Greg Mankiw mocks Team Obama’s endorsement of price controls on health care.
Very, very strange. You would think that all those future Nobel-prize-winning economists working for the President would explain to him the history and economics of government price controls. Imposing price controls certainly wasn’t President Nixon’s finest hour.
Maybe President Obama should instead follow in President Ford’s footsteps and start wearing a WHINE button on his lapel, forWhip Healthcare Inflation Now, Egad
Its not immediately clear to me that this isn’t a viable strategy, however.
If you believe that a large portion of the health care industry is rent dissipating then putting clamps on it might not be such a bad idea. That is, we spend lots of money on health care because we want to buy “the best care available” regardless of what that care is. However, this just encourages the creation of new therapies that we now have to buy in order to have “the best care available.”
Here is a though experiment that helps illustrate:
Your child is in the hospital and the doctor says that therapy X will cost $500K but will increase child’s chance of survival by 23%. $500K is your life savings plus everything that you could borrow plus a little more you will have to get from friends and family. Maybe the church could help. Maybe . . .
For a millisecond perhaps you think that its not worth it. Your kid is still probably going to die. But, you push that feeling down. My God this is YOUR CHILD. Its worth it.
Now imagine the same situation but the doctor comes in and says the $500K treatment is going to increase your kid’s chance of survival by 17%. Do you say “Well I was almost on the fence at 23%, so I am going to let my kid go at 17%”
I am betting not.
What you are buying is “the best shot”, not any particular chance of survival. Thus, if I spend billions increasing the best shot only by a few percentage points you will buy my new treatment, even though the actual change in your family’s prospects are extremely small.
In many cases people will pay more just for uncertainty. Imagine the following: we have a treatment that we know is only effective in 5% of cases. That sounds pretty bleak. However, we have this brand new treatment that is not without risks. Yet, if it works could save 90% of patients. Many people would instinctively be willing to pay more for the second treatment.
However, the second treatment is new and risky. Its possible that it won’t help anyone. Its possible that it could make your child worse. However, the fact that you don’t have to admit to the bleak 5% odds makes the treatment enticing. Again, you are not buying life. You are buying a reprieve from thinking about the death of your child.
Its important to remember that this argument doesn’t suggest that all health care is useless. It doesn’t even suggest that all of the “latest care” is useless. Only that it is less useful than the price might suggest.
My Deaton and Muellbauer is a little rusty so, I’d have to spend some time looking through the actual economics of a rationed market.
Nonetheless this seems like a step towards dividing the baby in half.
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Tuesday ~ February 23rd, 2010 at 12:23 pm
RickRussellTX
I was trying to articulate this point to an acquaintance on Facebook recently, that the demand equation for health care is so fundamentally whacked that it may never respond to market dynamics in the same way as almost everything else.
The only comparable market I could think of was food… in a starvation scenario. Suddenly, a wheelbarrow full of bills for a loaf of bread doesn’t sound so bad.
Tuesday ~ February 23rd, 2010 at 4:43 pm
Tom Dougherty
You wrote, “Imagine the following: we have a treatment that we know is only effective in 5% of cases. That sounds pretty bleak. However, we have this brand new treatment that is not without risks. Yet, if it works could save 90% of patients.”
This reminds me of the Naked Gun movie where OJ is on his death bed. The doctor says, “He has a 50/50 chance of living…. But there is only a 10% chance of that.”
You also wrote, “That is, we spend lots of money on health care because we want to buy “the best care available” regardless of what that care is. However, this just encourages the creation of new therapies that we now have to buy in order to have “the best care available.” ”
We spend lots of money on cars because we want to buy “the best car available” regardless of what that car is. However, this just encourages the creation of new models that we now have to buy in order to have “the best car available”. Can you imagine someone complaining this way about the provision of cars?
Now the problem isn’t that we want the best car or the best care. It is that 50% of health care is financed by government. When someone else is paying the bill, you order the steak instead of hamburger. The solution to that problem is not by having the government pick-up even more of the bill. Health care reform and cost containment will come when government gets out of health care financing.
Tuesday ~ February 23rd, 2010 at 4:58 pm
Rick Russell
“Health care reform and cost containment will come when government gets out of health care financing.”
I hear this repeated a lot. Care to cite an example?
Wednesday ~ February 24th, 2010 at 12:26 am
Tom Dougherty
For 2009 through 2019, health spending is expected to grow at an average annual rate of 6.1 percent—1.7 percentage points faster than GDP, the CMS [Centers for Medicare and Medicaid Services] analysts say. During that time, public spending (7.0 percent average annual growth) is projected to continue increasing faster than private spending (5.2 percent average annual growth).
The CMS projections predict that public payers will be paying for slightly more than half of the health care purchased in the U.S. by 2012, compared to 47 percent in 2008. However, at a February 3 Washington D.C. briefing, lead author Christopher Truffer noted that public spending is actually likely to surpass 50 percent of total spending a year earlier, in 2011.
Wednesday ~ February 24th, 2010 at 1:15 am
RickRussellTX
Do you have an example what you claimed — *less* public spending results in *lower* prices for comparable care?
I’ve looked, and I can’t find an example. The nations who are getting the most health care for the least money are the ones with the largest proportions of public spending. And all are spending less, total per capita, than the US. Most are spending less public per capita as well.
http://www.commonwealthfund.org/Content/Charts/Chartbook/Multinational-Comparisons-of-Health-Systems-Data–2006/H/Health-Care-Expenditure-per-Capita-by-Source-of-Funding-in-2004.aspx
http://www.nationmaster.com/graph/hea_hea_car_fun_tot_per_cap-care-funding-total-per-capita
http://www.nationmaster.com/graph/hea_hea_car_fun_pri_per_cap-care-funding-private-per-capita
http://www.nationmaster.com/graph/hea_hea_car_fun_pub_per_cap-care-funding-public-per-capita
I cannot find any example that supports the claim that a smaller proportion of public spending will result in lower prices to the consumer for comparable care. The US has the lowest proportion of all, and it’s got the highest prices.
If there’s an example, let’s have it.
Wednesday ~ February 24th, 2010 at 7:39 pm
Tom Dougherty
“Do you have an example what you claimed — *less* public spending results in *lower* prices for comparable care? ”
Mexico, Canada, and the UK have comparable care as the US? Give me a break! All your charts show is that bad health care costs less. Most Americans will not except Mexican style health care in order to drive down costs.
Wednesday ~ February 24th, 2010 at 7:56 pm
Tom Dougherty
Comparable care in Canada? I don’t think so.
“I did not sign away my right to get the best possible health care for myself when I entered politics.”
~Canadian Premier of Newfoundland and Labrador Danny Williams
From the article:
His doctors in Canada presented him with two options – a full or partial sternotomy, both of which would’ve required breaking bones, he said.
He said he spoke with and provided his medical information to a leading cardiac surgeon in New Jersey who is also from Newfoundland and Labrador. He advised him to seek treatment at the Mount Sinai Medical Center in Miami.
That’s where he was treated by Dr. Joseph Lamelas, a cardiac surgeon who has performed more than 8,000 open-heart surgeries.
Williams said Lamelas made an incision under his arm that didn’t require any bone breakage.
“I wanted to get in, get out fast, get back to work in a short period of time,” the premier said.
“I would’ve been criticized if I had stayed in Canada and had been perceived as jumping a line or a wait list. … I accept that. That’s public life,” he said.
http://www.google.com/hostednews/canadianpress/article/ALeqM5h0QC7bditrEb3wYz_6_b-gsGGDxA
Thursday ~ February 25th, 2010 at 12:01 am
RickRussellTX
Look, I’m just asking you to support the claim you made, “Health care reform and cost containment will come when government gets out of health care financing.”
What is the basis for this claim? State the evidence.
I’m not really sure what your Canadian example is intended to show. Sure we have good health care for people who demand very high-end care, and they are willing to pay for it with private money. We’ve also got 10 times the Canadian population. These have nothing to do with US government financing of health care; the US government isn’t paying for Canadians to visit the US and get care (???).
I want you to explain your specific claim : reducing government spending on health care will bring price containment. Why would that cause doctors and hospitals to lower prices?
An example from somewhere in the world with decent health care would be nice — say someplace with similar health care quality numbers, like rates of hospital infection, deaths from complications, infant mortality, etc. Like, you know, numbers or something.
If they are spending a less government money and getting lower prices for comparable care, I’ll admit that you’re on to something.
Thursday ~ February 25th, 2010 at 12:33 am
Tom Dougherty
Rick,
The evidence has been presented above. I cannot help you with reading comprehension, however.
Thursday ~ February 25th, 2010 at 3:40 am
RickRussellTX
Ah, descent to the ad hominem.
The only evidence you cited was the claim that both public and private health care spending are going up: “During that time, public spending (7.0 percent average annual growth) is projected to continue increasing faster than private spending (5.2 percent average annual growth).” It’s unclear to me how this makes the prima facie case that reduced government spending results in price reduction.
If you have other numbers, I have yet to see them.
I well understand that pumping money into the system in the form of government support could increase prices. But there are nations paying more into public health care per capita than we are (both absolutely per capita and as a proportion of total spending per capita), yet their total spending per capita are a fraction of what we pay.
And I suggest that, your single case of cardiac surgery aside, you’ll find no meaningful difference in health outcomes in the health statistics. Canada’s life expectancy is higher, their infant mortality is lower. The test is not whether Mr. Williams is squeamish at the prospect of surgery; the test is, “which system offers the statistically best health outcomes?”
I’m don’t know of a better aggregate statistic to measure health outcomes than life expectancy, but if you have one, please supply it so we can discuss it. I tried to find solid numbers on rates of postoperative infection or complications, which I think would be an excellent statistic to track the quality of individual care events, but I couldn’t find anything that effectively compared across national boundaries with clear statistical controls.