Arnold Kling links Ben Bernanke saying:
From the economist's perspective, the question of whether we are spending too much on health care cannot ultimately be answered by looking at total expenditures relative to GDP or the federal budget. Rather, the question, whatever we spend, is whether we are getting our money's worth. In general, good information and appropriate incentives are necessary to allocate resources efficiently.
Most economists conclude that we are not. But here's a thought experiment. Say someone offered you a health insurance policy which will give you the net present value of money saved on life extending procedures, if you agreed in turn to forego expensive end-of-life care, and to forfeit your right to any procedure that health care eonomists estimated was not cost-effective in terms of life years saved. How many of you would take it? Not many, I'd wager. Which argues that the current allocation of health care resources is, in some sense, efficient, in the sense that we prefer it to the alternative.
What we'd really like, of course, is to prevent everyone else from taking advantage of "useless" end of life care and procedures. In a democracy, however, each everyone is also a we.
I'd take it. You can use the cash you get to pay for care if that time ever comes, and in the meantime use it to pay down debts or increase savings.
In a democracy, however, each everyone is also a we.
Precisely.
The solution is to eliminate greed by freeing people from the necessity of making decisions that affect them.
Megan,
I think most people would take the offer under the understanding that they are not barred from purchasing the procedures themselves, which situation is unclear in your hypothetical.
We can't act like everyone has access to procedures. We're a democracy, not a dictatorship of the lucky. Why not offer the hypothetical of being reincarnated into the current system, with a huge chance of being totally uninsured, and/or with a pre-existing condition, etc.?
Don't lots of people already do this in the guise of Hospice care? When my dad entered hospice he basically waived all further claim to treatment. Since he wasn't paying out of pocket, I think the only thing he really got in return was a supply of all the opiates he could possibly want.
I think the conclusion is missing a step: it's not that we would have a problem saying no to those procedures for ourselves, but that we want them available for our loved ones. cf. Robin Hanson's assertion[*] that end of life care isn't about making the patient feel better -- or even *get* better -- it's about the family and friends signaling how much they care about the sick person.
[*]: he may have never said this, but it sounds like him, I think.
I think Megan's hypothetical only makes sense as a question if it's assumed that you can't later buy the procedures yourself (if you could, then the question is just "would you like to expand your options?" and the answer is obvious). The question is, if they just gave you that money, would you spend it on that "not cost-effective" end-of-life care? If so, then no problem.
But I'm kind of surprised that so many people think it obvious that most people would rather have the care they're going to get than the money that care would cost. I would think I'd definitely take the money.
But I'm kind of surprised that so many people think it obvious that most people would rather have the care they're going to get than the money that care would cost. I would think I'd definitely take the money.
I don't doubt people would take the money -- but I think they would also expect the care. Short term thinking.
That's the situation we're in now: we all bitch that healthcare costs so much more than it used to, and we also bitch when we don't have access to the latest, most awesomest new treatments when we eventually come down with whooping aids cancer cough. We want more medicine for the same premiums.
Mike,
If that's what people really think, then I don't see how we could possibly say what they want. It's one thing to say that they demand everything in a political environment, or when someone else pays the bill, or when their vote doesn't matter anyway. But if you're saying that they actually prefer A to B and also prefer B to A, then what would make any policy better or worse than another?
ryan,
Not that they prefer both A to B and B to A *now*, but that they prefer both at different times. When they are not sick, they want the cash. When they are sick they want the treatment. And they'd be willing to pay for it, but at that point it's too late, because the money's been spent.
Okay, if that's how people think, how could it possibly mean anything to say that one policy is better than another? There is literally no possible way to compare options.
ryan,
exactly.
Mike,
Is this complete absence of individual preference specific to health care, or is life one great big Dada performance (with the fact that people eat more sandwiches than glass being pure coincidence)?
I, like most people who barely know what an annuity is and only vaguely understand things like net present value and opportunity cost -- that is, the vast majority of the population -- have no idea what I would do. Probably I'd watch TV and do whatever the ad from Geico or AFLAC tells me I should do.
In other words, decisions on health care are probably subject to the same irrational behavior as most other markets - witness the success of Golden Rule life insurance despite a mountain of customer complaints.
We just bought health insurance for our employees. One of my partners, who is super anal retentive when it comes to finding out info to make a decision, called his doctor to find out which companies he liked working with. He didn't know, so he referred him to the nurse. She didn't know either, so she referred him to the billing person. She very reluctantly told him which insurers she liked and disliked and noted that this was the first time anyone had asked her.
Ryan,
It's not dadaism, it's human nature. We're bad at foreseeing the future. I think health care is a particularly difficult problem and our contradictory impulses are manifest particularly strongly there. And they're not even that contradictory: right now I'm not sick, so why should I spend as though I am? And when I *am* sick, should I not want to get better?
But still...any solution to the health care mess needs to accept that people want to A) spend as little as possible now and B) get as much as possible later.
The question isn't even a good one. It's like asking do you want free candy now or free candy if you live to be 90.
if you agreed in turn to forego expensive end-of-life care, and to forfeit your right to any procedure that health care eonomists estimated was not cost-effective in terms of life years saved.
I don't think this hypothetical is particularly well considered. There is no innate e=mc^2 style a priori conversion rate between years of life and dollars. The way we determine how much a year of life is worth monetarily is to examine how much people are willing to spend (or actually do spend) to extend their life a year. And without such a rate of conversion, it's often impossible to determine whether a given treatment is "cost efficient." So I think the hypothetical is somewhat circular.
On the other hand, there are some treatments we can clearly say are not cost efficient, without any need for a conversion rate between years of life and dollars. Namely, those that either (a) simply do not improve health/life expectancy whatsoever or (b) are clearly less effective than cheaper alternative treatments.
As far as the question of how to reduce the utilization of such categorically not cost effective treatments - there's no simple answer. However, I do think it's clear that the United States is uniquely terrible at this. (See Brownlee's "Overtreated" on this point.) More highly regulated and thus more highly rationed delivery systems, as exist in every other industrialized country, unsurprisingly do a better job at discouraging pointless treatment.
Mike and Ryan,
The term you're looking for is 'interest.' Mike's hypothesis basically boils down to individuals having stupid-high internal interest demands. As in, they value the future at something like 10+% less per year. So when you discount for interest, the net present value of Cash wins. But when many years later they're sick, the net then value will favour care...but they'll be broke.
Basic thesis: people are stupid in how little they care about the future.
Say someone offered you a health insurance policy which will give you the net present value of money saved on life extending procedures, if you agreed in turn to forego expensive end-of-life care, and to forfeit your right to any procedure that health care eonomists estimated was not cost-effective in terms of life years saved. How many of you would take it? Not many, I'd wager
For sure, the money.
Peter,
If people did in fact discount at that rate, then it'd be a little odd to explain why anyone would vote for Medicare or Social Security: if you, right now, don't care about the future, then why would you vote for a policy that takes money from you now and gives it back later?
But do note there's nothing inherently irrational about discounting the future. Nor (as I read Mike to be saying) is there anything odd or even surprising that people would like to have their cake and eat it too (or have their cake and also not pay for it), assuming this is possible. But neither of you seem to be really saying that people are fundamentally unable to even have a preference between two options. (It seems to me that you're just saying that people prefer consumption when young to health care when old, but health care when old to consumption when old.)
So Megan's question is perfectly sensible and in a sense is the only way to judge whether policy is efficient. If people knew which problems they'd have and how much money would be spent on them and what sort of value they'd get for it, would they spend the money differently?
I'm with Adam: for sure, the money.
...to forfeit your right to any procedure that health care economists estimated was not cost-effective in terms of life years saved. How many of you would take it?
This is the wrong question. There are lots of procedures that do not extend life, but allow life to be lived without being crippled: hip replacements, coronary artery bypasses, etc.
Please restate the question.
BTW, you have brought up end-of-life expenses multiple times in covering health care costs. Do you have any firm data on how much is spent on these unnecessary expenses?
Knowing that the plural of ancedote is not data, the experience that my family had is illustrative. My father was a practicing physician, age 72, and went into the hospital, never left, and died 6 months later. Is the money (over $300k) spent on him unnecessary? He was in moderately good health before he went into the hospital. He was working, paying taxes, with one employee. The thing was, until his body totally broke down, we didn't know what we were doing was futile.
And, who will decide that a particular person's care is unnecessary?