Paul Glastris points to, praises warmly and criticises mildly David Cutler and an article about his ideas on health care reform written by Roger Lowenstein in the New York Times Magazine

Cutler's points are that, currently health care providers are not rewarded based on health outcomes. There is strong evidence that such incentives work and that they would actually reduce health care spending, since preventive medicine is highly cost effective.

In the late 90's, HealthPartners, a not-for-profit health plan in Minneapolis with 630,000 members, instituted a bonus system to providers. It paid doctors extra if their diabetic patients got blood sugar and cholesterol below certain levels, ceased smoking and took aspirin daily. [snip] Cutler and a team of colleagues analyzed the economic payoff. They found that the program reaped huge rewards. It cost $330 a patient and was expected to save roughly $30,000 over each patient's life.

The problem, as pointed out by Cutler, is that HealthPartners did not capture most of the benefits. Instead Medicare will get most of them. Now for starters, I think there is a very strong case that Medicare should reward doctors for convincing their patients to take care of themselves. Starting preventive medicine at 65 is not ideal, but better late than never. Also, I wouldn't be surprised if medicare could save money by paying for efforts to help uninsured people younger than 65 quit smoking, lose weight and diagnose and control diabetes and high blood preassure. I don't mean residential fat farms. I mean you can go to a doctor's office to get nagged.

Glastris is very impressed. His mild criticism is that Cutler is too politically pragmatic to note that the best way to implement this approach is to socialize medicine (as is shown by the experience of the Veteran's Administration). The point is that if people move from one provider to another, the benefits of preventive medicine do not acrue to the group that provided it. If people are all forced to use a single providor (or pay out of pocket) this problem would be resolved. Needless to say, Cutler must know that such a proposal is political poison.

I post just to add that rewarding HMOs and insurance customers because their clients are healthy would make the cherry picking problem worse. There is a big problem that everyone wants to provide health care to healthy people. Rewarding outcomes would almost certainly make this worse. In particular it would be almost impossible to distinguish between efforts to help people drop unhealthy habits and efforts to drive away people with unhealthy habits. Preventive care involves a lot of tough love and it is hard to distinguish that from just being nasty. Even if one rewarded changes in obesity or smoking one would reward efforts to find smokers who really want to quit and fat people who really want to lose weight. You could make a killing with a plan open to everyone, in which participants get health care but have to run a mile a day or pay.

The cherry picking problem, the benefits spill over problem and the interaction of cherry picking and rewards for outcomes all suggest the same solution which is to give people fewer not more choices about health care providers.