Month: April 2007

I was impressed by this book by Maggie Mahar; the subtitle is The Real Reason Health Care Costs So Much.  The book has the most coherent, supportable, and fleshed out anti-market story I’ve seen.  It both tries to explain why the current system works as it does, and historically how it evolved from more modest and less expensive ways of doing business.  It’s not just a rehash of the usual stories about the VA system or France.  The discussions of the growth of for-profit hospitals, the increasing specialization of medicine, the problems with pay for performance, and markets for medical devices are all full of interesting tales.

I interpret the basic story as this: the American health care cost spiral comes from suppliers and their entrepreneurial abilities to market expensive and highly specialized services of dubious medical efficacy.  Medical care starts off as ambiguous in value and hard to measure in quality.  Customers are cowed by doctors and other family members into accepting or even demanding what is offered to them.  Third-party payments make the problem worse, and government intervention has stoked rather than checked the basic dynamic.  You end up with massive expenses, lots of stupidity, and – because of its expense — radically incomplete coverage.  Every now and then the extra services do pay off, but not frequently enough to boost American stats on health care quality.

Medical suppliers, and not insurance company overhead costs, are the main villain of the piece.  The author wishes to put doctors back in charge and liberate them from the need to satisfy patients as customers.  Ha!, I say.  Jason Furman wants to encourage individual consumers to do more monitoring.  I hold an old-fashioned desire to increase transparency and competition to induce the insurance companies, and other third party intermediaries, to set things right.  Single-payer systems will improve matters only if you think the government will make wise decisions about the supply chain.  Otherwise we are choking off supply indiscriminately by lowering prices to providers.

Here is Ezra on the book.  Here is a very brief excerpt.

Addendum: Read Maggie Mahar in the comments.  And Matt Yglesias has a good post on the topic.

A loyal MR reader asks:

…is the flow of research against malaria and other targeted diseases
good or bad (or mixed) for the recipients?  I have been a believer that
eliminating diseases would have a big impact on economic growth, but
Foreign Affairs recently had an article attacking the concentration of
charity dollars in a few diseases as tending to distort funding
allocations away from the most important local needs.

The fight against disease, taken alone, won’t improve matters much.  There are, let’s say, thirty different major problems in sub-Saharan Africa.  Eliminating any one of these problems will hardly matter, even if there is no Malthusian trap.  Economic growth is all about complementary factors, and more generally it is hard to produce outputs of real economic value.

I favor Michael Kremer’s plan to offer prizes for vaccines against diseases in poor countries.  It doesn’t cost a fortune, and its successes are as likely to boost other forms of aid as take away from them.  The lives are worth saving for their own sake, and perhaps it will herald a larger push out of misery.  But, taken alone, such an initiative won’t much improve measured economic growth.

On the other side of the debate, this Jeff Sachs paper argues that disease kills the young, thereby requiring excessively large families as a form of insurance, and underinvestment in the human capital of each child.  Limiting disease might reverse this negative dynamic, though I am less inclined to see any unique lever in this kind of vicious cycle.

#42 out of 50.