Arnold Kling  

The Median Economist Speaks on Health Care

PRINT
Robert Fogel on Health Care Co... Krugman vs. Blanchard on the S...

Jonathan Gruber writes,


Liberals are right that fundamental cost control can only come from the supply side. Consumers are poor and ineffective shoppers in the medical arena. Ultimately, they will do what their doctors tell them to do.

...But here is where conservatives are right: ...what if consumers weren't so insulated from the financial consequences of their health insurance choices? The typical employee pays only a small fraction of the full costs of employer-sponsored insurance and has no idea what the total costs are. Moreover, the premiums that all employers and most employees pay are exempted from both income and payroll taxation, unlike wages. This shields firms and employees from reaping the financial benefits of lowering insurance costs.

To the left of Gruber is the health reform being discussed this year, and to the left of that is single-payer. To the right of Gruber is consumer-driven health care, and to the right of that are the proposals in my book. Needlessly to say, I take strong exception to Gruber's "poor and ineffective shoppers" allegation. Instead I would describe consumers as embedded in an institutional environment that takes away their motivation to compare costs with benefits.

Gruber wants to tinker with the tax deductibility of employer-provided health insurance. That idea was taken off the table by labor unions. Even though Gruber and I are far apart, Bryan is right that I would be happier if I were ruled by the median economist than by our current political process. I predict that I will find less to like in President Obama's speech to Congress on health care than I did in Gruber's article.


Comments and Sharing





COMMENTS (12 to date)
Marc writes:

I would take issue with patients "will do what their doctors tell them to do". What choice do they have? They can not make their own decisions due to state and federal regulations. The best they can hope for is try to find a doctor that agrees with them.

Ryan writes:

Gruber ignores two important points:

1. On the margin, patients will stop doing what doctors tell them to do when it isn't in their own best interest. His argument is similar to the "patients can't argue prices with neurosurgeons" argument. Generally, no. But this isn't how the market functions. You don't argue prices when buying new shoes or a pair of skis or most other things, but behavior on the margin by a small minority is all it takes for prices to remain responsive.

2. Gruber describes a condition where knowledgeable agents have high value. The market will supply them, like it does in many other industries. One of the largest weaknesses in our current system is the fragmentation of the care continuum. A more free-market approach to health care would see experimentation in care coordination.

John Thacker writes:

The best they can hope for is try to find a doctor that agrees with them.

Exactly, Marc. Anyone who doesn't realize that some (many?) patients shop around for a doctor who will agree with them or prescribe what they want is missing some of the picture.

Dan writes:

The claim that "Consumers are poor and ineffective shoppers in the medical arena." is unproven. Under the current system once a consumer decides to pursue medical care he or she is completely insulated from the cost. Sure, the patient may eventually see a statement but if the charge at the bottom line is a $50 copay what does the patient care how much the x-ray cost or whether it was necessary?

I have a hard time seeing how medical care decisions could be any more difficult than choosing what options to add to a vehicle purchase or what type of PC or flat-screen TV one should buy. Each of these products relies on technology that the lay person does not understand. So how does a person decide whether to buy LCD or PLASMA? By researching the options and ultimately going with the choice that best fits their values. As the lay person makes the same assessment about medical care options the industry will respond by better communicating the value of those options. Competition will yield more innovative products as well as a greater variety of choices and price levels.

Thomas DeMeo writes:

Even if we strip away the institutional environment that takes away their motivation to compare costs with benefits, health care consumers have unique difficulties that make them poor shoppers.

Often, high stake decisions are made by sick and disabled people in pain. The financial stakes for most people are very, very high. Many decisions have long term consequences and short term costs, which we know people never handle well. And worst of all, a large chunk of health costs are highly variable and unpredictable. You won't likely know what you need until it is too late.

Aligning incentives is a good thing and will help, but let's not kid ourselves into thinking it would solve everything.

fundamentalist writes:

"I would take issue with patients "will do what their doctors tell them to do". What choice do they have?"

Exactly! Doctors are the experts. Patients should listen to them. The proper break on medical costs is with a third party, such as an insurance company or HMO. Those companies employ doctors to scrutinize treatment and rein in bad doctors.

Besides, if you reduce the demand for medical, the AMA can always reduce the supply an equal amount and keep medical prices rising.

Insurance companies and HMO's would gladly contract with clinics and hospitals that would provide services at lower prices, but there is no price competition allowed in medical care thanks to the AMA and state regulations.

Still, I favor a tax on company paid insurance because that insurance hides the cost of medical care from voters. Voters blame the insurance companies for high premiums when the real problem is the cost of medical care. As long as companies pay for the premiums, consumers think healthcare costs them very little. They simply don't care that costs are going through the roof. If healthcare benefits were taxed as regular income, then people would begin to ask why their insurance costs them so much ($14,000 per year for family coverage) and we might get somewhere on reform.

wintercow20 writes:

Even if consumers were competent to make choices (I feel like I am a little bit able to do it), I do not believe the providers are in any position to deal with this sort of thing. I have an HSA and my doctors and nurses have not the slightest clue on costs, and certainly nearly as little clue about how relevant particular treatments are, or even a ballpark estimate of probabilities when it comes to various diagnoses. Where do they fit into this story? For example, when I asked a doctor what the likelihood that my son had a particular disease after getting a positive test recently ... I got a blank stare.

Marc writes:

Besides, if you reduce the demand for medical, the AMA can always reduce the supply an equal amount and keep medical prices rising.


90% of general practitioners cases could easily be handled by a nurse practitioner, physician assistant, or (god forbid) the patient. Doctors have fought long and hard for their strangle hold control on the supply of medicine - it is not necessary. WHen I went to Africa, I went to the CDC found the vaccines I needed, then I went to the doctor, who then went to the CDC website and found the vaccines I needed and proceeded to give me the shots and prescribe the anti malarial drugs. Why did I need him? to give me the shots? diabetics don't go to the doctor for their shots? If I was afraid giving myself shots, why couldn't a PA or an NP to do it. I could go on with colds, check ups, etc. GPs are 90% unnecessary.


There are cheap and easy loop holes around doctors and other regulatory road blocks (I will not detail them as I don't want them closed), but that still leaves the vast majority of patients at the "mercy" of the doctor - either agree or go without.

Dan Weber writes:
Often, high stake decisions are made by sick and disabled people in pain. The financial stakes for most people are very, very high. Many decisions have long term consequences and short term costs, which we know people never handle well. And worst of all, a large chunk of health costs are highly variable and unpredictable. You won't likely know what you need until it is too late.

I can't argue with any of that. But I'll note that this doesn't take away consumer choice.

Consumers should have the freedom and responsibility to choose ahead of time what steps will be taken in case they become ill.

For a vast majority of people, this could be handled by "what my doctor thinks is cost-effective for my group." That is, they turn these decisions over to technocrats, but technocrats of their choosing.

You don't sit there while GM builds your car. You don't peek over the shoulder while Apple builds your laptop.

Under this mechanism, the poor will have no choice but to choose minimum government care, so it won't really be a choice for them, but they don't have a choice right now anyway. Most people will choose some kind of privately-run care. Some fraction of people will choose "do whatever it takes to keep me alive care," and pay for it appropriately.

Note that this is very much not what we have now. Decisions are split between your doctor (who may not have your health or financial interests at heart) and your payment provider (who again may not have your health or financial interests at heart), and each can point at the other whenever anything goes wrong.

ceckel writes:

With all this uncertainty about the future of health care, some people have taken it into their own hands to find affordable ways to receive medical care. Check out this video and then ask yourself how far would you be willing to go, literally, to get less expensive medical treatment? www.newsy.com/videos/medical_tourism_boom

Bill Woolsey writes:

I understand the difference between the two types of insurance, but I don't see what this has to do with the argument. Did they say that "we" wouldn't want to pay for medical care directed at preventing vegetative states? It was rather heroic care if those prevention efforts failed and you were in such a state.

So, if living wills meant something (they don't really,) perhaps health insurance companies could give a discount to people who file a living will.

Z writes:

"90% of general practitioners cases could easily be handled by a nurse practitioner, physician assistant, or (god forbid) the patient."

The hard part is figuring out which cases are part of that 90%. Let's say 100 40-year-old men in decent health come to an office visit for chest pain, often at night. Sure, 15-20 of them may be muskuloskeltal, most of the rest of them may be from acid reflux, but what about those two that are aginal, but get treated as reflux? Either you overtest, or you miss cases.

Also, the marginal difference in cost between primary care provided by an MD vs CRNP wouldn't yield much in cost savings. The big bucks are spent on hospitalizations and high-end care (that no one wants provided by a low level provided).

Comments for this entry have been closed
Return to top