The Myth of Consumer Choice

I’m such a public radio groupie that David Kestenbaum and Chana Joffe-Walt are minor idols of mine. I get excited on the very occasional occasions when David calls to ask me a question, and Chana . . . well, if I were in my twenties and single, I would probably have a crush on her. So I was disappointed to listen through their recent Planet Money episode on health care, waiting for them to tell the other side of the story, but finally being left to yell at my radio. (No, I don’t actually yell at inanimate objects, but you know what I mean.)

David and Chana use the metaphor of an all-you-can-eat buffet to illustrate the well-known problem in health care that end consumers don’t bear anything near the full costs of their choices, which ordinarily leads to overconsumption. One problem with our health care system is high costs, so it’s common to blame high costs on the all-you-can-eat buffet.

Planet Money hosted the usual version of this debate. David Goldhill argued that, since Americans spend $1.7 million on health insurance in their lifetimes (I’m not sure what that number is, since it’s clearly not out-of-pocket premiums, but maybe it includes the full value of Medicare policies), they should basically be given the $1.7 million instead and forced to make their own health care choices; this, he claims, would increase quality. (He didn’t say, at least on the air, that it would reduce costs, but most people favoring this approach think it will.) Richard Kirsch argued that this is nuts, because people have little to no ability to make good health care choices given the vast information gap between them and their doctors, and the likely outcome is that people will skimp on necessary care and end up paying more later in their lives. I’m in the Kirsch camp – I think the information problem is so great that people would either blindly do what their doctors say, or they would skimp on health care expenses in ways that are likely to hurt them* – but that’s not the point here.

No, the missing element in this story – not only on Planet Money, but almost every time it is told – is distribution. Any health care system in any advanced democracy plays a redistributive function. Let’s start with an example.

Goldhill’s $1.7 million figure ignores the fact that different people get different amounts of health insurance benefits over their lifetimes. His idea is that instead of having your premiums paid for by your employer, you should get the cash instead and put it in some form of health savings account. If you have a serious illness when you are young, he says you should be able to get an advance on your future benefits. (Just who would give you that advance was unclear on the radio, but I’ll assume he has a solution.) But what if you are a twenty-something waiting tables and you currently get zero health insurance paid for you? Then you would be getting zero cash instead of your “employer benefits,” your health savings account would include zero, and there is no reason to be sure it will ever include more than zero. (I guess when you’re 65 you’ll get Medicare, but who says you’ll live until 65?) So to make something like Goldhill’s system work, you have to start off by guaranteeing every person some large amount of money over the course of his life to pay for health care.

Let’s say we’ve gotten over that problem and somehow everyone has access to $1.7 million over the course of his lifetime. Then you have the even bigger problem of variance in outcomes. Some people will incur $250,000 in actual health care costs; others will incur $5 million. Simply having $1.7 million handed to you doesn’t protect you against risk. Goldhill suggests buying a policy with a $50,000 annual deductible and paying the rest out of your health savings account. But the fact remains that for many people, the health savings account will run out; actuarially speaking, if $1.7 million is the average and other things do not change, then exactly half of all people will run out of money.

This just illustrates that a core function of any health insurance scheme is redistribution. People start out in different economic circumstances, and they suffer different fates in their lives. Without redistribution in some form, the ones who are poor and get sick will simply not be able to afford health care. Cashing out their employer health benefits and giving them “choice” won’t change that – especially if they don’t have employer health benefits to begin with. Yes, insurance can play a redistributive role on its own, but it only works if poor people can afford to buy insurance that will cover them against serious illness. And once they have that insurance, then the price signals so beloved of conservatives won’t function anymore. The problem is really very simple: for price signals to work, you have to be willing to let consumers run out of money, since no one can predict his future health care needs. And then they die.

So what really frustrates me about this whole “consumer choice” fraud is the premise it begins with. It starts out by framing health care as a problem of consumer incentives – health care is too cheap. This is a factually accurate framing that leads you to a dead end (unless you think people who underestimate their future sickness should die). I think the right way to frame this issue is with this question: Given a poor person and a rich person who have the same potentially fatal disease, should both of them live, or only one?

* Goldhill argues that consumers don’t have to be medical experts because as long as some people are, that will ensure that the market rewards quality, and therefore only quality providers will remain in the market. This may address the quality issue, but I don’t see how it helps consumers decide whether or not they need an MRI when they have a potential diagnosis they don’t understand.

By James Kwak

129 responses to “The Myth of Consumer Choice

  1. The article David Goldhill wrote is here: http://www.theatlantic.com/doc/200909/health-care if you haven’t read it yet. I do question some of his assumptions and prescriptions but what floored me was this paragraph: “The experience of other rich nations should also make us skeptical. Whatever their histories, nearly all developed countries are now struggling with rapidly rising health-care costs, including those with single-payer systems. From 2000 to 2005, per capita health-care spending in Canada grew by 33 percent, in France by 37 percent, in the U.K. by 47 percent—all comparable to the 40 percent growth experienced by the U.S. in that period. Cost control by way of bureaucratic price controls has its limits.” It makes me question whether single payer or a public option would really control costs in the long run. I am in favor of universal covereage, but I do agree with him that incentives need to change in the system before any cost control can happen.

  2. “Just who would give you that advance was unclear on the radio, but I’ll assume he has a solution.”

    I think Wall Street is working on this right now, actually :)

  3. The real problem here is that people do not know what the costs actually are: There is NO transparency in healthcare costs, pricing or insurance.

    Americans are pretty savvy shoppers: They look for bargains. But in healthcare, that is not possible, since prices are almost totally opaque.

    Example: One recent Sunday afternoon, I thought I was having a heart attack, and drove to a nearby emergency room. I was there just 2 hours: Bill (which I had to ask for): $3,700 — of which my co-pay was $50, my (Medicare Advantage) insurer paid $404. The rest was “written off” by the hospital.

    “Written off”!!?? That $3,700 is clearly a phony price to start with — and the $454 we paid probably does not cover the real cost. So what was the real cost? I have no clue — my insurer does not tell me, the hospital does not tell me, Medicare does not tell me.

    How can we expect to contain costs if people do not know what the real costs are?

  4. In the United States many people oppose universal health care. In Canada, where we have universal health care, any government that tried to privatize health care would get thrown out of government.

    Americans protest because they don’t want government in their health care. While Canadians protest because the government is not doing enough for health care.

  5. From what I can tell, the escalating cost of health care every country is dealing with is related to medical innovation.

    For example, Avastin a drug that can extend the life of a terminal cancer for (on average) 4-5 months at a cost of $45,000; MIR scans that dose patients with levels of radiation that can cause cancer; prostate cancer testing; hormone replacement therapy for women (no longer recommended because it increases risks for dementia; FenFen (a weight loss drug that is no longer prescribed because it coated the heart valves of patients with a waxy substance that lead to death and heart transplant); Viox (the largest drug recall in history, and anti-inflammatory drug that increased risk for heart and stroke); etc. etc. etc.

    Medical innovation is like financial innovation. Sometimes the innovation is of questionable medical value or social usefulness. But there is money to be made in the short run and society has not yet developed mechanisms to restrain the abuses.

  6. You have your statistics wrong (“exactly half … run out…”. If $1.7 were the median, then yes, half would run out. Given what I suspect is a long tail distribution, probably many fewer than half would run out.

  7. Add: drugs for “erectile dysfunction” a multi-billion dollar industry several times over. But now they find Viagra is linked to an increased risk for blindness.

    Which is more important? Multi-million dollar advertising campaigns to convince men they need Viagra. Or do you ration health care spending to make sure a child with leukemia gets medical care. It’s a question American society cannot come to grips with yet.

  8. Peter,

    “…“Written off”!!?? That $3,700 is clearly a phony price to start with — and the $454 we paid probably does not cover the real cost. So what was the real cost? I have no clue — my insurer does not tell me, the hospital does not tell me, Medicare does not tell me….”

    There is no such thing as THE ‘real cost’. At one end you could talk about the marginal cost of the supplies consumed and the doctor and nurse hours used, but then who’s going to pay for the labor overhead of administration and maintenance, the building and equipment rent and depreciation, etc., etc.

    One of the major problems is the involvement of insurance at all for common and routine events.

    For an insurance company to survive it must negotiate very large discounts from the providers and it must insist that the providers not allow uninsured patients to be charged discounted prices. This is what produces the large, phony pre-discount prices.

    Regards, Don

  9. Dismayed in Boston

    Consumers lack information and doctors are incented to perform as many tests and procedures as possible. That’s the cause of medical inflation. It isn’t consumers walking into doctor offices and asking that particular tests be run. We need to fundamentally change the way health care providers are rewarded. And that will cost some players money.

  10. This is what produces the large, phony pre-discount prices.

    That’s maybe half of it. The other half is the people who don’t pay their bill for whatever reason.

  11. It is unconscionable that drug reasearch is not made public: done by publically paid scientists, with results going into the public domain. This would solve most of the problems with drug costs, doctor corruption by pharma, etc.

  12. Goldhill argues that consumers don’t have to be medical experts because as long as some people are, that will ensure that the market rewards quality, and therefore only quality providers will remain in the market.

    So we are going to be training doctors that go “out of the market”? And, how is quality discerned? As opposed to say, doctors promoting each other?

  13. It starts out by framing health care as a problem of consumer incentives – health care is too cheap. This is a factually accurate framing that leads you to a dead end…

    How is this factually accurate?

  14. How much is attibutable to changing demographics, and how much to cost of services rising?

  15. Perhaps Wall Street will also look for ways to invest these HSAs, help people cash them out by providing a market for them, distribute the risk involved in not having enough ….?

  16. This has been settled many times in comments in previous blog postings. Defensive medicine accounts for only a small fraction of total health care costs, and is not a main cause in the rise of health care costs generally.

  17. I am self-employed. I bought my own policy. I have a fairly high deductible, and have to pay for drugs myself. I also belong to a Coop, so my pharmacy gets good deals on drugs. However, I have twice rejected drugs that my doctor prescribed for me for being too expensive. He didn’t know their price, but my pharmacy does. I had the drugs replaced with two much cheaper alternatives.

    I have gone to the ER and Urgent Care Clinic, and the UCC is much cheaper. Hence, I would avoid the ER in some situations now that I would have gone to it in the past. I recently chose to push off an operation for a number of reasons, including cost. I managed to get better without having an operation.

    If there was a concerted effort to find and make easily available the health care costs that can be priced and shopped, we could reduce costs. I certainly priced dentists before I chose one. I called around and found how much teeth cleaning and a general exam were. The same with my optometrist.

    That’s why I promote the following plan. Again, the point is to isolate and make accessible the costs that can be shopped, whatever they are:

    Let me ask everyone a question: Do you consider price and discount when buying Tylenol and Pepcid? I answer in the affirmative.

    Here’s another question: Do you consider price when considering brain surgery? I answer in the negative.

    Therefore, I suggest splitting health care costs into two categories:
    1) Medical goods that a consumer could price and shop accordingly on.
    2) Medical goods that a consumer cannot price and shop accordingly on.

    Once you do this, you can split up medical costs into:
    1) Costs subject to a deductible.
    2) Catastrophic Costs.

    And, further, you can say the following:
    For 1) You don’t want third party payers, since you want the consumers to shop for the best price.
    For 2) You can have a third party payer. In fact, you can have one: the Federal Government.

    Now, here’s Milton Friedman’s plan:

    “A more radical reform would, first, end both Medicare and Medicaid, at least for new entrants, and replace them by providing every family in the United States with catastrophic insurance (i.e., a major medical policy with a high deductible). Second, it would end tax exemption of employer-provided medical care. And, third, it would remove the restrictive regulations that are now imposed on medical insurance—hard to justify with universal catastrophic insurance.

    This reform would solve the problem of the currently medically uninsured, eliminate most of the bureaucratic structure, free medical practitioners from an increasingly heavy burden of paperwork and regulation, and lead many employers and employees to convert employer-provided medical care into a higher cash wage. The taxpayer would save money because total government costs would plummet. The family would be relieved of one of its major concerns—the possibility of being impoverished by a major medical catastrophe—and most could readily finance the remaining medical costs. Families would once again have an incentive to monitor the providers of medical care and to establish the kind of personal relations with them that were once customary. The demonstrated efficiency of private enterprise would have a chance to improve the quality and lower the cost of medical care. The first question asked of a patient entering a hospital might once again become “What’s wrong?” not “What’s your insurance?”

    I would add a Democratic Party addition to this plan: You could relate the deductible to income.

    That’s my plan. Everyone covered.

  18. Peter, you state the problem in a nutshell. I faced surgery years back. I asked the doctor what it would cost, since I had no insurance and would be paying myself. He looked at me as if I were the dumbest person alive. “I have no idea.” he said. I build homes for people and I have to know how much it is going to cost, why can’t he? Because he cannot be bothered with such details.

    This and other examples is why I have spent years studying double-entry bookkeeping. The doctor can easily know the cost medical attention if we as a nation decided to create an accounting framework that puts the computer to work to its full utility. There is no reason in the world today for a medical bill to be treated any differently than any other bill.

  19. Frankly, I do not understand the “informed consumer” bit as a way to control costs. Does someone actually have statistics of how much cost is discretionary, even to an informed consumer?

    In my own family life, the two most expensive medical expensives have been the birth of our two children. Our first was a regular c-section, as our daughter was breach. Our second was 7 weeks preemie. These were huge expenses, especially the second. When my wife’s water broke at 5 am, almost two months ahead of schedule, was I supposed to quiz my ob/gyn on the _costs_ involved? Should I have asked for less monitoring of my son once he was delivered? Less nursing care?

    I know anecdotes do not replace statistics, but I have _never_ seen statistics on this topic. Instead, I see philosophy.

    How much of American health care spending is for childbirth, for end of life, for accidents?

    To me, this “patient choice” is extremely unlikely to lead to any reduction by the stated means. Instead, by delivering less money to people, they will simply get less care. And they will be made to feel like it is _their_ fault that they didn’t shop around correctly.

  20. Excellent question. The baby boomers are getting a little long in the tooth . . .

  21. Well, a lot of the costs that the insured bear are almost certainly an indirect “tax” to support the uninsured. We simply don’t have a basis for understanding how much of the underlying costs for healthcare are pricing in care provided to the uninsured who ultimately do not pay.

    In other words, the MSRP for health care services almost certainly prices in covering some of the costs of providing extraordinary care to the uninsured, who only show up to the emergency room after they’re in very bad shape. Getting everybody insured with access to diagnosis and treatment before there’s a crisis could well lower costs across the board.

  22. I ain’t protesting. I’d definitely prefer single payer so as to take the profit motive completely out of health care. That being said, I can support a public option. Either way, we’ll get more Americans studying medicine instead of going to business school to figure out a variety of ways to dupe consumers into spending their money (be it through marketing or finance).

    Even Adam Smith understood that government has a role in citizen’s lives.

  23. I am pretty sure he meant “inaccurate,” but nice catch. Given the indignation, I saw the “in-” prefix.

  24. And it could raise costs too, if we over-examined and treated healthy, young people too much.

    Just sayin’

    Cheers,
    Carson Gross

  25. Tippy and Scot,

    We, in the United States, are ruled by a document…

    Oh, screw it. I’m not changing anyone’s mind here, so I’ll just start replying with:

    10th Amendment,
    Carson Gross

  26. Why do you harp on the 10th Amendment. Do you want to get rid of the US Forest Service? The US Marshal? Interstate highways?

    Those looking at the 10th Amendment also want to buy across state lines, but that would mean the federal government would be overruling the states.

    I just don’t understand why objections like this get in the way. I don’t think anyone feels that Medicare is unconstitutional.

  27. @Don,

    I really appreciate the thoughtful post. I intend to re-read it over the next day or so to consider fairly all that you have said. My initial feeling is that what YOU have proposed has some merit.

    I will ignore, however, Milton Friedman’s plan. His economics are the poster child for “epic fail.” Yes, he received the Nobel Prize, but the theories that led to his prize have all been disproven in practice. Just like most of the Nobel Prize winners, Friedman is a loser.

    Perhaps that’s because he studiously ignored the fact that the individual that he pretends to want to be “free to choose” actually has little choice because the limited liability corporation dominates the free market, which is decidely different than the free market envisiosned and experienced by Adam Smith, where individuals with full liability held a primary role.

    If it makes you feel better, I find Mises just as reprehensible for pretending that the “entrepeneur” is the primary economic actor. I almost died laughing when he argued that “bureaucracy” was something that can only arise in government.
    As somebody who was positioned relatively highly at the nation-state that is Intel and who worked as an executive at another public company, I find that proposition so ridiculous that I cannot believe that anybody takes the guy seriously. Talk about economic cranks (one of his favorite terms in “Human Action”).

    To the extent that the Chicago and Austrian schools of economics attempt to harken back to Adam Smith for support, they do so while ignoring the fact that the modern corporation did not exist in Smith’s time. The vast majority of business owners in Smith’s time were fully liable for everything they did in business, which is why no additional laws or regulation were necessary. That made them more careful, which is the reason that Smith was able to plausibly posit his Invisible Hand thesis, which merely amounts to this: there’s no reason to regulate an individual who is already subject to complete liability and the potential approbation of the society in which he lives. Friedman and Mises have successfully perveted what Smith said to mean the opposite of what he meant (and there’s a recent article that argues that Smith and the Invisible Hand were largely forgotten until Friedman and Mises decided to reinterpret what he had to say).

    As an aside, I fully believe in all of the ideals that libertarians espouse, and I am going to do everything within my power and ability to help our society realize those ideals. And that’s the point. Whereas Margaret Thatcher, channeling Milton Friedman, argued that there is no such thing as society, I reject that notion outright. Society is what makes civilization and capitalism work. Society is based on the laws and regulations that we agree to. These laws and regulations are what, in turn, enable free markets as defined thereby. Richard Posner is, for this reason alone, completely wrong for trying to use his twisted view of “economics” to inform his view of the law. The law informs economics, not the other way around.

  28. James, You are right on. One major problem with this whole debate is that those with good (almost always employer-provided) insurance are happy and ignorant of the costs. But as with many things in a functioning society we redistribute money in a number of ways. In California the state, broke as it may be, just spent tens of millions of dollars of “taxpayer money” protecting homes that “reckless people” built right at the edge of a tinderbox forest. The same people who are against healthcare for all should be against providing fire protection for people who don’t use common sense and build in a dangerous place. Why should I, who don’t live near a forest pay to protect their homes? Same argument.

  29. It’s even worse than that. How much the hospital will accept depends on who your insurance is. Try to comparison shop in that arena (forgetting about that it you have no idea of the efficacy of the treatment).

  30. Medical savings accounts are a stupid idea, and the bozo advocating for them should do a little research into the implications of his proposal:

    http://www.cmaj.ca/cgi/reprint/167/2/143?maxtoshow=&HITS=10&hits=10&RESULTFORMAT=&fulltext=medical+savings&andorexactfulltext=and&searchid=1&FIRSTINDEX=0&sortspec=relevance&resourcetype=HWCIT

  31. Don’t be absolutist about this.

    Experience informs us that “free” health care leads to abuse of the privilege. The military learned long ago how to deal with that, which was to charge a nominal fee for visits, which sharply curtailed unnecessary doctor visits.

    How do I know this? As a child born in a military hospital who had access to military health care, they told me so.

    Let’s not pretend that we’re plowing new ground. We as a society know how to make this work.

  32. What about building near a fault line? Is the whole country supposed to bailout California when the big one hits? Are you going to rebuild all the big Californian cities on the fault lines again given what we know about earthquakes now?

  33. James wrote: I think the right way to frame this issue is with this question: Given a poor person and a rich person who have the same potentially fatal disease, should both of them live, or only one?

    This becomes the core issue of the tension between ethics and economics. So many people have been focusing on costs, deficits, corporate profits, etc. that they have been unable to deal with the reality that capitalism deals with profits that ultimately determine winners and losers. It is a Darwinian system that has no moral framework per se. If only one can live, and it is a monetary decision, the rich one lives.

    But America is a society, not just an economy. We have a moral duty to prioritize life and health, and if that means we spend less on other things, or tax those companies and individuals who can pay. We do so every time there is a natural disaster, be it a hurricane, earthquake, etc., and there is limited discussion of whether or not the taxpayers should pay.

  34. Most NPR Planet Money shows are garbage, Planet Money doesn’t do what journalists are trained to do: ask questions, then ask again if the question isn’t directly answered, and ask probing questions from different angles that maybe are being missed. Instead Planet Money spends 95% of their time trying to convince us how knowledgeable they are. Or the exact opposite, 20 somethings doing valley girl talk trying to convince the audience “Hey I’m a retard who never reads a major newspaper, JUST LIKE YOU!!”

    Hey NPR, how about quit trying to create on-air “personalities” and just ask the good questions and give me useful information and the damned news. Save the cutesy, giggly, phony horsecrap for weekend programs.

  35. What, like we want to go to the doctor, have to get surgery, etc? Come on. This is ridiculous.

  36. Good point Professor Kwak. Sadly, I have sat in endless budget committee meetings where professors (some of them economists) made similar mistakes, revealing that they had no idea how insurance works. How are we going to get members of Congress or of the general population to understand insurance if intelligent and generally well informed people such as economic professors and David Kestenbaum do not? TAS

  37. Good point. And then there’s the business aboout government insurance that pays homeowners to rebuild when their beachhouse is taken out in a big storm, and having to spend millions to protect $10M homes when they build them in the middle of acres of uncleared brush. And then there’s Hawaii… where entire subdivisions have been built in major lava zones.

  38. While we’re on the topic of not understanding things, may I offer a suggestion for a post in the near future? Someone mentioned Dark Pools here a few days ago. I had brought it up elsewhere a few years ago and no one had any idea what I was talking about, and the ones that did said nothing. They’ve been around for about a decade now. They certainly sound sinister, and anything created with the express purpose of occluding information should be hacked away at viciously by the blogosphere, shouldn’t it? You would be providing a major public service by doing this.

    http://www.businessinsider.com/another-senator-slams-high-frequency-trading-2009-8

    And look, they’re really innovative!

    http://www.efinancialnews.com/homepage/content/1054388124

    Just doesn’t feel right, all that money flowing around sight unseen. And how do you tax it properly?

    We’re only 10 years too late, but we can still get ahead of this one. (He said unconvincingly) Is it really just a big scheme to suck pension fund money into neverneverland?

  39. I really liked that NPR-conversation about health care, though I feel highly uncomfortable about the computerization he describes for France – how are you ever going to smuggle a persecuted person through an ever more perfectly documented world?
    Also, based on my personal experience, I would have recommended Feldenkrais to him – Strange that somehow the physical therapy crowd doesn’t seem to like it.

    T.R. Reid: Looking Overseas For ‘Healing Of America’
    http://www.npr.org/templates/story/story.php?storyId=112172939
    http://itunes.apple.com/WebObjects/MZStore.woa/wa/viewPodcast?i=58990336&id=214089682

  40. the costs of building a house should be largely foreseeable to an experienced builder who also can distribute the risk of fixed cost around a lot of subcontractors
    but what if a surgeon finds on opening a body that the patient is not built according to DIN-Norm (or whatever the American equivalent is). Even a very healthy animate body rarely ever is up to specs.

    When the doctor finds on cutting open such a cost enhancing irregularity, does he/she then sew him/her up again and starts negotiating a new price before going at it again? – Therefore I think, if prices are to made foreseeable it cannot be on a single case basis.

    I think our health insurers have negotiated with hospitals a so called Fallpauschale (lump sum per case) which stipulates how much they can charge for an appendix operation – In large hospitals that works probably fine, the standards bringing in the profits that help financing the complicatioons) but how a small hospital in a rural area is absorbing the cost of a complication under that rule, I do not know.

  41. but hasn’t government given permission to build in those places, thereby implicitly guaranteed that the places are suitable?
    Or can you Americans build anywhere you want?

  42. Create a college trust fund for the zoning administrator’s brother’s kids and you could get a permit to build in the mouth of an active volcano.

  43. Uncle Billy,
    just remembered that Frederick II (the Great) is revered for having introduced the frist? corruption free public administration
    - the system is said to have held up for quite a while – the ideal is still alive but that seems to be about it
    - in construction presumably the existence of many stages of freeing land for construction involving lots of different players helps to keep things somewhat in check and that out country side doesn’t have wild untamed areas left

  44. > they should basically be given the $1.7 million instead and forced to make their own health care choices

    great idea. and while you’re at it, someone should figure out how much money i am going to make in my life and give it all to me right now.

  45. It occurs to me that genetic testing may soon be able to rush in to partially fill the information gap. It is true now that we don’t know who will get sick, with what, and how badly. If we are not careful, genetic testing could step up to answer that question in ways we don’t want: Insurance companies, employers, even medical consortiums using genetic testing in an attempt to predetermine who is likely to need more health care, individually or in the aggregate.

    Of course, this still doesn’t predict who is more likely to die in accidents, or contract H1N1 and survive only with heavy intervention, etc. However, statistical and actuarial models to ‘predict’ the likelihood of these events exist already.

    I personally do not want my health care delivered to me in a manner crafted in response to my genetic profile and accident likelihood. The incentive for insurers to take this path is strong, in my opinion. We’ve got some legal protection now but I believe we need to be vigilant while reforming the health care system in order to ensure we do not inadvertently create a system that provides even stronger incentive to predict the future.

  46. In Seattle and 18 other states doctors are trying to eliminate insurance companies in primary care by charging a monthly fee to employers and or patients that covers all primary care. Doctors says that 40% of their overhead is in dealing with insurance.

    Assuming a doctors overhead of 40% and 30% for insurance company administrative fees it is not hard to understand why the cost of health care is so high?

    http://seattle.bizjournals.com/seattle/stories/2009/08/17/story2.html?jst=pn_pn_lk

  47. Currently their is no choice in health care. Either pay the insurance, and co-pays of look at bankruptcy. Some small companies are paying 14% of their gross for health insurance. Many families are paying up to 20% of their gross and there is no end in sight.

    The more we pay for health care the less we have for other consumption and savings. As a consumption based economy, the less we spend on consumption the weaker our economy becomes. A weak economy creates very few jobs.

    This does not include the cost of debt service, energy, food and what is left?

  48. I guess you would not even need genetic testing

    - the health card they have in France should, if an evil mind got around to tweaking the data of early childhood treatments/accidents, provide enough data to make risk assessors happy (other law and order people too)
    - on the other hand such a card on every person can in the event of accidents or other mishaps be real life savers

    therefore I always plead very much for extreme caution in getting personal data public – any data bank in the hand of a person who knows how to mine it is a potential weapon of mass destruction

  49. Goldhill is right. The problem lies largely in the character of comprehensive health insurance policies that are paid by companies or other institutions rather than final consumers. As he points out, it makes as little sense to insure yourself for routine maintenance and operating costs as it does to ensure your house or car for those costs.

    I would much prefer to receive in cash the health benefits that are paid in my name and to have the option of purchasing a plan with a high annual deductible (say, equal to the cost of a new car) that was coupled to a group purchasing plan for medical services (to deal with the endemic price discrimination that individuals face in the medical marketplace).

    Put simply, I just don’t see why different principles should apply to insurance for health, as opposed to life, property or disability insurance. That, I think, is Goldhill’s point.

    Paul Daley

  50. some guy in a cbue

    “Consumer choice” advocates like Mr. Goodhill have tipped their hand – they’ve led a charmed life. Let’s see Mr Goodhill get cancer and lose his job and benefits, and then have him advocate for “choice”.

  51. After all, you know how to spend it best.

  52. I’m sure they can be repackaged so no one involved knows the true risk assumed by the buyer of the HSA.

  53. Yes, there could be a lot of junk-grade people with latent disease.

  54. stuck in a neo-colony

    There are many questions that doctors and hospitals do not answer. I don’t know if they have ever hired a cost accountant to figure out the costs of what they do.
    The other question I have is what is net profit margin of doctor’s and hospitals? Are they as obscene as Big Pharma?

  55. Silke: The real issue is that the medical services community has for years done a crappy job of doing cost accounting. When costs are tracked exceptions fall into relatively minor variations from a norm. More and more “the economy” is becoming a system run by wild guessing.

  56. i was with you (to a degree) right up the idea that employers would convert their health care benefits into incomes. not going to happen, they would just use that cost savings to improve profitability.

  57. While that might be true, it is a major concern of many doctors. As such, it would be politically smart to acknowledge the concern and address tort reform as well.

  58. Umm, I think your information on FenFen (as well as some of your other examples of pharma products) is factually incorrect. In fact, I *KNOW* you have FenFen all wrong because:
    1.) FenFen was a drug cocktail of 2 drugs, fenfluramine and something else.
    2.) It was never approved as a combination by the FDA. DOCTORS prescribed it that way. The company that made it only footed the bill for the disaster that followed.
    3.) Heart valve problems were not caused by a waxy substance. They were caused by an excess of serotonin, the result of taking BOTH drugs, that affected the heart valve. The effect was transient; patients returned to normal within a few months after they discontinued the drugs, which they were never supposed to take in combination anyway.
    4.) Very few patients were actually affected. However, the company was obliged to put up $18 billion and follow the instructions of a federal settlement that authorized several class action lawfirms to act as intermediaries with claimants. Subsequently,that same federal court found that the lawfirms had acted in a probably fraudulent manner, using an assembly line model for examining patients’ EKG’s and getting scads and scads of money from the company. The trust fund settlement was gobbled up rapidly and the lawfirms told Wyeth it would make all of the rest of the suits go away for another $18 billion.
    I call it extortion that made the cost of research and subsequent drugs more expensive for all of us. You call it waxy buildup.
    Please get your facts straight. The documents of the case and the federal judges outrage over how the lawfirms were behaving are online somewhere. Read them.

  59. Research is made public. The companies petition the FDA for approval of the drugs they discover.
    And as for the government footing the bill for research, I’m all for it. Just pay me for all of the years of education and experience. Scientists are worth every penny and they should be compensated accordingly. For example, I have a great appreciation for mail carriers. But I don’t want to be paid like one if I’m required to do something that takes a great deal more mental effort and creativity than delivering mail.
    BTW, you shouldn’t assume that every pharma company is up to no good. The corporate portion of the business is not unlike any other greedy entity. But pharma is the most heavily regulated industry-ever. It’s very difficult to get approval for and market a defective drug. In fact, it’s almost impossible these days. As for side effects, a lot of them are unknown until a drug reaches the general public.
    But, hey, if you want to go back to sucking willow bark and chewing foxglove, be my guest! As for me, I’ll stick to the modern preparations.

  60. @ James Kwak: In your post about NPR’s piece, you argued that some people wouldn’t be able to make any contribution to their HSA, and that raised the question, “A poor person and a rich person have the same disease, should one live and one die?”

    From Goldhill’s article:
    -He says the government should require everyone to put a percentage (indexed off your age) of your income into a required HSA. HSA contributions would in effect be subject to a floor and cap.
    -Large expenses, that overshadow the HSA, should be paid for in the same way we fund other large purchases–such as a car purchase–through credit. “Americans should be able to borrow against their future contributions to their HSA to cover major health needs; the government could lend directly, or provide guidelines for private lending.”
    -”For lower-income Americans who can’t fund all of their catastrophic premiums or minimum HSA contributions, the government should fill the gap—in some cases, providing all the funding. You don’t think we spend an absurd amount of money on health care? If we abolished Medicaid, we could spend the same money to make a roughly $3,000 HSA contribution and a $2,000 catastrophic-premium payment for 60 million Americans every year.”

    In the last sentence of your post, you ask how a patient can know if an MRI is necessary–especially considering the time frame often associated with medical decisions. Just as with auto repair mechanics, consumer information won’t always tell you if the procedure is necessary. Consumer information will tell you if the doctor/facility is trustworthy/cost-effective. An entire community, voting with their feet and dollars, will trim the fat.

    @some guy in a cube: It’s a bit silly for you to comment on Mr. Goldhill’s life. He only talked about one facet–the death of his father. I don’t know how that can let you into his entire life story.

    In the places where consumers are the drivers–usually uninsured procedures such as Lasik, cosmetic surgery, dentistry–quality is superb and cost have been driven down because consumers have voted with their feet and dollars. I realize these are not places where the poor may find themselves as consumers. But, the quality is not high because the customers have lots of dollars. The quality is high because the customer is allowed to choose exactly where his dollars go. Businesses pining for consumers dollars will do whatever they can to keep costs low, quality high, and a good reputation.

  61. the most beautiful story I know to teach the value of “junk-grade” people is to be found in a book called “Watership Down” where the epileptic useless little brother slowing progress again and again but also saves his community again and again from desaster – I’d recommend it for compulsory reading and re-reading in schools

  62. I do recall reading somewhere a woman took FenFen to lose 20 lbs for her wedding, IIRC the news story said she had a “waxy build” up on her heart valves, and the outcome was she had to have a — heart transplant. — All this because she wanted to lose 20 lbs for her wedding day.

    Hormone replace therapy, again, a multi-billion dollar industry many times over, is no longer prescribed because of increased risk for dementia and cancer.

    In Canada where I live, we handle medical liability differently. I don’t have time to understand the tort issue that is often cited in health reform debate in the United States.

  63. but people do insure their cars and houses against such costs. that why many builders and other, and car companies offer such policies to cover normal maintenance. and companies who have fleets do some of the same of things. mainly because they want a consistent cost of doing business. casualty insurance is for loss coverage, and it depends on how much risk you can take on the loss of the property. most do not cover their cars 100%, but some do, same for houses. it depends on how important the loss of that property is. life insurance cover loss of life, and is more to continue those who remain. how much is your health worth to you? can you make a choice among a 1000 different procedure or drugs that might apply to one diagnosis or some variation of that diagnosis? consider this, when you take a car in for service, the mechanics give you an estimate of repairs. they don’t know whats wrong till much later. and cars don’t tend to be as different as the human body

  64. Riverdaughter write: “As for side effects, a lot of them are unknown until a drug reaches the general public.”

    This is where I have the problem. So many drugs make billions and billions of dollars and then get recalled. The side effects should be known before new drugs go to market.

  65. “When costs are tracked exceptions fall into relatively minor variations from a norm.”

    … but can still be desastrous to the individual person AND the individual provider

    for a builder it may end up in nothing worse than bankruptcy but in health care for the patient it has the potential to be a question of life and death – that’s why I object to comparing living breathing beings to inanimate stuff – there is no analogy between them in my ethics book. That said, of course the system, the pool should be subject to rigorous cost control.

  66. Chemists are widely considered to be villains. I happen to know that most of the researchers/inventors are very worried, reflecting and considerate citizens. Maybe inventing a climate that rewards and protects whistle blowers would be more practical than publicly financed research which might be create the problem of how to keep competition alive.

  67. “In the places where consumers are the drivers”

    to assume that the consumers are not the drivers in a social security health care system is wrong as long as the consumer is free in his/her choice of the doctor – people talk to eachother and doctors are chosen or avoided as a consequence

  68. “cars don’t tend to be as different as the human body”

    are you being sarcastic? I sincerely hope so

  69. Tippy,
    what you are demanding is impossible
    - you can limit the risk by testing as much as you like but once you fiddle with living beings the possibilities for adverse effects are innumerable and in the very end unforeseeable that’s why I keep objecting to comparisons with inanimate objects like cars and buildings
    any intervention in the functioning of a living being equals intervention in a chaotic system – remember the butterfly image?
    there is no effect without counter-effect even too much drinking of water can harm a human being
    That said, of course “they” may have tried to hide forebodings. That’s why we should try to strengthen and secure the whistle blowers

  70. The whole informed consumer idea in this context is one of those things that make people laugh at economists. We are not talking about a niche market here but about the entire US population. Given variations in intelligence, the much greater variations in education, unequal access to information, and the appallingly stringent limits on poor people’s time, vast numbers of Americans cannot be informed consumers in anything like the same degree as their more fortunate fellow-citizens. It is neither humane nor practical to suggest we should rely solely on solutions involving consumer choice.

  71. Tj, you are confusing lifestyle procedures (eg Lasik, cosmetic surgery) with real medical needs. Opting for cosmetic dental work is not the same as dealing with a major illness or injury.

    When a person or a their loved one is at risk of dying they literally do not have time to “shop around” for the best deal. And why should you? What they need is the best medical care. Not the cheapest.

  72. just want to add – if someone is in the grip of fear for his health all sophisticated information goes down the drain
    - a scared person is a bad chooser and a lousy negotiator
    and a simple and basically harmless belly-ache is totally capable of scaring you witless
    of course that does not apply to the strong he-men and super-women ;-)

  73. Add here: at risk of dying, seriously ill or injured,

  74. But all that book-keeping is doing is recording a reusable history. This is its universal reason for being for the past 670 years. It has only been since it was translated into computer software that it has failed to make that history transparent and reusable.

    The medical profession, I know from years of friendships with doctors, has for years been bogged down by bad bookkeeping. But keep in mind that bookkeeping is simply recording the history of goods and services traded. That those trades are more complex in the medical field is all the more reason to have a well recorded and auditable history.

  75. add: or just perceiving yourself to be so …

  76. Well, if you are shopping for the best, while you are nearly comatose and hemorrhaging, you should be calling around to different hospital emergency rooms while you are in the ambulance: who is the doctor on staff, what is their resume, have there been any complaints, is your equipment the latest and best, how many lawsuits has your hospital had and what has been the nature of the lawsuits, what precautions do you take for hospital acquired infections, how long is the wait,….etc.

    I’m sure the duty nurses would be delighted to give this information out 1000 times a day to people who can barely maintain consciouness.

  77. Dan,
    but I agree on cost control with you on all points including responsible and sensible book-keeping along all the traditional honourable standards

    I just insist that it is not helpful to the INDIVIDUAL in his dealings with the by the nature of the service offered more powerful care providers – just think what a huge advance in trust it is that you offer your arm to another person to stick a needle into it

    the individual seeing the doctor for non-frivolous reasons is a needy person and needy persons are vulnerable and need powerful support and protection – ideally the system and its cost-control are designed in a way that make doctors and their patients act in unison – freeing the doctor from the claim of looking for unfair advantage taking as much as the patient from feeling vulnerable to exploitation

  78. While you are bleeding to death, I think people should have to sit down with a hospital negotiator and hammer out the best deal they can. To make the negotiations more fair, they should provide the putative patient with an IV line (which he can run himself) and 2 gauze pads, just so he doesn’t collapse during the negotiations.

  79. Silke, he means that cars are pretty similar to each other, whereas human bodies are not as similar to each other.

  80. “I’m sure the duty nurses would be delighted to give this information out 1000 times a day to people who can barely maintain consciouness.”

    I’m sure that problem could be solved by one of those automated customer care service phones ;-)

    seriously and again – a simple belly ache is quite capable of making you panic and incapable of reasonable choice

  81. You are right. We are very responsible and ridiculously earnest in the integrity of our research. That progresses from our hands very, very far up the line. Where things fall apart is in sales and marketing but even there, the rules are so strict that is is very difficult to mislead or cheat.
    The problem is one that is summed up in Harvard’s Law:
    “Under the most rigorously controlled conditions of pressure, temperature,
    volume, humidity, and other variables, the organism will do as it damn well
    pleases.”
    Once the drug is approved and is released to the general public, phenotypes (look it up) that were never seen in clinical trials start popping up. We can’t always anticipate all of these variables. So, verily I say unto you: don’t put anything into your body that hasn’t been approved for the purpose it has been approved in the combination it has been approved. Pay attention to your body and report any anomalies immediately. Big Pharma employees of all stripes are required to report any adverse drug reactions we hear about. We use this information to improve our models and make better drugs. It can be an adversarial relationship if you think we are out to negligently poison you or it can be a cooperative/collaborative relationship where we find out things we didn’t already know.
    Your choice. Of course, there is always that willow bark…

  82. Doctors have legal concerns the same way non-doctors have medical concerns i.e. some of them are not particularly well-founded.

  83. Granted companies offer maintenance policies for homes and cars, but they’re not cost-effective. Trust me on this, I’ve tried and dropped both when the premiums rose and service deteriorated. Had I the choice with my comprehensive health policy, I would likely do the same. Unfortunately, neither I nor anyone else with a comprehensive policy ever sees the cash that is spent in their name on their health. (That’s Goldhill’s point.) Even if we were simply to require that the premiums paid on group policies be paid through and by the individual beneficiaries, I believe you would see a huge adjustment in consumer behavior. Very few would be comfortable with health insurance policies whose premiums approach the amount they spend monthly on their rent or mortgage.

  84. How do you KNOW that FenFen caused the waxy buildup? Did she have a before and after pic of her heart? That is the problem with the Fenfen debacle. The problem with many of these individuals hearts was presumed to happen *after* they started using FenFen when there was very little evidence that this happened for most of the people involved.
    As it happens, there is heart valve involvment caused by an surplus of serotonin in the bloodstream. The excess was caused by the combination of the two drugs. The combination was never approved by the FDA. The heart valve problems resolved themselves in a couple months after serotonin levels returned to normal.
    Who was ultimately responsible?
    As for ERT, don’t knock it until you’re having dozens of hot flashes a day. AFAIK, estrogen is thought to play an anti-inflammatory role and may prevent the dementia associated with the inflammation from beta amyloid plaques (look it up). The cancer risk has been dramatically overblown and was reported breathlessly. In actuality, the risk, though significant, was still quite small. But if you are one of those North Americans who is unable to evaluate risk and think there is a sexual predator around every corner and terrorists on every airplane, then you probably bought into this hysteria. There are millions of menopausal women who are without recourse now because of their unreasonable fears.
    Who was served by this?

  85. Riverdaughter,
    just to add to your pile of arguments
    Carl Djerassi (“father” of the pill) tells in one of his novels a story how US scientists could by no means replicate a research result their Indian colleagues had found – finally they found out the reason – the Indians had used newspaper to cover their tables, the US scientists something clean – even if I remember the story not completely accurately I hope the meaning comes across

  86. There are some things I object to that TippyGolden first brought up:

    1.) Drug research focused on mass-market appeal, not on disease. e.g. viagra
    2.) Lack of funds for studying diseases that are more rare.
    3.) Bribing doctors to prescribe or promote drugs, including the commissioning of seemingly independent studies.
    4.) Understating and covering up the dangers of drugs
    during the approval process.
    5.) The competitive nature of the drug development process precludes publishing all research and information that could be helpful to others if it was published.
    6.) The current system of approval discourages the testing of drug combinations.
    7.) Making drugs a public good would also drive down the costs considerably of new drugs, which would have a large effect on controlling health care costs.

    Also, given that scientists do the actual work of finding amazing cures, they are grossly undercompensated in the current system where all the rewards are reaped by Pharma execs and to a lesser degree by shareholders. Scientists who contribute to the finding of a cure should share in the rewards.

  87. Riverdaughter, are you saying HRT is no longer prescribed because of an — excess of caution — and not because peer-reviewed studies linked HRT to an increased risk for dementia and cancer?

    HRT was also marketed as a “youth enhancing” miracle drug and not just for menopause. Ie, in some cases there was no medical reason for HRT but a “life style” choice.

  88. D. Christopher Leonard

    A significant component of health care expenditures are not subject to market principles at all. Central to understanding this is to acknowledge that all humans transit the life course. And life is highly contingent regardless of whether individuals make ‘life style choices’ that increase risks for injuries or illnesses. As a couple commentators have pointed out, faced with a health crisis, choice is largely irrelevant except to the degree that one can execute a medical proxy to instruct about cessation of intervention in the face of mortality. It is health crises that bankrupt ordinary citizens (in contrast to the wealthy who can spend prodigious sums in the futile belief they will live forever).
    There certainly are strategies that can lower life-time medical costs. For example, a low birth weight baby is likely to ‘cost’ four or five times as much over the life course as a neo-nate of normal birth weight. Similarly, children who suffer significant nutritional insult in childhood are far more vulnerable over the life course than well nourished children. So preventive public health is a good investment.
    While much attention is paid to the costs of obesity in American society (and it does have adverse consequences), little attention is paid to the costs of alcohol-related disease and morbidity, and it is costly. A lesser example is riding a motorcycle sans helmet with the vastly increased risk of brain injury if you are not killed outright. Yet 37 state permit riding without one – and the cost of maintaining people in a permanent vegetative state is socialized
    This poses the question, given that much of what humans voluntarily do (or do out of ignorance) will ultimately have a social cost. If you seriously believe that individuals should be ‘responsible’ for their ‘life choices’ we shall end up in a more extreme version of where we already are: healthcare as a class commodity (i.e. those with money live, the poor are abandoned). This may please the libertarian minded right up to the moment they diagnosed with some dread ailment beyond their financial means to ameliorate. And, the fact is, every individual will end up dying from something quite identifiable, often where some very expensive therapeutic regime is available. So when we argue that people must manage both risk and choice, to be ‘responsible consumers’ it is about as intellectually dishonest as you can get.

    Of course there are all the old tried and true methods of earlier societies we now claim to find morally and ethically repugnant. Many ‘primitive’ societies practice infanticide, the Spartans ‘exposed’ unwanted or unhealthy infants, in some circum-polar societies, the elderly were abandoned when they became a burden. Closer to home, eugenics was very popular in the U.S. and Europe in the late 19th and early 20th centuries: sterilize the ‘unfit’, or as the Nazis did, practice murder (‘euthanasia’) on the mentally ill, the permanently disabled, etc. It most certainly will reduce the over all societal cost, no?

    Finally, we need to extend the ‘conversation” (as sorry an excuse as it is in the U.S.) to ask what is the object of medicine given that all humans are born (many with problems) mature (subject to another set of risks) grow old (and become inevitably belabored with illness(es), and die – a now exceptionally costly process – except in those rare instances where one witnesses a ‘good’ death. In the U.S. as the current hysteria about ‘death panels’ indicates, we are unwilling to face up to the reality of our own mortality. The medical profession, pharmaceutical firms, hospital firms, insurance firms all implicitly or explicitly ‘promise’ that if enough resources are devoted to it, death will be defeated. And that too is both morally and intellectually dishonest.

  89. I forgot to mention my number 1 issue with private pharma: the government already props them up with Billions of dollars a year. That’s public money, and like bank bailouts, the public should be able to have more say in drug costs.

    Also, I find your insisting that we would have to chew willow bark if we made modern research public, absurd.

  90. I think that’s brilliant. I can’t wait to call for an ambulance and hear the following:
    “if you wish to hear this message press 1, if you wish to hear this message in english press 2″

    2

    “Thank you, your call is being forwarded. Thank you for calling the emergency department. All of our staff is currently occupied at this time. In order to serve you better, we’ve prepared a menu of the following services. When you hear the number that corresponds to the condition you think you have, please press that number on your dialpad. Please listen to the following options:

    if you have more than $1.7 million in your HSA, please press 1 and stay on the line, a customer services represented will be delighted to assist you. For all other callers, please listen to the following menu…”

    3

    “I’m sorry, I didn’t hear that correctly, did you say 3?”

    3

    “I’m sorry, I didn’t get that. Please call back later.”

  91. Gotcha. The point I want to get across to you and the list server group in general is that the proper bookkeeping is not being done. I know this because I have been quietly studying the topic for years. In turn, economists, and those following economic theory, may be using numbers to make momentous decisions on very badly reported facts.

    Now that said, how those numbers are being used incorrectly is not a simple thing to explain, so I expect to be making small contributions over time in hopes of bring this piece of culture-shock to the attention of astute persons that are familiar with the financial services industry. And right now medical insurance is a big part of that industry.

    Incidentally, I canceled the surgery and choose a macrobiotic diet instead. I cured my problem for free. That was 23 years ago. I now have had a medicare card for 11 1/2 years that has not yet come out of my wallet. The diet and and exercise regimen has given me a near zero health care bill for 23 years.

    I understand that I may be a lucky exception, but I mention this to call attention to non-medical solutions to health care. It would be nice to have data on such things. With a proper computerized bookkeeping such data will be a piece of cake to have.

  92. re 1) wasn’t Viagra found by chance during research for quite something different? and a kind of pleasant surprise? and to stop the maligning of men. Also If it helps alleviating old guy grumpiness grandchildren may profit

    re ” Scientists who contribute to the finding of a cure should share in the rewards.”
    you could adopt the German system of rewarding the employee-inventor – it is said to be unique in the world and a clerk’s dream of securing jobs i.e. paper work without end. But some inventors whose stuff made it into mass production got quite wealthy by it. In short the law provides that the invention remains the inventor’s intellectual property and the employer “only” has the right to claim it and exploit it, if he doesn’t it remains the inventor’s property and he is free to market it.

    re doing it all publicly
    the US is not alone in the world – how will you come up with a system preventing other countries from acquiring patent protection all over the world with your work? via the UN?

    actually the UN provides a system of making patent application texts available almost all over the world – just to give you an idea of the scope of the thing here is their most recent fee table http://www.wipo.int/pct/en/fees.pdf
    In all the years I worked in the field I could never come to a conclusion whether from a strictly selfish national point of view the scheme is a good thing or not.

  93. Finally, we need to extend the ‘conversation” (as sorry an excuse as it is in the U.S.) to ask what is the object of medicine.

    Whenever someone starts one of these debates, it tends to drag on for 50 years with no resolution.

    How about for now we concentrate on cutting out the gargantuan administrative and social burden imposed by private insurers?

  94. I would like some clarification on the statement: “But the fact remains that for many people, the health savings account will run out; actuarially speaking, if $1.7 million is the average and other things do not change, then exactly half of all people will run out of money.” This is not an accurate statement of “average” but of “median.” It seems the argument differs considerably depending on the proper use of “average” versus “median.”

  95. Yakkis,
    with proper public competition private insurers are quite benign – at least ours are and they still seem to be able to make healthy profits
    - could it be that only if they have a monopoly on huge chunks of the population that they can cause as much trouble as they seem to be doing to you people.

  96. I expect that the U.S. government itself could own the patent and then license it to other countries under some fair terms to help recoup the cost of development and reward the inventors. Other countries could do the same thing if they wanted.

  97. I think it’s even worse when you consider the average. Clearly there will be people with millions spent, and others with much less. One has no way of knowing in advance which group one falls into.

  98. Yes, perhaps I should have said, how about we aim for something at least as good as the German system? ;)

  99. Yakkis,
    a thing is only patent-worthy as long as it has not been made public but you want research at all stages to be made public – once you have made something public i.e. blabbered about it at a conference, it is not patentable any longer (there is one exception to this rule I know of pertaining to inventions at US-universities which I am not familiar with in detail but it means that a German company buying the right to an invention from a university has to watch out that the one year term for extending it to other countries does expire faster – one of the purposes of the PCT-scheme btw is to extend that one year long possibility to extend it to other countries)
    - A main purpose of the whole patent application and granting process is to make research public no matter who is the applicant, the inventors as in the US or corporations as pretty much in the rest of the world (excepting the garage-inventors of course i.e. any natural or legal person may apply – US-legal persons have the inventors assign their patent rights to them)

  100. if I go by what this T.R. Reid http://baselinescenario.com/2009/09/06/the-myth-of-consumer-choice/#comment-26928
    tells of his travels with his bad shoulder the overall successful reigning in of private insurers does not seem to be a German or even a European specialty

  101. A thing is only patent-worthy as long as it has not been made public

    That’s certainly 100% correct in Europe and also (with exceptions) in the U.S. and Japan. So I have to retract my previous statement. However, there’s no reason a treaty couldn’t be concluded about this. Right now, certain countries override the patents on certain drugs.

    Taking this in the other direction, making all research public will make a lot of things that might have been patentable unpatentable in other countries, and would help alleviate the despicable practice of hindering other people’s research through some corporate patent strategy.

  102. “alleviate the despicable practice of hindering other people’s research through some corporate patent strategy.”

    I read a lot of articles discussing the continuing general usefulness of the patent laws which originated from the simple idea that “you make it public and in turn we protect you
    - none seemed to have a solution to the problem that corporations will then again impose secrecy on their R&D as they did in the old times (roughly before 1900 if I remember correctly)
    and yes you are right about corporations building huge fire walls of from a point of innovation useless patents around their valuable intellectual property rights
    - I used the image of the gold digger’s claims as I knew it from the movies to console inventors being plagued by the accumulating paper work – it is like a gold digger buying all the surrounding landscape with no intention of exploiting it just so nobody else can find other places worth digging in and thereby lowering the price of gold.

  103. “he medical profession, pharmaceutical firms, hospital firms, insurance firms all implicitly or explicitly ‘promise’ that if enough resources are devoted to it, death will be defeated. And that too is both morally and intellectually dishonest.”

    I disagree. As soon as we are able to liberate ourselves from our bodies — upload our personalities into some permanent vessel — we’re golden.

    At that point we can have the robots do all of the heavy lifting and spend the rest of our days bouncing around through the multiverse or playing 5 dimensional parchesi.

  104. To pass universal healthcare, it’s necessary to exclude economists from the discussion… economists think they should lead the discussion, but actually they should have the last voice after public policy is decided… Massachusetts passed universal care first and now will figure out how to pay for it. Sounds silly but that’s how it was done. LBJ had the same thought in passing Medicare.
    This point was made in the NYT this Sunday in a review of “The Heart of Power…Health and Politics in the Oval Office”…
    “Blumenthal and Morone’s most provocative finding is that presidents who have been most successful in moving the country toward universal health coverage have disregarded or overruled their economic advisers. Plans to expand coverage have consistently drawn cautions or condemnations from economic teams in every administration, from Harry Truman’s down to George W. Bush’s. An exasperated Lyndon Johnson groused to Ted Kennedy that “the fools had to go to projecting” Medicare costs “down the road five or six years.””

  105. The U.S. health care system is already number 37. (ask yourself how many developed countries there are).
    I think they are shooting for dead last though, so it will take some more time.

  106. -Heather,

    While the percentage increase across the different systems may be similar over time, the BASE COST matters most. For example, if Country A and B both have health care increase by 40% where Country A started at 100 and Country B started at 200, the final changes are 40 and 80 respectively. Since the US is starting at base cost of about twice as much as those other countries, our increase is far worse in absolute terms and in % of GDP terms.

    Mr. Goldhill should stop with the statistical sleight-of-hand and look at the absolute numbers.

  107. I am forever puzzled by the attempt to apply “market” priciples to health care. It’s like saying that people should pay specifically for fire and police protection only when it is needed, and that the market should be relied upon to provide those services. Doesn’t work there, and by all the evidence, it doesn’t work for health care, either.

  108. What’s even more puzzling is that people want to apply market principles to these things, when they won’t even apply market principles to any other private industry.

  109. I don’t think anyone feels that Medicare is unconstitutional.

    Of course it is. As was the constitutional travesty of the prescription drug benefit, and campaign finance reform. Both passed by our nominally “constitutionalist” party.

    The U.S. Forrest Services is necessary, as there are federally owned lands. The US Marshals are necessary to deal with interstate crime. Interstate highways are a mixed blessing, but, if they are to exist, they clearly fall under the interstate commerce clause.

    If “providing health care” is a constitutionally allowed power of the Federal Government, then there are no bounds to the Federal Governments power. None. The 10th amendment means exactly nothing and, hence, the Constitution means exactly nothing (why is the 10th amendment any different than the 1st or 2nd?) and, hence, we live in a society ruled by the whims of the governing class, rather than a constitutional republic.

    Some people are insouciant about this, but we’ll see how long that lasts when their opponents are in power.

    Note that I am not arguing against universal health care, I just think it should be implemented at the state level so that those who clearly, passionately oppose such a revolution in the relation between citizen and state are able to live as they see fit as well. I’m not asking *you* to live the way I would have you live, I’m asking you to allow others to live the way they would prefer to live. The price of not being ruled by Alabamans (no offense, of course) is allowing Alabamans to live as they see fit.

    Cheers,
    Carson

  110. A small fee? Decided by… a committee?

    The soldier/military is a special institution, and not one I wish to model the citizen/state relationship on. Regardless, see my comments below: if you can convince an entire state’s worth of people of you position, more power to you. I’d just like the option to move elsewhere.

    Cheers,
    Carson

  111. Financial arguments aside, on the McNeill Lehrer News Hour last week there was a piece about putting patients in control of their care in consultation with physicians. Studies have proven that this kind of system actually improves outcomes, that is one in which consumers are in charge of the decision making. It’s kind of interesting that people, given responsibility for making their own decisions seem to make the right ones. This means many fewer tests and procedures, generally, fewer prescriptions, better prevention decisions, etc. Don’t dumn down your fellow citizens, when it comes to matters of health, they generally make the right ones when presented with a full set of alternatives.

  112. What is the point of all those years in med school, if the ultimate decision on how to treat now lies in the hands of people who have no medical education whatsoever? How does that work, exactly?

    What info will consumers be using to determine the decision – outside of whether or not they can afford the particular test or treatment being recommended by the doc?

  113. Anne
    I liked this education of the doctors!!! towards treating their patients as responsible adults from the start very much – the doctor still recommends and tells you, if there is an alternative but mostly they have become much better listeners instead of just ordering us around from way above our little selves as was the fashion into the sixties (Halbgötter in Weiß=Half-Gods in White). To tell it as the patient keeping the doctor reasonable seems a PR-gimmick to me

  114. Somethings are too bad to be true and the US spending so much in healthcare and achieving so little may be an example of this. The US needs universal care, so it isn’t my intention to defend the current level of expenditures and outcomes. However, if “accidental deaths” are included in life expectancy calculations than lfe expectancy may not may not be a true indicator of healthcare results..
    For instance, the US ranks #1 in motor vehicle deaths per 100000 people. But I’m not sure if this is a healthcare issue. Same is true of homicides.

  115. That is exactly what insurance companies are doing now. Making treatment decisions based on what treatment they will pay for.

  116. Agoraphobic Kleptomaniac

    “Well, a lot of the costs that the insured bear are almost certainly an indirect “tax” to support the uninsured. We simply don’t have a basis for understanding how much of the underlying costs for healthcare are pricing in care provided to the uninsured who ultimately do not pay.”

    And, additionally, the fact that most of that indirect “tax”, as you call it, is also being taken and given to shareholders, whenever profit is made, for most american insurance companies.

    Also, a major breakdown is that the “uninsured who ultimately do not pay” are NOT being taken care of. yes, if you go into an emergency room dying, they will treat you and have to write it off (thanks to the 1986 law), but that’s where the free-ride ends. Any pills, referrals to other offices/specialists, or sickness that is not immediately life threating, does not have to be treated. The poorest in this country are only saved from dying that moment, but are doomed to chronic illnesses and bankruptcy when more long-term diseases set in. So we pay the most expensive (in theory, since most of the bill is written off for tax reasons) treatments for the sick, but never actually are forced to treat them for, say, Cancer, which can cost 1.4x what the average american earns every month.

  117. Agoraphobic Kleptomaniac

    Carson: Article 1, section 8:
    “Congress shall have power – To lay and collect taxes, duties, imposts and excises, to pay the debts and provide for the common defence and general welfare of the United States; but all duties, imposts and excises shall be uniform throughout the United States; ”

    Amendment 10 is a catchall, and Article 1 section 8 seems to have addressed taxes and welfare across the nation.

  118. Agoraphobic Kleptomaniac

    It’s the great news slippage – CNN used to give in depth analysis of what the nightly news didn’t have time to cover, and NPR was even more in depth than CNN, then you got the hour long focus programs that only looked at a single issue.

    Now, the hour long focus programs are about celebrities, NPR has taken CNN’s job, CNN spends most of it’s day doing what Nightly news did (surface coverage accompanied by talking heads), and nightly news might have 2 stories that aren’t Interest stories or celeb gossip, and those two stories are the 30,000ft view, barely addressing anything other than “he said/she said”.

  119. Agoraphobic Kleptomaniac

    q wins the thread. Perfect response.

  120. Fundamentally, after you cut through everything, there is a tradeoff between social efficiency and social equity. Arguing that this tradeoff does not exist is virtually impossible. The USSR fell, and China of today is not Mao’s dream. We are better off facing the tradeoff, and deciding how much social justice we want… and how much we are really willing and able to pay for it.

    There are two flaws with the fully privatized healthcare arguments, however, and they are the same problems our current system faces – Coverage and Costs.

    First, as James raises, is the social equity issue. Coverage. It exists. Period. One function of social insurance is to insure people without regard to their genetic composition, etc. This is not free, and it causes all sorts of incentive problems.

    Just giving 1.7 million away to everyone neither does not achieve the social object, as James says. It fails to meet the needs of the neediest, and gives a windfall to those who don’t end up needing it.

    Second, just because we accept that there are incentive problems does NOT mean that all efforts to use incentives to ration healthcare should focus on healthcare _consumers_. A general principle of good incentive design is that incentives are aligned with desired outcomes, which requires that the incentives should impact those people with:

    – Information
    – Power to act
    – Who benefit/suffer from non-monetary results of the action (which cannot be redistributed)

    The third of these means patients. The former two argue for including providers. And any real solution to our problem needs to provide incentives to both – it’s going to be a hybrid system. Finally, if we want to contain costs, then these incentives MUST include some motivation to reduce consumption.

  121. “motivation to reduce consumption”

    yes, but it should not pitch the doctor against the patient
    - what I relaize like about our system since now you have informed me how good I have it, is this feeling that the doctor and I are together in a more or less tacit agreement that in order to get me well we are entitled to in get out of the system all that’s possible. The system is allowed to fight back hindered by all the other actors in a democracy like lobby groups strikes willful negligence etc. To date we never had a demo of patients in favour of doctors’ incomes which they claim has been too much cut down. Maybe if more of us would read blogs like that it wouldn’t take long to come about.

  122. Some may be interested in my bipartisan approach to health care. It can be found at:

    http://www.plan.bipartisanhealthplan.com

    It has some features in common with the Wyden-Bennett bill but is more radical, involving government supplemented Health Funding Accounts and private guaranteed-renewable health policies from birth to death. These replace all other government health plans, including Medicare, Medicaid and SCHIP.

    The approach, by design, solves the perplexing problems inherent in pre-existing conditions, guaranteed issue, community rating, and market competition which have been on view in town hall meetings this August and which have frustrated politicians and citizens of both parties.

    It also has elements in common with David Goldhill’s recent article in the Atlantic “How American Health Care Killed my Father”.

    http://www.theatlantic.com/doc/200909/health-care

    Goldhill and I have in common the facts that we are not health care professionals and were brought to the field by the real-life experiences of relatives.

  123. 1. The market will not produce quality without regulation and without the emergence of institutions that both systematically evaluate quality and have a charter that requires distribution of information within the medical profession:

    A. Information disparity is a significant barrier. For example, there are two surgical technologies, the gamma knife and the cyber knife. One is better for fine reductions and the other for gross reductions. A patient may feel that they have been saved (still alive) and not realize that they might have kept more physical function if they had received treatment with the other technology.

    B. Medical quality can be ephemeral; advertising can mislead and spur unnecessary demand; and patients are often times incapable of judging quality at other than a gross level–or worse, make decisions based on non-meaningful factors like private rooms, good hospital food, and the charming personal manner of the provider.

    C. Medical professionals are unable to voluntarily regulate their own conduct. Oftentimes, they would not refer a patient to a particular provider because they know that one surgery is likely to become three surgeries because a particular surgeon is incompetent. Rarely is an incompetent provider stripped of his/her license. Self-referral to provider-owned technology is responsible for the proliferation of MRI, CAT, PET and other high dollar diagnostic procedures. We are becoming an irradiated nation at the hands of the very people who have pledged to do no harm.

    D. 100,000 people a year die unnecessarily from medical care. On the other hand, if a plane or train crashes or a wall falls on a bricklayer, there are full blown investigations to identify root causes; corrective action is mandated; and behavior changes. Where is the medical version of NTSB? OSHA?

    2. Social goods cannot be distributed upon the basis of ability to pay.

    A. A hemophiliac child needs RH factor and it may cost between $600K and $800K per year to keep the child alive. It is absurd to insure a certainty: it only adds to the cost (profit margin, risk charges, reserve accumulations). Such medical “certainties” should be budgeted for and serve as a learning opportunity to see what works best to improve the length and quality of life of the patient. Only the best and brightest of the medical community should serve such patients.

    B. If we remove the expense related to end of life care, serious life-threatening illnesses, and conditions which require very specific medical expertise from the cost of health insurance, we will substantially reduce its cost. And, we make it possible for people to elect how much coverage they need and want to pay for. The cost of the removed care can be paid for via a payroll deduction. Essentially we could establish a national risk pool for serious, catastrophic illnesses and let insurers handle the less risky, less certain health care events.

  124. Agoraphobic Kleptomaniac

    That 37th WHO ranking is based both on quality of care, and fairness of the system, measuring several different metrics.

  125. Great post James.

    You are absolutely right. If I were in my twenties and single, I would probably have a crush on Chana, too!

    (Sorry, just needed to lighten things up around here a little)

  126. Welfare, as defined in that clause, has nothing to do with welfare in the modern sense, and I have a feeling you know that fact. A brief look back at any of the arguments during the constitutional convention will make that clear, if not.

    Why bother with the 10th amendment at all, if welfare were defined in such an expansive way? It would be like saying “The Federal Government can do anything. The Federal Government cannot do anything that the previous sentence does not explicitly allow.” Such an interpretation fails fourth grade logic.

    Again, the price of not being ruled by Alabamans is allowing Alabamans to live as they see fit.

    Cheers,
    Carson

  127. “But the fact remains that for many people, the health savings account will run out; actuarially speaking, if $1.7 million is the average and other things do not change, then exactly half of all people will run out of money.”

    If 1.7million is the average, and not the median, it is not exactly half. I imagine it is skewed heavily on the high end.