Arnold Kling  

Health Care Free Lunch

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Brad DeLong and David Cutler promise one, on behalf of Barack Obama.


As the reforms take hold, costs will drop. As costs drop, insurance will become more affordable. Millions previously priced out of the market will be able to buy insurance.

The first reform that will do this will be a $50 billion expenditure to try to improve information on which treatrments work and which ones don't. I think it is worth a try (on a smaller scale at first), but the evidence is mixed on how well this has worked when tried elsewhere, notably in the UK.

The second reform is to change medical compensation from procedures to outcomes. Again, there is no evidence that this works, and the result of trying it in the UK was a dramatic increase in costs, as doctors quickly figured out how to game the system.

The third reform is to create insurance purchasing pools for individuals and small businesses. That is very unlikely to reduce health care spending.

The fourth reform is prevention. While there certainly are cost-effective prevention measures, there is no proof that dramatic cost savings are possible with prevention. Sally Pipes says that the notion that government prevention programs reduce costs is one of the top ten myths of health care.

DeLong and Cutler go on:


By contrast, Republican presidential nominee John McCain believes that the central problem in health care is that people have too much insurance and, because of it, consume too much medical care.

I agree with the position that they attribute to McCain. Because health insurance is not insurance, but instead is insulation, it does cause excess spending. Moreover, if you do nothing about insulation, then the only defense you have against excess spending is rationing.

I wish that there were an active betting market on what the DeLong-Cutler fee lunch promises actually would deliver, and I wish they could be forced to put up 90 percent of their net worth in that market. It would serve them right.


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The author at 曼昆/Greg Mankiw's Blog in a related article titled The Health Care Debate writes:
    David Cutler and Brad DeLong make the case for the Obama health plan. Arnold Kling dissects their an... [Tracked on November 1, 2008 10:12 AM]
COMMENTS (12 to date)
Derek Christiansen writes:

Arnold,

No insight on the claims of the Harvard Prof that all western nations spend less but get more for their money?

I immediately thought of the rationing that takes place in the UK (worked for a Brit firm for years and on occasion used their system).

Does government rationing rebut the claim, or is the claim false?

MattYoung writes:

$50 billion to collect information bout which health care therapies work?

We have medical research articles, publish them on the web for $100,000.

RL writes:

Arnold: "I wish that there were an active betting market on what the DeLong-Cutler fee lunch promises actually would deliver"

I'm pretty sure Milton Friedman admitted there WAS such a thing as a "fee lunch"...

John Thacker writes:

No insight on the claims of the Harvard Prof that all western nations spend less but get more for their money?

That claim is simply a bit of sleight of hand. What they have is data that says that all Western nations spend less but are healthier. That's not the game as getting more for their money if Americans are less healthy to start with-- unless it's part of the Obama plan to force everyone to exercise as well.

Kurbla writes:

Life expectation is strongly influenced by lifestyle, but infant mortality is mostly about health system.

ThomasL writes:

Kurbla,

Infant mortality figures, however, are more about how the statistics are tabulated. This is somewhat analogous to the way GB collected crime statistics for a time, where only solved crimes were recorded as crimes: encouraging in numbers, but bearing little relation to reality. (It is a particularly perverse scenario, where the more efficient the police force the higher the crime rate appears.) That particular story may be apocryphal, but the example still holds.

Something similar is at play with infant mortality statistics. The countries involved are not using anything like the same criteria, so the comparisons, at least on published numbers, are not very helpful.

libfree writes:

Greg Mankiw did a great piece where he went over those statistics. They really don't mean much, even when collected correctly.

http://www.nytimes.com/2007/11/04/business/04view.html?partner=permalink&exprod=permalink

Vito DiPaola writes:

I realize this as a gross oversimplification, but the equilibrium price of medical care is where demand and supply curves intersect. If that is too high, then making care more affordable simply moves us further down the demand curve, meaning that even greater quantities of medical care will be needed.

Why is no one addressing the supply side? Why not increase the number of medical schools, hospitals, clinics, etc., to create a more competitive market? Why not remove some of the obstacles on the supply side, by lowering medical malpractice costs through instituting tort reform? Why not train more nurse practitioners, para-medicals who can perform the more routine procedures and diagnostics? Why not streamline the FDA approval process, and take some costs out of pharmeceutical development, thus getting these drugs to market more quickly and cheaply?

Dr. Z writes:

Lowering the barriers to entry to medicine won't do anything to solve the problem. Providers aren't really much of a problem (relatively). Only about 20% of Medicare expenditures go to pay physicians.

I am a doctor, and I'll tell you (and so will any insurance payor who can pick through their data), nurse practitioners/PAs/ect. may be a little cheaper to train, but they end up ordering a lot more tests (which gets really expensive), because, due to their more abbreviated training, they tend to function more as protocol following automotons, instead of actually applying some knowledge to make decisions. Now, don't get me wrong, they're great to have and take wonderful care of their patients, and I'd trust many of them to take care of my mom than I would some of my physician colleagues, but on average, they're not going to save the system money because of reasons above.

floccina writes:

Kurbla factors other than medical care are far more important to infant mortality. than medical care

LowcountryJoe writes:

I am all for the federal government acting as an insurer in the health care market provided that:

- there's an opt out provision for those who do not wish to participate.
- premiums for this government run health insurance are not linked to income or wealth in any way shape or form but, instead, upon the same type of health facors that other health insurers use [in other words, not on the ability to pay or any other such Marxist-like garbage].
- those that opt out would not neccessarily get a garauntee issue health plan if they attempt to come back into the government run plan [in other words, not neccessarily let people who choose not to insure themselves, come back to the government once they find out that they are ill and will need expensive treatment(s)].

If the Left is so damned concerened with the taking of "obscene" profits and kick-back schemes the health care professionals may have and use today, they should be willing to compromise on the three things above. If not, the Left should just be exposed as the pandering, Marxist, something-for-nothing bottom-feeders that they are.

Besides, the federal government already spends nearly two thrids of a trillion dollars on health related expenses and they still complain that the health care system has flaws and needs government to get involved. Well no kidding; look how much the planners are involved in it currently.

Kareem writes:

I do not have any survey or statistic to point to in my analysis; however, I've worked enough as an advocate for low-income workers to know a con when I see one.

There are five facets involved in health care provision: pharmaceutical companies, health managers, lawyers, health providers, and hospitals. This list is simplified but inclusive.

Much can be said about the pharmaceutical industry, mostly negative things, but much can be said. I am reminded of this incident from several years ago. In lieu of an AIDS epidemic, Indonesia(?) embarked on a cost and life saving plan to procure generic AIDS medication. A major international pharmaceutical, whose name eludes me, threatened to pull all of its products from the country if they followed that plan (the company had a name-brand, expensive AIDS drug they marketed). This same bandying went on for years with AIDS medication in sub-Saharan Africa.

For twenty years, my father worked in the pharmaceutical industry, and he, like many scientists, justified the industry's somewhat sadistic (though self-enriching) practices as market necessity and a benefit to humanity, gifted by noble biologists. Few people fault scientists for their benefits to modern medicine. However, many people are a little peeved at the business side of the equation: let us take one part inelastic demand, two parts 'people's livelihood and health' mix it with an ensured (or insured) payout and charge people as near to death as we can.

Then there's the public money that goes into groundbreaking research, something like 35% of total R&D cost. Many industry people make an argument that most of that research goes into diseases and medicines that are unprofitable. But advancements in science are not independent phenomena. Science builds on past advancements and many of the major advancements of our day have been a result of public funding, public research (like the GENOME project) that will benefit some people for-profit, while leaving all of us paying too much for our scripts.

That whole argument is a red herring, anyways, as anyone with eyes knows. Some claim that pharmaceuticals do most of the research on their own. My own father, who worked at Amgen, tried such rubbish, until I found out that AMGEN lost a decision in the courts nearing 250 million dollars for some of the groundbreaking work that UCLA researchers did to develop Epogen (a dialysis treatment). Two hundred and fifty million dollars is just a drop in the bucket compared to AMGEN's profit on that drug. We've paid on BOTH ends for the company to benefit.
----

I was going to do five parts, but I got a little carried away with the first. There is so much more, and I've only just wet my lip. People who want to make this out to be a simple question of free market versus regulated market are missing the point. Why should profit-derived models be applied to a system whose main considerations should be delivery of care and public health issues?

For instance, how does having an investment and business oriented CEO of a hospital benefit the recipients of care at that institution? My brother recently cut his finger and went to the emergency room. He had no idea of the severity of the wound, but when he got there, the nurse poured some alcohol on it, put a bandage, and saw him on his way--$500 dollars lighter. Ten minutes of care for $500. As an advocate of some of the poorest people in America, I've seen much worse: people charged thousands of dollars for unnecessary hospitalization, for simple procedures, for bad advice. I had some asshole-liberal doctor tell me how so many Hispanics distrust Western medicine and still see traditional magicians/witch doctors that tell them to take a root or something to cure what ails them. He told me of the large effort he was taking to convince many farm workers at companies like Driscoll's and Dole of the scientific basis and merits of Western medicine. All the while, I was thinking dollars and sense. Is a farm worker going to be more inclined to follow a regiment of medication that will pauperize him for many years, leaving him ten grand in the hole; or will he follow a regime that costs him fifty dollars and some faith. "Sir, you have diabetes type two, here's my bill and here's a prescription for medicine you can't afford. Make sure my check is in the mail by next week or interest will accrue."

You want a meaningful reform that needs to take place? Malpractice insurance! I don't have a problem with large payouts. I think that ruining a persons life deserves some monetary compensation. But there needs to be a change of orientation. Having these huge payouts costs everyone in the system more. Instead, there should be a focus on critical analysis of the reason for the malpractice and how to fix it. Charging a hospital or doctor millions of dollars doesn't help the problem; if anything, it exacerbates it. Malpractice should be met with stiffer penalties towards the institutions and people that allow them. Force a doctor to retest his fundamental knowledge of medicine. Award some money to the patients, but award most of the money towards improving the accountability and fundamentals of the institution. There should be a comprehensive analysis of why malpractice is so common. Maybe we need to force doctors to be accountable for their knowledge, even after they've started practicing. Offer training regiments in the most common malpracticable situations. Put the money towards good use, not retribution. Families who lose an earner should be compensated. But the system that takes a hit needs to move forward and progress from that hit, not lose out when they pay out.

Sorry if I seem a little cynical, but it's a real dim picture when you're looking from the bottom, up, as opposed to a raised nose, down. I have a million life experiences, many of which, when held up to most macro-analysis of the health care system, proves the need for cynicism.

I guess that's what you get when your mom works for an HMO and your dad works for a pharmaceutical.

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