David R. Henderson  

All the Medical Care that Money Could Buy

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I believe we could spend our entire national income on health care. Not by frittering money away, but by spending it on goods and services that even in small ways could improve the odds of better health. (Examples below.)

I find that most people in health policy agree with that assessment, but rarely do they see its logical (and I would say obvious) implication. If we spent all our income on health, we would have nothing to eat, nothing to wear, no place to sleep. There would be only health care. Since that's clearly an undesirable state of affairs, it must be good for people to refrain from obtaining all the useful care that money will buy. Further, such restraint needs to be exercised quite often.


So writes health economist John Goodman. He gives examples of expensive tests that make things marginally better, in an expected value sense, but that, if done by many people, would bankrupt them. It's interesting how even many economists don't seem willing to apply the same filters to spending in medical care that they apply to other goods. It's not about risk of death per se. People, after all, are allowed to buy cheaper lighter cars in which, ceteris paribus, they're more likely to be killed in an accident. I think it's more that we've had such extensive government involvement in medical care and health insurance for so long that people think of unlimited health care as some kind of right.

By the way, one side benefit I get from John's posts is the music he plays from the 1960s and 1970s.


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COMMENTS (10 to date)
Les writes:

Excellent point! It goes right to the most basic core of economics - namely scarcity. Resources are never enough to meet all desires. Healthcare is no exception.

What it boils down to is that virtually everything in economics involves trade-offs.

Shangwen writes:

Good posts. This is where I find the healthcare-is-special rhetoric really fails the reality test. Paying lots for little gain is pretty common in the industry, and in the speechifying made by those who want to see more spending.

Equally troubling is the enduring but falsified claim that our current good health and longevity (as compared to, say, 1900 or even 1950) are due to "great advances in medical care", when in fact those gains are related to tremendous economic growth and marketable education, which thus enabled higher consumption of health care goods and services. What you and Goodman are asserting, and what is often derided as a kind of dangerous hate-speech, is that much health care is simply a basket of luxury goods.

Brian Clendinen writes:

We can go even further. Pretty much all preventive care increases the cost of health care. Now that is not to say that quality of life does not increase. (nor does it take into consideration the opportunity cost of a person being more productive over their life time due to good health and longer life span).

That point is if one only looks only at health care cost, preventive care increases the cost for ever single preventive measure out there.

Ian Kodanik writes:

Why the cost of health care is so high, in a nutshell.

P.L. Sonis writes:

the conundrum of health economics--the costs of tests and procedures that could bankrupt an entire economy, yet they have no price for those who order them or consume them. And we wonder why health care costs are skyrocketing?!

Joe Barnett writes:

As with the example of cars, motorcycles or even bicycles, what each of wants from the health care system isn't identical -- and forcing us to pay for or use something because "it's good for us" doesn't make much sense: should we all be required to buy Volvos [very safe]? Or Chevy Volts [not so safe, but arguably environmentally friendlier]?

Shangwen writes:

Brian makes a key point. Prevention programs are always put forward as cost-savers, but in the end many are used to excess, just as after-care and chronic care can be overused. Consuming prevention is, for the most part, just a Hansonian signal of social affiliation and affection, rather than disease prevention. There are many established distal disease-preventers, but they are external to health care, such as education, income, diet, and non-smoking. Medical interventions designed to prevent specific illnesses mostly have a pretty dire record.

Lee Waaks writes:

A friend of mine is a long-time advocate of NHS-style healthcare. When I talk about rationed care under that system, he replies that healthcare is already "rationed" in the U.S. I suppose my follow-up question would be "Are you advocating rationing?" I suspect he is but assumes that it will be more fairly rationed under NHS. But he ignores tradeoffs and other problems associated with NHs-style healthcare. For those who speak of healthcare as a right -- and he does -- they believe that is the knockdown argument. If it is a right, then we should move directly to the planning stage -- Do Not Pass Go. But J. Goodman and D. Henderson raise a very good point. If it is a right, how much are we entitled to? Hypothetically, we could have a national healthcare budget of 1 million dollars and when it is exhausted on a first come first serve basis (a lottery system?), the gov't could declare that our "rights" had been fulfilled. Where is the stopping point supposed to be? If we have a right to healthcare, is there not a corresponding duty to take care of ourselves and avoid risky behaviour? Should this duty be enforced? If not, then why should healthcare be a right if those who are awarded those rights by the state often don't protect that which their rights are designed to protect (in this case their health)?

Larry Ruane writes:

Here's a suggestion for when you're talking to people about this topic. If someone says "People have a right to health care," and you reply, "No, they don't," that doesn't sound very good -- even to statists, who believe (or say they believe) in "rights" (at least "civil rights").

What I like to say is: I agree with you, and I also agree that many people do not currently enjoy this right, and that is an injustice. (I think it always helps when you start out agreeing with people.)

But (I continue) I may understand "right to health care" differently than you do. My understanding is that every person has the right to make voluntary arrangements with others for the provision of whatever goods and services the person believes will improve his or her health. This means: no licensing of doctors, no FDA, no drug patents, and so on. This way, the person you're talking to doesn't have to give up the concept of the "right to medical care," but only needs to modify his or her interpretation of that phrase.

Robert Book writes:

Both arguments seem to assume that there is some fixed, knowable price for each health care service, and that such price does not change in response to changes in the quantity produced, or the demand for it.

None of those assumptions are true.

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