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Akron Univ. School of Law

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Thursday, April 9, 2009

Why is health care so expensive?

Megan McArtle writes in the Atlantic Monthly about the expenses and the reason behind those expenses in the way that our health care is provided.  She writes,

To my mind, the real answer is threefold:

1)  We pay more for our medical services.  But though the pharma industry is important, the real action is in wages.  Our medical personnel cost vastly more than their counterparts abroad in almost every category.

2)  We consume more services.  Americans get shiny new facilities--my British colleagues once derisively commented that American hospitals are "like hotels".  American hospitals don't have open wards for almost anyone.  They staff at very high levels.  Doctors conduct an inordinate amount of tests.  We use an expensive machine rather than watchful waiting.  And often, those expensive machines catch conditions that never would have turned into anything, which we then treat.  Natasha Richardson probably would have lived if she'd had an accident here, because doctors would have done a cat scan, and there would have been a Medevac helicopter available.  That's tens, maybe hundreds of thousands of dollars to save a single life.

3)  There are inefficiencies.  I don't mean "compared to other systems"--every system has some screwed-up illogicality that costs it money and makes patients worse off.  But compared to what we could have.  For example, Medicare pays for procedures, not wellness, which means that there's a chronic undersupply of geriatricians, because the specialty isn't particularly well paid even though the nation's largest healthcare provider is specifically designed for old people.  This is madness.  But every real-world system that has attempted to pay physicians for wellness has ended up giving up in disgust.

So how much scope is there for reducing our costs, relative to the rest of the world?  Some, obviously, though it's not clear that this would actually be a net benefit to either us and the world, since the iatrogenic effect would probably be to wipe out most industry research into new drugs and medical devices.  But not really that much, for both political and practical reasons. 

Politically, state health care systems have so far proven unable to control labor costs--indeed, the health care unions are some of the most powerful political forces in most states, while the AMA has dominated the Medicare reimbursement schedule.  There's no evidence that is going to change any time soon.  Politically, also, conservatives have got to face the fact that we are not going to stop providing health care to people who are in dire need, and that this will undercut any attempt to move towards a fully private model. 

Practically, we have to pay healthcare workers a lot because we have to pay everyone a lot; in a rich country, wages for healthcare workers are high.  And measuring healthcare productivity is really insanely difficult, which makes it very hard to figure out what's worth spending money on. As long as Americans don't want to sacrifice access to procedures--and they don't--there's just not much room for decreasing costs.

That doesn't bother me that much.  The mindless trend extrapolation about how much we'll spend on health care in the future elides the point that we'll be much richer in the future; why shouldn't we spend all that extra income on healthcare?  Your ancestors spent 2/3 of their daily income on food.  Now you spend about 15-20%.  But spending much more of your income on clothes and housing doesn't mean that you're starving; it means that you're so rich, you only spend a small fraction of your income on food.  When I look around at our incredibly bountiful economy, I don't see any obvious lack that we're creating by spending ever more of our income on leading longer, healthier lives.

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