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Like Breadlines, But For Healthcare

April 7, 2009

In the LA Times, Ezra Klein extols the advantages of Britain and Canada’s healthcare systems as against the American system:

Britain and Canada control costs in a very specific fashion: The government sets a budget for how much will be spent on healthcare that year, and the system figures out how to spend that much and no more. One of the ways the British and Canadians save money is to punt elective surgeries to a lower priority level. A 2001 survey by the policy journal “Health Affairs” found that 38% of Britons and 27% of Canadians reported waiting four months or more for elective surgery. Among Americans, that number was only 5%. Score one of us!

Well, sort of. American healthcare controls costs in another way. Rather than deciding as a society how much will be spent in the coming year and then figuring out how best to spend it, we abdicate collective responsibility and let individuals fend for themselves.

Writing at Econlog, Arnold Kling takes issue with the claim that Americans are left to fend for themselves when it comes to health care. But whether or not this is how America deals with healthcare costs, it is how we control the costs of lots of other things. Like food.

Society doesn’t first decide how much will be spent on food in the coming year and then figure out how best to spend it. The government doesn’t run farms and restaurants and grocery stores, nor do we have a single payer system for food. There are some limited government programs to help people who fall through the cracks, but there certainly isn’t any collective decision as to how much Americans will spend on food and/or how that spending should be distributed.

There is a famous story about a Soviet official in Britain who asks to see the man in charge of the supply of bread to London. When he is told that there is no such position, he doesn’t believe it. Clearly he can see that the shops are full of bread. If there isn’t someone in charge of determining how much bread is needed, then how could that happen? Sounds silly, I know, but that is exactly the sort of system that Klein is proposing for healthcare (and as a means of controlling costs!) If the market model (with a few ad hoc modifications) works better than the collective model when it comes to food, it’s hard for me to see why it couldn’t work better when it comes to healthcare.

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37 Comments
  1. Policraticus permalink*
    April 7, 2009 10:12 am

    If the market model (with a few ad hoc modifications) works better than the collective model when it comes to food, it’s hard for me to see why it couldn’t work better when it comes to healthcare.

    I suspect there is a false analogy fallacy at work in your point here. Perhaps you can elaborate a bit more of how the market logic of food (predictable demand, supply, production, distribution, necessity, cost) substantively mirrors the market logic of health care in such a fashion that we one market model can aptly account for both. It seems to me that only a very superficial and remote comparison can be made.

  2. April 7, 2009 10:16 am

    Blackadder, sorry, but this is ridiculous. It’s Econ 101 without any of the nuance. Health care is rife with market imperfections, such as informational aysmmetry, adverse selection and moral hazard. It is an area where the free market, unregulated, will generally fail — at the very least, there needs to be the combination of a universal mandate and the inability or insurers to cherry pick.

  3. blackadderiv permalink
    April 7, 2009 10:37 am

    Morning’s Minion,

    All of the factors you mention (informational asymmetry, adverse selection and moral hazard) are present in the markets for things like fire and life insurance as well as for healthcare. Yet these factors don’t seem to pose major problems in these other areas. To a large extent, for example, issues of adverse selection seem to be overwhelmed by differences in risk aversion, such that the overall selection effect seems to be positive.

  4. M.Z. permalink
    April 7, 2009 10:40 am

    To take a different tack, food wasn’t always a free market good. One can think about prior to the French Revolution, the bakers were compelled to have their lowest priced bread in stock or the customer could purchase better bread for the same price. If we get biblical for a moment, we can go back to Pharaoh having Joseph set up the food stores in the various cities. What allowed the movement to a free market? Scarcity became a concern about types of food rather than food. And what allowed scarcity in food to stop being a reality? Technology improved. For gaming fans think Civilization and the invention of mills.

    Taking a look at our country, we socialized food like everyone else. The socialization in food typically works is that consumers of better goods subsidize production of the base good. In this country, we made our base good corn. Regardless of productivity, our farmers are paid $x dollars to plant corn. This creates a surplus of corn, as would be expected allowing people to be cheaply fed, at least at the consumer level. (Michael Pollan among others have written about the corn industrial complex.)

    If we look to the medical industry we have an oddly similar problem. Your typical new doctor is not a general practitioner but a specialist. So while it isn’t uncommon in this country for someone to die prematurely from neglected diabites, we are able to deliver octoplets and other high risk pregnancies in almost every state in the union.

  5. blackadderiv permalink
    April 7, 2009 10:49 am

    To take a different tack, food wasn’t always a free market good.

    If you mean that there hasn’t always been a totally free market in the production and sale of food, then I agree. We don’t have a totally free market in the production and sale of food today either. In fact, it’s pretty rare to find cases of a totally free market in anything. But compared to the level of government involvement in healthcare today (or the level being proposed), the market for food has tended to be pretty free, and when it hasn’t been free, disaster has typically resulted.

  6. Kurt permalink
    April 7, 2009 10:59 am

    I think BA sets the question up almost to be a useful foil for the pragmatic center (liberal/christian democratic/social democratic). To the ideolog of teh right — private market for food and health care. For the Marxist — collectivized food distribution and health care.

    For me, if the private market can do the job, fine, leave it with the private market. But the private market has shown it does not deliver adequete health care. Therefore, collective action is needed. Forcing a conformity between food and health care is simply not neccesary.

  7. April 7, 2009 11:15 am

    American insurance companies control costs, too – by not allowing more doctors on their panels. I’ve been helping my wife in this regard and I can say that Franz Kafka would be in awe of how the system “works”. You get approved by Blue Shield only to find out that they outsource their mental health (pun intended) and that that “outsource” doesn’t accept any more doctors, in the state of California. Not to mention the endless “Do you take xyz insurance ?” questions. Not that the state is that much better, MediCal is something doctors flee from.

  8. S.B. permalink
    April 7, 2009 11:42 am

    We need to distinguish between different types of healthcare expenses.

    1. Routine and cheap expenses. I.e., getting flu vaccinations, regular checkups (including at the dentist), certain types of cancer screenings for older folks (although not all screenings: PSA screenings are turning out not to be useful).

    For these types of regular and predictable expenses, there’s no reason whatsoever to have “insurance” or the government involved at all, any more than car insurance should pay for filling your gas tank every week. And Kling’s quip — that it makes no sense to believe that we can afford collectively what we can’t afford individually — is right on. The only exception would be the truly poor, and for them, you can have free county health clinics, or possibly health care vouchers.

    2. Unexpected catastrophic and large expenses. This would include hospitalization after a car wreck, diabetes, heart surgery, cancer treatment, or many other examples. Here, Kling’s point breaks down. Many people wouldn’t be able to afford a catastrophic expense individually (any more than they have the cash lying around to rebuild their house in the event of a fire). But we can afford such expenses collectively, because any insurance scheme for catastrophic expenses involves huge amounts of cross-subsidization: a small expense for each individual translates into huge payments for those who happen to need catastrophic care this year (and in exchange, each individual’s risk is covered in case he needs catastrophic care next year or in 10 years).

    Here, I could definitely see a role for the government, given that some people can’t get catastrophic coverage (whether b/c they’re unemployed or b/c the insurance companies won’t touch a pre-existing condition).

  9. blackadderiv permalink
    April 7, 2009 11:46 am

    For me, if the private market can do the job, fine, leave it with the private market. But the private market has shown it does not deliver adequete health care.

    Currently around 44% of spending on healthcare in the U.S. is by the government, and the other 56% is heavily regulated. If you don’t think the current system does an adequate job, this could be because the government hasn’t intervened enough, or it could be because it has intervened too much. I’m inclined to think its the latter, though I understand many people don’t share this view.

    Setting up the choice of government intervention versus the market is perhaps a false dichotomy (and I’ll admit some of the wording in my post leaves me open to this charge as well). As I noted above, we don’t have a totally free market in food. There are things like food stamps. But market forces are given a much wider range of play when it comes to food than when it comes to healthcare (I’m talking about the current situation, not what’s going on in Canada). With food we recognize that if the market works for 90% of people, the answer is not to have the government take the whole thing over, but to craft some narrow intervention to deal with the 10%. If we’d follow the same approach when it came to healthcare we’d all be a lot better off.

  10. blackadderiv permalink
    April 7, 2009 11:53 am

    Poli,

    Pardon for not replying to you sooner.

    While I used food as an example in my post (because food, like basic healthcare, is a human right), there is nothing special about food when it comes to the issue of markets vs. collective action. The same argument holds for clothes, and cars, and computers, and so on. So if food and healthcare are different, it’s because there is something special about healthcare, not because there is something special about food.

    Frankly I think that a lot of what seems different about healthcare is more the result of government intervention than the cause of it. I recently heard a story about an economist whose wife had just given birth. Being an economist (and therefore an odd sort), he looked at an itemized list of the charges. During delivery, his wife had apparently drank a glass of orange juice provided by the hospital. The charge: $100. Hundred dollar glasses of orange juice are not exactly what you’d expect in a free market.

  11. David Nickol permalink
    April 7, 2009 1:30 pm

    How well does the free market work for food? I saw a recent report on Religion and Ethics Newsweekly about how food banks are overloaded and how many Americans need help to feed themselves and their kids. Also, we have food stamps, which are not a part of the free market mechanism. We also have an epidemic of obesity, which is a result of the kind of foods that are offered and consumed. We have high fructose corn syrup in almost every product you can imagine, which is widely considered a serious health problem.

    Hundred dollar glasses of orange juice are not exactly what you’d expect in a free market.

    Apparently you don’t drink not-from-concentrate!

  12. Kurt permalink
    April 7, 2009 2:10 pm

    Hundred dollar glasses of orange juice are not exactly what you’d expect in a free market.

    I’m not so sure. I have two tales of outrageous charges by private sector vendors within the last week. My usual warm feelings toward private enterprise are being sorely tested by the fact that almost all of those I have interaction with are cheats.

    With food we recognize that if the market works for 90% of people, the answer is not to have the government take the whole thing over, but to craft some narrow intervention to deal with the 10%. If we’d follow the same approach when it came to healthcare we’d all be a lot better off.

    Except I don’t think health care works for 90% of the market. But more importanly, they are not comparable because of essential differences in the nature of the two. Consumers have huge opportunities for savings by adjusting selection in food. The costs of bananas and mac & cheese is a lot different from dinner at Sardi’s or Le Bec Fin. Both take will guard you against starvation. Part of medical care may be discretionary, but the majority is essential. Waiting for a sale on cancer treatment is really not a postion most of us want to be in. (“Doctor, when is ‘low -season’ for gallbladder surgery?”) Can Catholics use family planning so they can hit a mark-down season on a birth?

  13. blackadderiv permalink
    April 7, 2009 2:52 pm

    Part of medical care may be discretionary, but the majority is essential.

    No doubt a lot of medical care is essential, though probably not nearly as much as we might think. The Rand Health Insurance Experiment, for example, found that people used 40% more healthcare when it was provided free of charge than when they had to pay for it, but that this extra healthcare didn’t translate into better health outcomes. And Brad DeLong and David Cutler acknowledged last year that “[a]n estimated one-third of medical costs go toward care with no value.” (note: that’s “no value,” not “has some value, but is not essential”).

    Further, elasticity in demand is only one half of the equation. Competition is also a major factor. Even if I absolutely have to buy a given item (say, the latest Wii game) I still will prefer to pay less for it rather than more. This gives suppliers an incentive to underbid each other, which in turn gives them an incentive to find ways to cut costs without sacrificing quality, so as to be able to underbid competitors while still making a profit.

    You joke about “sales” for cancer treatments. But of course sales are only one mechanism that stores use to attract customers. Another, even more popular method, is to offer “everyday low prices.” I don’t think it’s a coincidence that price of things like Lasik (which aren’t subject to government interventions) has been going down rapidly in recent years even while the cost of most types of health care have been going up.

    I think that people tend to radically underestimate the effect of such mechanisms, because they don’t actually see it in action. You don’t often see similar items of similar quality being sold for radically different prices (because if they were, whoever had the higher price would soon find himself out of business).

  14. April 7, 2009 6:45 pm

    BA – Did the powerful in this country pool their resources and pay you a nice retainer, or are you representing their interests on a pro bono basis?

  15. April 7, 2009 9:28 pm

    Did the powerful in this country pool their resources and pay you a nice retainer, or are you representing their interests on a pro bono basis?

    The idea that being pro-free market somehow makes one a tool of big business is a common one, but it isn’t very accurate. Tim Carney, for example, recently took a look at the Congressional Scorecards issued by the Chamber of Commerce. Turns out that the Republican with the lowest score in the House was Ron Paul (Paul ranked lower than 90% of Democrats). This wasn’t an anomaly.

    The truth is that the public spirited arguments used to justify government interventions in the economy are often just masks for powerful business interests using the government to enrich themselves or disadvantage potential competitors.

  16. S.B. permalink
    April 8, 2009 9:48 am

    Blackadder —

    It must get tiresome — and you have much more patience than I would — to be faced with such spurious accusations of bad faith on such a regular basis. The problem with some people is that they are so sure that they’ve identified the only good policies that they can’t imagine anyone disagreeing with them in good faith — and so if someone does disagree, why it must be because they’re capitalist stooges, etc.

  17. Kurt permalink
    April 8, 2009 10:44 am

    The problem with some people is that they are so sure that they’ve identified the only good policies that they can’t imagine anyone disagreeing with them in good faith — and so if someone does disagree, why it must be because they’re capitalist stooges, etc.

    etc. — babykillers unworthy to step foot on Catholic property.

  18. S.B. permalink
    April 8, 2009 11:10 am

    As to abortion, people differ over the end to be achieved . . . i.e., whether it is good or evil for the government to allow and facilitate private killing. As to healthcare, people (at least here, I believe) all seem to agree on the end (better health), but merely disagree as to the empirical facts as to how that end can be best achieved.

    If someone is SO confident of his policy prescriptions that anyone who disagrees is automatically a capitalist stooge, then one of two things must be true: 1) he’s one of the greatest geniuses the world has ever known, capable of solving immensely difficult policy problems so emphatically that no disagreement is even possible any more; or 2) he’s too unimaginative and lacking in good faith himself to be aware of the possibility of sincere disagreement.

  19. David Nickol permalink
    April 8, 2009 11:24 am

    As to abortion, people differ over the end to be achieved . . . i.e., whether it is good or evil for the government to allow and facilitate private killing.

    Actually, I think there is a pretty broad consensus that what would be best is for it to be extremely rare for a woman to be in a position where she feels abortion is her only choice — either because she never has an unplanned pregnancy to begin with, or because when she gets pregnant, there is in place “a whole positive policy . . . so that there will always be a concrete, honorable and possible alternative to abortion.”

    So I think they are both questions of means, not ends.

  20. April 8, 2009 11:48 am

    I have a chronic, debilitating illness, and no insurance. I have the good fortune to be a patient at one of the top hospitals in this country; they foot my bill entirely. My prescription medication would run $350/month, but I get most of it for free from the drug companies.

    I would say that the system has worked pretty well for me, poor as I am. A middle-income person with no insurance might fare far worse. Recently I have gotten sicker, and so a new medicine has been added to the regimen. It is $460/month, and is not covered by any drug company program. So, hmmm we’ll see if and how the system will respond now. It is an interesting, if disconcerting experiment.

  21. Kurt permalink
    April 8, 2009 12:40 pm

    Actually, I think there is a pretty broad consensus…

    David,

    I would disagree. Given the statements made regarding people a step or to removed from the act of abortion (public policy views, etc), I think it is clear that Pro-Lifers view these women as moral scum.

  22. blackadderiv permalink
    April 8, 2009 1:11 pm

    Kurt,

    If you think that Pro-Lifers view women who have abortions as moral scum, then I can only assume you haven’t met that many of them. In any event, this isn’t a thread about abortion, so the subject should probably be dealt with in a different thread.

  23. David Nickol permalink
    April 8, 2009 2:14 pm

    BA,

    Isn’t it part of Catholic social teaching that everyone has a right to health care? Are you implying the best way to guarantee that right is to leave everything to the free market?

    It seems to me there are ways of giving individuals an incentive to “shop around.” I believe many insurers pay what is “reasonable and customary.” Doesn’t that give people an incentive to find a lower-cost provider?

    How does the fact (I assume it is a fact) that about 5% of health-care consumers account for about 50% of health-care costs? Doesn’t Obama’s plan to kill the sick, the elderly, and the disabled make great sense once you realize how expensive these people are? (In Catholic thought, isn’t great expense one of the criteria for discontinuing “extraordinary measures” to prolong life?)

    Is it a bad thing to wait a few weeks or months for elective surgery? Don’t we know you are better off without many operations (like for back pain)?

    If you were elected president, what would be your approach to health care?

  24. April 8, 2009 2:16 pm

    I think it is clear that Pro-Lifers view these women as moral scum.
     
    The saddest thing about that comment is how Kurt seems to think it tells us more about the bigotry of cerain pro-lifers than about his own.

  25. Kurt permalink
    April 8, 2009 2:32 pm

    BA,

    You assume wrong. I’ve met many and they have made their views clear.

  26. blackadderiv permalink
    April 8, 2009 2:38 pm

    Isn’t it part of Catholic social teaching that everyone has a right to health care? Are you implying the best way to guarantee that right is to leave everything to the free market?

    Yes and yes (okay, so “everything” is perhaps a bit strong, but I do think limiting government intervention in the provision of healthcare to something closer to the level of intervention in the provision of food would be a good thing).

    Doesn’t Obama’s plan to kill the sick, the elderly, and the disabled make great sense once you realize how expensive these people are?

    I assume that you are joking here, but this sort of thing really does scare me. When I look at the numbers, it seems quite clear that the government is not going to pay for amount of healthcare for which it has already agreed to provide (let alone all that the government will be promising to provide if Obama has his way). Given the state of our culture, I fully expect a lot of people to start seeing euthanasia as a good cost cutting measure.

    If you were elected president, what would be your approach to health care?

    Bearing in mind that the president is not a dictator who can just pass whatever he wants, I laid out some of my ideas on the issue in this post. Some alternative proposals that I find interesting are described here, and here.

  27. blackadderiv permalink
    April 8, 2009 2:43 pm

    You assume wrong. I’ve met many and they have made their views clear.

    I don’t say this often, Kurt, but I think you’re lying.

  28. S.B. permalink
    April 8, 2009 2:52 pm

    Given the state of our culture, I fully expect a lot of people to start seeing euthanasia as a good cost cutting measure.

    Particularly when you consider that the people who would be managing any greater government involvement in healthcare in the US are the same people who vote for “voluntary” euthanasia laws, who appoint federal judges that hold it unconstitutional for states to restrict voluntary suicide, etc.

  29. Kurt permalink
    April 8, 2009 3:04 pm

    BA,

    You have every right to make those assumptions that seem accurate or likely to you, and to behave accordingly. And I have the same right.

  30. David Nickol permalink
    April 8, 2009 3:27 pm

    I assume that you are joking here, but this sort of thing really does scare me.

    BA,

    I was (of course) joking, but it does seem to me that the fact that so small a number of people account for such a large percentage of health-care spending is a relevant fact. I am not exactly sure what to make of it, though. Should government-sponsored health care or private insurance cover expensive procedures that don’t significantly prolong life? As I said above, cost is one of the factors in Catholic thought that is considered when deciding what constitutes “extraordinary measures” to prolong life.

  31. David Nickol permalink
    April 8, 2009 3:50 pm

    It does seem to me that it is a giant leap from (a) limiting the amount paid for health care to (b) euthanasia. I just did a very quick search (so the results are not guaranteed to be accurate) but it looks like Medicare will pay for a heart transplant under very limited conditions. Nobody has suggested killing all those who don’t qualify.

  32. blackadderiv permalink
    April 8, 2009 3:55 pm

    Medicare will pay for a heart transplant under very limited conditions. Nobody has suggested killing all those who don’t qualify.

    Wait a few years, then get back to me.

  33. David Nickol permalink
    April 8, 2009 4:34 pm

    Wait a few years, then get back to me.

    If I am around in a few years, I will be living proof that they don’t kill off the old, the sick, and the elderly!

  34. April 8, 2009 5:53 pm

    Kurt,

    You assume wrong. I’ve met many and they have made their views clear.

    I think everyone gets that your subtext in these kinds of comments is, “I was very deeply offended by what many pro-lifers said about Obama supporters during the last election, and as a result I’ve decided that most pro-lifers are hateful people and refuse to call myself one.”

    The thing is, applying this as a subtext to lots of passive aggressive statements is actually not any more interesting than if you repeated it explicitly all the time. I think that most of us get what you’re saying, and perhaps even sympathize just a tiny bit (after all, I have plenty of people assure me that I hate the poor, blacks, Palestinians, sick people, etc. because of my political commitments, so I’m used to unjustified hyperbole) but the pity party is a bit much. You’re better and smarter than that.

  35. April 8, 2009 6:56 pm

    Healthcare is always going to be a mess. No company or government likes to provide a service. You’re always the beggar in this situation. However, companies are probably more likely to screw you since they face stockholders, not elections.

    What obviously has to go is that health insurance is tied to a job. Apart from losing insurance altogether, the switching of doctors isn’t exactly wonderful either. I wonder if this is another uniquely American idiocy. I certainly hadn’t thought such a thing to be possible. Now, if Apple had a healthcare branch, we could talk.

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