The U.S. spends more than any other country on health care, over 14 percent of gdp. A crude economist would take the "gdp" of the health sector as a measure of its economic value. Of course this isn’t quite right, since spending money does not automatically increase health or customer satisfaction. Advocates of European health care systems are keen to point this out.
In other words, "p x q" doesn’t measure the benefits of the U.S. system. But critics are quick to insist that "p x q" measures the costs of the U.S. system. That is a disconnect. The real costs are what could have been produced with those same resources, or opportunity costs.
Let’s say a patient pays $1000 to a doctor, but half of that sum is fraudulent pricing brought on by patient irrationality, non-transparency, fear of death, and fraud. Sound familiar? The real social cost is what the doctor could have produced, had he not been looking after that patient. The real social cost is $500, not $1000.
How does this sound as a debating point: "America doesn’t have better health care outcomes than Europe, and in real terms we are spending about seven percent of gdp – adjusting for relevant corrections– on health care"? Not so fierce.
Of course one might dispute the 1:2 ratio mentioned above.
But in general, the more American medical care is overpriced in current markets, the more current expenditures overmeasure social costs.
The more you think that government can bargain down prices without wrecking supply, the more you should think that current expenditures overmeasure social costs.
Recall that economists do not find efficiency loss in higher prices per se. Higher prices are bad as a sign of restricted output. But the American medical system has high prices and relatively high outputs, for reasons partially explained by Maggie Mahar. So don’t measure cost by the high prices, look for output restrictions, either for health care or elsewhere.
Two caveats: We still must consider secondary economic costs; for instance it is harder to switch jobs for health insurance reasons. Second, medical care is a sector where distribution and efficiency are not totally separate.
But the general point remains: many of the arguments for greater government involvement imply that the true cost of the American medical system is less than the current numbers imply.
Most people regard the true cost of something as what they spend to buy that something. You seem to be confusing the common usage of a term and the technical usage.
If there are two possibilities with essentially equivalent outcomes, and one costs X while the other costs 2X, then the first system is the one a consumer will prefer. That we spend 2X is evidence of market inefficiency, market power, etc.
Here’s an argument you could make in favor of the U.S. system.
The U.S.’s results are inferior to France, but the nation is much more diverse.
The U.S.’s results are superior to Brazil, but the nation is more advanced.
So we land somewhere in between France and Brazil. That makes the spending just about right.
Obviously this an extremely simplified argument, but I believe it has merits.
What about ‘medical tourism’? The same medical procedures (broadly speaking) can be had at a fraction of the cost in (eg) India or Thailand. At least one very large, very new hospital is being built in Thailand expressly for ‘medical tourists’ from DCs.
What does the difference between the two costs (same procedure in DC/LDC) ‘measure’? ‘Overcharge’ in the DC? Opportunity cost?
This is all a lot of mental masturbation. All this terms you use are subjective, and that you represent “French health care” and “us health care” as some sort of monolithic experience or reality is bogus.
How many people consider the cost of anything? They consider the price and their ability to pay it – in the present or over time.
The better question to ask is how to ensure all people have access to good health care and how you accomplish that without sucking up all their future income.
wait a minute there. I see some sleight of hand going on. If redistribution of money has zero social cost, why do so many libertarian economists write screeds villifying the welfare state?
If it’s actually true that some force is causing patients to pay twice what they “should” pay to doctors, then effectively we’re getting a redistribution of money from patients to doctors (who appear to split these rents with health insurers, drug manufacturers and malpractice attorneys). Doesn’t this cause perverse economic incentives and don’t those changed decisions have a social cost?
Plus, from a utilitarian perspective, as long as eta is positive, the redistribution itself is a social cost even ignoring incentive effects, since almost all of the beneficiaries have more wealth and income than the average.
So no, I don’t think you can quite handwave all that away.
Michael,
Because you can choose not to have medical care for yourself (or your family). There is no choice in supporting the welfare state.
ajkrik said:
“The better question to ask is how to ensure all people have access to good health care and how you accomplish that without sucking up all their future income.”
While we are at it, why don’t we ask how we can make humans fly? It is precisely because many market oriented people understand the limits of scarcity and how supply and demand allocates scarce resources through the pricing system, that we dont sit around arguing for pie in the sky hypotheticals such as “HEALTH CARE FOR ALL WITH NO TRADEOFFS.”
If I understand the argument, the doctor provides $500 worth of services but (“fraudulently”) charges $1,000. This means there’s $500 of legitimate services and $500 just transferred to the doctor for nothing. So, the cost in resources is the $500 of effort the doctor put in. The rest has no net cost to the economy–your loss at overspending by $500 is offset by the doctor’s gain at getting an extra $500 for nothing.
This argument works fine if it’s fraudulent overcharging without resources put out. But, if the doctor ordered an unnecessary test, or our system required a lot of unnecessary paperwork, then there a total of $1,000 of social cost. Society used $500 of doctor resources and wasted $500 on paperwork or useless tests that produce no value.
From the CIA world fact book – US GDP per capita is $43,600 in 2006. For France the number is $30,100 using PPP.
If the French had the additional $13,500 per capita that would bring them up to parity with the US, how much of it would they choose to spend on health care versus something else?
Turn the question around. If we started with the same per capita GDP as France and then allocated the rest to get up to current US GDP per capita, how much would we allocate to healthcare versus something else.
I suspect that much of our healthcare spending is simply because we can afford it.
I think TC is quibbling about terminology here. From the point of view of a typical American or a Medicare actuary, a transfer to a special group constitutes a cost, even though, technically speaking, it may not be economically inefficient. And as others have pointed out, there are economic inefficiencies involved in actuating those transfers. Attempts to capture those rents will tend to attract resources away from the productive sector until the rents are fully dissipated.
Please come to Tibia coins, we will give you a great surprise.
I read an article about this issue once on the Narconon website and let me tell you a real case… I have a friend that lives in an European country where he doesn’t have medical insurance and he broke his leg… That is an emergency case and you don’t pay anything, but he he gave the doctor 2000$ for the surgery and all necessary… Now you go break your leg in the US and have surgery… Let’s see how much you pay:)))
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