Bryan Caplan  

A Really Obvious Way to Bend the Curve

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The Economics of the Microsoft... Balance of Payments...
In the U.S., the all-inclusive cost of a surrogate pregnancy usually exceeds $75,000.  Since insurance won't cover much if any of these expenses, most people who hire an American surrogate are fairly well-off.  Fortunately, there's a much cheaper option: Do it in India, the new capital of fertility tourism.  The quality is high, but you pay only a third or a quarter as much as you would in the U.S.

Of course, if insurance covered these treatments, people wouldn't want to fly across the globe to get them.  But if you think this shows that insurance is "better," you need to go back to your econ textbook.  Hey kids - what do we call it when the only reason people buy something is that someone else is paying?  Say it with me - m-o-r-a-l h-a-z-a-r-d.  That's right!

Which gives me an idea...  If Obama really wants to "bend the curve" of health care costs why not try outsourcing Medicare and Medicaid to India?  The harsh version: The government only reimburses an amount equal to the Indian price tag plus the travel cost.  If you want the luxury of U.S. treatment, you pay the difference.  The palatable version: The government still pays for U.S. treatment, but offers patients 10% of the cost savings if they go abroad.  (If you made it much higher, you'd spark another kind of moral hazard - people feigning medical problems in order to get their share of the cost savings).

As Brad Pitt says in Inglourious Basterds, "Sound good?!"


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COMMENTS (10 to date)
DWAnderson writes:

Suddenly tourists with a penchant for India would develop medical problems. :)

david writes:

Seems like an unnecessarily expensive alternative to just opening immigration to Indian-trained doctors and other medical personnel.

RL writes:

The problem with david's otherwise elegant solution is that medical licensure is a state-level issue, and Obama would face Federalism problems trying to solve the problem that way. I encourage Bryan to expand this thought into an op-ed for the WSJ...

Ned Baker writes:

I'm confused and offended by this post. I doubt your tone would be well-received by many cancer patients. Tell them that their treatment is expensive due to m-o-r-a-l h-a-z-a-r-d. Ditto for heart bypass patients and many others. Medical bills are a leading cause of financial ruin in America, and it's not because all these people are insured.

Now, it's confusing that you use surrogate pregnancy as your moral hazard counterexample. In this case we have an uninsured elective procedure that costs 3x as much in the US vs. India. This proves precisely that moral hazard is not the explanation for high costs in the US!

GU writes:
"Obama would face Federalism problems trying to solve the problem that way."

Federalism is so 1920s. The federal government need only do one of two things to avoid "federalism problems":

1. completely ignore the Constitution/10th Amendment

2. use conditional grants to achieve their goals indirectly.

The Supreme Court is very unlikely to strike down official action that infringes on federalism. Lamentable? Yes. But that's the reality of the situation.

David R. Henderson writes:

Ned Baker says:
I doubt your tone would be well-received by many cancer patients.
He's probably right because what percent of cancer patients clearly understand this issue? Probably not very high. My wife is a sometimes cancer patient who has lived with an economist (me) for over 27 years. She understands this issue. I'll show her the piece tonight and see if she resents Bryan's tone. I won't prejudge.
Moreover, you missed Bryan's point about moral hazard explaining why people would choose the expensive (U.S.) option over the cheap (Indian) option. He knows that the high cost of medical care in the U.S. is not mainly due to moral hazard. He's saying that moral hazard is the term, and the explanation, for Americans' decision not to get the cheaper medical care when their virtually total cost of the expensive U.S. care is covered.
Best,
David

RL writes:

Ned,

I'm an MD and I wasn't offended by BC's tone. I think he's obviously right. Do you believe it is better to be wrong if that's what it takes to not upset a patient?

Ned Baker writes:

In general I'm saddened by the callousness of the US health care debate. Let's not talk down to those we disagree with. Educate. That's my point.

People are suffering financial ruin, physical pain, and death due to our health care system. I believe it's a disgrace. It is broken and in my opinion the necessary set of fixes doesn't align neatly with progressive/conservative/libertarian ideology. We need something from each camp. Thus I'm frustrated when I detect dogmatic answers to difficult, nuanced problems.

Also, outsourcing health care is unrelated with moral hazard, so the original post is confusing. In fact, insurers are already sending patients abroad for covered treatment.

Peter writes:

Or even cheaper, anytime somebody is sick just fly them to the UK, pay hotel cost, fly them home.

I have been in the UK now for four months on a short-term contract (and I have US global insurance) and been to NHS for a non-union fracture of the fifth metatarsal (broke foot), kidney stone, and the flu; ZERO COST. I thought being a foreigner they would recoup given I don't pay taxes but nope, they actually explained to me how they take pride in their no fee-for-service approach to anybody that walks in the door. Given (for example) kidney stone treatment runs about US$15K it seems it would be cheaper if the USG just paid for a medical flight of sick people (maybe $800 per person per round-trip), hotel for a week (maybe another $500), and doped them up with enough meds to deal with the pain of a 8 hour flight; hell maybe even include a paramedic on the flight. When they get to the UK just claim your a tourist (well you are, just the medical type) and go get treated :)

Tim Fowler writes:

If hundreds of thousands of Americans started to take US government charted flights to the UK to get free treatment, I suspect that no matter how much pride they take in their "no fee-for-service approach to anybody that walks in the door" policy they would change it (or at least push the US government to fork over a lot of money)

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