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.
Shame on me, I can’t refrain from rising to the bait.
Dr. Kling writes: “how much richer we are than other countries”
Response - Median wealth per capita in Norway is $80,054, in the USA $61,667 . See https://www.visualcapitalist.com/countries-wealth-per-capita/ The USA is pretty far down the list on median wealth per capita.
Kling: “If we paid doctors a Norwegian doctor’s salary, you would not want your kid to grow up to become a doctor.“
Response- We would if our kid was going to a tuition-free Norwegian medical school where the MD program can be completed in only 6 years of college (including undergraduate, students enter medical school directly from high school). Average annual salary for an entry level doctor in Norway, although lower on average that that for doctors in the USA, still is about $137,000 (per https://www.salaryexpert.com/salary/job/medical-doctor/norway ) which is not bad for someone without student loan baggage.
Kling “The main reason that we spend more on health care than other countries is that we make more use of expensive procedures. “
Response:Not sure where you got that notion, but it is old and busted. If we go to a recent study in JAMA (see: https://jamanetwork.com/journals/jama/article-abstract/2674671 ) we read “Contrary to some explanations for high spending, social spending and health care utilization in the United States did not differ substantially from other high-income nations. Prices of labor and goods, including pharmaceuticals and devices, and administrative costs appeared to be the main drivers of the differences in spending.” The U.S. spends about 8% of its healthcare dollar on administrative costs, compared to 1% to 3% in the 10 other countries the JAMA study looked at. And the U.S. spends an average of $1,443 per person, compared to $749, on average, spent by the other prosperous countries studied. And per Investopedia, “U.S. prices for surgical procedures in hospitals greatly exceed those of other countries. A typical angioplasty to open a blocked blood vessel, for example, costs $6,390 in the Netherlands, $7,370 in Switzerland, and $32,230 in the United States. Similarly, a heart bypass operation in the U.S. costs $78,100 compared to $32,010 in Switzerland.” See https://www.investopedia.com/articles/personal-finance/080615/6-reasons-healthcare-so-expensive-us.asp
“Compare the per capita usage of colonoscopies in the U.S. with Canada.”
Response: Can’t find that specific comparison but did find this:”Table 4 demonstrates the variability in screening recommendations across different countries with respect to both the type and schedule of screening. Even within the USA differences in guidelines exist, as the USPSTF and American Cancer Society (ACS) express no preference concerning the type of test, while the recent joint recommendations from several specialty societies recommend a tiered approach with colonoscopy or fecal immunochemical (FIT) testing offered first [17]. All other countries recommend a test for fecal occult blood, colonoscopy, or either. Regarding fecal occult blood testing, FIT is generally preferred over gFOBT, especially in more recent guidelines. Concerning the use of colonoscopy as a screening method, the only countries outside the USA that recommend it are Switzerland, Germany, and Austria. In some countries, the infrastructure may be lacking in terms of the number of trained gastroenterologists to support this screening method, although cost and acceptability are also important factors. The results summarized in Table 4 reflect no clear association between total healthcare expenditure per capita and colorectal cancer screening recommendations, other than that 4 of 5 countries recommending the shortest screening interval are among the lowest spenders per capita. Notably, only Austria and Japan recommend initiation of screening for average risk persons at age 40. “
See: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5833039/
So it is a bit more complicated than the USA gives out too much healthcare.
Kling: “In the U.S., we try to avoid rationing by either price or availability.”
Response: That would be news indeed to anyone in rural America. “Long delays or complete inaccessibility to primary and specialty care are common across the United States (US) [1, 2]. Elderly, women, children, racial and ethnic minorities, socioeconomically disadvantaged, and individuals with chronic health conditions disproportionately experience greater specialty care access challenges and poorer health outcomes despite geographic residence [3,4,5,6,7], especially in medically underserved urban and rural areas”. From: https://bmchealthservres.biomedcentral.com/articles/10.1186/s12913-019-4815-5
There are a number of other possible reasons that I would consider potentially more efficacious than simply reducing the supply of health care further. First, the health system in the USA is too big to administer efficiently, largely out of Woodlawn, Maryland. The m USA health system would be better administered as a federal system with more autonomous state health systems as in Canada and Germany.
Second would be undoing the total and costly failures of HIPAA and the PPACA which have caused administrative costs to soar. Administrative costs will not be reduced under the regulatory regimes unleashed by these acts. The benefits gained have been minimal and certainly do not exceed costs. While repealing these acts, simultaneously repeal tax credits, exclusions from income, and other tax exemptions for employer sponsored health insurance completely and replace with a set formula transferring a set percentage of total national tax receipts to the states to develop their own health systems.
Third, the USA national government lacks a well-educated and competent professional civil service capable of administering programs effectively unlike most other countries which do not give the bureaucrats carte blanche on hiring decisions. This has resulted in an unprofessional administrative state that puts its interests above that of the people of the USA. The USA national government is not a democratic country at the national level and is thus unaccountable to its people as well. With the administrative state completely unchecked and unbalanced at the top of any party platform in national elections should be passing legislation to restrict and constrain the national administrative state’s ability to interfere with state and local governance.
Finally laws and regulation at both the state and federal level should be amended to eliminate any official role or authority for quasi-governmental entities like the American Medical Association that stand in the way of reform and do little more than provide featherbedding sinecures for ideological hacks.
But such minor, common sense reforms are impossible in this political system and so the US people will continue to suffer as the great immiseration wears on.
"People want to pay nothing out of pocket themselves, for either health care or health insurance." People also don't realize the extent to which government subsidies and regulations that greatly expand minimum requirements for health insurance increase their out-of-pocket expenses, especially if they consider that tax payments and insurance premiums also come out of their pockets.
I live in a rural small town. My physician used to have a practice with three physicians, some nurses, and six administrators whose sole purpose was processing insurance co. paperwork. My physician decided to become a "direct care" practice. He stopped accepting all insurance, including Medicare. He invited his patients to pay him $49/month, which has since been increased to $60/mo. and remained stable for several years. For that fee patients get 24-hr. telephone emergency access to, no-fee office visits up to 15/year, which I don't think is strictly enforced, basic lab work such as blood draws. There is no additional charge for any service provided during an office visit. They get immediate emergency appointments (during office hours), and non-urgent care within a few days. The practice also provides a limited selection of non-narcotic medications at very low cost. My daily medication costs $9 for a three-month supply. They also have a cash payment arrangement with a large corporate lab. For some lab tests the cash price is less than my insurance co-payment. I treat my insurance (a Medicare Advantage plan) as catastrophic coverage, although they do pay for things like my gym membership.
The moral of the story is that if people are free to make rational decisions based on the relationship between price and quality of service, they can choose to bring down their day-to-day medical costs by paying out-of-pocket.