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Why health care is different

Austin Frakt rounds up some reasons health care is different from other markets, and thus more resistant to cost controls:

* Health care markets and the airline industry both have barriers to entry. The former requires special licensor, the latter requires considerable capital and regulatory compliance.

* Trust in one’s doctor is important, as is trust in one’s lawyer.

* Information assymetries exist in health care as in auto repair. Your mechanic (doctor) knows more about your car (your internal organs) than you do.

* Health services and health insurance products are differentiated and complex, as are other products like cell phones or personal computers.

* Health professionals want a good income, as do those in other fields.

I'd say he forgets the two biggest ones. First, if you don't get good health care, you might die. That makes it hard for individuals to say no to things, it makes it hard for insurers to resist the backlash that comes when they say no to things, and it makes it hard for government to say no to things. And second, most health-care costs are subsidized by a third-party (employers for most of us, taxpayers for seniors and the poor), which means the people receiving the benefit aren't feeling the cost. Any others?

Update: Austin Frakt notes that he did make the point about health care being a matter of life and death, and further clarifies his remarks here.

By Ezra Klein  |  August 31, 2010; 6:18 PM ET
Categories:  Health Economics  
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Comments

Ezra,

you forget that come 2014 not just seniors and the poor will be subsidized from feeling cost. Most average people that make under 400% of FPL will be subsidized to some extent too. We're going backwards in this regards not forward. I know there are political reasons for that which I won't go into here but to still hold onto the crazy notion that this will remain deficit neutral is ludicrous.

Posted by: visionbrkr | August 31, 2010 6:40 PM | Report abuse

I have been asking everyone this very question as my small business health care goes up every year (In the last 5 years, 30%, 40%, 20%, 0, and 15%). I ask, "Who is making this money? What costs have gone up?" and no one seems to be able to answer it. I don't think its the doctors salaries as they seem to be going down. I don't think its my HMO as I use Kaiser which is a non-profit and they refund the money they didn't use. It doesn't make sense to me.

The only thing I am somewhat sure about is that our drug costs are a big contributor. For some reason, their prices don't go down over time as one would expect in other industries, even on drugs that cost less in other countries. This could be a patent issue but I am not sure. Another reason is that the federal government is prohibited by law from negotiating lower prices on the items that it buys.

And, I don't think people in the medical industry have the incentives (whatever they might be) to lower their overhead as they can keep raising their prices to make more money and the buyers don't go away. Maybe the fee for outcome model will change this.

Posted by: JimFromDenver | August 31, 2010 6:51 PM | Report abuse

Health care keeps coming up with new, very expensive technologies to apply to diseases. The same thing happens in defense spending; the price of military aircraft quadruples every ten years, because they keep adding cool stuff to them. If we were willing to let patients/pilots die for lack of the "best" technology, the problem would be moderated. Once you decide that anything is worth spending to save a life, cost controls don't work.

Posted by: davidleetodd | August 31, 2010 7:02 PM | Report abuse

Here are two more reasons why health care differs from other markets:

-The complexities, uncertainties, and unique aspects of each person's body make it difficult to anticipate what procedures will be needed over an episode of illness, and what their costs will be. This makes transparent "menu pricing" difficult, which in turn makes it difficult to comparison shop, even if you were inclined to do so. The same can be said about quality assessment.
-Doctors are often given large amounts of autonomy. But complex patients often require coordinated efforts among multiple doctors. In many hospitals doctors are like construction workers without a general contractor. (I wonder if other countries have more team-based med?)

Posted by: Derridative | August 31, 2010 7:18 PM | Report abuse

The health insurance market does not work like other insurance markets. If your house burns down and your fire insurance company pays to rebuild it, the chance of your house burning down again is about the same as it was before the fire. If you are diagnosed with cancer or diabetes, what for-profit insurance company would ever write a reasonably priced policy for you?

Posted by: iwool | August 31, 2010 7:36 PM | Report abuse

If health care was allowed to be subjected to market forces the prices would come down. When you look at medical procedures that are mostly paid out of pocket, the prices are not rising faster than inflation. These include laser eye surgery, breast enlargements, dental braces, and abortions. I have a high deductible insurance plan coupled with a health savings account and my costs have come down as I become a better medical consumer. I do not trust my doctor any more than I trust my car mechanic. If my mechanic recommends an expensive repair, I get a second opinion before agreeing to it. If my doctor recommends an expensive test, procedure, or medication, I will do some research or get a second opinion before agreeing to it.

Posted by: cummije5 | August 31, 2010 7:52 PM | Report abuse

One big reason is that medical care is not an exact science at all. Frequently the first "cure" turns out not to work, so it is on to the second, and so on. A lot of treatments are only marginally helpful, while many others are actually harmful. A lot of tests are unnecessary. There is a huge amount of waste everywhere. I can never forget seeing a doctor open up an entire surgical tray full of equipment to get a pair of scissors and then he threw the rest away, at a cost of hundreds of dollars I'm sure.

Posted by: AuthorEditor | August 31, 2010 8:48 PM | Report abuse

You forgot one, IMO. Technology.

Not everyone gets an iphone 4. For whatever reason, though, everyone gets access to the latest healthcare technologies as soon as they are unveiled.

New tech is expensive.

Posted by: krazen1211 | August 31, 2010 9:36 PM | Report abuse

Healthcare and education are the 2 fields that some in government want to provide to everyone.

Healthcare and education are also the 2 fields where costs are spiraling out of control.

Not a coincidence.

Posted by: krazen1211 | August 31, 2010 9:43 PM | Report abuse

Health care markets have very little transparency and price information. Your mechanic will give you and estimate. Your doctor will not.

When dealing with your life or your health, or the life or health of someone you care about, you’re dealing with something more important to you than money. So, you aren’t constrained by the usual economic reasoning.

With most economic decisions you can decide to walk away. You don’t have to make the purchase. Your health? Not so much.

In many cases, you only learn about the cost of health care services after those services have been delivered. You may get the bill. But the services were already rendered, with or without thoughts about if or how the bill might be paid. And if you can’t pay the bill, the goods (your health) can not be returned to the provider.

And it doesn't matter if you decide that the MRI that came up negative wasn't worth the 3K after all.

Posted by: bswainbank | August 31, 2010 10:36 PM | Report abuse

It's worth noting as well that improvements in medical technology don't amount to improvements in productivity. Productivity gains are where every advancement in pricing come from. E.g. improvements in performance in chip production make producing more advanced and smaller chips cheaper than before, meaning smaller and cheaper geegaw. The same with food, etc.

But improvements in medical technology are primarily ways to deliver more medical services overall, but a new gee-whiz test takes ever more expensive equipment and ever more technicians' time, without a corresponding decrease required in the basic medical services and items that have to be rendered. No matter how far we can see into a brain with an MRI, we still need to take your temperature as well.

The technologies and procedures are *cumulative*, not displacing and disruptive.

Posted by: rickinwgomo | September 1, 2010 1:45 AM | Report abuse

The number one difference is that every developed society agrees that it will not deny one of the most expensive forms of health care (emergency treatment for serious injuries and diseases) to anyone.

This is not the case in most other markets. Airlines might upgrade your seat to business class, you might get a jump if you break down on the freeway and someone might lend you their cellphone for a quick emergency call, but that's about it.

Even when it comes to legal representation, which society also agrees should be universally available, there is not a good equivalence between the cost of a public defender and the cost of emergency health care.

Posted by: Widebrant | September 1, 2010 2:21 AM | Report abuse

It's not just that there are information asymmetries in health care. It's the astounding magnitude of them combined with the high stakes. This just absolutely blows away the level of these things that you find in most industries.

Posted by: RichardHSerlin | September 1, 2010 4:10 AM | Report abuse

There are a lot of natural monopoly type situations in healthcare, where there are huge economies of scale and simplicity by having one giant provider, like one health insurer, or one regional coordinator of the care of a patient across different specialists for a single condition. The big problem with natural monopoly is that if you allow the monopoly then you have the high costs and all the long established in economics problems and inefficiencies. But if you don't allow the monopoly, you get a lot of small competitors providing it which each have low economies of scale and therefore high costs. The traditional solution in economics is to have the government provide it at large scale, or a private monopoly that is well regulated.

Posted by: RichardHSerlin | September 1, 2010 4:12 AM | Report abuse

Idea/information products are extremely important to value in this market. Such products have zero marginal cost, so their economics is very different. I'll outsource this one to perennial Nobel Prize shortlister, growth economist Paul Romer:

As just one example, recall that the increasing returns to scale that is implied by nonrivalry leads to the failure of Adam Smith’s famous invisible hand result. The institutions of complete property rights and perfect competition that work so well in a world consisting solely of rival goods no longer deliver the optimal allocation of resources in a world containing ideas.

– Forthcoming American Economic Journal paper, page 8, at:

http://www.stanford.edu/~promer/Kaldor.pdf

And:

Think about the basic science that led to the discovery of the structure of DNA. There are some kinds of ideas where, once those ideas are uncovered, you'd like to make them as broadly available as possible, so everybody in the world can put them to good use. There we find it efficient to give those ideas away for free and encourage everybody to use them. If you're going to be giving things away for free, you're going to have to find some system to finance them, and that's where government support typically comes in... Because everybody can use the idea at the same time, there's no tragedy of the commons in the intellectual sphere. There's no problem of overuse or overgrazing or overfishing an idea. If you give an idea away for free, you don't get any of the problems when you try and give objects away for free. So the efficient thing for society is to offer really big rewards for some scientist who discovers an oral rehydration therapy. But then as soon as we discover it, we give the idea away for free to everybody throughout the world

at: http://reason.com/archives/2001/12/01/post-scarcity-prophet

Posted by: RichardHSerlin | September 1, 2010 4:13 AM | Report abuse

The absolute reason health care market differs from others is that we made it so. Some markets are natural such as a plant offering its fruit in exchange for processing and favorable placement of its seed. However our markets are contrived with laws, norms and taboos established and enforced by humans. US health care is a mess. The best way to avoid its problems is not to get so ill as to need it. While this is absurd on its face, until we remove market force attenuation and allow problems to be dealt with based on needs of the patient, woe unto those who need health care in current form.

Posted by: BertEisenstein | September 1, 2010 8:24 AM | Report abuse

krazen1211: "Healthcare and education are the 2 fields that some in government want to provide to everyone.

"Healthcare and education are also the 2 fields where costs are spiraling out of control.

"Not a coincidence."

It may not be a coincidence, but I think you've got cause and effects reversed: it's because market forces do not keep costs in check for these fields that government has to step in if we're going to provide these basic services to those who otherwise could not afford them.

Regarding education, the costs at private colleges have been rising far faster than inflation for some time, and they have nothing to do with government intervention. Schools bid up the costs of professors. When one school offers better food, nicer housing, state-of-the-art recreation and student centers, the others have to do so to compete. But they don't necessarily create better education outcomes.

When one hospital gets a new scanner, the others have pressure to get them to compete even if there's not the overall demand for them. Then they have to be used to justify their costs. So expenses go up, but the improvement in patient outcomes may be marginal.

Sometimes markets bid up the price of services instead of controlling them. That's not an indictment of markets generally, just a recognition of reality.

Posted by: dasimon | September 1, 2010 8:59 AM | Report abuse

Health care, like the finacial markets, provides perverse incentives. Pharmaceutical companies are forever coming up with a new best drug that you must take every day! Because people neeed these things? Because they'll make life better and healthier? No. Because they'll make Big Pharm lots of money? Bingo! So they advertise to the consumer who goes to demand a prescription from the doctor. who has been buttered up by drug reps. It's a very corrupt system. Add that to doctors who prescribe tests at places they have an investment in and we end up paying a lot for more care when we could pay less for better care.

Posted by: wd1214 | September 1, 2010 9:15 AM | Report abuse

Other reasons why health care is different. Our society as a whole suffers if people are not as healthy as they could be - that's not the case with commodities (cell phones, cars, etc.). Just as quality public education benefits all of rest, so does quality health care for all us benefit all us. The culprits in making health care unaffordable are the for-profit health plans which make a killing on charging excess fees for coverage while not giving back fair benefits to patients or fair reimbursements to health providers. The data has been in for many years but Americans don't want to be bothered by the facts: Every other industrialized nation covers all their people for half the cost - and they also have as good or better medical outcomes as the U.S. has (WHO, Commonwealth Fund). When you have a national health plan where everyone is in it, and there are no for-profit health plans which can only make money by denying health care, you can give everyone quality care at an affordable price. We end up paying 31% of our total health care dollars in nonmedical, unnecessary administrative costs just for the priviledge of keeping for-profit health plans in our system. Yet they provide nothing of value and keep charging outrageous rates, pay their CEOs and Executives millions upon millions in bonuses and salaries - while killing us with their denial of payment for health care and short-changing doctors/nurses/hospitals so that the corners that are cut for health professionals to stay in business, is bad for our health outcomes. Too bad so many Americans have been bamboozled into believing an "all for one, one for all" national health care system is evil. We have only to look at every other industrialized country - all of which are democracies who could vote to change their health systems at any time to an American style system BUT DON'T - to see that we are needlessly spending huge amounts of money to for-profit health plans and getting nothing of value back from them. Start with T.R. Reid's book, The Healing of America or his Frontline documentary, "Sick Around the World". Eisenhower had the good sense to imitate the Nazi autobahn for our interstate system. We should have the good sense to imitate some form of national health insurance. All other industrialized democracies have made a commitment to national health programs and are reaping good health and cost savings from doing so. We could learn from them.

Posted by: chrzcatt | September 1, 2010 9:55 AM | Report abuse

I don't think the health care is that different from many other markets..let's take private universities..They continue to increase their tuitions 6 to 10% each year without any cost controls..why?..because it is a "must have" market..how about military spending?..another "must have"..1.3 trillion spent on Irag..i bet there wasn't much cost control during these expenditures..If consumers or a nation believe they "must have" best health care,education and security ,cost controls
are not a priority

Posted by: notmd | September 1, 2010 10:07 AM | Report abuse

One undisclosed reason for insurance rate hikes that is unique to the health industry.

The state collects a % off of every premium dollar collected (MD is 3%), and there are additional taxes that the state collects, based on premium dollars.

the state collects taxes on all business revenue and overrides - fees, from hospitals and providers, beyond those taxes.

Therefore there is a conflict of interest, since the insurance regulating office and the state legislature have an incentive to approve increases in health care and insurance rate increases.

That this is not being reported is another example of the deterioration of the independence and reporting skills of the current news media.

Posted by: JohnSpek | September 1, 2010 10:12 AM | Report abuse

Economics 101 - over time, as government subsidy of higher education and health care has continued to increase, the demand for services increases, allowing cost to increase.
That is the very simple reason that college tuitions increase at almost double the rate of general inflation.
Yes medical costs rise due to increasing cost of technology and drugs, but those prices are only able to be increased due to the increase in the demand, fueled by federal subsidy.

Posted by: cdebruyn | September 1, 2010 10:15 AM | Report abuse

This is the best series of posts on this topic I have ever seen. Intelligent, well argued and no name calling. Bravo all!

Posted by: Underwriterguy | September 1, 2010 10:37 AM | Report abuse

More on asymetrical information: My insurance company knows more than I do, too. My wife and I recently had our first child. We got a $17,000 statement with one line on it: "Hospital, $17,000." Then there's money deducted through a contractual agreement between our insurance company and our hospital. Then there's an amount actually paid by the insurance company. Finally, there's our bill, about $2,000. And that wasn't the only statement like that. How am I supposed to verify that we truly owe $2,000 or whatever? I have requested one, comprehensive, fully itemized statement from the hospital so that I can attempt to figure out who charged what, who paid what, and whether that matches with our policy.

This is the first real time I've used insurance coverage for something major, after paying premiums for the past 10 years (my entire working life). And it feels like I'm being charged an awful lot. But since I don't get all the information, I don't really know, and I feel unqualified to defend myself.

Posted by: spekny | September 1, 2010 10:52 AM | Report abuse

"Regarding education, the costs at private colleges have been rising far faster than inflation for some time, and they have nothing to do with government intervention."

Nothing to do with Pell Grants, Student Loans or heavily subsidized competition?

If there were 'Car Grants', cheap government loans to buy cars, and if GM sold the Chevy Cruze at $6,000 per car, what would you expect the private car companies to do? Would you really expect them to build econoboxes? Why buy a $10,000 Hyundai when the $6,000 Chevy Cruze is for sale, and oh by the way the cost of the $40,000 cars is reduced by grants and cheap loans to low income consumers?

By the way, Harvard's real tuition didn't change from 1900 to the mid 1940s - it actually fell slightly. It was $150 in 1900, which was $3,950 in 2009 dollars. In 1921, it was $250, or $3,000 in 2009 dollars. In 1947 it was $400, or $3,840 in 2009 dollars. So we shouldn't take it for granted that private higher education costs simply rise above inflation year in and year out - that is a relatively recent experience.

http://www.measuringworth.com/ppowerus/result.php

http://kwharbaugh.blogspot.com/2005/02/educational-costs.html#harvard-tuition-history

"When one hospital gets a new scanner, the others have pressure to get them to compete even if there's not the overall demand for them. Then they have to be used to justify their costs. So expenses go up, but the improvement in patient outcomes may be marginal."

Why doesn't this happen in other markets? Because there is no overall demand, AND the demand side is not insulated from costs.

What drives cost insulation?

Comprehensive insurance. Which entity, via tax deductions and outright programs is responsible for much of that cost insulation?

Not only do we have correlation (government involvement in sectors with excess cost growth), but a plausible causal mechanism - the government intervenes in each sector in ways which insulate consumers from the true cost. This blurring of price signals are surely part of the reason why these markets don't appear to function well.

Posted by: justin84 | September 1, 2010 11:01 AM | Report abuse

Higher quality and greater patient satisfaction are not rewarded by the market. Or just barely.

Posted by: ThomasEN | September 1, 2010 11:19 AM | Report abuse

Nitpick: For those of us with health insurance through our employer, our health care is *administered* by the employer but is not *subsidized* by the employer. Ezra's statement is akin to saying that your employer subsidizes your grocery purchases because you buy your food with income that the employer pays to you.

Posted by: tomtildrum | September 1, 2010 12:44 PM | Report abuse

cdebruyn,

Econ 201 -- An increase in demand typically only increases cost in the short run. Longer run the price increase typically motivates an increase in supply that brings the price back down (new factories lowering the aggregate marginal cost curve).

Where the price ends up depends on the characteristics of the good or service. If there are increasing returns to scale, like with VCRs, or electric cars, the increased demand in the long run can cause not a price increase, but a price plummet.

If there are constant returns to scale price ends up about the same.

If the supply is relatively fixed, hard to increase, like perhaps with diamonds, then the price can rise long run.

Posted by: RichardHSerlin | September 1, 2010 1:43 PM | Report abuse

As these many fine posts point out there are many factors contributing to the cost of health care. However, there might be a lot of over-analysis of what makes the health care market different. Fundamentally there are two factors: first, everyone (outside of the very strange) wants to be healthy and stay that way; second, we rarely have any way, whatsoever, to predict when we might come down with a serious disease or have a serious accident. Our health is an imperative to we humans and what the rest of the developed world has discovered is that we are all in this together and that paying for it and administering it together is the best solution.

Posted by: bystander3 | September 1, 2010 2:01 PM | Report abuse

Richard:

So if a constant supply, such as the number of students matriculating at elite colleges, say the Ivy league, does not increase to accomodate demand pressures, then it would be safe to say that an increase in demand pressure would lead to a permanent increase in cost?

Econ 201 assumes that the supply can shift to accomodate the increased demand, which has not been the case amongst the Ivies, and has been limited among the other upper echelon schools

Econ 201 also assumes price based selection from the purchasers, and the federal subsidies have created a situation where lower priced schools do not have a real competitive advantage, further distorting demand.

Diamonds are a great example, a monopolistic controlled market, that artificially props up prices by severely curtailing supply.

Posted by: cdebruyn | September 1, 2010 2:21 PM | Report abuse

tomtildrum,

many employers pay a share of the costs and most insurance companies require it before they'll write a policy for a company. Some states also require it. With most larger employers insurers want to see the employer paying 50-75% to avoid adverse selection.


ALso the other issue with cost is that even with the large number of MRI machines and MRI's being done costs are not coming down. The reason being that providers of these services are basically allowed to price them as they choose and UCR works in their favor to keep their profits up. Not a good thing to keep costs down.

Posted by: visionbrkr | September 1, 2010 4:52 PM | Report abuse

justin84: "Nothing to do with Pell Grants, Student Loans or heavily subsidized competition?"

Not necessarily nothing to do with those factors, but I doubt those are the main drivers. We've had those items around for a while, yet private college and university costs continue to rise far faster than inflation.

"So we shouldn't take it for granted that private higher education costs simply rise above inflation year in and year out - that is a relatively recent experience."

It should not be taken for granted, but it's been a consistent trend for several decades now, which leads me to believe other factors are at work.

"the government intervenes in each sector in ways which insulate consumers from the true cost."

If one believes in access to higher education for families who could otherwise not afford it, then government intervention is necessary. The market simply does not provide affordable education loans for lower income families (otherwise it would have done so on its own). Similarly with access to health care: the market price is beyond the ability of many people to reasonably pay, so those people will have to go without or we have to agree that we all will help pick up the tab. If we don't think people should die because they can't get insurance and that families shouldn't go bankrupt because someone got sick, then we through our government must provide the service directly, give subsidies, or some combination of the two.

Posted by: dasimon | September 1, 2010 5:40 PM | Report abuse

"Regarding education, the costs at private colleges have been rising far faster than inflation for some time, and they have nothing to do with government intervention. Schools bid up the costs of professors. When one school offers better food, nicer housing, state-of-the-art recreation and student centers, the others have to do so to compete. But they don't necessarily create better education outcomes.'

Of course that is true. How much these things drive costs, I am not sure, but it certainly pushes them upward.

But would such tuition increases be as easy if government student loans were not guaranteed?

Posted by: krazen1211 | September 1, 2010 6:13 PM | Report abuse

"We've had those items around for a while, yet private college and university costs continue to rise far faster than inflation."

That's because its an iterative process.

Financial aid increases the amount of money available to the schools which then spend more to increase their attractiveness vis-a-vis competitors, secure in the knowledge that prospective students are far less price sensitive than they otherwise would be. Costs per student rise, and then tuition rises. Then financial aid rises again so that an education is still affordable, which puts more money into the system and repeat.

While I'm not sure I agree with their conclusion, the statement of facts in this document strongly suggests financial aid is a significant driver of tuition hikes.

http://www.centerforcollegeaffordability.org/uploads/Financial_Aid_in_Theory_and_Practice.pdf

"It should not be taken for granted, but it's been a consistent trend for several decades now, which leads me to believe other factors are at work."

Again, iterative process. Why did Harvard's stable real tuition (over a 47 year period) suddenly rocket higher, tripling over just 14 years, and then more than tripling again over the next 48? If it wasn't the GI Bill and Cold War funneling money to universities (and then later Pell Grants, SLM loans and a growing number of cheap public universities), what did? Why does it take ~10 times the amount of real resources to provide someone with a Harvard education today than it did in 1947, but in 1947 it took slightly less in real resources than in 1900?

Posted by: justin84 | September 1, 2010 6:16 PM | Report abuse

"If one believes in access to higher education for families who could otherwise not afford it, then government intervention is necessary. The market simply does not provide affordable education loans for lower income families (otherwise it would have done so on its own). Similarly with access to health care: the market price is beyond the ability of many people to reasonably pay, so those people will have to go without or we have to agree that we all will help pick up the tab"

Both of these are beliefs that were not as prevalent in the 1900-1950 period (when costs didn't grow as they do) compared to today.

If you start with the assumption that government is going to be financing these things, it is likely to be milked. Unless, of course, the government engages in supply restrictions like the UK does with cancer drugs.

Is the US government willing to engage in the same supply restrictions for Medicaid/other subsidized patients?

Posted by: krazen1211 | September 1, 2010 6:25 PM | Report abuse

"If one believes in access to higher education for families who could otherwise not afford it, then government intervention is necessary. The market simply does not provide affordable education loans for lower income families (otherwise it would have done so on its own). Similarly with access to health care: the market price is beyond the ability of many people to reasonably pay, so those people will have to go without or we have to agree that we all will help pick up the tab. If we don't think people should die because they can't get insurance and that families shouldn't go bankrupt because someone got sick, then we through our government must provide the service directly, give subsidies, or some combination of the two."

That assumes that without government involvement that there would be no hospitals offering charity services, and no university willing to offer tiered pricing to attack low income students.

Even granting that assumption (while the assumption is dubious, it would be reasonable to suggest the charity provisions insufficient), rather than tying subsidies to favored sectors, give people cash. If the money has to be used for education, it will fuel tuition inflation. If the money can be used for anything, some of the cost consciousness creeps back into play.

Health care expenses are lumpy, so here you can give people the present value of what the government can afford to spend on their health care as a lump sum upfront. Or, the government could provide universal event based insurance which provides cash grants upon diagnosis (or pay event based insurance premiums for the low income and unemployed only).

The usual fall back is that prices are opague and people in emergencies 'have to been seen or they'll die', so consumers are price insensitive when they are buying, so consumer driven care doesn't work. But this too is an iterative process. If a provider gets a reputation for sticking high bills onto emergency clients, other providers will have an opportunity to eat their lunch. If a provider doesn't disclose prices upfront, a competitor that does will surely take their business. In addition, the large amounts of cash given to consumers - rather than routed via insurance - allows consumer driven health care to work even on big ticket events.

Posted by: justin84 | September 1, 2010 6:31 PM | Report abuse

That assumes that without government involvement that there would be no hospitals offering charity services, and no university willing to offer tiered pricing to attack low income students.

Not true...such things would clearly exist. However, the total amount given to private charity in the US is similar to the amount spent on Medicaid alone. There simply aren't enough charitable dollars to cover the loss of the entitlement programs. Not even close.

Posted by: brickcha | September 1, 2010 11:00 PM | Report abuse

justin84: "That assumes that without government involvement that there would be no hospitals offering charity services, and no university willing to offer tiered pricing to attack low income students."

I don't think we need to assume it. Hospitals do offer charity services. Universities with sufficient endowments do offer tiered pricing. But if they had met the need, there would have been little support for government action.

There were obviously not enough of these services to provide access for those who couldn't afford the market price. As brickcha points out, private philanthropy doesn't come close to matching government resources. Indeed, one could apply the same principle to the development of K-12 public schools; do we really think private sector charity would be anywhere near sufficient to provide universal basic education for those who couldn't pay their own way?

We make choices as a society. Things that we think are essential for everyone will require government intervention for those who can't afford whatever "efficient" price is set by the market. Government intervention may result in some side-effects in pricing, but leaving a large chunk of our population uneducated or sick has side-effects too. There is dead-weight loss in any system.

People can disagree as to what system we should live in. That's why we vote.

Posted by: dasimon | September 1, 2010 11:47 PM | Report abuse

krazen1211: "Is the US government willing to engage in the same supply restrictions for Medicaid/other subsidized patients?"

Perhaps. What I do know is that we engage in supply restrictions already, except that it's done by private insurance companies.

Moreover, we know that other countries provide coverage for everyone at far lower cost with the same or better outcomes that we get. And (getting back to the issue of Ezra's original post) they do it with a less free-market system than we have, which raise the question as to why that's the case.

Posted by: dasimon | September 1, 2010 11:54 PM | Report abuse

"Not true...such things [charity] would clearly exist [if government was not involved]."

brickcha, I was responding to this comment:

"If we don't think people should die because they can't get insurance and that families shouldn't go bankrupt because someone got sick, then we through our government must provide the service directly, give subsidies, or some combination of the two."

I'm merely suggesting that in a completely free market, not being insured does not necessarily equate to a death sentence, requiring either government provision or direct subsidies as an offset. Charity is another option.

"However, the total amount given to private charity in the US is similar to the amount spent on Medicaid alone. There simply aren't enough charitable dollars to cover the loss of the entitlement programs. Not even close."

Well sure, but remember we also live in a world in which government consumes roughly half of national income (estimated $6.41 trillion in 2010 vs. $12.8 trillion est. national income for 2010).

http://www.usgovernmentspending.com/

http://www.bea.gov/national/nipaweb/TableView.asp?SelectedTable=53&Freq=Qtr&FirstYear=2008&LastYear=2010

If government at all levels were limited to $2 trillion, the private sector would regain control of $4.41 trillion. That's a large extra pool of funds for charitable giving and savings. This also excludes the impact of reducing deadweight loss on the economy, estimated by one economist to be $2.6 trillion annually (which of course may be too high).

http://www.econlib.org/library/Columns/y2010/Murphygovernmentcosts.html

Finally, the lack of entitlements would reduce the need for assistance. If there were no Social Security, people would save more for retirement, and they would buy more insurance. Surely there would still be a group of individuals who made poor decisions and would need to rely on private charity, which in all likelihood would have several times the resources it does under the status quo.

Posted by: justin84 | September 2, 2010 9:29 AM | Report abuse

When we take control of our health care decisions, we can help control costs. Check out Whatstherealcost.org for ideas.

Posted by: ChristineaWithRegence | September 4, 2010 4:50 PM | Report abuse

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