The Dec. 11 Associated Press article about health care in Massachusetts illustrates why central economic planning will always fail. As Nobel laureate Friedrich Hayek wrote: “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”

Some excerpts from the article:

Four years after Massachusetts embarked on the nation’s most ambitious health care overhaul, Gov. Deval Patrick and legislative leaders are stepping up efforts to rein in spiraling insurance costs. …

The next big goal, supporters say, is to find a way to slow surging premiums while maintaining or improving the delivery of health care services. …

One way to head in that direction, supporters say, is to gradually move away from a system that pays doctors and hospitals for the number and type of tests and procedures they deliver and instead rewards them for maintaining the overall health of their patients.

This is wrong.  Fee-for-service medicine, which the above sentence refers to, is not the problem. The problem is that the person paying the fee (health insurance company, Medicare, Medicaid) is not the same person receiving the service: the patient.  As John Goodman of the National Center for Policy Analysis writes:

The fundamental problem in health care is not that we are using too much of one payment mechanism and too little of another. The problem is that the person who benefits from the service is not the same as the person who pays the bill.

The AP article continues:

“We don’t want to break the system we have, but we want to bring the costs down,” said Senate President Therese Murray, D-Plymouth, who has championed payment overhaul. “It is complicated. If you move one little piece, something pops up somewhere else.”

Therese Murray illustrates the fatal conceit of government planners, as Hayek describes in the quote at the start of this post.

More from the AP article:

Some insurers are already moving toward a global payment system.

Just this week, Blue Cross Blue Shield of Massachusetts and doctors at Beth Israel Deaconess Medical Center in Boston signed a “alternative quality contract” designed to lower costs by paying doctors and hospitals for the quality, not the quantity, of the care they provide, including helping patients control their diabetes and lowering their risk of heart attacks.

This sounds rather vague.  Patients, being the recipients of care, have a different notion of quality than the insurance company, which pays for it.  One way to make patients more invested finding the best care is to have medical insurance emulate other types of insurance. As John Goodman writes in A Radically Different Approach to Health Insurance:

For bypass surgery, a hip or knee replacement and many other routine, but expensive, procedures, health insurance could emulate the kind of insurance most people have for their homes and automobiles. As I explained in “Designing Ideal Health Insurance,” the insurance plan might commit a sum of money (say the expected cost at an efficient center-of-excellence facility) and let the patient have the choice of providers and facilities — paying additional sums from an HSA.