Map of life expectancy at birth from Global Education Project.

Friday, January 28, 2005

Consumer Driven Health Care and other fantasies

As I first discussed in Frist!, below, our wise leaders want to move ahead with the Ownership Society by getting people off of that socialistic comprehensive health insurance and into medical savings accounts backed up by high deductible, "catastrophic" insurance in case they should be run over by a bus. In that way, they tell us, control over health care will be in the hands of consumers, by which they really mean that we'll be paying for most of it out of our pockets although they don't quite put it that way.

The idea of consumer sovereignty that they're invoking is another one of those profound economic theories that is built on false assumptions. In the fictitious "free market," the buyer is supposed to know everything important about a product (good or service), and competing products offered for sale. Then, the buyer can make a "rational" decision about which product to buy, if any. But what the consumer is buying in the case of medicine is the physician's expertise. People don't decide on their own to take a prescription drug or have surgery, they depend on their doctor to tell them what to do. This means that in medicine, we have provider induced demand -- not like the fictitious free market at all, in which demand is generated entirely by consumers.

People do, most of the time, get themselves to the doctor's office or the ER -- although they may be picked up by an ambulance and taken there unconscious, or even against their will. But the doctors take it from there. They decide that we need, for example, a coronary artery bypass graft (called CABG), which is undoubtedly why the rate at which the CABG procedure is done in a given place depends, not on how many people have heart disease, but on how many heart surgeons there are.

It is true that if people have to pay out of pocket for routine medical visits, they will see the doctor less often. This might save society money in the short run, but if it means people get less preventive care and fail to have conditions diagnosed early, when they are more treatable, it will leave us in worth health and could end up costing more in the end. This isn't just speculation. The Commonwealth Fund released a report yesterday that found that half of patients with high-deductible plans accrued medical debt or had trouble paying bills, and that they tended to underuse appropriate care -- they were more likely not to fill a prescription or to show up for tests. Naturally, lower income people and people with chronic diseases are more likely to be harmed in these ways. (Report available here: Commonwealth Fund

These individuals aren't the only ones harmed. The fictitious free market is also one in which all of the costs and benefits of a transaction are felt by the parties to the transaction. But when people fail to get appropriate medical care, others are harmed as well. Reasons include:

  • Infectious diseases: Treating and preventing infectious disease in one person prevents its spread to others.
  • Productivity: People who cannot work due to preventable or treatable disease contribute less than they could to the economic support of their families and the net economic production of society. They also cannot contribute as effectively to non-monetized but socially important activities such as child rearing, home making, volunteer work, etc.
  • Intangible benefits: People would be troubled or disturbed by large numbers of others with treatable illnesses in their midst, and even more distressed if they included people they knew and cared about.
In other words, medicine is not just a private good, it is also a public good, like park land, national defense (which may be a public bad, nowadays), or law enforcement. It is in fact a mixed good, like education, benefiting both the individual and society. Hence, if we leave it up to the consumer to decide when and what to buy, the public good represented by medicine will be underproduced. Imagine if the "Ownership Society" included the elimination of public education -- the logic is the same.

This is not to say that the share of national income spent on medicine should be higher. On the contrary, other rich countries spend less, but their people are healthier. Yet the share of public spending on medicine in those countries is far higher, even 100%. This means that health care in the U.S. is badly misallocated -- too much is spent on some services, not enough on others. "Consumer driven" health care won't solve that problem -- it will make it worse.

We need universal, comprehensive, single payer national health care. Nothing less will do.




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