Continuing our debate on Medicare and death panels, Jonathan Darden responds to my last arguments. He makes two points of note.
First, he believes my comparison of healthcare to food is off-base, because food products are easily substitutable but, supposedly, healthcare treatments are not.
You may not be able to afford the aforementioned truffle oil, but you can acquire a substitute. If you cannot afford the turkey from behind the deli counter for your sandwich, you can buy peanut butter. While you may not find these options as enjoyable, these alternatives will all meet the “able to survive” test that serves as the comparison between health care and food. Most forms of medical treatment do not have good substitutes. The choice is between chemo and the tumor continuing to grown, not chemo and some slightly less ideal, but equally effective treatment.
For one thing, the claim that medical treatments are homogeneous is simply false. There are lots of different chemo and non-chemo treatments available, which, just like food, are of different qualities and address different problems. The choice of treatments is certainly not “take this particular treatment or allow the tumor to grow.” So, if this is his explanation, he will have to try again. Both medical treatments and food are actually quite heterogeneous.
But suppose, for the sake of argument, that Jon is actually right. In the most extreme case, where there was exactly one chemo treatment and no other options available, we could expect to see a temporary price increase. But if that were the case, then high prices would also serve as an incentive for competing chemo producers to enter the market—assuming, of course, that we actually have a free market in healthcare. The higher the regulatory obstacles are to getting new drugs and treatments approved, the costlier it will be to enter the market, and therefore the costlier healthcare can be expected to be. In a free market, competing drug manufacturers would be stupid to let a single seller extract high profits without entering the market themselves. That is especially so when, as in the healthcare market, prices have been skyrocketing for decades. So it is hard to see how, even if Jon’s argument were factually correct, it would create the situation we have today, absent government intervention.
Jon also claims that healthcare prices are high because people won’t “bargain” or comparison shop when looking for cancer treatments. But prices fall not because individual consumers are able to personally bargain with big companies, but because those companies will reduce prices vis-a-vis their competitors in order to attract consumers in the first place. I don’t know of anyone who bargains at grocery stores (and most people don’t check prices at several competing grocery stores before buying food, either), but that doesn’t prevent food prices from falling.
[Oh, and by the way, remember how Jon wrote that the poor would never be able to afford a "luxury" like truffle oil? Well, I should have looked this up earlier, but most bottles of truffle oil sell for between $15 and $20 on Amazon, though you can get one as low as $9.99. As F.A. Hayek noted, the free market makes available for the masses what were once only luxuries for the rich. (The Constitution of Liberty, Definitive Edition, p. 98).]
Second, Jon reiterates his belief that rationing economic goods based on “ability to pay” rather than on some higher principles of justice is somehow bad (that it shows “a deep state of [social] decay”).
This is an important point to discuss on this blog, because I see this argument repeated by Burkean traditionalists as much as or even more than modern liberals. In the Reflections, Burke famously lamented that the “age of chivalry” and the “unbought grace of life” had been replaced by a new age of “sophisters, economists, and calculators.” Regardless of the specific context in which he wrote that passage, his followers often invoke its spirit to attack the “cold-hearted” rationalists who believe that it is more important to focus on economics than it is to focus on chivalry or poetry.
But liberal concerns for “social justice” or Burkean concerns for “beauty” only come into play once people’s basic needs are already met. The caveman trying to build shelter or store food for the winter cannot be bothered to wonder whether the distribution of goods among his fellows can be justified according to the Rawlsian difference principle. Nor will he care about art, or poetry, or anything else that doesn’t keep him warm.
The only way for society to advance is to understand and follow the laws of nature, including laws that philosophers find undignified. Human digestion, for instance, might be crass, but you must obey its dictates if you want to survive. And liberals might not like basing an economy off of profit rather than justice, but the real question is whether goods can be effectively allocated based on some principle other than profit. I think they cannot—as my last post in this series attempted to show, government guarantees of “free” goods tend to make people much worse off than they would be under a free market.
Nor does it matter who is allocating the government-provided goods. Jon seems to think that if Congress does it (“which is clearly accountable to the popular will”), there should be no problems of rationing, because, apparently, everything will be rationed in the manner that the masses of people actually desire. The point, of course, is that any political—rather than free, economic—rationing will have to depend on murky criteria divorced from the price system. Absent price signals, even the most well-intentioned or electorally-cognizant group of people won’t be able to know how to put goods to their most-valued use.
To ignore this out of a concern for justice may satisfy some philosophical sensibilities, but it will also significantly lower most people’s standard of living. If that is what Jon considers “advancement,” I’ll stick with “decay.”
Update: On the off-chance that anyone wants to follow this debate, here are the relevant posts, from earliest to most recent:
Kelse: Actual Scholars vs. Fact-Checkers
Jonathan: Rationing Truffle Oil
Kelse: “Rationing Truffle Oil:” Also Known as “Buying Food”
Jonathan: Substitute Chemo
Emile
bdouglass
Benjamin David
Chuck O'Shea
Edmund Babbitt
joeptak
Kelse Hillery
Lucie
John David
prsancho
Radagast
The Lancastrian
wmsamuelbradford
I found the first part of your essay an unpersuasive reply to Jon’s claim that many healthcare treatments do not have substitutes. There are many diseases and conditions that have limited treatments and cures, and clearly the treatments and cures for other diseases and conditions are simply unsuitable. His analogy that you cite is actually very apt, if, due to very bad luck, the only thing that you can eat is truffles, then you aren’t going to do very well in our (relatively) free market for food. Ie, if you are unlucky and have a rare or complex disease that happens to cost far more than other diseases, then a free market will be a very unhappy one for you.
Secondly, you write,“but suppose, for the sake of argument, that Jon is actually right. In the most extreme case, where there was exactly one chemo treatment and no other options available, we could expect to see a temporary price increase. But if that were the case, then high prices would also serve as an incentive for competing chemo producers to enter the market—assuming, of course, that we actually have a free market in healthcare.”
High profits are an incentive for competitors to enter the market, not high prices. The reason a particular chemo drug or other treatment might be incredibly expensive is far more likely to be because that drug or treatment is legitimately expensive to produce or deliver (just like truffles), not because the company that offers it is making exorbitant profits. This is especially likely in the US, because the entire healthcare industry is heavily subsidised, which artificially raises the number of members in the industry.
Further, there is a unique freeloader problem that healthcare policy has to overcome that doesn’t apply to other goods and services, and this is that, as much as libertarians may wish otherwise, hospitals simply do not and will not turn people with treatable and fatal diseases away, even if they cannot pay for their treatments. They then pass these costs onto their other patients. For example, it is surprisingly expensive to remove a person’s appendix, yet virtually nobody ever dies of appendicitis in the US, and this is because of this apparently regrettable practice. This causes healthcare prices to be much higher in a truly free market than they would be otherwise. Thus, to combat this tendency, further regulation and government interference is warranted than with more ordinary goods and services. This is not to say that any particular form of regulation is preferable to a free market, but that there is a form of regulation that is.
I came across your blog through a friend of one your blog’s other contributor’s facebook page, BTW, and I am really enjoying it.
Thank you for your reply. I am very happy to see more people reading and participating on our blog. Here are a few points:
“There are many diseases and conditions that have limited treatments and cures, and clearly the treatments and cures for other diseases and conditions are simply unsuitable.”
The issue isn’t treatments across diseases; it is treatments within a specific disease. As the article I cited for cancer treatment shows, there are lots of different treatments addressed at treating the same disease. Jon’s article assumes that there is not, and that this is what keeps prices up, which clearly misstates the facts.
“His analogy that you cite is actually very apt, if, due to very bad luck, the only thing that you can eat is truffles, then you aren’t going to do very well in our (relatively) free market for food.”
This is not his analogy. What he actually wrote is that no one worries about lack of access to truffle oil, but they do worry about lack of access to necessities. But in fact, truffle oil is pretty cheap. So my point is that a free market for food tends to lead to declining prices. The comparison between food (relatively unregulated) and healthcare (highly regulated) illustrates this. Granted, if you can only eat truffles, you will have a difficult life. But your life will be more difficult if you have a regulatory system, like the healthcare system, that tends to inflate costs.
“High profits are an incentive for competitors to enter the market, not high prices. The reason a particular chemo drug or other treatment might be incredibly expensive is far more likely to be because that drug or treatment is legitimately expensive to produce or deliver (just like truffles), not because the company that offers it is making exorbitant profits.”
I should have said “high profits.” But the rest of that statement isn’t really likely. The cost of drugs is mainly incurred through research and development, but after that they are extremely cheap to produce. And anyway, I see no reason to believe that producing a chemo drug will necessarily be much more costly than producing, say, a computer, which is marked by falling costs.
As for the free-rider problem: sure. Every thing that someone produces has its own problems and costs that the producer somehow has to deal with. (Contrary to what you write, I don’t see evidence that libertarians think hospitals should turn sick patients away if hospitals do not want to do so. I think most libertarians believe that hospitals should just make all business decisions themselves.) But this is hardly enough to explain a decades long, constant and severe increase in prices. It seems to me that talking about free riders or substitutability while ignoring Medicare, Medicaid, and the general overregulation of healthcare is to totally avoid the elephant in the room. You’re focused on minutiae and missing the big picture.
Thanks for your quick response.
First of all, I don’t want to argue about exactly what Jon meant. Mostly, I wanted to give his argument as charitable of a reading as possible, but if you feel strongly that I have misrepresented him, then that’s fine. Let’s just call it my position.
“The issue isn’t treatments across diseases; it is treatments within a specific disease. As the article I cited for cancer treatment shows, there are lots of different treatments addressed at treating the same disease. Jon’s article assumes that there is not, and that this is what keeps prices up, which clearly misstates the facts.”
Why is treatments within a disease the issue? I would think that the broad question should be: is healthcare best delivered in an entirely free market, and if not, why not? And given that this is the question, why should we limit ourselves to treatments within a disease, if a more compelling case can be made against this thesis, if we do not limit ourselves in this way?
There are several problems that arise when healthcare is delivered in an entirely free market (which granted the US did not have prior to Obamacare anyways) First, there is a question of inequality; many people feel for ethical reasons healthcare in particular should be provided to the poor, even if it is beyond their means to pay.
Unfortunately, many diseases and medical conditions are extremely expensive to treat and therefore would be out of the reach of many Americans. Thus, in an entirely free market, those unfortunate enough to have these conditions would die, or otherwise have their lives severely affected. It doesn’t take much twiddling of a definition of utility to argue that in the case of healthcare, any concerns of a lack of economic efficiency are outweighed by the obvious harms that poor health can cause, if one were a utilitarian eg.
However, this is a thistle that conceivably a libertarian can grasp. She might argue that the interference created by subsidising healthcare may have worse, potentially underestimated, consequences. For example she may argue that healthcare is a dramatically overrated service. Perhaps distorting the economy in this way (ie by providing some form of healthcare to the poor) actually removes other (and more of them, as government run services are less efficient generally) just as important services the economy would have generated had the government not interfered. (Of course, there are many other arguments possible as well too I am sure.) However, I must admit that I would need a lot of persuading to accept this, but I see why a libertarian might be inclined to run with this, or something else, especially if he was not prepared to accept any compromises in his philosophy (after all is not a libertarian with a few compromises nothing more than neoliberal?).
This is the point of my second argument using freeloaders. My objective is to show that even if one is unswayed by the inequality stuff, then an appeal to pure economic efficiency is also unavailable in response. The problem is that in reality there will always be people who show up on hospital doorsteps with serious but treatable complaints, and they will always be attended to, even though they cannot pay. This creates considerable inefficiency itself, and thus my suggestion is that because of this, the patients who can afford to pay for their treatments are harmed considerably by this. Actually, they are quite rational in insisting that a mechanism be created that does its best to make all users of the system pay their fair share, and this in reality takes the form of some sort of universal healthcare paid for by tax revenue collected from the general public.
Anyways, if I were not careful, I could go on at great (/even greater) length on this, so I will leave it there. Thanks again for you thoughts,
Daniel
Treatment within a disease is extremely relevant to the issue of whether healthcare is delivered in a free market. As I understand it, the substitutability argument says that healthcare will always be very expensive, because, if you have cancer, there will only be one cancer treatment available. So you won’t have any other option but to buy that treatment or die. So there won’t be anything preventing the price of the treatment to rise. It is irrelevant whether you can say, “Yes, there’s only one cancer treatment, which cost $5 million, but we also have flu remedies available. They just don’t help with cancer.” Flu remedies would not hold down the prices of cancer treatments.
But, because there are actually many treatments available to treat the same disease, this theory doesn’t really have any explanatory power, even though it could, theoretically, if people were prevented from entering the market. Whether, even there, it would have enough explanatory power to describe the price increases we’ve seen is debatable, but, I think, doubtful.
As for the other arguments, I think they’ve been discussed at length in the other posts in this series, but, to summarize:
1. You say that healthcare is extremely expensive as though that is a fact of life. But my posts in this series have tried to show that it is only expensive because of government intervention. No one in this discussion has even addressed this, but has instead tried to pin healthcare costs on side issues. I find this baffling. After all, we constantly hear about how many people Medicare impacts when the issue is about cutting Medicare. But when the issue is the damage that Medicare has caused, suddenly Medicare becomes a non-starter, and hospital free loaders become the real silver bullet to explain healthcare costs.
2. On that note, people may free load on hospital services, but I don’t think that is a serious enough problem to explain such constant price increases. Hospitals could find lots of ways to internalize these costs other than constantly cranking prices up. It may lead to marginally higher prices, but do you really think that it can explain why healthcare has doubled as a percentage of GDP since Medicare was created?
3. If you want to talk about justice or inequality, you first must show how high healthcare costs are not in fact caused by government intervention. You should at least address why you seem to think that Medicare has absolutely no effect on the market. Because, if healthcare costs are so high because of government intervention, then having more intervention will not promote justice and equality.
4. The libertarian response to healthcare costs is, therefore, that healthcare is only expensive because of excessive intervention. It is not that healthcare is “overrated,” which is not an argument that I’ve never heard any serious libertarian make. Rather, libertarians argue that pushing the government out of healthcare will lead to much lower prices and will therefore benefit the masses of people who can’t afford it now. That’s what my first reply to Jon (linked in the post above) was meant to address in the first place.
OK, allow me to take these in three parts.
First, your first paragraph before the numbered points. So there are some kinds of cancers that have multiple treatments and chemo drugs, the point is that there are also others that don’t. And let’s not limit ourselves to cancers, there are of course many other conditions and diseases that have have few and only expensive treatments.
Second, Point One, Three, and Four: First your argument is classic post hoc ergo propter hoc reasoning. There are lots of things that explain the increasing percentage of GDP that healthcare represents. To list just a few: we have an ageing population, far more diseases are now treatable than ever before, and therefore more healthcare is simply possible and delivered (more on this shortly), healthcare now uses far more technology than ever before, and healthcare procedures have become far more complex and are carried out to far more rigorous sanitary and other safety standards than ever before. Yet you focus on only medicare.
Further, because the government interferes in an industry doesn’t mean that the goods and services that that industry produces will become costlier. All it means is that generally (there are exceptions of course, like monopolies) the economy will be less efficient. Often, for example, when government interference takes the form subsidisation, the particular good or service becomes cheaper than it otherwise would be, but at the cost of every other good and service becoming more expensive. You have given us no reason to suppose that medicare isn’t an example of this, and frankly it pretty obviously is. Certainly on the whole the healthcare industry is massively subsidised in US, so if all you are interested in is lower healthcare costs, be careful what you wish for when it comes to ending government interference in the healthcare industry: you might just get it.
Further, it is mistake to measure the effects of healthcare policy by the percentage that healthcare makes up the US’s GDP, because as stated above, there have been great advances in that industry, and healthcare is being used more than ever before. You wouldn’t argue that the quality of the car industry deteriorated significantly from the 30s to the 60s even thought the automotive industry’s share of GDP increased substantially during that time. No, you would point out that as cars are so fantastic, we all wanted them, which explains why so many of them were built. You might also point out how much more comfortable, safe, faster, and fuel efficient they became. Similarly healthcare is fantastic so we all want it. Also it has improved too: we live longer now than ever before; this is reflected by the fact that many diseases from the past that used to be fatal are not any longer, as they are commonly cured or mitigated. Antibiotics, and vaccines, which were until recently the only thing that the medical industry had going for it, are cheap and widely available, more so than ever before. Common surgeries that greatly improve peoples’ lives are now commonly available, when in the past the conditions that those surgeries alleviated would have had to have been tolerated by those inflicted with them (hip replacements, and laser eye surgery, eg). There have been so many advances, it is impossible to even begin contemplating how to go about listing them all.
I would accept that it is valuable to compare the US’s healthcare services industry as a percentage of its GDP to other developed countries’ percentages of GDPs, but they all have, until now, far more socialised forms of healthcare, and they all perform better, so I don’t think that you will find much support there.
Finally, to your point numbered two, I don’t attribute the increasing costs of healthcare to this freeloader problem. My goal is simply to take that particular plot of high ground for myself in this debate. Ie, I am trying to provide an economic reason for why rational agents would want some form of government interference in healthcare (just as they would want it for a natural monopoly perhaps) that explains why we have it, and why it is desirable.
“It is not that healthcare is “overrated,” which is not an argument that I’ve never heard any serious libertarian make.”
This should say: “which is not an argument that I’ve ever heard” or “which is an argument I’ve never heard.”
“So there are some kinds of cancers that have multiple treatments and chemo drugs, the point is that there are also others that don’t. And let’s not limit ourselves to cancers, there are of course many other conditions and diseases that have have few and only expensive treatments.”
But the important point is that the general trend is toward more treatments. If you go, for instance, to the Mayo Clinic’s website, randomly click through the different disease’s, and then go to each disease’s “Treatments and Drugs” section, you will see that most have a lot of different treatments. Of course, some have more than others, and some will have one or none. But as you note later in your post, the healthcare industry has been constantly growing and improving. So just because something might have only one treatment now doesn’t mean it will have only one treatment five years from now. Therefore, I don’t see how the fact that, at present, not every treatment has a substitute either explains high costs or justifies further government intervention.
“Further, because the government interferes in an industry doesn’t mean that the goods and services that that industry produces will become costlier. . . . Often, for example, when government interference takes the form subsidisation, the particular good or service becomes cheaper than it otherwise would be, but at the cost of every other good and service becoming more expensive. You have given us no reason to suppose that medicare isn’t an example of this, and frankly it pretty obviously is.”
If I have ever said that government interference in general necessarily increases costs, I would like you to point that out to me. I don’t believe I have. My argument (as laid out in a previous post, linked above) is that Medicare in particular increases costs, because, when the government agrees to cover all of the Medicare recipients’ healthcare costs, that will increase consumer demand for products that they might otherwise have foregone, while also incentivizing suppliers to constantly increase costs. When the suppliers know in advance that the government will pay whatever they charge, there is essentially no ceiling on prices. So sure, Medicare subsidies make healthcare cheaper for its direct recipients. But everyone who isn’t covered by it suffers the increased costs that that subsidization creates. And, in the long run, Medicare recipients may be harmed too. If it ever turns out that Medicare is too expensive and that budget cuts need to be made, then the old recipients will suddenly have to face a market whose prices have been driven up by the Medicare program. Therefore, to talk about “post hoc ergo whatever” is to mischaracterize my argument. I’m not saying that just because Medicare happened it necessarily caused the price increase. I’m giving an argument for why Medicare is likely to cause high prices. If you don’t want to read Jonathan’s or my old, linked posts, that is fine. But, when you engage in an argument, it is helpful to understand what other people are actually saying and not just what you think they probably mean.
Anyway, let’s compare the non-government explanations you’ve offered for high prices. You say, “To list just a few: we have an ageing population, far more diseases are now treatable than ever before, and therefore more healthcare is simply possible and delivered (more on this shortly), healthcare now uses far more technology than ever before, and healthcare procedures have become far more complex and are carried out to far more rigorous sanitary and other safety standards than ever before.”
But none of these are exclusive to healthcare. You talk about cars, so let’s take that as an example (the other obvious one I mention is computers). We have a much bigger population than ever before and we have more widespread car ownership than ever before (where one-car families, which were common in the 50s are almost unheard of). Cars are more useful than ever before, given that people are increasingly mobile and increasingly live farther away from the place they grew up. Cars use better technology (GPS, steering technology, more fuel efficient engines) than ever before. (And all of that technology could form its own example here, instead of the cars themselves. None of it is marked by skyrocketing prices). And the auto industry follows much more rigorous safety standards than were in place ever before. As you write in the context of healthcare, “There have been so many advances, it is impossible to even begin contemplating how to go about listing them all.” But cars, as a percentage of median household income, have stayed at more or less the same price since the 1950s, despite all these technological advances (which, then, actually amounts to a price decrease). The same can be said for just about any other industry: they have gotten much better over time, without skyrocketing prices. Only in industries like healthcare (or higher education), where the government undertakes to provide “free” goods to millions of people, do we see skyrocketing prices.
However you want to characterize that price increase, the increase itself is undeniable. I don’t care if you look at it through percentage of GDP or some other way. The fact is that it exists and that it demands explanation. A good explanation should explain why the healthcare industry reacts differently to technological and population changes than other industries. It should also explain this in terms of “big causes.” Free riding and availability of substitutes, for instance, can explain some differences, but not differences on the scale that we’ve seen. I think the most plausible causes comes from the programs that add up to a fifth of the federal budget, and I’m still baffled over why others choose to ignore them.
“So just because something might have only one treatment now doesn’t mean it will have only one treatment five years from now. Therefore, I don’t see how the fact that, at present, not every treatment has a substitute either explains high costs or justifies further government intervention.”
First of all, you are jumping around these arguments and trying to bring all of them back to raising costs. But the point of this argument doesn’t really have anything to do with increasing costs. At its root, the argument is very simple. Healthcare is a service that transcends normal economic analysis, because good health is a benefit that almost everybody who is in poor health would pay almost anything to have. However, in a free market this is not enough, in many cases, for many people to actually pay for the healthcare that they need, so they are denied the service, and this is regrettable. The point of the truffle analogy is to support this argument by providing an example of what this circumstance might be like.
“My argument (as laid out in a previous post, linked above) is that Medicare in particular increases costs, because, when the government agrees to cover all of the Medicare recipients’ healthcare costs, that will increase consumer demand for products that they might otherwise have foregone, while also incentivizing suppliers to constantly increase costs. When the suppliers know in advance that the government will pay whatever they charge, there is essentially no ceiling on prices.”
Unfortunately, that is not how either subsidisation in general or medicare specifically works. Medicare can be thought of as essentially government provided insurance, and the (so called) problem that you are highlighting is no different than occurs for anybody that has opted to buy insurance. They either have no cost for having it (in the case of medicare), or they have already paid for it, or agreed to pay for it, so it doesn’t matter to what extent that they need any particular treatment, if they want that treatment at all, they will have it.
Of course insurance companies have designed their policies, and negotiated with the actual healthcare providers that they use to ensure that their patients get fairly priced services. This provides a market for those services. Further, if the phenomena that you are describing was real, we could expect healthcare providers and insurers to make excessive profits, but they don’t. Many of them are publicly traded companies, and they make relatively normal profits across the industry as a whole, as you would expect in an open market.
Further, because of medicare, and other government subsides to the healthcare industry, there are more patients (customers) than that industry would otherwise have. This translates into lower profits per overhead dollar due to all the factors that you would expect. There are savings due to economies of scale and scope that otherwise wouldn’t be possible. I am sorry to say, that you are making a very common error in economic thinking, that because some other group is using some service, that it is driving the price of that service up and costing you, but that doesn’t actually happen in the long term (only sometimes in the very short term), the fact that a whole bunch of people are getting healthcare reduces the price of healthcare, it doesn’t increase it.
Let me try to explain this more clearly. Suppose that there is certain amount of demand for healthcare under a free market, and then the government decides that it wants to subsidise the healthcare industry. Now there are more people willing to pay for healthcare (it doesn’t matter if they are not the ones actually paying for it, and actually the government is, because the healthcare companies will still get real money for providing the healthcare) than in the free market. The industry will create supply for this set of people, but they are not otherwise limited in their supply, ie there is no reason why the industry simply cannot create more hospitals etc, and continue to supply everybody else. However, this act of creating supply naturally provides opportunities for cost savings due to economies of scale and scope, so the price of healthcare goes down not up, or if there are no way to achieve savings, then it stays the same.
As for cars and computers, they are not analogous to healthcare, because cars and computers are fundamentally similar to each other. As there are breakthroughs in the automotive industry, it is relatively simple to apply those breakthroughs across that industry. It is easy to put windshield wipers on every car, once the technology is developed, for example. However, for healthcare this cannot happen to nearly the same extent, because if there is a breakthrough in diabetes, it will probably not help somebody with migraines. Further, I want to emphasise again that the costs are not going up for existing medical treatments really. Ie, treatments that have not had advances have not got more expensive, it just that there are many more kinds of treatments, so as a whole people are paying more for healthcare than they were in the past, but they are getting healthcare that wasn’t available in the past too.
“But none of these are exclusive to healthcare. You talk about cars, so let’s take that as an example (the other obvious one I mention is computers). We have a much bigger population than ever before and we have more widespread car ownership than ever before (where one-car families, which were common in the 50s are almost unheard of). Cars are more useful than ever before, given that people are increasingly mobile and increasingly live farther away from the place they grew up. Cars use better technology (GPS, steering technology, more fuel efficient engines) than ever before. (And all of that technology could form its own example here, instead of the cars themselves. None of it is marked by skyrocketing prices).”
This just illustrates your confusion. There is a difference between a good, and the industry that provides that good. If healthcare consisted of only vaccination and antibiotic injection, we could say all of these things about syringes. About how much safer, versatile, lighter, accurate they are etc. etc.. Cars themselves can get cheaper, while the automotive industry makes up a larger portion of the US’s GDP. Similarly, healthcare is taking up a larger percentage of the US’s GDP, but it is advancing and providing far more services than ever before.
“However you want to characterize that price increase, the increase itself is undeniable. I don’t care if you look at it through percentage of GDP or some other way. The fact is that it exists and that it demands explanation.”
To the extent that it demands an explanation, I think I have given you one, but you just didn’t understand it or ignored it. It seems to me that you are(/were) under the impression that there is this huge crises in healthcare in the US, because of these increasing costs, but as I have tried to explain to you, these increasing costs aren’t actually a bad thing in themselves; there is only a problem if the costs are increasing, and healthcare isn’t improving. However, it is improving, and really it only needs improvement from a policy point of view, to the extent that we know it could be better, because other developed countries spend less and get more for their healthcare dollars than in the US.
Now I don’t want to downplay some of the problems facing healthcare, and really all the entitlements in the USA; they have some problems that need working out. For example people are retiring later, but still not as much later as they are now dying, so there are some issues, but they are not the issues that you are complaining about.
Merry Christmas BTW,
Dan
Thank you. I think your post at least clarifies what the terms of this really long debate actually are. I hope you enjoy your Christmas and don’t spend too much of it dwelling on Medicare.
What I object to most about your argument is that it essentially reasons theoretically to the conclusion that healthcare costs aren’t really a big deal, as though we are just operating in a vacuum, without actual experience of the healthcare market. My argument, on the other hand, starts from the observable fact that healthcare in the US is unaffordable for huge numbers of people, and attempts to explain how that can be. I think it is pretty obvious that there is in fact a significant problem of healthcare costs, at least in this country. Insurance definitely is getting hugely expensive, and to pay for serious individual services out of pocket is almost unthinkable.
But you argue that higher prices aren’t really a problem because quality increases along with prices. That’s true in the abstract, and I’ve never denied that quality is in fact increasing. But it doesn’t matter how high-quality something is if people can’t afford it. And nowhere else in a free market do we see prices moving to levels that the masses of would-be paying customers can’t afford. That’s the point of my analogies to other industries. Hair-splitting over how technology gets disseminated or over what GDP really represents is unhelpful. The point is that no other products get prohibitively expensive just because quality improves. (And that’s focusing on the prices of products, not percentage of GDP, which I only mentioned once off-hand and isn’t really a part of my argument.)
And yes, there may be economies of scale. But once again, these aren’t outweighing actual price increases. The trend in healthcare costs is toward lesser affordability for huge numbers of people. It doesn’t matter that there are some bright spots; what matters is that the trend leads toward greater consumer harm.
I would also add that your argument that changes in car technology are easily applied across the industry whereas changes in healthcare technology aren’t because healthcare products are disease-specific just goes back to my original point about looking at treatments within a certain disease. If diabetes medicine doesn’t affect people with migraines, all that means is that “diabetes” and “migraines” are separate markets; the concept of a “healthcare market” may just be overinclusive—as though we made up something called the “things over 5 pounds market.” There is no reason that we wouldn’t see the same effect within the diabetes market that we see within the car market.
I don’t think it changes anything to say that Medicare is a form of government provided insurance (though, because, unlike private insurance, it doesn’t negotiate over costs, it will tend to raise suppliers’ price ceilings differently than private insurance would). The problem comes from the nature of third-party payment, not just government third-party payment. (Although I don’t think private insurance would have the scope it has today—at least for non-insurable “risks” like yearly check ups—if there weren’t some exogenous factor pushing prices up.) I don’t think it is controversial to say that people will take more expensive treatments if it is all covered by a private insurer or by Medicare than if they were paying out of pocket and that this will tend to lead to an increase in prices. It might be offset by economies of scale or quality increases, but in the market as it exists today, these clearly aren’t offsetting the harm of high prices. Nor will any of this necessarily lead to extremely high profits for insurance companies, as you claim, because the insurers will still have excessive costs. The whole point of the third-party payer problem is that the consumer’s costs are just being shifted onto insurer.
And really, contrary to your opening lines, it is all about costs. My argument all along is that a free market leads to falling costs, whereas government intervention through Medicare leads to rising costs. To the extent that we worry about poor people and access to healthcare, then our first concern should be to find a system that makes healthcare as cheap as possible. I don’t remember if you’ve done this, but Jonathan tends to appeal to abstract notions of justice in advocating government intervention. My position is that philosophy is fun, but healthcare keeps you alive. So we shouldn’t muddy the waters by appealing to fairness or equality. Rather, if we want to make people better off, our main concern should be the technical one of improving consumer welfare.