Map of life expectancy at birth from Global Education Project.

Tuesday, November 01, 2005

The relationship between health care spending and boat payments

Our good friend Rexroth's Daughter, being fairly new in her town, recently picked a dentist out of the yellow pages. She didn't particularly like his style, but what she also didn't like was that he removed a crown to fill a cavity, and only then did he happen to mention that, oh yeah, you'll need a new crown, at the very least, but I recommend an implant. She had him put on a temporary crown. After various further travails, he tried refusing to replace the crown and forcing her to get an implant.

Now, you may have read that the preznit and the Republicans in congress, led by "doctor" Bill Frist, want to "control health care costs" by largely doing away with insurance, letting us save up for medical care in tax advantaged savings accounts, and then buying health care with our own dollars. We'll then be "empowered consumers" and presumably spending will go down because we'll be reluctant to blow what little is in our accounts, ergo we'll make wise choices.

Sadly, no. (Props to the copyright holder.) We don't decide whether what we we really need is to stop drinking so much Red Bull, or get a brain transplant: our doctor tells us. And even though we all know that doctors are 100% people of integrity, motivated solely by altruism, who would gladly take a vow of poverty and dress in sackcloth, innumerable studies have shown that they shape their treatment recommendations according to financial incentives, i.e., what's in it for them. Ask a surgeon if you need surgery, and guess what the answer will be, at least if he's got a boat payment due.

This is called Provider Induced Demand. It radically violates one of the many counterfactual assumptions that underly the theory they teach you in Economics 101, which is also the snake oil they peddle on Capitol Hill. Or, to ineptly and artlessly shift metaphors, a vast edifice of bullshit erected on a foundation of sand.

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