Arnold Kling  

Fogel Vs. Wonks

Economic Attribution Error... The Productivity Story, Contin...

Reading Robert Fogel's latest book, I noticed that he provided some simple but paternalistic proposals for health care.

Robert Fogel says that we should stop thinking of the problem of poverty and health care as one of insurance and instead think of it as one of convenience. Rather than initiating the poor into the wonderful world of insurance company rules and claims-filing procedures, Fogel suggests that we would do more good by directly providing them with prenatal and postnatal care, health care education and mentoring, child health screening in public schools, and neighborhood public health clinics.

These ideas struck me as refreshing when compared with what I call Wonkism--"which is the design of policy solutions that are too complex and subtle for the victims -- er, I mean the public, to understand."

For Discussion. Many economists argue that our health care policies encourage over-utilization by most people. Yet Fogel argues that the poor under-utilize health care. What evidence supports or refutes these hypotheses?

COMMENTS (14 to date)
Boonton writes:

This isn't evidence but it is logical. If insurance encourages the over-use of health care then wouldn't those who lack insurance under utilize healthcare?

Even worse, if overutilization by insurane increases demand for health care leading to higher costs, one would expect the poor to drastically reduce their comsumption of healthcare.

There you have it, underutilization by one part of the economy and overutilization in the other.

Donald Lacombe writes:

Wasn't there a study conducted that required that Medicaid recipients pay a nominal $1 fee for a doctor's visit instead of receiving the care for free? If I remember correctly, the elasticity of demand for thesse individuals was pretty elastic.

rvman writes:

It's not merely logical - it is supported by theory. You have two pools of demanders for a good - the insured and the uninsured. The insured pay 1/3 of the price, the uninsured pay full price. The insured pool will show on a supply & Demand framework as an increase in demand, raising prices. This will reduce quantity demanded by the uninsured. Viola, music. Or rather Voila, the insured overuse the resource, the uninsured underuse it.

For your evidence, look at emergency rooms - half of what is there is folks overusing it, but half of the other half is people showing up to treat stuff they could have handled much more easily, if they had gone in earlier. (The other 1/4 is an actual emergency.)

Boonton writes:

It's more difficult to explain why this should be the case. You cannot accurately say the insured 'do not pay' for their care. They pay for it in their insurance premiums & if they don't get sick in any particular year they have paid a lot more for their health care than a poor person who makes a single $50 trip to a clinic.

Yes yes, gov't provides an incentive for buying insurance with tax deductions but so what? That doesn't change the fact that insurance premiums are either coming directly out of a person's checking account or are indirectly forcing people to take a cut in their salary.

To some degree, this disparity is created by the market & any policy proposal should recognize that.

John Doe writes:

Most 'utilization' of health care--at least in dollar terms--consists of people going to the hospital to live out their last few weeks of life. Hospitals make their profits extending the lives of people with insurance by just a few days. We could solve all this by agreeing that people who are close to death-from-natural-causes should be allowed to die.

The more the government spends, the more expensive health care (really death care) becomes, which in turn spurs calls for more government spending.

The United States could easily cut health care spending in half with no reduction in life expectancy. Some day we will do it, but sadly, not until many more trillions have been wasted.

Lawrance George Lux writes:

Health Care is underutilized by the Poor for two very important reasons: the first being Insurance companies refuse to provide limited, cheap coverage; the second being Insurance policies are so complex in language Most Poor could not understand what they are covered for and what they are not, while being stuck with a copayment beyond their means. Those who can pay for the complex coverage Insurance companies demand in policies, pay a probable thirty percent excess in premiuns due to the inclusion of the death scene cases of the elderly.

Most here would claim these death-bed cases have to be paid for, but the Insurance company premium charges are set to derive economic profits rather than normal business profits. Premiums are set on basis that all Insured will encur like death costs as do these death-bed scene cases--my own parents were $47,000 and $69,000 apiece. The fact of the matter, though, is actural tables find only about thirty percent of Insured incite these late Costs due to accidental death or immediate death cases like heart attack or Stroke. The greatest area of Profit for Insurers comes in those Insured who die in the ambulance on the way to the hospital--the Insurers maka a quick $40,000 almost every time. lgl

DSpears writes:

The real problem with health care is that we have 3rd party payer system where the party that gets the benefits isn't the one who pays for it (technically not true, but since they never give a direct payment or even see the real cost of the service, they behave as if it is free). The beneficiary is incentivized to demand as much care as possible becasue they pay the same amount regardless. The payer is incentivized to pay as little as possible and pay for as little of the service as possible, since they get no benefit from the service which they pay for, only cost. The provider is stuck in the middle between 2 parties with different goals who both feel like the provider is screwing them, which is a rational reaction on the part of both parties.

No other economic arrangement on the planet is this disfunctional, and this situation only arose accidentally out of a peculiarity of the tax code resulting from wage and price controls during World War II.

This is NOT an Argument for government financed errrr.... taxpayer financed healthcare. Quite the contrary. That is a system that takes everything bad about the current system and imposes a government buraucracy on top of it, removing any slim chance of consumer complaints being answered.

A government run 3rd party financing scheme does NOT solve any of these problems.

Just like every other necessity of life, like food, people should pay for their own health care.

Lawrance George Lux writes:

I read the economic article in the NY Times this morning about health care, it is a good read but does not say much about policy. The basic data presented, though, has great relevance. The American health care system is closer to Recipient/Payer than any major industrial nation, and American pay twice as much in GDP for what is effectively less health care. The concept of market domiance for efficient health care may have to be questioned. lgl

actus writes:

It may be that the poor under-utilize preventative care, but then over-utilize emergency care. Thats based on absolutely no data and only my probably inaccurate anectodal evidence.

Rick Stewart writes:

Almost no one in the United States has health insurance. Instead, they have a curious blend of health insurance and pre-paid health care. It appears to me that for most people the pre-paid health care component is the part they care about the most, at least on a short-term basis (and particularly so for 'unhealthy' people who know they are buying their health care for fifty cents on the dollar).

It is obvious that if employers (who purchase most health care/insurance policies) took the time to separate these two components, and subsidized only the health insurance part, pre-paid health care would disappear (as marginal users left the pool, the price would rise, causing additional marginal users to leave, until even the last man standing would be better off avoiding the insurance commission).

In this event, we could worry substantially less about the efficiency of the health care system, provided we believe in the efficiency of a free market.

One dilemma to be faced, of course, is medical underwriting, used by insurance companies to increase profits (or reduce losses). While it makes no sense to allow people to buy insurance 'after the fact,' neither does it makes sense to allow them to be pushed into pools of unhealthy people, or not to be able to transfer their insurance to another, more efficient provider. Furthermore it can hardly be expected that every young person will have the foresight and judgement to purchase (or not) the proper level of insurance, therefore a method for getting them into insurance pools needs to be provided, regardless of their current state of health.

Finally a complaint, or perhaps an economic opportunity. Health care providers routinely charge uninsured patients far more than insured patients, for the same procedures (my personal experience includes an MRI whose price was reduced from $2000 to $1000). Consumer bargaining power is low, if for no other reason than health care providers are some of the worst negotiators I have ever met (after the fact, they frequently reduce charges, before the fact they rarely even know what they will be charging you).

So, answering the actual question posed, poor people obviously under use health care, for the simple reason they are charged (or believe they will be charged) twice as much as the marginal cost of providing it.

lolito writes:

We need universal health care. Health care for all Americans. Currently, 43 millions of Americans are uninsured including me. Doctors can't deny to treat anybody by the law, but after the treatment, the chronical debt is waiting to screw us. Insurance companies are evil, one of my fellows was denied because he was out of state. They will overcharge customers who have bad credit history. Insurance is supposed to help people having trouble paying off the debts, who can't afford doctors, but whey do they charge us more than customers with good credits? I think evilness of corporations is also making people suffer more rather than helping, contributing to poverty, wider income gap, and higher crime rates.

More than 1/7 of American are facing bankrupcy because of unreasonable expensive medical bills. I think a right to live healthy is one of the fundamental principles of human rights. Americans are born with 1st Amendment, we don't buy this right, but we naturally have it. It's insane that the right to live healthy is not available here. Food stamp is not enough to ensure American's health. Minimum wage is too low. Who can live with 5.15$ an hour in LA or NY? Kerry and Kennedy proposed 7$ an hour, but that's not enough. It should at least be 10$ an hour, so people won't starve to death.

That's why we need universal health care. I'm supporting Kucinich and Ralph Nader because of their willingness to help us. I don't see either Kerry or Bush will secure our health and a right to live.

Mr. Econotarian writes:

One poster called for "limited health insurance," which is illegal. There is a great deal of State and Federal regulations on what you can and can't have in health insurance. From 1970-1996, for example, government-mandated health care benefits increased 2500%. And you have other things like HIPAA, which cost the industry billions.

I do agree that the mildly libertarian crowd that puts forwards whacky concepts like medical savings accounts needs to think about simplicity. We do not need more complex 1040 forms! We do not need more non-linear tax implications that make us pay a CPA to figure out how to optimally act.

1) Break the bond between job and medical coverage by eliminating the medical care tax break

2) Dramatically de-regulate the health care and insurance industry

Make things simpler, not more complex.

I also object to the whole "over-" and "under-utilization" concept. There is a near-infinite amount of health care available. Think about those multi-thousand dollar whole body scans, and if everyone got one each year. If you have more money, you will always be able to buy more medical care, albeit probably with reducing additional average health care advantage.

The question of what is an "appropriate" level of health care will always be in debate because of scientific progress. For example, drugs really do get cheaper over time as they go generic, but everyone demands the most recent drug (which is often the most effective drug with fewer side effects).

The US government already spends over 50% of medical dollars. Sometimes I wonder if we don't have the political will for real de-regulation, that we just go all socialist and hope for the best.

I do have this feeling that if the US goes all-socialist on medicine, that it will mean a dramatic reduction in medical technology development globally.

lolito writes:

Yes, of course if we are rich, we can afford anything, even the best medical technology. But the problem is some people like me live under poverty rate. Health care is available only you got money. But I want it available to us even though we don't have money. Seems losers always get nothing. I can't believe those corporation charege us based on our credit history. How can poor people able to get fair service by that? And, the medical bills will kill us definitely. If you want to deregulate and if that will bring us free health care, that's cool, so go ahead and deregulate the industry. I don't know about socialism or tax things, but what we need is universal health care. The people need to insure not the majority but all the Americans' lives at the community level. Online taxing will help us since we can't afford any CPA. Look at canada, anybody can get doctors free and poor people won't go starve. If it is free, people are more encouraged to go to doctors and check their health regularily, so early discovery of disease, and, so they can get early preemptive treatment. No like here, we got to wait until it gets really really bad. Is that because industry is so regulated that 43 millions of Americans are out of insurance? If so, deregulate it, and if that become affordable to us, that will be great. But, the people at the bottom won't be able to afford even the deregulation, so, we got to have natoinal health insurance to secure all American lives. People who were rich could only vote in the past. But now we realized that the voting right are not bought by money but born with it as long as you're citizen. It's the same as health care, we pay tax and tax should be tangible instead of being sucked into blackhole, and the right to healthy life is as equal as the right to vote. It's a fundamental human right.

Lawrance George Lux writes:

The NY Times has an article:

which exhibits the Bush administration paternalistic attitude to potential overutilization of Drugs by the Poor. The administration is trying to prohibit the importation of foreign drugs--through American Drug companies objection--and at the same time establish the claim that foreign Governments engage in unfair Trade practices, if they supply cheap Drugs for their own Poor. lgl

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