Health Care Rationing

PK states:
“It turns out that even in America, with its faith in the free market, people don’t trust for-profit corporations to make decisions about their health.”

Hmm, I wonder why?

I pay doctors, in good faith, to make educated decisions about my health. Introducing a middle-man/referee/judge (HMO) into this health evaluation process seems to muddy waters by possibly confusing the patient with conflicting information, raising the administrative cost of health care (middle-men/referees/judges must be paid), and I have to believe that treatment may be delayed; has anyone ever seen needless bureaucracy make a shrewd, insightful, and timely decision?

We’re not going to have a system in which people pay for heart surgery out of their health savings accounts and save money by choosing cheaper procedures.

Actually, with the growth of medical tourism (1), many patients do indeed pay for heart surgery themselves (2):

One patient is Byron Bonnewell, who lives 12,000 miles away in Shreveport, La., where he owns and runs a campground for RVs. A year-and-a-half ago, he had a heart attack, and his doctor told him he really needed bypass surgery.

“They told me I was gonna die,” says Bonnewell, who didn’t have insurance.

He estimates he would have had to pay over $100,000 out of his own pocket for the operation he needed, a complicated quintuple bypass. And he says he actually decided not to do it: “I guess I figured I’d rather die with a little bit of money in my pocket than live poor.”

But Bonnewell says his health was deteriorating quickly, when he read about Bumrungrad Hospital: “I was in my doctor’s office one day having some tests done, and there was a copy of Business Week magazine there. And there was an article in Business Week magazine about Bumrungrad Hospital. And I came home and went on the Internet and made an appointment, and away I went to Thailand.”

He made that appointment after he learned that the bypass would cost him about $12,000. He chose his cardiologist, Dr. Chad Wanishawad, after reading on the hospital’s Web site that he used to practice at the National Institutes of Health in Maryland.

(1) http://www.slate.com/id/2131601/
(2) http://www.cbsnews.com/stories/2005/04/21/60minutes/main689998_page2.shtml

I’m usually in unalloyed agreement with Arnold, but here I find that my evaluation of today’s NYT column by Krugman is less favorable than Arnold’s evaluation.

Krugman’s framing of the issue is skewed and disingenuous. First, he suggests that that health-savings accounts are the only real privaate alternative to HMOs. Second, after failing to explain his assertion that health-savings accounts will be good only as tax shelters for rich people, he then says (rightly) that “insurance will always cover the really big expenses.”

I suppose that what Krugman is driving at here is that some third-party payer will always be present (so why not the not-for-profit saints and solons who Krugman imagines working for Uncle Sam’s health-care ministry).

But the problem is neither third-party payers per se, nor insurance paying “the really big expenses.” The problem is that, for a variety of reasons, Americans today don’t really have health insurance. Instead, we have pre-paid medical plans — with one of those plans being a gigantic pool of taxpayers’ money — namely, the $350 billion Medicare budget.

Each American pays too little of his or her own health-care expenses out of his or her own pocket; so we overconsume. As we overconsume, we drive costs and prices higher.

Finally, Krugman later in this same column says flatly that “it’s neither fair nor realistic to expect ordinary citizens to have enough medical expertise to make life-or-death decisions about their own treatment.” Does Krugman suppose that proponents of less government involvement in health-care believe that MDs and nurses are superfluous — that we are advocating self-treatment of illness? Or does he suppose that the unwashed are either too stupid to seek expert medical advice when they are ill?

“So if costs are to be controlled, someone has to act as a referee on doctors’ medical decisions.” — Krugman

“Every government intervention [in the marketplace] creates unintended consequences, which lead to a calls for further government interventions…” — von Mises

THIS chart might afford a hint about some of the interventions which Krugman overlooks in order to call for further gummint intrusions (which he SOOOOO loves to do).

THIS chart might afford a hint about some of the interventions which Krugman overlooks …

None of the interventions marked on the chart produced any immediate change in the relative cost of medical services vs. general consumer prices. The decoupling of the two happened in the early 1980s, since which time consumer prices have experienced moderate inflation, while medical prices have experienced immoderate inflation.

One factor that I don’t think get mentioned often enough is the role of federal R&D money. Over half the federal R&D budget is spent by the NIH. The government subsidizes the development of medical technology, but not its distribution. It should come as no surprise then if medical costs rise. The faster medical technology becomes obsolete, the less time it has to pay for itself, and so the cost of using it must rise.

This raises the question of what (or who) determines what is a necessary medical service. One could argue that if I choose to forego a medical service, then by definition that service is unnecessary for me.
If I choose not to eat, eating becomes unnecessary for me.

You can do better then that.

I think you simplify the argument just a tad, spencer. Eating, as opposed to a medical service is a universal necessity. I’d say the same is probably true about a medical service. However, how much you eat is a preference, just as what is a necessary or unnecessary medical service is. Most will probably agree that getting chemo for cancer is necessity, but not all would agree that get a physical is.

Craig writes:

.. The doctors were quite candid that they were worried about being sued were I to check myself out and suffer a heart attack.
…I could have gone home the first night at a savings of some $5000 and the odds would have been with me. Fear of lawyers was the ultimate incentive to keep me there.

Actually not, you could have checked yourself out of the hospital whenever you wanted; you would have been asked to acknowledge you were leaving the hospital “against medical advice” so you could not win a case against the doctors arising from your early departure.

Don’t you want there to be a strong financial incentive for doctors to be thorough? Without fear of lawsuits what incentive does the doctor have to be thorough, except for the goodness of her heart, which economists are loath to trust.

James writes (first quoting me):

“The pure free market solution to health care for all but the rich works like this: When the cost of treating your illness exceeds what your family can pay, they take you home to die. This is what happens in China today.”

and then responding:

Isn’t that what happens in any system where the amount of money avaliable is finite?

Actually James,this is not what happens in most developed countries and they have “finite” amounts of money. What happens is the money is pulled from other usages to support healthcare via taxes, or mandatory insurance premiums. Many people may still fall through cracks in the system, especially in the US. 5% of your earnings goes to shrink the cracks for elderly via your and your employer’s share of the medicare tax.

Robert,

Re; “What has happened in the United States in the last generation is a proliferation of treatments to stave off this point of giving up. On average, life has become only marginally longer, but dying has become significantly more expensive.”

Exactly right.

Boiled down, the issue is not health care or insurance, but ethics. What do the young owe to the old? What do the old owe to the young? And is the decision for society – or family?

Income drives health care costs just like income drives safety features on cars. The aggregate problem, too many low and non-GDP producers being treated with high-end medical technology.