Some Health Economics for Scott Alexander, 1/23
He bought the wrong book
Overall I got the impression that health care was a bizarro-world where normal economics doesn’t apply. If you have the courage to say loudly and firmly “we refuse to pay a high price for this”, then providers have to give you a low price, and your health care system will be great and affordable. Seems hard to believe, but the US sure does pay twice as much per capita as countries that go with the “loudly refuse to pay more than a certain amount” strategy. I would have appreciated a book by a more economically-minded person explaining why things are like this.
He should have read my book, Crisis of Abundance. The reason that we spend more on health care is not higher prices. Yes, if you compare doctor salaries in the U.S. to doctor salaries in another country, we pay more. But that can mostly be explained by how much richer we are than other countries, so salaries have to adjust upward accordingly. If we paid doctors a Norwegian doctor’s salary, you would not want your kid to grow up to become a doctor.
(In the 15 years since I wrote my book, the costs of primary care in the U.S. probably have gone up more than in other countries. The government has managed to regulate small medical practices out of existence, forcing consolidation into giant provider networks with more bargaining power over insurance companies.)
The main reason that we spend more on health care than other countries is that we make more use of expensive procedures. Compare the per capita usage of colonoscopies in the U.S. with Canada.
Those additional colonoscopies don’t move the needle a perceptible amount when it comes to average life expectancy. They do move the needle on our national health care budget.
As individuals, we all want to have unrestricted access to medical procedures without having to pay for them. But the closer a nation’s health care system comes to satisfying those desires, the bigger the health care budget will be. In the end, every health care system in advanced democracies looks similar to every other one, because they are all trying to deal with this same trilemma.
Everybody hates the idea of rationing health care by price. We all want the “gift” of health care. So politically it is easier to ration health care by restricting availability. In Canada, as of the time I wrote the book, providers with the skills and equipment to perform colonoscopies were scarce.
In the U.S., we try to avoid rationing by either price or availability. So our spending soars and our average life expectancy goes nowhere. If we wanted to win the international life expectancy Olympics, then rather than throwing so much money at medical procedures we should try harder to fight obesity, homicide, drunk driving, and “deaths of despair.”
Everybody thinks that “good” health insurance pays for every health care expense, large and small, and even the insurance gets paid for by somebody else. People want to pay nothing out of pocket themselves, for either health care or health insurance. Government obliges as best it can by subsidizing or providing health insurance, so people don’t see the cost themselves.
Doctors and other health care providers like to see people get “good” health insurance, because that means a steady flow of customers. The original Blue Cross was established by health care providers, not because they wanted to be nice but because they wanted to be sure to get paid.