There He Goes Again: John Stossel on Health Care

It would really be nice if the actual studies cited in John Stossel’s recent coluimn on healthcare reform were actually linked or given actual citations:

Harvard Business School professor Regina Herzlinger says studies show that “people who have these high-deductible health-insurance policies take a lot better care of themselves. They have more yearly physicals. Because they’re saying, ‘If I keep myself healthy, in the long run, I’m going to be spending less money.'”

The study of which I’m aware demonstrated that people do economize when they’re responsible for paying for their own healthcare but they scrimp on both elective and necessary treatment.

Now I agree that employer-paid health insurance, an artifact of the tax system and the 1940’s and 50’s, has driven up healthcare costs. So has government-subsidized healthcare in the form of Medicare, Medicaid, the VA, and so on. But the context in which those costs have gone up is one in which the supply of healthcare is managed and constrained by a partnership of government and the medical cartel. Without that interference with the marketplace as demand rose the supply would have risen, too. But that has manifestly not happened and, as demand rose, prices rose sharply.

That was my gripe, too, with Arnold Kling’s article on healthcare from earlier this year.

Insulation leads people to over-consume health care services. Americans make extravagant use of services that have high costs and low benefits. Many studies that compare groups with similar conditions show that those with the largest levels of health care spending fare no better in terms of outcomes than those that spend less.

I think that’s true from a purely technical standpoint but it strikes the wrong intuitive note.

When I overeat, that means that I eat more than I need for my health and well-being, presumably because I like food (as I see is all too commonplace among my fellow citizens). I can over-buy clothes, cars, houses. When I “over-consume” health care services, is it because I want more health care services? Except in a few pathological cases I think the answer is “No”. I think that what Arnold means by “over-consume” in this context is that people purchase more healthcare services than they would if healthcare services weren’t subsidized and, as I say, that’s undoubtedly true. The question is are people purchasing more healthcare than they need to be healthier? And to that I think the answer is no.

People don’t have another leg put in a cast if it becomes cheaper or have a second heart bypass surgery. Do people collect flu shots in dozens? Does anyone go to the doctor because they enjoy the experience? I certainly don’t.

In the absence of an increase in supply John Stossel’s and Arnold Kling’s preferred solution would cause prices to rise because the limited number of suppliers would simply raise their prices to maintain their incomes. As prices rose more and more consumers would be kept out of the healthcare market and public health would suffer.

I’d like to see insurance companies out of healthcare. But I’d like to see it in the context of a greatly-increased supply of healthcare. That would take the distortions out of healthcare and without removing those distortions I don’t honestly see how we can determine what any more circumscribed reform would achieve.

5 comments… add one

  • In the absence of an increase in supply John Stossel’s and Arnold Kling’s preferred solution would cause prices to rise because the limited number of suppliers would simply raise their prices to maintain their incomes.

    I don’t know where you learned economics, but is it too late to get a refund?

  • I’d like to see insurance companies out of healthcare. But I’d like to see it in the context of a greatly-increased supply of healthcare. That would take the distortions out of healthcare and without removing those distortions I don’t honestly see how we can determine what any more circumscribed reform would achieve.

    I’m curious: how would people handle catastrophic situations without insurance? It’s hard to see how, for example, transplants or premie care could be made cheaper with “greater healthcare supply”.

  • Eli, I learned that cartels operate a little differently than a market with freer entry. What did you learn? I also learned that incomes tend to be downward inelastic when people have any control over it. Did you learn about that, too?

    Icepick:

    It’s hard to see how, for example, transplants or premie care could be made cheaper with “greater healthcare supply”.

    Let me give an example, Icepick. Hospitals are, by design, not allowed to compete with one another or, at least, competition is reduced. I have no doubt that if the supply of healthcare were increased, say, tenfold, that prices would be lower.

  • Supply will only be increased if there’s demand for it. How much demand is there for premie care? I’ve got to think that supply is already close to demand there.

    Or consider kidney transplants. While there is more demand than supply in this case, the limiting factor in question is actual kidneys. So again I don’t see how one can reasonably increase the supply on this particular healthcare item.

    And of course anything on the cutting edge is likely to be prohibitively expensive. I just don’t see how increasing supply can be done in the extreme cases.

  • Kidneys are donated. They don’t count into the cost. The cost of a kidney transplant is the cost of the facility and the salaries of those who do it both of which have managed supplies.

    How do you reduce the cost? Automation. Various different forms of automation have been available for more than a generation and languished unused.

    You’re right on the subject of cutting edge therapies.

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