Healthcare Reform Thought for the Day

Pascal-Emmanuel Gobry at The American Scene:

The question of health care reform vis à vis the healthcare and pharma markets is not whether to leave the market intact or not. It’s how do we structure a market so that the incentives are aligned in a way that serves consumers best.

from a post in defense of free markets which I found generally salutary as well.

FILED UNDER: General
Dave Schuler
About Dave Schuler
Over the years Dave Schuler has worked as a martial arts instructor, a handyman, a musician, a cook, and a translator. He's owned his own company for the last thirty years and has a post-graduate degree in his field. He comes from a family of politicians, teachers, and vaudeville entertainers. All-in-all a pretty good preparation for blogging. He has contributed to OTB since November 2006 but mostly writes at his own blog, The Glittering Eye, which he started in March 2004.

Comments

  1. Steve Verdon says:

    I don’t think that is enough. What if the best solution to that question also entails a 15% annual growth rate in health care expenditures? Surely we don’t and can’t have that solution. I suppose you could argue that with a market the spending will take care of itself, but then you’d better be double damn sure on the incentives.

  2. Dave Schuler says:

    I see a difference between maximizing and optimizing, Steve. Clearly, no market that savages the remainder of the economy and, consequently, is unsustainable “serves consumers best”

  3. TangoMan says:

    What if the best solution to that question also entails a 15% annual growth rate in health care expenditures?

    Growth of spending, as an isolated factor, isn’t, in my opinion, a problem in itself. When it’s tied with a.) tax based income redistribution, and b.) group level income redistribution, then I think it’s a problem.

    Spending on health care is spending for the consumption of a superior good. As people get richer they will be willing to spend more of their income on a superior good. Look at spending for the education of one’s children – wealthier people are willing to spend their own money for private tuition, for tutoring, for music lessons, for sports clinics, and the like, while poorer people are content to send their kids to public schools. Compare these two groups on the basis of, net of tax, family income spent on education and you’ll see, both in percentage and absolute terms, that wealthier people spend more.

    Frankly I don’t see the horror associated with higher medical spending. Why is it better for a couple making $250,000 per year to spend 30%, instead of 20%, of their income for a bigger house, or a more luxurious house, or a house in a better neighborhood, than the alternative of spending 20%, rather than 10%, of their income on health related matters?

  4. Tlaloc says:

    The notion that we should remand health care to the hands of those out to make a quick buck is frankly repugnant.

  5. TangoMan says:

    The notion that we should remand health care to the hands of those out to make a quick buck is frankly repugnant.

    No, it’s not. There I trumped you. Do you think that my comment added much value to the considerations of those who disagree with me? That’s the same impact that your comment has with those who don’t demagogue capitalism.

  6. G.A.Phillips says:

    The notion that we should remand health care to the hands of those out to make a quick buck is frankly repugnant.

    Agreed, we as a nation should buy the insurance companies and give them to the doctors and nurses to run.
    They can pay us back with cheep rates, good care and clinic time.

  7. Zelsdorf Ragshaft III says:

    If it were not for capitalism, health care would still be in the dark ages. Without incentive, there is no motivation for improvement. Certainly no government mandate would cause the investment in time and capital it takes to advance science. Health care is expensive for several reason, one of which is the cost of technology. Canada has socialized health care but it certainly is not cutting edge. If that is what you want, emigrate to where your wishes are fulfilled. Buy the way, who are the great manufacturers in Canada? Why is it OK for high tech cars to cost much more than they used to but medicine is must be stagnant? Government involvement has never ever improved anything. If I am wrong about that, name the service ?government has made better/

  8. mpw280 says:

    Tlaloc how is the seiu health plan going to fare for you when the big O nationalizes the whole thing. Then you are up a creek without a paddle, OH too bad.

    As for your stupid comment, it is far more repugnant to leave health care decisions up to moronic bureaucrats. But then maybe your troll commanders wouldn’t like that. mpw

  9. An Interested Party says:

    My, my…such venom directed at someone for pointing out that maybe health care shouldn’t be all about profit…the audacity of such an opinion!

    …it is far more repugnant to leave health care decisions up to moronic bureaucrats.

    Unless those moronic bureaucrats work for insurance companies, I guess…

  10. G.A.Phillips says:

    Government involvement has never ever improved anything. If I am wrong about that, name the service ?

    Well I don’t think we could have ever achieved the 50 million plus mark of murdered babies by way of abortion so quickly without Government involvement.

  11. Stan says:

    “Certainly no government mandate would cause the investment in time and capital it takes to advance science.”

    Zelsdorf, with the exception of Einstein’s early work on special relativity, quantum mechanics, and Brownian motion, can you name ANY major 20th century scientific advance made without extensive government support?

  12. G.A.Phillips says:

    Oh sorry, I forgot to name it, the Supreme Court Death Panel.

  13. steve says:

    “Government involvement has never ever improved anything. If I am wrong about that, name the service ?government has made better/”

    Gabry named a few. Computers and the Internet sprang from government research. The nuclear power industry. Transportation in general with highways and airports. Nearly all of the basic research for medicine is done at universities. Actually, a lot in other areas, even engineering is done together with Universities. Our stock market has held up so well and so long because, at least partially, its reputation for better transparency and less corruption than markets in the rest of the world. The GI bill, student loans, vaccination programs (anyone here have polio?), the Coast Guard. With just a bit of controversy, one could add in the FDIC. Just a quick list off the top of my head. Tlaloc may be incorrect thinking that making a buck is wrong, but neither is government always bad either.

    Steve

  14. sam says:

    @TangoMan

    What if the best solution to that question also entails a 15% annual growth rate in health care expenditures?

    Growth of spending, as an isolated factor, isn’t, in my opinion, a problem in itself. When it’s tied with a.) tax based income redistribution, and b.) group level income redistribution, then I think it’s a problem.

    Well, even assuming a no-taxes-at-all environment, we’d still be faced with the cost of healthcare doubling in about 6.6 years, right? Wouldn’t that present a problem?

  15. steve says:

    BTW, since bashing Canada is the in thing, where do you get your information that Canada is not cutting edge and has no innovation? I have worked with several Canadian physicians and they were well trained. Many important discoveries were made by Canadians (insulin, IMA grafts for heart surgery, AICD’s) or first implemented there. The link at the bottom here suggests that the Canadians think they are good at research. What study are you using for your claims, or is this just one of those things everyone knows?

    http://www.canadianmedicinenews.com/2007/11/canadas-greatest-medical-research.html

    Steve

  16. Our Paul says:

    Solid link Dave, well worth filling away for future review.

  17. TangoMan says:

    Well, even assuming a no-taxes-at-all environment, we’d still be faced with the cost of healthcare doubling in about 6.6 years, right? Wouldn’t that present a problem?

    Here is a typical household budget that I found:

    * 33-38% Housing (59%-66% of this is on shelter – mortgage interest, property taxes, repairs, and rent, and other items)
    * 15-19% Transportation (up to half of this is vehicle purchase – 2 cars per household average)
    * 13-14% Food Budget (55% at home, 45% away)
    * 0-2% Alcohol
    * 0-3% Tobacco and related products
    * 0-2% Caffeine related products
    * 4-5% On clothing and related services (drycleaning)
    * 4.5 – 6% on out of pocket Health Care
    * 9% Personal Insurance and Pensions (breakdown: 1% life and other personal insurance, 7.5% Social Security, .5% investment
    * 5% Entertainment
    * 2.5% Charitable Contributions
    * 2% Reading and Education
    * 1% Personal Care products and services
    * 2% Miscellaneous
    * 4% Credit Card, Consumer Loan Interest

    Back in 1900 I very much doubt that the typical family spent 15% of their income feeding their horse. As the convenience of automobiles was demonstrated people became willing to spend significant portions of their income in buying and maintaining cars.

    Another point of consideration, check out the increasing square footage of houses across time. Compare a typical family home in 1955 to one in 2005. Family size was larger in 1955 but home size was smaller. Paying for the luxury of more space in a home is surely going to bankrupt us, right. (Now that’s an interesting question in light of the real estate crash.)

    As with cars and home sizes, health care is subject to a usefulness versus cost calculation. The auto market is mostly, when compared to real estate, devoid of federal involvement on the issue of affordability and access. The housing market has had serious erosion of market forces which discipline behavior and do-gooders in Congress have corrupted the market with their mandates to advance social goals. Serving two masters, financial discipline and social goals, thoroughly corrupts the decision process.

    I didn’t see a market crash caused by transportation costs for families becoming unaffordable in the auto sector. I did see such a market crash in the housing sector.

    I trust that rising health sector costs can be balanced against the utility that health care coverage provides to the payers of those costs, but only if the pricing signals are clear and undistorted. People, as they get wealthier, will be willing to pay more for health care than when they were poorer but they will constrain their consumption when the costs don’t balance the benefits, in other words, an equilibrium will be reached if price signals are clear.

    For the record, I don’t believe the pricing model of the health care sector creates price transparency. This, and income redistribution, are the fundamental problems regarding the issue of rising health care costs.

  18. Fog says:

    What Gobry was talking about was the proper role of government regulation in the market, about how to create a fair market. I say fair market instead of free market, because as soon as you say “free market,” the libertarian true believers start screaming “Less regulation, freedom, freedom , the government is eeeeevil” and the whole point of Gobry’s question is lost. Government regulation of some aspects of the economy is a fact of life. The real work is to recognize that fact and actually try to answer the effing question.

    “How do we structure a market so that the incentives are aligned in a way that serves consumers best.”

  19. TangoMan says:

    The real work is to recognize that fact and actually try to answer the effing question.

    “How do we structure a market so that the incentives are aligned in a way that serves consumers best.”

    Plenty of commentators have been addressing these specifics. In fact, the key concept is incorporated with the question itself. Aligning incentives requires the ability to accurately assess information and decide on a course of action based on the information. When prices are not transparent then the ability to make informed decisions is severely reduced. The very first step should be to solve the price opacity inherent in the health care system. Then, and only then, can we start tinkering with rules that guide decision making towards desired ends.

    There is no sense whatsoever in constructing a castle in the sky with the castle foundation being a bunch of clouds. No matter how elaborate a scheme is concocted it will crumble for lack of transparent information flow.