Monday, May 19, 2014

Levitt's model



Steve Levitt responds to Yours Truly. The response includes a pun. Levitt writes:
Smith could not have known, based on what’s in Think Like a Freak, that we actually do have a model for the NHS. And, indeed, I proposed the model to Cameron’s team after he left the meeting.
This is a pun, because I meant "model" as in "theory", while Levitt here uses "model" to mean "policy plan".

Levitt goes on to detail his plan, which I personally like very much. It goes like this:
On January 1 of each year, the British government would mail a check for 1,000 pounds to every British resident. They can do whatever they want with that money, but if they are being prudent, they might want to set it aside to cover out-of-pocket health care costs. In my system, individuals are now required to pay out-of-pocket for 100 percent of their health care costs up to 2,000 pounds, and 50 percent of the costs between 2,000 pounds and 8,000 pounds. The government pays for all expenses over 8,000 pounds in a year. 
From a citizen’s perspective, the best-case scenario is that they use no health care, so they end up 1,000 pounds to the positive. Well over half of U.K. residents will end up spending less than 1,000 pounds on health care in a given year. The worst case for an individual is that he/she ends up consuming more than 8,000 pounds of health care, so that he/she ends up 4,000 pounds in the red (he/she spends 5,000 pounds on health care, but this is offset by the 1,000 gift at the beginning of the year).
If you asked me, off the top of my head, to come up with the optimal health care system, I would come up with something a bit like this. I would probably modify it to have government cover only certain things above the deductible (no plastic surgery, for instance), and I'd probably ditch the 1000-pound check. But it makes sense to have a deductible.

So I like Levitt's "model" for the NHS, and I think we should consider trying it in the U.S.

But I think that my griping in my earlier post was still on the mark. Why does Levitt propose to have the British government pay for people's health expenses above 8000 pounds? Isn't that like having the government pay for your car, but only if you buy a Maserati? Levitt's plan doesn't answer the question he posed to Cameron in their ill-fated meeting.

And some "free market priesthood" is still in evidence in Levitt's post:
But it doesn’t take a whole lot of smarts or a whole lot of blind faith in markets to recognize that when you don’t charge people for things (including health care), they will consume too much of it. I guarantee you that if Americans had to pay out of their own pockets the crazy prices that hospitals charge for services, a much smaller share of U.S. GDP would go to health care. And, of course, the same would be true in the U.K.
But Americans pay a lot more out of pocket for any given health care procedure than do British people. We have much bigger copayments than they do. And yet we spend more on health care, not just overall, but for equivalent procedures. That fact does not seem to fit with Levitt's worldview. Perhaps a more complicated model - as in, theory - is warranted here.

175 comments:

  1. I'm trying to imagine a typical market transaction in Levitt's model of health care.
    Dr: You have cancer, I'm shipping you to St. Vitus for an oncology consult
    Patient: What prices do they charge per saline bag? If they do a biopsy, what are typical fees?

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    1. Jason1:32 PM

      Exactly this. My intuition (sorry, don't have more than this to go on) is that there is no way for consumers of health care (patients) to make informed decisions about what health care purchases they actually need. Maybe Levitt intends to send everyone to med school?

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    2. Anonymous1:43 PM

      What do they do in the VA?

      http://www.thedailybeast.com/articles/2014/05/18/exclusive-v-a-scandal-hits-new-hospital.html

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    3. Jason,

      Normally in scenarios like this I think those who argue for effective markets in everything advocate something like consumer reports to help inform patients. Of course, this would be extremely time consuming and, more importantly, would merely replace one authority with another.

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    4. Well, Doc, St. Vitus oncology unit has a better survival rate than Beth Israel, on liver cancer, but I wonder if that lump you felt was a met from my tonsils, in which case I'd be better off for survival at Cedars, but taking into account expected lifetime earnings and the stock market analysis I ran this AM, giving a valuation rho to my expected additional years divided by a function Q for life quality, and summing the expected costs of procedures ove the next 10 years at each institution while I model the quality trajectory of each of the institutions, I think I'll just go to the bar and get drunk.

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    5. This reminds me of an article from last year about how the Cancer Treatment Centers of America uses stats in a misleading way to advertise itself as being more successful at treating cancer than other clinics.

      http://www.reuters.com/article/2013/03/06/us-usa-cancer-ctca-idUSBRE9250L820130306

      That, and how their commercials seem to blatantly imply they can save the lives of people that oncologists at other clinics have deemed terminal.

      But sure, let's just have consumers be the ones to make all the assessments of care quality, medical necessity and negotiate prices on every transaction for a medical service. Great plan.

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    6. Exactly. And yet somehow when we covered health care in grad school and talked about information asymmetry, we only talked about how health insurance companies didn't have perfect information on how healthy people signing up for health care were. I'm not saying this isn't a problem (it's part of the point of the individual mandate), but the real information asymmetry is that patients don't have price information, and even if they did, patients don't have the tools to figure out what procedures they actually need and how to evaluate quality. You can do a little bit with consumer reports and information requirements - but eventually you have to acknowledge that there will always be asymmetric information in health care markets.

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    7. Anonymous9:28 AM

      Insurance companies and providers collude to fix prices at wildly expensive levels. It's cartel restraint of trade and anticompetitive practices, and needs to be prosecuted. My bet is you'll see prices fall thereafter.

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    8. Nate,

      You wrote:

      "... eventually you have to acknowledge that there will always be asymmetric information in health care markets."

      Do you think this applies to all health care markets? I ask because I'm wondering if what's often referred to as "routine" care applies. People might be judicious when it comes to care they perceive they can go without if need be. Whether they have perfect information or not? I don't know but it seems like more choosy behavior could impact price.

      Of course I acknowledge that if/when I get diagnosed with cancer I'm pretty much locked into getting care and paying whatever it takes, and have no idea how much it should cost.

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  2. Don't hate Steve Levitt just because he's really really really ridiculously good-looking.

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    1. Noah needs to listen to his friend Billy Zane.

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    2. JSR and Emmy's comments are so awesome that my frustration with Noah's post melted away.

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    3. Levitt: Holy shit, Steven, haven't you been smoking Peyote for six straight days, and couldn't some of this maybe be in your head?"
      Noah: And?
      Levitt: And it was. I was totally fine. I've never even met David Cameron.

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  3. David1:09 PM

    I have a hard time understanding what would be achieved by switching to this policy in UK. With your policy proposal, people generally have to save the 1000 pound to use it later in life. Even if everyone is responsible, you are putting young sick people at extreme financial hardship and you force everyone else to put time and effort into managing the money from market shocks, inflation risks, etc.. In addition, you increase inefficiency into both your healthcare system and your society because of the people who are going to be irresponsible and would waste the money and you have to treat them later anyway.

    What exactly would you achieve that justify such a change into the system and do you have any model that can show that you actually get the supposed benefits?

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    1. Further, what about the people who are *irresponsible*? What happens if someone doesn't save up the 1000 quid but requires lifesaving treatment costing more than he can afford. Are hospitals required to refuse treatment, or does the state expect to subsidize the irresponsible?

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  4. Not sure what the $1000 check is supposed to do. Income-invariant welfare payments are inefficient: somewhere in england, a worker would be paying $1000 in income taxes only to have that same amount paid back to him, meaning that the government could make him better off, without making anyone worse off and without any cost to the state, by repealing his welfare check and instead lowering his tax rate (allowing him to work more!).

    I understand that a lot of people think that income-invariant GBI lessens the labor market distortion relative to welfare that phases out as income rises, but this is wrong. Because we have to pay for the GBI with something other than a capitation tax (which would be self-defeating), all this does is shift the tax distortion away from the unproductive, low-income workers and onto the more productive middle-income workers, thereby increasing the social cost of the welfare system at no benefit to anyone, relative to the system where benefits decrease as incomes rise.

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    1. 1000 pounds = ~$ 1600 not that it makes much difference

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    2. You are ignoring the intrusive bureaucracy needed for means testing.

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    3. Income-based welfare is just tax policy. So the only thing for the bureaucracy to do is verify your income, which is exactly what they IRS already does and would still have to do under GBI for income taxes anyway.

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  5. A plan that calls for a moderate deductible, a cap on out of pocket expenses, and subsidies. So he basically wants a more generous version of Obamacare without the insurance companies.

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    1. Direct hit. His battleship just disappeared in a fireball. You win.

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    2. And without private care providers. The NHS is not just insurance, but a socialized system of care providers as well.

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    3. Anonymous10:05 AM

      Yes. To implement this "model" in the US, you would have to:
      1. Socialize the insurance industry.
      2. Socialize the hospitals and care providers.
      3. Expand the insurance subsidies.

      I'd pay good money to hear Levitt explicitly and publicly state that.

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  6. Noah,

    The problem with Levitt's proposal is that it is not a sequentially rational policy. That is, it requires the government to commit not to finance health care costs for people who "squander" their health care check. Once they do that, compassion (or other motives) compel us to help them out. So we pay even more.

    I formalize this argument here: http://www.sfu.ca/~allen/david.pdf

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    1. David - exactly. And for those people who don't save their $1,000 check, wouldn't we just force them to cut out their preventative checkups/care, further increasing the likelihood that we pay for major procedures later?

      Noah to your point the reason we pay so much more is that it costs more. Would limiting spending below the $5,000 threshold (the out of pocket maximum in this scheme) make much of a difference?

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    2. I agree that the $1000 check idea wouldn't do much other than mail people a $1000 check.

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    3. No, I'm suggesting mailing them a $1000 check is different that mailing them an inalienable right to food, shelter, and health.

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    4. Well I agree with that distinction as well. ;-)

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    5. Anonymous2:05 PM

      You could imagine a modified version where people get payroll credits/debits depending upon how much healthcare they consume.

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    6. Evan B, I think you may be over-estimating the "preventative checkups" that are actually carried under the NHS.

      I have not had one since I was 10. I'm now 48. I saw a doctor for the first time in 20 years a few months ago, who said "I'll check you blood pressure while you're here." 'What about cholesterol?', I asked. "I wouldn't bother if I were you, but come back in a few weeks if you're worried [to allow for what I had come to see her about to heal]. Or just wait till you're fifty."

      Without being an expert, I think there is considerable scepticism within the NHS about the value of preventative check-ups.

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    7. David,

      It seems you are suggesting that we, as a society, will feel compelled to provide healthcare to poor people who can't afford it. If this is the case, then, as soon as someone wants more care than she can afford, we might as well provide it for free. Up to that point, we should make her pay for it. As long as her healthcare debt is sufficiently low so that she will want to avoid default, she will weigh costs and benefits appropriately. Beyond that point, she's going to default anyway, and she knows, according to you, that we will provide her whatever care she wants when she does default.

      It appears then that Levitt's plan is the optimal type of plan.

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  7. Anonymous1:18 PM

    Noah, can you comment on the way this plan disincentivizes people from routine checkups, preventative care, and "just to be sure" trips to the doctor? I'm in early middle age and know of a surprising number of cases where seemingly minor symptoms have been a signal of something very seriously wrong (e.g. a brain tumor, cancer, etc.). There seem to be all sorts of reasons (humanitarian, economic, etc.) why we want to make it very easy for people to go see their GP just to be sure their minor pains aren't something real.

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  8. Also, while I support high-deductible insurance plans as a policy goal, I think it's probably not likely to reduce moral hazard. Health spending is highly skewed, and while the vast majority of people spend less than the 2000 deductible amount each year, their summed costs simply aren't a significant share of total health spending. Moreover, there isn't nearly as much inefficiency that can be cut out of these low-cost patients--the aspirin that costs $3 a pill is sold in hospitals to patients with $20,000 medical bills, not to people with colds spending $5 at the pharmacy.

    I see catestrophic insurance as dealing more with adverse selection than moral hazard. It won't significantly change overall spending behavior in the healthcare sector, but it will reduce the advertised premium prices of insurance plans, which may induce healthier individuals to buy them. It may also reduce the total amount of insurance "loading costs" on the system, since insurers typically need to charge about 20% more than expected health costs to cover their own labor and capital costs.

    But then, it's really weird to bring this up when discussing reforms to NHS, which doesn't have an adverse selection problem, nor significant loading costs of any kind, because they neither have nor need any insurance.

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  9. Anonymous1:39 PM

    Noah, if you are criticizing free market "priesthoods", I'd really ask for you to understand (or at least mention) some clear and compelling case studies:

    there are medical services offered in the US that are connected to marginal cost of production! What do they do differently?!

    http://marginalrevolution.com/marginalrevolution/2013/07/surgery-price-wars-in-oklahoma-city.html

    We can agree on catastrophic coverage as being absolutely necessary: the question is how medical service prices in the US are in any way connected with economic reality.

    Can we enact policies that encourage medical price transparency and disinflation? This would seem to benefit all consumers of medical care, whether shopping-around price-flexible or catastrophic-needs price-inflexible.

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    1. Anonymous10:43 PM

      "I'd really ask for you to understand (or at least mention) some clear and compelling case studies" ... and then later a link to what is essentially an incomplete news blurb. Gibertarianism cannot fail, it can only be failed, which is why only an anecdote or statement of "principle" is sufficient to justify it, if only you have the necessary depth of understanding.

      Other than that, price transparency seems like a good idea, but I (in my largely uniformed opinion) wouldn't expect it to accomplish miracles since the individual services are complicated and variable. There are also existing entities in the market which would have benefited competitively by reducing costs, so "one weird rule for belly fat" solutions aren't going to cover it.

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  10. On the other hand, I think it's cool that Levitt had been blogging more lately. Keep the attacks coming, maybe he'll stick around!

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  11. Anonymous1:59 PM

    This whole argument is comical. There are 2 explanations that cover all of this, and they are so simple even a third grader, or "freakanomic" could understand.

    1) Obviously Steve is some type of "freak" who thinks that elective colonoscopies and root-canals are the cats meow, and he just can't wait for his monthly proctology visit. Sure, Jay Leno collects dozens and dozens of cars, but what he really wants are multiple anal probes. They sure are fun!

    2) The government in both countries *essentially* set the price for healthcare. In the UK the government does it directly - they pay the salaries of the doctors, set the reimbursement rates, etc. The can decide how much of their GDP they want to spend on healthcare - directly. In the US the government sets the rates by only paying to educate 100k doctors a year, throwing everyone else in jail who practices without a license, and chooses - indirectly, instead of directly - to keep the pay of doctors extraordinarily high by tightly limiting supply. Which is why - shockingly! - we pay 2x as much as many other countries.

    This whole "scheme" to save money on healthcare by denying people lifesaving services is absolutely ridiculous - you save money by reducing "demand" for corrective surgeries, etc, and bankrupt people in the process by charging them prices they can't afford. Quite a brilliant idea!

    Medicaid has some of the lowest deductibles and costs for "consumers" (normal humans call them "patients") yet it is still more cost effective than the other alternatives. IE, the freakapinion plan is without merit.

    No one would deny that Veblen goods exist - why is it you all can't concede that healthcare isn't a normal good either, but in a different way? Why all this neoliberal claptrap?

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    1. Anon at 1:59 pm,

      What you refer to as the "freakapinion" plan is universal health care beyond a certain cost. You might have some qualms about that, and I might share them, but surely Levitt's plan isn't so much a plan that bankrupts people as the current arrangement in the U.S. (though that might be changing with Obamacare). Doctrinally it might be "neoliberal claptrap" but it's basically proposing to cover everything we would call life-threatening and even at a certain point of care everything we would call chronic.

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    2. Anonymous2:52 AM

      I agree that it is universal government provided catastrophic care.

      Imagine for a minute someone shows up to the hospital in dire need of care but without their $5k copay (or whatever the neoliberals set it at).

      Either you're going to 1) subsidize him, by having the government give every poor person that needs help their $5k, 2) subsidize him, by giving him care and letting him stick everyone else with the bill, or 3) let him die.

      In any case, you are going to charge poor people less - or force them to die.

      So, what is the difference between that, and instead providing care for everyone, and taking X% of their income in taxes? In both cases, the rich pay more, the poor less, and both get cared for. Although the neoliberal plan would make Rube G. much more happy.

      Why is it always assumed that you must have copays and deductibles to "reduce" usage - why is it always assumed denied care (which is the point) leads to the most efficient outcome? There are plenty of studies that show we'd need various levels of deductibles and copays based on what procedure or drug was being offered if you are looking for the most efficient outcomes. We're talking 1000s of different copays. How is setting this up efficient? How would people even make rational decisions while sitting in a hospital room being told the 15 various deductibles to maximize efficiency (and the point of getting them to "rationally" deny themselves care)?

      Again, the problem with our healthcare system isn't a bunch of hypochondriacs on medicaid, but doctors that make 2X as much as the rest of the world, drug manufacturers who do the same, etc, etc, etc. It's a supply problem, not a demand problem.

      I have yet to hear a single neoliberal plan that is more efficient than plain universal single payer, if the goal is to provide the best possible health outcomes at the lowest cost, and not just provide "some care" at the lowest cost.

      But maybe progressives and neoliberal have different goals.

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    3. I agree the Levitt plan is not optimal as the 5k deductible wouldn't always be met. My temptation is to start to get into the weeds - talking about all the tweaks neoliberal plans could offer. The Singapore system that the libertarian-ish Bryan Caplan called "A Free Lunch You Can Sink Your Teeth Into." At some point with all the tweaks it might be the same as single payer.

      In closing, I think it's true that people have different goals depending on where they fall on the political spectrum, and trying to get people with differing goals to agree using neutral factors like cost or efficiency ("neutral" in the sense that it's a good liberal reason in the sense that most everyone in a modern society is liberal) encourage people to come up with ideas that address only those good neutral reasons (that also accommodate *some* sense of compassion as good moderns are supposed to feel as well).

      Anywho, the Levitt plan is the topic of conversation, and I don't want to get too far down the line in arguing about it as I don't endorse it. I just have some methodological concerns that often come up in left-liberal debates, especially regarding health care.

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  12. Rob Rawlings2:00 PM

    "I guarantee you that if Americans had to pay out of their own pockets the crazy prices that hospitals charge for services, a much smaller share of U.S. GDP would go to health care."

    1. Is this an untrue statement ?
    2. What has the relative size of co-pays in the UK and the US got to do with the statement ? Levitt clearly sees both UK and US healthcare as systems that would benefit from versions of his model.
    3.. Why is it "free-market" priesthood ?




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    1. Aidan3:19 PM

      "If we priced more people out of health care services we would collectively spend less on health care"

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  13. Have the numbers, i.e. the cost split or the 8000 pound threshold, been wargamed? I would guess that the NHS has a lot of expenditure data. Different inputs could change the outcome. Dr. Levitt's website does not have much information other than most cabbies in London like his proposal.

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  14. Even with higher deductibles in the US model, isn't the biggest problem that both health care providers (hospitals/docs/etc) and the proximate payors and rate negotiators (private insurance companies) both want costs as high as possible?

    On a case-by-case basis sure, an insurance company might like to pay less for a procedure, but in the aggregate higher prices just mean higher premiums and gross profits, even if margins are slightly smaller. They've found their Nash Equilibrium.

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    1. I've seen this argued, but Im not convinced. In competition, the case-by-case equilibrium wins out: to win customers, insurers must constantly bargain down costs and lower premiums, leading to low aggregate provider costs. The only way out of this is for insurers to collude or form a monopoly that would let them think about maximizing aggregate profit, rather than out-competing other insurers. But if that is the case, then there's nothing to stop them from both driving down provider costs and hiking premiums. Studies of insurance monopolies in local markets have found that this is in fact what they do.

      So I don't buy the argument that insurers are *deliberately* trying to bargain provider costs up. Just doesn't fit with either the theory or the data.

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    2. Anonymous3:47 AM

      But, insurance plans were sofar so complicated that direct comparison wasn't always possible, so even if they behaved optimally, customers wouldn't always see it.
      Obamacare has forced insurers to have some basic, directy comparable packages. it will be interesting to see if effect of that would be noticeable.

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  15. Free will only increase demand if it is something people want, but while there are a few hypochondriacs, disturbed, and lonely people for which more is better, this is the exception. Most medical treatments are painful, unpleasant, and time consuming, and are only desired when non treatment is worse. While making treatment costly will deprive some of access, it will do little to make treatment more undesirable than it already is. Most want to be healthy and not need treatment, so their goals are already more aligned with minimizing use than charging will ever make it so.

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    1. Anonymous3:11 PM

      No no no you don't get it, a Ferarri and a quadruple bypass both cost $200k, but if they were both free we'd all take one of each! I just want more free stuff!

      Economists is weird.

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  16. Anonymous2:40 PM

    British person here.

    WHAT THE FUCK??????????????????????????????????????????????

    What does Levitt think most people will do with that money? Sensibly put it aside for healthcare or just spent it on crap and bills? What totally stupid idea. The system we have at the moment is essentially fine. A percentage of our income is automatically taken from us and put into the national healthcare fund that anybody can draw from in their time of need. This is the most rational way to socialise healthcare. It doesn't depend on hoping people will make rational choices about what to do with their money. The government manages it all for us because, let's face it, most people are a bit dumb.

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    1. Anonymous2:53 PM

      I should add that our healthcare system is a national INSURANCE we all pay into and not anything like a free market and nor should it be.

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  17. Anonymous2:50 PM

    So Levitt wants a buyout on the social contract for the poorer segment of the population. Seems legit.

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    1. Anonymous2:52 PM

      Anyone else think that in this case most procedures that cost under $1000 will increase to that $1000 threshold.

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    2. Indeed. Or suddenly, the rent goes up by $1000.

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    3. I think the bigger issue is that all procedures that cost over $8000 will increase in cost to infinity.

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  18. That might work for people with reasonable or even low paying jobs. But what about children with feckless or poor parents? And if you're dead broke, does it really make sense to save the cash? It is sort of the point of the NHS that you get treated even if you're dead broke.

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    1. Anonymous2:58 PM

      Of course, what are poor people struggling to get going to do with that £1,000 cheque? Use it to pay bills, not save it up. If poor people have to pay to go to the doctor they'll think twice about it and then fewer illnesses will get caught early when they can be treated more easily and cheaply and they could end up costing the country more to treat.

      God, that Levitt's such a prick. I'd love to fight him IRL.

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    2. MaxUtility7:15 PM

      Maybe the model is, "poor people will blow the cash because they're lazy and immoral. Then when they get sick, they'll just die like they deserve to. This will lower aggregate health care spending." See? win-win.

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  19. And another thing -

    Is there actually any evidence that UK residents or citizens use healthcare services just because they are (to some extent) free? Anecdata alert, I have been to the doctor once in the past twenty years. In the past 35 years (the period I can reliably remember), I have been to the doctor/hospital 7 times, 5 of which were for actual or suspected broken bones. I have never woken up and thought: "It's free, let's have some chemotherapy."

    I suppose this is Noah's point really.

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    1. Anonymous3:04 PM

      Exactly, this is the point. Us Brits don't just walk into hospitals and take operations for because they're free. We are only given treatments that have been deemed necessary by the doctors.

      IT'S NOT A FREE-FOR-ALL, LEVITT.

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    2. Anonymous9:02 PM

      Exactly, it's odd how Levitt takes excess consumption as a given if you make stuff free, even when it's actually some rather unpleasant and uncomfortable products being offered with no guarantee of 100% success (with the success rate going down with age, thus deterring the elderly who are the most needy). Arguably a lot of the services aren't in a sense free, because you'll still have to pay in the currency of personal time and pain.

      They're also mainly services, rather than physical things, so you can't exactly hoard them or sell them on (thus making the car dealership comparison even more misguided). Interestingly the stuff you can hoard, such as medicines and pills, is about the only things for which I can imagine there's a notable problem with over consumption.

      Perhaps a more subtle argument can be made that free services means people can do stupid things and society pays for the consequences. So if dental care is free, people will eat too much candy. Sadly, high co-pays doesn't seem to deter Americans from living unhealthy lifestyles.

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  20. This would work great if health care costs were driven by hypochondriacs getting unnecessary routine checkups.

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  21. If anything like free market principles worked in health care then large sophisticated employers (Boeing, the big banks, GE, Caterpillar etc) would have negotiated much lower costs for health services for their employees and split the savings with the employees.

    This is sort of a proof by contradiction - if free market principles worked then they would have have manifested themselves in practice by now.

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  22. And another two things:

    a) Is Levitt committing the pots of money fallacy, thinking that you should put your £1000 into your "health fund", even though it might make more sense for, say, a healthy 20 year old male to use it for almost anything else?

    b) Has he got the NHS problem arse about face? It's cheap - I believe government spending on healthcare (Medicaid?Medicare) is higher in the US per capita/as a % of GDP is higher, despite the fact that government spending is pretty much all the spending there is in the UK. He should have been looking at making it *better*, not cheaper.

    (Hint, it's not the biggest government expenditure. That's pensions.)

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    1. Canada spends less on health care as a percent of gdp than the US but provides pretty good coverage for 100% of the population.

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  23. Anonymous3:57 PM

    I posted this comment on his blog. I wonder if he'll allow it through.

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    Levitt, what the fuck do you think most people would do with that £1,000 cheque? Sensibly put it aside to cover health care or waste it on crap or on bills to just get by? Getting people to go to the doctor early so we can catch diseases in their early stages when they're the most treatable is a big enough problem already. If people have to pay they'll think twice about it and a lot more diseases won't be caught until it's too late and they'll cost more to treat.

    The system we have at the moment is essentially fine. The government automatically takes a percentage of everybody's wage and puts it into the big national healthcare pot that anybody can draw from in their time of need. This is the most rational and civilised way for a country to provide healthcare to all of its citizens. It is a national insurance system the government makes us pay into for our own good and doesn't depend on people being rational with their money because most people simply aren't. If the system needs any changes they are only little tweaks such as the percent of their income that people pay.

    What "low-value healthcare services" would people reduce their use of if the healthcare system was made into a free market? You have no fucking clue how our system works. We don't pick and choose what treatments we'd like to have. We don't just walk into hospitals and demand operations. We are only given treatments that have been deemed necessary by the doctors because they're the only ones with the knowledge to decide.

    And don't claim that the free market will increase efficiency either. The American system is probably the most wasteful healthcare system in the world. Doctors and hospitals prescribe unnecessary treatments so they can charge more. Limiting public spending is already enough motivation for our government to make our NHS efficient.

    GET THE FUCK AWAY FROM OUR NHS YOU FUCKING CLUELESS AMERICAN TWAT.
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    1. Anonymous4:13 PM

      Um, no. Say fuck a few more times and maybe.

      Delete
    2. And don't claim that the free market will increase efficiency either. The American system is probably the most wasteful healthcare system in the world.

      What does the second sentence have to do with the first sentence? I assume you are aware that government in the US accounts for something like 45% of all health care expenditures. Throw in myriad regulations and licensing barriers (my physical therapist wife can't practice across the river in Virginia due to licensing barriers) and your implied idea that the US has some kind of free market in health care becomes downright comical.

      Also, I enjoyed this bit:

      It is a national insurance system the government makes us pay into for our own good and doesn't depend on people being rational with their money because most people simply aren't.

      This captures the leftist mentality quite well: people are too stupid to be left to their own devices, and it is up to their betters in government to look after them. This is why statism is both the most pessimistic and most arrogant philosophy out there.

      Delete
    3. Anonymous9:19 PM

      There is no doubt that government interference creates inefficiencies. It also solves them.

      Do you recommend we get rid of doctor licensing? Cause the other option is having the government correct the inefficiencies they cause - through single payer, for example.

      Do you have an example of a "freer market" than we have in healthcare that is more efficient? No? Why do you suppose that is so?

      Econ 101 taught us all about market inefficiencies. The fact that they exist is not disputed by anyone - and it is neither arrogant nor pessimistic. Did they not teach this in your church?

      Delete
    4. Anonymous4:22 AM

      Of all US programs, the lowest cost per person has MedicAid, not private insurance.

      Delete
  24. Anonymous4:12 PM

    Noah,
    After five years of reported Veteran's Administration problems with "secret waiting lists" in Colorado, Texas, Arizona, do you still feel that single-payer systems are effective and accountable ?

    ReplyDelete
    Replies
    1. Anonymous4:21 PM

      Yes. Are you aware of the rest of the world?

      Do you have evidence that the alternative is better? I sure don't.

      The problem is that the free market fundamentalists are happy to accept whatever pathetic result they get from a supposedly "free market" (although there is no such thing, and they do not actually demand such a thing), but expect nothing less than perfection from any government intervention.

      Delete
    2. Anonymous4:29 PM

      This is still about economics, right? The study of how people use scarce resources? What does scarcity mean to you?

      I'd like to see medical service prices and costs as close as possible to the marginal cost of production. How is this pathetic?

      Delete
    3. Anonymous4:40 PM

      I was hoping this was about economics, but I didn't see any argument made by you that involved any. You asked if single payer systems are effective and accountable, and use ONE SINGLE ANECDOTE as evidence to the contrary.

      I am still waiting for you to prove they aren't. Here is my evidence they are:

      http://www.cepr.net/calculators/hc/hc-calculator.html

      Delete
    4. Anonymous4:57 PM

      OMG. That's evidence? Please, tell me what the predictions were in July of 1914 for the year 1985. The lack of humility in forecasts is just astounding. The burnt fool's bandaged finger goes wabbling back to the Fire!

      I am interested in supply-side medical service prices and costs.

      Entertain the notion that a government monosopony might be slightly more efficient than insurance-cartel-set racketeering prices; but drastically less efficient (especially when intangibles such as fraud and rationing are incorporated) to non-insurance-cartel medical service markets and prices.

      Attack the real problem: $150 for an IV bag that costs $20, for example.

      http://marginalrevolution.com/marginalrevolution/2013/07/surgery-price-wars-in-oklahoma-city.html

      Delete
    5. Anonymous5:36 PM

      You seem to have missed the map there with every single country with more government interference allocating less of a % of their GDP to healthcare than the US - the UK included. IE, all the evidence in the world.

      I'm still waiting for the "free market" counter example...which country exactly?

      One single isolated medical facility does not a healthcare system make.

      Delete
    6. Anonymous8:43 PM

      I don't need to cite some (incomparable scandinavian country) to know that cartel restriction of trade and industrial anticompetitive collusion should be prosecuted most vigorously. Insurance companies and health providers collude to fix prices. Prosecute and see prices go down.

      Delete
    7. Anonymous9:15 PM

      The UK isn't a scandanavian country last I checked.

      The NHS bargains for drugs. Bargains with doctors. Etc.

      Works a lot better. Clearly.

      If we went "more free market" - well, you already see what has happened to drug prices here, without the ability for the government to negotiate for them. And doctor prices. And every other price related to healthcare.

      We *are* the free market example. And a total failure at that.

      Delete
    8. Anonymous9:21 PM

      Firsthand, I can tell you the NHS is not what you imagine it is. Get me comparable prices for what hospitals charge, and I'll believe that we are in a free market.

      Delete
  25. Anonymous4:36 PM

    Noah,

    You are both wrong for one simple reason: this is a supply problem, not a demand problem. The demand is (relatively) inelastic. There is little you can do to effect it.

    Why is it you both concentrate on demand, yet COMPLETELY ignore supply?

    Government intervention may be the cause of the lack of supply (licensing, patents), and there may be good justifications for these interventions. However, the government should then attempt to fix the problem they've "caused" - ie, train more doctors and reduce the price of drugs. There is no reason we should let doctors and drug manufacturers collect economic rent due to artificially constrained supply.

    Or I guess we could go with the freakapinion/conservative plan - don't get sick, and if you do, die quickly. Poor people can't afford $4-5k. And if we pay it for them, aren't we right back to where we started from?

    ReplyDelete
    Replies
    1. Anonymous5:52 PM

      This neglects the fact that under third party payment more providers just means more spending (wikipedia: Jack Wennberg to read more about this). The fact is that the Dean Baker obsession on doctors salaries is totally misplaced. The Incidental Economist had a post about this today. I suggest reading this and following all the links: http://theincidentaleconomist.com/

      Delete
    2. Anonymous6:35 PM

      At no point did I indicate that doctors salaries are the sole problem (and I have not seen Baker do this either). As I've said, "doctors, drugs, etc." And I am well aware that there is a lot to that "etc" but I didn't think everything had to be listed in a blog comment.

      However, it is indisputable that we have a constrained supply of doctors (the AMA and congress ensured this in legislation - it was their highest priority and they clearly succeeded). This clearly leads to outlandish doctor salaries and the transfer of billions of our GDP to these doctors.

      Along with drug companies, administration/insurance (especially private), etc (there it is again). And everything I read over at the incidental economist agrees with these statements.

      Clearly, the answer to all of this is what every other country has found: single payer, where the government negotiates the prices for all services and drugs, patent/drug reform, train more doctors, and not overpay for overpriced/inefficient services.

      But again, these are all supply problems - not demand problems. Pricing millions out of the healthcare market in order to reduce spending is not the answer.

      Delete
    3. Anonymous7:06 PM

      I think we probably agree on more than we disagree. My point is that under third party payment an increase in supply of doctors can actually increases cost. The benefits to single payer come from negotiating their salaries, not making more of them, I think. Also, we should PAY to train our doctors just like all other countries do, at least if we want a competent workforce. See Reinhardt's comment above.

      Delete
    4. Anonymous7:25 PM

      Well, we do pay through medicare for their training/residency, at least part of it. Which is why its limited to 100k per year or so. We need to pay to train twice that, for a while at least.

      I think we have a better chance to negotiate lower salaries if there are more of them available to pit against one another. It has worked for every other industry.

      Delete
    5. Anonymous7:29 PM

      "limited to 100k a year". Do you mean how much doctors recieve? Its only around 50-60 thousand, for a long residency possibly up to 75k. Nowhere is it 100k. And this is all on top of an average medical debt of 169,000. If you amortize this and take working hours into account your average primary care doctor doesn't make much more than a school teacher (not saying this is necessarily bad, but thats just how it is)

      Maybe you are right that training more to bargain down would work. But it would also work to treat our doctors like a public good. You could pay them less if you paid for their medical education.

      Delete
    6. Anonymous9:12 PM

      No, the number of doctors that are trained per year. Well, specifically 110,000 post-graduate residency positions paid for by the US government. Which is what ultimately limits the number of doctors in this country and is creating a massive doctor shortage.

      I think we should pay for 100% of their education. Then pay them half as much forever. It works in other countries.

      I had a roommate go to Mayo. I'm not crying for him any time soon.

      Anyways, for $170k in debt, your payments at 4% (my loans are less than that) is about $800 a month for 30 years on an extended repayment plan. I won't even include the debt eaten by inflation (~2% a year). Total payments $293k. Even at 8%, total payments are $450k.

      Over that 30 years, average 270k salary, $8.1 million, yeah, I think they're doing ok.

      Even if you cut their salary in half, they could make the (worst case) $1250 a month payment with ease. Poor guy might not get his Ferrari as soon though!

      Doesn't make much more than a school teacher? Please. Your math doesn't add up.

      Now think about this: you're complaining about how much THEY make, imagine someone making $8/hour having to pay 1/4 to 1/3 of their entire yearly salary just to cover the Freakapinion deductible if they get sick.

      Some people really need to get some perspective.

      Delete
    7. Anonymous10:28 PM

      I'm totally with you on the Freakopinion plan. I support single payer. I support paying medical education, and I support cutting specialist pay by (almost half). The pediatrician who makes 90k, not so much.

      Delete
    8. Anonymous10:31 PM

      Thanks for responding to my posts by the way. Cheers.

      Delete
  26. Mike Toreno4:52 PM

    I just wish we had some actual observable experience with the proposed UK National Health Service. Since this is brand new (when is it supposed to start? 2016?) and since there are no national healthcare systems anywhere in the world, all we can do is speculate and conduct thought experiments. If there were (for example) 65 or more years of observed experience with the NHS, I would say that Levitt, and anybody who listened to him, are idiots. But in the absence of experience, his speculation is as good a way to analyze the problem as any other.

    ReplyDelete
    Replies
    1. Good point. And wouldn't it be great if there were a number of roughly equally rich countries running different systems over a number of years to allow comparisons to be made. Such a shame there is only the US and UK systems in the whole world to compare. If only France, say, or Switzerland or Singapore had health care too.

      Delete
  27. Anonymous5:04 PM

    Turns out that neither you nor Levitt know anything about healthcare. Healthcare costs follow the 80-20 rule, if not the 90-10 or 95-10 rule. Deductibles that low won't touch healthcare spending, and anything higher will bankrupt those who are ill, especially the ill and those with chronic illnesses.

    ReplyDelete
    Replies
    1. Anonymous5:20 PM

      Exactly: the US "healthcare crisis" is 99% price structure: medical prices are set by backdoor opaque arrangements that generate wild and outlandish price outcomes that have no connection with marginal price of production.

      Get costs down by breaking up cartel pricing. And please, no Diocletian decrees of medical prices (even in our late debased empire).

      http://en.wikipedia.org/wiki/Edict_on_Maximum_Prices

      (And, anticipating, for the love of all holy, nobody is proposing "shopping around while having a heart attack".)

      Delete
    2. Anonymous5:49 PM

      You are right in a sense. If there was no third party payment then prices may come down due to transparency. Yet there is a reason we have insurance: to compensate people for their genetic unluckiness or unfortunate events that happen to them. The American people large feel that if you make 20,000 dollars a year and want a Lexus, then too bad, but if you make the same amount and need lifesaving chemotherapy than we, as a society, think we should formulate a way to make that happen. If we just gave money to people to put in their HSAs we would not have this kind of fairness, not to mention that kids would be at the whim of their parent's finances.

      Delete
    3. "(And, anticipating, for the love of all holy, nobody is proposing "shopping around while having a heart attack".)"

      mmm... It seems to me Levitt is.

      Delete
    4. I was hoping someone note this obvious blind spot on Levitt's part, that with his Cadillac Health Insurance plan at the University of Chicago, and his life deep within the 1% bubble, he probably does not pay anything out pocket for his health care, at least not enough to notice it as anything more costly then a visit to an overpriced restaurant while tasting $400 dollar wine. I just had cataract surgery, and in part because I decided to get the Cadillac replacement lens, its costing me about $2800.00 out of pocket. But not that I had much choice about unless I decided that losing the sight in my right eye was no big deal.

      One great experience with NHS when TDY in the U.K. in the 1990s. I got violently sick at the small U.S. base where I was staying on a Sunday. The billeting office called a taxi to take me to the local hospital ER since base clinic was not open on weekends. I had to wait awhile (no different then a U.S. ER), but then gotten taken care by a nice young German doctor working as intern. When I asked for the bill to send to my insurer, they told me it was was 0.00 and not to worry. The Tory Government wants to change this now so foreigners who find themselves unlucky position will being paying.

      Finally, Noah unfortunately accepts Levitt's framing that the problem with health care and its costs in modern societies is the "consumer," e.g. the unlucky patient who finds him or her self in the involuntary situation of feeling very sick and lousy or in pain (broken bones and shattered knees and ankles leave one in a poor shopping position) and their incentive to ask for "unnecessary care." But the incentives that are pernicious in a private or partial private system is with the suppliers. As Izabella Kaminska wrote in that bastion of the Third International of the Socialist Movement, the Financial Times (that is snark folks), about this debate in FT Alphaville blog and discussed her experience with the semi-private Swiss system compared to the NHS: "...And it wasn’t until the bills followed (with a lag) that there was a realization that you had been totally had. The vast majority of these treatments were simply not necessary. What transpired next was the paradoxical situation where the fear of having your own time wasted by over treatment (not expense) led to the avoidance of the health system altogether.

      Which makes us wonder if American economists and policymakers are so busy worrying about the prospects of patients abusing the system, that they overlook the bad incentives created for doctors and hospitals on the other side when you bring money into health care.

      Also, as everyone knows, big problems start off as small problems, so the earlier small problems can be treated, the better for the health of society as a whole. Unless, of course, the system depends on you getting sick so that it can make profits in the first place." http://ftalphaville.ft.com/2014/05/20/1855722/american-economists-and-the-nhs/

      Delete
  28. Anonymous5:09 PM

    "The worst case for an individual is that he/she ends up consuming more than 8,000 pounds of health care, so that he/she ends up 4,000 pounds in the red (he/she spends 5,000 pounds on health care, but this is offset by the 1,000 gift at the beginning of the year)."

    This is pretty bad for an elderly person with a low fixed income. It is also especially bad for a child whose parents decide not to give him adequate care for his illness. It's also bad for low income individuals with chronic illnesses who are 4000 dollars in the red every year for the rest of their lives. And I still doubt it would save very much money.

    ReplyDelete
    Replies
    1. I'm not quite sure what this upper limit means. Is it per illness or per year? Has he even thought about that? It makes a huge difference - it would be more sensible to have this money in a seperate account, and in non-convertable currency, and when it is used up the government pays.

      Delete
    2. But then (with my previous suggestion) - I'm not sure what the point is in the first place.

      Delete
  29. Anonymous5:41 PM

    I'm no economist, but I've long had a pet theory that the most inefficient of all enterprises are profit-driven corporations with captive customers. It just so happens that most US health insurance providers fit this description. Most of their "customers" get health insurance through their employers and have little, or no, choice of insurer or plan. If costs go up, they can just raise premiums (and they do so) - because what are their "customers" going to do? Go without insurance, or buy prohibitively expensive plans on private exchanges? Perhaps this helps explain why US healthcare is more expensive than UK healthcare.

    ReplyDelete
  30. Patient: I 'm shitting blood, my lymphnodes are swollen, and I have night sweats. pls help

    NHS bureaucrat "the doctor will see you shortly"

    "how long"

    "six months, maybe nine. with any luck you'll be dead"

    "whew..at least it's universal healthcare..those Americans have it so bad"

    ReplyDelete
    Replies
    1. Anonymous7:04 PM

      Lol yeah cause that what happens in the UK (snark).

      Here in the US you can both not know your diagnosis and even if you did not have the money to treat it.

      Delete
    2. Anonymous7:08 PM

      Brit here.

      Sorry, that's complete crap. Patients are prioritised by urgency. An emergency like this would be dealt with in a few hours and only non-urgent cases would be put on a waiting list.

      Isn't that just how it should be? Do you think patients should be prioritised by how much money they have instead?

      Delete
    3. Anonymous7:28 PM

      Patient: I 'm shitting blood, my lymphnodes are swollen, and I have night sweats. pls help

      American intake specialist: "can i see your health insurance card?"

      "i don't have one"

      "you will not be seen. ever. not in 6 or 9 months. go die elsewhere."

      "whew..at least it's not universal healthcare..those Brits have it so bad"

      Delete
    4. Anonymous8:40 PM

      The US can't even run VA healthcare, and you think that they deserve more power?!

      Delete
    5. Anonymous8:50 PM

      Another free market fundamentalist who will places no limits on the failure of a supposed "free market" healthcare system, while demanding nothing less than perfection from any government system.

      If we held the "free market" in healthcare to the same standards you hold the government, we'd ban it from earth.

      Delete
    6. Anonymous9:03 PM

      The scandal at the VA is rougly comparable to what was happening in private HMOS all over the country in the nineties.

      Delete
    7. Anonymous9:06 PM

      Voluntary transactions?! Yes, the point of a gun and threat of jail is much better. Go ahead, put your trust in veteran-abusing, war-mongering, surveillance-happy thugs. Vote for tweedledee or tweedledum, they'll make it better, really.

      Delete
    8. Anonymous10:26 PM

      I love the "point of a gun threat of jail" thing you get from libertarians.

      Delete
    9. There is no "NHS bureaucrat" you have to go and see. The first point of contact is a GP, a nurse, or a first-responder. The gatekeeper to treatment is your GP. this is a fairly basic fact about the NHS and if you don't know it you don't really have standing to comment.

      Delete
    10. Anonymous10:08 AM

      Alex, you know nothing. I've seen the NHS firsthand for years. There is a reason why Britains finances are rotten: the untouchable NHS.

      Delete
    11. SeekTruthFromFacts7:19 PM

      You just don't get it, do you? The whole point of the NHS is that you never have to deal with a form-filling official. NHS patients talk to GPs and nurses. US customers talk to insurance agents, i.e. bureaucrats.

      Delete
    12. Anonymous8:18 PM

      You don't even have the opportunity to speak with a bureaucrat in the UK. They ration behind the scenes, and ignorance is a socialist paradise. Line up, you sick ladies and gents!

      Delete
    13. Anonymous4:45 AM

      I'm not in UK, but we also have single-payer system (much poorer than UK, though. If you, for example, need bypass surgery, options are as follows:
      -situation is not life-threatening, you will be able to live for years, although quality of life may be worse: waiting list, 3, 6, 12 months, maybe even more
      -stable condition, but can be life-threatening: as long as doctors need to do full pre-operation tests (some days, typically in the hospital the whole time)
      -cardiac arrest or pre-arrest state: as long as they need to prepare you for surgery

      So, elective procedures and procedures that may improve quality of life - you have to wait. Procedures that save lives or serious situations, including serious worsening of quality of life - immediately.

      Delete
  31. Anonymous7:32 PM

    I look at socialized medicine like the ER in the medical school where I study. Everybody is treated, those who are not serious wait, customer service is mediocre, and care is absolutely excellent and egalitarian. I think the pros outway the cons.

    ReplyDelete
  32. Anonymous8:57 PM

    Woot! Murican people paying full charge for medical care! Woot! Woot! Will the docs and hospitals start taking chickens and pigs as payment? Might just take the whole farm or what ever equity in your house as payment. Tea Party wants smaller government and what they might get is a much smaller medical system as well as a much smaller military. That will be the day when Pigs Fly!!!!

    ReplyDelete
  33. Oy, with the deductibles-solve-all thing again.

    If people have to pay the first about $3,400 in medical costs, how many people are going to skip the colonoscopy? How many people are going to wait on those cavities – be forced to wait on those cavities because the money's not there – and then they're root canals costing ten times as much? How many people are going to not have that infection looked at, so then it turns into a dangerous staph infection that keeps them in the hospital for six months of round the clock care, earning no income, and maybe dying. How many will scrimp on the blood pressure medication, and then have a stroke that costs hundreds of thousands in care and lost income, or more.

    How many are scared to go to the doctor, and hate it, and don't want to miss work, and now there's the giant deductible on top to make them not go. People usually don't have close to the advanced knowledge to discern when a treatment is worth it; it's 2014 not 1810. And on top, they may usually err on not going due to the unpleasantness and self-discipline required. Even with zero deductible, they may err on consuming too little -- not too much. Now you add in they have to pay the first $1,700!

    A deductible of any amount could easily make things less efficient -- not more, not that a libertarian or plutocrat would care. It's all about less government/less taxes on the wealthy no matter the suffering and loss, or plummeting of total societal utils.

    And what if they don't have the first $3,400, or half of the cost after that up to $13,600 (Gee, almost no one doesn't have $10,000 sitting around.), let em' bleed out in the street? Let them walk around in excruciating pain with a tumor in their leg the size of a baseball that could have been taken out when it was the size of a pea?

    Look who I'm asking, libertarians or plutocrats.

    ReplyDelete
    Replies
    1. This is a long old issue of people not wanting to go to the doctor or dentist, even when it's clear that it's efficient, and the benefits dwarf the costs, and there's little or no deductible. There's probably been a lot of research done on this to help quantify the problem. Of course so many right-wing and freshwater economists just solve the problem easily -- Assume it doesn't exist! Also works great for asymmetric information, externalities, natural monopoly power,...

      Delete
    2. As one small example, I do remember seeing some research on flu vaccines showing that even the private benefit is far greater than the private cost -- and then the externalities -- Yet so many people don't run down to wait in line to get a needle through their skin. Who'd of thought. Now apply this to vaccines for polio and massively killing diseases with your you pay the first $3,400.

      Delete
    3. Established theory in in economics, and this includes externalities, asymmetric information, self-discipline and delayed gratification problems, etc., does not say that the optimal deductible must always be positive and as large as possible. It can be even negative, or large and negative. This is an empirical issue based on estimation of the size of these market problems, not something to be assumed away to trick people into supporting more an ideology few would ever come close to supporting if they fully understood the implications -- and this is precisely why libertarians have no choice but to constantly horribly mislead and outright lie, making them so exasperating.

      Delete
    4. Sorry, I used to be an angry young man...Now I'm an angry middle aged man. Look forward to being an angry old man! But, even in comments, better be more careful and mild in tone.

      Delete
    5. Anonymous5:28 AM

      Some of the research I've seen has shown that not only is a large deductible awful when it comes to outcomes and efficiency, but that the optimal deductibles vary greatly between each and every procedure and medication. So, a $4k deductible is like using a hatchet, when (at best) we need to be using 1000 different finely ground cutting implements.

      Imagine getting a book with your healthcare plan and sitting in the doctors office sick trying to determine which deductibles you should pay, and which are set high enough that you choose not to undertake a specific treatment or test.

      IE, the whole thing is flat out stupid. More neoliberal claptrap.

      Delete
    6. http://www.rand.org/news/press/2011/03/25.html

      "Largest Study of High-Deductible Health Plans Finds Substantial Cost Savings, but Less Preventive Care"

      ""We discovered that costs go down dramatically during the first year people are enrolled in high-deductible health plans, as long as the deductible is at least $1,000 per person," said Amelia M. Haviland, a study co-author and a statistician at RAND, a nonprofit research organization. "But we also found concerning reductions in use of preventive care. This suggests people are cutting both necessary and unnecessary care.""


      The idea that the problem with health care is that too many people might have access to it and the solution is to limit access is morally repugnant.

      Delete
  34. Okay, the Levitt post now has more comments than the racism post. So healthcare drums up more trolls than racism, I guess?

    ReplyDelete
    Replies
    1. Anonymous10:22 AM

      Riiiight. Disagreement is trolling. Just do what you say, huh. Solipsism is fun eh?

      Delete
  35. Oh, hey, libertarios, why don't we have a $3,400 deductible on public K-12 schooling, and stop all that waste of children getting too much education! Genius! Of course masses of illiterate citizens, devastated total societal utils, horrible stunting of scientific advance, that's nothing compared to not giving up even one micron of personal freedom for even one person.

    ReplyDelete
    Replies
    1. Anonymous10:28 AM

      Right. US state run education is entirely effed, and the solution is... More cowbell!

      Delete
  36. Insurance companies, especially single payer systems, can exercise monopsony power over health care providers, bringing down costs. This is a powerful countervailing force to the monopoly providers have in many areas.

    Insurance providers also provide valuable information about medical necessity through their coverage schedules. Sometimes it's just a way for them to get out of paying for stuff ... but very often it's because that stuff isn't effective, or those procedures aren't more effective than less costly ones.

    It costs health care providers a lot less to chase down unpaid bills from insurance companies than from individual patients.

    When consumers are faced with high out of pocket costs, they will often skip needed or valuable preventative care, even that which pays for itself in the long run. This is especially true of people lower on the income ladder, who have a higher time discount rate for money.

    There are many people for whom 4000 GBP is an unattainable sum, even for important medical care expenses for themselves or their dependents.

    Leavitt's proposal really is kind of silly, blithely ignoring the realities of the health care market in favor of the ideal market model his ideology has him assuming exists. I think Noah is being overly kind to Leavitt in his blog post.

    ReplyDelete
  37. So... Levitt wants a system where the more healthcare you consume, the cheaper it gets? How is this not enormously distortionary? Most benefit will go to people with lots of money taking lots of elective treatment, whilst for the poor this plan will basically make no difference at all. Not to mention the scope for tremendous exploitation by providers setting up their prices as high as possible. Hey sir, take this 'treatment', it costs $1m but we'll give you a $9k gift at the end!

    ReplyDelete
  38. Anonymous7:07 AM

    So when I was lying in an ambulance last week, I should have had the ambulance drive around for a while as I negotiated the best bundle of deals for my emergency care? As if that is even remotely possible.

    At the point people need care, they are in no condition, nor have the time and resources, to make price-based decisions. Furthermore, there is no transparency in prices that would allow such a comparison, and prices vary based on who is paying.

    ReplyDelete
    Replies
    1. Anonymous10:41 AM

      Derp Derp * shopping around while having a heart attack * Derp derp.

      Delete
  39. Someone has made this point, but I'd like to bang it on: Levitt's plan is arse about face. If the point is to make people "responsible" and "look after their health"...well, the catastrophic conditions they might be more likely to get if they don't are precisely the ones it pays for in full.

    (Also, someone upthread points out that the NHS is pretty sceptical about having folk into the surgery for checkups. This is, ISTR, because they did the numbers and found that it doesn't really do you any measurable good. Americans, in my experience, are always in and out of the doctor's precisely because they are terrified of medical bankruptcy. I wouldn't be surprised if bill dread is a substantial driver of overtreatment/overdiagnosis, and the worrying is itself a cost and probably not very good for your health.)

    ReplyDelete
    Replies
    1. Anonymous10:44 AM

      The threat of medical bankruptcy is because of bizarre outlandish medical prices, not because of coverage.

      Delete
    2. Its at least in part because of medical conditions, not medical practices. I have a rare illness. If I take a shot of DDAVP twice a day, I'm a normal functioning individual. If I don't, I dehydrate quickly and I'd die in about a day.

      My drug cost alone would bankrupt a median income household.

      Delete
  40. Noah,

    If you liked Levitts idea, you might really like this Warren Moslers idea taken from his website and pasted here;


    Mosler Health Care Proposal

    As a matter of economics and public purpose it is counter productive for health care to be a marginal cost of production.

    No economist will disagree with this. Unless going to work makes one more prone to needing health care, making the cost a marginal cost of production distorts the price structure and results in sub optimal outcomes. Therefore government should fund at least 90% of health care costs paid for by businesses.

    Long term vision subject to revised details:

    Everyone gets a ‘medical debit card’ with perhaps $5000 in it to be used for qualifying medical expenses (including dental) for the year.
    Expenses beyond that are covered by catastrophic insurance.
    At the end of the year, the debit card holder gets a check for the unused balance on the card, up to $4,000, with the $1,000 to be spent on preventative measures not refundable.
    The next year, the cards are renewed for an additional $5,000.

    Advantages:
    Doctor/patient time doubled as doctor/insurance company time is eliminated.
    The doctor must discuss the diagnosis and options regarding drugs, treatments, and costs with the patient rather than an insurance company.
    Individuals have a strong incentive to keep costs down.
    Doubling the time doctors have available for patients increases capacity and service without increasing real costs.
    Total nominal cost of approx. $1.5 trillion ($5,000×300 million people) is about 10% of GDP which is less than being spent today, so even when catastrophic costs are added the numbers are not financially disruptive and can easily be modified.
    Eliminates medical costs from businesses, removing price distortions and medical legacy costs.
    May obviate the need for Medicare and other current programs.
    Eliminates issues regarding receivables and bad debt for hospitals and doctors.
    Eliminates the majority of administrative costs for the nation as a whole for the current system.
    Patients can ‘shop’ for medical services and prices as desired.

    Disadvantages:
    Those more in need of the rebate at the end of the year may elect to forgo treatment beyond the $1,500 not subject to the rebate.
    Doctors may be able to more easily convince patients of unneeded treatments and expensive drugs vs insurance companies.

    ReplyDelete
  41. Anonymous9:21 AM

    With 100 posts, I can't be sure someone hasn't put this already, but the Alphaville blog at the FT has just commented on the debate:

    http://ftalphaville.ft.com/2014/05/20/1855722/american-economists-and-the-nhs/

    ReplyDelete
    Replies
    1. Anonymous10:47 AM

      ... In which she's skeptical about the NHS, but does note the amount of (perhaps-misplaced) pride in they system. Stockholm syndrome anyone?

      Delete
    2. That's an interesting way to mischaracterise her post.

      Delete
    3. Anonymous11:37 AM

      Read the comments. Brits evaluating NHS based on actual experiences, unlike this echo chamber.

      Delete
  42. Levitt: "But it doesn’t take a whole lot of smarts or a whole lot of blind faith in markets to recognize that when you don’t charge people for things (including health care), they will consume too much of it. I guarantee you that if Americans had to pay out of their own pockets the crazy prices that hospitals charge for services, a much smaller share of U.S. GDP would go to health care."

    This appears to make two basic errors: 1) that people want healthcare in the same way that some people want ever more luxury goods, clothes, jewelry. No, most people want to get out of the hospital as soon as they are done needing it, as soon as all tests are negative. 2) that the need for healthcare is the same as the demand for healthcare. No, the real need for healthcare is independent of its market (failure) price.

    ReplyDelete
    Replies
    1. Some examples of Levitt's point:

      1) I took my kid to the ER a few month ago because he had a "croupy cough". The bill, which I only saw after the fact, was $6k. I would've had him breath in the cool night air as the nurse recommended if I had to pay that bill.

      2) The entire experience of infertility treatment when my wife's insurer paid for most if it. We were "throwing things against the wall to see what sticks" as a matter of practice.

      3) The last days of my father's life when he was having procedures for no good reason other than "we can try.....".

      I have 4 children, so I have a lot of interaction with healthcare, and I see Levitt's point constantly.

      Delete
    2. What is the moral? "Everyone is going to die, so why bother giving them healthcare if they don't have the money in their pockets?" or, "We didn't really want to have a baby anyway?" or, "Maybe it's only a little cough, let's wait and see if it gets serious?" All of this, to save face for the price system, upon the silly idea that resources are constrained by nature in this sector?

      Your examples illustrate my point, not Levitt's. None of that healthcare was "overconsumed". If you don't know what's going on, you do what need to, to find out. Again, you are mistaking the consumer demand for healthcare with the need for it. Charging people directly won't make them need it any less.

      Delete
    3. Lee A. Arnold,

      You seem to be moving the goalposts. You denied that healthcare works the way Levitt says it works, then Dan gave you examples of how it does. He did what he did because of insurance - particularly with his example #2, "trying everything" doesn't seem to be the way any nation wants to encourage its medical consumers to behave. But generous insurance does just that.

      Not sure what you mean when you call the idea that resources are constrained in this area "silly."

      Delete
    4. In all 3 cases, the service wasn't needed, it was consumed by choice as the cost to us was so low. We definitely over consumed. This happens all the time. Resolving this particular issue isn't a panacea by any means, but not having to pay (or paying an insignifiant sum) definitely impacts the decision making.

      Delete
    5. Did you KNOW beforehand that it wasn't needed? Did you receive healthcare services longer than you thought was required, at the time?

      Delete
    6. Bill Ellis11:22 PM

      Dan, In regarde to your acatodaotal exmaples, you can only say the service was not needed in retrospect. You were not qualified to make those decisions in the first. (That you were not qualified is self evident.) Because you are not qualified the right thing to do was to seek the care of someone who is. Right ?

      Your anecdotes could have just well ended completely differently for all we know.

      Having People pay out of their own pockets won't endow them with the ability to make Better medical decisions. It will cause them to put off seeking help though.
      Sometimes it will work out fine, sometimes it will be tragic.

      If there is a problem with overspending on UNnecessary health care the blame lies with the doctors, who are recommending and prescribing unnecessary treatment.
      Limiting people's access to good and needed health care seems like a poor solution to stop doctors from prescribing Unnecessary health care.

      Delete
    7. J. Jeffers: "You seem to be moving the goalposts."

      Wait a minute! Levitt wrote, "But it doesn’t take a whole lot of smarts or a whole lot of blind faith in markets to recognize that when you don’t charge people for things (including health care), they will consume too much of it."

      But I have to agree with Bill Ellis. I think it is VERY clear that Dan did NOT consume "too much of it". Unless Dan is claiming omniscience: that he knew beforehand that the cough wasn't a problem; he knew beforehand that this was a waste. (Or he is making a fallacious ex post rationalization.) Otherwise he did not use any more healthcare than he thought was necessary at the time, necessary for health or for peace of mind. Evidence is he then exited the healthcare treatment when resolved or concluded. In all three cases.

      That is certainly how "any nation" SHOULD "encourage its medical consumers to behave". Because then, we will KNOW when we are meeting needs. In this area, "need" is different than "consumer demand". A deficit-in-being that requires healthcare makes a need that is far different than the want of a bigger-screen TV for consumer satisfaction.

      So you're right I moved the goalpost, but I moved it before I began at Levitt. Because I don't accept the weighting of his priors. His observation -- "if Americans had to pay out of their own pockets the crazy prices that hospitals charge for services, a much smaller share of U.S. GDP would go to health care" -- is a small and subordinate part of the total policy problem, and economists ought to be ashamed of themselves if they make any representation about it, other than to add the clause, "and it is the last thing to worry about."

      It seems to me that this is what DeLong once called "one-equation blackboard economics", a kind of medieval scholastic brain-exercise, without useful import in an N-compartment system (the economy, the society) with many, many more connections than that. Doesn't the second-best theorem guarantee that you couldn't even claim greater allocative efficiency for the general equilibrium?

      On the other point: The static view that resources are constrained in this area is not a good guide to policy, either. There is nothing on the supply-side that is physically limited or cannot be substituted. If the U.S. gets all "hidden demand" made into "effective demand", by enacting universal access to healthcare, then it will train all the doctors and nurses it still requires. What is the downside of "growing" an economic sector so that it meets people's needs? there will be ancillary growth in related sectors: construction, retail, education. Dynamic view even goes further: making sure that poor workers are healthy and productive not only reduces future social cost, but probably also bends the potential GDP upward. What is really constrained here? How could a dynamic view find it to be anything other than silly?

      P.S. Yes there are people who use too much healthcare. Hypochondria. Münchausen syndrome. Elective cosmetic surgery.

      Delete
    8. In the case 1, it was far from the first time we've dealt with croup. When I go in, I tell the triage nurse it's a croup cough. They often just give us the steriod right there in the triage room w/o having to go in the back. It's something like $50 out of pocket for me. Well worth the easy of mind. At $500, I'd take the kid out back and let him breath in the night air (and the end of each visit, someone always tells me try it next time in lieu of coming in.)

      For point 2, we knew the odds of certain treatments working were very, very low. Again, it was worth trying as our costs were amazingly low. Friends of mine who went through similar experience jumped to IV much quicker as each step in the process was more expensive for them.

      For point 3, the Dr was clear that the procedure they were going to attempt had very little chance of working. Again, with very little cost to us, what did we care.

      I agree that some procedures are worth the expense. It's always tough to know whether you actually need a given service or not. When your costs are really low, or zero, it becomes much easier to do something "just because".

      The whole point of these anecdotes is to show that there are situations where medical/healthcare choices are very similar to other market choices. Not all, but some. And the more I interact with the system, which is all the time now, the more I see Levitt's point.

      Delete
    9. Anonymous3:02 AM

      They problem wasn't that the incentives were incorrect for you, the problem is that the incentives were incorrect for the doctor. THE DOCTOR is the one that is supposed to ration care based on its cost and effectiveness - this is what they go to school for, no?

      You are not supposed to know whether or not a procedure is useful. You are not the doctor. Otherwise you'd be treating yourself.

      Our problem is that doctors make more money the more than do. They have an incentive to keep the number of doctors educated in this country to a minimum. Etc, etc, etc.

      Once again, this isn't a demand problem. It is a supply problem. We don't have enough good doctors that are more concerned with proper, appropriate, efficient treatments vs. making money.

      Doctors would bill insurance companies a million dollars a head if they could get away with it.

      And there are very few situations where medical care is similar to other market choices. Especially the most expensive treatments. If a doctor tells you he has to cut a hole in your artery and go root around in there to keep you alive longer, are you going to say no? Are you going to know how much this should cost or if its cost effective or will even keep you alive for a single day longer? But gee, turns out that doctors that do angioplasties in order to make more money have an incentive to do as many as they can possibly justify - regardless of their actual usefulness.

      Which is why we need a big ol organization to track all these stats, determine the usefulness of procedures and drugs, and set rates accordingly. Gee, I have an idea, why don't we all pick representatives that could meet up some time in a giant organization that would set up a board that could do this. If only I could think of a structure that existed that could do so...

      Delete
    10. Lee,

      Peace of mind is not something I feel obligated to provide universally and not something I expect in return. And you're quite willing to use the word NEED as if it's a trump card. Not only that, but using the word interchangeably to apply to things that in Dan's example clearly weren't need in the strictest sense of the term. I'm all for catastrophic health insurance which I think handles need the way most people understand the term.

      As for there being no constraint to supply, my understanding is that every health care system in the world deals with constraint in one way or another. In other words, no system grants its consumers' "needs" to the extent that they would have the peace of mind you seem to be in favor of, judging by your replies to Dan.

      Delete
    11. Anonymous,

      I agree that Doctors, and their incentives, are part of the problem. Of my anecdotes, this is most applicable to number 3. But what would you have the Doctor do in the other cases? Refuse service because the odds of success of a given infertility treatment is less than 25%? The decision making process isn't that easy.

      Delete
    12. J. Jeffers,

      1. I was only trying to point out that Dan did NOT tend to infinite consumption of healthcare. Something else is going on that limits healthcare demand. It was not an endless traveling party caravan, eating lobster after lobster in restaurant after restaurant. Far from it: it stopped. And this I presume was under the old health insurance system.

      Therefore Levitt's observation that if "you don't charge people for things (including health care), they will consume too much of it," is NOT a conclusive argument in favor of the market and against another main form of rationing, e.g. government monopsony.

      Because something else is going on that limits healthcare demand: Perhaps it is because you have to spend time doing it; you have to drive to doctors' offices and hospitals; it puts you in compromised positions; there is usually pain of some physical or mental sort involved.

      2. In the case of either form of rationing (or as we could say, whether under market failure or government failure) the important healthcare question is what causes peace of mind. For millennia, really. Now, nobody should EXPECT peace of mind; that's a different question. But if you are a bystander who is in favor of a healthcare system that does not feel obligated to provide access to medical peace of mind, a bystander who walks aways from a traffic accident when victims are still in need, then many of us may not join your social voting preference.

      Delete
    13. Taking things backwards, I'm sure many people do not share my voting preference, but voting tends not to be fine-grained enough to separate left-neoliberals and social democrats, at least not in the U.S. So we'd probably vote the same in the American context, regardless of the arguments on the blogs.

      But, on the traffic accident example, again I think you're not providing an apples to apples comparison. Dan gave you examples that were questionable in terms of whether an actual need was being met. The traffic accident example conjures up images that work rhetorically to create a sense of need that no one would argue with - at least no one in this conversation.

      Levitt didn't say that medical resources would be consumed infinitely, he said too much. Now, if you want me to admit that there's no metaphysically neutral way to decide what amount is "too much" then I will, but I think we might be getting too persnickety if we got into that. Dan was saying the care he sought he might not have otherwise. Your idea is that you can never know that beforehand, but I think your overestimating the sense if which socialized medicine or single payer manages care. I mean, it's not horrible or anything, and it's more generous than what the U.S. currently has, but every system confronts where to draw the line fiscally, (as price at some point becomes a fiscal matter) and from what you've said so far I think you would be disappointed with every system, as at the margins there could always be more money spent to have peace of mind, this decision isn't always made. In fact, this is what many proponents of single-payer and/or socialized medicine promise us, so as to assure us that the systems are responsible.

      I think the idea many neoliberal-ish people have is that most of the compelling reasons the left offers can be accommodated without full-on single payer. For example, talk of being one medical emergency away from bankruptcy could be handled by a Singapore-ish system with forced HSAs and catastrophic single payer. If you want to say this is the same as full on single payer, fine. Or, if you think single payer or socialized medicine is more moral, okay, but the difference doesn't seem great enough for a feud lasting more than a few back and forth comments, I think.

      Delete
    14. I think we should have a two-tier system, and I expect that is where the U.S. will end up: A monopsonistic level that includes all basic healthcare coverage for everybody, and a private market on top of that for people who want additional coverage and can afford it, covering new treatments, rhinestone-encrusted lifestyles, concierge service, elective cosmetic surgeries, etc., and is likely to encourage more private technological innovation.

      And that dividing line between monopsony "basic" and private "extra" will be drawn, and changed periodically, by some panel of medical experts advising a legislature, with voter input. The usual way.

      I don't trust neoliberals, social democrats, conservatives, or anybody else, and I don't argue from a political doctrine. I don't even think fiscal concerns are important in some cases such as this one.

      What I see is that economists focus on cost reduction by markets and prices, and ignore cost reduction by other institutions: institutions in general. For example, it seems to me that HSA's introduce an unnecessary transaction, for no value added. It is a waste of spacetime. We should decrease transaction costs, not increase transaction costs.

      The healthcare system should give everybody access to basic coverage regardless of ability to pay. Print the money, if we have to.

      Because you are right, you cannot know beforehand. With specific regard to healthcare, we should AIM to make "our poorest beggars in the basest things superfluous." That is not the way it is right now.

      Delete
    15. Anonymous6:12 AM

      Dan, how would your cases look in reasonable single-payer system:

      1. Doctor would check the kid's throat, temperature, medical history and listen to kid's lungs. If everything is in-line with your assumption and previous medical history, he would became minimal therapy (like steroids, if indicated), and you would be instructed to return if things get worse. Only if doctor sees something that indicates more serious problem (for example, hears indication of pneumonia on his lungs), there would be further tests.

      2. Doctor would prescribe methods based on his assessment of your status and problem, modified by your wishes. If indications are that sum methods have much less chance than In-Vitro, and you are prepared to go In-Vitro, he would skip those methods. Sometimes, if you wanted certain procedure, and doctor said it's too low chance, better to go to the next one, you could go to the commission to determine if they would allow the procedure (unlike your insurers, in single-payer systems those commissions decide only on procedures your doctor said weren't needed, so elective, and not life-saving ones).

      3. Differs highly from doctor to doctor. Some would try everything to prolong life, some would try minimum, to get rid of the patient as early as possible (thankfully, rare case), and some would, correctly, present you with possibilities, chances for success and price in terms of your father's suffering for each one, advising some he thinks would work and won't be too uncomfortable, and advising against those which are painful with low/no chance of success.

      Delete
    16. There's no difference in case 1 as the healthcare was basically free to me, so I was taking him into the ER rather than the alternative of taking him outside. The resource is used either way.

      In case 2, "the commission" is the arbiter of whether a service is consumed or not. In such case, let's hope the commission is whiling to deny specific, highly emotional services. My point was that if we were paying more ourselves, we would've done the commission's job. In the case of infertility, the probabilities of success are really well know, but they're just probabilities.

      In step 3, we would have likely gone forward with any procedure provided there was no cost to us. Starting charging my Dad $500 per and he would have called it off.

      "The commission" is always an interesting alternative to patient based decision making. Personally, I would rather have "some skin in the game" and make the decision myself. While I think "commissions" make sense in theory, they're a lot harder in practice. For example, in the infertility case, would they really deny a service that has a 15% probability of success to fast track someone towards one that's more expensive with a 33% probability of success? The decision matrix isn't as clear in practice.

      The "commission" versus market-based approaches of rationing is it's own, long discussion. I still think my original point has stood under all this: there are healthcare decisions made based on cost and the demand curve does slop down. In your original point, you indicated you think the Dr. should be the one making the decisions about usage. I think it validates my OP, and not it's just a discussion of rationing approaches.

      Interesting topic none the less.

      Delete
  43. Someone else somewhere commented your first health care article on Levitt with "Levitt has not read Arrow". That still holds true. Arrow spends the whole article discussing why institutions in health care are the way they are.

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  44. If you really think people are rational, you shouldn't worry about people overusing health services. Give people information about health improvements with exercise and an adequate diet, even pay them to do things to stay healthy. Then, use a single payer health care system, which is the cheapest way to provide health care to your whole population. Of course, people like Levitt think that being rational is not about having a better life, but about being richer. You are only rational if you maximize your consumption according to them.

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    Replies
    1. Fluffy2:29 PM

      We don't want the cheapest. We're capitalist. We want the most profitable so that we can afford to retire one day.

      Try my theory on for size. I believe any program, such as ObamCare can be represented by a single number. This amount of cash would compensate everyone for their loss if the program were rescinded. For some it wouldn't be enough but on average, the majority would be indifferent to the pay out or the continence of the program.

      I think the number would be an embarrassment for the current administration.

      Delete
    2. What you mean "we", Paleface? [note - punchline to illustrative joke; not meant to indicate any sort of personal attitudes or feelings; I preemptively apologize unreservedly to anyone who takes offense; void where prohibited by law; YMMV] You may feel that way, but don't go loading me up with your wants and feelings. Personally, I want (at the least) sufficient affordable healthcare for all of us that none of us have to go without due to lack of resources. If you can't see the inherent problem with this statement: "We want the most profitable so that we can afford to retire one day.", then your problems are going to harm not just you, but all of us around you. I'm not sure you're a cynic, by Wilde's definition - my guess is that you don't actually fit either half, although you may be convinced that you do.

      Delete
  45. Anonymous3:18 PM

    One cost that never gets measured is lack of political and economic flexibility.

    Voting in government healthcare is "one vote, one time" event -- I have never seen a government voluntarily eliminate it's powers over the medical economy once they are established.

    This lack of flexibility has real-economy fiscal consequences: entitlements are untouchable and tend to grow in real terms over time.

    You can check into to single-payer, but you can never check out.

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  46. Bill Ellis10:43 PM

    "But it doesn’t take a whole lot of smarts or a whole lot of blind faith in markets to recognize that when you don’t charge people for things (including health care), they will consume too much of it. "

    I hear this a lot... But I really wonder how big a part of medical overspending it is.

    I think for most people, myself included, getting medical care is generally unpleasant. Beside an annual check up, I only seek out health care when I am compelled to.
    Who likes to be poked, prodded and intimately examined ? Who likes to have to take medication? Who likes to have surgery performed on them ?
    Where is the big incentive to consume more of that ?

    If you don't charge people for an unpleasant experience they won't consume more of it.

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  47. Bill Ellis11:24 PM

    If there is a problem with overspending on UNnecessary health care the blame lies with the doctors, who are recommending and prescribing unnecessary treatment.
    Limiting people's access to good and needed health care seems like a poor solution to stop doctors from prescribing Unnecessary health care.

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    Replies
    1. Anonymous3:07 AM

      Bingo.

      Again, so easy, so obviously we should complicate it as much as we can.

      The obvious answer is to stop paying doctors to do things, and instead pay them to fix problems. I used to hear economists speak about these "incentives" things...I wonder what happened to all that...

      Delete
  48. Anonymous1:12 AM

    Oh, oh! Levitt, look at me!

    ReplyDelete
  49. One more very important thing, the pink elephant of economics, positional externalities. Suppose you add a $3,500/year deductible (and another $7,000 for the first $14,000 in health care). You're going to have a lot of people forgoing treatment and prevention which will have a big effect on their health and productivity. But, less healthcare, more money in your pocket – at least in the short run until it starts affecting your productivity. So people get even more wood and granite and leather in their houses and cars. But when everyone starts tearing down their walls for open floor plans, and putting in wood and stone and gold and platinum, the utility per person plummets, because these things are very high in positional externality utility, very zero sum game.

    The end result is people are much sicker, feel much worse, are much less productive and more stressed, experience much more tragedy, and in return the added wood and stone and leather and bigger computer panel in their car provide them little or no added utility (even negative in some cases, comparing the comfort of carpeting to wood and stone), because once everyone starts spending more on these things the positional feel goes away (and you get used to your position to a large extent anyway).

    You end up with a society spending way less on a highly non-positional in exchange for spending way more on positional goods. And as a result societal welfare, or total societal utils, drops greatly. And we've seen this kind of thing again and again over the generation of right wing dominance, making society more and more haggard, stressed, and at risk. See, for example, The Great Risk Shift, by Yale's Jacob Hacker. For more on positional externalities see:

    http://delong.typepad.com/sdj/2012/02/richard-h-serlin-on-envy-and-spite.html

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  50. Anonymous7:47 AM

    Dress up his arguments in an optimization model and suddenly it becomes authoritative.

    ReplyDelete
  51. Anonymous3:56 PM

    I have noticed that proponents of market based solutions for healthcare spending (high deductibles/co-pays, i.e. more skin in the game vs "free" healthcare paid by insurance) never seem to tackle the fact that the majority of healthcare spending is used for a small percentage of the population.

    Assuming that these people are largely very sick, and that the majority of the healthcare they consume is necessary, I don't see how higher deductibles will have any effect on spending other than to price lower income people out of the market. Perhaps I'm underestimating the downward impact on prices such policies would enact, therefore making it possible for even very ill low income people to afford treatment, but it still seems like it's rather unfairly pushing the burden of fixing the health care system onto those most in need of medical care.

    Additionally, it would therefore seem like the majority of Americans are not "over-using" healthcare as such, and that rather we are over-paying for the treatment which we currently recieve.

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  52. I have always wondered why we actually care how much Americans spend on health care vs the British (or Scottish, or other Europeans for that matter). When I lived in England, no body had LASIK, both my wife and I had it.

    Americans also have bigger cars, bigger houses, and more stuff in general than Europeans. But the British also drink alcohol like fish. It's not uncommon to see a bunch of teens at a British party drunk, in front of their parents. In the US that would be atrocious and may even have criminal implications.

    Why do I actually care if we consume more or less healthcare? If someone wants to pay $15k for a boob job, or 2k for LASIK, whatever.

    Judging from the size of the deductibles I saw on the Obamacare .org site, and the deductibles for my own employer-sponsored plan, seems like we are really not that far off Levitts plan (high deductibles and copays, then everything after a certain amount is covered 90%).

    I would like fewer things to be covered under health plans and paid for out of pocket.

    Overall, I could not care less whether we consume more or less than England, and I dont know why I should care. What I do care about is making it cheaper, and to do that maybe we need to stop choking off the supply of doctors in first year Organic Chem, by making ridiculously hard exams designed to fail half the class. I took OChem, and the teachers came right out and told us half the class would fail. I have never met a doctor who could actually recall the Fischer–Tropsch process, or knew why they needed to know it. Although, the purple explosive goo in lab was quite fun.





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  53. Bill Ellis5:28 PM

    And I suppose If we made education free, people become too educated...at least from the perspective of the .01%

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    Replies
    1. Anonymous2:47 PM

      Yes, state run education has been doing a great job... in 1912.

      What instrument does the 0.01% use to dumb down people, anyway?

      http://www.bullittcountyhistory.com/bchistory/schoolexam1912.html

      Delete
  54. This post is so incredibly dumb and stupid - even from an "economics" point of view. When I have a broken leg - how do I "shop around" for the best price at an Emergency Room? What I actually do is go straight to the nearest Emergency and pay whatever they ask. And how does the "market" control that price?? Answer is it CANNOT and therefore you end up with price controls and if you end up with price controls where is the "market"??

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  55. I'm sure someone has mentioned this already, but I didn't see anything in the comments I skimmed - Australia has a very similar system to what Levitt describes, though what we call the safety net kicks in much sooner (currently at about $1300). Health care delivery is provided privately, with our public regulator (Medicare) picking up some of the tab for everyone (including those with private insurance). Once you've spent your $1300 in a single year, Medicare starts picking up more of the tab (though this only applies to non-hospital expenses). The health insurance market is heavily regulated (community rating, premium oversight), but we're all encouraged to take out insurance via the tax system. And it works quite well, so I can't help thinking Levitt isn't quite so clueless....

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    Replies
    1. 1. You completely misrepresent the health care system in Australia http://en.wikipedia.org/wiki/Health_care_in_Australia
      Basically, the government pays most of the cost of primary care, users only pay a small proportion before they go on to the safety net.
      2. You misrepresent Levitt's system, because it gives people money and then leaves them mostly to themselves.

      Apart from that your post is fine.

      Delete
  56. This comment has been removed by the author.

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  57. "But Americans pay a lot more out of pocket for any given health care procedure than do British people. We have much bigger copayments than they do. And yet we spend more on health care, not just overall, but for equivalent procedures. That fact does not seem to fit with Levitt's worldview. Perhaps a more complicated model - as in, theory - is warranted here. "

    But Levitt is U of C they don't fit models to the real world, they try to fit the real world to their models.

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