National education & health care

[member 5645]

Originally posted by Nereid
I'm sure someone can dig these up - a few hours with google (and a good nose for BS and agendas) should do it. From memory:
- cancer rates: no significant differences
- murder rates: US way higher (murders involving firearms), but when age adjusted (young men seem especially prone to murder), not that much different
- obesity rates: I don't know
- obesity related illnesses: ditto.

The comparisons that need to be made involve many other economies. For example, the murder rate in Japan is way lower than that in the US. However, does that difference contribute in any significant way to a 2x difference in the economic efficiency of the health-care sector? I rather doubt it. First, I'd guess that murder has next to no impact on either economy's health-care costs (it would've been far, far different in WWII). Second, if it were a significant contributor, the effect should show up in the health care spending in the UK (say), where the murder rate is significantly higher than in Japan.

However, when you mention things like life expectancy, murders, car wrecks, and obesity will all play a large part when the numbers are as high as ours our. That's all I was getting at :)

 

[adrenaline]

Nereid is spot on. Why can't the US direct its outstanding talents in so many other market forces to correct the dismal iefficiency of our medical system with what we have now?


I believe it comes down to our expectation. For the last 30 years, health-care costs have been rising 6 percent to 8 percent a year—more than double the inflation rate in the rest of the economy—because demand keeps outstripping supply. As people's real income rises, they expect more medical care; our society is aging, so people need more care; and with new technologies treating formerly intractable conditions, people want more care.

In practice, almost everyone, insured or not, has access to health care, especially in emergencies. Insurance affects how much people actually use health services:

The access of the uninsured involves inconveniences and costs that encourage them to underconsume medical services, sometimes with grim results.

By contrast, people with insurance often have such broad access that many overconsume those services. People are running to the doc after two days of dealing with a viral upper respiratory infection. These consumption patterns drive the price increases that ultimately shrink insurance coverage. No politician is going to put it straight to the public. Anyway, who gets elected president by telling people that their health-care costs will soar so long as everybody has access to the most expensive forms of care?

Health care's path began when employers in World War II, desperate to attract workers without breaching wage controls, first offered health insurance as an untaxed fringe benefit. This approach took strong root.

Over time, these beginnings brought most people into an insurance system that insulated them from the full cost of each treatment; they also left government as the insurer for everyone outside the work force, notably retirees and the poor. All insurance markets are subject to "moral hazard," where the small personal cost of using the insurance—a co-payment in this case—encourages people to overuse it for minor complaints. The hazard is intensified in the case of health care, because people don't pay for the insurance directly. To be sure, working people ultimately pay for their coverage in lower and slower-rising wages, but the cost of premiums is still subsidized by its tax-free treatment; when I write the checks for my employees, they don't even feel the pinch directly when premiums go up. (Imagine how much less coverage many would accept if we all had to write annual premium checks for $4,000 or $5,000.) These hazards are even greater in public-sector health care, where the retirees and poor consuming most of the services don't bear most of the taxes financing them.

Individual costs are rising, but other forces continue to undercut greater price discipline. In most markets, for example, this discipline also depends on people having the information required to judge the value of goods or services before they buy them. In health-care markets, how many people have the information to say no to a more expensive test for diabetes or a treatment for a heart murmur? The norms of the medical profession are supposed to align a doctor's incentives with a patient's medical interests (especially when the prospect of a malpractice suit reinforces these incentives). But there's no mechanism to align the financial interests of doctors and their patients. (So doctors can deliver sound health services in ways that maximize their billings. )

When prices rise unusually fast in other markets, people can usually find and substitute cheaper products: Beef prices rise and people eat more chicken, or a real-estate bubble drives up housing prices and people downsize their residential ambitions. That doesn't work nearly as well in health care, when patients are told that the alternative to a costly test or procedure is poor health or even premature death.


As a society we determine how much health care we want . Unfortunately, our desires have no relation to what we would spend. The current system has no balances. Universal health care would not improve that problem, it would only shift the locus of control.
Our health care insurance system is broken. Perhaps we could look at ways to improve that system, and in some way link behaviors with costs (e.g., smokers and the obese would pay higher insurance) and expenditures with graduated co-pays. I can tell you right now, it is the medical treatment and expense of two of my employees, one a smoker and one obese, who has driven up our premiums for the whole office. Only when each individual starts to understand costs will market forces apply. Without the power of market forces, I suspect that we will be continuing this debate forever.

 

[Njorl]

Originally posted by Nereid
I ask Njorl, SelfAdjoint and others who understand these concepts well to please jump in and amplify/clarify/correct.

In economics, the activity of an industry sector can be described in terms of the proportion of the national GDP which it accounts for. This activity encompasses all aspects of the sector, and all players. While there is always room for disagreement over definitions and accuracy of statistics, economists generally have a pretty good handle on both the data and concepts, at least in developed economies like the US, the countries of the EU, Japan, Australia, etc.

When you examine the level of economic activity by industry sector, you find a most extraordinary result - the US spends* approx twice as much as other developed economies on health care.

By itself this isn't particularly noteworthy; the theory of economic advantage says (for example, caveats apply) that global economic utility is maximised by each economy concentrating its economic activity in sectors where it has a comparative advantage (this does NOT mean where it is cheapest! note the word 'comparative').

However, when it comes to health-care, where almost all the economic activity is domestic (ie no significant imports or exports), the benefits are not purely economic - most of us don't seek good health in order to work harder! So, what are the (economic or other) returns on the disproportionately large 'investment' that the US economy (not people!) makes in health care?

That's the paradox; apparently none (of any significance):
- no increase in life expectancy
- no decrease in infant mortality
- no reduction in incidence of major cancers
- no increase in 5-year survival rates from major cancers
- no decrease in incidence of heart disease
- no increase in 'quality of life' for seniors
- etc, etc, etc.

Note that we're not talking about a few % at the margin; the contrast with ALL other advanced economies is stark.

Some links:
http://www.economist.co.uk/research/backgrounders/displaystory.cfm?story_id=80699
A major business opportunity

*this is measured as % of GDP (a measure of total economic activity) per capita (a.k.a. population), expressed in $PPP (purchasing power parity; basically this metric removes distortions due to differences in exchange rates and the fact that the same basket of goods and services cost very different amounts in each economy, even when measured in constant (inflation-adjusted) US$).

Oh, and just to forestall some likely questions, my sources are that well-known left-wing, all-but-communist publication, The Economist, among whose avid readers are most Economics Nobel Prize winners, Henry Kissenger, Pascal Lamy, Robert Zoellick, Tony Blair, Gordon Brown, ... (but not a certain Bush from Texas)

That's a good question.

I think there are a few things that affect the huge amount of money we pay.

THE TRAGEDY OF THE COMMONS. If there is a plot of land that anyone can graze their cattle upon, I should send my cattle there. I realize that if everyone does it, the commons will be destroyed. But if I forego this right, there is no guarantee that others will do as I do, so the commons will be destroyed regardless of my actions. One way, the commons is destroyed but I gain a small benefit. The other way, I derive no benefit, but the commons is destroyed anyway.

The fact that we are heavily insured makes it less painful to have more done. I've already paid my $2500 in premiums, so I'm very willing to pay a $10 copay to get $100 worth of medical tests. I realize that if everyone acts this way, it drives up premiums, but I have no guarantee that others will refrain just because I refrain. In game theory, I think it corresponds to the tragedy of the commons.

Cheap procedures are the commons. Paying my insurance premium gives me rights to the commons. The destruction of the commons is increased costs for next year. We need to come up with a system that does not encourage waste. This system does not just encourage it, it nearly demands it.



YOU CAN'T PUT A PRICE ON GOOD HEALTH. We are taught this from birth. The problem is, it is wrong. If you don't put a price on good health, you will pay too much for it. If you pay too much for good health today, you will not have enough money to pay for it tomorrow. People who point this out are thought of as ghoulish. We need to develop more sophistication in our everyday morality.



A UNIQUELY AMERICAN PARADOX - Money can buy you anything, everybody has a right to good healthcare. These combine to, everybody deserves the best possible healthcare that money can buy. Obviously, that just can't be.

Njorl

 

[Zero]

Originally posted by adrenaline
Nereid is spot on. Why can't the US direct its outstanding talents in so many other market forces to correct the dismal iefficiency of our medical system with what we have now?

The simple answer, I think, is this: the inefficiency of the system profits the insurance companies. Think about it: you have a middle man who provides no concrete service, makes huge scads of cash, and has no interest in the success or failure of any specific medical situation. Say 1000 people pay the insurance company $2500 apiece per year, for 5 years. That's $12.5 million dollars, that is being invested and profited on, compared to the absolutely tiny amount of money the average person will ask back. As soon as one of those people gets seriously sick, though, the insurance company will limit the person's health care, raise what they have to pay in, and drop them as soon as possible. There isn't a whole lot of interest in making sure a person gets well, because the insurance company already has their money.

 

[Njorl]

I agree Zero. The incentives of the insurance companies runs counter to the interests of everyone else in the business.

The purpose of the insurance company was originally to diversify risk, and combine purchasing power to obtain better prices from medical providers. This is a fine purpose. The problem is, the profitability of the insurance industry is dependent upon the helplessness and insecurity of the healthcare consumer. So, while an individual insurance company prospers by keeping it's own costs down, the industry as a whole thrives by driving prices up. This is where industry-wide lobbying comes in.

Njorl

 

[adrenaline]

I think Zero and Njorl got it right.