David R. Henderson  

Poor Have Higher Time Values than We Thought

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What I call health policy orthodoxy is committed to two propositions: (1) The really important health issue for poor people is access to care and (2) to insure [sic] access, waiting for care is always better that paying for care. In other words, if you have to ration scarce medical resources somehow, rationing by waiting is always better than rationing by price.
This is from John Goodman, "Everything We Are Doing in Health Policy May Be Completely Wrong," July 5, 2011.

This came out just before I went on vacation and so I'm playing catch up. I thought a lot of other bloggers would beat me to it and there would be links to this piece all over the place. I don't think there were.

We don't know, on the basis of one study alone, that everything we are doing in health policy may be completely wrong, unless you emphasize the "may." Still, the results are quite striking. Raising the time price of getting drugs to a Medicaid population resulted in more of a cutback than raising the out-of-pocket price of the drugs.

Goodman continues:

The orthodox view underlies Medicaid's policy of allowing patients to wait for hours for care in hospital emergency rooms and in community health centers, while denying them the opportunity to obtain care at a Minute Clinic with very little wait at all. The easiest, cheapest way to expand access to care for millions of low-income families is to allow them to do something they cannot now do: add money out-of-pocket to Medicaid's fees and pay market prices for care at walk-in clinics, doc-in-the-boxes, surgical centers and other commercial outlets. Yet in conventional health policy circles, this idea is considered heresy.

Goodman also adds:
The orthodox view is the reason why there is so little academic interest in measuring the time price of care and why so much animosity is directed at those who do measure such things. It explains why Jon Gruber can write an NBER paper on Massachusetts health reform and never once mention that the wait to see a new doctor in Boston is more than two months.

In the comments on Goodman's post, health economist John R. Graham points to one counterintuitive result that Goodman admits he can't explain:
The time price had a much larger effect in reducing Rx consumption than the monetary price, but the increase in monetary price caused overall Medicaid spending to go up, whereas the increase in time price did not.

I tried to read the study but, unfortunately, it's gated. When I get it, I'll see if there's anything more interesting and, if so, report back.

Update: In response to Tom West's comment below, here's what I wrote in The Joy of Freedom: An Economist's Odyssey:

[B]ecause of socialized medicine, many young Canadian women get to experience the pleasures of natural childbirth. An Ontario doctor who administers an epidural is paid only about $100 for it, versus about $1,000 in the United States. At that price, it is often not worthwhile for an anesthesiologist to stick around at, say, 3:00 a.m., when a delivering mother would like him there. No matter how much a woman may want an epidural, she is not legally allowed to pay for it.


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COMMENTS (15 to date)
Eric Falkenstein writes:

They could allow nurses and physician assistants to distribute antibiotics and address other minor issues, and I doubt our collective safety would suffer, but access to health care would increase dramatically. That this is never considered highlights the cry for more health care, like the cry for more education, has been co-opted by the producers to mean more money, that is all.

Of course, later they complain that prices have risen, as if their policies had nothing to do with it.

Tom West writes:

I think a big fear (that I share) about allowing extra charging is that it may be one of these policies that while effective on paper turns out to be unstable.

For example, it would not surprise me at all to find that allowing people who have extra money to supplement Medicaid might work for a year or two until a new equilibrium emerges - all doctors charge a surcharge, and there's no over-all change in service.

That's certainly what happened in Ontario (although only for certain specialties, oddly enough) when extra-billing was allowed. Fairly quickly all anesthesiologists started extra-billing, and almost all the same amount.

The older I get, the more I realize that where economics is concerned, culture matters more than economics.

David R. Henderson writes:

@Tom West,
Interesting point. Are you sure that there was no overall change in service by anesthesiologists? One place I would look is to see if more of them were willing to be on duty at hospitals in the wee hours. Check my update above for an elaboration.

Eileen writes:

The study seems to ignore the cost of transportation, babysitters, time off to get access. Tripling costs is not as significant from a $1 to $3 copay, if it costs $3 dollars to take the bus and maybe an hour's pay.

Tripling costs from $10 o $30 or $50 to $150 is much more significant and you would see people more willing to wait.

Jehu writes:

It'd be interesting to see if the long term quantity per capita of such specialists increased as a result of letting them charge extra.
Here's the thing about medicine. It is actually significantly different from most of the other high IQ professions. An engineer, for instance, will often spend months without coming into contact with anyone less intelligent than slightly above average. A doctor on the other hand, if anything, disproportionately comes into contact with less intelligent and more dysfunctional elements of society. This is a massive negative factor for that job and something that has to be compensated for. There frankly aren't enough people who feel a 'calling' for medicine to provide the level of access to the service that we collectively feel entitled to, we need a substantial number of 'mercenaries' as well. People try to deny this about the so-named 'helping professions', but it is true.

drobviousso writes:
Fairly quickly all anesthesiologists started extra-billing, and almost all the same amount.

This is to be expected. An undifferentiated service (and I assume there is so much regulation that the majority of anesthesiologists are performing the same service) in a moderately competitive market should cost about the same from every provider.

RE: the title - Define "we," hombre. ;D

David R. Henderson writes:

@drobviousso,
"RE: the title - Define "we," hombre.
Oops. Touche. That's a mistake I almost never make.

GIVCO writes:

@drobviousso

That's what Steve Pinker called "the straw 'we'".

drobviousso writes:

Heh, no problem. I know this isn't a place I need to remind anyone that the government and the citizens are not the same thing. I think I was just channeling John Wayne for a moment.

Daublin writes:

Tom, I think the standard micro-econ prediction would be that some doctors have a surcharge, but some don't.

That is exactly how it has worked out in the U.S. for education and for legal advice. You can get state-sponsored service for free, but you can also pay to get better service.

Tom West writes:

Tom, I think the standard micro-econ prediction would be that some doctors have a surcharge, but some don't.

Which wasn't what happened.

I suspect it has far more to do with the fact that Doctors aren't economists. Speculating here, but I think their pricing is mostly based on the cultural norms set by their peers. Obviously they would like to charge more, but they don't want to look too greedy to their peers (not because it would cost them customers - medical consumers are notoriously price insensitive). So, they look at what their peers are charging as "reasonable", and quickly we have a new equilibrium.

On the other hand, in many specialties there was no surcharge at all. After all, who wants to look like they're greedy to their peers (and, if almost no-one else is doing it, to their patients).

Admittedly, this is a highly regulated profession, so theirs not much scope for offering different services, but I'm always amazed that when my peers in the computer business offer their professional services, what they charge often has far more to do their cultural norms than what the customer is willing to pay. I've certainly heard "I can't charge you that much, I'd be ripping you off" to customers for whom there'd be no repeat business. It just felt *unethical* to charge more.

So much for homo economus :-).

Of course, it works the other way around. If one's no longer worth what one used to be, many will be incensed if they're offered market wage.

Tom West writes:

I strongly agree with Eric Falkenstein. It seems almost a no-brainer to me to allow nurses and assistants to act as a front-line for the health system.

Unfortunately, I suspect that it wouldn't take more than a few mistaken diagnoses to have people demanding a return to doctors-only medicine.

Chris Koresko writes:

Eileen: Tripling costs is not as significant from a $1 to $3 copay, if it costs $3 dollars to take the bus and maybe an hour's pay.

This is a critical flaw in this study: time and money are different units, so it's not meaningful to compare them directly the way Goodman does.

To expand on Eileen's point a bit, suppose that the copay had been tripled from $0.01 to $0.03. The conclusion that the poor value time over money would still be reached (following Goodman's reasoning). But it would be more obviously wrong.

A more defensible conclusion is that the poor value the time and effort to make two trips to the pharmacy more than they value $2.

Hasdrubal writes:
Unfortunately, I suspect that it wouldn't take more than a few mistaken diagnoses to have people demanding a return to doctors-only medicine.

And in our media environment, they could even make _fewer_ misdiagnoses on average than doctors and still get grilled for making _any._

Tom West writes:

And in our media environment, they could even make _fewer_ misdiagnoses on average than doctors and still get grilled for making _any._

Exactly.

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