David R. Henderson  

Ezra Klein's Non Sequitur on Health Care

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Ezra Klein writes:

The [U.S. health care] system is currently biased toward the worst form of cost control: rationing by income. Every year, we contain costs by quietly letting 2 million or so more people fall into the ranks of the uninsured.

He makes the first statement above without presenting any evidence. There might be some evidence for it, but he doesn't present it and I think the evidence is weak. For one thing, two big offsets to his claim are Medicare and Medicaid. Medicare recipients, though relatively wealthy, have relatively low income. And the percent of the population with Medicare has been rising as the percent of the population that is elderly has been rising. Medicaid recipients have both low income and low wealth. Perhaps he means, given his second statement above, that people of a given real income are more and more likely to lose their insurance. For that to be true, the percent of the uninsured with income above $x in real terms would have to be rising. Is it? My impression is that it's pretty stable.

Also, his second statement is false. Actually tens of millions of Americans a year fall into the ranks of the uninsured, just as tens of millions of Americans a year rise into the ranks of the insured. The point is that most people who go without health insurance at a point in time get it later.

Presumably Klein means that at any given point in a year, the number of people without health insurance is typically 2 million more than the number without health insurance the previous year. If that's what he means, he's wrong.

Check out the most recent Census Report on the issue, Income, Poverty, and Health Insurance Coverage in the United States: 2007, issued in August 2008. Table 6 on page 20 shows that the number of American residents without health insurance has risen from about 39 million to 46 million over the last 8 years, an increase of less than 1 million per year, or half the number that Klein asserted. Moreover, the percent of people without health insurance has stayed about constant since 1993.

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COMMENTS (16 to date)
John Thacker writes:
The [U.S. health care] system is currently biased toward the worst form of cost control: rationing by income.

He's committing a fallacy of confusing having insurance with receiving care in the first place, without even noting as you do that Medicare and Medicaid argue against it.

And then there's a distinction between receiving services and getting good health care results.

Buzzcut writes:

Have you noticed that the latest liberal talking point is that there are 50 million uninsured? They're ROUNDING UP from 46 million!!!!

Considering that the number back when we were fighting Hillarycare was 40M, it sure seems to be stable.

Not to mention that these numbers are bogus anyway.

Is David back from vacation already? ;)

Justin Ross writes:

FWIW, I looked over the income effect literature a few months ago. There is clearly a significant income effect in the empirical literature for the UK and Canada, in addition to the US. So UK and Canada have by no means eradicated income concerns. Obviously, it is a tricky task to deal with cross country comparisons, but:

Canada seems to have a steeper income gradient than the U.S.:

The empirical evidence on UK vs US tends to find a steeper gradient in the UK as well. Though I find those comparisons harder to believe, nevertheless, the evidence at the least does not point in the other direction:

Much of the literature chalks up the correlation between income and health care access/treatment/ outcomes in these countries to an associated ability to "navigate the system." I find this explanation unlikely, as education seems to be more important in the US than in other countries.

Final disclaimer, empirically the income effect does not seem to be very large in any country. So when findings say "Income is more important in UK and Canada than the US" it should not be read as "Income is extremely important." It matters everywhere, but other circumstances clearly matter much more.

Mark writes:

Yes, this issue has been overstated by the left first to achieve electoral results and then to maximize the chance that its agenda gets entrenched before the fervor cools. The media are cooperative because the left's perspective lends itself to more dramatic stories, which is what the media need, and the counterargument, that the status quo hasn't budged, is exactly the opposite of what the media need.

TomB writes:

Last time I checked, rationing via the price system was the least bad method of rationing a scarce good. True, prices in some sense "favor" those with a higher income. But in the same sense, the economy "favors" those who can produce more valuable goods or services. The higher wages received by those who produce valuable goods and services provides an incentive for other people to begin producing those goods or services. Prices are not always perfect, but they are a more accurate approximation of the value of a good than a person could calculate.

Ezra Klein should have said that the health care system uses "the best known form of cost control: rationing by income."

8 writes:

Why didn't the 50 million people die? If not having insurance is so bad, where's the epidemic of people without insurance getting sick? Where are the stats? Shouldn't there be a data set of people without insurance who get sick a lot more than people with insurance?

Oh...it doesn't exist? Well if they don't get sick, what's the big deal? Oh, we have to pay for it with higher bills. But if the people without insurance don't get any sicker than people with insurance...then why do we need to pay for the expensive insurance? Oh, it's mandated in Massachusetts. So did that lower costs? It increased them!?

Who's in charge around here?

Les writes:

There is a huge difference between having no medical insurance, on the one hand, and on the other hand, having no access to medical care.

Anyone needing medical care can go to a hospital emergency room, and by law a hospital emergency room cannot refuse treatment.

Of course, one may have a lengthy wait before receiving medical treatment at a hospital emergency room. But lengthy delays in receiving medical treatment are a common characteristic of single payer government medical care.

Both socialized medicine and uninsured patients using hospital emergency rooms are subject to lengthy delays in receiving medical treatment. So it is clear that the existence of uninsured people
is no reason to introduce socialized medicine.

Tim Fowler writes:

Also there is the simple point that "rationing by income" or in other words having prices and ability/willingness to pay those prices, balance supply and demand is not the "worst form of cost control", in many ways in many situations its the best.

David R. Henderson writes:

Good comments, guys and gals. I failed to note the distinction, which I virtually always get, between health care and health insurance.
No, not back from vacation. Waiting for the 3rd leg of a 3-leg flight. Sitting in the Miami airport.

John i writes:

The lack of any compassion in these comments is pretty astounding.

1. Indeed those without insurance have easy access to care. But if they are faced with a critical procedure that costs $30,000 that they simply can't afford, then what good does it do them?

2. Sure, rationing by income is a perfectly good, if not the best way to ration a scarce good. But it's still rationing. Is that what we want? We are not talking about luxury cars or wine here. If the invisible hand prices basic health care out of reach of a significant chunk of Americans, y'all are ok with that?

3. If it is true that the ranks of the uninsured is about the same as it was in '93, then it is also true that a) there are still 40 million of your fellow citizens with no coverage. B) People with coverage are paying a hell of a lot more for it.

4. Those that fall into the ranks of the uninsured may indeed get insurance later, but in the meantime, they can easily run up $100,000 in medical bills that don't magically go away if they get coverage later.

George writes:

Medicaid recipients have both low income and low wealth.

Low income, yes. Low wealth, not necessarily.

I know a guy who qualifies for Medicaid in spite of owning a $500,000 home ($200,000 of equity in it, anyway), because at least in DC, your entire primary residence (plus all the land it's on, plus any adjoining parcels of land you own, plus all the buildings on all that land) is not counted toward the asset limit.

The bottom of my jaw is still bruised from learning that. I don't even have a good explanation for it: did a lobby of wealthy but low-income non-seniors just sneak up on us and enact that rule?

TomB writes:

People are priced out of the market because most health insurance plans are very expansive - they cover a lot of conditions. This is in part because of state regulations. It is in part because of federal tax advantages given to employers. It is in part because everyone wants the best care when they or their loved ones are afflicted by a condition, suffering, or dying.

I think that all people should be able to have some kind of catastrophic insurance. They should also have access to basic health care. But everyone simply cannot have access to all the health care that is out there. Health care must be rationed somehow. Nothing indicates that the government is somehow better positioned to decide which treatments people should be able to have.

Not everyone can have access to every lifesaving treatment. Example. Let's say someone discovers a way to cure cancer, but the process requires the application of radiation therapy in a zero-gravity environment. So to take advantage of the cure, you have to go into space. Should health care cover the cost of the space flight? Is it unfair that low income people cannot afford this cure while high income people may be able to?

I know the example is a little extreme, but "quality" health care has come to mean the "best available" health care. Unfortunately new treatments frequently are not cheap. Nor are labor intensive treatments. Over time, technology based expenses go down, as patents expire and as technology improves. Labor intensive treatments might not decrease in price as much. But still, everyone cannot have them.

People should have access to cheaper treatment. Unfortunately, everyone cannot have expensive treatment, even if it is lifesaving. And price is still the best way to ration the scarce good.

Chuck writes:

Ezra Klein should have said that the health care system uses "the best known form of cost control: rationing by income."

If rationing by price (not income) is the best way to control costs for health care, why do US consumers spend roughly twice as much per capita for health care and have essentially the same outcomes as the rest of the world?

I don't see price-rationing keeping costs down, and I don't see it optimizing outcomes either.

One likely reason - a properly functioning market requires well-informed consumers, and most people are not able to get the kind of education and experience that doctors have.

guthrie writes:

Thank you 8! As a not-quite-dead-yet, un-sick uninsured person (not living in MA), I appreciate your thoughts!

Tim Fowler writes:

Chuck - Re: "If rationing by price (not income) is the best way to control costs for health care, why do US consumers spend roughly twice as much per capita for health care and have essentially the same outcomes as the rest of the world?"

One reason Americans pay more is that for Americans health care is often NOT rationed by price. We are insulated from the actual price. Most Americans have insurance. And uninsured people in the US who don't have insurance sometimes receive health care without paying the full price, or even paying anything.

Also the "rationing method" isn't the only factor in health care costs. The medical culture in the US supports more effort and cost for extreme lifesaving attempts, or expensive treatments to slightly prolong life. The legal culture in the US supports more lawsuits when there is a poor result from medical treatment, which in turn is a major (probably the biggest but probably not the only) reason that our medical culture supports more use of defensive medicine. Then there is the fact that the US is wealthier than most countries. As countries gain in wealth the tendency is for them to spend more, often even as a percentage of their income, on medical care. Then there is the fact that there is more explicit rationing of health care in other countries with care just denied in some cases and long waiting lists in others. "The best way to contain costs" is not meant to imply "the way that keeps costs the lowest. If that's what it meant the best way to contain medical care costs would be to outlaw medical care.

Les writes:

Someone commented on the "lack of compassion" shown by those advocating a price system. Let me ask:

a) Where is the compassion in single-payer socialized medical care, which is notorious for lengthy delays in providing necessary surgical care?

b) Where is the compassion in single-payer socialized medical care, where people have to pay taxes for government medical care even if they use private sector medical care rather than government medical care?

c) Where is the compassion in single-payer socialized medical care, where people have to use only government medical care, because private sector medical care is prohibited?

d) Under 100% private sector medical care, why can't government vouchers for free private sector medical care be provided to the indigent who cannot afford to pay for necessary medical care?

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