poor health. But real per capita personal health expenditures in Massachusetts rose 13 percent between 2005 and 2009.

The House and Senate bills are seeking a middle route that restrains spending without hurting quality. In these pages earlier this week, former Medicare administrator Donald Berwick argued that one-third of health expenditures may be waste. That shouldn’t surprise us, since our fee-for-service model is a recipe for overspending. The House bill’s biggest advantage is that it more strongly pushes for alternative payment structures. The details remain ambiguous, perhaps for good reason: Capitation, paying a fixed fee per patient per year, definitely limits costs, but is likely to be just as unpopular as the service-denying HMOs of the 1990s. A more realistic option would combine core annual payments per patient — which would rise with good health outcomes — with added payments for the providers of necessary, expensive procedures.

Our legislators need to act, and the immense size of our problem makes the more aggressive House bill more attractive. The status quo is making us poorer — at least in relation to the growing economies of the world — and pushing us to spend a vast share of national income on end-of-life care. Unless we handle these trade-offs better, the explosion in health care costs will continue to threaten everything else, including our children’s futures.

Edward L. Glaeser, a professor of economics at Harvard University, is author of “The Triumph of the City.’’ His column appears regularly in the Globe.
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