Arnold Kling  

The Health Care Market

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Do high health care costs in the United States prove that free-market health care does not work? Steve Verdon responds.


The Medicare program subsidizes health care consumption for some of the largest consumers of health care dollars. When you subsidize something people consume more of it. While the various individuals might see their out-of-pocket expense decrease, the total expense (private plus public expenditures) will in all likelihood go up. As more health care resources are consumed the price will rise for those who are not subsidized.

A free-market but compassionate health care system would provide vouchers for catastrophic insurance coverage, but eliminate all other subsidies, including the tax-advantages for employer-provided health insurance.

For Discussion. What metrics should be used to assess the efficiency of a nation's health care system?


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TRACKBACKS (15 to date)
TrackBack URL: http://econlog.econlib.org/mt/mt-tb.cgi/58
The author at Deinonychus antirrhopus in a related article titled Nationalized Health Care, Part 10,895,732 writes:
    This was left in the comments of this post on the problems facing the Canadian health care system, I've looked at the data, lived in various countries in Europe, as well as Canada and the US, and I don't see the bogey-man that many who fear public heal... [Tracked on March 19, 2004 12:01 PM]
The author at Deinonychus antirrhopus in a related article titled Metrics for Health Care writes:
    In this post I link to a post by Arnold Kling that asks the following quesitons, A free-market but compassionate health care system would provide vouchers for catastrophic insurance coverage, but eliminate all other subsidies, including the tax-advanta... [Tracked on March 19, 2004 5:07 PM]
The author at Houston's Clear Thinkers in a related article titled The Health Care Market writes:
    Arnold King at EconoLog carries on an interesting discussion of health care finance with Steve Verdon in which Arnold makes the following common sense observation: A free-market but compassionate health care system would provide vouchers for catastroph... [Tracked on March 19, 2004 9:25 PM]
The author at Deinonychus antirrhopus in a related article titled Health Care: Catastrophic Care Vouchers writes:
    I've been thinking about Arnold Kling's idea that a compassionate health care system that utilizes the discipline of the market would be one that offers vouchers for catastrophic care, but would also end all subsidies for other forms of health care ins... [Tracked on March 22, 2004 12:57 AM]
The author at Deinonychus antirrhopus in a related article titled Social Security vs. Medicare writes:
    Kevin has a sort, kinda decent post on the problems of Social Security and the undiscussed problem of Medicare. He is right in that Medicare is much, much bigger problem. Right now, if you believe the research of Gokhale and Smetters, the U.S. faces de... [Tracked on December 15, 2004 12:54 AM]
COMMENTS (24 to date)
mcwop writes:

My in-laws declared bankruptcy because Medicare did not cover prostate cancer surgery, and related procedures. Considering the amount of money pumped into Medicare this is sad indeed. Knowing in advance what medicare will actually cover is difficult to figure out. Not efficient from my perspective.

Kimon writes:

%GDP spent on health care vs. life expectancy is a good place to start.

By that crude measure, the US is not getting its money's worth in health care. Europe does not just subsidize health care, each country has a single-payer system that keeps prices in check.

Lawrance George Lux writes:

The entire methodology of health care must be changed. I will be the Devil's advocate here. Primary Care must be separated from catostrophic care, and then a system of primary care provision must be instituted. This primary care should handle the common medical necessities, but refuse any and all catostophic care. It is the duty of society to provide primary care, it is the duty of the Individual to provide for life-saving measures.

This alteration would actually cheapen all medical provision. Exotic medicines, with their luxurious R&D costs, would not be funded from public sources. Health care provision would be standardized, and training costs of health care personnel could be reduced--while the labor cadres could be increased. This within a framework of natural suppression of excess Wages. The program would eliminate the underfunding of basic Services, reduce overall excess Costs, and lower the Life Span--a savings in total health care Costs, Social Security provision, and overworking (at extreme cost) of the physical structure of the human body. lgl

Sandy P. writes:

So, how do these Health Savings Accounts fit in?

My husband's an SBO and he's toyed w/the idea of giving cash and providing catastrophic coverage only.

Gee, wonder what this'll do to the life insurance industry. Only mentioning that 'cos when I worked, I didn't take coverage and LI was not provided as a benny.

A HC revolution is coming in this country. Wish Catholic Charities had the guts to start it.

Steve writes:

I have a response here. Things like life expectancy and infant mortality aren't clear cut indicators of the efficiency of a countries health care system, IMO. At least no by themselves.

What is a good indicator? I don't know.

Ronnie Horesh writes:

"What metrics should be used to assess the efficiency of a nation's health care system?"

As Steve points out in his link, because of factors like gunshot deaths, such indicators as infant mortality and life expectancy don't adequately measure the efficiency of a health care system. However, I believe that society should not subordinate its targeted outcomes to the existing institutional structure. Society is probably indifferent as to how premature deaths are caused. So the question should not be how to assess the care of a country's health care system, but how to assess a nation's health. And if reducing gunshot deaths by x is cheaper than reducing prostate cancer deaths by x then it is better to target the gunshots. My website has more details about policy as if outcomes mattered.

Matt Young writes:

The simple metric is the fertility of the young family.

Perform a simple correlation between nationalized health care and fertility. You find that the greater the nationalization, the faster the population dies off. In Europe, the nations with the most extensive healthcare are dying off the fastest. Socialist docters are genocidal.

Italy and Spain have the highest government consumption, and they are dying the fastest.

Estonia has fixed the problem, but the leftover from communism mhas already killed them and they will not likely survive.

Italy has 50 years of life left in that nation, entire provinces have been depopulated.

Boonton writes:

Matt,

What does fertility have to do with the quality of a nations healthcare system? Whatever you can say about European systems they aren't making millions of young people sterile!

Fertility has a lot to do with choices in an industrialized nation. Because women opt to have fewer children says very little about the quality of a nations health care system.

Matt Young writes:

"What does fertility have to do with the quality of a nations healthcare system? "

Well for those with a mere grade school education, fertility is a major component of public health. In fact, Europe's public health care officials spend a considerable amount of research on this topic. One might consider that reproduction of society is why we have societies.

Having said that, the connection between national health care and fertility needs to be made. Looking at a a table of government burden (taken from Heritage) and national fertility rates, we discover a not to suprising relation. The greater the burden the government puts on young families, the fewer chioldren they have. There is a simple reason for this, young families must collect a surplus to reproduce. Again, for those of us with a mere grade school education, a young family does need to save to safely reproduce. Squirrels do it too, for those biologists in the audience.

Young families also bear the greatest burden in taxes, they are the only ones working.

Now, I do hear arguments that if we educate our children well enough, they will have fewer children. Acording to this argument, Italy has educated their children well, because Italy may not last another 50 years. I have a hard time understanding why that is a good education .

Two predictors determine whether a modern European nation will die. 1) Do they have a generous pension system; and 2) do they have a generous national healthcare system. When both of these are true, the nation typically has 50 years of life left.

Hence, back to my main point. A good health care system is in balance and ensures the biological reproduction of the society. Europe has a failing reproduction rate. If fertility is not a medical problem, then dunno what is.

If Europeans were whales, biologists would be alarmed that their ecosystem is not healthy.

JD writes:

Obesity has a greater impact on the healthcare system than anything else, and it's almost certainly the primary reason that US life expectancy is not the highest in the world. And the vast majority of obesity is not caused by ailment--it's a lifestyle choice. Not only is obesity the primary purveyor of heart disease (the top killer in the US), it adversely affects a multitude of other health care problems and leads to many others. A metric which does not include measures of obesity is nearly worthless, and the context of obesity--the self-determined nature of the problem--cannot be ignored either.

Scott M. Harris writes:

The comments about fertility and obesity raise the question of whether measuring the efficiency of the health care system is the best question to ask. If our ultimate end is the pursuit of a good life for all, a much better question is how best to promote the general welfare.

Wisdom is a matter of seeking to satisfy human needs, those things we need to live good lives, ever more efficiently and effectively.

A just welfare system is one that promotes ever wiser means of pursuing a good life for all. Such a system ensures both minimum standards of welfare and ever wiser means of satisfying human needs. Governments best ensure the former and markets the latter. For example, a just system might combine a government run safety net program paid for by progressive income taxes with a tax exempt universal welfare savings account program. The latter would allow tax free expenditures for qualified retirement, medical, unemployment, and educational expenses. It would also allow unlimited giving to qualified charitable organizations. Upon the death of the last exempt beneficiary, all funds not willed to qualified charitable organizations would be taxed at rate at least as progressive as that of the income tax system. Ideally, the government program would shrink to insignificance over time. However, it would never be eliminated. Like a militia, it would remain available for emergencies.

Needless to say, designing a just welfare system is simple compared to transitioning to it.

sml writes:

My problem with the health care system is the way it punishes MDs for treating patients who are over 65. An MD can either opt out of the system or collect only the amount Medicare will allow. If I want additional treatment or time with an MD, I can not pay for it legally.

As to quality of socialized medicine vs market medicine, the market works and socialized medicine becomes a bureacratic nightmare. That is the problem with health care in every country mentioned (plus Canada and GB). No one goes to Canada for health care (other than prescriptions)while Canadians regularly come to USA for surgeries. I wonder why?

Bernard Yomtov writes:

"No one goes to Canada for health care..... I wonder why?"

I don't think it has to with the quality of care. Few Americans have any reason to go to Canada for health care. You actually do have to pay for it, so there really is no incentive to slip across the border for a cheap appendectomy.

Eric Krieg writes:

When you talk with Europeans and Canadians about their health care systems, they are so smug and condescending. The reason that they are able to get more out of their systems for less money is that they have no underclasses in their country, not because of the efficacy of socialized medicine.

The only country that equals (and actually exceeds) the diversity of the US is Canada. Even then, it is only recently that Canada has modified their immigration system to allow more non-white immigration.

It is pretty clear that in Europe at least, a Muslim underclass is developing. It will be interesting to see if this negatively effects their vaunted health care systems over time.

Tor writes:
I don't think it has to with the quality of care. Few Americans have any reason to go to Canada for health care. You actually do have to pay for it, so there really is no incentive to slip across the border for a cheap appendectomy.
People go to Canada to get drugs because they are cheaper. People do slip across the border for a cheap appendectomy, it's just a different border. They call this "medical tourism". I find it interesting that the discussion so far seems to assume only a national market for healthcare rather than an international market. If call center workers are cheaper in India, surgeons will be cheaper as well. Same goes for Mexico, and Thailand. In fact, checking now it seems like you can go to Thailand for a prostatectomy for about $3,000 US plus travel expenses. There was an article on this a little a bit ago...ah, here it is:

http://news.bbc.co.uk/1/hi/world/south_asia/3467105.stm

Boonton writes:
Hence, back to my main point. A good health care system is in balance and ensures the biological reproduction of the society. Europe has a failing reproduction rate. If fertility is not a medical problem, then dunno what is.

If by fertility you mean the ability to have children, then yea that's a medical problem. If there's something in Italy's tapwater that is making people infertile I would say that's pretty serious.

You seem to be asserting it is the duty of a healthcare system to make couples want to have lots of kids. Biologically there's two strategies to reproduction. One is to have lots of kids and hope a handful will make it to adulthood (remember your story about the millions of fish eggs, only a handful end up being fish). Another is to invest all your resources in a few of your offspring.

Mammels and humans often use the latter strategy. However even on the scale of human beings, poor countries often create an environment where families take the 'have lots of babies & hope for the best' strategy. As countries get richer, they often switch to the 'invest in a few offspring' (or as a cynic may say, spoil two kids rather than feed eight).

Your assertions about Italy having '50 years left' is meaningless bunk. Unless Italians have stopped having children (which I think would have made the news), there will be young Italians 40 years from now. What may change is that there will be fewer Italians. That says very little about Italy's standing in 50 years. If raw numbers ruled the world China and India would be on top and the US would be developing...the UK would be 3rd world.

Eric Krieg writes:

Here is the link between socialized medicine and fertility:

In modern economies, women often postpone childbearing until it becomes difficult to have children.

In the US, fertility treatments are widely available. In Europe, they are not.

This spills over into other parts of the health care system. Older women have more complications during pregnancy. Fertility treatments often result in multiple births, and multiple births result in further medical complications, especially birth defects.

A portion of the difference between the infant mortality rate for white Americans and for, say Swedes, is due to the prevelance of fertility treatments in the US.

With that said, the biggest reason that the US is growing and Europe is not is immigration. Even discounting the fact that the US is attracting 1 million new immigrants per year, those immigrants that are already here have higher birth rates than native born Americans (and Europeans) do.

Mike writes:

As I see it the problem is that the health care system is far from a free market. Now I wouldn't argue that it should be a totally free market, I believe that targeted de-regulation would be very helpful.

For example, consider the case of allergy medications. Once Claritin went OTC its price plummeted. Think of the improvement (in prices) that would be achieved if allegra and Claritin were both OTC. Likewise imagine how prices would drop in categories like cholesterol reduction if the prescription / insurance based system were dropped and the market was allowed to work.

Boonton writes:

While many women undergo fertility treatment, I was unaware the amount was large enough to effect overall US fertility rates. I thought that most people still have babies the old fashioned way, not the high tech way.

This still says little about socialized medicine & fertility rates. It would seem non-socialized US should have a lower fertility rate because fertility treatments would have to be paid out of pocket or would only be covered by more expensive insurance. In the socialized nation as long as fertility treatments were covered they would effectively be 'free' and older women would indulge in having babies later in life more often than American women.

The original argument, though, seemed to pin the blame on tax rates. While he wasn't very clear, he seemed to be saying that since socialized medicine requires higher taxes, familes in those countries won't have as many kids since they would be taking home less money after they pay their taxes. For this to be true, this would mean the tax burden in those countries must fall disporportinately on young families. This isn't clear to me, especially since I was under the impression that many European nations have 'family allowances' that specifically allocate money towards familes. This should encourage more births rather than less, if true.

Eric Krieg writes:

>>In the socialized nation as long as fertility treatments were covered they would effectively be 'free' and older women would indulge in having babies later in life more often than American women.

First of all, fertility treatments are NOT covered by insurance in the US. They are paid for out of pocket.

Of course, the medical complications resulting from fertility treatments ARE covered.

The flip side of not being covered by insurance is that the fertility industry is completely unregulated. As a result, it is actually a lucrative and rewarding field for doctors. As a result, there are lots of fertility clinics in the US, and the procedures are quite common (I know upwards of 10 couples that have had treatments.)

On the other hand, fertility treatments are not widely covered by European socialized medicine, and there is no private market for fertility treatment.

We could also get into abortion. Abortion IS covered by socialized medicine, and European abortion rates are higher than US rates.

Eric Krieg writes:

>>he seemed to be saying that since socialized medicine requires higher taxes, familes in those countries won't have as many kids since they would be taking home less money after they pay their taxes.

I have no idea what the tax rates are in Europe for families. But I can tell you that after the Bush tax cuts, the US tax system is very family friendly. You can make upwards of $60k per year and not owe income tax if you own your home and have 2 kids. That is incredible.

Boonton writes:

Why wouldn't there be fertility clinics in Europe? If you have rich people one would expect private clinics to cater to their desires, whether for cosmetic surgury or fertility treatments.

Anyway, since fertility treatments are expensive and not usually covered by either insurance or 'socialized medicine' I would think they would have a negligable effect on overall population birth rates.

Eric Krieg writes:

>>Why wouldn't there be fertility clinics in Europe?

I don't know the exact details why, but from what I've read fertility clinics are regulated in Europe to the extent that they just don't make money.

In the US, they make money. LOTS of money.

donna j deemer writes:

we find ourselfs in need of health care ins. we got a letter in the mail. It stated that our health care ins. would be terminated by the end of the month.. now we worked for many years at a steel mill and thought we had health care ins for life. dont know where to turn can anyone help?

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