Kevin Drum thinks I have gone overboard

Just for the record, then: when I say “high healthcare costs,” what I mean is “lots of money flowing to heathcare entities.” I’m pretty sure that’s what everyone else means too. I know that Karl likes to be contrarian, but calling this a mere large-scale accounting issue is surely a little bit too Olympian even for him, isn’t it?

Let me see if I can make my point more clearly.

There are lots of ways more money could flow to health care entities:

  1. People could value health care services extremely highly and want to purchase more of them
  2. Moral Hazard could lead people to purchase health care through insurance that they do not value very much
  3. The regulatory system could cause people to purchase more health care than they would want
  4. The regulatory system could cause health care to be produced inefficiently
  5. Information asymmetries between patients and doctors could lead people to be misinformed about the value of health care and purchase more than they would want under perfect information
  6. The desire to signal that we care could cause us to purchase the most advanced forms of health care available, leading to an arms race in the production of advanced care
  7. Cartelization by health care providers could raises prices
  8. Health care entities may rent seek for higher payments from the government
  9. Health care entities may engage in outright fraud to increase payments from insurance carriers and consumers

While all of these things increase the amount of money flowing to health care entities they are very different issues, with different economic implications.

For example, I’m not sure if (1) is something anyone should be concerned about, nor would we even use the phrase high cost in other contexts. Lots more money is flowing to the makers of smartphones, but we don’t think usually think of high smartphone cost as something we are facing.

Indeed we commonly say that smartphone costs are falling. This is because the value proposition is increasing.

On the other hand (4) could just be a pure economic loss. If good treatments for example can’t pass FDA approval it might be the case that not a single person in America is better off and many people are worse off. As economists we might consider that pretty costly.

Lastly,  its not immediately clear that (9) involves any measurable economic loss at all. If it is extremely easy for some types of fraud to be committed and it doesn’t alter incentives then it could more or less a pure transfer from the victim to the perpetrator.

This may strike people are morally wrong but its not economically inefficient and indeed without saying more its not clear that a consequentialist would consider this a problem worth fixing.

That is what I mean by saying we should focus on what the actual problems are rather than getting wrapped up in the accounting issue of how much money is flowing to health care entities.

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