In reading James’ post I saw this comment from Malcolm Gladwell,
Instead, the United States has opted for a makeshift system of increasing complexity and dysfunction. Americans spend $5,267 per capita on health care every year, almost two and half times the industrialized world̢۪s median of $2,193; the extra spending comes to hundreds of billions of dollars a year. What does that extra spending buy us? Americans have fewer doctors per capita than most Western countries.
Immediately we should wonder if Malcolm Gladwell is really the right person to be commenting on health care anywhere. If America spends so much and there is all this money just waiting to be made how come there aren’t more doctors instead of fewer in comparison to countries that have nationalized health care systems? The outcome Gladwell notes strikes me as being inconsistent. Perhaps the problem is institutional/legal. That is maybe there are effective barriers to entry into the medical doctor field? This in turn would give market power to medical doctors who could raise their prices (please note I am not suggesting that all of the differences in costs between countries is due to this possibility).
I agree that our system is flawed and is going to probably get worse, but this idea that there is no moral hazard is also ridiculous. There are lots of things that are unpleasant and costly, but if you reduce the costs you should expect more people to engage in these things. Sure nobody looks forward to surgery, but similar arguments have been made about unwed mothers and welfare.1 Further, health care these days do not cover just things like unpleasant surgeries, but also elective things like child birth, plastic surgery, abortion, and gender reassignment. These are things people decide to do because they want to do them. Make them cheaper and you’ll get more of them, guaranteed.
Also this comment strikes me as inaccurate,
The moral-hazard argument makes sense, however, only if we consume health care in the same way that we consume other consumer goods, and to economists like Nyman this assumption is plainly absurd. We go to the doctor grudgingly, only because we̢۪re sick.
While it is probably true in a great many cases it doesn’t always have to be true. Case in point my wife. My wife is usually the first to suggest taking our son to the doctor whenever there might be a possibility he is sick, even if it looks like something such as the common cold. She has even used the argument, “We pay for it via your benefits we might as well use it.” Granted, my own personal anecdote does not prove the point, but I’m pretty sure this type of thinking it not unique to my wife.
This comment also suggests a problem with moral hazard,
I just went to the dermatologist to get moles checked for skin cancer. If I had had to pay a hundred per cent, or even fifty per cent, of the cost of the visit, I might not have gone. Would that have been a wise decision? I have no idea. But if one of those moles really is cancerous, that simple, inexpensive visit could save the health-care system tens of thousands of dollars (not to mention saving me a great deal of heartbreak).
How so? Well ideally we want those who have a high risk of skin cancer to go to the dermatologist and those with a low risk to not go (or at least not go as often). The problem is that nationalizing health care isn’t going to solve this problem and might actually make it worse. Think of the problems with teeth that Gladwell raised. If it turns out that everybody has nationalized health care that also covers dental care then alot more people are going to be going. If we accept this notion that we don’t know what is and is not frivolous then it stnads to reason that a certain percentage of visits will be frivolous. We live in a world of finite resources hence something is going to have to give which means either higher prices (and in the case of nationalized health care higher taxes or less of other government provided goods and services) or simply less dental care for everybody.
The problem is I think in large part education and information. Mr. Gladwell touched on it, but instead of focusing on that issue he decided to detour into nationalized health care. Which is cheaper? Brushing your teeth regularly, flossing and using listerine, or going to the dentist to fix the problems caused by poor dental hygeine? Similarly with moles. If you are fair skinned, spent a fair amount of time in the sun and notice some moles that look odd then going to see a dermatologist is probably a good move.
The focus on moral hazard suggests that the changes we make in our behavior when we have insurance are nearly always wasteful. Yet, when it comes to health care, many of the things we do only because we have insurance—like getting our moles checked, or getting our teeth cleaned regularly, or getting a mammogram or engaging in other routine preventive care—are anything but wasteful and inefficient. In fact, they are behaviors that could end up saving the health-care system a good deal of money.
Even if we grant all of this, this still does not mean that people will not abuse the system. Sure very few people like getting their teeth cleaned or getting a pap smear, but these are not the only things that a nationalized health plan would cover.
Finally near the end it looks like Gladwell is confusing adverse selection with moral hazard.
There is another way to organize insurance, however, and that is to make it actuarial. Car insurance, for instance, is actuarial. How much you pay is in large part a function of your individual situation and history: someone who drives a sports car and has received twenty speeding tickets in the past two years pays a much higher annual premium than a soccer mom with a minivan. In recent years, the private insurance industry in the United States has been moving toward the actuarial model, with profound consequences. The triumph of the actuarial model over the social-insurance model is the reason that companies unlucky enough to employ older, high-cost employees—like United Airlines—have run into such financial difficulty. It’s the reason that automakers are increasingly moving their operations to Canada. It’s the reason that small businesses that have one or two employees with serious illnesses suddenly face unmanageably high health-insurance premiums, and it’s the reason that, in many states, people suffering from a potentially high-cost medical condition can’t get anyone to insure them at all.
Moral hazard deals with insurance changing behavior. Adverse selection deals with the problems posed by people of different risk levels. The guy with the sports car and lead foot would like to get the same insurance premiums as the soccer mom with the mini-van. So the insurance company has to try and put people of different risks into different catagories. Thus, the employees who have a disease are ineligible for insurance. Why? Becuase they already have the diseas, there is no more risk no more uncertainty there.
Yet none of this necessarily addresses why health insurance in the U.S. is so high. Could part of it also be that at the same time out-of-pocket expenses are declining? Oh wait, I’m sorry that would be evidence for moral hazard which clearly Mr. Gladwell has concluded is a myth.
Do you think that people whose genes predispose them to depression or cancer, or whose poverty complicates asthma or diabetes, or who get hit by a drunk driver, or who have to keep their mouths closed because their teeth are rotting ought to bear a greater share of the costs of their health care than those of us who are lucky enough to escape such misfortunes?
This is somewhat misleading. Yes some people have had a misfortune in that they were born with genetic pre-dispositions towards certain medical problems, but at the same time things like rotting teeth, cirrhosis of the liver, and obesity are not simply random accidents that strike indiscriminantly. Even something like skin cancer can be traced back to personal behavior. Gladwell is mixing all sorts of different things up and then dismissing them without really understanding them. What a horrible article.
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1The idea here was that nobody would want to become an unwed mother, so why not extend welfare benefits to unwed mothers. Sounded pretty good, so benefits were extended and now we have quite a few more unwed mothers. See this post by Megan McArdle for some more on this.
