By the way, Cato will be having a live blog (link now fixed) of the health care summit, and I am invited to participate in the live blogging. My views on health care have not really changed since I wrote Crisis of Abundance or this essay three years ago. Either of those works will contain more useful information than is likely to come out of the summit.
As the graph shows, the aging of baby boomers is not the main factor in the growth in health care costs, the effect of the demographic change due to aging baby boomers is minor relative to overall cost growth.
That is because the graph goes to 2080. Certainly in the second half of the 21st century, the increasing share of health spending relative to GDP is a much bigger problem for Medicare than is the aging population (at least under standard projections).
But that talking point is misleading. My counter-talking-point is that the second half of the 21st century is not relevant. We cannot make it to 2030, much less 2080, if we stay on our current course for Medicare and Social Security. That is because between now and 2030, the number of people aged 65 and over will double. Even if health care spending per capita stayed even with GDP, we would have to cut benefits nearly in half just to keep the Medicare budget under control. So chop off the right-hand two-thirds of Mark’s (the CBO’s) graph. Better yet, stare at the table.
Thoma comes very close to saying that in Medicare we need to cut costs, not benefits. That would be wonderful. Don’t reduce consumption of medical services, but make costs magically disappear. That is not going to happen. There are certainly ways to improve efficiency, but there are no big free lunches out there. The only way to significantly slow the growth of health care spending is to make less use of procedures with high costs and low benefits.
There are two ways to approach reducing the use of high-cost, low-benefit procedures. You can have the government tell people what they can and cannot have. Or you can have individuals pay for a larger fraction of the medical procedures that they consume. It really comes down to those choices.
Advocating either one of those is political suicide, and talking about anything else is a waste of time. The Democrats will not advocate government rationing, and the Republicans will not advocate scrapping most of our current system of third-party payment in medicine. Instead, the summit, like the entire “health reform debate” this year, will be a waste of time.
READER COMMENTS
Patrick
Feb 25 2010 at 9:21am
I’ll say it again: people want socialism in their medicine for more than economic reasons. They want to diffuse responsibility for life and death decisions. It takes two executioners to start a lethal injection machine. That way no one person can be held directly responsible for killing another. It’s not about money. It’s not about power. The refusal of libertarians to seriously consider this issue only guarantees their failure. Indeed, here we are.
Arnold understands that vouchers are politically impossible, but I don’t think he understands why. The angst over health care isn’t about inadequate redistribution. The U.S. government already spends more than most of the others, per capita, on health care, to cover just a fraction of the population. Even if every penny we had were poured into a voucher program, it wouldn’t be enough. There would still be some intervention you couldn’t buy. And more invented every day. Technology is NOT an exogenous factor. If you think you can bring a drug to market with 2% better efficacy at ten times the price, you’ll go for it if cost isn’t a factor. We decided cost shouldn’t be a factor and we got what we deserved.
I think I could ration my own care, and I think a lot of others could, too, but try pulling the plug on your mom or dad. Or your kid. The rationing has to occur somewhere. Vouchers put the onus on the individual. It’s not that I couldn’t pull the plug on a family member (I’m pathologically rational) but that it’s socially impermissible to leave a penny unspent when your relative might yet be saved. I’d need a second executioner to pull the plug with me, so we could all sort of pretend the plug pulled itself.
What we need is cover to say, “enough.” Governments provide this. The Brits rage at NICE and the NHS, but they don’t usually bankrupt themselves dialyzing their demented octogenarian grandparents at the private facilities which exist for that purpose. They scream about how the Government won’t pay for it so everybody can pretend they didn’t make the choice to preserve their finances by slightly expediting their relative’s passing from this world.
I think people could make rational choices about spending on health care if only they were given the proper excuses to do so. Libertarians ought to create a villain which will take the heat for the rational choices people aren’t allowed to make.
Steve
Feb 25 2010 at 9:54am
Patrick – that post was brilliant. I’m not sure I agree with what your implied policy implications are, but you’ve definately identified a psycho-social factor that noone’s facing head-on in the healthcare debate.
Richard A.
Feb 25 2010 at 9:57am
Mark Thoma wrote,
“2. Effectiveness studies and evidenced based care. The goal of this proposal is to eliminate spending on medical care that cannot be justified on a cost-benefit basis. Democrats have been supportive, but this proposal has been problematic politically because it appears to take away patient choice, and there are fears that it will be used to ration care. Both charges have been leveled by Republican opponents of reform. But more knowledge about what works and what doesn’t would be very helpful.”
Big Pharma is against this. Those Republicans who oppose this are simply carrying water for Big Pharma.
Tom West
Feb 25 2010 at 10:07am
Let me second (okay, third) Patrick’s post.
I have always said that one of the chief benefits of the Canadian health-care system is having someone in a white coat come out and tell you “there’s nothing that can be done” and allowing you believe it.
In a two or multi-tier system, there’s always somebody in the next bed spending a $100,000 for a flicker of a hope that puts the lie to that reassurance.
Justin Martyr
Feb 25 2010 at 10:07am
Robin Hanson takes that argument seriously. His point is that health care inflation is driven by the fact that medical decisions are about signaling, not results. No one wants to signal “I don’t value my relationship with you” by not paying for an expensive procedure – even if the procedure doesn’t work. I think that is an important point, and it may explain why health care spending is less elastic than many libertarians suspect. Does this mean that progressives are right, although for the wrong reason?
wlu2009
Feb 25 2010 at 10:21am
“In a two or multi-tier system, there’s always somebody in the next bed spending a $100,000 for a flicker of a hope that puts the lie to that reassurance.”
I sympathize with your (and Patricks) psycho-social explanation, but in under your ideal system, would the rich guy not be allowed to pay for and undergo an outrageously expensive treatment, even understanding the questons surrounding its efficacy? Seems to me in order to have complete faith in that reassurance, you’d have to severely restrict what procedures people would be permitted to pay for out of their own pocket. That, I think, is something the American people would be very hesitant to accept.
eccdogg
Feb 25 2010 at 10:35am
Patrick I don’t deny that the issue you mention is a real one.
But what I do deny is the right of others to tell me I can’t spend 100k to save grandma because because it makes them feel bad about their choices. Tough luck deal with it.
IMO the easiest step for health care reform is to merge medicare and medicaid and allow some more peolpe to qualify for medicare while capping the growth rate in expenses for the two programs to something like GDP growth. Then use a panel of experts to decide what can be covered within the constrained budget. This essentially creates a two teir system with a single payer for the poor and old with strong cost controls and the existing system for the rest of us.
Aaron
Feb 25 2010 at 10:35am
Tom West,
A few years ago the Canadian policy was to shift the decision back to the family members, at least in some cases. I can’t speak to current policy as my information only comes from one data point. I had a friend who was in a coma for almost a month. After three weeks the family was given the option of pulling the plug or paying for the life support from that point on. They chose to keep the life support on and he came out of the coma a few days later. Also note that policy may be different from province to province.
Justin Martyr
Feb 25 2010 at 10:58am
eccdog,
That gets to the core issue. Why do people buy expensive health care? Is it because of a benefit-cost analysis of the effectiveness of the care? Or because of signaling their private information about how much they value the other person?
If the former then your objection is correct. If the latter then it is not. Like it or not, the government can play a welfare-enhancing role by saying “no.” Speaking as a conservatives Christian, I am nervous by the thought of a technocratic state deciding who lives and who dies. But the empirical information is that expensive health care has no effect on mortality over a pretty wide margins, so rationing is probably the correct policy.
eccdogg
Feb 25 2010 at 11:28am
I disagree, even if it is case 2 as long as I want to do it and I pay my own money it is no one elses business.
We don’t enact laws saying you can’t buy a big house or a flashy car because it would make other people envious and heck it is only signaling anyway you don’t really “need” a big house or a flashy car.
I think some utility enhancing measures are moraly valid and others are not. If I lived in a society where my pain caused a great deal of enjoyment to the society as a whole it would still not be valid to inflict pain on me against my will even if it was utility enhancing.
Justin Martyr
Feb 25 2010 at 11:39am
We don’t enact laws saying you can’t buy a big house or a flashy car because it would make other people envious and heck it is only signaling anyway you don’t really “need” a big house or a flashy car.
Yes, but that signaling plays a useful role that would be lost if it were illegal. Conspicuous consumption is a signal of wealth and fitness as a future cooperator. “Cooperate with me – I’ve already accomplished a lot and can do more.”
david
Feb 25 2010 at 11:43am
I’m not sure why nobody has mentioned it yet, but the first link to the Cato summit is broken. It links back to this post.
Patrick
Feb 25 2010 at 11:50am
I’m not advocating government rationing. I’m just saying libertarians have a choice to make. They can get serious about finding a way to make denial of care socially and psychologically acceptable, or they can continue to ignore the issue and watch in despair as we continue our slow, agonized march toward single-payer.
It really comes down to those choices.
fdg
Feb 25 2010 at 12:45pm
If the healthcare bill passes, I think future economists will compare its wrongheadedness to that of the Smoot-Hawley tariff at the start of the 1930’s Great Depression. Last I heard, the healthcare bill’s taxes kick in first and the benefits only come on line after several years. Hence, for the next few years this is a tax bill; all the talk about health care is a (so far) successful distraction from what’s really going on. Someone said a year is an eternity in politics, which means that several years is a geologic era. Presumably Congress can modify the benefits portion of this bill any way they please over the next several years, all the while collecting taxes that won’t get returned. Raising taxes during an economic downturn — what a great idea! By the way, thinking of all this as a tax bill makes the D’s seemingly suicidal determination to pass it more understandable. They do not want to be caught in the same budget-deficit trap that blue states like California and Illinois are now experiencing.
John Thacker
Feb 25 2010 at 1:36pm
“Big Pharma is against this. Those Republicans who oppose this are simply carrying water for Big Pharma.”
Actually, Big Pharma is for that or relatively neutral, because cost effectiveness generally favors more pills over more tests and procedures.
I suppose it’s more Big Hospital and Big Doctor who are against that. More importantly Big Patient and Big Voter are against it, as seen by the response to the “young women not in high risk groups shouldn’t get mammograms” study.
Dan Weber
Feb 25 2010 at 2:16pm
Obama seemed willing to put limits on what the government will cover, and it was the Republicans who brought up the death panel nonsense.
Can we get a crew of Republicans to admit that the “death panel” trick of their colleagues was a bunch of silliness? And then move to operate Medicare like NHS, with a fixed budget, and, yes, “rationed” care, but only for what the government provides. You can get out, just like in the UK.
And I like Patrick’s comment at the top of this thread, too.
Chris Bolts Sr.
Feb 25 2010 at 3:15pm
“What we need is cover to say, “enough.” Governments provide this. The Brits rage at NICE and the NHS, but they don’t usually bankrupt themselves dialyzing their demented octogenarian grandparents at the private facilities which exist for that purpose. They scream about how the Government won’t pay for it so everybody can pretend they didn’t make the choice to preserve their finances by slightly expediting their relative’s passing from this world.”
No, they don’t bankrupt themselves. Instead, they bankrupt their country. I guess that helps them evade their responsibility of determining when their loved ones are to kick the bucket.
At some point you will be held responsible. It’s not a matter of if, but when.
Peter
Feb 25 2010 at 3:18pm
Patrick,
While you are right that nobody wants to be in the situation where they are making cost-benefit decisions regarding the lives of others, I don’t necessarily think that this would have to be the case in a system where people are paying for their own care. If you don’t want your children to have to make these painful choices, then there should be some way for you to plan ahead before you get too sick to think for yourself, and you could take the decisions out of their hands. Pulling the plug is a lot easier when they know you would have wanted it that way.
mulp
Feb 25 2010 at 3:56pm
What your position fails to address is why the US health care system costs twice as much for less effective care than the universal systems in dozens of other nations with equivalent access to health care services as in the US. The marginally better results in the US are offset by the significantly worse results in the US based on access to prepaid coverage.
Your argument seems to be that Dick Cheney had his fifth heart attack because he didn’t have to pay for his health care, it being government run single payer. Do you think Dick Cheney has been choosing to have all the expensive health care he has had, mostly at the expense of taxpayers, because he wasn’t paying for it?
(In another forum, ads from Cheney’s youth were posted extolling tobacco use, including pictures of babies with the slogan something like “mom, have a smoke and relax”. That was during the time of the nanny state liberals trying to attack a conservative way of life in order to take away their relaxing and healthy smoking by lying that it caused disease and early death.)
Dan Weber
Feb 25 2010 at 4:05pm
What your position fails to address is why the US health care system costs twice as much for less effective care than the universal systems in dozens of other nations with equivalent access to health care services as in the US.
Medicare and Medicaid are very expensive, too. $600 Billion between them is $2000 for every man, woman and child in the country, a budget most other countries find entirely sufficient to cover everyone. Yet M+M only covers a fraction of its population with those kind of resources.
One of my proposals has been to call the Democrats’ bluff: turn the running of M+M over to them and tell them to cover everyone, with the current budget. Isolate Medicare from political meddling and political power, and let it negotiate as hard as it thinks it can.
This would also call the Republicans’ bluff, because it would limit Medicare’s budget. They’ve always wanted to limit government spending; let’s see if they really mean it, or will respond with more “death panel” stuff.
mulp
Feb 25 2010 at 4:49pm
Let’s look at the incentives in the US realistically, using a simple common prescriptive advice from doctors to many patients.
Patient: I have these pains….
Doctor: take an aspirin or other 10 cent pain reliever.
Patient: but that 10 cents only buys a pill that has a 1 in 1000 chance of stomach upset.
Doctor: ok, the drug company has a solution that costs $10 a pill, which will cost you 25 cents out of pocket for your copay, your insurer $50 a month, and this will eliminate that 1 in 1000 risk of stomach upset and replace it with a 1 in 5000 chance of heart failure and premature and preventable death. And that pill won’t work any better.
Patient: great! I own drug company stock in my 401K so that Vioxx prescription will boost my retirement earnings.
Of course, I’ve heard a whole lot of whining about how government policies favoring generics which insurers have latched onto as a means of cost control are an unacceptable takeover of health care because they prevent the innovations like Vioxx which is riskier, no more effective, and much higher in cost.
The original Blue Cross and Blue Shield plans, and then HMOs were prepaid care with the doctors and hospitals largely determining the amount of care. Nixon promoted wider HMO coverage and HMOs were required to be part of employer benefit package options if available.
This kind of approach to health care was opposed by insurers who only wanted to pay for procedures, and then limit the procedures by limiting those covered, and doctors and hospitals that wanted to make more by charging for more procedures.
I find it odd that it is believed that patients who are untrained in medicine and who are not able to make objective decisions will be better at deciding what level of care is cost effective. If a doctor says your spouse has a 1 in 100 chance of living another year if you approve a procedure, will you ask what it will cost? Does it make a difference if it costs $100, $1000, $10,000, or $100,000? What if the doctor says “let’s try it for ten days at $1000 a day; it might work the first day, but it might not. The odds are 1 in 100 the 1st day, 1 in 200 the 2nd, the 1 in 300,…” Which day do you stop trying to save your spouse for one more year of life?
And even more interesting is the doctors telling a woman, “you have a choice of taking this $25 pill to abort your fetus, or taking on $100,000 in medical costs to deal with the medical bills you will incur while you wait for your child to die from CF in early adulthood, or spend $10,000 to have them die in early childhood.”
Tom West
Feb 25 2010 at 5:33pm
wlu2009
would the rich guy not be allowed to pay for and undergo an outrageously expensive treatment, even understanding the questions surrounding its efficacy?
Well, as a Canadian, thanks to geography, we have an well-placed compromise. The approximately 0.2% who do want to pay go state-side. This is just far enough away that very few do seriously consider it, but it provides a safety valve for those who really do want to spend the extra money.
As for Americans, I suspect their health-care situation is intractable. I cannot see an outcome that’s not going to seriously damage them one way or another. From what I’ve seen, those who want single payer, etc. don’t seem to acknowledge that there are real trade-offs for more affordable health-care (waiting lists, and lot fewer miracles when that expensive “unnecessary surgery” *does* pay off.) It’s a trade-off Canadians (though their gov’t) have chosen to take.
By the way, is there anyone else here who dislikes the all the talk of “signalling” as a reason for purchasing health-care. If my child’s life is at risk, then I might very well sell the house for a slim chance at a cure (which I can’t do in Canada, for better or worse). Am I *signalling* that I value my child? No, dammit, I am *valuing* my child.
eccdogg
Feb 26 2010 at 8:47am
“By the way, is there anyone else here who dislikes the all the talk of “signalling” as a reason for purchasing health-care. If my child’s life is at risk, then I might very well sell the house for a slim chance at a cure (which I can’t do in Canada, for better or worse). Am I *signalling* that I value my child? No, dammit, I am *valuing* my child.”
Yes, I am with you. I find the signalling argument very weak and extremely presumptuous. I love how some economist can divine my true motives for taking an action. And then knowing that “true” motive decide that the motive is not worthwhile for society so I should not be allowed to take some action. Sounds pretty paternalistic to me.
Greg
Feb 26 2010 at 9:15am
Ive been saying this for months; (ever since weve been debating health care) health care is expensive because we want it to be. No one wants to let go of life especially in this self adoring country we live in.
Combine conservative religious fantasies about our infinite self worth with our Wall St driven ability to over value our assets and make us think we are so rich and smart and you get a culture of people who refuse to die because we are so necessary to the welfare of the planet. (OMG ! What would happen if American values disappeared from the face of the earth?)
We are also pathologically addicted to not looking ahead and merely living for today so we dont really value “health” care but rather disaster management. Disaster management is much more profitable and it plays to our desire to be heroes, well compensated heroes.
Chris Bolts Sr.
Feb 26 2010 at 11:48am
Greg, if you tire of the “conservative religious fantasies about our infinite self worth” you are always free to move to Europe where “secular fantasies about having society collectively be held liable for personal failings” is the rage of the day.
And indeed, what WOULD happen if American values disappeared from the face of the Earth? For starters those “secular fantasies about having society collectively be held liable for personal failings” wouldn’t go too far, now would it?
“We are also pathologically addicted to not looking ahead and merely living for today so we dont really value “health” care but rather disaster management.”
Says the person who probably wants universal healthcare.
Comments are closed.