Friday, April 6, 2007

Semi-Informed Thoughts on U.S. Health Care

I've been corrected on a few things.

This is my best analysis of the state of the US health care system based on what I heave read. I am not going to discuss the prescription drug aspect of health care problems because I think to a large degree this can be separated from other problems, and I think it's useful to do so. I should say, my best analysis is still not wonderful because I am not an expert on health care.
First of all, it is obvious that the US health care system pretty bad. There are two main problems. First, costs are very high; health care costs eat up a much larger chunk of the GDP in the US than in other countries (15% of GDP and rising in the US vs 10% in Canada). Second, a significant minority of people in the US don't have access to health care.

As I see it, a large chunk of the excess costs comes from the way we pay for health care. US health care insurance might be properly termed health care cost insulation (here Arnold Kling explains the difference better than I can). Americans tend to over-insure their health care. Americans insure essentially all of their health care consumption rather than insuring to reduce the risk of catastrophic costs. The effect of this is that neither consumers nor doctors directly bear the costs of most health care decisions, so of course health care will be over-consumed. It is possible that there are benefits to this arrangement, but I have not been able to identify any legitimate ones. One of the reasons for over-insurance is that the insurance that employers provide to employees is subsidized by the government, but I am not sure if this explains all the over-insurance.

I suspect part of the reason why many in the US lack health care is because of lack of quality flexibility in health care regulations. The way we licence doctors and other medical professionals in the US (I admit I am not very familiar with how we do this, but here are the requirements for Washington state) means that there is a relatively high minimum quality that medical professionals have to meet in order to sell their services. Licensing in Washington state requires graduation from medical school, two years of training and passing a test. This minimum adversely affects the poor because it imposes a quality/price floor on medical care which means rather than having lower quality medical care they have none. If this were not an issue, more lower quality but lower price medical care would likely be available. I have no doubt that licensing provides a valuable public good, information about medical care quality, but I think there is a need for more flexibility in the quality of medical care and more continuous information about that quality. The public good that licensing provides is not a minimum quality assurance, but information about the quality of medical care.

I would like to explain why I am very unconvinced by systems of socialized medicine as the remedy to our health care ills. I will note that I believe some sort of mandated or government provided minimum health care insurance would likely be preferable to the situation we have now, but not ideal. The overarching reason I do not think socialized medicine will improve anything is that there are enormous organizational costs associated with health care, coming from public good effects or other factors, so the government does not have any comparative advantage in providing medical care funding. Because pre-established institutional organization is the main advantage of government, and I do not see any place where this will be useful, I am skeptical of claims that government can make health care more efficient. One particular instance of this claim is that the government can reduce the costs oh health care by consolidation and the reduction of redundant information and administrative systems. This must be true to some extent, but if there were much cost saving associated with that then there would be a trend of health care insurance companies consolidating because they would be more profitable that way. Since this does not seem to be the trend, and because free market firms should be totally capable of minimizing these costs if they exist, this argument is not persuasive.

I have two questions: one, am I missing anything about the benefits of health care cost insulation? and two, am I missing anything about the organizational nature of health care that gives government an advantage?


John said...

well first of all, there's tons of doctors in the US, so 'too high a standard' is not an issue. Compared with other countries, the US has a reasonable number of doctors: .

The reason costs are so high is because a) nobody wants to get anything less than the best possible coverage and b) MONEY!! You think you can just take a sector of the economy where 15% of GDP gets spent, and drop that to 10% without people freaking out? not a chance. 5% of GDP? realigned? An IMMENSE undertaking. It'll happen, but not till the US is so screwed it has to happen.

If overinsurance has advantages though, they definitely have nothing to do with life expectancy, as pretty graphs here show:

As far as your last paragraph is concerned, I didn't really get anything out of it besides ideology. "because pre-established institutional organization is the main advantage of government", for example, is a sentence that doesn't make any sense to me. Also you frequently discuss 'socialized' health care. I know this exists in Sweden, but then you seem to be discussing the "single payer" system that most of the world uses. You go on to say that "if there were much cost saving associated wiht that then there would be a trend of health care insurance companies consolidating. Any business that's growing is NOT going to consolidate; consolidation is something that happens when there's trouble, think automakers and airlines. Consolidation always makes things more efficient; most mergers are associated with major lay-offs. But they're also generally undesirable for the industry. Also, most of the expense is absorbed by health care providers, who have to deal with multiple payers and complicated systems. I think in this case it's best to look at empirical data, so for instance, this:

The advantages of the government are 1) to fund a system based on taxes, so as to form an effective monopoly, 2) to provide care for poor people, so they don't end up clogging up the ER all the time, and so they can have preventative primary care for their chronic conditions so they don't have to get bad and only get treated when they're bad enough to come clog the ER and 3) to provide even and fair compensation to doctors and hospitals for services provided, no matter whom they provide it to.

I can't imagine how you'd expect a private system to give care to poor people. That's pretty much unimaginable.

All I can say is, any way you want to see it, whether based on life expectancy (above) or WHO rankings: it would seem that every effective and cheap health care system is one-payer, or few-payer.

Sorry if this is irritable, but you really look like you didn't do much research. You can't just say 'seems like it wouldn't cut much costs' or 'seems like this drives up costs' without actually investigating those claims.

Anyway I'm mostly taking an extreme position here as an opposition to yours. A much more balanced article is here:

The basic thing is, even though I'd say Canada's system is better hands down, that doesn't mean we can actually emulate it, which is kinda what i meant about that 5% of gdp thing.

John said...

I found these letters interesting too:

Also that editorial I left you with, as I was thinking about it, is probably quite pessimistic.

Chris said...

Check out the comments on this blog in response to Kling on Cato: