Arnold Kling  

crisis of abundance

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Aren't You Cold?... More on Activist Medicine...

After looking at health care data for a long time, my point of view on our system is expressed in this essay.


I define activist medicine as procedures, treatments, and consultations that have a low probability of affecting the outcome. The procedures and consultations are undertaken to rule out unlikely possibilities, to confirm diagnoses, to improve chances of success, and to reassure patients.

I mean for the term "activist medicine" to be neutral, rather than positive or pejorative. I believe that there are people walking around healthy today only because an activist practitioner found something on an MRI or in a consultation in time for treatment. Just because the probability is low does not mean that the outcome is unimportant to the individual.

If my diagnosis of what explains the increase in U.S. health care spending over the past 25 years is correct, then single-payer health care is not the right prescription. Instead, we need better studies of cost-effectiveness of health care practices, better education of patients and doctors, and less insulation of patients from the cost of procedures.

For Discussion. What anecdotal and statistical evidence is not consistent with this diagnosis?


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COMMENTS (11 to date)
Deb McAdams writes:

The first two: Better studies and better education are meaningless platitudes.

The last: less insulation of costs - there is no clear evidence that systems that insulate costs have lower overall costs, instead we see the opposite.

I'm personally not sure there is a rationally functioning market for healthcare.

How much would you pay for a year of life? One year's salary? As much as you can raise?

Goods for which economic actors would spend as much money as they can access - healthcare, heroine and crack cocaine - are perfect market failure goods with strong cases for government intervention.

spencer writes:

Isn't this conclusion in direct conflict with the many argument you made earlier to disparage preventive care?

Every time you have argued for insurance to only cover major, unexpected costs and not normal doctors visits for check ups you were taking a position in direct conflict with what you are saying now. Your earlier insurance proposals would increase the costs of preventive care and if you increase the price the demand should fall.

William Ryan writes:

To Deb:

I have to disagree with some points that you made. Perfectly inelastic demand (if that is indeed what we're seeing with your goods) isn't a market failure, and I don't see how that can be used to justify government intervention. I see the possibility of the argument of government intervention in the realm of social costs - ie. a crackhead going out and killing someone for their money to pay for his drugs. Then again, I also believe in attacking the cause, instead of the effect. People use drugs for a reason, and that is what we should investigate, and that is what we should try to change.

My other objection is that I don't necessarily see life extention as something people will spend all of their available income on. Indeed, there have been some very interesting studies done on just how much money someone would be willing to pay for extending their life. Or in the case of this Freakonomics Blog post, how much you would pay to not have the life-shortening effects of eating another cheeseburger. Also, lots of poor people would rather consume than spend their precious little money going to see a doctor. Obviously they get some utility from consumption, and some from increased health, and they've made that choice.

I think one major factor in the extremely high costs of healthcare (which might give the illusion that people spend "all available money" on it) is the whole HMO situation. With income taxes being so high, corporations have an incentive to provide untaxable benefits to their employees rather than taxable wages. This gives the HMOs a chance to monopolize healthcare within certain companies. However, if we had, say a consumption tax, then the employers would have no real incentive to provide healthcare as a benefit. This could open up the market to competition, and we'd see independent health care providers crop up. They DO exist, but they're vastly expensive and not often used. With an actual market for healthcare, we wouldn't HAVE to spend so much for healthcare.

But that's just my two cents. I could be wrong. I'll leave the final judgement up to the professional economists.

Lancelot Finn writes:

I would have emphasized a different aspect of the story about "Quixote." You quote "Quixote" as saying:

I had something in my eye, so I rubbed it. As any mother or eye doctor can tell you, that didn't help. Three days later my left eye was swelling visibly and growing more painful by the hour.

If Quixote had not rubbed her eye, not only the cost of the CT scan and other activist medicine, but also the cost of the antibiotic and routine medicine, could have been avoided. We need to train people not to rub their eyes.

The value of non-eye-rubbing behavior, and all other behaviors that promote better health, could in principle be treated as forms of human capital with quantifiable worth. While it is ultimately up to people to decide whether they want to behave in ways that are good for their health, I suspect that in many cases there is an information problem, e.g. that people do not know rubbing their eyes is bad (including Quixote, I think, at least in the sense that it is apparently only after she got the treatment that she reflected on what a mother or eye doctor would have told her).

Should we help and/or induce people to invest in this form of human capital early on?

dearieme writes:

On the right side of the Atlantic many of us would grin at "..market failure goods with strong cases for government intervention": the intervention of our government via our remarkable NHS shows plenty of failure of the sort commonly associated with monopolies.

Talking of monopolies: I see little reference to the pernicious monopoly effects of the A.M.A.; there must surely be some?

Mr. Econotarian writes:

Whenever someone tells me "the market is imperfect, government should intervene," I challenge them to tell me how the government (operating under public choice theory) is any more likely to arrive at good solutions than the market.

In other words, you might be dumb, but politicians might be just as dumb, if not dumber.

This is also my stock answer to "economists don't know everything about the economy." Politicians who are ignorant of the (admitedly imperfect) science of economics, and operating under public choice, are likely to know even less than the economists. So who are you going to trust?

Timothy writes:

The question I always ask is this: Would you want only one insurance company in the country, from which you had to purchase insurance at whatever premium rate they wanted to charge? If the answer is no, there's no reason to support government-run health care. How is government monopoly preferable to private-sector monopoly?

Lawrance George Lux writes:

Arnold,
A basic economic tool is missing from your position, which is a Costs-Benefit analysis of early diagnosis of medicial ailments. You need to define the statistical cost of early diagnosis, the statistical cost of recovery with lack of early diagnosis, and the statistical cost of lost Labor hours from early diagnosis and equally from late diagnosis. lgl

Boonton writes:
I think one major factor in the extremely high costs of healthcare (which might give the illusion that people spend "all available money" on it) is the whole HMO situation. With income taxes being so high, corporations have an incentive to provide untaxable benefits to their employees rather than taxable wages. This gives the HMOs a chance to monopolize healthcare within certain companies. However, if we had, say a consumption tax, then the employers would have no real incentive to provide healthcare as a benefit. This could open up the market to competition, and we'd see independent health care providers crop up. They DO exist, but they're vastly expensive and not often used. With an actual market for healthcare, we wouldn't HAVE to spend so much for healthcare.

Why should this be? If HMO A keeps costs lower than HMO B then A's profits will rise even if there's an indirect subsidy to both A & B. Also keep in mind that much of the slowdown in medical costs in the late 90's was directly due to the widespread increase in the use of HMO's to control costs. Now all in the sudden HMO's are the villian???

I think the real story confirms Paul Krugmans recent column on the subject. The American system is to spend a lot of time and money getting someone else to pay for healthcare. No doubt every specialist who saw this woman sent her a $500 bill because they are offloading their costs for low-reimbursing HMO/Medicare patients even though their 'consulatations' probably took all of 5 minutes.

"I believe that thirty years ago or so her case would have proceeded differently."

More like 40 years ago. I ended up having back surgery in 1979, and it was obvious that the Drs. were even then practicing this way, because they were certain to be sued if their care didn't turn out 100% satisfactorily.

I spent one afternoon sitting in the large waiting room of an orthopedic clinic listening to two lawyers and two court reporters chat each other up about all their malpractic cases. They were there to depose one of the clinic's surgeons.

Cardozo Bozo writes:

A couple things. I think that harping on "single payer" isn't the main problem. It's "single decision maker" that's the problem. Isn't that the idea behind school vouchers: single payer, lots of decision makers?

The tax system and the regulatory environment must be tweaked to make sure as much information is public, and as much decision-making power as possible, available to individuals.

By the way, when say "the regulatory environment", that includes the trial lawyers. Through the Courts they are in a sense a regulatory authority with as much effect (or more) on the medical industry as the FCC has on telecoms - but with a lot less accountability. "Tort reform" should be translated in anyone's head into "regulatory reform", as they are much the same thing.

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