Arnold Kling  

Robin Hanson on Health Care

Mark Thoma on Health Insurance... Reduction to Banality...

He sent this email to me and to others:

Imagine someone claimed that casinos produce, not just entertainment, but also money. I would reply that while some people have indeed walked away from casinos with more money than they arrived with, it is very rare for anyone to be able to reasonably expect this result. There may well be a few such people, but there are severe barriers to creating regular social practices wherein large groups of people can reasonably expect to make money from casinos. We have data suggesting such barriers exist, and we have reasonable theories of what could cause such barriers.

Regarding medicine (the stuff doctors do), my claims are similar...

Hanson continues,

1. We have many multivariate regressions on health that include measures of medical consumption or spending, and these consistently give zero coefficients. Thus when people choose more medicine as a result of variations in price, local practice, wealth, doctor concentration, location, or the other common causes of medicine variations, they seem to get equal measures of helpful and harmful medicine.
2. If medicine is on average helping health (relative to the counterfactual of no medicine), it must be that when these common causes of medical variation induce people to choose less medicine, people selectively eliminate the more harmful medicine, relative to the helpful medicine.
3. Our best single datum on the health effect of medicine is the RAND experiment, which confirms a zero effect. This experiment also strongly suggests that any selective elimination of harmful medicine when prices rise is not mediated by doctor judgements of severity of diagnosis or medical appropriateness. So selective patient choice seems the most plausible explanation for such an effect, if it exists.
4. The model that says doctors read the literature on controlled clinical trials and then use those insights to on average selectively choose helpful over harmful medicine fits poorly with the above evidence.
5. While it may be possible for an honest thoughtful person to carefully read the medical literature and produce a better than random distinction between harmful and helpful medicine, we have yet to observe social institutions of any substantial size that rely on such judgements to selectively choose helpful over harmful medicine when choosing medical variation for real patients. Many social institutions claim to be successfully making such selective judgements, but we have at best only weak evidence that any actually succeed.
6. We can see plausible social mechanisms that could explain the difficulty of creating such institutions. For example, fear of death and showing-that-you-care incentives might induce high levels of unwarranted trust in doctors, whose overconfidence and financial interests could consistently lead them to reject outside quality judgements.
7. If we were to tax medicine instead of subsidizing it, it is pretty clear that we would not be less healthy due to getting less medicine now. This policy might, however, induce less medicine to be developed for future use, which would harm us if such medicine is on average helpful, though we have at best only weak evidence for this claim.

I disagree with Hanson's interpretation of finding 1. Instead, I carry around in my head a model of health care having big benefits and big waste.

I use the made-up example of a $100,000 procedure that saves the life an infant, combined with $7 million of wasted health care procedures on others. The benefits of saving the infant's life outweigh the costs of all the waste, but you would not necessarily find in a cross-section regression a relationship between more spending and better outcomes. Thus, this hypothetical example is consistent with both David Cutler's claims of huge benefits of medical care over time and the results that Hanson cites of estimates of benefits in cross-section that are close to zero.

Another way to put this is that I do not take it as literally true that the average benefit of medicine is zero. I do not think that harmful medicine is equal in magnitude to beneficial medicine. Instead, I think that the average benefit is positive but not large relative to cost. There is some beneficial medicine, somewhat less harmful medicine, and a whole lot of wasted medicine.

A lot of the waste is difficult to eliminate, because of statistical issues. A test for cancer may have only a 3 percent chance of extending someone's life (because they may not have cancer or you may not be able to cure it), but it still may be cost effective in an expected value sense, or in some risk-adjusted sense. Still, 97 percent of the time, ex post it is a waste.

I agree that we have not developed institutions to measure the effectiveness of medical protocols more accurately. But as I just pointed out, this preference for ignorance is not unique to health care.

I do not think we have to go so far as to tax health care to improve the incentive to consume it wisely. Simply removing the insulation that we provide via third-party payments would be a start.

Comments and Sharing

COMMENTS (11 to date)
Robin Hanson writes:

If the net marginal effect of medicine were as large as one child's life saved for every 7.1 million in spending, then we would have seen that in the multivariate regressions. Sure, many studies may be too weak too see such effects, but others are strong enough. See for example,

Skinner, J., & Wennberg, J. E. (2000). How Much Is Enough? Efficiency and Medicare Spending in the Last Six Months of Life. In Cutler, D. (Ed.), The Changing Hospital Industry: Comparing Not-for-Profit and For-Profit Institutions, pp. 169–193. The University of Chicago Press.
Arnold Kling writes:

I think it depends on how one conducts the study. Suppose that the patients are located in two regions, one called the high-spending region and one called the low-spending region. If the infant is in the low-spending region, the study will show no benefit of additional spending.

Robin Hanson writes:

Here is a similar online article:

Robin Hanson writes:

Are you seriously suggesting that statistical studies of a million patients are misleading because of statistical flukes in the data? Do you understand that such studies publish confidence intervals, exactly to deal with such possibilities?

Constant writes:

"But as I just pointed out, this preference for ignorance is not unique to health care."

The other example given is education. Education is like health care in domination by the state. That's probably relevant.

Alcibiades writes:

Oh, snap!

Are disagreements honest? :)

Dr. T writes:

A big problem with these type of studies is that they do not correctly calculate benefit. Let's take Arnold Kling's example a bit further. Suppose a man feels ill and goes to his doctor. The doctor says that a viral illness that will resolve in 3 weeks is the most likely cause of the illness, but there is a 3% chance that the cause is cancer. A $50 test can detect or rule-out cancer. Suppose that because four of the man's close relatives died of cancer, he decides to get the test. It is negative. Was that $50 wasted? No, it had tremendous value to him. Worrying about cancer while hoping the symptoms will resolve in a few weeks would have been emotionally draining. $50 to avoid that was a bargain.

I agree that there is tremendous waste in medical care. Part of the responsibility for that waste lies with patients themselves who misutilize the system, demand unneeded diagnostic tests, and expect instant-cure prescriptions for all their symptoms. Another part of the responsibility falls on physicians who fail to practice medicine scientifically and logically, who take shortcuts that waste money, and who pad their bills with too-frequent follow-up visits and excessive tests in their office labs. Another part of the responsibility for medical waste lies with the tort system and the ridiculous amount of ass-covering due to fears of malpractice suits. Toss in some bureaucratic inefficiencies and you can see why approximately half our health care dollars are wasted.

Ajay writes:

While health care and education are two critical industries that are run horribly, most likely because of massive government interference, these two industries will also be revolutionized in the future by technology. PCs and the internet allow for the destruction of the existing system in two essential ways.

1) Many routine tasks can be automated. In education, most homework and grading can be automated. In medicine, diagnosis and treatment of routine procedures can either be automated completely or combined with low-level input like a nurse's to make it much more cost-effective. In education, the case is rather obvious for most activity. For medicine, most people are not aware of it but almost all procedures follow simple algorithms to determine treatment. Since the human body is complex and the doctors have no diagnostic ability, they essentially follow simple rules currently. These can be computerised, with a nurse to provide additional input or expertise if necessary.

2) Rather than view a local professor's exposition or see a local doctor, one can use online video and online videoconferencing to see professionals of the highest caliber. One will no longer have to rely on somebody just because they're local and will have access to the best in each profession. While prices will probably be lower than they are right now for teachers (because their work can be reused for many students), the really good doctors will probably be able to charge very high prices. This will not be too big a deal as their expertise will only be required for a few difficult cases.

The technology of computers and the internet are tools waiting to revolutionize these two industries; it's just that nobody's figured this out and done it yet. One big problem for whoever tries to do this is the expectations of the consumer, who has been trained over time to expect that he will learn by lecture at a local college and must take his health problems to a local doctor. The lower prices that the new technologies make possible should help the entrepreneur who tries to do this make his argument.

Cyberike writes:

I have to disagree with Ajay. We have problems with healthcare and education, but the problems are not caused by massive government interference. The problems are caused by the consumers.

For health care, people want infinite health at minimal cost. To meet this illogical need, we have created a system where people do not pay for their own health care cost. Note the word "we".

For education, the problem is largely due to the fact that a large number of consumers have no interest at all in the product. In other words, in just about every class of students there are people there who don't care. You can't teach them, and a teacher would rather have them just sit there and be quiet so he can teach the ones who do want to be there.

Failure to recognize that a large number of our students are spoiled and lazy "is" the central problem with our schools. Our schools themselves are actually much better than we deserve.

Video? Computer based education? Again, you are assuming students want to learn. Keep in mind that I am talking primarily about high school, and about white male students.

dWj writes:

I mostly agree with Cyberike -- I would call the problem cultural. Health care is, in this country, dominated by the government only insofar as incentives put in place by the government have, at the least, enabled the unwillingness to acknowledge that healthcare is not immune to the laws of economics. Post-secondary education suffers from the same issue to some extent. The insulation to which Kling refers is as present in education as in healthcare.

Ajay writes:

Regarding Cyberike's comment, he says government is not at fault, then emphasizes that "we" have created a system where people do not pay for health care themselves. What does he suppose government is other than the way that "we" do what we collectively want? It's not as though we live in a monarchy where the government's edicts come from one person. Rather, special interests (in this case doctors who want to make sure they get paid, as Arnold has pointed out) and collective ignorance lead to government regulations that produce the current situation.

As for education, why does he suppose that all these disinterested kids are in school for any reason other than the government has made them attend and further required that they all be treated the same? If he is under the illusion that the current schools are not broken in many ways, I have to guess that he is someone who benefits from the current system, a teacher. When I talk about new technology being used in education, I'm talking about at all levels, primary education through college.

As for dWj's comment, after parsing that second sentence, what else are you saying other than government interference enables the currently horrible situation? Of course, any government regulations come from the prevalent culture, otherwise there would be another boston tea party protesting them. The question is how do we change the system and what is holding the change back. And finding the answer to that leads inevitably to the conclusion that government regulations and interference are what keep things the way they are now.

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