Arnold Kling  

Government's Role in Health Care

The Other Reason Big Bu... Learning from Experience...

In my opinion, Greg Mankiw did not quite nail the problem with this article by David Wessel, who writes,

The theory: Give consumers more information, let them choose the best provider and the resulting competition will help to squeeze out costly waste and ineffective care. After all, markets work pretty well for other goods and services.

The notion has some appeal, and a dose of market medicine would help some of what ails the nation's health-care system. But as a cure, the approach rests on the belief that health care is -- in most respects -- like any other product.

An intriguing new comparison of patient-satisfaction surveys and medical records suggests one big way in which health care differs. The bottom line: Just because patients say they're very happy with their doctors and the care they're receiving doesn't mean they're getting good care, as defined by medical experts.

He reports on a study in which researchers from Rand Corporation compared the quality of health care received, based on Rand's measures of quality, with the perceptions of consumers. Consumer perceptions were incorrect.

In my opinion, this study does not prove that informed consumers make bad decisions. Instead, it proves that consumers are not well informed. The final sentence in the article is more accurate.

But confusing high scores on patient-satisfaction surveys with high-quality medical care can be dangerous to your health.

Right now, no one has good information on the cost-effectiveness of medical protocols. Consumers don't have it, doctors don't have it, and government bureaucrats do not have it.

In Crisis of Abundance, I argue for a national commission to study the cost-effectiveness of medical protocols. I think that government has a valid role in producing and disseminating this information.

Absent good information on cost-effectiveness, government health care decisions will have no more rational basis than decisions made by consumers. Only when the information has been produced and disseminated can one have a debate about whether consumers are less capable than government when it comes to making health care decisions.

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COMMENTS (5 to date)
Randy writes:

I have some experience with government written protocols (military). They are written in such a way as to leave no room for error. Its also a bureaucratic nightmare to get one changed. I think applying government written protocols to medical procedures would be an extremely costly mistake. On the other hand, if the government were to throw some money into publishing and maintaining a medical knowledgebase, open to the public, but written by medical professionals, I could see some value in that.

I don't see this as a particularly tough problem, and the answer is pretty simple - employ an agent.

In essence an agent is what primary health care physicians are (in one of their roles). PHC physicians have the necessary expertise to function as an relatively inexpensive agent to advise on purchasing relatively much more expensive specialist health services.

People use agents in all sorts of situations where they lack the personal expertise to make good choices - why not health care?

Bill writes:

This reminds me of the sailors in Patrick O'Brian's Aubrey-Maturin novels: The sailors thought they were receiving good medicine if it tasted awful.

EL Presidente writes:
I don't see this as a particularly tough problem, and the answer is pretty simple - employ an agent.

In my opinion, that's the key to understanding this dilemma. Patient satisfaction is determined not only by price but also by outcome. They have a notion of value and if they say they are satisfied they are suggesting that their willingness to pay is in line with the cost of what they are receiving. They value the product. They trust the doctor who prescribes it. As you say, they are not well informed (about the intricacies of medicine), and they may never be. About the price-elasticity of their own demand for particualr medical outcomes (as opposed to procedures), I think they are well informed. They pay a monthly premium in the hope of guaranteeing a relatively healthy existence. And, as we can see from the number of uninsured, we've found a limit to the price-elasticity of demand for some. They simply won't pay the going rate for available insurance. Anymore, the insurance and the medical care are the same thing to the consumer because you can't really get care without insurance.

A question for all: what other licensed profession (besides physician) provides an essential service (as in life-saving, sustaining, or extending) and has some sort of external price control or objective consumer guide?

Last thought - Insurers have a serious conflict of interest when it comes to patient care and deciding what is and is not cost-effective on behalf of uninformed consumers. Smith argued insurance was the best racket around and I believe that still holds true today. The game is, and has always been, to outperform average return on investment in capital markets by inflating price above cost and controlling for risk. I know that sounds like an economic platitude but it's still true and important. With most other products consumers can be better informed and thus negotiate more effectively with producers. In health care, the control of information between doctors and insurers about business practices and the services they render seriously compromises the patient's ability to negotiate effectively on their own behalf. The consumer's available agents are all privileged by licensure and the patient's ability to discern between good and bad agents is questionable. I think that your argument for government intervention has very solid footing in the notion of market failure. Would you pursue it to the point of price controls or a single-payer system in order to produce a change? I'm gonna go read your book now. It looks pretty interesting.

Thanks for a great prompt.

Brian Simmons writes:

There are obviously many flaws in the health care system of our country. One main problem with healthcare is that many people that need some sort of insurance are unable to afford it. Aside from being to expensive for families that have a need for it, there is simply not enough available information to make an informed decision on a means of care. I agree with Arnold Kling in the since that we should treat healthcare like any other market. First you must allow your consumers the information needed to make an informed decision and then let the market squeeze out all of the waste and ineffective care. The health care companies have their counter argument based upon patient satisfaction surveys and medical records. The fact of the matter is that these surveys most of time have no meaning. A patient being happy with their doctor’s care is really irrelevant if the patient does not have a basis or scale on how to judge their quality of care. Agreeing with the article, just because the patient thinks they are getting good care does not always mean that is a true statement.

The study by the Rand Corporation suggested consumer’s perceptions of healthcare quality were incorrect. Without a proper education in the field of health care, how are consumers expected to be able to make an informed decision on a means of care. Agreeing with the article once again, the study did not prove well-informed consumer’s made bad decisions, but only that consumer’s were not informed to a considerable level.

Also, it should be the government’s responsibility to better inform consumers on health care issues. A national commission to study the effectiveness of medical protocols, as suggested by the author, would be a start. There is an obvious need to obtain this information because at the moment no one seems to have it. Without this information we will be forced to continue making our health care decisions based upon insufficient information. Once the information becomes available there is only left the choice of who has control of the decision, you or the government. I’m only speaking for myself in saying that I’m almost positive that I would rather make that decision for myself.

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