Wednesday, July 29, 2009

Healthcare, Costs and Markets

Many Canadians have this superiority complex about our healthcare system despite the fact that most of also recognize that it's unsustainable, getting more expensive and crumbling. Of course that also doesn't stop us from decrying markets and that supposedly capitalist market in the US - but here's the problem - there are no free markets in healthcare in the world let alone the US. Regina Herzlinger notes the problem with healthcare in the US (

Harvard University business professor Regina Herzlinger is stuck in exactly the same place as most Americans—her employer, in this case, the president of Harvard, buys her health insurance for her. "I wouldn't permit him to buy my house or my clothing or my food for me. Yet as my employer, he could take up to $15,000 of my sala­ry each year and buy my health insurance for me, without knowing anything about my preferences or needs. It's ridiculous." Indeed it is.
The solution? Transparent and real markets:

Wondering what shopping in a competitive medical market might be like? Check out the admittedly clunky California government's common surgeries and cost comparison website. Browsing reveals that the cost for heart valve replacement varies from $72,000 to $368,000, and the cost for angioplasty varies from $9,000 to $204,000. Other websites, such New Choice Health, enable consumers to go shopping for relatively routine procedures like colonoscopies, laparoscopic hernia repair, and MRI scans. Prices for colonoscopies in Washington, DC, for instance, vary from $580 to $1,386, hernia repair from $974 to $2,519, and abdominal MRIs from $936 to $1,960.

Opponents of markets in health care worry that patients in extremis will be in no position to negotiate. Actually, the slow progress of the kind of chronic illnesses that are driving up health care costs—cancer, coronary artery disease—allow consumers time to shop around for suitable treatments. Prostate cancer patients can evaluate and choose between options like watchful waiting, various radiation therapies, surgery, and soon, a new biotech immunological treatment. Information gathering would take no more time than the current wait for a follow up appointment.

As Regina Herzlinger is fond of pointing out in her book, Market-driven Health Care (Amazon), technology in any other industry drives costs down not up. For this reason I'm a bit skeptical of the rationale of some economists who are opposed to nationalized healthcare but who argue that healthcare costs have risen because the value and choices in healthcare have risen proportionally if not more so - as argued by Nobel Laureate Ken Arrow (Greg Mankiw):
Oh, why health costs increase? The basic reason why health costs increased is that health care is a good thing! Because today there is a lot more you can do! Consider all these expenses that are diagnostic. Cat scans, X-rays, MRIs and now the proton-powered whatever-it-is. Something that is the size of a football field, cost $50 million, and has all sorts of diagnostic powers. A lot of these technologies clearly reveal things that would not be revealed otherwise. There's no question about it. Diagnostics have improved. Technology has improved. You know, sending things through your blood stream to help in operations, instead of cutting you open. It's incredible. But these things are costly. But for older people longevity is increasing by a month each year. Now, whether that creates other problems with retirement and social security is another question. But, nevertheless, preserving life is a good thing.
That there is a recognition that Americans are getting more than they were before for their healthcare dollars, also suggests that if markets aren't rationing the best treatments, governments will. As one man asked at a recent forum (Instapundit): "At what point does the government say to me that it is your patriotic duty to die?"

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