Amy Finkelstein, Matthew Gentzkow, and Heidi Williams write,
Our findings confirm that supply-side factors are important, while also revealing that patient preferences and health status together account for a large share of variation. Once we address the endogenous measurement issue with patient health, we find that roughly a quarter of the geographic variation in log health care utilization can potentially be attributed to observable patient health. Whether the remaining patient component reflects preferences or unmeasured health remains an open question
Pointer from Alex Tabarrok, who suggests that the supply-driven variation represents an upper bound (a high one) of sorts on inefficient use of medical procedures. I disagree. There also can be demand for medical services with high costs and low benefits, fueled by third-party payments.
I continue to believe what wrote a decade ago in Crisis of Abundance. That is, the fundamental reason that health care spending is very high in this country is that we obtain a lot of medical services that have high costs and low benefits. You can address that either with top-down rationing or with having patients face a larger share of the costs and being forced to make choices.
There are also very large cost variations even in the same cities which likely have much more to do with third party payments. Ultimately costs must be more closely aligned with benefits which means setting compensated prices rather than taking them as given. That is neither top down or bottom up but top down with bottom up.
The trouble is that an ordinary person is totally incapable of assessing costs and benefits in a medical context, and even the experts don’t seem to have a great track record. Most people will never be able to think about the hard health care decisions like they think about auto repair.
Certainly not if we don’t let them. I do it all the time, even though I am punished for doing it. The question is where are the margins? How many people like me are necessary to improve the market?
It wouldn’t surprise me that in 50-100 years “health care” spending is 50% of GDP. Commodities technology and the software augmentation of labor will make basic survival cheaper and cheaper consistent with historical trends.
In contrast current generations will want to invest substantially to solve complex problems liking slowing aging related disease and hopefully completely eradicating dualist psychology. A substantial amount, perhaps a major portion, of “wreck in the economy” is the residual of mental disease. These mental disease would include not only depression and chronic pain, currently in vogue, but also politically incorrect topics like the dense incidence of autistic thinking in academics and politics. A lot of macroeconomics and political discourse is simply put, autistic psychosis, where linguistic and mathematical metaphors have lost contact with reality. Mating trends will exacerbate this problem. Good luck in obtaining enough status to make these arguments in a top-down system where status is zero-sum. The market is our only hope….
” with having patients face a larger share of the costs and being forced to make choices.”
Still might not work. Patients may make short term choices that result in higher costs in the long run.
Steve
You mean that wouldn’t work politically.
with having patients face a larger share of the costs and being forced to make choices.
What are those choices being made? We all can focus on that worthless test 3rd party stuff but sooner or later one of worthless test will end up being valuable. And lastly I wonder what will happen with price rationing and health care choices.
There is a lot of low-hanging fruit. By introducing modest cost-sharing (and figuring out how to do it, the real hard part) we are talking about going from a market with either almost none, or even perverse price structures to some modest price pressures.
What it might do in some cases is prevent negative procedures on the margin like notoriously negative investments like back surgeries and the epidemic over-prescription of pain killers for two remarkably obvious and tragic examples.
It is darkly humorous to me that people like me (can count times I’ve been medicated on one hand) get looked at like we are doctor shopping when we legitimately need pain meds, and yet the system is killing record numbers including basically all the celebrities lost due to drugs of late.
When there is zero cost you take whatever the doctor gives you. And while doctors are never aware of cost-effectiveness, they are often wrong on treatments. The information asymmetry goes both ways.
“high costs and low benefits” << I'm pretty sure you mean lower social benefits, as compared to personal benefits.
For most folk, expensive treatment that increases the odds of survival, whether from a low 10% up to 20%, or a higher 70% to 80%, they are very willing to demand such treatment.
There is comment about how in the future maybe 50% of US GDP will go towards health care, which I agree with.
a) as we get richer and robots do more for us (like making custom coffee, or custom clothes, or custom autos – or driving the autos), the desire for more health will inevitably increase,
b) all current unemployed and underemployed folk should be working in hospitals & hospices & aged care homes.