A Few Thoughts on the Health Care Market

The debate on the previous thread, along with PPACA (or ACA, as now seems to be the increasingly common terminology) discussions at the League of Ordinary Gentlemen and elsewhere have got me thinking about the health care market. Not the health insurance market, mind you, but the health care market. So let me throw out some incompletely formed thoughts on the matter. Let me note a few things upfront. First, I am purposely taking a non-normative approach on this, so normative critiques will be beside the point–I want to figure out a positive statement of how the world is structured, rather than–at this moment–talk about what we ought to do. Please feel free to critique that positive statement, but please try to avoid jumping immediately to normative claims. Second, I’m just feeling my way here, so if you have a critique, please approach it in a manner of people working together to come to an understanding. If you prefer just to attack and condemn, I’m not particularly in the mood for that right now so I’ll probably just delete those comments without response. That doesn’t mean you can’t be blunt if you think I’ve made a factual error–I’m not a delicate flower, but I do want this thread to stay on point and be productive.

So here’s the initial point of consideration–the common claim that the health care market is fundamentally different from other markets. I think this is untrue, that health care is different only in degree, not in kind. To get there, we have to begin with a simplified model, looking at the health care market absent insurance.

The most common claim I’ve heard is that in the health insurance market you can’t shop around. After all, if you have a heart attack or stroke, you don’t have time to shop around. But A) this is not unique to health care and B) it assumes a false temporal starting point.

Granted that in most markets you can shop around at the point you’re ready to purchase, but not in all other markets at all times. Let’s begin with a simple example. One year I taught at a University 400 miles from home, so I came home only on weekends. This required two cars, one for my wife while I was gone during the week, and one for me to drive back and forth on weekends. When one car suddenly went to auto heaven, we had precisely one weekend to shop for a used car for my wife to drive. In that case, there was very little shopping around. I am not claiming that this is remotely as serious a problem as shopping around for a hospital after a heart attack, but it shows that the latter is only a more serious problem, not a unique problem. As it turned out, we ended up with a piece of shit car that ultimately cost us more than twice it’s original cost in repairs. We kept that p.o.s. limping along for a number of years (rarely daring to drive it far from home) until it finally went to car hell. That was in the summer, when we could get by with only one car, and we spent several weeks carefully shopping for a replacement, test driving several, refining our price/quality expectations, and having our mechanic look closely at our tentatively-chosen vehicle before we committed to it. That’s how the car market can work, but our other experience shows that sometimes it works more like the emergency health care market, precisely because we were in a sort of emergency situation.

But even more, shopping for a heart surgeon doesn’t have to begin only after a person has a heart attack. If I know I am at risk of heart problems, I should begin shopping early, just as I actually began my consideration of replacement cars long before the p.o.s. died, so that when it died I had a clear idea what I wanted in a replacement. Of course sometimes people really don’t know they have heart problems until the heart attack strikes, but in this case there are proxies that can help them choose, namely their primary care physician. That’s really not very different than me relying on my mechanic to help me select a quality used car. Granted, using proxies often indicates an imperfect market, one where full information isn’t available to all consumers in a timely manner, but the key point here is that this is not unique to the health care market.

Finally, there is the issue of severity and affordability. My crappy used car doesn’t compare, either in price or severity of consequences of a bad choice, to selecting a bad heart surgeon. But again, while this is unusual it is not unique. First, consider that truly bad heart surgeons are likely to be weeded out–more so than lousy used cars–so that the odds of getting a truly bad one are much lower than the odds of getting a p.o.s. car. But also, there are other cases where people can’t afford a product they need and the consequences are life and death. For example, I know a family that went without heat or hot water for an entire Michigan winter due to loss of jobs. They survived, but it’s not impossible they could have died. Or take the case of someone who’s air conditioner goes out during a heat wave and can’t afford a new one, or who can’t pay their electric bill–that’s not a hypothetical.

So what is it about the health care market, absent any considerations of insurance markets, which I’ll get to in a subsequent post if I have time, that is unique, or at such an extreme of degree that we need to functionally treat it as unique?

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About J@m3z Aitch

J@m3z Aitch is a two-bit college professor who'd rather be canoeing.
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67 Responses to A Few Thoughts on the Health Care Market

  1. pierrecorneille says:

    One difference might be cost. A brand new car (which I assume is less likely to break down than a used car) costs, I imagine, $20,000 or so (I’m not in the car market, so I don’t know). A heart surgeon probably costs a lot more, at least if one uses the surgeon’s services. Even if one will not use the surgeon’s services, shopping around for a heart surgeon might imply keeping him or her on retainer, which presumably would require some upfront payment. Or, I can shop around ahead of time, find a surgeon, and yet when I need the surgeon, he or she is on vacation or already overbooked for surgery, and then I’d have to use another one. On this example, and bracketing the point you make about truly bad heart surgeons being weed-out-able, the cost is probably so much greater by degree as to make it different, at least from the car-buying example.

    Re: a primary care physician as a proxy similar to a car mechanic as a proxy. This is probably the strongest point of your argument. And if one cannot shop for a heart surgeon, one can, presumably, shop for a primary care physician who one can trust to make the right decisions, provided that there is not a severe shortage of such doctors / nurse practitioners.

    Perhaps the issue of cost is too linked in with the issue of insurance to answer your question, which is explicitly about health provision and not about insurance. I do find it hard to separate the way the market works from the way the participants in the market pay or are paid.

    Assume one who has not shopped for a heart surgeon in advance and who has not obtained a primary car provider: if he has a heart attack, makes it to the emergency room in time, and the emergency room is not overcrowded with patients whose needs demand comparable attention from heart surgeons, that person will probably get his or her heart surgery. I realize this aspect of the market is tied so closely with the way insurance markets work, regulations on who emergency rooms must accept and cannot deny, the various federal and local regulations and funding streams, the demands of professional bodies on what members of the medical profession may do, and (related) the professional ethics that (arguably) require doctors to treat all comers regardless of ability to pay, that it goes outside of your question.

    So, here’s my partial answer: the current insurance market and the other things I mentioned in the last sentence of the preceding paragraph are so intricately related to the health care provision market as practiced in the US that one cannot descriptively answer the question about health care provision without invoking the way it’s paid for and the regulations and ethical practices that govern how it is provided. That might not be the way it should be, but it seems to be that way now, and we are unlikely to see a radical restructuring of the two (provision and how it’s paid for).

  2. Lance says:

    Well I hate to start off by being in total agreement, but I am.

    I don’t see any fundamental difference in health care as a service than any other service. Arguments for “universal” health care are almost always framed in emotional or moral language.

    When I ask people that are in favor of “single payer” government administered health care,
    “Why should I be forced to pay for your health care?” I rarely get a rational answer.

    The exception is the cost saving argument, which is basically an appeal to economies of scale or price fixing. I don’t see how providing more people with services that they don’t have to pay for is going to provide any limit on actual costs of health care services.

    And I probably don’t have to list the reasons, here on a libertarian blog, that government price fixing and government controlled monopolies are a bad idea.

  3. pierrecorneille says:

    To be clear, although I think I see a difference, at least in degree, I don’t think this difference necessarily justifies the ACA or other such laws. (I support the ACA, but I haven’t thought closely enough about whether the difference I find, even if I’m right, would justify the law on policy grounds.)

  4. Lance says:

    Also it can be argued that health insurance has facilitated the huge increase in health care costs. What other profession can charge tens if not hundreds of thousands of dollars for a few hours work?

    Also Blue Cross and many other health insurance companies were founded by hospitals or physician associations. Perhaps it is cynical to suggest that these “dedicated healers” could have been attempting to provide a means by which their limited access cartel could increase its ability to charge extremely large fees, but it is what has happened.

    With out health insurance your hypothetical heart surgeon would have to ply his services in a market where he and his clients would have to work out a payment that they could actually afford, unless he was only going to have rich clients.

    Would overall health care be of lower quality or less available? Maybe, but the costs would certainly be much lower.

  5. lumbercartel says:

    There is a point at whcih a difference in degree becomes a difference in kind. When “choice” boils down to “would you rather die?” you are, indeed, facing an economic choice but you’re not really in a market any more. One of the defining characteristics of a “market” is substitutabily, after all.

    I face this a bit more often than most people do, given my work as an emergency medic in a rural area. However, some of the relevant factors apply in cities as well.

    When you call 911, you do not have a choice of responders. None. Try arguing with the dispatcher about whether you will do business with (to name afew around here) Southwest Ambulance or City of Phoenix and you’re wasting your breath. You are wasting your breath for two basic reasons:
    1) Seconds count. They will get the responder to you that can reach you soonest, and doing anything else is ethically right out.
    2) Nonoptimal routing of resources has negative externalities. If they send you a Southwest ambulance that’s two minutes farther away, the odds increase of that Southwest ambulance being unavailable for a call where two minutes costs someone else her life.

    So your choice boils down to “take the ride they send or skip it.”

    Likewise, you usually don’t get a choice of destination, for similar reasons. In my part of town, for a life-threatening condition I’ll either go to Paradise Valley Community Hospital or Mayo Hospital (I’m guessing about Mayo; I don’t know if they do emergency or not.) If the condition is too severe for PV, they’ll do the routing calculation on whether it’s medically indicated to stabilize me at PV and fly me to a Level One facility (also not up to me in any serious way) or route by surface — which depends, among other things, on traffic conditions.

    For a less-urgent condition (e.g. a hip fracture) I may get a choice of hospital. Even in rural situations that can happen; from Sunrise we can send people either to Springerville (White Mountain Regional Medical Center, a fancy name for a small community hospital with a PA on duty) or to Show Low (Summit Hospital.) Springerville can reduce a shoulder dislocation as well as Show Low can, but can’t do much of anything about a collapsed lung. Neither can treat a fractured pelvis (I lost one of those) or a lacerated spleen (one recently went surface to Show Low, got loaded up with blood and flown to Phoenix.)

    For a pelvis or serious cerebrospinal trauma, I’d call a bird. For a spleen it’s a judgment call. Most spleen injuries aren’t obvious in the field, but they can kill you quickly (my patient this December was a kid: they do fine right up until they crash. Mine almost made it to Show Low when he crashed and if he hadn’t had a good ambulance crew he’d have died.)

    That helicopter ride cost about $40,000. The patient was a minor (14). Legally the flight was nobody’s call but the medical crew, since it was a life-threatening case involving nobody in position to refuse consent.

    Now, all of this is to the best of my ability just descriptive. Admittedly some parts are descriptive of ethical and legal facts which are, themselves, the result of social norms. We could, for instance, decide that a kid who has a life-threatening condition have the authority to refuse care or delegate that power to refuse to someone else. However, within those boundaries I’m just offering some examples which you can use to model medical care as a market.


    PS: the avatar is of my own leg after an ambulance ride which I could and arguably should have refused. Had circumstances been slightly different, I would have had less choice in the matter.

  6. James Hanley says:

    Pierre,

    I may not have done so successfully, but I attempted to deal with the issue of cost in my example of dying from heat stroke because you can’t afford air conditioning. It seems to me–at least at first blush–that there’s not much fundamental difference between dying because you can’t afford AC and dying because you can’t afford a heart surgeon. Granted, frequency of result may differ, and that would be relevant. But that’s what I’m trying to figure out–is there actually a difference of kind between health care and other market sectors, or only of degree (as I think you suggest in your followup)?

    I’ll hold off on responding to any issues about insurance, since I’m engaged in some casual model building on this issue. So the initial model is the most stripped down, simplified, one that I can imagine. Time willing, I’ll add insurance as the next step in the model, with the assumption being that the cost/severity issue of the health care market is what leads to people demanding (in the economic sense) insurance.

  7. lumbercartel says:

    BTW, a better example than the heart surgeon is the obstetrician. I assure you that even though you have known for months and have had lots of opportunity to shop for one, when the time comes it’s purely a roll of the dice who actually catches the baby — because an obstetrician who has enough patients to stay in practice would have to give up all hope of anything resembling a “life” or even sleep to catch them all. So you get whoever is available at the time.

  8. pierrecorneille says:

    I don’t really see a difference in kind, unless one can call the difference in degree large enough to be one of kind (I’m not sure I can, to be honest).

    I must really confess ignorance about how health care is provided in most cases, in large part because I’ve been (knock on wood) very healthy throughout my life (due almost completely to good luck and not to my own lifestyle choices).

    A difference I see between the air-conditioner example and the heart-surgeon example is that in the air-conditioner example, the danger to life inheres in where one lives whereas in the hear-surgeon example, the danger to life inheres in who one is, inasmuch as one’s health is a part of who one is. I’m not sure that’s enough of a difference to draw a distinction between the two kinds of markets, however.

    In short, unless I (or someone else) can think of a clear example of why the health-care provision market is unique, I’ll have to concede that it’s not unique, provided we’re not talking about the incidental regulations, practices, and insurance policies, the presence of which in my view is, and is likely to remain, practically inseparable from provision, regardless of whatever way that system is reformed in the coming years. (Even with my proviso, I suppose one can find a set of practices and regulations, that ultimately govern the provision of air conditioners: minimum standards on BTU’s, regulations on retailers to not cheat customers, local campaigns to encourage people to check in on elderly neighbors, and local-level efforts to provide “cooling buses” or free a/c, such as are sometimes explored in Chicago.) But again, as you point out, you’re bracketing the insurance issue for later discussion, and I’ll defer on those issues.

  9. James Hanley says:

    lumbercartel,

    Thank you. Stick around, please. I’m going to have to chew over where your comments–which are the kind of empirical facts I appreciate–fit in and shape my analysis, so my non-substantive response at this time is neither ignoring nor rejecting your contribution.

    The “difference in kind can be big enough to become a difference in degree” claim is one that I’ve long tentatively agreed with (e.g., speciation is clearly a set of distributions where there are only differences in degree anywhere along the line, but we do seem to see real differences in kind between those that are widely separated). Whether it applies in this case, that’s the rub. Perhaps it does; I’m not sure either way. Maybe Lancewill pitch us an argument for why it doesn’t apply in this case, and someone else can pitch an argument for why it does.

  10. Troublesome Frog says:

    I think that the mechanic analogy is about as close as we can get. It’s a good choice to start with, but the degree of difference is often substantial.

    1) You don’t know what your mechanic or doctor is doing and have to trust them. Go down the list of service providers who are likely to totally screw you, and I bet mechanic shows up very high on the list. Bad asymmetric information problem in both cases, probably worse in medicine.

    2) As you noted, medical care is often more urgent and expensive than car care. Don’t forget that most people would have insurance for car repair even if it wasn’t mandatory, so that’s an indicator that this industry is not easily separated from insurance. Keeping some extra cash saved up just in case doesn’t seem to work for either industry.

    3) How does one shop for a heart surgeon? I have to guesses about this: First, almost all heart surgeons in the US are perfectly competent and finding the Michael Jordan of heart surgeons isn’t going to buy you much. Second, the main difference among them (ignoring bedside manner) will be price. I doubt that you could get a heart surgeon to talk price even if you waterboarded him.

    4) As for AC in a heat wave, if we take that as a legitimate degree of difference in comparison to treatment for a major disease, I’m not sure there’s any slope left to slip down. One could argue that the eradication of peanuts from our supply chain is life-and-death. I suppose theres life-and-death and then theres lives-and-deaths.

  11. Troublesome Frog says:

    Lance:

    When I ask people that are in favor of “single payer” government administered health care, “Why should I be forced to pay for your health care?” I rarely get a rational answer.

    I have to wonder if it’s because you’re constraining the word “rational” based on your personal assumptions about how the world should work. If I ask you, “Why should you be allowed to keep the property you work for?” would you have a rational answer our appeal to a fundamental principle?

    With out health insurance your hypothetical heart surgeon would have to ply his services in a market where he and his clients would have to work out a payment that they could actually afford, unless he was only going to have rich clients.

    A few rich clients pays a lot more than a lot of poor ones when you hold their lives in your hands. Given the shape of the demand curve at the extreme end, I don’t see why people are surprised at the price. We consume life saving health care at a very high marginal utility.

    Would overall health care be of lower quality or less available? Maybe, but the costs would certainly be much lower.

    We could drive costs to zero by eliminating health care altogether, so there’s clearly a trade off to discuss. Would you consider increased availability and quality of health care to be a “rational” answer to your first question?

  12. Lance says:

    lumbercartel,

    I appreciate your fact rich response but I’m not sure what you are arguing.

    That helicopter ride cost about $40,000. The patient was a minor (14)

    There could be a case made for the need for a $20,000,000 Harrier jump jet to save a critically injured infant, but does that change the fundamental question of whether health care is a service like any other? Food aid is often flown into starving people at great cost but that doesn’t elevate the food industry above other markets.

    Due to financial stresses my wife and I recently (two years ago) chose not to participate in her employers health care plan (ironically a hospital). We have paid our for own health care and shopped for the best prices.

    Could I be hit by a bus and need that chopper ride tomorrow? Maybe, but its’ damn unlikely just as it’s unlikely I will need an airlift of food from a C-130 any time soon.

    Troublesome Frog,

    I have to wonder if it’s because you’re constraining the word “rational” based on your personal assumptions about how the world should work.

    Well, rational arguments appeal to quantitative and empirical measurements and emotional arguments appeal to your feelings and values so I guess any discussion of any topic that effects the way humans interact is going to have some mixture of the two.

    If I ask you, “Why should you be allowed to keep the property you work for?” would you have a rational answer our (or) appeal to a fundamental principle?

    Well, as I said above, probably both.

    I wasn’t claiming that emotional or moral arguments weren’t valid or appropriate, just that I rarely hear a rational argument made to support universal health care.

  13. James Hanley says:

    Re: “Rational.”

    Blog rules: “Rational” can be used to refer only to the relationship between a preference and a choice. No other use is legitimate or allowed. E.g., we can say that “I am thirsty and value a Coke at up to $2, so it is rational for me to spend $1.50 to get one from the soda machine.” If you are not using “rational” or “rationality” in any other sense you will be fined and pilloried for causing unnecessary confusion. [Thanks to Lance for the correction.]

  14. Lance says:

    James Hanley

    Aye Aye Captain.

    But I think you meant to leave out the “not” in,

    If you are not using “rational” or “rationality” in any other sense you will be fined and pilloried for causing unnecessary confusion.

    Otherwise I’m really confused.

  15. Troublesome Frog says:

    As one of my econ professors used to say, “All decisions are rational from the perspective of the decision maker. The interesting question is how they’re perceiving the costs and the benefits.”

  16. Michael Heath says:

    James Hanley writes:

    So what is it about the health care market, absent any considerations of insurance markets, which I’ll get to in a subsequent post if I have time, that is unique, or at such an extreme of degree that we need to functionally treat it as unique?

    With the exception of those who have comprehensive coverage, consumers frequently don’t understand the actual framework of care they require for a particular condition, the suite of treatments required if they’re diagnosed with something which requires treatment, the treatment options they have – particularly at the preventative and first diagnosis stage, the amount of work and therefore income they’ll forgo for their condition, and the time it will take. Even when they have a primary care-giver, which millions can’t afford.

    I’ve personally went through this myself for eight years before I was properly diagnosed, and then gouged far beyond what I was told it would cost me – where no single entity took responsibility for what was bid. In fact I had no resource to even ask how much my care would cost me since the tests and treatment were spread across six different entities.

    Contrast that with a house where most general contractors submit fixed-bid contracts and their clients know almost exactly what they’re getting, how much it will cost, and when the project will be completed. Such projects base the work on a contract where the buyer and builder both specified rights and obligations where the builder delivers a warrantied house at a price committed-to prior to acceptance of the contract. Or getting a car repaired where the number of types repairs are relatively small, repairs are affordable, and if not – the car can be replaced if the cost exceeds the value of the car. I can’t replace my brain simply because I don’t like the costs being charged for treatment to at least mitigate some types of conditions.

    Consumers also can’t individually predict and therefore budget their future healthcare cost needs. This is probably the most compelling reason to have universal health-care coverage assuming we want to continue to live in a society that decided decades ago to provide healthcare to everyone. That’s because we can predict costs and care across a population.

  17. Matty says:

    The aircon example makes me think we may be drawing the wrong line. Maybe the proper division is not healthcare v other goods but essential* v non-essential so aircon for the elderly in a heat wave groups with chemotherapy but over the counter painkillers group with aircon for the young and healthy.

    This raises a different set of problems but I think it may be more useful if we want to look at how the supply of these things actually affects people.

    *Yes I know that needs defining

  18. Matty says:

    Lance

    “Why should I be forced to pay for your health care?”

    This may be moving too far into the normative but I’ll have a go.

    1. Forcing people to do things is undesirable
    2. Letting people die on the street because they can’t pay is also undesirable

    The question then is how do we balance these two principles, I see a marginal increase in 1. as a price worth paying to reduce 2. Maybe my objection to refusing treatment based on cost is emotional but so is my objection to being coerced but I still think we can be rational in the sense James outlines above about making trade offs between these emotional preferences.

    I understand you don’t actually let 2. happen but instead require doctors to offer free treatment in extreme cases, which must cut into time they could be spending on paying patients and so cost them. The question then becomes

    “Why should lumbercartel be forced to pay more (in lost fees) for a third parties healthcare so that you can pay less?”

  19. Lance says:

    Matty,

    Under the current system doctors and hospitals are compensated by Medicaid and Medicare for services provided to the poor and the elderly (even wealthy elderly folks) and any left over losses are passed on to paying customers . Docors are among the best paid professionals in our economy and hospitals remain profitable so I don’t think we are taking advantage of the poor dears.

    I don’t have a problem subsidizing the health care of the indigent. I just want to do so in the most efficient and market based way possible. I don’t believe that a monolithic, government run, taxpayer funded system fits that description.

  20. lumbercartel says:

    I don’t have a problem subsidizing the health care of the indigent. I just want to do so in the most efficient and market based way possible.

    The current approach denies large numbers of the working poor (not indigent, just barely able to support themselves) access to highly cost-effective preventive care, causing them to defer treatment until it becomes emergent, at which point they receive highly expensive and inadequate care at the expense of the hospital.

    The hospital, in order to remain profitable as you observe, passes this on in its rate structure. Since the majority of its patients are covered by one sort of insurance or another with negotiated rates based on Medicare, that leaves the burden to those who don’t have insurance: the others who are not well enough off to be insured, many of whom end up in bankruptcy as a result (medical bills are the #1 cause of bankruptcy in the USA. Notably this includes the lead plaintiff in the case the Supreme Court heard last week.)

    The difference between the nominal and negotiated rates can be enormous. From my own recent hospital bills, my insurer ended up paying less than half of the original amount, and some charges such as lab fees were reduced by 90%.

    I don’t think anyone could honestly call this “efficient,” and I’ll leave it to others to winnow out the market basis.

  21. Troublesome Frog says:

    Lance:

    There could be a case made for the need for a $20,000,000 Harrier jump jet to save a critically injured infant, but does that change the fundamental question of whether health care is a service like any other?

    It might if that happened all the time and we had Harriers full of infants flying all over the place every day. I would consider that abnormal as services go.

    Having somebody financially wiped out by an unexpected medical problem is “normal” in our system. People don’t bat an eyelash when they hear about it. We’re kind of at the point where Harriers all over the place wouldn’t be entirely shocking.

    I agree with James Hanley that this is more a condemnation of our insurance system than our health care system, but an insurance system this dysfunctional wouldn’t survive for a typical good with a healthy market driving it.

  22. lumbercartel says:

    Having somebody financially wiped out by an unexpected medical problem is “normal” in our system.

    Ironically, including the lead plaintiff in the challenge just heard by the Supreme Court.

    By the way, how does bankruptcy work in a market?

  23. Matty says:

    I don’t have a problem subsidizing the health care of the indigent.

    Are you arguing that

    1. If government was uninvolved in the health care market voluntary donations would cover the costs for the indigent, or

    2. Government involvement should be minimal but it is OK to have taxpayers as the funder of last resort.

    I just want to do so in the most efficient and market based way possible.

    I’m not sure market based belongs in there if we are talking about the truly indigent, unless costs are going to drop to pennies they are not in the market so making it more efficient wont touch them.

    Something else that just came to mind, the US has a tax funded open to all system for basic education. What are the relevant differences that lead to widespread support for that but not for regarding medical care in an analogous way?

  24. Dr X says:

    One way this market might be said to be different is that the agent of consent may be incapable of decision and there may be nobody who is legally able to give consent, except effectively the government.

    As of now, if someone is in an accident or collapses on the street with nobody to give consent to treat, we don’t leave the person on the street. They end up in an ER, treated and billed for a services they didn’t consent to. If they die, a surviving spouse is billed, and if there is no survivor, a claim can be made against the estate.

    Do we ticket a comatose stroke victim who collapsed on sidewalk and leave him on a sidewalk? What if he doesn’t awaken, but remains alive? Do we effectively tow him to the city coma pound to lay in a coma until claimed? When your car breaks down, it isn’t your car that tells the dealer to fix it. When you’re hungry, it isn’t the hamburger that buys your lunch.

    Another way the medical market can be different is communicable diseases. The person who refuses vaccination or treatment for communicable disease, isn’t just making a decision about his cost. He’s making a decision about unknown costs to be borne by others. When you don’t fix your car, other cars don’t break down. Though maybe other cases like this exist. This seems like an externality problem.

    Sorry if someone already brought these up. Had to skim the comments. I’ve got one other that I need to think more, but about I don’t have time to get to it right now.

  25. lumbercartel says:

    Something else that just came to mind, the US has a tax funded open to all system for basic education. What are the relevant differences that lead to widespread support for that but not for regarding medical care in an analogous way?

    Tradition!

    Although, please note that the opposition to public schools is becoming much more prominent.

  26. James Hanley says:

    As one of my econ professors used to say, “All decisions are rational from the perspective of the decision maker. The interesting question is how they’re perceiving the costs and the benefits.”

    Exactly. And then we get into that tricky issue of subjective value…so while most of us are pretty damn sure that at least some people at some times are not actually rational, it’s pretty hard to definitively show specific examples. I’m all for wiring up people’s brains so we can capture and analyze that data–to hell with concern for human subjects, science needs that information!

  27. James Hanley says:

    Matty,

    “Why should lumbercartel be forced to pay more (in lost fees) for a third parties healthcare so that you can pay less?”
    Objection–assumes modifications not present in the model. In the model so far, lumbercartel does not have to provide healthcare to someone who can’t pay.

    Letting people die on the street because they can’t pay is also undesirable
    Which part of that is undesirable? I’d certainly be willing to be taxed to have dead bodies removed from the street regularly. But we’re all going to die eventually, so clearly we can’t say that allowing people to die is undesirable–not in the sense of an undesirable thing we can prevent. So there’s a line there somewhere. Most, although not all, of us would be willing to be taxed to provide a simple operation for a child that would allow them to live another 60 years (ceteris paribus), but many fewer of us would be willing to be taxed to keep the 98 year old coma patient with heart failure on machines that keep his blood pumping and his brain waving. Letting the latter guy die isn’t necessarily undesirable.

    Yes, that’s intro to philosophy type argumentation, but there is a reason those profs ask us to think about those questions.

  28. James Hanley says:

    T-Frog,
    an insurance system this dysfunctional wouldn’t survive for a typical good with a healthy market driving it.
    Ahem, we’re supposed to be saving that for a future post (that I may or may not get around to writing)! ;) But let me join in the violation of my proscription by pointing out that it’s hard to talk about a healthy market when the taxcode is devised in a way that prevents one from developing.

  29. D. C. Sessions says:

    Most, although not all, of us would be willing to be taxed to provide a simple operation for a child that would allow them to live another 60 years (ceteris paribus), but many fewer of us would be willing to be taxed to keep the 98 year old coma patient with heart failure on machines that keep his blood pumping and his brain waving.

    And yet we seem to have the opposite policy.

  30. James Hanley says:

    Dr. X,

    Yes, non-competent people create problems for discussions of markets, whether they’re children, senile adults, or people who are unconscious because they’ve just been hit by a car. Really problematic. The very difficult–unresolvable–question is how much of the system do we design with them in mind and how much with competent adults in mind? There’s no easy answers there, particularly when those parts of the design structure conflict.

  31. James Hanley says:

    And yet we seem to have the opposite policy.

    Old people vote, kids don’t. But, yeah, it’s perverse. I frequently am grateful that my mom knew when to call it quits with trying to keep my dad alive. And for a physician who was apparently pretty straightforward with the facts, saying something like, “we can keep resuscitating him, for a while, but there’s no long-term hope.”

  32. Matty says:

    Most, although not all, of us would be willing to be taxed to provide a simple operation for a child that would allow them to live another 60 years (ceteris paribus), but many fewer of us would be willing to be taxed to keep the 98 year old coma patient with heart failure on machines that keep his blood pumping and his brain waving.

    I notice that the criteria here are to do with the anticipated future the patient will have not their ability to pay.

    What I find undesirable is not so much that death occurs or that medical and financial resources are limited but the idea that the choice of who should live gets determined by their wealth. If you want to avoid living in a society where that is the case the options would seems to be.

    -arrange matters so no one is poor (good luck and let us know how it works)

    -accept that there are going to be some cases where a person could be treated, we want them to be treated and neither they or any other individual is in a position to pay for it. In those cases I would argue that asking everyone to contribute is a price worth paying and that the tiny bit of additional coercion needed to get the unwilling to add that contribution to those they are already making for schools and police is not a deal breaker.

  33. D. C. Sessions says:

    Yes, non-competent people create problems for discussions of markets, whether they’re children, senile adults, or people who are unconscious because they’ve just been hit by a car.

    Then there’s the real heartbreaker: someone who is functioning enough to be oppositional and in mortal danger if they don’t get prompt care. The headline example was Natasha Richardson, but I’ve dealt with others firsthand. Fortunately, as far as I’ve been able to tell mine all survived.

  34. Lance says:

    lumbercartel,

    …medical bills are the #1 cause of bankruptcy in the USA. Notably this includes the lead plaintiff in the case the Supreme Court heard last week.)

    Not to sound insensitive but…

    Tough Titties!

    I say that as a guy currently retaining a bankruptcy attorney. Some of my excessive debt is medical bills.

    But guess what, they were MY medical bills. If it wipes out my retirement well it’s better than being permanently retired to the great beyond. Who else exactly was supposed to pay for my surgeries? The surgery fairy? I signed on the dotted line. Did I worry that it would put me under financially? Yep, but I knew the score and it’s only money.

    Seriously, I would take a bail out but I sure don’t feel entitled to one. Why should you and everyone else pay my medical bills if I have money and resources? I guess once I chapter 7 out of my medical debts they will be written off and a loss declared. But at least I paid what I could until it tapped me out.

    To quote that great philosopher Ferris Bueller “There’s a certain peace in being completely screwed. You know it can’t get any worse.”

    I don’t feel cheated at all, nor would I want pity for my circumstances to be used to justify a single payer system. I have been flat broke before and I am willing to bet I’ll be back on top again eventually. If not? I’d rather go down swinging on my own than to be part of yet another government program sliding us one step closer to the cradle to grave nanny state.

    Heartless? Well it’s my ass I’m talking about. I’m not some fat cat sitting on a nest egg. I can keep my house, as long as I pay the mortgage, and if not ? Well. I’ll deal with that too. I’m a big boy. I’ll be fine.

    Too much autobiographical info? Maybe, but I didn’t want any “easy for you to say” comebacks.

  35. D. C. Sessions says:

    Lance, sorry about the shit that happened to you.

    I understand the morality tale you’re recounting to us, but I’m not asking about morality. I’m asking how medical bankruptcy fits into a market analysis. The usual rules are that negative externalities represent market failures, in that entities not party to a transaction are harmed by it. In this case, your medical bills are going to cause, for instance, your credit issuers to lose out. You may argue that they priced the risk of medical bankruptcy into their rates; I certainly imagine so. However, that means that people who aren’t taking the risks of medical bankruptcy that you did are also being harmed by the risk premium.

    In other words, you’re causing other people who have acted more responsibly than you to pay part of your medical expenses. And within my rather simplistic model of a “market” that qualifies as a “market failure.” Whether it also represents a problem in your morality tale is not for me to say.

  36. Lance says:

    D.C. Sessions,

    In other words, you’re causing other people who have acted more responsibly than you to pay part of your medical expenses.

    Beg pardon? We opted out of my wife’s employers health insurance because it was either pay the health insurance or the mortgage. I lost my engineering job and started a small business. I kept my associate faculty teaching position at the university in addition to operating the small business.

    The 5 year ARM I got when my marriage to my first wife ended, to keep the Victorian house I have spent 20 years restoring, expired and I got tagged with an 8% mortgage just six months before I was laid off from the aerospace engineering firm.

    So please tell me how I have been “irresponsible” exactly.

    I know you are trying to make a point, but sometimes, to use a crude coloqialism “shit happens”.

    The doctors and hospital made plenty of money on my misfortune. Did they make the full balance? No, but I doubt they lost any money, despite the fact that some of the remaining balance will be written off on some tax documents.

    So please don;t try to tell me how “irresponsible” I have been to justify your argument for everyone going on the government dole. I know I have put my personal life out for display but that doesn’t mean I’m going to let you talk shit about me.

    Especially when it’s nonsense.

  37. Troublesome Frog says:

    Lance,

    If it was just you, I’d be inclined to agree. Laws like this aren’t good at dealing with edge cases. But once you cease to be an edge case and start to be the norm, it’s worth considering whether we have a systemic problem. One person who can’t afford food may be lazy or unlucky. If most people can’t afford food, we call it famine and we start seriously considering policy alternatives.

    Not that I begrudge you the money that saved your life, but as you noted, your provider has to write a piece of it off. As you also noted, there’s no surgery fairy. If I go to your provider, he’ll charge me more than he would have otherwise. Can we really claim that we’re all better off in this situation? Can we even claim that any of us is? As long as people can externalize part or all of their surgery costs, we’re all the surgery fairy either way.

  38. Lance says:

    Troublesome Frog,

    I mentioned that I started a small construction business. I have had two clients default on their contracts. To a small start up like my business it was a real hardship. Does that mean we should institute single payer housing insurance to protect my business from these incidents?

    I absorbed the loss and moved on. (I actually filed a mechanic’s lean on one of them and recovered some of the money.)

    That’s the cost of doing business.

    Life is risky. You put down your money and you take your chances.

    As I mentioned the health care system in our country is profitable and provides health care that is among the best in the world. I see no justifiable reason to alter it to a centralized, government run system. In fact I think there is too much of that in the system now.

    Now I’m not claiming that my libertarian world view is the “correct” one. In fact I don’t think there is a “correct” socio-political system. But I know that I want to live in a society that maximizes my choices and limits other people’s (read the government in this discussion) ability to restrain those choices.

    You may be more risk averse and prefer a system that gives more power and control to the government. That’s why we have these discussions and then elections to decide which way we will go.

  39. Lance, ‘way up above the issue was raised of a “market based” healthcare system. And shortly thereafter, the related question arose of how bankruptcy fits into any kind of market.

    Much verbiage later, there’s still no answer to how bankruptcy (and in particular, very high rates of bankruptcy) fits into anything “market based.”

  40. Lance says:

    DC Sessions,

    Bankruptcy rates, while high, are not near to the level that would be required to threaten the health care system.

    Bankruptcy is a means by which the market allows people to start over when faced with levels of debt that are insurmountable by normal means. It has profound financial and emotional costs.

    I don’t recommend it.

    But like divorce it can be the best answer to a bad situation.

    And what exactly is the alternative in a market based system, debtors prison?

  41. Troublesome Frog says:

    Lance,

    Does that mean we should institute single payer housing insurance to protect my business from these incidents?

    If I were to answer that question seriously, I’d start by asking a few questions. What is the cost of not having the service provided? Are failures to pay frequent enough to be worth noticing? Is the cost of failure to pay borne primarily by the service provider or society as a whole? Is the price of construction rising at an unsustainable rate?

    Nobody weeps when somebody can’t afford a deck. Not being able to afford medical care is anything from a sad story to something that takes a useful worker out of the workforce. To some extent, we’re all the “deck fairy” for people who didn’t pay for their decks when we hire a contractor to build one, but I suspect not nearly so much so as when somebody shows up at the emergency room needing high priced life saving care that they’re never going to pay for.

    As I mentioned the health care system in our country is profitable and provides health care that is among the best in the world. I see no justifiable reason to alter it to a centralized, government run system.

    1) Our health care system provides great care for people who can afford it or who can push their costs onto others.
    2) Unless the scope has crept, I don’t think that the proposal in question was about “government run” health care as it is government subsidized private health care with provisions to reduce free-riding.
    3) We haven’t gotten there yet, but as for alterations, we have an entire planet’s worth of experiments to look at. I don’t see how ours is a particularly excellent example among developed nations.

    You may be more risk averse and prefer a system that gives more power and control to the government. That’s why we have these discussions and then elections to decide which way we will go.

    It’s not so much risk aversion on a personal level as it is a belief that poorly managed risk across the board is having serious financial and social welfare costs. Given that I’m already the surgery fairy, I’d rather have a say in how it happens.

  42. Lance says:

    Troublesome Frog,

    Well, the actual topic of this thread was whether health care is so unique among services that it differs in kind and not just degree.

    I have seen no convincing arguments that it does.

  43. James Hanley says:

    @Matty,

    I notice that the criteria here are to do with the anticipated future the patient will have not their ability to pay. What I find undesirable is not so much that death occurs or that medical and financial resources are limited but the idea that the choice of who should live gets determined by their wealth.

    Certainly that’s unfair, but let’s assume we have decided as a matter of policy to completely eliminate that problem. To completely eliminate it we have to pay for the absolute best medical care available–whatever will be available to the wealthiest–and we have to provide it up to the very moment of death or until the patient says no mas

    Granted, that’s extreme, but anything short of that means that we will, to some extent, be allowing wealth to determine who lives and who dies. Since that’s going to be inevitable, the question becomes, “to what extent are we comfortable allowing that, and to what extent aren’t we?”

    My personal answer to that is that I’m comfortable letting the 80 year old cancer patient die for lack of wealth, but not comfortable letting the 5 year old girl with treatable leukemia die for lack of wealth. And the 25 year old guy who can’t afford health insurance but likes to ride his motorcycle at 85 mph without a helmet? I’m not particularly uncomfortable with letting him die for lack of wealth, either.

  44. Lance says:

    JAmes Hanley,

    And the 25 year old guy who can’t afford health insurance but likes to ride his motorcycle at 85 mph without a helmet? I’m not particularly uncomfortable with letting him die for lack of wealth, either.

    You have that dynamic backwards. In the medical profession those guys are know as “organ donors”. They’re a net asset not a liability.

  45. James Hanley says:

    T-Frog: . I don’t see how ours is a particularly excellent example among developed nations.

    I don’t think anybody argues it is. Certainly not pro-market folks, who recognize that we don’t actually have a real free-market health care system because tax policies create a perverted market where the consumers are not the purchases.

    That’s not an argument that a market system actually would work well–which is a topic for another day–but to emphasize that when we’re talking about more or less idealized markets and health care we are not talking about the American system.

  46. James Hanley says:

    In the medical profession those guys are know as “organ donors”. They’re a net asset not a liability.

    Well, I do advocate compensation for organ doners. That might be a good way to help their heirs fund the funeral.

  47. D. C. Sessions says:

    This is getting rather close to Larry Niven country: make lemonade out of the perverse incentive to let the young and healthy uninsured go to recycling. Never mind the individual mandate …

  48. Lance says:

    D.C. Sessions,

    If people ride motorcycles, with or with out helmets, some of them are going to sustain severe head injuries. Should motorcycles be outlawed?

    Should the organs be discarded to placate the morally squeamish?

    That would be truly perverse.

  49. Troublesome Frog says:

    Lance,

    I think you’re right that we should get back to the core issue. In that case, the key question has already been asked: At what point does a difference in degree become a difference in kind? Econ 101 tells us that healthy competitive markets for normal goods have certain properties. All markets diverge from these properties to some degree, but there’s some horizon along these axes at which we consider the market a failure. Without hitting all of them, some key criteria are:

    1) Homogeneous products. Actually, the health market is probably pretty good. Most health care providers are likely to be competent, so you should be able to go to any doctor and get roughly OK treatment. Not 100% true, but a good approximation.
    2) Profit maximization: Yes and no. Clearly there are a lot of profit maximizers, so it’s probably pretty close. The exceptions are in (5).
    3) Low barriers to entry and exit: Definitely not. Skilled professions and expensive hardware. Other industries deal with this, but I can’t think of any with higher barriers. Space exploration?
    4) Perfect information: Epic fail.
    5) Excludability & lack of externalities: This really depends on how callous we’re willing to be. If we’re 100% willing to let anybody die in the street, these problems go away. But doctors aren’t, and society as a whole isn’t. So we don’t guarantee that consumers bear the true cost of their consumption.

    When a market fails in one or more of these areas, my I prefer to modify regulation to fix that one area so the market starts to work again rather than taking over and fixing prices. But I can’t talk about how I’d do that yet since it involves the “I” word.

  50. Lance says:

    Troublesome Frog,

    But I can’t talk about how I’d do that yet since it involves the “I” word.

    Uh, igger?

  51. James Hanley says:

    the “I” word.
    I assume T-Frog means “Insurance,” since I’ve asked to hold that off. One the show I’m in is over, I’ll probably have some breathing room to try to add insurance to the model, although at the moment I don’t really have any idea what to say about it. That ought to be an interesting thread, as vast areas of my ignorance are opened up.

    Low barriers to entry and exit: Definitely not. Skilled professions and expensive hardware
    Yes and no, I’d say. Obviously the more skilled the medical task at hand, the higher are the barriers to entry. But there are also laws that limit the performance of some fairly menial tasks to people with medical degrees; tasks that could easily be performed by physician’s assistants or even nurse practitioners. (Seriously, anyone who’s a halfway competent seamstress could sew up a moderate laceration, and it really didn’t take somebody with med school training to put glue on my forehead to close up a 1 inch cut.) That’s all part of cartel behavior on the part of the AMA that creates artificial barriers to entry.

    I think any serious discussion about the health care market absolutely has to take that into account. Dipping my toe into the insurance issue for just a moment, one of the weird things is that we use medical insurance for “basic repairs” in a way that we don’t for car or house insurance. If those legal barriers to entry were eliminated, we could have much lower costs on some of the basic stuff. Our health care market in general is so fished around with bad laws that any serious discussion about where we need to go from here needs to not begin with the assumption that our current system is anything remotely resembling a free market one.

  52. Troublesome Frog says:

    But there are also laws that limit the performance of some fairly menial tasks to people with medical degrees; tasks that could easily be performed by physician’s assistants or even nurse practitioners.

    An excellent point. I was really excited to hear that Walmart was starting to offer clinic services. The stores are everywhere, and if there’s any company that can drive down costs and get regulations changed in their favor, it’s Walmart. Look at the pricing information from CoxHealth for their Walmart clinics. Typical treatment is $75 or so.

    I was always impressed by the health center when I was in college. A staff of nurse practitioners provided great care for a lot of routine medical issues that would have cost a fortune if I had gone to an MD.

  53. James Hanley says:

    T-Frog,

    Yes, Wal-Mart was in my mind. Also any similar-type stores (here in Michigan we have Meijer, which is functionally the same, including having an eye-glass clinic. And my understanding of Wal-Mart’s approach is that the people operating the clinics are careful to direct people to physicians/hospitals when in fact their health issue is beyond the scope of the clinic.

    But even that would be improved by expanding the range of actions they could take by allowing anything they are actually competent to do, rather than what the law defines as being only legitimately done by an M.D.

    On the other hand, Wal Mart may not want me walking in their doors with blood running down my forehead, even if that’s something that could satisfactorily be treated by a nurse practitioner in their clinic!

  54. Troublesome Frog says:

    On the other hand, Wal Mart may not want me walking in their doors with blood running down my forehead, even if that’s something that could satisfactorily be treated by a nurse practitioner in their clinic!

    I dunno. I’ve spent a lot of time in Wal Mart and I’m pretty sure that wouldn’t be the weirdest thing I’ve seen there.

  55. Dr X says:

    I believe nurse practitioners and PAs can and do suture. Some even practice alone in rural areas under the supervision of a physician in another location.

  56. pierrecorneille says:

    I would want some barrier to entry, or at least enough to ensure that the nurse or whoever had training. That doesn’t mean I distrust nurses or nurse practitioners, only that I’d want some assurance that if someone calls him- or herself a nurse practitioner, I can infer a minimum of training.

    Having said that, I am favorably disposed to the claim that the current system creates barriers that are more insurmountable than they should be. (I say “favorably disposed” because I know too little to state it for a fact, but things seem to shake out that way.)

  57. James Hanley says:

    Pierre,

    I’m all in favor of certification. But I’m not in favor of letting the requirements be determined by collusion between a physician’s professional organization and Congress.

  58. Lance says:

    James Hanley,

    As you have correctly pointed out, the current health care system is anything but a free market.

  59. pierrecorneille says:

    James,

    I think I agree, but I also think that Congress–and / or state legislatures–could play a role, say, in providing for civil penalties that allow someone to sue someone else for falsely claiming a certification. I’m not sure exactly where the line is to be drawn, although I’m as inclined as you are to distrust what seems like the AMA guild system.

  60. Lance says:

    I think it is telling that you never hear any mention of the AMA cartel in the US media or by politicians bemoaning the cost of health care.

  61. Dr. X: yes, at least in AZ, both PAs and NPs can suture. Also reduce some dislocations (shoulder and digits; elbows and hips are high-grade medical emergencies of the sort we fly to major medical centers.) They can also treat (including prescribing medications up to and including some narcotics) a fairly wide range of infections etc.

    I am familiar with them as both a patient ($EMPLOYER opened an in-plant clinic several years ago which has been awesome for a number of minor complaints) and as an emergency medic. Where possible we refer patients to either Springerville hospital (which has a PA on duty) or one of two walk-in clinics in the Show Low area. Stuff they won’t touch includes any cerebrospinal injury (DUH!) or other potentially life-threatening condition, serious orthopaedic conditions (aforementioned elbow dislocations, for instance) etc.

    With relatively few exceptions they’re as good as the local ER; except for the ability to stabilize patients before emergency transport (notably including blood transfusions) the local ER is pretty limited.

  62. James Hanley says:

    Pierre–Agreed, although traditional tort law may satisfactorily serve that purpose. But to the extent it doesn’t, I’m absolutely agreed. Contrary to what seems to be popular wisdom, free markets don’t really entail the right to defraud others.

    Dr. X and D.C.–I probably got the specific limitations wrong, demonstrating my lack of expertise in this area. I know there are some, and some are obviously reasonable, but some are not. I wonder how much of those regs are federal level and how much is at state level, and so can vary. I have no idea, but it would be interesting to see.

  63. traditional tort law may satisfactorily serve that purpose

    Traditional tort law is worse than useless unless there are at least six figures at stake and you have the spare change to gamble at least five of them. Since there are no demonstrable damages for just claiming qualifications that you don’t have, the subject only comes up in a malpractice case anyway — most likely as an aggravating circumstance.

  64. Lance says:

    James Hanley,

    From my own subjective perspective as someone who teaches recent high school graduates, the fundamental problems are a disinterest in reading, a lack of critical thinking skills, and lack of mathematical competency.

    As a math/physics instructor teaching recent high school grads I can second your subjective opinion (at least on points two and three). As proof that my opinion is subjective I offer that my university recently dumped it’s poor scoring, entering freshman onto a community college (IVY Tech, Indiana Vocational Institute).

    The resulting improvement in student ability was refreshing and surprising. It instantly changed my jaded viewpoint that these whippersnappers were sliding down the evolutionary ladder towards Gibbons or maybe even new world Lemurs. Still, I sense a change for the worse.

    Then again, maybe it’s just us old fogies reacting to impertinent new minds that is the issue?

    I’m relatively sure of four things.

    1) These students are not coming to the game with the math and critical thinking skills of my generation.

    2) These little fuckers are being coddled much more than I was.They have a sense of entitlement that I am certain, (meaning I’m just talking out of my asshole) that comes from a generation of boosting their “self esteem”.

    3) There is no reason to expect that the last generation of human progeny has degraded in intellectual capability.

    and…

    4) Teachers have been bemoaning the abilities of incoming students since the time of Plato.

  65. Lance says:

    Oops, last entry should obviously be posted in Things We Don’t Know About Education thread.

  66. James Hanley says:

    Oops, last entry should obviously be posted in Things We Don’t Know About Education thread.

    What was that you were saying about your generation?

  67. Lance says:

    James Hanley,

    What was that you were saying about your generation?

    Touche.

    Of course it may be my advancing senility (or the fact hat I drank four Harp’s before posting.

    I

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