Interview with Kenneth Arrow

With Conor Clarke, it's about his classic paper on health care.  Excerpt:

…the question that I started with was why health insurance coverage was
limited. There was virtually no insurance outside of hospitalization,
which was limited and heavily taxed. When I heard about this myself, it
was just as a consumer. My first health-care plan as a professor had a
$15,000 ceiling. A ceiling? I was thinking that should be a floor!
$15,000 I can handle, but above that… it would be a problem.

The most interesting segments are the (hard-to-excerpt) remarks on the erosion of professional standards in medicine.

By the way, what will life expectancy be when population is infinite?

Comments

I'm not sure if this falls under erosion of standards, but it s a major development in the health care system that is generally ignored in the debate.

Use to be the hospital system was essentially a non-profits sector of the economy. Within that non-profit structure the hospitals did a lot of cross-subsidization of different aspects of the system.

Over the last 40 or so years the for-profit medical sector has cherry-picked the profitable parts out of the old non-profit hospital system and converted them to for-profits hospitals.

This left the non-profits with the unprofitable portions of the hospital system and forced the them to raise their prices because they could no longer depend on the profitable portions to cross subsidize the unprofitable portion of the hospital system.

This has been created a major change in the way health care is delivered in the US that seems to be ignored by the studies of the system I've seen.

Tyler, could you comment on this aspect of the changing health care system

Maybe if we all move to Canada we will live longer, eh.

My first health-care plan as a professor had a $15,000 ceiling. A ceiling? I was thinking that should be a floor!

That seems to me to be a really good policy. You know you get only $15,000 max for health services, so you must use it wisely. Given the choice of putting off seeing the doctor who will tell you to lose weight and stop smoking or else suffer a heart attack which will cost $50,000, or meeting with him once a month so he can reinforce or berate you to improve your lifestyle, or face this long list of billed procedures, with visits every other week with his dietitian and exercise coach, which will cost $10,000 with $5,000 held in reserve for the injuries you will suffer from the exercise, clearly you will change your lifestyle.

The way things are now, we are told that preventative care is bad and we should rely on expensive trauma care because the system is designed for delivering lots of expensive sick care.

No wonder health care in the US costs twice as much as in other nations where the expensive care is rationed.

Reading Arrow's comments you get the implication that the government might have a role with catastrophic insurance. But ask Dan Rostenkowski how that worked out.

As health care costs have increased, health care providers have been squeezed by payers. Under a cost plus billing system, physicians were not second guessed, hospital administrators had few worries, and ethical issues about proper level of care were often less complex.

Chicago does not teach that greed is good. Chicago teaches that markets are best at allocating resources.

I remember a paper by Professor Pashigian that argues that firms, when faced with adversity in the marketplace sometimes start to take ethical short cuts i.e. it is easy to be moral and ethical when your pockets are flush. So, for example, Doctors working at an inner city clinic may start to game the system because they don't see any other way to deal with an often capricious payer. The lack of respect flows both ways and is more often a function of budgetary restraints then greed. These budgetary restraints, in the face of increasing costs, are the biggest source of conflict.

In short, ours is the most expensive health care system by far and it has only moderate (that's being charitable) results. What bothers me about the current discussion is the focus on cost. While I expect any significant change in the US health care system to involve dramatic changes in how the care is paid for, one thing I absolutely want to see is the TOTAL cost of US health care to go down.

Won't happen. Medicare (and Medicaid) spends as much more than other countries' systems on similar patients as the non Medicare system does. There is no reason to expect an entirely government system to be any different than Medicare.

And I just don't by this argument that they'll pass tremendous cuts in Medicare by expanding it to everyone.

"The way things are now, we are told that preventative care is bad and we should rely on expensive trauma care because the system is designed for delivering lots of expensive sick care."

Clearly not a "loyal reader:" Preventative care does not save money:

"The way things are now, we are told that preventative care is bad and we should rely on expensive trauma care because the system is designed for delivering lots of expensive sick care."

We're not told that preventative care is bad. We're told that preventative care will not substantially decrease the need for expensive trauma care.

"In short, ours is the most expensive health care system by far and it has only moderate (that's being charitable) results."

It very much depends on how you define "moderate" results and what it is that you prefer to focus on.

That he thinks the cap made no sense (note, the premiums for this policy are not stated in the quoted section) is illustrative of our cognitive dissonance when it comes to healthcare. A person with a $100,000 life insurance policy may, when he is dying of cancer, find that it isn't large enough to compensate for the financial loss to his family, so it makes no sense that the policy was capped at $100,000?

His point was that it wasn't even insurance. It pays for routine, predictable medical care but not for a catastrophic condition that costs more than $15,000 to treat. It's functionally equivalent to the "use-it-or-lose-it" flexible spending accounts some companies now offer for health expenses.

Now, of course, things have improved so that you can get a catastrophic health policy that caps out at at least $1 million. That's real insurance. But be prepared to be turned down if the insurance company sees anything in your medical history that it doesn't like.

I really wonder why no one ever bothers to consider the fact that problems in the US healthcare system stem from the fact that suppliers aren't paid by demanders. I can't help but think that so many of these problems - often proposed as "the one big reason US healthcare is faling" - would go away if the market were gutted of its 3rd party hangers-on.

Consider certain areas of California, for example, in which some family doctors are refusing patients with either private insurance or Medicare.

The only way to make the system work is to ensure that suppliers interact with demanders directly. As for public policy, plenty of this blog's readers are living in locations with a well-established public "option," and let me give away the ending of the book for you: Rationing happens, and healthcare practices are now starting to be passed down directly from the government via "Academic Detailers."

It's usually "preventive" not "preventative."

We're not told that preventative care is bad. We're told that preventative care will not substantially decrease the need for expensive trauma care.

So, treating diabetes, diet, monitoring, drugs doesn't reduce the need for trauma care as a consequence of diabetes? Do you have data for that?

Taking an aspirin a day and treating essential hypertension does not reduce the need for trauma care for stoke or heart attack?

I gather a lot of statisticians are liars or stupid?

thank u for posting. you know, I really wonder why no one ever bothers to consider the fact that problems in the US healthcare system stem from the fact that suppliers aren't paid by demanders.

Comments for this post are closed