The Sub-Tribes on Healthcare
I usually leave the econblogging to associate blogger Steve Verdon, but last week Brad DeLong posted something that I thought was worth further discussion. In his post Brad characterizes the views of what he calls the “two sub-tribes” of economists on health care issues in a way that I think is both fair and accurate.
Of economists on the left he writes:
Those economists on the left tend to think that the real big problem with American health care is adverse selection: Those who know they are healthy and likely to stay that way skimp on purchasing insurance.
Their preferred solution to this problem, clearly, is universal healthcare coverage either through a single-payer system in which the federal government is the sole insurer or through a system like that enacted in Massachusetts or proposed for California.
Of economists on the right he writes:
Those economists on the right tend to think that the real big problem with American health care is moral hazard: that patients soak up scarce and valuable doctor and nurse time even when there is no benefit to the visit, and that doctors use up vast resources conducting tests and procedures that do patients very little good.
Their preferred solution is one in which consumers and healthcare providers shoulder more of the costs of healthcare, presumably making more prudent and cost-effective decisions about treatment.
The clincher of Brad’s post, however, comes at the end. In the face of an aging population with a lifetime of bad lifestyle decisions behind them neither of these strategies is likely to result in cost control in healthcare:
Neither prescription will be very effective as a remedy to cost drivers like these. Our irresistible force is our belief that health care should not be rationed by price. Our immovable object is the unwillingness of American taxpayers to be turned into an IV drip bag for the health sector that the health sector itself controls. What happens when these meet is a crisis, which cannot be averted no matter whether we adopt the right-wing prescription, adopt the left-wing prescription, or muddle through.
His proposed solution is the nanny state.
There are a number of reasons other than the one that Brad proposes to be dissatisfied with both prescriptions. The number of doctors graduated from American medical schools has changed little in nearly a generation. State and federal regulations work to prevent competition in healthcare. When the supply is constrained and demand increased as is implicit in a universal coverage environment, costs will rise.
Reducing demand by having consumers bear an increasing proportion of the costs won’t lower costs, either. Consumer will consume less healthcare when they bear more of the costs but they avoid both elective or excessive treatment and necessary treatment. Healthcare is deferred until serious and more costly to treat and costs will rise.
There are numerous other reasons that healthcare costs are rising inexorably including increased bureaucratization and income expectations of healthcare providers. With stable or falling costs in healthcare all sorts of things become possible: universal (or near-universal) coverage, reduced costs for companies like auto manufacturers make American cars more competitive in a world market, Medicare and Medicaid cease being the impending trainwreck they are now. With rising costs, as was seen in the case of TennCare, covering more people even when the plan achieves its goals becomes politically unsustainable, U. S. products are less competitive in a world market, and an impossibly large proportion of our economy is devoted to supporting government healthcare plans.
In my view the necessary solution is a dramatic re-orientation of our thinking about how healthcare is provided that results in a major increase in the supply of healthcare.