1. The American middle class does not believe in saving up for health care expenses. The idea that you should have $10,000 – $15,000 set aside for the occasional acute medical episode is abhorrent. The idea that you should save up for the inevitable medical expenses of old age is abhorrent. We are not Singapore.
2. The American middle class does not believe in paying taxes in order to support people who are very poor or very sick. We are not Denmark.
3. Americans are not willing to say, “The proposed treatment for this problem is not worth the cost. The individual should accept lower-cost treatments and live (or perhaps not live) with the consequences.”
4. Americans, and especially health care providers, do not want to think of health care as a commodity. The providers want to be paid, but they do not want to think of themselves as selling their services, so the payment comes from third parties and the price is hidden to consumers.
5. Americans are not willing to give up being the “early adopters” of new treatments, which are often much more expensive when they first appear than when they have been available for many years.
This was not as big a problem 40 years ago, when health care was a smaller share of the economy. It has grown larger because of new treatment options available. These often involve medical procedures that require expensive equipment and highly trained specialists. That is why I called my health care book Crisis of Abundance. As an example, I know someone with Parkinson’s who is getting “deep brain stimulation.” This is an incredibly exotic procedure, requiring a very powerful MRI machine, a highly skilled surgeon, and uniquely trained technicians. But it is a very promising treatment for a very difficult disease.
6. Americans seem to be more willing to spend public money on medical services than on public health. But I would think that there is more bang for the buck in getting people to change unhealthy lifestyles than there is in trying to treat the consequences of those lifestyles.
Put together these cultural traits and you end up, in Josh Barro’s words, with an economy that spends 1/6th of GDP on health care with nobody wanting to spend 1/6th of their income on it.
“But I would think that there is more bang for the buck in getting people to change unhealthy lifestyles than there is in trying to treat the consequences of those lifestyles.”
Citation please.
Said another way, I have not seen any study that has indicated through either social or public policy that we know how to do this. Take something as “simple” as obesity and heart disease. There’s compelling evidence that a large piece of this is the genetic lottery combined with lifestyle. So first you’d need to disentangle genes and environment for being fat (good luck with that). Then you’d need to invent a social and public policy that would actually make people thin. Since anyone who could do this would become fabulously wealthy, I am a tad skeptical that anyone in fact does know how to do this.
And that’s the easy one. How do you handle opioid addiction and suicide? I wouldn’t even know where to begin and I don’t think anyone else does either.
Your premise seems to be that Americans have, in effect, designed the system that they have.
Consumers do not design markets. They want things. What they want does not represent a considered plan. These ideas are never fully resolved. Markets compete by providing solutions to consumers and these solutions battle it out for supremacy.
If consumers want better terms and lower prices and better quality, it doesn’t mean they are crazy and unrealistic. Its the job of sellers to meet the market and work out their version of the best mix of features.
When did american consumers actually reject these options? Was there really something reasonable on the table for them to choose? I don’t think so.
Amen.
Note that political markets are like business markets. Consumers in politics (voters) want whatever they can get, just like business consumers. It’s the job of political entrepreneurs to sell a product that works (at least if they want to win political power and get things done). If one can’t find a market for ones political product, its not different from complaining that nobody will buy your widget.
Libertarians ought to approach politics the way they would approach selling a product. Instead they approach things in a moralistic way.
“Libertarians ought to approach politics the way they would approach selling a product.”
its as if public choice theory never existed at all, then?
Libertarians don’t seem to understand public choice theory very well, nor are they all that interested. Most analysis seems to end with “why can’t these ignorant rubes just give me power,” which predictably doesn’t advance the agenda much.
Thomas Sowell explained well the difference between politics and markets in Chapter 1 of his book, “Applied Economics”:
” Politics and the markets are both ways of getting people to respond to other people’s desires. Consumers deciding which goods to spend their money on have often been analogized to voters deciding which candidates to elect to public office. However the two processes are profoundly different. Not only do individuals invest very different amounts of time and thought in making economic vs. political decisions, those are inherently different in themselves. Voters decide whether to vote for one candidate or another but they decide how much of what kinds of food, clothing, shelter, etc. to purchase. In short, political decisions tend to be categorical, while economic decisions tend to be incremental.
Incremental decisions can be more fine-tuned than deciding which candidate’s whole package of principles and practices comes closest to meeting your own desires. Incremental decision-making also means that not every increment of even very desirable things is likewise necessarily desirable, given that there are other things that the money could be spent on after having acquired a given amount of a particular good or service. For example, although it might be worthwhile spending considerable money to live in a nice home, buying a second home in the country may or may not be worth spending money that could be used for sending a child to college or for recreational travel overseas. One consequence of incremental decision-making is that increments of many desirable things remain unpurchased because they are almost–but not quite–worth the sacrifices required to get them.
From a political standpoint, this means that there are always numerous desirable things that government officials can offer to provide to voters who want them–either free of charge or at reduced, government-subsidized prices–even when the voters do not want these increments enough to sacrifice their own money to pay for them. The real winners in this process are politicians whose apparent generosity and compassion gain them political support.”
In short, politics doesn’t reconcile diminishing returns and opportunity costs as well as markets. Or ‘public choice’.
Since much of health care (and education) decisions are in the political realm, diminishing returns and opportunity costs don’t factor into decisions and the simple rule of ‘more is better’ generally applies because the decision-maker experiences the benefit (more) but not what is sacrificed to get it. So, more is what we get.
It is amazing when you move those decisions into the market how well diminishing returns and opportunity costs come into play.
I experienced that about 10 years ago when I switched from a health care ‘subscription’ (what most people refer to as insurance) to HSA+insurance. Suddenly, I was asking doctors cost-benefit questions like I might ask a plumber, that I wouldn’t have bothered to ask when I was on the subscription plan.
“Consumers do not design markets. They want things… Markets compete by providing solutions…” If only we had a market for healthcare, it might work. The U.S. has not had a market for healthcare since 1946. It’s been running for 70 years under a tangle of private and public sector encumbrances that have obscured and confounded incentives for consumers or suppliers to make rational decisions.
Now, now- consumers had nothing at all to do with this web of encumbrances, and, by the way, neither did the government which was only trying to keep the private suppliers from ripping off these ovine consumers.
It would be nice if you actually cited how one of these encumbrances came into being, and how the American public demanded it.
My understanding is that wages and prices were frozen during World War II. Adding employer provided healthcare coverage, and providing the tax deduction for it was a loophole for those restrictions during a desperate time. These changes stuck, and ultimately shaped the future of healthcare in America.
If you believe that this is evidence that Americans want unrestrained healthcare provided by third party payers, then that’s your analysis. I look at it and see a series of accidental decisions with no clear designer. Ultimately, I think the federal and state Governments and industry leaders failed to guide the process in a positive direction. It is their job to make fully considered decisions. I do not blame the consumers.
See, that right there is your problem. Barro was right in his assertion- the people are getting what they want.
You keep trying to pretend to that things are happening in which no actors are involved at any level- it is all an act of God, or fate if you are an atheist.
Perhaps you only read one sentence before responding. I don’t know how it is possible that you came to that conclusion.
Prof. Kling blamed the consumers.
I made the argument that it is always wrong to assume that consumers direct and design market solutions. They do not. They pick the best one available to them at the time. Suppliers and often legislators and regulators, shape market solutions. Suppliers, legislators and regulators are the only ones empowered to fix this. They are all actors and they are all involved.
Preach it.
The man in the street is generally a price taker. And a culture taker. And a policy taker. Democratic feedback provides some data and incentive for which leadership can shape policy, but it is largely formless without elite guidance.
I think we got what we got because its what elites wanted. Some wanted it because it made them rich. Some wanted it because it made them feel good. Some wanted it to show off at cocktail parties. Some really wanted to help but just weren’t that smart about it. Some didn’t want it but also lacked the desire, incentive, or virtue to oppose it effectively. That’s what I saw working on Obamacare, and its what I’ve seen in just about every industry I’ve worked.
I don’t think Singapore works because “the people” crafted the system. I’m sure the average person in Singapore would like free stuff just like every other human being out there.
I find videos of crowds listening to LKY give a speeches in the rain to explain the logic of his system. Why it taps into personal responsibility and thrift, but also a fairness, efficiency, and a social contract between citizens for the public welfare. He had to explain to people who wanted shit for free that this was the best he could do and it was pretty damn good, so they shouldn’t tear it down. He knows he needs to explain his system if you want people to rise above “free shit”.
And you know what, they rewarded him and voted the PAP in. That’s called leadership. It’s what a real elite does.
The elite crafted the system and then made it run smoothly because that is what they wanted to do. They also had the personal virtue to follow through on their desires. Perhaps its worth asking why they had both the desire and ability to come up with the system they did. That’s the more difficult question compared to simply describing what they came up with.
Tom,
The American public gets what it wants. Politicians cater to these wants. It is no accident due to WWII wage restrictions that health care benefits are largely untaxed income today. Every single encumbrance has largely majority public support, which is why they aren’t removed.
It appears the original sin the American Middle Class is our Health Care System grew as a Employer Based system in the immediate post WW2 economy? The middle class did not learn to save because it was part of your wages. If the Employer Health care system did not grow than the American Middle Class would have learned differently. (Or we go ACA sooner.) It appeared that good American families could get health insurance if they worked hard for the company. Several other points:
1) Most Employers are moving to higher deductibles like Obamacare programs so they are on the hook for a lot of procedures today.
2) Reading a libertarian economist about healthcare and benefits to disabled citizens, my only recommendation to future parents is don’t have a disabled children. It will ruin your finances.
3) I still think the best future of healthcare is genetic testing but that is getting into touchy subjects. (The Senate is passing a bill of companies getting employee genetics as we speak.)
4) Watching the Trumpcare fight, I did wonder what have happened to Trump’s WWC voters as many of them would have lost healthcare. Remember Trump’s were against both public and private elites here.
Is #1 really true? At some fraction of Americans are used to putting aside money in HSAs for quite a while and Obamacare customers are definitely getting used to health care expenditures of $10,000-$15,000, since the average Bronze Plan family deductible is over $12,000 (and the average Silver Plan family will face deductibles of almost $7,500):
http://www.cnbc.com/2016/10/26/obamacare-deductibles-are-on-the-rise-for-2017-along-with-monthly-premiums.html
But what percentage of people do you think have an HSA with $10k – $15k in it? What percentage have a $10k – $15k emergency fund in a savings account?
I don’t have data, but if it’s like pretty much everything else, probably less than 10% of American households.
Maybe. But ACA customers are handling the $12K family deductible somehow when it occurs and being conditioned to expect years where out-of-pocket expenses may be that high.
I had a professor in law school a couple years ago who said that preventative care doesn’t actually decrease medical spending overall. He said that we consume a huge percentage of our total lifetime healthcare spending in the last few years of life, and the “cost of dying” tends to increase with the age you die at, so people dying young-ish from heart attacks and aggressive lung cancer is actually cheaper in terms of health care costs than people living to ripe old age and then dying slowly in the hospital. FWIW he was the kind of person who always had cites for everything, though I do not…
Kip Viscusi has done a lot of work in this area. I highly recommend his work. For instance, he has shown that smokers cost taxpayers less than average because they die young and fast, so they use less medical resources and also get fewer SS payments relative to what they paid in.
I doubt the implications of #6. First, what Joseph A. said.
Second, there have been various papers suggesting that if everybody lives a great lifestyle the net effect is HIGHER healthcare costs – because instead of treating heart failure caused by lack of exercise you are treating very long running dementia or the like. (I cannot find the citation now, but the argument is that everybody quitting smoking reduces illness and misery a great deal, but costs healthcare dollars over time.)
I also think the argument that healthcare is a “superior good” and that if you have a comfortable life consuming lots of healthcare to extend it is sensible, holds.
And that the net result of all this is that even if the US went to a very rational forward looking single payer perfect Unicorn healthcare system, it would still cost 1/6th of GDP if not more, and we would still be arguing about how to pay for it.
The bill won’t go down, ever. We may get more value for it, but the bill won’t go down.
I agree with this comment. I’m very skeptical in health care savings from spending on healthier lifestyles. The idea of spending money to avoid medical problems sounds great, but I’m highly skeptical.
Obviously we agree on this.
I’d like to point out that it probably *IS* possible for education/lifestyle/preventive care to reduce illness and misery – so even if persuading everybody to never take up smoking is a net money loser over time, at least people aren’t make ill by smoking. That improvement in quality of life has value.
While we’re on this important topic –
Arnold and others have written about the waste in the healthcare system, and I don’t know of any credible observer who claims this isn’t a problem here, OR in the European systems!
But there’s a problem with that observation – to what degree can the treatments which are useless be predicted with high certainty? It is often EASY to say after-the-fact that this or that diagnostic found nothing, but can anybody REALLY predict this well BEFORE the fact?
Consider also the terrible problem with average outcomes applied to complicated procedures. Suppose there’s some artificial joint procedure where 1/2 the patients get worse, the other 1/2 get amazing benefit, and the average is zero. Looks useless or harmful. The problem is, for the 1/2 where the benefit is great, it maybe literally life changing. So the average has ZERO power to predict what any particular patient should do.
Cost disease is inherent in the system, not simply a problem with immoral or irrational consumers. You cannot design a stable system in which person A is the customer, person B is the supplier, and person C pays. Even if person B doesn’t want to particularly raise prices, other people begin to see him as a source of profits and charge him more, so that he charges C more, and the ratchet is off and running.
> 6. Americans seem to be more willing to spend public money on medical services than on public health. But I would think that there is more bang for the buck in getting people to change unhealthy lifestyles than there is in trying to treat the consequences of those lifestyles.
I suspect that’s true, but it undersells public health, which includes a lot more than getting individuals to make healthier lifestyle choices (e.g., coordinated disease, pollution, and safety controls).
1) Most Americans don’t have $10-15K saved for anything period. Maybe that’s the bigger question.
Besides, most really bad medical expenses are $100k+. When I was in the hospital a single drug alone cost $100k, I think the total visit ended up being a few hundred thousand.
2) Because they are hostile foreigners that hate them and don’t pay their fair share. Or people with self imposed illnesses (drugies, STDs). If you just mean paying for the healthcare of people like themselves that got unlucky, most people tell me they are willing to pay more taxes for that. We came very close to single payer in this country in the 1970s, proposed by a Republican no less.
3) This is a social/cultural problem. It can’t be solved solely through economics. I never see libertarian understanding of the social/cultural problem.
4) Yeah
5) This is a social/cultural problem. It can’t be solved solely through economics. I never see libertarian understanding of the social/cultural problem.
6) Many of the most unhealthy lifestyles are protected by our current culture wars. Sexual dysfunction for instance.
Anyway, good post overall.
“1) Most Americans don’t have $10-15K saved for anything period. Maybe that’s the bigger question.”
Yup. The median Baby Boomer has $0 saved for retirement. http://www.deseretnews.com/article/865630597/Half-of-Americans-close-to-retirement-havent-saved-for-it.html Buchanan was right, most people are afraid to be free, they just want to be taken care of. https://ideas.repec.org/a/kap/pubcho/v124y2005i1p19-31.html
A few notes..
1 Desire, belief, and ability are often in conflict. A society as a whole cannot save unless they undertake foreign investment, something much easier for a small country than a rich large one. Otherwise there is little difference between savings and taxes other than savings being riskier as returns are not assured.
2 They may not believe they should, but they do believe no one should die from lack of ability to afford care. Only about 15% believe otherwise.
3 Not if you ask the impossible, for consumers to become doctors. A large portion support single payer for just this reason, they want to separate total cost from what it is spent on and let the healthcare system itself determine where best to spend it.
4 Heath care is not just a commodity but life and death itself. They don’t want to be asked to make decisions they have no capability of making. The health care system also likes to avoid this as well but they are best positioned to do it and will if they must. It just isn’t in their interest unless required though.
5 Very true, and they are willing to accept large risks to do so. Innovation is considered our strategic advantage.
6 This is known as consumer driven healthcare. Demand driven supply where no one cares about costs. Low cost vs high cost is a better distinction. Primary care, generic prescriptions, are low cost. Hospitalization, patent medicine, high skilled, high tech procedures are high cost. True public health, like the CDC, is the best bargain of all. Decreasing the uninsured helps shift this towards low cost.
Many chronic diseases are the result of build up of toxins in the body.
When someone has genetic predisposition to certain conditions and then is expose to toxins, by choice (smoking), ignorance (eating manufactured food-like substances, e.g. chicken “nuggets” and sugar-laden breakfast cereals), or incompetence (failure of system to consider chemical interactions and chemical overload), disease is often the result. This is especially true if the person happens to be from an environment where “clean” food and healthy lifestyles is not the norm.
Why not require the corporations who provide the toxins pay a tax for the externalization of the “costs” of products in lieu of educating the consumer on what the real cost of buying a particular product might be to health?
Cite for the “toxins theory”?
But even if we assume it’s all about the toxins, just tax the consumers for the externalities they’re imposing (after all, it’s their supposedly foolish choices that ultimately cause the problem, no one is forced to purchase particular foods). The corporate income tax is borne primarily by labor or consumers these days (mobile capital), so why add a needless layer of complexity?
Health Care isn’t unique. With everything:
1) Unrealistic expectations are the norm. Not quite everyone, but many people expect more than they deserve or can realistically get.
2) Majority rule politics makes this an order of magnitude worse. People vote benefits for themselves and don’t care about national debt or other groups that have to pay for it. There is also status competition, where people want to see the status of their group raised and status of rival demographic groups lowered. A competitive political landscape selects for politicians that tells voters what they want to hear.
Ideally, a good politician, like a Margaret Thatcher, can convince people of the immorality of robbing Peter to pay Paul. Supposedly England faced these problems and Thatcher successfully fixed some of them.
Kling and Republicans should support some limited form of universal coverage. The idea that there should be absolutely zero safety net for health is absurd even for the free market crowd. The second you have some universal safety net, that is a form of universal coverage. The question is how much does the basic safety net cover, what level of service? Ideally, health would work like food, where there is a safety net for the very hungry, but normal Americans buy on a basically free market.
I would think that there is more bang for the buck in getting people to change unhealthy lifestyles than there is in trying to treat the consequences of those lifestyles.
Figuratively, yes. Literally, no.
A tremendous amount of medical care would not be required if people behaved differently. (I can’t recommend enough Daniel Lieberman’s The Story of the Human Body: Evolution, Health, and Disease.) But we don’t know how to spend money to get people to change. Some of the changes are extremely difficult. I’m sure at least half of American adults have unsuccessfully tried to lose weight.