My latest essay deals with a question posed by Patrick Collison. He asks why things like education and health care keep getting more expensive. My answer is part Baumol, part Hanson, part Caplan, and part Kling. An excerpt:
It may seem puzzling that the demand for health care and education keeps rising while measurable outcomes, such as longevity or skill attainment, show little response to higher spending. One reason is that the perceived benefits of health care and education may be high relative to their effects on outcomes. You may not be cured of your ailment, but the effort is what matters to you, so you seek treatment. Sending your child to an expensive college may not improve her skills, but your own sense of status depends on it, so you fork over the tuition.
Read the whole thing.
The list of contributing factors to US healthcare’s rate of inflation would appear to make a good argument for finishing the transition to a French style health care system that was hastened along by Obamacare.
France appears to cure the Baumol disease by simply adding more doctors. Patients retain doctor choice but have many more to choose from than in the US with better access and lower wait times. In addition, France controls reimbursement rates much in the same way that Medicare does and imposes similar out-of-pocket cost requirements with a system of supplemental voluntary health insurance. Employees pay 50% of the cost of employer-provided supplemental insurance.
With respect to category creep, in France, as in the US Medicare program, lists of covered procedures, drugs, and medical devices covered are defined at the national level and apply to all regions of the country. The health ministry, a pricing committee within the ministry, and the statutory health insurance program funds set these lists, rates of coverage, and price. Notably France doesn’t reimburse for ‘board and lodging’ costs of a hospital stay, unlike Medicare which pays for meals and semiprivate rooms. With respect to prescription drugs, France imposes different rates of copays ranging all the way up to 100% for certain drugs.
With respect to outcomes, France has what appears to be an efficacious national quality assurance program. Perhaps another factor accounts for even more of their generally superior health outcome metrics: the extended training required of French doctors. Nine years post-baccalaureate compared to 4 for the US. Three additional for a specialization. A lot of sorting there no doubt. If I had the choice, I think I would take a French doctor over a US doctor. I suspect that since government subsidizes medical education in France, the absence of a student debt burden likely results in a pattern of practice quite different from that of debt-burdened US practitioners.
Arrow came up in the dialogue between Krugman and Cowen also linked to today and it is hard to escape the conclusion that we could be doing better in the US than we are and that government does have a role to play, perhaps not much larger than the roe it is already playing. Rather than rolling back Obamacare, Republicans might do better to steer federal health care policy to a more market-friendly universal federal health system. The wholly authoritarian options being promoted by the left would be disastrous.
the extended training required of French doctors. Nine years post-baccalaureate compared to 4 for the US
Note that this is somewhat misleading, because the baccalaureate in France is the degree you have when you START university. It’s the 13th year of education, and students usually get it when they are 18. Nine years post-bac (France) is less than the US system for general practitioners (3 additional years of undergrad, 4 years of medical school, three years of residency.)
Thank you for the correction
“France appears to cure the Baumol disease by simply adding more doctors. ”
How is this a cure?
It seems like ‘category creep’ and ‘demand de-linked from outcomes’ could both be caused by ‘subsidize demand,’ which narrows it down.
This from
https://www.bbc.co.uk/news/health-46142276
seems relevant
>>>
Doctors were asked if they felt a significant minority of outpatient appointments – between 10% and 20% – could be avoided.
One in four said this proportion of new patient appointments was simply not needed.
A similar number said this proportion of follow-up appointments could be avoided by using alternative methods, such as video consultations.
If the number of cancelled and missed appointments was reduced, this could also provide a significant saving.
But the RCP warned the system of funding hospital care needed to change.
Hospitals are paid per patient seen, so could find themselves penalised if they reformed the system.
<<<
Which just goes to show that capitalism doesn't work for everything. Financial reward needs to be removed from caring professions.
I agree. Doctors should be paid minimum wage. If it’s good enough for the nice people at my local supermarket, it’s good enough for them.
That is probably a good idea, but just as long as it is equal wages for equal time, and they are also paid during their period of study before joining the profession, again for equal time.
It is worth noting the van driver comparison:
http://www.er-doctor.com/doctor_income.html
where it says working double shifts as a van driver for the same period as doctors are in education, and investing the proceeds from the second shift, after a similar period the income is about the same.
This just goes to show how important economic considerations are.
Also many people who go into caring professions end up disillusioned when they have to face the realities of the bureaucratic system under which they are suspected to work.
Doctors will work for near minimum wages if risk of impoverishment is managed (ie school debt, malpractice insurance) and the reputation/respect is still high.
Simply the wrong answer. In any system where A sets the price, B decides the demand, and C pays, there is no stable solution. The price will keep increasing until B is literally drowning in supply.
It gets worse if there are suppliers ‘behind’ A – so that apparent profits are sucked out of A and thus unrecoverable by simple negotiations with A. They can keep increasing the cost of supplies and A will always have an excuse for the pricing.
A sets the price, B decides the demand, and C pays
Describes a lot of contemporary bureaucratic economy. A and B end up chasing C. Sometimes C dies and is denounced as a wrecker.
Part of the problem is that the “outcomes” that people fixate on have so little to do with anything that doctors and hospitals have any capacity to influence. The other problem is that what’s being measured isn’t always the same thing.
A primary example of that is infant mortality. There is considerable variation in what constitutes a live birth from one country to another, and those differences have a significant impact on infant mortality stats. The health of the mothers is another unmeasured variable that has a significant impact on the health of the newborns. Probably fewer morbidly obese opiate addicts per capita in, say, Japan, France, or Sweden than in the US. Anyhow – Even if all countries used the same definition of what a live birth is, the time span covered by the term “infant mortality” encompasses both neonatal and perinatal mortality. The US does a very good job of keeping babies alive from conception until they are in the hospital. Once they go home with their parents or parent, you start to see *massive* difference in mortality based on all of the demographic traits that you’d expect to render people less able to care for newborns effectively. Instead of focusing on identifying parents who are likely to need extra assistance and coaching in order to look after their children properly, most of the morons in the commentariat – both in and out of academia – seem to be most interest in using the elevated “infant mortality” in the US as an ideological hammer to pound public opinion towards a single payer system.
Ditto for life expectancy. When you disaggregate the mortality stats, once you’ve implemented modern sanitation and vaccination practices, most excess mortality comes from causes that doctors and hospitals have very little capacity to influence.
Finally – there’s also the fact that most of the benefit that the US system produces is not measurable. What the value of learning that the mass in your child’s brain isn’t a malignant tumor in 3 days vs 3 months? How about hobbling in around in agonizing pain on a profoundly degenerated hip for a year and a half vs getting it taken care of before it begins to have a detrimental effect on your life? Etc x infinity. If we had a system where people accumulated HSA balances throughout their life and everything short of an ICU stay was out of pocket we’d have some idea, but for now we can’t put
a number on it, so it’s easy to pretend that these things don’t matter to real people.
People who drone one about how we’re wasting all of our money because the US falls short on a handful of “metrics” that are easily aggregated into a statistical dataset and of dubious utility when it comes to evaluating the clinical efficacy of care being delivered never seem to take these things into consideration – unless it’s them or someone they love that is experiencing the pain, suffering, fear, uncertainty, and anxiety that a “wasteful” test or imaging session can resolve.
Thanks for another interesting comment.
The difficulty is measuring stress that the inhumane bureaucracies mentioned in the penultimate paragraph cause.
In the British tax funded system, when stressed people get sick or more sick as a result of the stress there is an economic cost to the system if it has to do extra work to put this right. However different people react to stress differently. Not everyone will run up a bigger care bill as a result. Some may go completely bananas, others will take it in their stride and “lie back and think of England.”
As far as I understand insurance funded systems, there is a reset at the end of every year, so if someone makes a lot of claims during a particular year, the premium goes up the following year, if not to compensate exactly, but to reflect the ongoing risk of further claims.
Now this is some Handle-Bait.
I think it would be worth testing out those propositions, and perhaps against some other famous examples of “American Peculiar High Price Syndrome”, and supplementing with additional explanations for situations which don’t fit:
1. Real Estate
2. Transit Infrastructure (consider NYC subway line at $1 Billion per mile, with many workers earning more than GS-15s)
3. Military procurement
4. Mobile telecommunications ( https://mobile.slashdot.org/story/18/11/20/2341244/us-wireless-data-prices-are-among-the-most-expensive-on-earth )
5. Stagehand Labor for Broadway Plays (average now over $300K): https://www.bloomberg.com/news/articles/2011-06-03/carnegie-hall-stagehand-receives-500-000-in-pay-following-expense-trims
6. Pharmaceuticals
7. Office Software Licenses
“Exploiting particular market power” is not a popular explanation among libertarian economists, but it sometimes fits the bill.
Every single one of your examples involves some sort of government-enforced restriction on supply. Baumol’s cost disease is a real thing, but it’s a thing the market would route around if it were legal to do so.
Could you explain that for the “stagehand labor” example. The mere existence of labor laws / NLRB does not explain top-1% level salaries.
Maybe because Broadway is the top 1% of theatres, so the people who work there are paid commensurately. Those stagehands might be the top 1% of all stagehands.
I bet that once you go off-Broadway, and then out into the hinterlands, the average stagehand wage drops dramatically to something closer to what we would expect.
That’s different than healthcare. I don’t think healthcare in New York is significantly more expensive than healthcare in a smaller city.
There was one particular case that I was aware of while my wife was working overseas in a single payer system. Someone came into the small town ER with symptoms that suggested a brain hemorrhage/aneurysm.
She called for a emergency transport to a hospital that had the facilities to do the imaging and conduct the surgery, if needed. Everything hinged on getting the on-call radiologist to report to the higher tier hospital and see the patient. The radiologist who was out recreating at the time refused. I believe that was in part due to the personal inconvenience and in part due to the cost of the scan. The end result was the patient stayed put and sustained a catastrophic stroke that left them alive but left him/her totally unable to care for themselves in any capacity forever.
From a narrow mortality analysis, this was wonderfully efficient. There was no difference between the high and low cost pathways in terms of mortality so, but the only measured “outcome” was the same since the patient survived. Nevermind that the aggregate economic costs of the “low cost” option will be many orders of magnitude greater than the cost of the scan/surgery. Not to mention the staggering amount of personal suffering.
There were also lots of folks who needed gall bladder surgery and other maladies that had their surgeries postponed over and over again because all of the time that the operating room was allowed for the year was consumed tending to people who sustained injuries in barfights, etc. Lots of sustained suffering in that single payer environment, but very little difference in measured “outcomes” and lower spending. Yay!
Maybe single payer only works well in a people with virtue (and enough sense to tax the f*ck out of alcohol and limit it’s availability)?
Read the whole and was going to say this
“Our spending on health care and education is driven by hope.”
But you beat me to it.
In Australia these sectors are taxpayer supported and I’d always assigned that to spiralling costs (deep taxpayer pockets). Separate from this has been observation that these sectors operate are difficult measure from productivity perspective and at least in Oz, you’d say education was going backwards.
But is is Hopeism!! Younger parents hope spending on education will make every kid an Einstein. Other constituents demand every healthcare service to preserve life. Politicians accede (votes) and costs escalate commensurately.