Over at Crooked Timber Chris Bertram defends death panels. This doesn't seem like a good move for someone in favor of national health insurance but heh, kudos to Chris for following the argument where he thinks it leads. The basic idea, quoting Ronald Dworkin's “Justice in the Distribution of Heath Care”, McGill Law Journal, 38 (1993), pp. 883-98, is this:
… we should aim to make collective, social decisions about the quantity and distribution of health care so as to match, as closely as possible, the decisions that people in the community would make for themselves, one by one, in the appropriate circumstances, if they were looking from youth down the course of their lives and trying to decide what risks were worth running in return for not running other kinds of risks.
By appropriate circumstances Dworkin means assuming an ethical distribution of income, informed and rational consumers and well-functioning markets. So far, so good - this is really just a normative restatement of the second fundamental theorem of welfare economics. If this is one's standard the best thing to do is to redistribute income as appropriate, help to inform consumers (say with comparative research on what is medically effective) and work to improve the functioning of markets perhaps with regulation.
Dworkin/Bertram, however, take it for granted that we can't even approximate the ideal through a market discovery process. Instead, they regard this as a problem for philosopher-kings. So what do the philosopher-kings conclude about how you and I would spend our resources in the ideal situation?
Here are Dworkin’s answers: (1) “almost no-one would purchase insurance that would provide life-sustaining equipment once he had fallen into a persistent vegetative state …. (212). (2) nor would anyone buy insurance to provide expensive treatment for themselves in late-stage Alzheimer’s (it would be better to spend the money in the here and now whilst you’re fit and healthy). (3) people would also prefer to spend their money on their vigorous and healthy younger selves rather than on keeping themselves alive, at enormous expense, for a few additional months of low-quality life. So people wouldn’t choose to spend thousands of dollars (or pounds) on insurance to buy expensive treatments to prolong the life of terminal cancer sufferers, or severe heart failure cases: people would rather spend the money on other things.
And we can extend the thought to cover a lot of R&D too. It may be all very nice (stimulating, good for careers etc) for scientists and/or drug companies to devote billions to speculative research that might or might not issue in treatments extending the life of the terminally ill by a few month, but almost nobody faced with a choice between that investment of resources or spending the money on other stuff (education, culture, vacations, their kids) would squander their resources on such research.
Uh oh, the philospher-kings have already made a mistake. Bertram confuses two notions of insurance. It's true you probably don't want to be paid a lot of money in the state in which you are a vegetable (the idea of insurance as a transfer of money) but you may be very willing to pay a lot of money to avoid becoming a vegetable (the idea of insurance as avoiding a bad outcome). You may even be willing to spend a lot of money for a small probability that you could avoid becoming a vegetable. These two notions of insurance are very different. (Arrow and especially Hirshleifer laid this all out in the 1960s - see the extension for a more technical discussion.)
You can see how far Bertram goes off the rails when he says that people wouldn't want to spend money on "treatments extending the life of the terminally ill by a few months." Huh? We are all terminally ill - what else is life? In fact, a few months of life is worth an incredible amount of money. Murphy and Topel estimate that the modest annual increases in life expectancy over the past few decades have been worth $2.8 trillion annually! Similarly, they estimate that a 1% reduction in cancer mortality would be worth at least $500 billion. See more here.
Now perhaps you want to argue that these numbers are wrong. Fine. The larger point is that Bertram/Dworkin want to be philosopher-kings rewriting the rules of society according to their abstract vision. I say that is the fatal conceit.
Here is a bit more on insurance and states of nature. In the language of economics a rational, utility maximizer allocates income to equate the marginal utility of income across all contingent-states. Thus, a rational, utility maximizer moves income from states where the marginal utility is low to states where is high, e.g. home insurance moves money from the state in which your house doesn't burn and transfers it to the state in which your house does burn - that's good because if your house burns the marginal utility of money will be high. Usually, the marginal utility of money is high in the "bad" state but not always. The classic case is that it's not generally a good idea to buy death insurance for your kids. If your kids die you are going to be miserable and more money won't help much – better to not buy the insurance and take the kids to the movies. Bertram and Dworkin are probably right that more money doesn't buy you much more utility if you are a vegetable, thus you don't want big transfers of income to this state. Summarizing, the first notion of insurance is transferring money across states.
The second notion of insurance is using money to avoid the bad outcome. It doesn't make sense to buy death insurance for your kids but it does make sense to buy them health insurance. Similarly, you don't want to win the lottery when you are a vegetable but you might be williing to use lottery winnings to avoid becoming a vegetable.
Arrow and especially Hirshleifer laid this all out in the 1960s.
A minor quibble Alex. You wrote:
So far, so good – this is really just a normative restatement of the second fundamental theorem of welfare economics.
No, Bertram was saying we should allocate resources as if there were an ‘ethical’ distribution of income, etc. etc. The second fundamental welfare theorem doesn’t say, “Society should arrange resources in accordance with somebody’s idea of egalitarianism, and the way to do it is…”
On the contrary (as you know), the second fundamental theorem simply says that IF you wanted to do so, then the way you could achieve the outcome in a competitive equilibrium is to blah blah blah.
Like I said, not a big deal, and I like your overall post, but I don’t want innocent readers to come away thinking the 2nd fundamental theorem of welfare economics says we “should” redistribute income, because it doesn’t.
All this is beside the point. There will be (or perhaps there already are) death panels because when you divorce the funding from the beneficiary, the beneficiary has an infinite capacity to request further treatment. Someone has to cry no.
It is quite obvious that Dworkin has never had a relative or friend with a (possibly/likely) terminal disease, or that he is completely callous.
I think there is a larger point that is missing from this conversation. WE ALREADY HAVE PHILOSOPHER KINGS MAKING DECISIONS FOR US! Every hospital that I know of that does organ transplants has a board that decides who is going to get the next heart or kidney. And these decisions are made OUTSIDE OF ANY MARKET MECHANISM. It is based on age, lifestyle, dependents, and other things. Thus, Hugh Hefner is not going to outbid a married man of 30 years with 2 kids who is carpenter. And of course, let us not forget the philosopher kings at insurance companies who decide what you can and cannot have.
I think there is a problem that is worthwhile to point out in the way Dworkin establishes his rules and I thank you for doing this. But make no mistake about it, rationing by market mechanisms (which I think is where you are trying to take this conversation) is just another set of rules adopted by us economists, another group of somewhat conceited persons.
I think the idea that we all die (are “terminal”) is not the same as that we are all “terminally ill”. Without that identity, I think your argument about the benefits of increasing lifespan is not very persuasive.
Don,
Well, you cannot sell your organs legally in the U.S.; thus you end up with government rationing and black markets.
And of course, let us not forget the philosopher kings at insurance companies who decide what you can and cannot have.
Most of what is covered by insurance companies is determined by the states; the insurance companies have a say in that obviously, but what is and is not covered is not really all that open for negotiation in large part because of state government mandates.
The argument basically falls apart with this statement:
(1) “almost no-one would purchase insurance that would provide life-sustaining equipment once he had fallen into a persistent vegetative state †¦.
Some people of course want to be kept “alive” that way, just as other people want other things. Now that small group of people won’t blow apart the system, but the other groups will. It breaks apart on the shoals of complexity and difficult to discover knowledge that all totalizing systems do.
Indeed, isn’t this where we quote Adam Smith’s statement about the man of system?
Robert: Indeed. I certainly wouldn’t want my family impoverishing itself to keep me alive in a vegetative state. But if there were cheap insurance I could buy now to provide for me indefinitely in that state… well, if my brain truly is dead, then what’s the downside of doing so? And if my brain turned out not to be dead, then keeping me around until medical science figures out a cure might well be a good deal.
Hmmm, so government death panels are identically the same as doctors and families making decisions for themselves weighing benefits against insurance maximum payouts. And I guess our government acknowledges we live in a world of scarcity and all people make the exact same decisions regardless of their specific situations. Whew! That’s good to know. And all this time I thought otherwise.
“so as to match, as closely as possible, the decisions that people in the community would make for themselves, one by one”
Sounds like the perfect way to do this is have a committee in DC make the decisions for everyone. Just let Zeke and Rahm put their heads together. This would be a lot better than using the entire Congress as in the Schiavo case.
And by no means should we allow people to have their own medical savings accounts and make decisions based on preserving their own resources. That’s illegalitarian.
Economies of scale in insurance, kind of like AIG’s economies of scale. Insurance is a savings vehicle, so if run by the government we can economize by using the same lock box as Social Security.
Very well put Andrew.
I think these comments are finally getting close to the central argument. Let’s not circle around it any more. Sure, we should fear philosopher kings making decisions about what is worth spending health care dollars on. But have you ever been in the position of making these decisions about a loved one? The belief that the market can make better choices is naive, at best. I’m sure the market will make better choices for those that have enough money – but what about everyone else? Would you be happy with a society that precludes expensive cardiac surgery for an 85 year old because that person would rather have their family have the money – when that 85 year old may make $20,000/year while other 85 year olds get the care?
Markets have many virtues and they apply in health care as well as razors. Their flaws apply as well, and are more glaring in health care than elsewhere. If you can remove the effects of income distribution on individual choice, then perhaps I’d support these markets over any “philosopher kings.” But, I doubt anybody supports such radical redistribution of income. So, given our current income distribution, just who should make decisions about end of life care (and other monumental choices)?
I’m not about to defend the philosopher kings. I just know that it’s crazy and unjust to leave these matters to individual decisions, especially in the heat of such momentus decisions. How about some real dialog on how and who should make decisions about what care is worth providing and what is not? I’m all for letting individuals purchase care beyond the social norm if they have the means and desire to do so. But, I for one, want there to be some social norm that we believe is fair for everyone, regardless of income.
Luis,
I don’t think it is a misread at all. For example, a lot of known to be terminally ill cancer patients are not completely dibilitated until nearer the very end of their lives. Quite a few, very expensive cancer treatments cannot cure the actual disease, but can push back the dibilitation by weeks, months, or years.
You’d almost think the vast majority of people didn’t earn their ‘unequal resources’ by working, saving, and caring for their family.
How many kidney transplants and ventilators can the CEOs of bailed out banks actually horde from the rest of us?
Oh wait, bad example. They can probably horde all the kidneys due to the government restrictions.
If the government runs insurance, the money will be paid as we go. It will go directly to providers and equipment that will require use and create bills. Insurance company reserves are invested at a market rate of return, or hopefully even more rationally into promising (private) biotechnology for example, while the government is incapable of allocating capital. I work in a university biotech lab. We can’t buy supplies because our grant only pays for equipment. So, equipment sits idle while we wait for more flexible funding. That’s just how the gov’t rolls. What isn’t transferred directly to then-regulated medical providers will go into the general fund to be spent on…God knows what.
For all the libertarian disdain of “philosopher kings”, we must note that the “philosopher kings” of the VA, Medicare, and every other first world nation seem to do much the same thing as US market-based health care: except at a much lower cost and for everybody.
Really, Alex and other libertarians should consider real world measures more important evidence than their sneers. But they don’t: their sneers are probably the best arguments they have.
I find their presumptions regarding monetary allocation across a lifetime to be very counter to what people do, and what they do deliberately.
People transfer enormous wealth from their “prime” years to there “marginal” years specifically to improve their quality of life during their “marginal” years, for purposes which include access to health care. The entire social “security” Ponzi scheme is sold on the idea that this is a good thing.
Furthermore, I have gone from periods when the marginal value of my dollars was quite low to quite high (and the reverse) in very short periods. To date, this has always revolved around a change in job status. I had a period of five months during which I was marginally employed and “food insecure”. No rational person would be setting aside 14% of their income for retirement at that point, and yet, that is what our kings have decreed. Similarly, when I received my severance package in June of last year, I was subjected to a 50% withholding. When I got my refund eight months later (and after I had gotten my next job, but also after taxes and insurance were due on my house), all I could think about is how much better it would have been to have had that money in June.
The fundamental point remains: you don’t know what is best for me, and you never will.
If I’m faced with fourth-party insurance (me -> employer -> insurance company -> doctor) where I have the ability to substitute out a middle man if I desire, or third-party insurance (me -> govt -> doctor) where I cannot, I’m going to go for the substitutable solution every time. As messed up as our somewhat-free market solution is, decreasing competition is NOT expected to improve matters.
BTW, have we EVER had a situation where lack of competition led to an improved customer experience?
“Also, until we have liberty in donating and receiving organs, join LifeSharers, as Alex recommends.”
“Well, you cannot sell your organs legally in the U.S.; thus you end up with government rationing and black markets.”
“First, what you call philosopher kings are the result of not having a market in organs. The artificial scarcity of organs created by government forces administrative decisions on who may benefit from the few organs available.”
I simply do not know how to respond to this silliness. Does ANYONE believe that the government is responsible for the shortages in organs. And even if the government allowed people to engage in contracts to sell their own organs, would there be enough people willing to sell their own heart at the expense of their own life to lower the costs sufficiently so that everybody got one who needed one? I can just barely see kidneys as a possibility but hearts are the main problem. And does anyone believe that a market mechanism can work that even remotely approaches any sense of justice under almost any definition of justice. Do you really think allowing an 80 year old millionaire to outbid a 30 year old father of 2 is reasonable?
I am an economist and, for the most part, a free market advocate. But price rationing I-pods means that some poor schmuck does not get to listen to music. No injustice there. Price rationing hearts is just not what most of us think is right. And the idea that this is all the government’s fault is……. well silly. I do not understand why this is so hard.
So – I say again philosopher kings already exist and the discussion is not about WHETHER they do or not but on what merits are decisions made. For insurance companies it is about money. For hospital ethics committees it is about other things (although money must be part of the equation as well). What merits do WE want? Individual choice is a nice ideal. But what if the individual cannot afford the choice he wants? Then what? Do we cover him with a complete premium insurance policy paid by tax payers. Fine – then no whining about taxes. If you ARE worried about taxs then you by definition force the state to make harsh decisions.
This really is not rocket science.
Individual choice is a nice ideal. But what if the individual cannot afford the choice he wants? Then what?
And what if the individual can afford to make the choice? We deny him or her their choice because someone else can’t afford it? Because that’s what “WE” want?
You have decided that the collective “WE” is the better ideal, and others don’t agree with you. People like me, who believe that individual liberty, with all that flows from that, is the better ideal. Your statement reveals your collectivist ideal.
As far as philosopher kings – I don’t want them in Washington, DC, whether they are Ds or Rs.
Philosopher kings are OK if they have no subjects and no tax money and no young people’s minds to play with. (Kind of like a PhD with plenty of ideas about how others should live but who have no job and no influence.)
I believe all those people freezing their heads are idiots. But so long as they spend their own money doing it I don’t care, and I’m not demanding that my head be frozen because of fairness.
Oh, the inequity!
The $2.8 trillion “comment” really supports the status-quo or an even more “draconian” health care system. The article espouses on the benefits on maximizing “productive life” – which is basically what most of our NIH research money goes toward. If/When a life is deemed to be “non-productive” its presence would nominally be a drag on the economy (all consumption; no production) and while consumption has benefit without production all we are really do is wealth transfer. Thus, at the point when consumption outstrips production (permanently), if economic growth is the goal, wealth transfers should be stopped and the individual’s saved production used.
However, like water, most of society was to equally portion out health care and thus insist on re-distribution. The wealthy person is no more entitled to it than the poor person. Additionally, if health resources are scarce (i.e., organs) subjective values and not “saved production” should be used as a measure (e.g., father of 2 versus Hugh Hefner).
Ironically in this case the “ethical people” are being short-sighted and the “wealthy/business” people seem to have a longer view with regards to having a sustainable system. We are all fretting about social security right now because the ratio of consumers/suppliers is increasing. And now, our goals with health care are intentionally raising this same ratio that is raising unintentionally due to demographics.
Without considering other external options (e.g.):
No retirement benefit for social security – only “health” benefits
Significantly increasing the short and long-term tax base – say through immigration or a baby-stimulus.
implementing the “moral” choice will be an immediate good but a long-term issue. This is neither good nor bad but, rather like climate control, a choice that needs to be made.
I second Philo’s comment. I don’t understand the point of the distinction. How are fire insurance and health insurance any different from each other? Both involve transferring money from states of low marginal utility to states of high marginal utility. The marginal utility of money is generally higher in situations that are 1) pretty “bad” (your house is burning, or perhaps has already burnt, or your child is sick, perhaps so sick that she’ll soon become a vegetable if no action is taken) but also 2) “good” enough that something can be done (the house can be saved or rebuilt, the child can be cured or treated — unlike a situation in which in you’re in a vegetative state, where there’s nothing you can do).
That’s the one and only one notion of insurance, as far as I can think through. Unless I’m missing something, your two notions are one and the same.
Alex,
I didn’t read Dworkin’s paper, but according to CrookedTimber, his suggestion is different in one important respect from what you describe. Here is what CrookedTimber says:
“Dworkin argues that they would band together in big insurance schemes (possible a single scheme) to realize economies of scale in the provision of some agreed basic package, but that this would be supplemented by a secondary market enabling people to purchase some additional medical services (cosmetic surgery etc.).”
If we do not limit the “additional medical services” to cosmetic surgery, but allow for any medical services not covered under the basic plan to be included, I think this scheme would combine the society’s desire for a measure of egalitarian provision of health care with the market mechanism to take care of differences in individual preferences and incomes. What would be your objection to such a system?
You can see how far Bertram goes off the rails when he says that people wouldn’t want to spend money on “treatments extending the life of the terminally ill by a few months.”
You can also see he’s economically illiterate, not at all understanding that scarce resources are valued at the margin.
Someone else who is in favor of “death panels”: George W. Bush. He was the one who signed the 1999 Advance Directives Act as Governor of Texas. This allows for the removal of life support by a hospital when there is little to no hope of recovery or when the life support only delays death by a small period of time. Each hospital has a team of medical ethics specialists who weigh evidence from doctors on each case and decide, after giving written notice to the family of the patient and giving them opportunity to submit their own evidence, whether to continue treatment or not.
Michael,
Why, do you think, that the additional medical resources purchased privately in these universal plans is pretty much always described as cosmetic surgery etc. rather than ability to queue jump on universally covered services?
So why is that leftists universally give less to charity than average?
From what I’ve read of Dworkin, there is lots of important background missing from this post. That is, Dworkin starts his reasoning from behind a veil of ignorance. In his reasoning, you or ‘we’ are not deciding the allocation of health care for each person, but across all possible states. If I didn’t know who I would be born to, what skills I’d be born with, or any other attributes, how would I want to organize society.
It’s actually a very deep idea similar to the economic insight that there are incomplete markets, because one cannot participate in markets before birth. That is, we can’t buy one of the most important insurances we would ever want, insurance against where or to whom we will be born.
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