> Consumers want unlimited access to medical procedures without having to pay for them out of pocket. In the United States, we try to satisfy this desire, and the result is exorbitant spending. In other developed countries, access is limited.
I love the 1975 free basic care plan and the way you frame the current state. This is one area that seems like an important slow moving disaster to solve the more you look at it, and yet it gets 0 attention / proposals from politicians / the establishment. Probably the main reason is that no one has any idea how much their healthcare costs. Federal control over healthcare combined with DEI seems concerning
However, "poor outcomes per healthcare dollars spent" is misleading:
* Longevity is a poor metric because the differences are not driven by the healthcare system but by behavior differences in the demographics being compared. If Switzerland had Chicago's south side, reducing their longevity, then should we judge their healthcare system more harshly? To be clear, the behavior differences I'm talking about crime, obesity, and driving. Let's see the graphs after controlling for those variables.
* USA is the richest country, so costs & prices would naturally be highest as well.
Right on demographics and related relevant granular differences.
"Average longevity" is way too over-aggregated of different kinds of people and causes of mortality to make meaningful attributions or conclusions about the "effectiveness of health care", and at the very least one ought to compare apples to apples as much as possible. "What is the 5 year survival rate when a 60 years old man of normal weight and otherwise average health and family history, with mainly X heritage, presents symptoms of cardiac distress and is treated with an emergency bypass procedure?"
Average Longevity dropping a lot rapidly because of a sudden spike in fentanyl overdoses among young people is not an indictment of the low marginal utility of medical care. When I've made this point before I've been assured many times that of course all the researchers correct and adjust for all these factors with statistically sophisticated regression analysis so they can get meaningful and reliable "ceteris paribus" results, and then when I look at the paper at least half the time the authors did no such thing, just crude "average lifespan to average lifespan" comparisons.
This, however, seems wrong to me: "USA is the richest country, so costs & prices would naturally be highest as well." Maybe for stuff which is labor or real-estate intensive, but it doesn't make sense for other atoms-capital-and-technologically-intensive stuff which still costs a ton more even than they do in other developed countries.
Consider commodities refined and purified in complex chemical processes like diesel fuel or copper or fertilizer or herbicide. To a first approximation, the biggest wholesale buyers that tend to be next in the supply chain from the producers basically all buy at the same price adjusted for shipping and taxes or costs associated with complying with special local regulations. It makes approximately no difference whether that barrel of whatever is being bought in the richest country or poorest country in the world. Same goes for a bunch of machinery.
Ok, now apply these facts to medicine. It isn't too hard to mail-order whatever prescription drugs you want from India or Thailand or South Korea, and they are not just "similar" or "comparably" safe and effective but sometimes literally identical because literally made in the same way in the same factories as the stuff you get from an American pharmacy for prices that can be up to 100x more. Not 100% but 10,000%!
Similar considerations apple to expensive medical machines, equipment, tools, disposable items. They should cost the same anywhere. To the extent they don't, especially when similarly developed countries pay a lot less, it's not just because the US is rich.
You're right in that last sentence, but nobody in this debate has mentioned why. The reason is that approximately all countries except the US impose price controls on drugs, and as a result, pretty much all drug R&D in the world is paid for by US consumers. If we (US consumers) didn't have "insulation" hiding the high prices of those new drugs from us, most drug R&D would simply stop, except those projects that can attract funding from charities or get it from government by lobbying.
But since we today have hundreds of hidden laboratories in places like Wuhan and Ukraine developing new diseases in order to profit from treating them, it is far from clear that shutting down the pharma industry's R&D would be a bad idea. I'm for it.
I'm not too knowledgeable on the topic, but I don't think you can compare the market for healthcare inputs to commodities. Commodities are fungible and have many competing producers, while I don't think that's the case for many things in healthcare. Regulations also get in the way.
> It isn't too hard to mail-order whatever prescription drugs you want from India or Thailand or South Korea, and they are not just "similar" or "comparably" safe and effective but sometimes literally identical
Is this true? I'm not allowed to mail-order Ritalin from another country, because it's a controlled substance, correct? Assuming that controlled substances can not easily be transferred across borders legally, then that seems like it would enable suppliers to practice price discrimination. Price only equalizes if there aren't barriers to buying in one place and shipping to another, but that does not necessarily seem to be the case in these markets.
I also believe that the amount of blame placed on Big Pharma can be overstated. I do not believe that Pharma prices get close to explaining the overall healthcare delta.
Other ideas -
Regulation no doubt plays a role. Do other countries have laws like HIPAA on the books, requiring specialized software for everything?
Healthcare is labor intensive, the labor is entirely unionized, and supply of doctors is kept within strict limits. Specialties make $1M+ a year. I imagine they make a fraction of that in other countries.
Regardless, I tend to agree that the main thing is insulation from costs breaking the all-important price signal.
The biggest payers on the scene are Medicare and Medicaid. Both of these have been outsourced to private insurers (MA is 51% of medicare and growing every year).
In Medicare and Medicaid there are two incentives:
1) Grow while avoiding bad risk
2) Make members happy with low cost sharing so you get good "quality" scores on surveys that determine quality revenue bonuses
All of this incentivizes low to zero cost sharing on common expenses that hit lots of members. It attracts the right risk and gets good quality scores.
Finally, MLR requirements basically mean that if you do a good job controlling cost it can't come back to you in the form of profit. It's got to get plowed back into benefit enhancement.
The other issue is that running a Singapore style high deductible system would require having a populace that was relatively healthy and had the kind of disposable savings necessary to handle modest medical bills. We don't have that, we have a large underclass that is very unhealthy and doesn't have the money to handle a few grand in medical expenses. When they forego treatment this sometimes means foregoing waste but can also mean foregoing needed medical upkeep.
Lastly, "public" hospitals in Singapore a regulated. In the USA there are a lot of areas where there is effectively a single medical system that owns all the hospitals and you basically have to take whatever they give you.
Anyway, it just seems to me we have the worst of all possible worlds.
None of the benefits of a single risk pool.
None of the cost savings of competition.
Highly regulated but in the worst ways.
With a population that probably isn't conductive to social insurance but deeply wants it.
Themes, no offense intended, from when I worked in US healthcare and paid attention to this issue:
1. The US leads the world in obesity -- subsidized food and a culture of convenience and irresponsibility.
2. Medicare pays for nearly everything, with no waiting -- a segment of this population is really very sick and use a huge percentage of the resource, especially in the last year of their life; doctors call another segment of this population "frequent fliers," as they are always in their offices for one thing or another.
3. Massive subsidies via tax deductions -- watch labor market participation take a step down when the feds finally decide they are ready to nationalize health insurance.
4. The US pays 50% higher prices than the rest of the developed world -- in part because Obama agreed to Medicare not negotiating drug prices in exchange for Big Pharma's support for Obamacare.
5. My baby-boomer Medical Director said, "At some point it became about the money" -- the smartest brother goes to medical school, the younger one goes to Wall Street, both get corrupted as a result when the nice house, Mercedes, and respect of your neighbors are no longer enough.
6. One of my Billers said, "Only in healthcare can two people be in a room and no-one knows what its going to cost" -- price information is almost impossible to come by as insurance plans are negotiated case-by-case between a large employer and a carrier.
7. Defensive medicine -- in the hundreds of billions of dollars thanks to contingent lawyers and uncapped jury verdicts.
8. Labor bottlenecks -- no new med schools approved for > 20 years,; the move to BSNs over ADNs for nurses; Dentists as the world's best union, making oral care that is very important for health cost-prohibitive.
9. The customer of the hospital is the surgeon., because the surgeon brings patients -- the doctor wants the latest toys (e.g., the robot), is a specialist (cue hospitalists who can look after the whole patient), and doesn't want to take call (cue hospitalists again).
10. ...
Long story short, it is the corruption of everyone that follows when we split the decision-maker from the payer. Taking action, I incorporated a healthcare prices information company but realized I'd need VC money to pursue it, so focused on another idea instead.
Finally, I believe Ontario made it illegal for physicians to charge more than the state health insurer. That isn't going to fly in America, so we are heading to one system for the rich (i.e., concierge medicine) and another for the rest of us (i.e., get in line). Hang on to your doctor!
Fine post; I am surprised it does not mention the Scott-Hanson controversy last week - with Scott showing that there are substantial improvements in health care - and even those would not usu. turn up in meta-studies - versus Robin Hanson who claims health spending could/should be at least 50% reduced without expecting negative health outcomes. https://www.astralcodexten.com/p/response-to-hanson-on-health-care (with the relevant 2 links in the first sentence)
I imagine Arnold has seen the recent Scottish Alexander versus Robin Hanson debate on this issue (most recent post on ACX April 30th I think), I'd be interested on Arnold's perspective, he might clear up some of their disagreement.
I read your healthcare book a couple years ago. I liked it. I don't remember everything covered in the book but what you have mentioned in this post might hit 20% of why health care is more expensive in the US.
Yes, we waste a lot more money on procedures with minimal value to anyone and most premium care, worthwhile or not, wouldn't happen without insurance.
Yes, we spend far more on grand, life-saving medical interventions to save one life and far less on preventative care that is more cost effective. We spend almost nothing on prevention that requires education of the patient and subsequent effort and implementation by the patient. Many peer countries do better on this.
Pregnancy issues might be the best example of the benefit of preventative care but far from the only one. US does far worse at getting expectant mothers to show up for preventative care that would be free. We have far worse outcomes. How does that factor in? Would catastrophic-only insurance help?
I don’t know about other countries but beyond knowing that exercise and a "good" diet improve health, US doctors are largely ignorant of the impact of each and how to advise their patients. Our health system includes almost zero ability to reimburse them for time spent on this. That said, a lot of very basic, very cost-effective essential care wouldn't happen without insurance. Worth it?
It is true that I get some medical care I would not if I had to pay the "full" cost. Some is premium but some is necessary. We aren't always willing to pay for care that we should get. It is also true I get some premium care not covered by insurance. People are complicated and there is no perfect path to getting it right.
People with disposable income tend to spend some of it on healthcare. We have more disposable income than 2006 and FAR more than 1976. Our expectations are higher in part because we are mostly richer. (yes, the correlation isn’t perfect)
We pay more for new drugs, sometimes older ones. By doing so, we subsidize drugs for other countries. Worth it?
In his podcast, Dr. Peter Attia talks about the improvement in health outcomes by getting colonoscopies more often than 10 years. He put the maximum benefit somewhere less than every five years. If he is correct, how much is it worth spending for this health benefit?
I had knee surgeries in 1984, 1985, 1999, and 2022. No way I'd want the pain and recovery times of 1980's surgery. Maybe 1999 was acceptable but 2022 was my most invasive knee surgery and by far the most painless and fastest recovery. What has been done to reduce the trauma of surgery is truly amazing. Anyone having surgery today should be immensely grateful for the improvements.
My knee surgeries were all elective. I chose against a follow-up surgery in 1986. I can’t say for sure about the first 3 surgeries but so far the 2022 surgery has massively improved quality of life. Would I have paid out of pocket? Almost certainly not. Would I have gotten these surgeries in peer countries? Probably not.
I’m getting treatment for prostate related issues. I’m currently on two drugs. They help but I could live without them. What’s the quality of life gain worth? My brother isn’t on prostate drugs but has had to go to the hospital to be catheterized because he couldn’t pee. Do my drugs cost more than that?
For what it is worth, I've does a lot of learning on prostate issues, mostly through Attia podcasts. It is clear to me that if my doctors even know all the things they should, they haven't told me near everything they should have.
A friend had a parent in Canada with cancer. He had more than a year wait for treatment and probably would have died but my friend brought him to US and paid for successful treatment out of pocket. Worth it?
I have a friend who has lived with metastatic breast cancer for over 10 years. Surely the drug costs are five figures per year, which insurance pays. Worth it? How many peer countries would she get this treatment?
We are more obese than peer countries.
We are mostly below peer countries on exercise.
We have more type II diabetes than most peer countries.
We are far better at treating many chronic conditions than in the past. Better than peer countries too. This is expensive. About 75% of US healthcare cost is for chronic care. People in the US survive longer and healthier with cancer, cystic fibrosis, kidney failure, and many more chronic conditions. We could save huge amounts cutting this back. Those people would have shorter, more miserable lives. Worth it?
Making insurance only for catastrophic care sounds great in principle but I’m highly skeptical in practice. First, we want to encourage people to get cost-effective preventative care (to the extent we even know which things are cost-effective) Regardless, if 75% of the cost is from chronic care, how much does that leave that can be covered by the individual as “non-catastrophic”?
This reminds me of something I read in the local paper one time, which I found very poignant. It was about a middle-aged, single black woman who had lost *a lot* of weight. She had weighed some hundreds of pounds. Then she had finally decided to try exercise. She could hardly do much at first. She took a ball to work and would just kick it along when she walked along the hallway. That's how it started - that's all it was. She began to do more than that, nothing too strenuous perhaps but strenuous to her. She did it by herself. It was the idea of the ball that moved me, bringing in the thought of the child she was, since I am rarely able to feel anything for adult humans.
I'm sure diet was involved but this was how the story was presented. But the point of course is that someone lost weight by trying exercise, a circumstance so unusual *it made the local paper*.
I am not sure how you would "spend" to implement diet and exercise changes, and I'd venture to say that these two words are now familiar to all Americans no matter how dim of bulbs we may be. Short of coming into their homes and living with them ...
A girlfriend was a dietitian in her first career in the 70s (she eventually threw up her hands and went back to college for computer programming). She worked at what was the city hospital for low-income people. She was supposed to counsel people on diet, and I think also order specific foods to be prepared for them, but I'm not sure how it worked. She worked some with the food staff though.
She said you could ask the average patient, with obesity or other tangentially diet-related illnesses, what they ate, and amazingly the answer was always: salad! They all ate salad, they said. Or, she recalls asking people if they drank coffee or smoked. No one did very much, surprisingly lol. One person memorably adduced that "not too much" coffee was 20 cups a day.
Many years later she was visiting a relative at a nursing home facility in the Rio Grande Valley. As a former dietitian she was interested to see that many of them were wearing tags on their clothing that said, "low-sodium" or "no sugar" or other dietary restrictions. And then amused to see that lunch was served and everyone got exactly the same serving of the only thing on offer that day, menudo.
Yes, pretty much everyone knows diet and exercise are important. Does that mean they know anything about what to do or how to do it?
Excepting extreme cases, the vast majority of diet counseling is done outside of our medical system and even some of what's inside it isn't covered by insurance. Given the medical expenses that result from bad diets, is this optimal?
People in hospitals tend to get weaker and lose muscle This is partly directly related to their illnesses and injuries, partly reduced activity, partly diet. Especially for older patients, this weakening leads to death as much or more than what put them in the hospital.
Do we do everything we can to keep hospital patients active?
Would you say hospital food is appealing? Does it enhance or harm recovery? A study showed typical hospital meals had less protein, important for maintaining muscle, than the rda minimum.
I would be cautious about advocating for paying out of pocket for "gray area" procedures as a general rule. Kids, for example. Current healthcare wisdom suggests (bc mandates is a dirty word) checkups every 3, 6, ans 9 months or so for the first 3 years of life. I would vehemently protest making those kinds of costs out of pocket, especially given your stance on increasing the feasibility of having a family.
Also yearly wellness checkups such as a physical exam, a CBC, etc. If you make those out-of-pocket costs I can assure you people will not do them (I would certainly not as a 42 yo man, unless required). I don't think in 1975 those sorts of things were covered, albeit 1975 was well before my time so I can't speak with certainty.
I'd like to see coverage move from areas like imaging (CTs, MRIs, etc) and super niche specialty medicine to things like weight management, coverage for gym memberships, health coaches, affordable healthy meal services (where you can pick up a healthy dinner for a family of X, at nominal cost) since it's just not easy or convenient to always create healthy meals for a family, etc.
... affordable healthy meal services (where you can pick up a healthy dinner for a family of X, at nominal cost)
So like school lunches but for the parents? Has the widespread adoption of free school-provided lunch (and often breakfast) been correlated with an improvement in childhood obesity? I don't actually know, and in any case, if I were cooking for a large number of children, my idea of success would be lots of calories consumed, and no waste.
"since it's just not easy or convenient to always create healthy meals for a family" -- think about our lives - soccer practice, football, dance, music lessons, etc. beyond school extra curriculars - funerals, weddings, pta meetings, etc. ?
What do people do? they go swing through a drive through.
I will play Devil's Advocate again- what would longevity in the U.S. look like if we didn't spend so much money on premium medicine? I am prepared to accept that it might not make any difference- say, plus/minus 1 year or less (the way I would bet), but I don't think anyone really knows, do they?
In accounting there is this concept of reconciliation which is just the general idea that "it all needs to add up". You can make all kinds of fuzzy claims about depreciation or goodwill or special intangible one-time charges or whatever. But at the end of the day when I add up all the plusses and minuses they actually need to add up right, and if they don't then you know there's a problem with the way in at least one of the summed numbers was calculated.
Now you can apply the same idea to various kinds of purported levels of risk from pollution or exposure to toxins or carcinogens or other environmental hazards. If you do the studies one at a time on one particular suspected-carcinogen and come up with an estimate that it causes 100,000 cancers a year, that's perhaps plausible. If you do this for 200 different (assume independent, mutually exclusive, etc for sake of conversation) then there should be 20 million cancer cases and if there are only 2 million then you can't 'reconcile' the cancer budget and make estimates match observed reality, so there's a big problem with the way you are coming up with those estimates, biasing them heavily to the upside.
Well, the last thing I read about this, if you actually do this for all the things the EPA or California or whatever say are important hazards at the level of hazard they claim, it doesn't add up, it's way too big. In Physics they deal with an analogous issue by dividing everything by a 'renormalization' factor, but that's ridiculous to do with health hazards. But when people try to look at the individual studies about specific substances it's apparently hard for them to identify what exactly is really wrong. There is some kind of mysterious structural estimate-inflationary X factor or else there is some kind of mysterious error of aggregation, maybe 10% of the population is getting exposed to everything and getting four cancers and we should we quadruple-counting those people or something.
(Edit: It's also possible to do this kind of smell test by means of historical and international comparisons. If you say that lead levels 30 years ago caused crime to spike 50% or whatever, then we can look at data from lead mining towns in the old west where people were practically walking radiation shields or from China where measure blood lead levels were twice as high only 15 years ago and ... neither of those show any trend discontinuity or signal in the crime data at all. That doesn't 'reconcile' very well with the lead-crime thesis unless it somehow only applies to recent US history, which would be ... odd.)
I think a similar thing applies to the benefit of medical interventions and to that debate between Scott Alexander and Robin Hanson. When studies look at particular interventions one at a time, they tend to come up with clear indications of meaningful improvements in the last few decades. If you crudely try to add up the total impact of all those improvements in all those interventions there should be a clear signal of big gains in outcomes. And since there's not, we can't reconcile, and there's a big X-factor problem staring us in the face.
In the vet med world, many people insure their horses specifically for colic surgery. It is a large, one-time expense that can hit people somewhat randomly, even when they are responsible owners doing all the right things to avoid colic. Interestingly, a horse supplement company, Smartpak, offers a product that "comes with" $10k of colic surgery insurance. Many people put their horses on the supplement solely for that money. Whether they truly believe in their product or colic cases needing surgery is just rare enough to make it profitable, it seems to work for them. I think there must be room to rethink human med healthcare insurance.
Lots of countries have a thriving market for secondary private health care. Is that cost included in the total medical spending in each country? Does anyone know a source of information about that?
If Republicans are unable to create a better system, more affordable for working class Americans, some EU style socialized medicine system seems increasingly better than what is there now.
Inevitable?
In the meantime, all states should be building more Med schools, and nursing schools. Maybe even buying current colleges that are closing, and creating smaller Med schools.
The Slovak med system is a 6 year college+med school combination. Tho doctors only get paid somewhat more than median incomes in state hospitals, the need to raise socialist med salaries is seen by the numbers of doctors who leave for higher paying foreign hospital positions. Doctors DO have high status.
Higher deductibles & more catastrophic insurance, rather than unlimited small care, would be good -- but only Dems can ask for it, because Reps would be demonized as uncaring.
Same problem with all govt spending -- it's not really a problem until Dems say it's a problem.
When I moved to Canada in the early 1970s, we had a great health-care system. Physicians were allowed to extra bill (i.e. price discriminate) and private care abounded alongside the provincial healthcare plan. C0-pays, as Arnold seems to suggest, were common. Wait times in ERs were essentially zero, and wait-times for specialists were minimal, in giant contrast to today's system.
At some point in the 1980s, some economists convinced policy-makers that health care costs were too because of supply-induced demand, and so admissions to medskools were restricted. Also, the policy-makers banned extra-billing and physician-imposed co-pays. So the quantity demanded went up while the supply declined. Result: massive delays.
e.g. last month I showed up for an appointment with a sleep clinic because I seem to have sleep apnea. The receptionist looked surprised and then searched the computer. "Oh! Your appointment isn't until next year!"
How does the recent flowering of premium/concierge type health startups designed for affluent longevity-focused nerds affect your analysis? I am thinking of things like Prenuvo, Ezra, Neko, Peter Attia's Early service etc. These are surely gray area medicine by your definition -- Prenuvo is literally giving people MRIs to try and speculatively detect early stage cancers!-- and are almost always paid for out of pocket, yet they seem to be growing pretty robustly. Shouldn't this update us somewhat away from the idea that third party payment causes overspending on gray area medicine, and toward the Random Critical Analysis thesis that rich people just want to spend more of their incomes on health care?
There aren't many counties with AIC comparable or higher than the USA, but all of them spend less on healthcare, usually far less. And most don't get the same complaints about rationing that you get with the NHS (nobody thinks Singapore has bad healthcare). It kind of seems like one is just sticking a single data point at the end of a line and calling it an inevitability.
Let me use the same logic for a different sector, education. We keep spending more and more on education, but most of the spending is done by the government. Even when it's done by private individuals, it's often in the form of government backed and subsidized loans to young people. Is all of this an indication of people valuing education more? Even if true, would the be a good thing (you can mis-value something, especially if its with other peoples money).
Since COVID there has been an increase in private school usage. Is that an indication of people valuing education more? Or is it an indication of valuing public education less. My school district increased its spending from $17,000/kid to $24,000/kid in the last few years, even as it lost student enrollment. The private school we sent out kids too only costs $10,000 per year. I guess you could call it concierge service, but it's more reflective of the low value I place on "free" government education.
Total Out of Pocket healthcare spending is only 11% of total spending, and that includes deductibles and copays on regular insured care. It's just not a private market.
I think a better model is that government will spend whatever the society can bear, and wealthy American society can bear quite a lot. But it could easily spend it on other things (we could have a gigantic tax child tax credit, etc). It's just that the education and healthcare lobbies are strong and they are easy to sell culturally to the voting populace.
I generally agree that "adopting X healthcare system wouldn't cut our healthcare in half." It *might* slow health trends X% a year, which would add up over time, but it's not like we are just going to say fire half the nurses in the country one day. The actual divergence between the USA and the rest of the OECD mostly occurred through differential trend over time.
> Consumers want unlimited access to medical procedures without having to pay for them out of pocket. In the United States, we try to satisfy this desire, and the result is exorbitant spending. In other developed countries, access is limited.
I love the 1975 free basic care plan and the way you frame the current state. This is one area that seems like an important slow moving disaster to solve the more you look at it, and yet it gets 0 attention / proposals from politicians / the establishment. Probably the main reason is that no one has any idea how much their healthcare costs. Federal control over healthcare combined with DEI seems concerning
However, "poor outcomes per healthcare dollars spent" is misleading:
* Longevity is a poor metric because the differences are not driven by the healthcare system but by behavior differences in the demographics being compared. If Switzerland had Chicago's south side, reducing their longevity, then should we judge their healthcare system more harshly? To be clear, the behavior differences I'm talking about crime, obesity, and driving. Let's see the graphs after controlling for those variables.
* USA is the richest country, so costs & prices would naturally be highest as well.
Right on demographics and related relevant granular differences.
"Average longevity" is way too over-aggregated of different kinds of people and causes of mortality to make meaningful attributions or conclusions about the "effectiveness of health care", and at the very least one ought to compare apples to apples as much as possible. "What is the 5 year survival rate when a 60 years old man of normal weight and otherwise average health and family history, with mainly X heritage, presents symptoms of cardiac distress and is treated with an emergency bypass procedure?"
Average Longevity dropping a lot rapidly because of a sudden spike in fentanyl overdoses among young people is not an indictment of the low marginal utility of medical care. When I've made this point before I've been assured many times that of course all the researchers correct and adjust for all these factors with statistically sophisticated regression analysis so they can get meaningful and reliable "ceteris paribus" results, and then when I look at the paper at least half the time the authors did no such thing, just crude "average lifespan to average lifespan" comparisons.
This, however, seems wrong to me: "USA is the richest country, so costs & prices would naturally be highest as well." Maybe for stuff which is labor or real-estate intensive, but it doesn't make sense for other atoms-capital-and-technologically-intensive stuff which still costs a ton more even than they do in other developed countries.
Consider commodities refined and purified in complex chemical processes like diesel fuel or copper or fertilizer or herbicide. To a first approximation, the biggest wholesale buyers that tend to be next in the supply chain from the producers basically all buy at the same price adjusted for shipping and taxes or costs associated with complying with special local regulations. It makes approximately no difference whether that barrel of whatever is being bought in the richest country or poorest country in the world. Same goes for a bunch of machinery.
Ok, now apply these facts to medicine. It isn't too hard to mail-order whatever prescription drugs you want from India or Thailand or South Korea, and they are not just "similar" or "comparably" safe and effective but sometimes literally identical because literally made in the same way in the same factories as the stuff you get from an American pharmacy for prices that can be up to 100x more. Not 100% but 10,000%!
Similar considerations apple to expensive medical machines, equipment, tools, disposable items. They should cost the same anywhere. To the extent they don't, especially when similarly developed countries pay a lot less, it's not just because the US is rich.
You're right in that last sentence, but nobody in this debate has mentioned why. The reason is that approximately all countries except the US impose price controls on drugs, and as a result, pretty much all drug R&D in the world is paid for by US consumers. If we (US consumers) didn't have "insulation" hiding the high prices of those new drugs from us, most drug R&D would simply stop, except those projects that can attract funding from charities or get it from government by lobbying.
But since we today have hundreds of hidden laboratories in places like Wuhan and Ukraine developing new diseases in order to profit from treating them, it is far from clear that shutting down the pharma industry's R&D would be a bad idea. I'm for it.
Interesting, thanks for the response.
I'm not too knowledgeable on the topic, but I don't think you can compare the market for healthcare inputs to commodities. Commodities are fungible and have many competing producers, while I don't think that's the case for many things in healthcare. Regulations also get in the way.
> It isn't too hard to mail-order whatever prescription drugs you want from India or Thailand or South Korea, and they are not just "similar" or "comparably" safe and effective but sometimes literally identical
Is this true? I'm not allowed to mail-order Ritalin from another country, because it's a controlled substance, correct? Assuming that controlled substances can not easily be transferred across borders legally, then that seems like it would enable suppliers to practice price discrimination. Price only equalizes if there aren't barriers to buying in one place and shipping to another, but that does not necessarily seem to be the case in these markets.
I also believe that the amount of blame placed on Big Pharma can be overstated. I do not believe that Pharma prices get close to explaining the overall healthcare delta.
Other ideas -
Regulation no doubt plays a role. Do other countries have laws like HIPAA on the books, requiring specialized software for everything?
Healthcare is labor intensive, the labor is entirely unionized, and supply of doctors is kept within strict limits. Specialties make $1M+ a year. I imagine they make a fraction of that in other countries.
Regardless, I tend to agree that the main thing is insulation from costs breaking the all-important price signal.
The biggest payers on the scene are Medicare and Medicaid. Both of these have been outsourced to private insurers (MA is 51% of medicare and growing every year).
In Medicare and Medicaid there are two incentives:
1) Grow while avoiding bad risk
2) Make members happy with low cost sharing so you get good "quality" scores on surveys that determine quality revenue bonuses
All of this incentivizes low to zero cost sharing on common expenses that hit lots of members. It attracts the right risk and gets good quality scores.
Finally, MLR requirements basically mean that if you do a good job controlling cost it can't come back to you in the form of profit. It's got to get plowed back into benefit enhancement.
The other issue is that running a Singapore style high deductible system would require having a populace that was relatively healthy and had the kind of disposable savings necessary to handle modest medical bills. We don't have that, we have a large underclass that is very unhealthy and doesn't have the money to handle a few grand in medical expenses. When they forego treatment this sometimes means foregoing waste but can also mean foregoing needed medical upkeep.
Lastly, "public" hospitals in Singapore a regulated. In the USA there are a lot of areas where there is effectively a single medical system that owns all the hospitals and you basically have to take whatever they give you.
Anyway, it just seems to me we have the worst of all possible worlds.
None of the benefits of a single risk pool.
None of the cost savings of competition.
Highly regulated but in the worst ways.
With a population that probably isn't conductive to social insurance but deeply wants it.
Themes, no offense intended, from when I worked in US healthcare and paid attention to this issue:
1. The US leads the world in obesity -- subsidized food and a culture of convenience and irresponsibility.
2. Medicare pays for nearly everything, with no waiting -- a segment of this population is really very sick and use a huge percentage of the resource, especially in the last year of their life; doctors call another segment of this population "frequent fliers," as they are always in their offices for one thing or another.
3. Massive subsidies via tax deductions -- watch labor market participation take a step down when the feds finally decide they are ready to nationalize health insurance.
4. The US pays 50% higher prices than the rest of the developed world -- in part because Obama agreed to Medicare not negotiating drug prices in exchange for Big Pharma's support for Obamacare.
5. My baby-boomer Medical Director said, "At some point it became about the money" -- the smartest brother goes to medical school, the younger one goes to Wall Street, both get corrupted as a result when the nice house, Mercedes, and respect of your neighbors are no longer enough.
6. One of my Billers said, "Only in healthcare can two people be in a room and no-one knows what its going to cost" -- price information is almost impossible to come by as insurance plans are negotiated case-by-case between a large employer and a carrier.
7. Defensive medicine -- in the hundreds of billions of dollars thanks to contingent lawyers and uncapped jury verdicts.
8. Labor bottlenecks -- no new med schools approved for > 20 years,; the move to BSNs over ADNs for nurses; Dentists as the world's best union, making oral care that is very important for health cost-prohibitive.
9. The customer of the hospital is the surgeon., because the surgeon brings patients -- the doctor wants the latest toys (e.g., the robot), is a specialist (cue hospitalists who can look after the whole patient), and doesn't want to take call (cue hospitalists again).
10. ...
Long story short, it is the corruption of everyone that follows when we split the decision-maker from the payer. Taking action, I incorporated a healthcare prices information company but realized I'd need VC money to pursue it, so focused on another idea instead.
Finally, I believe Ontario made it illegal for physicians to charge more than the state health insurer. That isn't going to fly in America, so we are heading to one system for the rich (i.e., concierge medicine) and another for the rest of us (i.e., get in line). Hang on to your doctor!
Fine post; I am surprised it does not mention the Scott-Hanson controversy last week - with Scott showing that there are substantial improvements in health care - and even those would not usu. turn up in meta-studies - versus Robin Hanson who claims health spending could/should be at least 50% reduced without expecting negative health outcomes. https://www.astralcodexten.com/p/response-to-hanson-on-health-care (with the relevant 2 links in the first sentence)
"Arnold Kling Discusses Cost Containment in Health Care"
https://www.youtube.com/watch?v=wU9SJCXbcdc
I have long thought Crisis of Abundance is your best book.
I imagine Arnold has seen the recent Scottish Alexander versus Robin Hanson debate on this issue (most recent post on ACX April 30th I think), I'd be interested on Arnold's perspective, he might clear up some of their disagreement.
I read your healthcare book a couple years ago. I liked it. I don't remember everything covered in the book but what you have mentioned in this post might hit 20% of why health care is more expensive in the US.
Yes, we waste a lot more money on procedures with minimal value to anyone and most premium care, worthwhile or not, wouldn't happen without insurance.
Yes, we spend far more on grand, life-saving medical interventions to save one life and far less on preventative care that is more cost effective. We spend almost nothing on prevention that requires education of the patient and subsequent effort and implementation by the patient. Many peer countries do better on this.
Pregnancy issues might be the best example of the benefit of preventative care but far from the only one. US does far worse at getting expectant mothers to show up for preventative care that would be free. We have far worse outcomes. How does that factor in? Would catastrophic-only insurance help?
I don’t know about other countries but beyond knowing that exercise and a "good" diet improve health, US doctors are largely ignorant of the impact of each and how to advise their patients. Our health system includes almost zero ability to reimburse them for time spent on this. That said, a lot of very basic, very cost-effective essential care wouldn't happen without insurance. Worth it?
It is true that I get some medical care I would not if I had to pay the "full" cost. Some is premium but some is necessary. We aren't always willing to pay for care that we should get. It is also true I get some premium care not covered by insurance. People are complicated and there is no perfect path to getting it right.
People with disposable income tend to spend some of it on healthcare. We have more disposable income than 2006 and FAR more than 1976. Our expectations are higher in part because we are mostly richer. (yes, the correlation isn’t perfect)
We pay more for new drugs, sometimes older ones. By doing so, we subsidize drugs for other countries. Worth it?
In his podcast, Dr. Peter Attia talks about the improvement in health outcomes by getting colonoscopies more often than 10 years. He put the maximum benefit somewhere less than every five years. If he is correct, how much is it worth spending for this health benefit?
I had knee surgeries in 1984, 1985, 1999, and 2022. No way I'd want the pain and recovery times of 1980's surgery. Maybe 1999 was acceptable but 2022 was my most invasive knee surgery and by far the most painless and fastest recovery. What has been done to reduce the trauma of surgery is truly amazing. Anyone having surgery today should be immensely grateful for the improvements.
My knee surgeries were all elective. I chose against a follow-up surgery in 1986. I can’t say for sure about the first 3 surgeries but so far the 2022 surgery has massively improved quality of life. Would I have paid out of pocket? Almost certainly not. Would I have gotten these surgeries in peer countries? Probably not.
I’m getting treatment for prostate related issues. I’m currently on two drugs. They help but I could live without them. What’s the quality of life gain worth? My brother isn’t on prostate drugs but has had to go to the hospital to be catheterized because he couldn’t pee. Do my drugs cost more than that?
For what it is worth, I've does a lot of learning on prostate issues, mostly through Attia podcasts. It is clear to me that if my doctors even know all the things they should, they haven't told me near everything they should have.
A friend had a parent in Canada with cancer. He had more than a year wait for treatment and probably would have died but my friend brought him to US and paid for successful treatment out of pocket. Worth it?
I have a friend who has lived with metastatic breast cancer for over 10 years. Surely the drug costs are five figures per year, which insurance pays. Worth it? How many peer countries would she get this treatment?
We are more obese than peer countries.
We are mostly below peer countries on exercise.
We have more type II diabetes than most peer countries.
We are far better at treating many chronic conditions than in the past. Better than peer countries too. This is expensive. About 75% of US healthcare cost is for chronic care. People in the US survive longer and healthier with cancer, cystic fibrosis, kidney failure, and many more chronic conditions. We could save huge amounts cutting this back. Those people would have shorter, more miserable lives. Worth it?
Making insurance only for catastrophic care sounds great in principle but I’m highly skeptical in practice. First, we want to encourage people to get cost-effective preventative care (to the extent we even know which things are cost-effective) Regardless, if 75% of the cost is from chronic care, how much does that leave that can be covered by the individual as “non-catastrophic”?
This reminds me of something I read in the local paper one time, which I found very poignant. It was about a middle-aged, single black woman who had lost *a lot* of weight. She had weighed some hundreds of pounds. Then she had finally decided to try exercise. She could hardly do much at first. She took a ball to work and would just kick it along when she walked along the hallway. That's how it started - that's all it was. She began to do more than that, nothing too strenuous perhaps but strenuous to her. She did it by herself. It was the idea of the ball that moved me, bringing in the thought of the child she was, since I am rarely able to feel anything for adult humans.
I'm sure diet was involved but this was how the story was presented. But the point of course is that someone lost weight by trying exercise, a circumstance so unusual *it made the local paper*.
I am not sure how you would "spend" to implement diet and exercise changes, and I'd venture to say that these two words are now familiar to all Americans no matter how dim of bulbs we may be. Short of coming into their homes and living with them ...
A girlfriend was a dietitian in her first career in the 70s (she eventually threw up her hands and went back to college for computer programming). She worked at what was the city hospital for low-income people. She was supposed to counsel people on diet, and I think also order specific foods to be prepared for them, but I'm not sure how it worked. She worked some with the food staff though.
She said you could ask the average patient, with obesity or other tangentially diet-related illnesses, what they ate, and amazingly the answer was always: salad! They all ate salad, they said. Or, she recalls asking people if they drank coffee or smoked. No one did very much, surprisingly lol. One person memorably adduced that "not too much" coffee was 20 cups a day.
Many years later she was visiting a relative at a nursing home facility in the Rio Grande Valley. As a former dietitian she was interested to see that many of them were wearing tags on their clothing that said, "low-sodium" or "no sugar" or other dietary restrictions. And then amused to see that lunch was served and everyone got exactly the same serving of the only thing on offer that day, menudo.
Yes, pretty much everyone knows diet and exercise are important. Does that mean they know anything about what to do or how to do it?
Excepting extreme cases, the vast majority of diet counseling is done outside of our medical system and even some of what's inside it isn't covered by insurance. Given the medical expenses that result from bad diets, is this optimal?
People in hospitals tend to get weaker and lose muscle This is partly directly related to their illnesses and injuries, partly reduced activity, partly diet. Especially for older patients, this weakening leads to death as much or more than what put them in the hospital.
Do we do everything we can to keep hospital patients active?
Would you say hospital food is appealing? Does it enhance or harm recovery? A study showed typical hospital meals had less protein, important for maintaining muscle, than the rda minimum.
I would be cautious about advocating for paying out of pocket for "gray area" procedures as a general rule. Kids, for example. Current healthcare wisdom suggests (bc mandates is a dirty word) checkups every 3, 6, ans 9 months or so for the first 3 years of life. I would vehemently protest making those kinds of costs out of pocket, especially given your stance on increasing the feasibility of having a family.
Also yearly wellness checkups such as a physical exam, a CBC, etc. If you make those out-of-pocket costs I can assure you people will not do them (I would certainly not as a 42 yo man, unless required). I don't think in 1975 those sorts of things were covered, albeit 1975 was well before my time so I can't speak with certainty.
I'd like to see coverage move from areas like imaging (CTs, MRIs, etc) and super niche specialty medicine to things like weight management, coverage for gym memberships, health coaches, affordable healthy meal services (where you can pick up a healthy dinner for a family of X, at nominal cost) since it's just not easy or convenient to always create healthy meals for a family, etc.
... affordable healthy meal services (where you can pick up a healthy dinner for a family of X, at nominal cost)
So like school lunches but for the parents? Has the widespread adoption of free school-provided lunch (and often breakfast) been correlated with an improvement in childhood obesity? I don't actually know, and in any case, if I were cooking for a large number of children, my idea of success would be lots of calories consumed, and no waste.
"since it's just not easy or convenient to always create healthy meals for a family" -- think about our lives - soccer practice, football, dance, music lessons, etc. beyond school extra curriculars - funerals, weddings, pta meetings, etc. ?
What do people do? they go swing through a drive through.
I will play Devil's Advocate again- what would longevity in the U.S. look like if we didn't spend so much money on premium medicine? I am prepared to accept that it might not make any difference- say, plus/minus 1 year or less (the way I would bet), but I don't think anyone really knows, do they?
In accounting there is this concept of reconciliation which is just the general idea that "it all needs to add up". You can make all kinds of fuzzy claims about depreciation or goodwill or special intangible one-time charges or whatever. But at the end of the day when I add up all the plusses and minuses they actually need to add up right, and if they don't then you know there's a problem with the way in at least one of the summed numbers was calculated.
Now you can apply the same idea to various kinds of purported levels of risk from pollution or exposure to toxins or carcinogens or other environmental hazards. If you do the studies one at a time on one particular suspected-carcinogen and come up with an estimate that it causes 100,000 cancers a year, that's perhaps plausible. If you do this for 200 different (assume independent, mutually exclusive, etc for sake of conversation) then there should be 20 million cancer cases and if there are only 2 million then you can't 'reconcile' the cancer budget and make estimates match observed reality, so there's a big problem with the way you are coming up with those estimates, biasing them heavily to the upside.
Well, the last thing I read about this, if you actually do this for all the things the EPA or California or whatever say are important hazards at the level of hazard they claim, it doesn't add up, it's way too big. In Physics they deal with an analogous issue by dividing everything by a 'renormalization' factor, but that's ridiculous to do with health hazards. But when people try to look at the individual studies about specific substances it's apparently hard for them to identify what exactly is really wrong. There is some kind of mysterious structural estimate-inflationary X factor or else there is some kind of mysterious error of aggregation, maybe 10% of the population is getting exposed to everything and getting four cancers and we should we quadruple-counting those people or something.
(Edit: It's also possible to do this kind of smell test by means of historical and international comparisons. If you say that lead levels 30 years ago caused crime to spike 50% or whatever, then we can look at data from lead mining towns in the old west where people were practically walking radiation shields or from China where measure blood lead levels were twice as high only 15 years ago and ... neither of those show any trend discontinuity or signal in the crime data at all. That doesn't 'reconcile' very well with the lead-crime thesis unless it somehow only applies to recent US history, which would be ... odd.)
I think a similar thing applies to the benefit of medical interventions and to that debate between Scott Alexander and Robin Hanson. When studies look at particular interventions one at a time, they tend to come up with clear indications of meaningful improvements in the last few decades. If you crudely try to add up the total impact of all those improvements in all those interventions there should be a clear signal of big gains in outcomes. And since there's not, we can't reconcile, and there's a big X-factor problem staring us in the face.
In the vet med world, many people insure their horses specifically for colic surgery. It is a large, one-time expense that can hit people somewhat randomly, even when they are responsible owners doing all the right things to avoid colic. Interestingly, a horse supplement company, Smartpak, offers a product that "comes with" $10k of colic surgery insurance. Many people put their horses on the supplement solely for that money. Whether they truly believe in their product or colic cases needing surgery is just rare enough to make it profitable, it seems to work for them. I think there must be room to rethink human med healthcare insurance.
Lots of countries have a thriving market for secondary private health care. Is that cost included in the total medical spending in each country? Does anyone know a source of information about that?
If Republicans are unable to create a better system, more affordable for working class Americans, some EU style socialized medicine system seems increasingly better than what is there now.
Inevitable?
In the meantime, all states should be building more Med schools, and nursing schools. Maybe even buying current colleges that are closing, and creating smaller Med schools.
The Slovak med system is a 6 year college+med school combination. Tho doctors only get paid somewhat more than median incomes in state hospitals, the need to raise socialist med salaries is seen by the numbers of doctors who leave for higher paying foreign hospital positions. Doctors DO have high status.
Higher deductibles & more catastrophic insurance, rather than unlimited small care, would be good -- but only Dems can ask for it, because Reps would be demonized as uncaring.
Same problem with all govt spending -- it's not really a problem until Dems say it's a problem.
When I moved to Canada in the early 1970s, we had a great health-care system. Physicians were allowed to extra bill (i.e. price discriminate) and private care abounded alongside the provincial healthcare plan. C0-pays, as Arnold seems to suggest, were common. Wait times in ERs were essentially zero, and wait-times for specialists were minimal, in giant contrast to today's system.
At some point in the 1980s, some economists convinced policy-makers that health care costs were too because of supply-induced demand, and so admissions to medskools were restricted. Also, the policy-makers banned extra-billing and physician-imposed co-pays. So the quantity demanded went up while the supply declined. Result: massive delays.
e.g. last month I showed up for an appointment with a sleep clinic because I seem to have sleep apnea. The receptionist looked surprised and then searched the computer. "Oh! Your appointment isn't until next year!"
How does the recent flowering of premium/concierge type health startups designed for affluent longevity-focused nerds affect your analysis? I am thinking of things like Prenuvo, Ezra, Neko, Peter Attia's Early service etc. These are surely gray area medicine by your definition -- Prenuvo is literally giving people MRIs to try and speculatively detect early stage cancers!-- and are almost always paid for out of pocket, yet they seem to be growing pretty robustly. Shouldn't this update us somewhat away from the idea that third party payment causes overspending on gray area medicine, and toward the Random Critical Analysis thesis that rich people just want to spend more of their incomes on health care?
There aren't many counties with AIC comparable or higher than the USA, but all of them spend less on healthcare, usually far less. And most don't get the same complaints about rationing that you get with the NHS (nobody thinks Singapore has bad healthcare). It kind of seems like one is just sticking a single data point at the end of a line and calling it an inevitability.
Let me use the same logic for a different sector, education. We keep spending more and more on education, but most of the spending is done by the government. Even when it's done by private individuals, it's often in the form of government backed and subsidized loans to young people. Is all of this an indication of people valuing education more? Even if true, would the be a good thing (you can mis-value something, especially if its with other peoples money).
Since COVID there has been an increase in private school usage. Is that an indication of people valuing education more? Or is it an indication of valuing public education less. My school district increased its spending from $17,000/kid to $24,000/kid in the last few years, even as it lost student enrollment. The private school we sent out kids too only costs $10,000 per year. I guess you could call it concierge service, but it's more reflective of the low value I place on "free" government education.
Total Out of Pocket healthcare spending is only 11% of total spending, and that includes deductibles and copays on regular insured care. It's just not a private market.
I think a better model is that government will spend whatever the society can bear, and wealthy American society can bear quite a lot. But it could easily spend it on other things (we could have a gigantic tax child tax credit, etc). It's just that the education and healthcare lobbies are strong and they are easy to sell culturally to the voting populace.
I generally agree that "adopting X healthcare system wouldn't cut our healthcare in half." It *might* slow health trends X% a year, which would add up over time, but it's not like we are just going to say fire half the nurses in the country one day. The actual divergence between the USA and the rest of the OECD mostly occurred through differential trend over time.