Topic: Health Care & Welfare

A Return-Quibble

Two days ago, I blogged that Americans spend too much for health care as a result of the bizarre health care financing system that has been fostered by government regulation and tax provisions. Michael Tanner subsequently responded that my claim makes little sense in a free society–Americans, who are wealthy, consume more health care because they simply prefer more health care and they have the money to buy it.

Permit me a response to Michael’s response. I offer a lengthy counter on my own blog; here is an excerpt of my reply:

I think of the American health care system not as a free-market system, but as a government-designed contraption constructed to vacuum money out of the pockets of consumers and into the pockets of health-care providers. A lot of this contraption is built into state regulations of health insurance and provider licensing. The Federal government adds an important layer by encouraging “employer-provided health insurance” (i.e., vacuuming wages into prepaid health plans).


Our difference is tactical. Tanner wants to put libertarians on the side of saying, “The American health care system is the finest in the world. Don’t mess it up with a socialized system like everyone else’s.”

I think that tactic is vulnerable to charges that people in other countries are healthier, charges which very well may be true. I would rather be in the position of attacking our vacuum contraption than defending it.

The debate continues…

Cost-Shifting in Health Care?

Today’s New York Times reports on a new study that claims that low payments from Medicare and Medicaid lead providers to shift costs to private payers.

Sounds plausible, but economists are skeptical.  Michael Morrissey argues that cost-shifting can only occur under limited circumstances (usually, when government has restricted competition among providers), and that what’s actually happening is that providers are price discriminating. 

It may sound like an unimportant difference, but here’s the rub.  If Morrissey is right, then increasing Medicare and Medicaid payments should increase the prices that providers charge private payers. 

Is that what the Blues want?

Medicare Prices to Be Posted Online

Here’s some important information for the next time you visit the hospital.  After dictating prices for health care services for 20-some years, Medicare is finally going to let you see those prices. Today, the Bush administration took the first step toward posting the prices that Medicare pays providers. Today’s release includes county-by-county prices paid for 30-plus hospital procedures, including:

  • heart operations and implanting cardiac defibrillators
  • hip and knee replacements
  • kidney and urinary tract operations
  • gallbladder operations and back and neck operations
  • common non-surgical admissions

In a study released this week, I wrote that this step by the Bush administration

probably will not hurt, and it could even help. However, the administration’s efforts to force price disclosure should stop there. If patients demand price information, there will be no need to force providers to supply it: providers will publish it, or perish. But as long as patients have no interest in price information, forcing providers to supply it would be a useless exercise and a costly distraction. 

Advice for Conservatives Wrestling with Medicaid

John Hood of North Carolina’s John Locke Foundation today pens important advice to conservatives who are trying to improve Medicaid, the joint federal-state health care program (ostensibly) for the poor:

Too many conservative advocates of Medicaid reform couch their advocacy in terms such as “enrolling in private health plans will remove the stigma from patients on Medicaid” and “choice is better than cutting Medicaid reimbursements to providers, which limit recipients’ access to the best doctors.” These may be effects of a reform, but they shouldn’t be thought of as goals or even as necessarily positive.

Repeat after me: Medicaid is welfare. Medicaid is welfare. Medicaid is welfare. It is a forced redistribution of resources from those who earned them to those who did not. There may be good reasons to defend Medicaid as a concept, or to imagine some kind of more-limited program to replace it, but they must recognize that Medicaid is an arm of the welfare state. As such, no one should consider it a “right” for Medicaid recipients to have access to the very same doctors, devices, and treatments as those who pay their own way.

Full disclosure: He then goes on to quote me favorably, which may be clouding my judgment.

A Quibble with Kling

Arnold Kling points out a disagreement we have over whether Americans spend too much on health care. There is no doubt that Americans spend more on health care than any other country. But why is that necessarily a bad thing? There is no “right” amount to spend on health care or anything else. The United States spends more on athletic shoes than any other country. No one speaks of the athletic shoes crisis.

Economists consider health care a “normal good,” meaning that spending rises or falls with income. As incomes rise, people demand more and better health care. America’s wealth determines its spending on healthcare. And we receive value for our money. If you’re sick, American health care is still the best in the world. For diseases such as cancer, heart disease, and AIDS, outcomes are far better in the U.S. than in other countries.

Of course much health care spending is wasted. Many of the drugs, procedures and services we purchase are relatively useless. Some may even do more harm than good.  But who is best placed to make that decision? After all, health care purchasing is based on a wide range of personal preferences, not all of which are measurable in terms of outcome. Pain tolerance, time away from work, desire to pursue certain activities, and even peace of mind may all influence my decision. Only individual consumers can really make such decisions — and there really is no wrong answer.

Where Arnold is right is in pointing out that those decisions are currently distorted by our third-party payment system. Because those purchasing health care are able to pass the bill onto third parties, the usual market disciplines don’t apply. We consume health care with even the most marginal perceived value. That is why health-care reform must focus on giving consumers a greater stake in the decision-making process.

If consumers were spending more of their own money on health care, would total spending go down? Probably. But, then again, I don’t care — and neither should the rest of us.

Crisis of Abundance Watch

Joe Kristan is reading Crisis of Abundance and blogging the experience. He writes

Crisis of Abundance says

“An important characteristic of premium medicine is that many procedures have a low probability of affecting the outcome. In fact, often the procedures do not even affect the treatment plan.”

Digital mammography seems an apt illustration of this point. It is more effective for only a minority of patients, and the treatment for a cancer discovered digitally doesn’t differ from that discovered on film. Yet as it is the latest technology, and in short supply, the digital technology will cost more. It’s an illustration of “premium medicine” that could have come right out of C of A. And, as C of A notes, spending on imaging services is growing twice as fast as health spending as a whole.

He is referring to an article in the Wall Street Journal on digital mammography.

Mike Tanner says it’s fine that Americans spend a lot on health care. I would agree if it were an income effect. The problem is that with 85 percent of our health care services paid for by third parties (a stat which I got from the Tanner-Cannon book), I think it’s largely a substitution effect, based on an implicit price to the consumer of zero.

If you want to comment on this issue, go to the Amazon page for Crisis of Abundance. Scroll down for the discussion forum.

HSAs Grow Faster than Critics’ Understanding of HSAs

An article in today’s Detroit Free Press reports that health savings accounts (HSAs) are catching on, and showcases some of the less-valid criticisms HSAs.

In the article, Jason Furman of the Center on Budget and Policy Priorities argues that a family of four with an annual income of $30,000 and the usual expenses is unlikely to be able to save $5,000 per year in an HSA.

There are a number of problems with that argument.  For example, it doesn’t address the question, “Compared to what?”  The alternative to HSAs is usually comprehensive third-party health coverage, which carries much higher premiums than high-deductible health insurance.  If the family can’t afford to save, where are they supposed to get the money to pay those higher premiums?  Also, there’s nothing in the HSA law that says a family must have $5,000 of cost sharing.  The family’s cost sharing could be as low as $2,100.  (Less cost sharing means higher premiums, but shouldn’t the family be able to make that tradeoff for themselves?)

The article raises a number of other criticisms of HSAs, all of which I address in a study released today by the Cato Institute titled, “Health Savings Accounts: Do the Critics Have a Point?