Arnold Kling  

Health Care, Education, Spending, and Outcomes

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I attended a Cato event at which Glen Whitman and Ezra Klein discussed health care spending. The main stylized fact is that those who spend more on health care do not necessarily get more. As Ezra puts it


The evidence seems to be that systems that spend $2,500 and systems that spend $7,000 give fairly similar results. More health care dollars does not bring you more health care results, and this is true across nations, but also across states (Minnesota v. Florida). Health care does not seem like a good place to overspend. We should probably err on the side of spending less, not more. Instead, we err on the side of spending much more.

In other words, we are all Hansonians now.

I believe that the same stylize fact holds in education. [UPDATE: Andrew J. Coulson confirms this.] That is, the U.S. spends more per capita than other countries on K-12 education, without better outcomes. School districts that spend more per capita do not necessarily get better outcomes. So I asked Ezra if that implies that we should err on the side of spending less on education. He demurred.

Ezra wants to see a heroic national effort to ration health care, so that we stop wasting money on it. That seems a bit odd, when you think about it. We waste money on cars, food, and lots of other things, and we don't call for rationing.

What people on the left will say is that socialized medicine is cheaper. The notion is that we need to socialize medicine because otherwise our health care system will be wasteful.

However, I look at it the other way around. The only reason I worry about waste in the health care system is that it is socialized. If you were wasting your own money on medical procedures with high costs and low benefits, that would be none of my business. I only care because you are wasting my money.

Where I come down on this issue is that I believe that we waste money on both health care and education. I would be ok with providing means-tested vouchers to people to enable them to buy health insurance or pay for their childrens' education, but I would get rid of all other government subsidies in those fields, including public schools. My guess is that if such policies were adopted, spending on education and health services would go way down, and outcomes would not be adversely affected.


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COMMENTS (12 to date)
VirtualGalt writes:

Lotsa luck getting any "progressive" to agree that an argument that makes sense when applied to health care, also makes sense applied to (against) the NEA.

dWj writes:

I would be sure to limit the health "insurance" that those vouchers can pay for to those things to which the Kleins would have us be rationed. If a state requires that "health insurance" cover in vitro fertilization, that state's residents are de facto ineligible for such support.

MattYoung writes:

Opening shot on the stimulus idea. The question will be around us for years: Which industries solve the worst constraint and what is the natural federal share for this industry?

John Fast writes:

1. I completely agree with you about means-tested vouchers being the only legitimate sort of government programs in, well, pretty much any social service.

2. If someone wastes their money on excessive medical care, doesn't that drive prices up for the rest of us? Similarly, if spending goes way down, doesn't that lower prices for those of us who really need it? (My apologies to both David Friedman and Walter E. Williams for my use of the word "need." I know better but I'll excuse myself by pointing out that I'm using it for rhetorical effect.)

John Booke writes:

Socialized medicine? Healthcare in America is a legalized monopoly. It is controlled by the American Medical Association (medical doctors). The AMA controls prices via Medicare. If you make an outcome based comparison between the US and other developed countries then you can see that the prices we pay are a total rip off. "Fixing" the healthcare system must begin by breaking the doctor's monopoly.

John S writes:

John Fast asks "If someone wastes their money on excessive medical care, doesn't that drive prices up for the rest of us?". I am not an economist so I am probably more likely to be wrong then one of them. Nonetheless, your question implies that you believe that demand changes as a result of price or more accuratey, price changes as a result of a change in demand. As I understand it, demand does not change due to price nor does price change due to demand... all things being equal. I think that you are confusing "demand" with "quantity demanded". Sure if you are trying to buy more health care services than you need, then yes you will pay more. At the same time, if someone else tries to buy less, they are going to pay less.

If there were only a limited number of payers, then I wonder if you might have a point. If health care was only available by fifty (states) payers, then one payer would have enormous impact on the price for the other 49. I'd say that the more payers there are then the better the health care market will be. There will be more insulation to the actions of a few. I would argue (probably incorrectly) that here in the US, there are already too few payers. Yes, everyone might have their small co-pay or whatever, but at the end of the day, the primary payers are the US Gov, the states, and the insurance companies. The actual patients have little influence because some one else is footing the bill.

The problem with health care spending is the emotional factors. No one wants to die or live in pain or see their loved ones do the same.

While I, personally, advocate a health care market place in which there is no government participation or insurance companies, I wonder if the greatness of the US health care industry is not in part due to the excessive spending signaling people to participate in the health care industry. We have some of the best equipment, procedures, medicines, staff, etc. Is this not a result of the excessive spending? Does this not encourage people to leave other fields of activity to be in healthcare? Just a thought.

Oxonian writes:

I believe that the same stylize fact holds in education. That is, the U.S. spends more per capita than other countries on K-12 education, without better outcomes. School districts that spend more per capita do not necessarily get better outcomes

There are no controlled experiments establishing the absence of a causal relation between additional spending in education and better educational outcomes. I thought your view was that drawing causal inferences from mere correlations was "junk science".

Ironman writes:

If it helps, here's some evidence that suggests that health spending levels off with higher income at the national scale.

Second, for what it spends on health care, the U.S. does receive a greater benefit compared to other nations: longer natural life spans. That's partly due to better health outcomes from better medical treatment for more serious conditions that is more generally available in the U.S. Ezra Klein would most likely call the widespread availability of these kinds of medical treatment wasteful and redundant.

Third, if Ezra were really serious about improving health outcomes the most with the least amount of expense, he would be advocating for programs that might effectively address chronic conditions that disproportionately affect minority populations in the U.S., which generate an outsize share of taxpayer-born medical expenses. Huge potential.

Robin Hanson writes:

It sounds plausible that education spending has as little marginal effect as medicine, but I'd like to see the best data on that question.

brian writes:

AK: You complain that healthcare is socialized already and that leads to waste. I assume you are referring to the moral hazard that is associated with health insurance. You are correct, but that has nothing to do with whether or not it is socialized. Any system of insurance has this problem, including private markets. In fact, private markets with information problems can lead to inordinately highly priced healthcare, as you well know.

John S wrote... "As I understand it, demand does not change due to price nor does price change due to demand."

Neither of these things are true. Of course demand is determined by price and of course price changes with demand.

"Sure if you are trying to buy more health care services than you need, then yes you will pay more. At the same time, if someone else tries to buy less, they are going to pay less."

John Fast's point is that other people demanding more services increases the quantity demanded, which pushes up the price. That high price makes me worse off. So, yes, other peoples' demand makes me worse off.

Think of this case: say I wear a particular type of frameless glasses. Now, Sarah Palin steps on the scene wearing the exact same pair of glasses. The crowd goes crazy and the demand for these glasses skyrockets. As a result, the price of these glasses goes through the roof. I'm suddenly worse off, since I can no longer afford my glasses. So, yes, other people demanding a good or service that I like makes me worse off.

Side note: In my opinion, this issue reveals the fundamental flaw of natural-rights based libertarianism; people can hurt each other through means other than coercion, including through the market (this critique doesn't apply to "empirical" libertarians though).

John S. writes:

brian writes:

"Think of this case: say I wear a particular type of frameless glasses. Now, Sarah Palin steps on the scene wearing the exact same pair of glasses. The crowd goes crazy and the demand for these glasses skyrockets. As a result, the price of these glasses goes through the roof. I'm suddenly worse off, since I can no longer afford my glasses. So, yes, other people demanding a good or service that I like makes me worse off."

You describe a situation where demand has changed due to a market-wide change in preferences. John Fast describes a situation in which one person makes choice.

My argument is that one person's choice to waste his money on excessive healthcare doesn't change the "demand" of healthcare for others. It takes a lot of participants to make the market demand curve change.

Josh writes:

The fact that we spend a lot of money on wasteful and even harmful practices in both education and medicine should not lead one to suppose that if we were spending the appropriate amoung of money on the correct things, that it would be less and not more money.

One nice thing about health care is that the patient is also the consumer (not the case in most public education). This gives me hope that incentives for the various players could be properly aligned.

Why do we not hear more discussion about the implications of *mutualizing* (rather than nationalizing) the health insurers?

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