Why Is Medical Care Unnecessarily Expensive?

Methinks -

RE: "How about you don't put words in my mouth, Daniel. Let's try that. I didn't say Bret is proposing a single-payer system. I'm trying to understand what he's getting at."

Haha - Don't worry. Just like you never said it, I never said I thought you said it. I just want to guard against that now that this single-payer red herring is in the air.

RE: "Incidentally, I never argued that market failure doesn't exist. I do argue that much of what is called market failure isn't."

Which again is why I said "for those of you out there who..."

S Andrews -


CMHS estimates that 20-25% of all homeless have serious mental health problems. I can't put my finger on stats for "chronic homeless" - but the rates are much higher for them (hence why they're chronically homeless, as opposed to temporarily). National alliance to end homelessness has survey data putting the figure at 45% having mental health problem in the last year, and 57% during their lifetime.

Daniel:"And just because a schizophrenic man says he likes being homeless doesn't mean you should take that response at face value."

Doesn't mean you shouldn't either. It's very possible that living free on the streets is preferable to the confines and the other inmates of a mental institution. If you've ever been to one even as a visitor, you might agree with him.

There ARE problems with a public system - Don doesn't really seem to address them.

True enough. However, the column was not a dissertation on the ills of a public health-care system. The point was to dispel the notion that "we all have to pull together to improve health care in this country."

That the moral hazard he discusses is not native to public health-care systems is of little consequence.

Incidentally, one reason that some people don't have health insurance is they simply opt out - either because state mandates raise the cost of insurance to more than it's worth for a relatively young and healthy person or because they simply don't see the value.

Most of the chronic homeless have serious mental problems that they can't or don't seek help for.

Now, instead making claims(both of us), it will be nice to post some supporting evidence. I don't have any, other than some circumstantial evidence. None of the guys I see at the street corner with a sign that says "Homeless, will work for food" ever look schizophrenic. On several occassions, these so called homeless panhandlers have told me that they are going to use the money to buy a drink, of course, only after accepting the money. If you ever stop to talk to them, you find them very adept at telling you a nice little sob story, without any sign of schizoprenia or any other mental disorder. I have to totally dismiss your comment unless I see some reliable evidence otherwise.

Obviously, you didn't click on the link that I posted in my last comment.

Daniel:"The "moral hazard"/"what do you order at the restaurant" problem is wholly an insurance problem (which is collectivization of risk by definition), and NOT a public/private problem at all."

Not really. Insurance is meant to cover catastrophic events, not routine visits to the doctor. We don't really have insurance.

Further, there's a big difference between forced collectives (government) and private collectives. You can opt out of one but not the other.

Daniel: "I'm pretty sure Bret wasn't proposing a single-payer system... at least he didn't say he was. Let's not put words in people's mouths."

How about you don't put words in my mouth, Daniel. Let's try that. I didn't say Bret is proposing a single-payer system. I'm trying to understand what he's getting at.

Incidentally, I never argued that market failure doesn't exist. I do argue that much of what is called market failure isn't.

Methinks -

RE: "It's also reasonable to entertain the idea that the elderly aren't dying in such an undignified way in such great numbers because we are all significantly, healthier and wealthier and because of improvements in health care that are not associated with either social security or medicare. "

I hope you didn't take me to be denying these influences. I'm very much an "and" person, rather than an "either/or" person in terms of explaining our prosperity. But I think pointing out that there were other, unrelated improvements in health care is a LONG way away from demonstrating that SS and Medicare didn't massively improve the position of older Americans.

RE: "Besides that, the problems you describe are not necessarily the problems of insurance."

I don't know if I understand this point. The two problems I mention (subsidies and mandats) are not an "insurance" problem at all. They are a state interventionism that do come with some costs (and some benefits). However - the problem I spent a lot of time talking about - the "moral hazard"/"what do you order at the restaurant" problem is wholly an insurance problem (which is collectivization of risk by definition), and NOT a public/private problem at all.

S Andrews -


RE: "They like being homeless. Most of the problems of homeless are either self-perpetrated or created by the good-intentioned programs of government and some charities."

Most of the chronic homeless have serious mental problems that they can't or don't seek help for. It has nothing to do with being created by government. And just because a schizophrenic man says he likes being homeless doesn't mean you should take that response at face value.

Bret, Methinks,

BTW, there was a 20/20 program by John Stossel on homeless. It is worth watching.

They like being homeless. Most of the problems of homeless are either self-perpetrated or created by the good-intentioned programs of government and some charities.

Daniel: "It is very reasonable to ask whether the tradeoff of dead weight losses associated with subsidies and mandates is worth changing the consumption of health care by the elderly."

It's also reasonable to entertain the idea that the elderly aren't dying in such an undignified way in such great numbers because we are all significantly, healthier and wealthier and because of improvements in health care that are not associated with either social security or medicare.

Daniel: "What differentiates the public system? (1.) Some degree of subsidy, and (2.) mandates - that's what differentiates it."

The biggest difference between a public and private system is that private systems are optional and public systems are not.

Besides that, the problems you describe are not necessarily the problems of insurance. They are the problems of a single payer - whether private or public. We have precious little health insurance in this country and it is only nominally private. The problems we experience are from government involvement in healthcare provision and people want more of it.

Methinks -

I'm pretty sure Bret wasn't proposing a single-payer system... at least he didn't say he was. Let's not put words in people's mouths. Believe it or not, there's LOTS of very intelligent economists out there who think there is some place for a public system, but are against a single payer system.

Btw - while we're on health care... it's worth noting that private investment in preventative care during a pandemic is a CLASSIC market failure for those of you out there who don't believe in market failures. The positive externalities of staying home when you feel sick don't accrue to the person who has to stay home, and the negative externalities associated with catching someone else's cold can't be priced in a market either.

Market failures aren't a subversive socialist plot... they're just the way the world works sometimes.

Which is why we have the CDC and organizations like that. Do we overcompensate by putting too much money into the CDC? It's very possible. But we certainly would have underinvested in preventative measures if we didn't have the CDC.

Bret: "The very poorest Americans are mentally incompetent homeless persons whose downward spiraling life-cycle consists of being found unconscious on the streets, stabilized in an emergency room, released back to the streets, and then ultimately dying on one of those cycles"

What's your point? That won't change with a single-payer system.

*I should qualify that, Veritas - it depends on if you mean "optimal", ie - economic efficiency, or if you mean administrative efficiency - when you use the word "efficiently". Sounded like administrative efficiency since you also named things like "flexibility" and "compassion", which presumably would be subsumed into "efficient" if you meant "economically efficient".

"Private charity- I think of Catholic Charities here in my hometown- adequately cover all poor people."

CC gets a good portion of its funding from the government, at least according to my wife who happens to work for them (assuming your hometown starts with a L and ends with an N).

Veritas -

Did I not say that it was the subsidies and mandates that were the problem with public insurance programs? Oh wait - that's EXACTLY what I said. My concern is that that's not what Don is talking about at all. Don is focusing on moral hazard, which is not a problem that condemns public insurance any more than private insurance! If you take the time to read my post, I'm agreeing with you Veritas - and saying that Don is ignoring those issues in his article and seemingly attacking the very idea of risk pooling!!!

I'd like some evidence that private charities provide more efficient coverage than public insurance. There are serious concerns about Medicare and Medicaid - no doubt about that. But their efficiency is not usually one that's cited.

Daniel,

Government run insurance programs do NOT operate as healthy, solvent insurers.

They charge inadequate premium, are heavily subsidized by taxes and assessment amounts charged to private individuals and companies, are burdened by excessive cost structures, and fail to adequately enact loss control and fraud investigation.

If they were private, they would have failed long ago.

Private charity- I think of Catholic Charities here in my hometown- adequately cover all poor people. They do it more efficiently and with more compassion and flexibility.

I'm opposed to one-size fits all health care, too. It will entrench the medical/pharmaceutical establishment even more than the almost complete monopoly that they already enjoy. If I wake up one morning and decide that I want to perform abortions for a living, I should be able to take courses to get a certificate in that specialty. The same goes for hip replacement surgery, that my friend's mother recently went in for. You can do virtual hip/knee surgery for free online to get a feel for it in 5 minutes. The development of anesthesia, antisepsis, and antibiotics are what makes modern surgery possible with relatively low risk. The mythical attributes that someone with the title MD is imbued with is way overblown in our society. In China, at least in COMMUNIST China of old, doctors were paid no more than school teachers and revered just as much.

When I'm feeling ill my first recouse is my local Chinatown where I seek out my reliable Chinese doctor/herbalist to treat what ails me for $10 for the consultation and prescription plus the oost of the herbs. I recently successfully treated an infected tooth this way.

I disagree with what the Rethuglicans did concerning free pills for the aged. Maybe Grandma doesn't want to take a handful of pills every morning and night. Why encourage this depressing way of life that hasn't shown efficacy in prolonging or improving the quality of life? It has made Big Parma very happy, however. As Doctor Beaudreaux suggests, maybe grandpa needs to walk and exercise some more and take a handful of vitamins instead. Let's have free vitamins and herbs for all; that might work better to improves people's health and lives. How about free fruits and vegetables while we are at it to stop me from grabbing thoughtlessly an unhealthy burger at McDonalds. Let's not forget free dental care; I just shelled out $3,500 for a gold bridge. I'd like the rich who have all the gold they can use to pay for it. I would also like free clothes; mine are getting tattered.

I want a fuel efficient car because my old one pollutes too much, but it's not in my budget right now. Perhaps Uncle Sam will give me helping hand and a free ride to Vegas and a handful of black $100 casino chips so I can blow them at the crap table. I like to play blackjack, too, and drink free Tom Collins until I'm sloshed. I alway tip the cute cocktail waitress because she expects it, and I'm drunk anyway.

I'll provide my laundry list of wants and needs for free to whoever is listening and responsive, because I like free stuff as long as long as it ain't cheap stuff. I have high standards to uphold when it comes to my health and enjoyment of life. I believe in living long and prospering as one Vulcan once said. Whoever helps me in this valued endeavour get the nod from me at the voting booth. I always vote my self interest because libertarians and Randians told me it was the right thing to do.

MnM -

RE: "Again, folks, don't get so wrapped up in the details of the illustration that you miss what is being illustrated."

What is being illustrated is moral hazard - plain and simple. The big problem with that illustration is that moral hazard isn't a problem that's unique to a public system. There ARE problems with a public system - Don doesn't really seem to address them.

I'm a little troubled by this post and by people's response to Muirgeo.

What Don's restaurant analogy misses is that "sharing the bill" in and of itself isn't inefficient at all. That's called insurance. We have public and private insurance in this country, and both involve management of care to keep down costs. Are there moral hazard and adverse selection problems associated with insurance similar to the ones at the restaurant that Don describes? Of course there are. But those problems aren't unique to public insurance - they're a function of the insurance arrangement in general.

Your father DID pay for his medical care Don. He paid premiums all his life in the form of Medicare taxes, and he paid Medicare premiums once he became a senior.

Don should spend less time on the widely understood pitfalls of an insurance arrangement, and more time on the specific problems with a public system - namely, to what extent is medical consumption increased because costs are subsidized and not covered by premiums, and what are the dead-weight losses associated with mandated payments of Medicare taxes (which have insured virtual universal enrollment in Medicare). THOSE are real concerns - but they're wholly unrelated to Don's bizarre attack on the standard problems associated with insurance. Pointing out that insurance arrangements can lead to moral hazard, like Don does, doesn't indict a public system any more than it indicts a private system. What differentiates the public system? (1.) Some degree of subsidy, and (2.) mandates - that's what differentiates it. The impacts of these two differences is very, very different from the problems that Don describes.

Don is also completely missing muirgeo's point. Muirgeo's point is that for some reason, the elderly were dying in a very undignified way before Medicare (and Social Security, for that matter). They aren't dying in that way - at least to that extent - any more. It is very reasonable to ask whether the tradeoff of dead weight losses associated with subsidies and mandates is worth changing the consumption of health care by the elderly. Maybe Don has already made that decision in his mind - but muirgeo's (and my) entertainment of that tradeoff doesn't suggest that he or I am unaware of the costs associated with subsidies and mandates.

And in case anyone is wondering, I don't support a universally mandated single payer system at all.

But that makes the libertarian position nearly paradoxical.

No, it doesn't. The position is that free-riding is a problem, not that everyone is a free-rider.

On the other hand, if people shun free rides, then collectivism is far less dangerous.

Of course it would be less dangerous, if people shun free-riding, but people (i.e. as a whole) don't shun free-riding. And those that don't shun it impose costs on others.

Incentives matter.

MnM wrote: "That isn't going to stop others from doing it."

But that makes the libertarian position nearly paradoxical.

If everybody wants a free ride whenever possible, then they will find a way to use the power of government to try and get it. Surely some of the better positioned special interests have succeeded in getting benefit at this instant in time.

On the other hand, if people shun free rides, then collectivism is far less dangerous.

Let's assume the restaurant has private booths and food is brought to the table covered.

There, nobody sees what anyone else orders.

No chance of embarrassment.

Does that help?

The article states: "Even the poorest American is far from living at a subsistence level."

A very weak definition of subsistence or intentional distortion?

The very poorest Americans are mentally incompetent homeless persons whose downward spiraling life-cycle consists of being found unconscious on the streets, stabilized in an emergency room, released back to the streets, and then ultimately dying on one of those cycles. I have personal experience observing such a cycle with a family member.

I guess since they live a little while, it could be, with a stretch, considered subsistence. But "far from" subsistence?

Also, it may be that they have "the individual power to improve his or her health care" in theory, but in practice - no way.

Even with complete strangers I would be terribly embarrassed to order one of the most expensive things on the menu, because I would not want to appear freeloading and greedy

That isn't going to stop others from doing it.

Again, folks, don't get so wrapped up in the details of the illustration that you miss what is being illustrated.

The article states: "If you go to dinner with a large group of strangers and you know that the bill will be split evenly, aren't you more likely to order pricier dishes and drinks than you would order if you, and you alone, were responsible for picking up your full tab?"

Are you kidding?

Of course I would NOT order pricier dishes and drinks.

Even with complete strangers I would be terribly embarrassed to order one of the most expensive things on the menu, because I would not want to appear freeloading and greedy - again, even with complete strangers. On the other hand, when I'm picking up the tab, I order what I want because I can afford the difference in price.

The same is true of healthcare. I haven't been to the doctor in quite some time even though I've been moderately sick a couple of times and I have good health insurance because that would be freeloading and wasteful.

Different people have different ethics I guess.

muirgeo,

I'd like you to tell me what constitutes a "basic need", and which ones should be provided by the government.


You obviously think that the services of medical professionals is a "basic need".


Should internet be provided by the government?


After all, information betters peoples' lives.


What about cell phones?


Isn't the ability to communicate a "basic need".


A life without entertainment can drive people crazy, so shouldn't everyone receive government funded movie passes every month?

Quote from muirgeo: "We are a wealthy society who can easily afford these basic things for all of our population. The argument should not be over weather we provide them but that we all insist on making them fair and efficient."

Who decides what is fair or efficient? Since "we" are so very wealthy, how about you give all of your money first.

Before medicare or social security, families paid for their own health care. Maybe, if everybody had the 20% more in income, that the government takes now in taxes for these programs, families would be able to pay for their health care again, and we wouldn't have to worry about what you or anybody else thinks is fair or efficient.

Quote from muirgeo: "OK John so lets assume a free market health care system. You are a doctor and co-owner of a small town hospital. A mother of no means or insurance is pregnant with premature twins and shows up at you door. Do YOU allow her in for treatment or do you turn her away?"

That would be up to the individual doctor/owner to decide. Not you, or me, or the government. Under a government program, the doctor/owner, in fact all working people, are now slaves to the woman, as well as slaves to the government burueacrats and politicians who are so very fair and efficient with other people's money.

People easily forget that "healthcare" is only a fraction of what makes people healthy, and that overgrowing that part might impede on others..

That was a very interesting piece. Very Bastiat-like!

"Do YOU allow her in for treatment or do you turn her away?"

That should be made by the doctor, not the government.

Doctors are making that choice. More and more doctors are opting out of Medicare and Medicaid or severely limiting the number of Medicare and Medicaid patients they treat.

Good doctors will opt to see private patients only - unless doctors can extract payment which will make providing healthcare for all worth it from you and me, which is what Muirdiot wants but won't get.

Folks, don't get so wrapped up in the details of the illustration that you miss what is being illustrated.

I think the analogy is indeed faulty. As one whose food has often been payed for, I know that I am still aware of the price of the meal because I do not want to waste my friends' or families members' money. I agree with your stance on health care, but I don't belive the restrauant analogy is accurate or particularly helpful. Different social dynamics.

"Upon finishing the article one thinks the obvious solution is to limit what everyone can order off the menu."

Restaurants do that by having people pay their own bill, or the person goes to the soup kitchen down the street and gets some voluntary charity.

The whole concept of involuntary charity needs to be banished.

I forgot the word *choice* between That and should.

I think the dinner table analogy is faulty for the following reason. Typical size for a

group of diners is small and they typically have long standing relationships with each other. Thus a dinner who overspends is seen as greedy by the rest of the group. What you are really talking about with common health care plans is a situations where you do not know any of the other dinners and have no knowledge of what the other dinners are ordering. Then you have a classic commons problem.

"Do YOU allow her in for treatment or do you turn her away?"

That should be made by the doctor, not the government.

Muirdiot wouldn't know evidence if it bit him in the face. We know this because it has bitten him in the face and everywhere else with no effect.

Upon finishing the article one thinks the obvious solution is to limit what everyone can order off the menu. This is, of course, what socialized medicine does. Proponents of socialist medicine argue that rationing is a fact of life in the face of limited resources and unlimited wants and happens in a world of private health insurance. Of course, in the world of socialized medicine the trade-offs are made by government, not the individual. This is a big and important difference.

The promise of socialized medicine is that everyone will have access to needed medical care when they need it at a single price. In practice, because of the over-use issue, this isn't true. In Europe, the wealthy simply go to private providers and pay out of pocket instead of waiting on a list for government provided medicine and the poor don't have that luxury.

What drives me crazy is the way statistics are compiled. Health care cost statistics often don't include private expenditures. The WHO puts a lot of weight on whether people nominally have access or not (socialized medicine = access, private = limited access) without regard to whether people actually have access to life saving treatment in an acceptable time frame. There's no accounting for the impact on quality of of health care when hospitals run out of rationed pain medicine and it doesn't keep statistics on people who are permanently handicapped by delayed medical treatment.

But, in a Democracy, people get what they want and they get it good an hard.

Muirgeo,

You miss the point completely. By socializing the provision of medical care, governments inevitably cause medical-care resources to be overused - and, hence, inevitably raises the prices of medical-care provision higher than they would otherwise be.

It's a terrible spiral. As medical-care prices rise, the political pressure to pay for medical-care collectively rises, further pushing up the prices of medical care.

More fundamentally, I am -- or I should be -- responsible for paying for my own medical care, just as I'm responsible for paying for my own automobiles, my own restaurant meals, my own books, etc. The fact that American society is wealthy does not mean that that society has any collective responsibility, grounded in any moral principles, to pay for my medical care.

I see the enemy of common sense has arrived.

Posted by: John

OK John so lets assume a free market health care system. You are a doctor and co-owner of a small town hospital. A mother of no means or insurance is pregnant with premature twins and shows up at you door. Do YOU allow her in for treatment or do you turn her away?

The idea of trading health care as a commodity similar to apples and baskets is a poorly thought out idea by anyone who is truly looking for pragmatic real life solutions.

Don,

Sorry for your loss but prior to Medicare and Social Security it was not uncommon that the elder died in their homes (due to lack of medical care), on "Poor Farms", froze or even starved to death. We are a wealthy society who can easily afford these basic things for all of our population. The argument should not be over weather we provide them but that we all insist on making them fair and efficient.

My condolences Don; I could never convince my dearly departed father of FDR's folly [during the Great Depression, my grandfather had a job with WPA, so my father had this sense of gratitude toward FDR]. It can be difficult for fathers to learn from sons; at least I found this to be the case with regard to FDR and my father.

An acquaintance of mine recently consumed several hundred thousand dollars of health care in his last days, paying virtually nothing for it. He loves his heirs and would not have thus squandered resources if they had to feel the pain of the effort to keep him alive a week longer. He told me so.

Don,

My condolences. No matter how sick or how old a loved one is when they pass away, it's always somehow too soon.

I have little time now to answer Muirgeo's question in any depth, for today I'm burying my father.

But here's some evidence that Muirgeo asks for: A bill arrived at my father's house two days ago for medical treatment that he recently received during a stay in the hospital. My father owes $150 (which, of course, we his children will now pay). The total bill -- what insurance pays (I think Medicare, but I don't at the moment have the bill in front of me) -- is $74,000.

I assure you that my father, who had virtually no financial wealth (by modern American standards) but who -- because he was ill -- spent many days lately in the hospital and in MDs' offices -- gave no attention to the prices of the medical care he was given.

The MDs prescribed; he was treated -- and he paid only a tiny fraction of the cost.

My father was a hugely decent and honest man, but he acted as any human being would act in such circumstances: when someone else is picking up the vast bulk of the tab, you exercise no constraints on your consumption.

Or is it, perhaps, the enemy of proper grammar?

I see the enemy of common sense has arrived.

"Such sharing of our medical-care bill takes place now on a massive scale. It is impossible to see how expanding this sharing will reduce the bill."

Here and here. and here.

And yes please don't anyone bother to waste your time explaining away this data but PLEASE... PLEASE... provide some data of your own that supports YOUR assertions. Something more then a thought experiment about buying lamb at a restaurant would be nice. Real world evidence. Where is it? Health Cares simple economics??? I don't think so because we are talking about the real world here and that's the simple thing some often like not to include in their theoretical proclamations.

Evidence... please!

Why is it that medical professionals are required to provide their services without any regards to the customer's ability to pay?

Especially when we can quite easily be talking about tens of thousands or hundreds of thousands of dollars.

Why must we get a loan before buying a car or a home?

Why not drive off or move in and tell the provider "sue me".

We know how to fix health care: remove the requirements of doctors to be licensed. Milton Friedman wrote about it over 40 years ago and I'm sure the idea has been around for longer. Why this solution is never mentioned in "serious" debates is beyond me.

I really enjoy the health care debate, and not just because of the subsidy and free-rider issues. Protectionism via the AMA and the agencies responsible for public health (CDC, FDA, etc.) reduce competition and allow for close to monopoly pricing. Hell, it's outright illegal for a doctor to even mention something like the Gerson therapy in a clinical setting. Maybe I'm just a fan of farce, but I think it's hilarious that regulatory agencies and unions have the gall to claim they've somehow got the patients' interest in mind with the policies and practices they espouse.

In that restaurant everyone pays an equal share.

So I don't see this analogy as being very accurate.

To be more accurate you'd have 20 of the 100 customers being paid a couple dollars to eat, 5 of the them paying a grand for a salad, with graduated rates in between.