bad bets in health care

I hope this link stays active long enough for anyone interested to read it. It makes an interesting point about public policies that are "bad bets." I just posted something about it in my human factors blog, but it also is an important public policy issue. Here is the example for those of you who don't want to navigate to the other blog:

Consider this example: There are two people who are very sick and require medical care that costs $25,000 to treat. Person A has a 50% chance of getting better with treatment. Person B has a 5% chance of getting better with treatment. You can either:
1) give Person B the treatment
2) give Person A the treatment
3) split the money and half treat them both, which reduces their chance of improving by 90% (so it would be 5% and 0.5% respectively.

Most people would select option 2. It gives the best bang for the buck. But what if there is no Person A. We can either:
1) treat person B and have a 5% chance of having an effect
2) distribute the $25,000 in medical care to other people in general, who have an average chance of improving of 50%.
3) distribute the $25,000 to the entire population to spend however they want.

Now which one should we do? Option 2) in the second situation is identical to option 2) in the first example in its effect. So if you preferred option 2) in the first example, you can't choose option 1) in the second. But the problem faced in our health care system is that when we are faced with a real Person B on one hand and a vague, unseen population on the other, we find it very hard not to treat person B and hope for the best. And the when we have a lucky 5%-er, it makes the news and makes it even harder to choose option 2) the next time.

This is why our health care system is so wasteful. We keep funding the bad bets because we can't look at a sick person and say no.

So from a public policy point of view, what is the solution? "Rationing" health care has such a bad connotation that it can make any intelligent policy a non-starter. But in fact, there is a limited number of dollars at any given time to spread around. Whatever we choose as a society to spend on health care has to distributed somehow. So rationing health care is a reality whether we call it that or not. Treating the inoperable cancer patient in a 1 in a million effort is rationing care because that is money that now can't be spent on other patients. So intelligent policy has to bite the bullet of "rationing" sound bites and create a system that efficiently and effectively allocates spending (public money as well as insurance incentives) where it has the most effect. If someone wants to spend his/her own money on the one in a million treatment, that is the great thing about a free market. But don't use my tax money or cause my risk-pooled insurance rates to go up to pay for your inefficient health care needs.