Cafe Hayek

Does Fee-for-Service Explain Rising Health-Care Costs?

I argue here that rising medical-care costs are not explained by the fee-for-service method of delivery.

Doctors as symptom

Greg Mankiw writes:

For obvious reasons, I have been thinking a lot about healthcare recently. One important question is, why does the United States spend so much more on healthcare than other nations do?

There are surely myriad reasons for the international differences, but part of the answer can be gleaned from this passage by Uwe Reinhardt, Gerard Anderson, and Peter Hussey (via an old post of Ezra Klein)

He then quotes a passage about how much doctors are paid in the United States relative to the rest of the world. They're paid a lot more.

But doctors' incomes are not a cause of higher spending. Doctors incomes being high are a result of the same underlying forces that cause higher total spending in the United States relative to the rest of the world—an increase in the demand for medicine driven by third party payments--governmental and private (with the latter tax-subsidized by government).

Doctors pay in the US is also affected by supply limitations imposed by licensing and medical school accreditation. This keeps prices from equalizing internationally as there are barriers to foreign doctors practicing here.

Friedman on Health Care

This article on health care, written by Milton Friedman in 2001, is still worth reading.

(HT Greg Mankiw)

People Choose

Carpe Diem's Mark Perry asks important questions about health-insurance coverage.

Rational rationing?

David Leonhardt writes (HT: Elizabeth Terrell):

Milton Friedman’s beloved line is a good way to frame the issue: There is no such thing as a free lunch. The choice isn’t between rationing and not rationing. It’s between rationing well and rationing badly. Given that the United States devotes far more of its economy to health care than other rich countries, and gets worse results by many measures, it’s hard to argue that we are now rationing very rationally.

It's an interesting column and I think Leonhardt is maybe half right or maybe even three quarters. He's right that the choice isn't between rationing and not rationing. But I don't agree that the choice is between rationing well and rationing badly. I don't know what rationing well or badly means. He means we ration badly because we spend too much. He's right. The current system doesn't let prices ration. Prices are artificially low. There isn't enough rationing in the global sense.

For me, the crucial question is who does the rationing, a centralized decision-maker or a decentralized system. Centralized decision makers influenced by political pressure inevitably ration badly. Decentralized systems can potentially avoid the problem of political pressure.

The "reformers" want more top-down rationing with prices playing a smaller role than they do now. I want prices to play a bigger role. Prices also play a role in rationing any overall level of care among individuals. This is one reason people tend to be suspicious of prices--they appear to give the rich an advantage. And they let people profit. But those profits produce incentives to control costs that are missing from the current system and that would not be in place in the typical reforms that are on the table.

I want more rationing with less control where power is dispersed. The "reformers" want more rationing with more control and more power. They scare me.

Damned if you do, too

Reuters headline (HT: Planet Money):

Obama: Government could go broke if healthcare not fixed

Or if it's "fixed" the wrong way.

Competition and Health Care

David Rose, Professor of Economics at the University of Missouri - St. Louis, argues correctly that "The problem with American health care is not excessive competition; it is insufficient competition."

Kling on Marcus Welby, M.D.

Here's EconLog's always-insightful Arnold Kling writing, in a letter-to-the-editor, in today's Washington Post.

Technology and Medical Care

One often-heard explanation for rising medical-care costs centers on the advance of technology.  I'm sure that there are variations on this theme, but fundamentally it sounds like this: technological advances improve medical-care treatments but are quite expensive; this technology must be paid for, so at least part of the higher prices for medical care is a reflection of technological improvements in medical care.

Perhaps this explanation is correct; I have no data to contradict it.  But my priors make me skeptical of this explanation.  Technology creates great improvements in telecommunications and computing, yet the prices of wonders such as cell phones, telephone calls, and personal computers have fallen dramatically over the years.

The same is true for transportation.  Huge investments in transportation technology -- engine design, the construction of container-shipping facilities, airplane engineering, and on and on and on -- are all, both individually and taken together, quite expensive.  Yet the price of moving a ton of freight from New York to London, or a half-ton of family members from home to the regional shopping mall, has fallen continually.

Why should medical care be different?  It must be the case that some other factor is at work driving up the cost of medical care – a factor that either works in tandem with technological improvements to raise these costs or that works independently of technological improvements to raise these costs.

On Canada's Health-Care System

Here's a critical look at Canada's health-care system.

(HT Henry Lyatsky)

Why Is Medical Care Unnecessarily Expensive?

In this column, I apply some basic economics to health-care provision - and I do so stealing shamelessly on an important idea that Russ explained well years ago in the Wall Street Journal.

Responsibility for Health Care

Here's a letter that I sent recently to the Los Angeles Times:

Writing about medical-care provision in America, Ezra Klein laments that "we abdicate collective responsibility and let individuals fend for themselves" ("When it comes to healthcare, the U.S., Britain and Canada are hurting," April 7).

Mr. Klein's anthropomorphizing of the collective causes him to get matters backward.  Collectives aren't sentient beings; they're abstractions.  As such, a collective cannot be responsible (or irresponsible) any more than it can be sexually excited or break its wrist.  Only individuals are capable of acting responsibly.  But when some individuals, masquerading as oracles for "the collective," take resources from other individuals and then use some of these resources to subsidize individuals' consumption, each individual whose consumption is subsidized does behave irresponsibly.  Each subsidized individual is freed from the necessity of taking account of the full costs of consuming the resources he uses.  That individual, therefore, no longer ably responds to economic reality; he becomes truly irresponsible.

Sincerely,
Donald J. Boudreaux

Arnold's invisible heart

Arnold Kling explains why government isn't heartful and decentralized decisions can be. Extremely eloquent.

The Perils of Government-supplied Universal Health Care

A loyal Cafe patron asked me to post this column that I wrote a few years ago, for the Foundation for Economic Education, on the perils of government-supplied health care.

Nationalized Health Care Is Hazardous to Your Health

Nationalizing the provision of medical care will not make medical care less costly -- indeed, it's likely to make it more costly.  Nadeem Esmail explains in this account published in today's Wall Street Journal.

Deserving & Denied?

Here's a letter that I sent today to the New York Times.

Denationalizing the Drug-Approval Process

Here's my colleague Dan Klein arguing -- effectively, in my opinion -- for denationalizing the process of approving drugs.  The clip lasts about seven-and-a-half minutes.  It is well worth watching.

More Unhealthy Economics

Following up on this post, here's a letter that I sent on Friday to the Washington Post:

According to E.J. Dionne, "Few investments would help businesses more than offloading a share of their health-care costs to the government. It's social justice with an economic kick" ("Hoover vs. Roosevelt?" October 10).  Overlooking the questionable "justice" of forcing Peter to pay Paul's insurance premiums, Mr. Dionne's economics is wrong.

Government provision of universal health insurance won't reduce employers' costs of employing workers.  Worker pay - wages and benefits - is set by competition among employers for employees.  If competition obliges Acme Inc. to pay a worker an hourly wage of $20 plus health benefits worth $5 hourly, this fact means that Acme must pay this worker a total-compensation package of $25 per hour.  Because government provision of all health insurance would not reduce the value of this worker to Acme and other potential employers, competition would oblige Acme to raise the worker's hourly wage by $5 - the amount that Acme no longer must pay for health-insurance premiums.  Acme would still have to pay this worker a total-compensation package worth $25 per hour. 

Contrary to Mr. Dionne's assumption, government provision of universal health insurance would not reduce firms' costs -- although it would surely raise their taxes.

Sincerely,
Donald J. Boudreaux

I ignore in this letter the fact that employer-provided fringe benefits are untaxed, unlike wages.  I also make only passing mention that an inevitable consequence of government provision of universal health insurance is higher taxes.  These facts add wrinkles to the final equilibrium outcome (perhaps even big wrinkles), but they don't change the fundamental point that if worker Jones will produce $26 per hour for Acme Inc. and would produce $25 per hour for Megacorp, then Acme Inc. must pay Jones at least $25 per hour to get Jones's services; Acme Inc. must pay this sum regardless of how many goodies Jones gets from government.

What Is Seen.....

Washington Post columnist E.J. Dionne, perhaps channeling Malcolm Gladwell, commits a truly bad economic mistake.  Like all such mistakes, it's one that results when someone looks only at the surface, with no analytical penetration beyond what is most easily seen.

Here's Dionne:

Few investments would help businesses more than offloading a share of their health-care costs to the government. It's social justice with an economic kick.

Rather than explain in detail the flaws that saturate this idea, I content myself now only to ask: If Dionne is correct that the efficiency of American businesses would generally be improved if government paid for all workers' health insurance - that is, if government paid part of firms' costs of employing workers -  then is it also true that the efficiency of American businesses would be further improved if government paid firms' full wages bill?

Put differently, if the U.S. economy would get "an economic kick" from government paying part of firms' costs of employing workers, why would the economy not get an even bigger kick if government announces to all employers: 'From now on, government will pay all of the expenses you incur in hiring and maintaining employees.  Government will pay not only one type of fringe benefit, as Mr. Dionne proposes, but all of your costs of employing workers.'

So no firm would any longer have to pay as much as a single cent to hire and maintain workers.  Wages, salaries, and fringe benefits - all benefits from health-insurance premiums to office holiday parties - would be fully covered by government.
.....
Who thinks that it would be a good idea for government to pay all expenses that firms now incur in hiring and maintaining workers?  Who supposes that the American economy would thereby become super-efficient?  I'm pretty sure that E.J. Dionne would oppose any proposal to have government pay all such expenses now paid by individual employers.  But if so, what is his logic for supposing that it would be good for the economy for government to pay only part of these expenses?

(I might post later on other problems with Dionne's proposal?)

Should Government Make Health-Care As 'Affordable' As It's Made Housing?

My friend Nick Calapa sent me the following e-mail:

The one good thing that came out of this whole credit debacle, I now have the perfect pithy response to all the lefties who tell me that the government should take over health care and make it affordable to everyone.  You mean the way they made home ownership affordable to all through Fannie and Freddie?  How did that work out for you?

Go Nick!!

Does Foreign Aid Promote Better Health?

Economist Claudia Williamson has a nice paper in the July 2008 issue (Vol. 75) of the Southern Economic Journal.  It's entitled "Foreign Aid and Human Development: The Impact of Foreign Aid to the Health Sector."  Here's the abstract:

The appropriate role of foreign aid in promoting economic development has long been debated.  With the recent change of focus from economic to human development, it is timely to investigate the effectiveness of aid in promoting human development.  This paper is the first to empirically test the hypothesis that increases in human welfare can be achieved through health sector specific foreign aid.  My results indicate that foreign aid is ineffective at increasing overall health and is an unsuccessful human development tool.  These results hold after controlling for reverse causality and are robust to different model specifications.

A draft of this paper can be downloaded from Prof. Williamson's personal website (linked to above at her name).

Culturally Appropirate Health-Care

Here's a letter that I sent today to the Washington Post:

La Clinica del Pueblo's Mauricio Silva boasts that his clinic supplies "culturally appropriate health care" (Letters, August 6).  I love this idea!  And I presume that in this age in which diversity is celebrated and all cultural preferences are equally respected and protected, I can receive my own culturally appropriate health care.

In my culture - call it individualist - I am not forced to pay for anyone's health care and no one is forced to pay for mine.  I'm free to choose to buy health-care insurance as long as it isn't forcibly subsidized.  And persons in my culture are mortally offended at the prospect of being forced to participate in any collective scheme of health-care financing or provision.

I call upon all persons who respect diverse cultures to stand up for mine, which today is endangered - to help me and my fellow individualists protect our culture from forcible assimilation with the dominant one that is arrogantly trying to strip us of our unique cultural folkways.

Sincerely,
Donald J. Boudreaux

Kling on health care management

The latest episode of EconTalk is a conversation with Arnold Kling on how to improve health care outcomes in hospitals. Given how complex the human body is, specialization doesn't always improve health--the heart doctor worries about a heart attack and neglects the impact of bed rest on infection. Arnold wants to see better planning within hospitals to take account of the complexity of the human body. I wonder why the incentives aren't in place for that to happen already. Arnold has lots of interesting observations about our current system and what it does, both good and bad, to human beings.

I am working on interviewing a hospital administrator in the fall.

Brain stuff

This is an amazing 18 minute talk by neuroanatomist Jill Bolte Taylor talking about the stroke she had. (HT: Ken Miller) It's very moving and you'll learn something about the brain.

At the end of my viewing of it, an ad for autodesk came on. A gorgeous ad that was a tribute to human creativity. At the end was this quote:

There isn't a problem in the world that a great designer can't solve.

I know what they meant. But of course Hayek (and Leonard Read) would have said it like this:

There isn't a problem in the world that a great designer can solve.

Better

Anytime you hear people talking about how dangerous and polluted and horrible life is in the United States, remind them of this:

What's Truly Sick

Here's a letter that I sent today to the Wall Street Journal:

Louise Benson says that allowing people to sell their transplantable body organs would result in poor people being "enticed by the money" to become suppliers; she thinks this outcome would be "sick" (Letters, May 31).  Ignore Dr. Benson's questionable presumption that her personal cultural aesthete should trump the freedom of other adults to make such choices.  Focus instead on the economics.  If organ sales were liberalized, the availability of organs would rise and their prices would fall. Transplant surgery would become more affordable and, thus, more lives - not only of the rich but of all classes - would be improved and saved.

What's truly sick is government's continued prohibition of organ sales.

Sincerely,
Donald J. Boudreaux

By the way, my GMU colleague Lloyd Cohen (who teaches in the law school) writes insightfully about organ donations.  Many of his papers can be found here at his website.

Why it's none of your business

In an earlier post, I expressed dismay that when my 13 year-old son went in for his annual checkup, the doctor asked my son if he wanted his mother to leave the room so that the two of them could talk privately.

A number of the comments on that post took issue with my dismay, so I thought it might be worthwhile to make it clear as to why I found the doctor's behavior so disturbing.

I understand that there are many topics that my son might not want to talk about in front of me. Sex. Drugs. What happened in school today. It's probably a pretty long list. Some of the things on the list are important. Some less so. It is surely essential for children to talk to people other than their parents. It is essential for children to have privacy of various kinds.

But as a parent, I try to choose who my son gets advice from and who influences my son. Not completely, of course. His friends and teachers influence him all day without any oversight or input from me. So not surprisingly, many parents choose their kids' school with some care. We can't control our kids' friends. But many parents try to steer their kids away from friends who we think might push our kids to do unhealthy things.

Thoughtful parents can disagree on when one's role as parent ends, if ever. Some parents behave as if it never ends. They desire to control and influence their kids forever. They try to influence who their kids marry, what jobs they take, where they live, and so on. Most parents stop at some point. They let the bird leave the cage and fly around on its own. So in some sense, it's only a question of where you draw the line.

I don't draw the line at thirteen. My thirteen year-old has some autonomy in his life. But I control a lot of it. I don't let him watch 24 or CSI or R-rated movies. I try and get him to do his homework. I have various ethical guidelines that I expect him to live up to with respect to his siblings and to his parents and to his friends.

You might think I'm wrong on some of these. You might applaud me. But I certainly don't want you to have the right to influence my son without my permission, especially when I don't know much about you. And I assume you don't want me to influence your children without your permission, or without knowing much about me.

If my son is in crisis, I might want him to talk one-on-one with someone other than my wife or me--to a doctor, a rabbi, a family friend, a teacher, or a classmate. But who should make that choice? My son? Me? A stranger?

But I don't want my doctor talking to my kid about sex or drugs, just to take the two most obvious examples. If I were uncomfortable talking to my kid about sex, I would encourage my wife or someone else to have a conversation with him. But his doctor? Sex isn't just about anatomy and physiology, which are the doctor's strong suits.

You might disagree. Fine. Encourage your son to talk to the doctor without you being in the room. But why does the doctor presume to have the right to talk to my son without my approval?

I assume the doctor presumes to talk to my son without my approval so that my son can get help with a problem (drug use, sexual curiousity, sexual experience, sexually-transmitted disease) that he's uncomfortable discussing with a parent. It seems like a good idea. But my preference would be for the doctor to talk to me about it first. I have this quaint idea that my doctor works for me. Even my son's doctor works for me. The doctor does not work for my son. My son's doctor doesn't work for you, either. You might be worried about my son. But the incentives aren't there for the doctor to do a good job carrying out your mission.

Of course, I might be a bad parent. I might be encouraging my son to believe in God. And my son might be able to ask the doctor privately if God really exists. The doctor could explain to my son that the whole religion thing is a fairy tale. Or I could be encouraging my son to be an atheist. And my son could ask the doctor if there was something to this "God" thing that his friends in school talk about. And the doctor could explain to my son that religion and belief in God are a wonderful thing that he was missing out on.

Is either of those scenarios attractive? Would you want anyone proselytizing your son on any topic—religion, atheism, sexual practice, hygiene, fashion, diet—without your approval?

Let me make it clear. I can imagine lots of scenarios where I would want my children to have the opportunity to talk to people without me being there because my presence affects the outcome. But why would the doctor presume to have that conversation without my agreement?

If a doctor suspects that a parent beats his or her child, the issue gets murkier. But my guess is that many doctors ask all children if they want to talk privately. I think this reduces the power of families and expands the influence of the culture at-large on our children. This itself is part of a larger cultural trend to increase the autonomy of children and to push children toward adulthood at earlier and earlier ages. I think that's a bad thing. You disagree? Fine. Raise your children as you see fit. Just don't presume to raise mine for me.

None of your business

My wife recently took our 13 year-old son to the doctor for his annual checkup. He's doing fine. At the end of the visit, the doctor asked my son if he wanted my wife to leave so he could talk freely to the doctor about anything he wished. My son said no. If I'd been there I would have asked the doctor why he thought it was appropriate for him to even ask to talk to my son without me there. I told the story to a friend who said he'd had the same experience.

I'm curious to know if anyone else has had this happen. What's the source of it? Is the AMA suggesting it? I'm sure it's justified with some argument about public health.

If it ever happens when I'm in the room, I'm going to ask the doctor when I can talk privately to his son. I want to make sure that his son understands how markets work. In the name of public economic health, of course.

Sickness is bad for your health

Evidently, smoking, obesity and diabetes are bad for your health. So is sickness. Death is bad for your life expectancy. So discovers the New York Times:

THROUGHOUT the 20th century, it was an American birthright that each generation would live longer than the last. Year after year, almost without exception, the anticipated life span of the average American rose inexorably, to 78 years in 2005 from 61 years in 1933, when comprehensive data first became available.

But new research shows that those reassuring nationwide gains mask a darker and more complex reality. A pair of reports out this month affirm that the rising tide of American health is not lifting all boats,...

I'm going to stop the quote there for a moment.

Is the reality really "darker and more complex?" Does anyone really think that "the rising tide of American health" lifts all boats?

Does anyone think that rising life expectancy is really a birthright?

If you go sky-diving every week without a parachute or even with one, you don't live as long as the average. If you smoke a lot and eat too much, you might not live as long as the average:

The most startling evidence came last week in a government-sponsored study by Harvard researchers who found that life expectancy actually declined in a substantial number of counties from 1983 to 1999, particularly for women. Most of the counties with declines are in the Deep South, along the Mississippi River, and in Appalachia, as well as in the southern Plains and Texas.

The study, published in the journal PLoS Medicine, concluded that the progress made in reducing deaths from cardiovascular disease, thanks to new drugs, procedures and prevention, began to level off in those years. Those gains, as they shrank, were outpaced by rising mortality from lung cancer, chronic obstructive pulmonary disease and diabetes. Smoking, which peaked for women later than for men, is thought to be a major contributor, along with obesity and hypertension.

Read the rest of the story if you really want to know why this unsurprising absolutely unstartling finding confirms the world view of John Edwards.

Is health care a right?

Is health care a right? I have no idea. What I do know is that treating it like a right can be hazardous to our health. Here's my debate on the issue with a doctor who thinks health care is a right and the government should provide it.

Feedback, knowledge and the division of labor

Arnold Kling over at EconLog tells the poignant story of worrying about his father's health care. Anyone who has had a loved one in the hospital can relate. There are a lot of smart and caring people involved in the treatment, yet no one is overseeing the process and noting the interactions between this specialist and that one. No one is watching the heart rate zealously. The overworked nurse under pressure from another patient fails to note something crucial on the chart. Lots of cooks but no one's in charge. Usually a family member has to play that role, a family member who more often than not doesn't have the time for the full-time assignment and more than often not doesn't have the expertise other than to ask a lot of questions.

Economists talk about the power of specialization and the division of labor. Economists talk about how well things can work when no one's in charge. In the hospital though, it appears not to work as well as it might. Lauren in the comments to Arnold's post asks the right questions:

For which kinds of economic entities does division of labor break down? Why is it that sometimes having no one individual in charge is the economic ideal that is coordinated by the invisible hand, and other times not?

One answer is that maybe it works better in the hospital than it looks. Would we really want our parents in the hospital to be treated by a generalist? There are enormous amounts of knowledge and technology being brought to bear in curing people in a modern hospital.

But it clearly could be so much better than it is. We want the benefits of specialization without the costs, the same way we get them in other areas of our lives. What we want is someone to coordinate the process, someone other than ourselves to look out for the hammer-nail problem. All the specialists I've known are people with a hammer. Everything looks like a nail. The surgeon wants to cut. The oncologist want to give chemo. Beside the interaction problem, you want to make sure you don't have a specialist blinded by too much specific knowledge who fails to see the bigger picture

So why do we need someone in charge in the hospital but not in the graphite industry? In the graphite industry, there are plenty of pencils, tennis rackets and fishing rods and the dozens (thousands?) of products that use graphite. We don't need a graphite czar to make sure there's enough graphite to go around. All the specialists that contribute to those products don't get out of control. Their interactions don't get ignored. As Hayek pointed out, the knowledge gets coordinated without a coordinator. Why does it work there but not in the hospital?

The simple answer is that the price system and profit motive interact in the graphite industry causing the whole thing to work smoothly without it being anyone's intention. The prices and the profit motive lead to feedback and accountability. There are a whole bunch of people with the incentive and the information to make the system work well.

The simple answer is right. But it cannot explain why other organizations work well without prices and profits. Within a firm and within a family, resources and decisions get made without prices and often without profits. The answer (as Coase understood and as Lauren notes in her comment) is that in these organizations, the savings in transaction costs overcomes the loss of feedback and information benefits from using prices. But there are still incentives. There still is a residual claimant who bears the costs of failure and the benefits of success—the boss or the parent. Love motivates the parent. Bonuses and keeping your job motivate the boss.

So why doesn't a hospital work better? The answer I think, is that the level of specialization in medicine has emerged from a process that has very few incentives to make sure that the level of specialization is as productive as it should be. There are very few informational feedback loops. Very little accountability. Sure, if a surgeon leaves a scalpel in your chest cavity and sews you back up, the surgeon bears a cost. And as a result, it doesn't happen very often. But the kind of errors that Arnold worries about, the kind of errors that I've worried about with my Dad in the hospital (and the kind I've seen made) are the ones that have little or no consequence to anyone other than the patient.

These errors are built into the system. When a drug leads to unexpected side effects because the right questions weren't asked, when an opportunity for a safer treatment is missed, when an aggressive treatment for one illness weakens the immune system and leads to other problems, who can you blame? Who bears a cost other than the patient?

You can blame the hospital of course, whatever that means, but the costs to the human beings who work in the hospital are small. There are no feedback loops within the hospital to reward generalists who look for the costs of specializations. And the reason there are not is because the patient is not the customer. The patient is not paying the bill. The financial incentives that do exist are coming from Medicare and Medicaid and the insurance companies. The normal feedback loops that protect the customer from error and greed and simple stupidity are missing. In a way, it's amazing it works as well as it does. It works as well as it does presumably because most doctors and nurses do care about the lives in their hands. But it's imperfect and could be much better.

And because there isn't a residual claimant within the hospital, it is left to the wife or the husband or the parent or the child of the patient to represent the patient's interests in the face of the decentralized incentives presented by the hospital and its specialists. Ironically, the monitoring and feedback comes from the family, another organization that is usually not using monetary incentives to improve performance. But the love works pretty well.

But the patient who is unrepresented for whatever reason, who must rely on the system itself to keep an eye on the treatment regimen is at a greater risk than the patient whose wife is a doctor or better yet, a loving doctor or better yet, a loving doctor who is at her husband's side 24/7 until he comes home safely.

It's a flawed system that will stay that way until the incentives change. In the meanwhile, my heart and prayers go out to Arnold and his Dad and to anyone with a loved one at a distance going through a medical challenge.

Affordable Health Care

Are many Americans really unable to afford health care?  No.  Or, more precisely, the question is flawed -- as I argued in this column a few years ago.  Here are some key paragraphs:

But health care, like most things in life, is not like pregnancy. It comes in an enormous range of degrees. At one extreme is the amount and quality of health care that Bill Gates might purchase -- personal physicians and pharmacists, each devoted exclusively to Gates; monthly physicals conducted with the most advanced technology; immediate transportation in a private jet to the world's finest hospitals for treatment by the world's most acclaimed physicians; and recuperation at luxurious Swiss resorts attended round-the-clock by a staff of doctors, nurses and dieticians of unparalleled excellence.

Now imagine the opposite extreme -- the case of someone who can afford no health care at all. This horribly unfortunate person would not only be unable to visit a physician to check out that runny nose or that blurry vision, he could not afford even to buy over-the-counter antihistamines, aspirin, cough drops, rubbing alcohol, hydrogen peroxide, reading glasses, Band Aids, athlete's-foot spray, vitamins, toothpaste, condoms, or any of the many other health care and personal hygiene products for sale in every supermarket.

Almost all Americans, of course, consume an amount and quality of health care somewhere between the amount consumed by billionaires and the amount consumed by homeless paupers.

Continuing Assaults

At a family gathering this weekend in New Orleans -- as I enjoyed a rich, very yummy, and sodium-laden bowl of okra gumbo -- I complained to a cousin about the recent calls to have the government force food-preparers to use less sodium.  Karol -- sitting nearby and enjoying her own sodium-enriched Cajun dish -- lamented with me the fact that our freedoms are increasingly under assault (pun intended).  But, she pointed out, the alleged justification for such intrusions isn't so much a simple nanny-state itch to treat us as children but, rather, the need to control health-care costs.

Of course Karol is correct.  This "stop each of us from imposing costs on others" justification is typically used to support motorcycle-helmet regulations, smoking bans, and, now, eat-less-salt commands.  And as more and more of Americans' health care is provided collectively, the ring of validity to such justifications increases in volume.  As Russ points out, if you're paying, I'm ordering the expensive menu items.

If you are obliged to subsidize the costs of my behavior, then you clearly have an interest in restricting any of my behaviors that might potentially raise the costs you bear as my subsidizer.

But a question: if the proponents of greater collectivization of health-care provision not only recognize this fact but cite it as a justification for restricting personal freedoms that would otherwise be no one else's business, it seems to follow that these proponents of collectivization of health-care provision would recognize also that the problem is so general that it indicts the very idea of collectivization of health-care provision.

Because such collectivization creates a giant tragedy of the commons – because such collectivization enables each of us at each moment of making health-care choices to impose most of the costs of our choices on others – such collectivization will require not only that government restrict our access to fun but unhealthy life choices (such as eating lots of Cajun food), but also restrict our access to medical-care.

So the idea that a young mother whose child has a runny nose will be able to skip off to the pediatrician pronto for a diagnosis and treatment is chimerical.  Just as collectivization of health-care provision will encourage people to eat too much sodium and too much bacon, it will also encourage people to seek medical treatment too frequently and too frivolously.  And in both cases, these attempts to free-ride on the largess of the collective will oblige the protectors of the collective to restrict personal freedoms and personal choices lest the collective be utterly ruined.

Bonus podcast on health care costs

Here's a midweek bonus podcast on the issue of health care costs that came up recently at EconTalk and here at Cafe Hayek. It's an interview with Henry Aaron of the Brookings Institutions about the challenges of measuring administrative costs and how much they might fall if we had government-funded health care.

His fault

I get it. All along, I thought it was her fault. But it wasn't. Turns out it was his fault. I'm talking about Hillary's health care plan, her one serious life experience of government action, that didn't turn out so well. But it wasn't her fault that it failed. It was Bill's fault. Why? Well, he didn't provide enough budgetary slack for her. So of course it failed. It had nothing to do with the goal of creating a top-down, expertly designed from scratch, bureaucratic monstrosity. Nope. His fault:

"She has taken the rap for some of the problems we had with health care the last time that were far more my fault than hers," the former president said.

He said part of the problem was a lack of money to finance the health care expansion. Money could be available this time to pay for expanded health care, such as the universal health care plan Hillary Clinton has proposed.

"This time, when you let the tax cuts for upper-income people expire, it'll create a pool of money that wasn't there last time," Bill Clinton said. "We told her she had to get to universal coverage and there would be no new money. She had to figure out how to do it."

Poor Hillary. She had to figure out the money problem. That was the problem and that problem was his fault. How could she be expected to get blood from a stone? His fault.  Not her fault.

How dumb do these people think we are? (That's a rhetorical question.)

Pass the doughnuts

Remember that obesity epidemic? Remember how it can spread unknowingly from friend to friend? What do you call an epidemic that causes you to live longer? Any minute now, public health officials will be clamoring for subsidies for McDonald's and Krispy Kreme.

Cut those costs!

If the government paid for everybody's health care, some argue that we'd save money by cutting out administrative costs. The logic is that we'll save on all those bureaucratic duplications caused by multiple insurance providers. The empirical evidence is that in countries where government pays for health care, they spend less for health care than we do in America.

But as Arnold Kling points out, they spend less not because they're more efficient but because they provide fewer services. Charlie Quidnunc makes an even deeper point in the comments on this earlier post:

If profits and administrative costs are so terrible, why stop at eliminating them in the health industry? Why not get rid of those pesky elements in other industries? How about creating a single provider Information Technology industry? Think about how much better computers would be without all that complex and expensive competition between companies. Or single provider Automobile industry. Or single provider food companies. Why not have the government decide what a wholesome and nutritious meal should look like and eliminate all that expensive experimentation in fancy restaurants?

Here is additional wisdom on the issue from Tyler (HT: Whatever).

The big impact of pharmaceutical industry profits

Proponents of a single-payer system in health care argue that it would save costs because of lower industry profits and lower administrative costs. Arnold Kling argues that the impact would be minimal. Is he right?

According to Public Citizen, a source not particularly friendly to corporate interests, pharmaceutical industry profits in 2002 (the year I happened to stumble on) were 36 billion. If all pharmaceutical companies were forced to serve the public at zero profit, that would lower US health care expenditures from 1.3 trillion to 1.3 trillion.

That's a pretty small change

I'll carry it out to a few more decimal places. In 2002, total health care expenditurea in the US were $1.342 trillion. So taking out ALL pharmaceutical profits lowers that number to 1.306 trillion. I don't think there's any way you can argue that the profitability of the pharmaceutical industry is a large factor in the size of US health care costs or that moving to a system where government could exploit its power as a large buyer of drugs would lower total expenditures.

Does anyone have data on administrative costs in the current system?

Growth in health care expenditures

This week's EconTalk is with Arnold Kling talking about health care. it's a very nice introduction  to the incentives affecting our health care decisions both privately and publicly. One issue that came up is the change in the proportion of health care costs paid out of pocket vs. third party payments. Here are some data, taken from an HHS publication, "Health, United States, 2005":

In 1960, 55 cents of every dollar of health care was out-of-pocket. In 2003, it was down to 16 cents.

In the Teeth of the State

CNN reports on a new study that finds that Brits are pulling their own teeth and otherwise providing self-dentistry because of their difficulty of finding affordable dentists -- yet further evidence that government-supplied health care is unhealthy.  Here are the opening paragraphs:

Some English people have resorted to pulling out their own teeth because they cannot find -- or cannot afford -- a dentist, a major study has revealed.

Six percent of those questioned in a survey of 5,000 patients admitted they had resorted to self-treatment using pliers and glue, the UK's Press Association reported.

England has a two-tier dental care system with some dentists offering publicly subsidized treatment through the National Health Service and others performing more expensive private work.

But more than three-quarters of those polled said they had been forced to pay for private treatment because they had been unable to find an NHS dentist. Almost a fifth said they had refused dental treatment because of the cost.

One respondent in Lancashire, northern England, claimed to have extracted 14 of their own teeth with a pair of pliers. In Liverpool, one of those collecting data for the survey interviewed three people who had pulled out their own teeth in one morning.

"I took most of my teeth out in the shed with pliers. I have one to go," another respondent wrote.

Others said they had fixed broken crowns using glue to avoid costly dental work.

(HT Brian Summers.)

Reality Is Not Optional

The web-only edition of today's New York Times published this letter of mine on health care.

Who cares what modern health care-delivery methods are called? The elemental problem is that more and more people feel entitled to vast quantities of high-quality health care paid for by someone else.

And politicians, ever lusting for office, are only too happy to conjure the ridiculous illusion that A will get top-flight service from B when C is forced by G to pay the bills.

Donald J. Boudreaux
Fairfax, Va., Sept. 28, 2007
The writer is chairman of the economics department, George Mason University.

The author of the letter published along with mine is like so many others: he forgets that -- to steal Thomas Sowell's phrase -- reality is not optional.  Calling health care "a necessity" does nothing to make it universally available in quantities and qualities sufficient to satisfy all demands that would be expressed for it by individuals each of whom is not required personally to pay for the care he or she receives (or seeks to receive).

Stossel on Moore

John Stossel of ABC News is a seasoned reporter with a keen nose for the facts.  In this op-ed in today's Wall Street Journal, Stossel reveals some important facts that Michael Moore missed in the docu-ganda movie "Sicko."

Here are some key passages from Stossel's excellent essay:

Mr. Moore claims that because private insurance companies are driven by profit, they will always deny care to deserving patients. For this reason, he argues, profit-making health-insurance companies should be abolished, our health- care dollars turned over to the government, and the U.S. should institute a health-care system like the ones in Canada, Britain or France. But does Mr. Moore think, even for a second, that any of the government systems he touts in his movie would have provided a bone-marrow transplant to Ms. Pierce's husband? Fat chance.

When government is in charge of health care, the result is not that everyone gets access to experimental treatments, but that people get less of the care that is absolutely necessary. At any given time, just under a million Canadians are on waiting lists to receive care, and one in eight British patients must wait more than a year for hospital treatment. Canadian Karen Jepp, who gave birth to quadruplets last month, had to fly to Montana for the delivery: neonatal units in her own country had no room.

Rationing in Britain is so severe that one hospital recently tried saving money by not changing bed-sheets between patients. Instead of washing sheets, the staff was encouraged to just turn them over, British papers report. The wait for an appointment with a dentist is so long that people are using pliers to pull out their own rotting teeth.

Patients in countries with government-run health care can't get timely access to many basic medical treatments, never mind experimental treatments. That's why, if you suffer from cancer, you're better off in the U.S., which is home to the newest treatments and where patients have access to the best diagnostic equipment. People diagnosed with cancer in America have a better chance of living a full life than people in countries with socialized systems. Among women diagnosed with breast cancer, only one-quarter die in the U.S., compared to one-third in France and nearly half in the United Kingdom.

Mr. Moore thinks that profit is the enemy and government is the answer. The opposite is true. Profit is what has created the amazing scientific innovations that the U.S. offers to the world. If government takes over, innovation slows, health care is rationed, and spending is controlled by politicians more influenced by the sob story of the moment than by medical science.

And be sure to watch Stossel's special on health care, to be aired this Friday on ABC, at 10:00pm EDT.

Rank Ranking

John Stossel of ABC News writes a regular column.  Every one is worth reading.  His most recent column exposes some of the flaws in those now-celebrated rankings that purport to find that medical care in the U.S. is inferior to that in countries such as France, Morocco, and Cyprus.

Here's a chunk of Stossel's column:

So what's wrong with the WHO and Commonwealth Fund studies? Let me count the ways.

The WHO judged a country's quality of health on life expectancy. But that's a lousy measure of a health-care system. Many things that cause premature death have nothing do with medical care. We have far more fatal transportation accidents than other countries. That's not a health-care problem.

Similarly, our homicide rate is 10 times higher than in the U.K., eight times higher than in France, and five times greater than in Canada.

When you adjust for these "fatal injury" rates, U.S. life expectancy is actually higher than in nearly every other industrialized nation.

Diet and lack of exercise also bring down average life expectancy.

Another reason the U.S. didn't score high in the WHO rankings is that we are less socialistic than other nations. What has that got to do with the quality of health care? For the authors of the study, it's crucial. The WHO judged countries not on the absolute quality of health care, but on how "fairly" health care of any quality is "distributed." The problem here is obvious. By that criterion, a country with high-quality care overall but "unequal distribution" would rank below a country with lower quality care but equal distribution.

It's when this so-called "fairness," a highly subjective standard, is factored in that the U.S. scores go south.

The U.S. ranking is influenced heavily by the number of people — 45 million — without medical insurance. As I reported in previous columns, our government aggravates that problem by making insurance artificially expensive with, for example, mandates for coverage that many people would not choose and forbidding us to buy policies from companies in another state.

Even with these interventions, the 45 million figure is misleading. Thirty-seven percent of that group live in households making more than $50,000 a year, says the U.S. Census Bureau. Nineteen percent are in households making more than $75,000 a year; 20 percent are not citizens, and 33 percent are eligible for existing government programs but are not enrolled.

(HT Sandy Baillie)

A Lesson from Passport Control

Late Friday evening, Karol and I flew, on Delta Airlines, from Bucharest to New York's JFK airport.  We had two hours to connect to our Delta flight to Washington's Dulles airport.  We missed our flight.  And herein lies a lesson.

The reason we missed our flight is that nearly 50 minutes of our time after landing was consumed by waiting in a long and slow-moving line to clear passport control.  At that terminal on Friday evening, the TSA had only three agents to service the line of U.S. citizens returning from abroad.  Three.  That's it.  Most of the passport-control-agent booths stood empty.

So as we silently fumed and inched forward in line, I couldn't help but wonder why so many people want the same agency that cannot adequately staff one of the country's busiest international airports (during the height of international-travel season) to run Americans' health-care.  If government were to take over more completely the supply of medical services in the U.S., the same sorts of under-staffing (i.e., shortages of service) would occur.

In light of my recent experience -- which isn't unusual -- at JFK, can anyone give me a plausible reason why I should be optimistic that government would adequately staff (and maintain - remember Walter Reed!) its hospitals and medical clinics?  With the same general set of incentives facing bureaucrats who now supply "passport control" facing bureaucrats who would supply medical care, it's a childish fantasy to imagine that people needing medical care would not encounter unnecessarily long queues when seeking government-supplied medical care.

Those persons who think me cynical, or who think that I draw a mistaken lesson from my experience at passport control, should ask themselves as seriously as they can just why they suppose that government-supplied medical care will not be characterized by the kinds of frustrations that travelers and post-office patrons routinely suffer.

Like a Virus

Gina Kolata writes on the front page of the New York Times:

Obesity can spread from person to person, much like a virus, researchers are reporting today. When one person gains weight, close friends tend to gain weight, too.

It's much like a virus, you see. It's not a virus. We know what a virus is. Obesity is not a virus. But it's like a virus. It's much like a virus. You see, the more it's LIKE a virus, the more increasing obesity is like an epidemic rather than a failure of personal responsibility or merely a pleasant experience, say, of eating more ice cream and being a little less trim. The more it is like a virus, the less it is a personal choice, the more justified is government involvement on "public health" grounds. And in case you didn't get the drift, check out the headline of the article:

Find Yourself Packing It On? Blame Friends

So blame your friends. Don't blame yourself. Never blame yourself. After all, you're standing in the path of a tsunami (scroll to the bottom.) There's nothing you can do. But if we can just get more regulation to protect you from your friends, we can save you. We'll start by saving your friends, first, of course. That will save you, eventually.

Here's the summary of the study:

Their study, published in The New England Journal of Medicine, involved a detailed analysis of a large social network of 12,067 people who had been closely followed for 32 years, from 1971 to 2003.

The investigators knew who was friends with whom as well as who was a spouse or sibling or neighbor, and they knew how much each person weighed at various times over three decades. That let them reconstruct what happened over the years as individuals became obese. Did their friends also become obese? Did family members? Or neighbors?

The answer, the researchers report, was that people were most likely to become obese when a friend became obese. That increased a person’s chances of becoming obese by 57 percent. There was no effect when a neighbor gained or lost weight, however, and family members had less influence than friends.

It did not even matter if the friend was hundreds of miles away, the influence remained. And the greatest influence of all was between close mutual friends. There, if one became obese, the other had a 171 percent increased chance of becoming obese, too.

You see it's even worse than a real virus. It can spread over the phone or across the country covering hundreds of miles!

The real lesson here is that if you see your best friend gaining weight, stop being friends with your best friend. Dump your fat friends. You don't want to catch the obesity "virus." In fact, make friends with people who are thinner than you. What a great study. All those people who judge people on their looks were right after all! It turns out that looking for thin, fashionable friends is actually good for you.

And it turns out the researchers actually have thought of this, though as you might expect, it isn't a pleasant thought to have. The article in the Times continues:

If the new research is correct, it may say that something in the environment seeded what some call an obesity epidemic, making a few people gain weight. Then social networks let the obesity spread rapidly.

It may also mean that the way to avoid becoming fat is to avoid having fat friends.

That is not the message they mean to convey, say the study investigators, Dr. Christakis and his colleague, James H. Fowler, an associate professor of political science at the University of California, San Diego.

You do not want to lose a friend who becomes obese, Dr. Christakis said. Friends are good for your overall health, he explained. So why not make friends with a thin person, he suggested, and let the thin person’s behavior influence you and your obese friend?

Beautiful isn't it? If you have a fat friend, the two of you need to befriend a thin one. Or maybe two thin ones. After all, you risk exposing the new thin friend to the "virus." Obviously this is too risky. We need to quarantine fat people to protect the rest of us from the "epidemic."

At the bottom of the first page on the web version of the story, the author gives us a little more info about the magnitude of the changes we can expect from "exposure." Turns out it's not quite as dramatic as it sounds:

On average, the investigators said, their rough calculations show that a person who became obese gained 17 pounds and the newly obese person’s friend gained five. But some gained less or did not gain weight at all, while others gained much more. Those extra pounds were added onto the natural increases in weight that occur when people get older.

What usually happened was that peoples’ weights got high enough to push them over the boundary, a body mass index of 30, that divides overweight and obese. (For example, a 6-foot-tall man who went from 220 pounds to 225 would go from being overweight to obese.)

And the last part of the article talks about how the study can never be replicated because it's based on a one-in-a-lifetime data set, the Framingham Study. It turns out that the conclusions are based on the residents of a single town, Framingham, Massachusetts. I wonder if they controlled for time trends and economic factors correctly.

An Anecdote on Health Care

My family and I are in France.  Yesterday we visited, near Arles, the parents of some friends.  These lovely people have a newly acquired dog, Tor.  They came to own Tor because of the unfortunate death of their 60-year-old neighbor, whose dog Tor was.

Conversation at lunch revealed that the neighbor, who had a history of heart trouble, suffered severe chest pains a few weeks ago.  He wisely went to the hospital seeking treatment.  He was told that there was no space available for him.  He was advised to go home and call back later to see if a room might have become available.  He did so, but was told repeatedly that the hospital remained full to capacity.  Several days later this man died at home, never having received hospital treatment.

This incident, while true, is also an anecdote.  It doesn't prove anything about the merits or demerits of France's universal-health-care system compared to those of the (still somewhat) private system in the U.S.  But this sad event does reveal that merely declaring, statutorily, that every citizen has a right to health care, or that health care is "free" to every citizen, does not make health care available to all or "free."

Secular priests performing ceremonies, beneath marble domes, in which health-care is declared "a universal right" do not, in fact, perform the miracle of making health-care universally available.

Kidney show a hoax

Turns out that Dutch show was never going to save a life. But some education probably happened anyway. The last paragraph of this excerpt from the AP story says it all for me. We have the same situation in America:

AMSTERDAM, Netherlands - A television show in which a woman would donate a kidney to a contestants was revealed as a hoax Friday, with presenters saying they were trying to pressure the government into reforming organ donation laws.

Shortly before the controversial program was to air, Patrick Lodiers of the "Big Donor Show" said the woman was not actually dying of a brain tumor and the entire exercise was intended to put pressure on the government and raise awareness of the need for organs.

The three prospective recipients were real patients in need of transplants and had been in on the hoax, the show said.

The program concept had received widespread criticism for being tasteless and unethical.

But Lodiers said that it was "reality that was shocking" because around 200 people die annually in the Netherlands while waiting for a kidney, and the average waiting time is more than four years. Under Dutch rules, donors must be friends, or preferably, family of the recipient. Meeting on a TV show wouldn't qualify.

The Big Donor Show

The BBC reports on the outcry over a reality show where a terminally ill patient will decide who gets one of her kidneys:

A Dutch TV station says it will go ahead with a programme in which a terminally ill woman selects one of three patients to receive her kidneys.

Political parties have called for The Big Donor Show to be scrapped, but broadcaster BNN says it will highlight the country's shortage of organ donors.

"It's a crazy idea," said Joop Atsma, of the ruling Christian Democrat Party.

"It can't be possible that, in the Netherlands, people vote about who's getting a kidney," he told the BBC.

Sounds like a sure ratings winner. But the broadcasting station, BNN, has a political and educational motive as well:

The former director of TV station BNN, Bart de Graaff, died from kidney failure aged 35 after spending years on a transplant waiting list.

"The chance for a kidney for the contestants is 33%," said the station's current chairman, Laurens Drillich. "This is much higher than that for people on a waiting list."

"We think that is disastrous, so we are acting in a shocking way to bring attention to this problem."

"For years and years we have had problems in the Netherlands with organ donations and especially kidney donations," agreed Alexander Pechtold of D-66, the Dutch social liberal party.

"You can have a discussion about if this is distasteful, but finally we have a public debate," he told BBC Radio 4's Today programme.

As you might expect, the kidney establishment isn't too keen on the spotlight:

The Dutch donor authority has condemned the show, as have kidney specialists in the UK.

"The scenario portrayed in this programme is ethically totally unacceptable," said Professor John Feehally, who has just ended his term as president of the UK's Renal Association.

"The show will not further understanding of  transplants," he added. "Instead it will cause confusion and anxiety."

As a writer at the British Guardian puts it:

"My first reaction, probably everyone's reaction, is that this is as dangerously near as we've got to a TV programme playing God," said Julia Raeside of the Guardian newspaper.

And how is the decision made now in the UK? The answer is earlier in the article from Professor Feehally, the outgoing head of the UK Renal Association.

"The set up of the programme bears no relationship to the way decisions are made about transplants in the real world," he said.

"Living donors can choose altruistically to give one of their kidneys - usually to a family member.

"If organs become available after someone dies, health professionals with access to detailed information about those waiting for a transplant make objective decisions about who should receive those particular kidneys."

Health professionals with detailed information making objective decisions. Sounds so scientific. Objective decisions? Impossible. A better word would be arbitrary. Or maybe random. Or maybe selfish. With people dying because there aren't enough kidneys for transplant, how would you describe someone who gives the current system a patina of objectivity?

Hanson on Health

This week's EconTalk podcast is with Robin Hanson. Robin offers a rather ambitious and all-encompassing explanation for why, in his words, "health care is different." His argument is that we are hard-wired via the evolution of our brains to prefer communal and sacrificial expenditures even when such methods are costly.

I challenge the explanation and we go back and forth. And while I remain unconvinced, Robin sure made me think. What I've found striking since completing the interview is how it forced me to realize just how differently people do feel about health care. Otherwise wise and intelligent people make arguments in favor of government provision that I don't think they would make in other areas.

So go listen to Robin and if you agree or disagree with his arguments, enter a comment over at EconTalk. Robin will be checking in now and then to respond.

Kling on Medical Care; Or, How Americans are Screwing Themselves

Arnold Kling has just published one of the most insightful and entertaining and instructive essays I've ever read on how Americans pay for their medical care.  Don't miss it!

(HT Andy Morriss.)