Mark Bils on Health Care Prices
By Arnold Kling
In this interview, he says,
If you had a certain condition and you had $10,000 to get treated at today’s health prices, or $10,000 to get treated at 1960s prices with 1960s technology, I don’t think it’s so obvious that people would want to go back in time to get their important health conditions dealt with. In that sense, you say, I don’t know if there’s inflation. It’s pretty hard to say that there’s been a lot of inflation over the long haul in healthcare.
The thing that struck us was that you would see much faster inflation for healthcare expenditures, but also much faster real increases in people buying more and more [healthcare services]. We still haven’t been able to explain this.
Read the whole thing. Pointer from Timothy Taylor whose blog is a good one to check regularly or put into your RSS reader.
I think that Bils is right in that the tendency will be to over-estimate pure price inflation in health care. Still, it is not such a mystery how demand could rise as prices are rising. When third-party payments have increased to 90 percent of personal health care expenditures, the law of demand (quantity demand falls as prices rise) is not going to work so well.
Health care raises major issues of measurement. Do you look only at tangible outcomes? That leaves out all of the intangible issues. Even if having oral surgery under anesthetic did nothing to improve tangible outcomes relative to not having anesthetic, my guess is that consumers would place a high value on anesthetic.
With most goods and services, we do not ask statisticians to evaluate the outcome. We instead use revealed preference–that is, we look at what consumers are willing to pay. (The Bils interview has much more on the pitfalls of distinguishing price changes from changes in perceived value.) With health care, we have the problem that it is the insurance companies doing the paying.