Bryan Caplan  

How Contrarian is the Hansonian View of Medicine?

The Messiness of Economic Anal... Doctors as Oracles...

To be honest, when Robin Hanson first told me his views on health care, I thought he was a lone nut. A brilliant lone nut, but a lone nut nonetheless. Still, my conversations with Robin inspired me to grill every health expert I came across, and with time I came to realize the Shocking Truth: Robin's views on the health benefits of medicine were quite mainstream. Robin's unique contribution was not in his beliefs, but in the fact that he thought that his beliefs mattered for health policy.

Don't believe me? Here's Dr. Mainstream, David Cutler of Harvard, responding to Robin on Cato Unbound:

If one takes the 25 percent of care that needn’t be provided and 10 percent in unnecessary administrative expense, that’s 35 percent of the nation’s medical bill that could be eliminated without loss. Allow for further savings from information technology, reduced errors, investment in disease management, or generation of comparative effectiveness information, and the savings could approach 50 percent. The potential savings are as high as Hanson guesses.

As a sociological observation, I am surprised by Hanson’s argument that this hasn’t been much noted. The work of the Dartmouth team has received enormous media attention, including front page coverage in the New York Times, for example. My book suggests large possible savings as well. And the knowledge that non-medical factors are important for health has been amply documented in many contexts. If Hanson wants to add his agreement to this array of research, I’m all for it. [emphasis added]

Thus, Cutler's response to Robin practically amounts to "Oh, everyone knows this stuff already." But if that's true, why aren't there any presidential candidates eager to shout: "We need to drastically cut health care spending; half of it doesn't do any good anyway"? The answer's obvious: Their candidacies would go down in flames. Almost everyone who has looked at the data knows this stuff. But experts are tiny minority - and only a tiny minority of this tiny minority is eager to emphasize lessons that the world doesn't want to hear.

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COMMENTS (19 to date)
Paul Geddes writes:

If I had a look at your personal household expenses, I'm sure I could find 25% of your expenses that according to my tastes could be considered wasteful (i.e "needn't be provided".) Isn't this the normal bias of a holder of elite values looking at what other people choose to spend their money on?

The 10% savings in overhead is the frequent bias against middlemen that always pops up in free lunch political discussions.

All we got in British Columbia, Canada after a decxade starting in the mid 80s of government cutting out "not needed" expenditures by closing some hospitals etc., is a huge boom in new expenditures this decade as governments could not withstand demogogic claims about poorer service.

Rather than having unsolvable debates among health experts about what is proper health care, why not answer this question the way economists normally do: Stop subsizing and allow consumers to let us know what they are really willing to pay for?

Paul Geddes

pidgas writes:

The problem with this declaration is that it's essentially the same as saying "we should reduce the use of fossil fuel by 50%." No matter how true that is, there needs to be specific recommendations about how to accomplish the feat.

In this case, simply declaring that we should cut spending by 50% makes no sense on its own. The question becomes, who decides when care is unnecessary? What evidence exists that IT in healthcare can realize the savings advertised? Should individuals be free to purchase "unnecessary" care?

His proposal doesn't strike me as terribly "bold." No more bold than to assert that the federal budget be slashed by 50%. Only in the latter case, the government actually has mechanisms by which the objective could be accomplished.

Barkley Rosser writes:

Well, there is probably another problem that you yourself should recognize, Bryan. Instituting and enforcing those cuts would probably involve a wise and benevolent government enforcing on individuals that they not seek or receive a whole bunch of this unneeded medical care. However, we are always hearing from critics of national health insurance about all those poor folks in Canada waiting in line for elective surgery for non-life-threatening illnesses, boohoo!

So, if we are to follow Cutler and Hanson, just who is it who is going to enforce all these glorious savings? No wonder no politician wants to touch this one with a ten foot pole.

Mitch Oliver writes:

A better question would be "what policies will eliminate the unnecessary costs?" Once we get some policy recommendations, they need to be presented in a way that will appeal to the populace. That's where the politicians come in.

We can shout about how we need to cut health care spending, but without a way to do it (that would actually work, of course) what good is it?

In any case, I thought people were already saying that we spend too much on health care in this country.

R.J. Lehmann writes:

There are two different views that are being conflated as one. To the extent that Hanson's could be summarized as "medicine, itself, has little impact on health outcomes," that is not an out-of-the-mainstream view. But the argument that an utter lack of transparency in both cost and quality of care metrics has led to extraordinarily inefficient medical spending -- much of it on wasteful tests and procedures that do not increase quality -- is absolutely mainstream consensus. And actually, you'll find these sentiments expressed both on the left, from the likes of Sen. Ron Wyden and even Hilary, and on the right, from the health insurers themselves. The push for cost transparency and quality-of-care metrics are often invoked by those who argue for a single-payor system, arguing they would be easier to implement that way. For their part, the health insurers argue that they very much are trying to allign their benefit structures with more efficient evidence-based medicine, but consistently face backlash from regulators and from the vested interests in the AMA and AHA.

Floccina writes:

Funny this:
"Oh, everyone knows this stuff already."
is almost verbatim what a doctor friend of mine told me when I asked her about Robin's work and Rand Health Insurance experiment. She said that she and her fellow students where taught evidence based medicine but that the patients and their families will not stand for it and they fear being sued.

8 writes:

Which 50% of spending is wasted? I assume it's most of the medicine that might called preventative? Lots of tests and screening that always come back negative?

6 writes:

[Comment deleted for supplying false email address. Email the webmaster at to request restoring this comment. A valid email address is required to post comments on EconLog.--Econlib Ed.]

MT57 writes:

I think there is little dispute that, in a nation of 300 million people, society-wide there is little connection between overall medical expenditures and overall health. The problem is that for a small (percentage wise group) of people every year, there is a huge correlation. They will be very sick or die and no amount of moving to a rural area or exercising will change that. Only significant medical intervention will. In this vein, I note that the Kaiser Family Foundation report, Health Care Costs: A Primer, published last month, states (fig. 4) that, in the last year, 22.5% of all healthcare expenses (that is about $440 billion, as much as the entire Iraq war has cost) were spent on the sickest 1% of the population.

Figure 5 to that report has a nice breakdown about where the healthcare dollars go. No surprise, the elderly per capita incur twice as much cost as the middle aged and several times more than younger people.

The sporadic and unpredictable nature of large healthcare expenditures is why an insurance model has always had a basic logic to it as applied to healthcare payments, very analogous to casualty insurance - the need for significant payments is rare but when it happens, urgent and significant.

What is unfortunate is how many non-serious illnesses and procedures have been thrust into the insurance model, first by employers trying to retain workers during a period when the demographics made such promises cheaper than wage increases, and then by political forces distorting the insurance model into a day to day entitlement, while demographic and technological changes have made the entitlement grow far too expensive.

But a 50% cut is absurd - not only politically unrealistic, but any kind of drastic shock to people's lives should be avoided. Slow and gradual increase in copays, deductibles, and exclusions of procedures would be fairer as a means of accomplishing a balancing. Realistically, that is all coming. The demographics essentially compel it in a slow-growth economy.

Matt writes:

The best definition I ever figured out for "medicine" was that it is what doctors do to get insurance checks. All the other definitions include everything from pollen reporting to weight lifting, way more than can be cast in any coherent model.

Buzzcut writes:

The question becomes, who decides when care is unnecessary?

I think some of you are missing the point. You don't HAVE to decide what is "good" and what is "unnecessary". You just need to cut! 50% of it is waste, you have even odds that what you are cutting is waste.

Yes, it would be nice if we had some benevolent omnipotent god, or Hillary Clinton, to decide what is good and what is waste. That would be a free lunch. But absent that, just cut it.

I think that we are well into the range of opportunity cost with health care. i.e. what are we forgoing because we are spending so much on medicine. The only places that are building are hospitals and medical buildings.

spencer writes:

why else do you think that other OECD countries manage to get roughly the same results as the US
with much smaller budgets. It is because they do make a serious attempt to evaluate the usefulness of various medical procedures -- something the US does not do.

Now that you have started to accept this point or
from your perspective the facts have changed do you think you might temper some of your views on
what should be done to change the US healthcare system.

spencer writes:

8 -- why do you continue to insist that preventive helathcare is wasteful? Their is a wealth of evidence to the contary and virtually no evidence to support your contentions.

I know, I know do not confuse you with the facts.

spencer writes:

i love this, you are jumping on political candidates for seeming to be taking the same position you have been taking.

The democratic candidates actually take the position that we can save enough from eliminating waste to spend the saved money on people who get inadequate healthcare.

So now who is being irrational the educated economist or the politician?

Buzzcut writes:

The democratic candidates actually take the position that we can save enough from eliminating waste to spend the saved money on people who get inadequate healthcare

People didn't like being told "no" by HMOs. Why would you think that people want to be told "no" by Hillary?

If we get a single payer system that rations care, there will be a second American revolution. I am completely serious. When it comes to health care spending, Americans only want to hear "yes".

B.H. writes:

It may well be true that half of medical expenditures is "wasteful." But if we cannot determine for sure which half is wasteful, there is nothing we can do.

Really. Most visits by salesmen are wasteful; they do not result in sales. Most police patrols are wasteful; no criminals are caught. Most fireman waste their time sitting around in firehouses. My toilet is wasteful; it is unused 98% of the time. Stairwells in buildings are wasteful; they are mostly empty.

When I was a young student in the 1970s, mainframe computers were used 24/7; they were scarce and valuable, not a minute could be wasted. My PC is a 1000 times more powerful that that old mainframe, and mostly my PC is idle, its time and power is wasted.

The more affluent a society is, the more "waste" it has. Thank goodness. Only very poor societies cannot afford to waste anything. Most calls for "efficiency" are really recommendations to make us poorer.

Victor writes:

"We need to drastically cut health care spending; half of it doesn't do any good anyway". What is "good"?

How often does an MRI or CT Scan simply provide confirmatory evidence for actions that would have been taken anyway? How often are they ordered because their convenience bumps them up in the diagnostic decision tree? How often do high levels of radiation associated with these tests cause malignancies later in life?
Are these actions wasteful? Or is there a signficant welfare-enhancement that comes with the perception of "knowing"? The perception that, "at least I did something"?

Take, for example, colonoscopies. 24 hours without food, an uncomfortable and embarrassing proceduring; hours taken off work, etc.

Yet asymptomatic people pay all those costs and risk perforated colons to get these done to them. Why? First, they want their cancer treated, if they have it. Second, they also take that risk because they perceive a welfare gain to acquiring evidence that they don't have it. Ironically, this welfare gain may stem from reversals prior welfare loss that stems from knowledge acquired through research and diseminated via public health campaigns (ignorance can be bliss).

Would the addition of the direct monetary cost tip the balance of the decision? Sometimes yes, sometimes no. I am merely arguing that a health policy wonk cannot focus only on medical outcomes when making an argument about whether procedures, treatments, and consultations were untaken with an expectation of positive utility.

And with increasing frequency we are undertaking medical procedures not to directly improve the health status of the individual, but to acquire information. The value of this is highly idiosyncratic and difficult to evaluate statistically. Yet, ignoring this ignores the value of many consultations, tests and procedures.

8 writes:


I never said preventative care was wasteful, my question wasn't rhetorical. I'm trying to imagine what is considered waste. The only true waste, in my opinion, is spending that effects zero change. (But we can't ignore the psychological effects of negative test results, especially for someone tending towards hypochondria.)

But subjectively, one might say spending $100,000 to extend someone's life by 1 month is a waste. I'd like to know what 50% were talking about here.

Robert Blandford writes:

How to choose what 50% to cut? Give a certain amount of government money in an HSA to each individual and let them spend it however they want on health ... including insurance premiums. They can pass what is left on to their estate at death. There is a severely rationed safety net.

See details at

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