Gladwell tries to simultaneously argue two points, which are mutually contradictory.
1) People have to obtain health care, so that raising the cost to them will not reduce their demand. Therefore, insulating them from the cost of treatment does not distort their use of medical services.
2) If people have to pay for their own preventive care, then they will not obtain sufficient care.
The first statement denies that the health care obeys the law of demand. The second statement applies the law of demand to health care.
…Do people need to be insulated from the cost of preventive care in order to encourage them to get the appropriate amount of check-ups, dental cleanings, etc.? I believe that health care programs for the poor, such as Medicaid, ought to be structured to encourage preventive care. However, I do not believe that the rest of us have to be insulated from the cost of health care in order to choose to have our teeth cleaned.
Categories:
Economics of Health Care
READER COMMENTS
Chris C.
Aug 26 2005 at 10:22am
Great article, Arnold. Thanks for setting the record straight.
Curiously, Gladwell’s article and yours seem to contradict Bryan Caplan’s notion that the negative effects of incompetent health care negate the positive effects of health care. How is this error of logic possible when he is an expert on health and neurobiology?
Rob
Aug 26 2005 at 11:05am
Regarding point 1, he isn’t saying that healthcare doesn’t obey the laws of supply and demand, but rather that demand is inelastic.
Regarding point 2, he is just saying that people discount the future value of being healthy versus the present cost of preventative care.
So, I think those two statements are true, however, the problem lies in the conclusion drawn from them. Why is it not rational to discount the value of future health versus cash in hand today? He is assuming that the action in point 2 is inherently irrational and thus needs to be corrected via government action, but why?
Timothy
Aug 26 2005 at 11:07am
In the US one cannot libel a group, only individuals can be libeled. If he’d directly insulted Akerloff or somebody, then maybe, but I doubt that Gladwell’s statement (silly as it is) falls anywhere near libelous, even if it targeted an individual.
Bob
Aug 26 2005 at 11:48am
Let me frame this another way. Suppose there is an “optimal” amount of preventative care, which is most likely to result in people receiving this opimal?
1. Consumers and doctors making the choice with a third party paying all of the bills.
2. Consumers and doctors making the choice with consumers paying all of the bills.
3. Consumer, doctors, and a third party making the choice with consumers and the third party sharing the cost.
The first option may lead to more than the optimal – although there is an implicit cost to consumers (time), this is at least partly offset by doctors benefiting from excess consumption.
The second option may lead to less than the optimal if consumers are uneducated about health matters and/or have irrationally high discount rates.
If you limit the choices to 1. and 2., it’s easy to argue for 1. It’s also easy to argue that both stink because there is no mechanism for, as AK might say, learning our way to the optimal. It would be pure luck if either produced an optimal outcome and neither could in a variable population.
But consider 3. assuming that the third party is informed about the cost of health problems and there are no constraints on how the costs are split. For many people the resulting contract will cover most (or all) of large expenses (just like many people buy life insurance). But the contract doesn’t have to be so simple, and the “market” should find the optimal because the third party has an incentive to pay for preventative care that reduces long-term costs, balancing any demand problems that these payments create and using a rational discount rate. In some cases this might mean the third party pays 100%, in others 90%, etc. (or even, as AK points out, requires certain care or pays the consumer for taking preventative measures). Furthermore, various contracts could develop to optimize variable situations.
Why anyone thinks that 1. could possibly dominate 3. is beyond me. Or is it just a case of anti-market bias = consumers and insurers couldn’t possibly come up with a decent healthcare insurance contract? Ahem, dental insurers already pay for cleanings.
Oh, I forgot that everyone but Gladwell is stupid and will be fleeced if we give them any choices. My bad. Forget about 3.
James Erlandson
Aug 26 2005 at 12:50pm
How does that statement differ from this:
1) People have to obtain food, so that raising the cost to them will not reduce their demand. Therefore, insulating them from the cost of food does not distort their use of food.
Prime rib, caviar and truffles for all!
As for statement number two:
Lets change it to: 2) If people have to pay for their own oil changes, they will not obtain sufficient preventive maintenance.
Which is of course, the reason the nation’s highways are littered with dead and abandoned automobiles and why GM and Ford are working overtime to meet the demand for replacements.
Victor
Aug 26 2005 at 5:29pm
A sincere thanks, Arnold.
Also, I will point out that Gladwell motivates an article about medical care with an example about dental insurance, a totally different entity in most parts of the world, including Canada and the UK which have fully public medical care but mostly privatized dental markets, I think … bizarre.
gary lammert
Aug 26 2005 at 8:17pm
From a physician’s perspective, the third party payer system and gaming that non market system has distorted all semblance of supply and demand. The real picture:
A Completed Fibbonocci Third Growth Sequence on Friday 26 August 2005
The fractal evolution since October 2002 strongly suggests that there are very real and very simple quantum number fractal laws that underlie the macroeconomy. This discovery will be little consolation to the turmoil that is about to unfold over the next decade.
August 24 (Wednesday’s) and August 25 (Thursday’s) trading days once again demonstrated on a 5 minute unit fractal level, the recurrent precise fractal theme of x/2.5x/2x-2.5x – that pervades the economic universe.
For the Wilshire 5000 the base was about 17 five minute units. The three sequential growth fractals were 17/42/34 of 34 before the fall on Friday morning. The lateral ‘skeletonized’ evolution of this fractal sequence suggests the final lower (very lower) high is close at hand. Friday August 26 is the Fibonacci 85th day of a 52/130/85 daily sequence dating since August 2004.
1.62 times 52 equals 84.24 days…. If growth sequences follow idealized
Fibonacci related fractals, Monday 29 August 2005 will break lower in
a nonlinear manner. A deluge is coming.
Gary Lammert The Economic Fractalist http://www.economicfractalist.com/
James
Aug 30 2005 at 3:07pm
I find the idea of protecting someone from catastrophic expense an interesting one, though I’m left wondering what determines “catastrophic”. Surely one person’s catastrophic isn’t anothers, and I suppose an equalizer of some sort can be inserted into this (something based on a percentage of overall income), but I’m still left with the feeling that this is a bit too fuzzy to be applied fairly or even reasonably to the wide range of people to which it’s supposed to cover. Ultimately who’s the arbiter of what’s catastrophic or not?
Comparing healthcare to food and oil changes is totally specious. One, you have to eat. Two, if you’re going to keep your car for any length of time you have to change the oil, there’s no choice. But people live with pain and other substandard health situations, which means they’re either in pain or otherwise somehow restricted in their quality of life for something that would be fairly easily corrected given the chance, all the time simply because they can’t afford the expense of seeing a doctor and they’re willing to put up with the condition they’re living with. Should they have to make that kind of decision? No, they shouldn’t. Regardless of however much overall coverage there is in this country for people who indeed are insured, or whatever one would chose to call it, there are many out there who are left with living with things that those reading this blog, by and large, wouldn’t think of putting up with. I’m not sure what system goes to correct for that, but the one we have doesn’t do it and on the whole the thinking indeed does seem to be predicated on the notion that if you give it to them they will come and abuse it – that doesn’t seem to be the case in other western countries, why are Americans so different?
Comments are closed.