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.

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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.


  1. John says:

    Exactly how do you achieve that re-orientation?

  2. M1EK says:

    Isn’t it possible we at the same time have too little supply of BASIC health care (general practitioners/preventative medicine), and too much advanced health care (leading companies to encourage/pressure doctors/insurers into unnecessary treatments/tests)?

    I also found the “people are choosing to consume too much health care” argument particularly unconvincing, after having spent 2005 consuming a LOT of it (trying unsuccessfully to treat a degenerative chronic arthritic condition that’s preventing me from walking at age 34) and 2006 consuming relatively little of it. At no time did my high-deductible health plan make any difference on whether I chose or didn’t choose a treatment; what generally made a difference was how much of a pain it is to get the time off work, and sit around in the waiting room.

    IE, when I was really really sick, I’d go no matter what; but when I was only a little sick, MONETARY COST was never the issue, even though in 2006 I was on the hook for 100%; it was TIME COST that was the issue.

    I’m about to hit the doctor today for probable strep throat, as a matter of fact; and I chose NOT to go on on Friday when I really started getting sick due to the time investment it would have required; now that I heard my stepson got a positive strep diagnosis, I kind of HAVE to go.

    In an environment where the disproportionate consumers of health care dollars are the elderly (who have all the time in the world to sit in the doctors’ office) and the prematurely born (whose parents are willing to spend the time and the money), it’s incredibly disingenuous for the right-wing economists to claim with a straight face that greater cost participation would make any real diference.

  3. Steven Plunk says:

    Spot on. Costs need to be addressed as much as insurance. Politicians only want to talk about getting everyone insured not realizing that high costs drive up insurance rates and keep people uninsured.

    Notice how constricting the supply of doctors is working for us? What about allowing intermediate health care providers who can treat minor ailments at a fraction of the cost? It’s a lot more than insurance coverage that needs to be fixed.

  4. Triumph says:

    Single payer is the only system where adequate health outcomes can be achieved with the most efficiency.

    In fact, the US already has an extremely successful single payer system: Medicare. Its administrative costs are extremely low. There is no reason why the system cannot be expanded to the entire population.

  5. There’s little point in arguing with Mr. DeLong’s strawmen other than to note that their pathetic construction is revealed in just how easily he is able to demolish them.

    As for myself, I cannot for the life of me figure out why people insist on destorying the most advanced healthcare system in the world for no apparent reason other than because it isn’t perfect. I guess if everyone can’t have it then no one can.

    The gross mistake here is once again a huge, unwarranted sense of entitlement. Why should health care providers, insurers and consumers be free to make their own decisions when there’s a planned healthcare utopia staring us right in the face? From each according to his ability, to each according to his need. Man, that sounds familiar.

    D’oh! Stupid free markets.

  6. M1EK says:


    Our healthcare system sucks, unless you’re rich. That’s a long ways from “the most advanced healthcare system in the world”.

    It used to only suck for the very poor. Now it sucks for most of the middle-class. And HSAs just hasten this process – the HSA doesn’t help you with the real problem, which is that it’s a pain in the ass to go to the doctor, and that your doctor charges a lot of extra money to pay for the three fifths of his administrative costs directly attributable to trying to get insurance companies to pay what they agreed to pay when they signed you up as a client.

  7. Steve Verdon says:

    Of course DeLong has constructed a strawman. I’m quite willing to believe that there is a problem with adverse selection along with moral hazard. Whoops, that puts me in both camps. I’m also willing to go along with Dave Schuler’s claims of supply bottlenecks. However, I’d contend that depending on which supply bottleneck we are talking about the government is part of the problem. Take for example doctors. Basically, we have a problem of a cartel controlling entry into the field. Ideally the U.S. government would go after such a cartel and “break it up”. But with doctors they don’t.

  8. With all due respect, if you don’t think the United States has the most sophisticated health system in the world, then perhaps we should start by seeing if we can agree that the sky is blue. I’m not rich and I think our health care system is phenomenal. Not perfect and not able to cover everyone universally, but still pretty amazing. The changes in health care since my first real exposure to Big Medicine when my appendix ruptured some 35 years ago are virtually unbelievable, and they have been mostly generated by Big Medicine and Big Pharma here in the US.

    What we have here is an insurance problem, not a health care problem. So many people are running around trying to solve the wrong problem without realizing how their proposals are going to hurt the good part of the system and not just fix the bad. But hey, Nanny State knows best, and, anyway, who am I to criticize since my heart is obviously not as pure as all those who only want the best for everyone and believe they have the means to make it so by fiat.

  9. Stormy70 says:

    I love our HSA. I negotiated lower lab fees by paying my Doctor’s office up front, and they will bill the lab at their cost, instead of the lab billing me at a higher cost. My health care costs were lowered because I let them know up front that I was paying a certain amount straight out of pocket and up front. I control the tests and the process of my own health, instead of subsidizing gastric bypasses and the bad health of others. Free markets.

  10. M1EK says:


    Most people don’t care about the expensive end of our amazing healthcare system because it’s off limits to them. For most of us, if we could get cheap visits to a doctor for the simple stuff, and some level of catastrophic coverage for the advanced stuff, that’d be enough; but what we have instead are $100 visits to spend 2 minutes with the doctor (out of 60 minutes total at the place) to get an antibiotic – with no discount if you end up getting the P.A. that day.

    I’d gladly take 50% less advanced stuff in end-of-life care to make it easier to deal with the ear infections I get three or four times a year; and at the same time make it easier for a poor family to be able to afford to go to a doctor for that stuff instead of the ER.

  11. Tina says:

    “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”

    Be careful about calling the combo of those two the prime problem: A lot of the expensive health-care associated with aging has (right now) no link to lifestyle, i.e. Alzheimer’s. Organ transplants are being done at very young ages, and require a lifetime of expensive meds and possibly complex follow-up operations.

    No snark, just saying lifestyle isn’t the neat 50% of the problem that your post implies, and that some of the most expensive health care isn’t discretionary.

  12. Dave Schuler says:

    Tina, that’s Brad DeLong’s point (more accurately, his student’s) in the linked post, not mine. I think that the aging population will be influential in driving healthcare costs up but not determinative.

  13. just me says:

    I am not even in the well off middle class, and I can’t complain about our healthcare. I have a child with an autism spectrum disorder, and have had no real struggles with his various doctors and therapies.

    I honestly cant complain about the healthcare our family receives, although I do have some complaints about the VA system (which is often touted as the best model to follow), because my husband, who is a disabled vet is barely able to get appointments (often 6 or more months out) and he is unable to get any of his medications through the VA, because itdoesn’t carry those medications (either the companies refused to negotiate, or they couldn’t come to a fair agreement-either way it means we pay lots more out of pocket for medications related to service connected disability than we would if the VA carried it).

    So the VA isn’t exactly the model to hold up to us, and I sure enough don’t want to see similar for everyone.