Health Care System Problems, again
A new article with old findings
Ever since I published Crisis of Abundance (free pdf here) in 2006, I have said that the basic diagnosis that I made concerning health care systems still applies. Timothy Taylor points to a recent article by Lawson Mansell that once again rediscovers some of my insights.
What consumers want in a health care system is unlimited access to medical procedures without having to pay for them. But as a society we want some limit to health care spending. It is impossible to satisfy all three goals. Most other countries limit their access to medical procedures.
Mansell begins,
Health care in Vermont is a success story. Of sorts, anyway: while the state has one of the highest rates of insurance coverage in the country, its residents pay higher premiums and suffer from longer wait times for care than in peer states.
In my terms, the high rate of insurance coverage means that people do not have to pay for medical procedures. But the higher premiums and longer wait times are the trade-off.
Mansell points out,
among OECD countries, the U.S. spends the most per capita on health care but has the highest rate of treatable mortality – that is, deaths from conditions patients could survive if they were identified and treated in time.
Our excess spending goes for procedures that do not reduce mortality, including expensive diagnostic tests and “quality of life” interventions, such as knee replacements.
He writes,
Traditional health care reformers have always been driven toward paths of least resistance, typically pairing subsidies to expand coverage with regulation to contain costs. But the first is easier than the second
One controversy concerns the extent to which our high health care spending is related to prices or utilization. As of 2006, my reading was that utilization of what I call “premium medicine” (procedures involving specialists and/or fancy equipment) was the main driver. Mansell writes,
Data from the 2010s show that, for hospitals and physician services, rising prices rather than increased utilization are largely responsible for driving up spending. Adjusting for general inflation, around two-thirds of health care spending growth between 2015 and 2019 came from higher prices, which rose by 18 percent. Increased service utilization, which includes visits and prescriptions per person, grew by only 3.6 percent.
I would caution that this may not contradict the “premium medicine” story. When you look at “utilization,” you need to look at what is being utilized. Someone I know was in the hospital with a fever, and she was seen by infectious disease specialists, hematologists, and rheumatologists in addition to the primary physician. If you just count as “utilization” being seen by the doctor, the “price” would seem to be very high.
Mansell concludes,
The good news here is that strengthening the supply side could transform health care by introducing more provider competition and giving patients more affordable options for care. The bad news is that failure to redirect our efforts toward supply-side reform will mean ever-greater pressure from demand that will raise prices and invite the sorts of distortions that are inevitable in formal or informal rationing of services. From this perspective, the choice looks easy.
But not from the perspective of politicians. My take is that government intervention always takes the form of “subsidize demand, restrict supply.” Health care is the poster child for that.
One thing about American health care is that - as is also common in higher education - prices are not only suspiciously high, they often don't mean anything. "Everybody knows" that no one pays headline prices because of all kinds of bizarre and quasi-corrupt quasi-tax-and-regulation-evasive """discounts""", and that furthermore, they are padded to absurd degrees by huge and hidden cross-subsidies to make sure some of the big costs don't get isolated and on-budget.
It's not quite "Price obscuration explains everything," but it often gets damn close! We aren't really charging you $50 for this ibuprofen, first there's the 90% """discount""", and then 90% of the rest goes to pay for some health care socialism the government makes us provide but won't pay for, but prefers instead if we make your insurer pay for it in the form of crazy up-pricing of commodities. And this is even after the government forces certain players to actually publish those prices, and note the players fought and continue to fight tooth and nail against this, which is always a sign of a normal, healthy, and well-functioning marketplace.
As for higher American prices, I maintain that the dominant explanation is not mere wealth.
When someone says that it costs 10x more to dig a mile of new subway tunnel in NYC than in Seoul, literally no one feels the need to hand-wave apologetics and replies, "Well that's because the U.S. is so much richer, and demand curve slopes, and cost diseases, and utilization rates, and yadda yadda yadda." The reply is, "That's obviously outrageous and unjustifiable and the consequence of bad governance including but not limited to obscene amounts of rent-seeking, a crazy legal system, and egregious compliance burdens."
Typically, in the world of easily transportable, fungible atoms, and without major trade barriers or differences in local taxes, a pint's a pound the world around. Americans don't pay more for barrels of oil because they are richer and like to drive and use lots more gasoline. But in healthcare we are supposed to accept this argument for why eyeglasses or contacts cost so much more in America than anywhere else? Please. Sometimes a cigar is just a cigar, and sometimes what looks like bilking is indeed just bilking.
If you haven't read Walter Isaacson's biography of Elon Musk I highly recommend it. One thing this discussion reminds me of is a recurrent theme in that book especially related to Musk's management of and stunning accomplishments at SpaceX. Time and again, someone gives Musk a cost estimate which seems reasonable in terms of a stagnant and complacent government-adjacent dysfunctional sector, and Musk finds it in conflict with basic engineering instincts and flips his lid and yells "Good grief, millions? It's basically just a garage door opener! It should cost like 5% of that!!! Make that happen by next week or you're fired."
And then ... it just happens. Not 100% of the time, he flugs something big once in a while, but so often and with such radical savings that the accumulated effect is revolutionary and rapid upheaval of the whole industry as the company moves from startup to dominant player in practically no time at all.
The times I've looked closely at any particular major
gap between American health care pricing and the rest of the world, this is what it looks and feels like.