What the Veterinary Medicine Piece Really Said
By Bryan Caplan
Both Tyler and Megan are excited by a recent piece by Andrew Biggs that supposedly “seriously undercuts one of the major
conservative arguments about health care: that the main problem is
consumers who don’t bear their own costs.” Biggs’ shows that spending on veterinary medicine has been growing at roughly the same pace as human medicine. Does this mean that third-party payment isn’t a problem after all?
Hardly. If you read Biggs’ full piece, he makes a crucial distinction between excessive spending and fast spending growth – and he still blames government for excessive spending:
[W]e spend hundreds of times more on ourselves than on our pets. The main
reason for this is obvious: we value our own lives and those of our
families more than we do our pets or other animals. At the same time,
however, veterinary care is one of the few areas of health where we are
directly confronted with difficult decisions regarding the costs and
benefits of additional treatments. As the famed RAND health experiment showed, out-of-pocket costs can significantly affect the level of health spending without changing health outcomes.
This again highlights that the real issue with healthcare may not be
the rate of growth but the level of health spending–and the fact that
so much of it seems to be wasteful. This distinction is important
because it shapes our policy priorities. The level of spending has
different causes than the rate of growth of spending, among them our
healthcare system’s structural incentives to overspend. Rather than
attempting merely to temper cost growth, plans that remove incentives
for overspending, improve consumer choice, or pay doctors based on
quality rather than quantity of service could reduce the overall level
Biggs’ implicit point, I think, is that economic theory never predicted that third-party payment would lead to high spending growth; the standard prediction, rather, is simply excessive spending at every point in time. You can see this point if you compare veterinary and human medicine. But you can see it just as well if you compare e.g. American and Singaporean medicine. Health care spending is rising everywhere. But it still costs four times as much as a percent of GDP in the U.S. than it does in cost-conscious Singapore.