Talking about health care provides a great opportunity to link to this video by Peter Aldhous, Jim Giles and MacGregor Campbell — the last of whom was once Tom Levenson’s advisee. (Also via Bioephemera, who at least was kind enough to embed the video.)
The video, also at New Scientist, takes data from studies by Dartmouth and the OECD, and uses Gapminder to make the graphs come alive. It helps explain one of the paradoxes behind health care in the U.S.: we spend more than most other developed countries, and we get less for it. The explanation — you’ll be unsurprised to hear — lies in our screwy incentive system. By making health care a matter of profit for various sets of people — doctors, hospitals, insurance companies, pharmaceutical companies — we push into the background the incentive that we’d really like the system to have, namely keeping people healthy. Changing those incentives doesn’t mean that Barack Obama decides what treatment you get from your doctor; it just means that we can focus human ingenuity on the task of making people healthier, rather than just making other people wealthier.
“By making health care a matter of profit… we push into the background the incentive that we’d really like the system to have, namely keeping people healthy.”
That is a very odd argument. What’s strange is that it can be used to argue in favor of socializing pretty much any industry. Do we suffer from yucky, overpriced bread because bakers are motivated by crass profit rather than pure devotion to taste? The answer, of course, is no. Profit-motivated bakers do their jobs quite well, and socialized bakeries would not be an improvement.
The problem with doctors isn’t that profit-seeking is some sort of generic evil. The problem is that much medical care is a credence good. People buy useless echocardiograms from doctors because they have to rely on the doctor’s word that it will help them. (Whereas you can taste bread for yourself, and don’t need to rely on the baker to tell you whether it tastes good.)
Solving the problem of asymmetric information in credence goods is hard. Comparative effectiveness research is certainly part of the solution, and to the extent that medicine is already socialized (Medicare, etc.) the government absolutely should use that research to decide what tests and procedures it’s willing to pay for.
The rest of the proposed health care reforms (individual mandate, community rating, subsidies) are completely irrelevant to the credence goods problem, and nothing in the video provides any argument in favor of those reforms.
I might not have been clear: I certainly don’t see profit-making as a generic evil. The reason why capitalism works when it does is that the profit incentive aligns with other incentives: if a baker wants to make money, they need to make good bread, and everyone wins. In the case of health care, the incentives are not aligned: insurance companies make money by denying people care, not providing them with the best. The video gives the example of doctors who have incentives to use expensive equipment even when it’s irrelevant to the health of the patient. The problem that patients don’t understand the procedures very well is part of what prevents these goals from being aligned in the case of health care.
Yeah, that was a less-than-charitable interpretation of what you said. Sorry. I think we pretty much agree on the credence good problem and comparative effectiveness research. But I’m not at all happy about the other parts of the health care reform package.
The video makes it sound like the perverse incentives for doctors are the primary factor in increasing health costs in the US versus other countries. It seems clear to me that the US health insurance system is at least as important – when the overhead for medicare is 4% and that for private insurance is around 30%, there’s clearly fat to be cut there.
What would happen to the price of bread if employed people were provided free, tax-deductible bread at work, while the jobless had to purchase it at rates designed for huge companies?
After few years of reading this site and a blog by steve hsu, i’ve started really wonder why the political/social/economical world views are so amazingly well described by only one dimensional line i.e. left vs. right. In other word, why people are so politically dull and predictable(for the record, this is NOT sarcasm)? Opinions on health care, krugman, guns, war on something.. Yearning to reach even 1.618th dimension.
There are many issues with this simple treatment of healthcare and frankly it strikes me as a very poor one. First, the presentation completely ignored hidden variables which may be highly influential such as demographic makeups, sources of death and immigration rates and instead uses a correlation-causation model for life expectancy or time and cost. This is particularly true in the three cities that the fellow chooses. Miami for example is about 10% non hispanic white, is 22% african american and has a significant number of undocumented immigrants. It’s violent crime rate is over 3 times greater than the national average. Salem, Oregon’s crime rate has fluctuated between 1 and 1 1/2 times the national average and is much more uniformly white. San Francisco has a crime rate about 1 1/4 the national average and is nearly 75-80% white+asian, who consistently score some of the highest numbers in terms of life expectancy in America. I can’t imagine three more bizarre choices of cities to compare considering all these lurking issues. The same is true of the regions that go by spending. The relatively homogenous low minority west is characterized as some of the lowest spending while the southeast is characterized as the highest. Clearly there may be significant hidden variables there.
I’m not sure the treatment of incentives here is completely fair or accurate either. A doctor may have an incentive to use an expensive machine for a patient on an elective procedure because it may increase that patient’s health in some marginal way. However, such a marginal increase in ‘healthiness’ may not align with the concurrent increase in cost. This is particularly true because you’re viewing the healthcare system as a whole and treating such marginal effectiveness versus the overall increase in cost. While it may be true at such a macro level we’re seeing some pretty significant inefficiencies at the micro level it strikes me that many patients would be willing to accept a marginal increase in healthiness even if it isn’t well conditioned with respect to cost.
If you ask a grandma down in Georgia whether she’s willing to have an extra 1000 spent on a echocardiogram that’s likely to only make a marginal 10% increase in her chances of spotting potential blockage I bet you the individual versus some efficiency wonk will have differing perspectives in terms of its utility.
Statements like “insurance companies make money by denying people care, not providing them with the best” are also not helpful in this comparison. Insurance companies make money buy having people buy plans which correspond to the risk associated with their preconditions. This also means there’s a central problem in this chaps incentive scenario. If a doctor has an incentive to use expensive machinery because he’s getting paid more by the insurance company then that means that the insurance company is also assuming some of those costs. And considering that plans typically have a limited deductible and copay that means that those increased incentives also mean an increase in costs for the insurance company—all of which they can’t just recover by upping premiums in the future. If such a scenario was the only mechanism driving up costs (the greed of doctors) then there would be a profit motivated feedback for insurance companies once they found some maximal profit point.
“Changing those incentives doesn’t mean that Barack Obama decides what treatment you get from your doctor; it just means that we can focus human ingenuity on the task of making people healthier, rather than just making other people wealthier.”
This really isn’t true—under a universal healthcare system rationing is going to be a necessity unless we want runaway costs. This isn’t the fault of President Obama or the current plan though—rationing is inevitable and has an analogue in the current private treatment of healthcare whereby one is limited to procedures and coverage that they want by how much they are willing to spend on healthcare.
rationing happens now.
switching plans unasked for by the patient happens now.
(my wife employer has switched plans on her twice in the last ten years)
those arguments are meritless.
Sean,
Insurance is a risk based contract. Denying people care who’s expected loss is greater than their premium is how you make a risk based contract work. If you don’t deny people care based on risk analysis, it is no longer insurance, it is welfare.
If you didn’t take game theory the actual formula is premium > p(claim).
denying people = more profits.
“one of the paradoxes behind health care in the U.S.: we spend more than most other developed countries, and we get less for it.”
I’m not sure what your source is for this, but I encourage you to look very closely at whatever source material seems to show this and ask yourself you honestly believe this is really the case. Beware of people with agendas.
You might be surprised to learn that the US has the best cancer survival rates in the entire world, with cure rates significantly higher than many European countries.
“By making health care a matter of profit for various sets of people — doctors, hospitals, insurance companies, pharmaceutical companies — we push into the background the incentive that we’d really like the system to have, namely keeping people healthy. ”
Perhaps we just see things differently, but I am very skeptical that you will find large numbers of people that will endure 11-15 years or more of higher education and training while typically going deeply into debt in order to become doctors if they are not allowed to make some money. The job and training are just too demanding. You can shame people all you want for not being more altruistic, but I doubt it will work…
“insurance companies make money by denying people care, not providing them with the best. The video gives the example of doctors who have incentives to use expensive equipment even when it’s irrelevant to the health of the patient. ”
How is it possible that the insurance company who is denying care to patients in order to make money is at the same time agreeing to pay for all these unnecessary procedures that doctors are doing? I guess maybe this particular insurance company is not trying to make a profit? I am confused…
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I’m not surprised that people are still mixing up the details with the big picture. One of the big movements in medicine in recent years has been outcomes based medicine. You’d think with a science based background that this would be a given, but that would be confusing the academic world with the treatment world. They are supposed to connect, and do somewhat, but it would be a mistake to think that the linkage is ideal.
This methodology can be applied to the system as a whole as well. The video is fairly representative of the situation as I understand it. The American system is paying a premium for care, which would be worth it if the outcomes were correspondingly better.
All the arguments that I hear refuting this are not sound. The argumenters often try to use the old “I know someone” story. Well, good for them.
However the video presents population based studies. Statistical studies, well done and with adequate data, tell the real story. Listen, or not. It’s your choice.
@ anonymous # 12
“You might be surprised to learn that the US has the best cancer survival rates in the entire world, with cure rates significantly higher than many European countries.”
Check your data. US shares the highest cure rates for very specific types of cancers with France and Japan. Also, the cure rates for other types of cancers were lower depending on race, socioeconomic status and gender and this necessarily skewed the data.
Rudy Giuliani made a similar claim that has since been shown to be inaccurate:
http://blog.washingtonpost.com/fact-checker/2007/10/rudy_miscalculates_cancer_surv.html
Statistics of cancer survival rates by country:
http://www.webmd.com/cancer/news/20080716/cancer-survival-rates-vary-by-country
I keep hearing people say that our health care system is so much better than everybody else’s and it’s just not true no matter how you try to slice it.
There are other fields with credence goods, such as car repair, that work fine. You just use reputable insurers and repairers and the problem is pretty much solved. Not perfectly but good enough. I don’t know much about U.S. medicine but asymmetric information can’t be the core problem.
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The whole problem comes down to cost/benefit ratio of medical procedures. This is why qualitative arguments are meaningless.
I believe technology should be able to help us here. What is needed is a centralized open registry of cost/benefit information for all treatments. Each time a doctor orders a specific procedure it should be entered into the registry accompanied by information on disease/symptoms, relevant anonymous patient information and results.
Such data could then be used to develop a function which would assign the abstract benefit value to each treatment which could be compared with it’s cost. It will of course be very challenging to come up with a good and fair model but it needs to be done and even if imperfect at first it would be gradually revised and improved as more data and better algorithms become available. This would be the task for academics to come up with best possible models.
A single federal agency should be assigned the task of keeping the registry, choosing a best model each year and computing the values. Once the benefit and cost of each treatment is available doctors could simply follow uniform guidelines when prescribing procedures. The more expensive the health care plan the lower the benefit/cost ratio of procedures would be included in it, with patients always having the option to pay for those procedures not covered of course.
I believe this is how a rational and science based solution to health care can be developed.
“By making health care a matter of profit for various sets of people — doctors, hospitals, insurance companies, pharmaceutical companies”
You left out the lawyers.
Though one might wonder how well-founded are the conclusions presented in the New Scientist video, considering that they’re based on only a few metrics such as life expectancy and survival rates for a particular condition, a more thorough report on the situation (drawing partly on the same Dartmouth analysis) comes to the same conclusions: one written by Atul Gawande, published in the 6/01/09 issue of _The New Yorker_, and cited shortly thereafter by President Obama. It’s available online at http://www.newyorker.com/reporting/2009/06/01/090601fa_fact_gawande.
At the risk of exceeding the bounds of an allowable quote, here’s Gawande’s summary of his article, taken from a later roundup of responses to it: “In my June 1st article, ‘The Cost Conundrum,’ I explored the question of why two border towns in Texas of similar size, location, and circumstances—McAllen and El Paso—should cost Medicare such enormously different amounts of money. In 2006, McAllen cost $14,946 per enrollee, which is the second-highest in the United States and essentially double El Paso’s cost of $7,504 per enrollee. Analysis of Medicare data by the Dartmouth Atlas project shows the difference is due to marked differences in the amount of care ordered for patients—patients in McAllen receive vastly more diagnostic tests, hospital admissions, operations, specialist visits, and home nursing care than in El Paso. But quality of care in McAllen is not appreciably better, and by some measures, it is worse. Indeed, studies have shown that the care for patients in the highest-cost regions of the country tends to go this way—with more high-cost care across the board, but less low-cost preventive services and primary care, and equal or worse survival, functional ability, and satisfaction with care. The cause that I found locally was a system of care that was highly fragmented for patients and often driven to maximize revenues over patient needs. And I pointed to positive outliers across the country, including Grand Junction, Colorado, and the Mayo Clinic that deliver markedly lower-cost, higher-quality care.” (Source: http://www.newyorker.com/online/blogs/newsdesk/2009/06/atul-gawande-the-cost-conundrum-redux.html)
Health care business in America works, and works very well.
Everybody is making money! High revenue, fat profits. Health care biz, and related biz such as drug and equipment makers, malpractice lawyers, all meet Wall Street expectations. While the economy tanks, not one of these biz requires government bailout.
Like just about all biz in America, the sole purpose of enterprise is to produce a profit. At the expense of human beings and humanity.
Which is why health care reform generates so much debate. The reform threaten to reduce profit and increase human value. Wow, what a scary idea.
Here’s an equation of equilibrium for health care in the USA:
reform = social turmoil (100 million without insurance) – biz turmoil (profit reduction)
maybe Insurance is the wrong model
it is meant to spread rare risks around
but trying to apply that to everybody is obviously
not within that idea. It becomes a bottomless pit.
It seems things worked better in the fifties.
Every industrialized nation on earth has a better health care system than we do. It’s not that they have some magic secret, though. They all have different systems, but everybody manages to provide quality care for half of what we pay. For years I resisted drawing the obvious conclusion from these facts and thought we could catch up with the others by commonsense reforms. I was wrong and the Republicans have convinced me of my error. Thing is, America is hopelessly inept and corrupt. We are quite incapable of managing our own affairs. Our worldwide power and influence was not the consequence of any particular virtue–far from it. We prevailed for a long time because of our geographical isolation, our natural resources, and our mere dumb luck. In fact, we are a bunch of losers. The health care debacle simply underlines this increasingly obvious fact.
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Even though healthcare is very beneficial to society, it’s more of a cost than a benefit to the economy. This is why healthcare will always be, at most, a mere handmaiden to our economy — it’ll never be the workhorse, much less the engine, of our economy. So if we keep letting healthcare gobble up bigger and bigger chunks of our GDP, as we are now letting it do, our economy is destined for the poor house.
And I must say that it would’ve been far less painful for all of us had we enacted national healthcare for everyone, not just for the old and the poor, back when healthcare made up only a small sliver of our GDP. But now that healthcare, as it now stands, has grown to the point where it’s eating our GDP out of house and home, it’s gonna be very hard to tame this beast without killing it.
Let me also say that there are three things that we should’ve never let happen. First, we should’ve never let banking overtake manufacturing, as the leader of our economy. Second, we should’ve never let healthcare sap the strength out of manufacturing, causing it to become a mere ghost of its former self. Last, but not least, we should’ve never let such a huge chunk of our Federal budget go towards arming our war machine. It sickens me to no end that we’ve become so damn barbaric that we’d rather spend our tax dollars on killing others than caring for them!