Ha! Is Mankiw trying to push some form of a "micro" Wage-Push theory of medical price inflation?

Good grief, will these fallacies NEVER die?

If I'm not mistaken, Milton Friedman wrote his dissertation on this.

Where I live, it seems every doctor and dentist is foreign born.

Russell Roberts said: "[the] underlying forces that cause higher total spending in the United States relative to the rest of the world [is] —an increase in the demand for medicine driven by third party payments–governmental and private (with the latter tax-subsidized by government)."

But the rest of the developed world (as Mankiw notes) spends less on health care. All this while the rest of the developed world has higher levels of third party payments (mostly by government).

Thus it is Russell Roberts' post, not Greg Mankiw, that fails the test of rational argumentation.

I wonder how actual living wage would compare.

(Of course most doctors are still well off, so you don't hear them complain much about their wages).

I don't disagree with this statement. But how much does it help explain why doctor's fees in the US (and even spending on healthcare generally) are higher relative to the rest of the world? Don't most countries have similar licensing/accreditation bodies and similar barriers that don't allow foreign doctors to practice easily? Do we know whether such accreditation bodies ensure a smaller supply of doctors in the US (compared to similar bodies in other countries) or that barriers for foreign doctors are stronger in the US?

I'm always suspicious of these healthcare cost comparisons as I can never find what's baked into the then numbers. For example, how much of the difference is preventable by the differences in lifestyles and the resulting lower diabetes and heart disease rates in countries like France. Also, are the healthcare costs for socialist healthcare systems inclusive of the amount spent on private insurance or not? How much of what is included in U.S. statistics elective plastic surgery?

The rest of the world has third party payments but they have decided to limit those payments and thus they have lower demand. The US government's payments are much less limited. In the rest of the world demand for medical care is lower. We are headed in that direction.

should be "how much of the difference is explained by…"

This is a very standard monopoly game of restricting supply. There has always been more qualified applicants to med school that positions allowed by the AMA.

We should note that in other area, when the demand increases for a specific education, the systems responds very rapidly and we usually get a glut of aerospace engineers, computer programmers, marine biologists, etc. — with different fields at different times. The supply of MD's never has exceeded the demand or driven down the incomes.

The solution to this problem is to take the licensing and medical school accreditation along with immigration of MD outside the influence of the AMA. Why should the medical union have any say over accreditation of schools and why can't the licensing of MD's be similar to other professionals like Lawyers, Engineers etc. where obtaining a license (in calif.) does not depend upon having a degree from an accredited school, just on testing, qualifications and experience. Remember your life also depends upon that structural engineer doing the calculations correctly on that building you are probably in or that bridge you are using.

No, when there are fewer people who can perform the job, those people get paid more. There are far fewer people that can competently craft and read legal documents than there are that can empty your garbage can. There are far fewer people that can safely land a 747 than can wash your dishes.

Supply and demand is the reason some jobs pay more.

Thanks for the response.

Yes, a third party payer system, of and by itself, tells us nothing about the cost of healthcare.

I spoke to my doctor about the cost to see him and the cost of tests, referrals, etc. He indicated that he didn't know the cost before hand because most of his practice is figuring out what is wrong. So he couldn't give me a quote before rendering service.

And after he knew what was the problem, he still wouldn't know the cost because of third party payer negotiated schedules and discounts.

I'm not sure that economic models are at all predictive of the health care market with, or without, third party payer systems.

I know however that I don't want my financial future to be on the hook every time I enter the system. I do not want pills or therapy or surgery or chemo or amputations or any of that stuff; they are not like consumer goods and services.

Professor Roberts, I respect your opinion and would appreciate a clarification of your argument.

Do third party payments prevent spending control? or does government interference in insurance contracts prevent insurors from exercising spending control?

Of course individuals will reduce demand for services when they pay directly for services used. But profit-seeking third parties would also control demand through contractual language – if governments allowed them to do so.

I do not have the expertise to select the most cost-effective treatments and negotiate the lowest rates with health care providers. I believe my insuror, acting on behalf of my employer's thousands of workers, has both expertise and purchasing power I'll gladly pay for.

http://www.nytimes.com/interactive/2008/09/04/business/20080907-metrics-graphic.html?th&emc=th

I agree with Sam Grove. A large part of the demand for health care, which helps drive the cost, seems to be because we can afford it.

It is also interesting that the Times didn't include health care in with those charts. Perhaps they don't want people to make that kind of association.

Did Sam say that? He's a pretty smart guy.

Per capita GDP is significantly higher in the U.S.:

U.S. ….. $46,859
France … $34,208
Germany .. $35,442
Japan …. $34,100
UK…….. $36,523
Italy …. $30,580

If the people of a nation have much greater disposable income, why not spend more of it treating medical conditions and improving quality of life?

As an example: many American kids get braces now a days, which is certainly not the case overseas. Also adults are getting braces more and more (15-25% of many practices). This procedure is both pretty expensive and primarily cosmetic. It also isn't usually paid by insurance (50% coverage with $1000 lifetime max on most policies).

We spend more on health because the marginal benefit is worth it.