Henderson on John Goodman's Priceless
My review of health economist John Goodman’s book, Priceless, is now out. I’m generally positive about the book, but I do have some major criticisms.
Some positive excerpts:
A dominant theme in health care reform is what Goodman calls “the engineering approach.” This is the idea that all we need to do is figure out what works in health care and then have everyone do it. That engineering approach is an example of Hayek’s “fatal conceit,” the idea that government officials can design a plan better than the various plans that the market spontaneously creates. The ACA [Affordable Care Act] is chock full of such conceit. One instance in the new law is Accountable Care Organizations (ACOs) in which, as Goodman puts it, “a federal bureaucracy will virtually dictate the way medicine is practiced.” He lays out the ways in which the ACA will muscle doctors into this federal straightjacket.
Goodman uses his understanding of how actual markets work to point out the flaws in the engineering approach. The basic flaw is that there’s no single, specific solution to each problem in health care. He even gives a name to his critique: Goodman’s Nonreplicability Theorem. He writes:
Scholars associated with the Brookings Institution identified ten of the best hospital regions in the country and then tried to identify common characteristics that could be replicated. There were almost none. Some regions had doctors on staff. Others paid fee-for-service. Some had electronic medical records. Others did not. A separate study of physicians’ practices found the same thing.
Much positive change in the rest of the economy happens because of entrepreneurship, notes Goodman. Why should medical care be any different?
Goodman also has some striking tables showing that, for some services, uninsured people in the United States get the same or more health care than people in singlepayer Canada. For example, 65 percent of uninsured American women aged 40 to 64 have had a mammogram within five years; in Canada, it’s the same percent. Some 31 percent of uninsured American men have been tested for prostate cancer versus only 16 percent of Canadian men. Moreover, in Canada only 5 percent of women and 5 percent of men have ever had a colonoscopy, versus 30 percent of American women and 29 percent of American men.
These data, plus the fact that Canadians wait so long to see a doctor and to get surgery, help to make another point that Goodman discusses: the supposed “right to health care.” When I hear people say that people have a right to health care, I take on the moral issue with moral reasoning, questioning whether health care is something that a person can truly have a moral right to. Goodman does it differently–and effectively. He points out that Canadians don’t have a right to health care. How can you say it’s a right if people aren’t guaranteed to actually receive the health care service they need? The right to get in line for care, which is really all that Canadians are guaranteed, is not much of a right. And nothing in the Obamacare legislation makes health care into a right for Americans. Goodman writes, “[A] lot of knowledgeable people (not just conservative critics) predict that access to care is going to be more difficult for our most vulnerable populations.” He argues that under the Massachusetts health care law adopted under then-governor Mitt Romney, which served as a template for the ACA, that has happened. “The waiting time to see a new family practice doctor in Boston,” he writes, “is longer than in any other major U.S. city.”
One major criticism:
Goodman’s solution on the tax side is to make employers’ contributions to their employees’ health insurance taxable, but then to have the government give a $2,000 tax credit per person to be used toward health insurance. Families with many children would get huge tax credits. His plan has some additional complexities. For instance if people in a geographical area don’t claim the whole tax credit, then the local government in that area would get the unused part of the credit as a block grant from the federal government to be used for indigent care. I’m skeptical about how well this would work. First, the local government doesn’t have a strong incentive under Goodman’s scheme to use the money well. Second, one can imagine a city government fighting a county government over who gets how much of the block grant. My own view is that a better way to end the distortion is simply to make all employer contributions to employees’ health insurance taxable, but then make the change revenue-neutral by dropping marginal tax rates by a few percentage points.