Do you believe in Stein’s Law?

by on June 22, 2009 at 4:46 pm in Medicine | Permalink

Ezra Klein asks:

Do you believe in Stein's Law?

Stein's Law is the dictum named for the economist Herbert Stein.
If something cannot go on forever, he's reported to have said, it will
stop…It cannot be the case that we
will let health-care spending literally consume 100 percent of
America's gross domestic product before the end of the century.
Health-care spending cannot continue to increase at this rate. Thus, it
will stop.

I can imagine health care consuming thirty to forty percent of U.S. gdp at some point well short of the next century.  (When did people first realize that agriculture would fall to such a tiny share?)  In any case, Ezra frames a key issue:

Every year, we contain costs by quietly letting 2 million or so more
people fall into the ranks of the uninsured. And why not? It does not
require an act of Congress. It does not require a war with a powerful
interest group.

Recent polls notwithstanding, I still don't see the median U.S. voter as either a) willing to have his or her own health insurance taxed, b) accepting serious restrictions on Medicare reimbursements relative to the status quo, c) accepting the mix of HMOs and co-ops that could actually control costs, or d) taking lots of money away from "health care" and putting it into arguably-more-effective public health programs.

Polls are tricky.  The HMO revolution of the 1990s did not "poll" well ex post and that is why it is no longer with us.  Remember also that Harry Truman ran and won on a single-payer platform.  That was a long time ago.  That and other health care reform ideas have been popular in this country except when it comes to doing them.

So to answer Ezra's question, no I do not believe in Stein's Law.  The impossible will likely continue (until it stops).  If economic growth exceeds one percent and progress against disease continues, rising health care costs imply a semi-stable equilibrium for a long time to come, even if it's far from an optimum.  Cheaper, uninsured "retail" care, run on a walk-in, Wal-Mart sort of basis, may alleviate the burden on the uninsured to some extent.

Addendum: Read the comment by Garett Jones:

If the median voter hasn't changed her position much in the last
year or two, then by the MVT the policy outcome won't change much.
Whether the median voter is the "median member of Congress" or the
"median voter at the booth" is a minor question at that point.

The Dems have picked up a lot of culturally-conservative seats so
the median member of Congress probably hasn't changed her views all
that much. When you hear "The Dems won a seat that had been GOP for
decades" you should probably think Blue Dog.

And on Krugman's alleged evidence of unmet demand for health care
reform: As Larry Bartels's resarch shows, voters always say they want
more government services and lower taxes: They want more for less, no
surprise to economists. This is true even in Sweden. Voters leave it to
the legislators to figure out how to optimize their re-election chances
subject to those preferences and the government budget constraint. Is
there also a massive unmet need for tax cuts?

As the link..shows, support for massive health care reform
is lower now than in 1993: The median voter—whether in the booth or
on the floor on the House–is probably less supportive of massive
change than in 1993. Bad news for universal health care, if the MVT is
roughly true.

mgunn June 22, 2009 at 5:11 pm

“… we contain costs by quietly letting 2 million or so more people fall into the ranks of the uninsured…” What’s the evidence for a long term increase in the percentage of the population that’s uninsured? In 2008, the CPS said that 15.3 percent lacked health insurance. In 1994, the CPS said that 15.2 percent lacked health insurance. The politically powerful narrative, that each year the ranks of the uninsured grow and grow, deserves substantially more scrutiny.

Reed June 22, 2009 at 5:37 pm

“I can imagine health care consuming thirty to forty percent of U.S. gdp at some point well short of the next century. ”

You might want to give Bob Fogel credit for his idea. ( see “The Escape from Hunger And Poverty”)

Millian June 22, 2009 at 7:26 pm

When I hear special interest group money I reach for my endogeneity.

Constructing a series that cannot go above 100% and yet increases forever is a simple mathematical exercise.

108Warren June 22, 2009 at 8:14 pm

@MGunn — Looking at population growth over the 14 years between survey numbers you provided, it looks like the actual number was a bit above 500,000 people per year were added to the rolls of the uninsured. Granted, that is only 1/4 of the author’s assertion, but significant nonetheless.

Just throwing my $0.02…

Thanks

JDM June 22, 2009 at 8:44 pm

Suppose you gave people the direct choice – California referendum style – to either retain the current expensive and wasteful US style hospital/insurance/pharma complex (which most US citizens hate) and pay US tax rates or to adopt the relatively inexpensive and equally effective Canadian or Australian health care system (which most citizens of these countries like) and pay Canadian or Australian taxes? I’m pretty sure if this were put to a vote tomorrow a large majority would opt for the foreign health care system and foreign tax rates.

Krish Swamy June 22, 2009 at 9:14 pm

I am continually amazed by the inability/ unwillingness of the average US citizen to make short-term sacrifices for long term benefit. They certainly don’t do it when it comes to economic factors. (The only example where people are willing to make this sacrifice seems to be when they have children.)

There are a few specific things that the American public need to accept (linked with specific sacrifices) for the health-care costs to not consume the federal budget completely and dominate US debt.
1. There is a demographics problem no one can solve. More Americans are getting older and retiring than there are to pay for their retirement. The only way to solve this problem in the short term is to be very open on immigration. And some of this immigration could displace local American worker-held jobs.
2. Older people (who are the most avid consumers of health-care) will need to live with less availability of services. Which probably means they will need to live with the dodgy hip and knee a little longer than they are used to.
3. People will need to rely less on health insurance and be ready to directly pay more from their wallets. The health-care system is a beast that needs to be starved at one end. One way of starving the beast is putting spending control more directly in the hands of consumers. Which probably means higher direct costs for all of us.
4. Doctors and lawyers will need to live with less. Shareholders and employees in pharma and medical imaging/ diagnostic companies are going to face up to some tough times. Like the financial services industry has awakened to a new dawn where it is never likely to be as big as in the last two decades, the health-care system and its various stakeholders (employees, service providers running into the millions) will need to be ready to be satisfied with less.

Otherwise, health care is likely to go the way of GM. With no one compromising, it will require immediate and painful government action to clean up the mess. And that will be a solution that will please nobody.

kingstu June 22, 2009 at 9:58 pm

Why the calls for rationing? Nobody forces you to buy a low deductible high cost insurance policy. Purchase the high deductible plan and ration the care yourself. You can get a high deductible plan with H.S.A. at Blue Cross Blue Shield for as little as $81 per month.

Mike June 22, 2009 at 11:17 pm

“Why the calls for rationing? Nobody forces you to buy a low deductible high cost insurance policy. Purchase the high deductible plan and ration the care yourself. You can get a high deductible plan with H.S.A. at Blue Cross Blue Shield for as little as $81 per month.†

The real reason I made my first comment was to indicate that when health care arrives at 40% of GDP, people without money will be getting huge health care benefits (more than $60,000 a year per retired couple) and people with money will be paying those benefits. The fact that I would like to have the choice to buy rationed health care at a discount is mostly beside the point, so I should have left that comment out, but†¦

It is not easy to make wise choices on effective health care procedures when you are sick or in so much pain you can’t even think.

High deductible plans do not work well if you end up with an expensive chronic condition at some point in your life. There is no way to qualify for a low deductible plan once you have a chronic condition. In health care high deductible plans are risky (unlike house or car insurance), because once you get a life-long chronic condition you can’t buy additional coverage.

capitalistimperialistpig June 22, 2009 at 11:26 pm

Krish – I am continually amazed by the inability/ unwillingness of the average US citizen to make short-term sacrifices for long term benefit.

You are new to planet Earth, aren’t you?

Andy June 23, 2009 at 12:16 am

Do we really want the Canadian system?
“This paper finds that the vast majority of uninsured Americans are satisfied with their health care. Indeed, only 2.3 percent of Americans are both uninsured and very dissatisfied with the quality of the medical care that they receive. The paper finds that Canadians are much closer to uninsured Americans than to insured Americans in their satisfaction with their health care.”

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1395928

Doc Merlin June 23, 2009 at 2:45 am

Thats silly! It can continue to increase forever and still never reach a particular percent.

Come on Ezra this is first semester calculus!

Eric H June 23, 2009 at 7:33 am

I think Ted Craig’s question is on target. If the costs of most goods and services decrease as a percentage over time (food, computers, etc.), either some thing(s) now existing must increase or we have to come up with new goods and services on which to spend the money.

capitalistimperialistpig — I think lots of people, probably including yourself, fail to examine foreign experiences. Which part of those experiences depends on what you have already determined to be “the answer”.

enoriverbend June 23, 2009 at 10:31 am

Not to be cynical and all, but:

A better poll of citizens would find they have their heart set on: incredibly cheap fees, better and better drugs and therapies, extraordinarily gifted doctors and other medical personnel, and no rationing that would ever affect them personally.

That is, they wish to be lied to. Politicians are of course gifted at satisfying citizen demands in this manner.

This is why many would prefer a Canadian-like system, which essentially allows the big lie of cheapness, since the cost is buried in taxes; and also of course the rationing is rarely visible as well. (Not that it doesn’t exist, just that it’s relatively invisible.) Canadians don’t have to wrestle with the drug-development issue as long as the US is willing to fork up the bucks for it.

So as long as someone can figure out a Big Lie about drug-development that would fool enough people, it’s certainly possible to have a Canadian system for the US. I favor some line like “big pharma’s making too much money. certainly cutting their profits to the bone will not affect drug development in any way.”

paul June 23, 2009 at 1:43 pm

I interpret your hypothesis about Americans to be that they are not willing to accept a reduction in their medical care if that is the cost of getting all Americans uninsured.

Obviously this makes sense from a self-interested point of view.

But I would like to hear your theory about why Germans, Canadians, British and French would all say that they would not want an improvement in their own health care at the expense of letting some people in their countries go uninsured.

Is it status quo bias, or do you think Americans are somehow different? You might say that in fact people in these other countries would prefer better health care at the expense of the universality of their systems – that would certainly be the easy way out, but I think you would be very wrong…

liberalarts June 23, 2009 at 8:25 pm

The sins of the son falls upon the father. I saw the anti-evolution movie X-pelled by Herb Stein’s son Ben Stein. The movie is a showcase for how much of a nutcase Ben Stein is. Thus, I have to vote against Herb Stein’s law. Am I exaggerating? I dare any reader to try to make it through that movie without a similar reaction.

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