A favorable citation of my arguments at Tech Central Station. Normally, I’d be pretty concerned about this, but it’s from Tim Worstall, the sole exception, AFAIK, to the otherwise uniform hackishness of that site[1].
Tim quotes my discussion of the Baumol effect to argue that the fact that the US spends so much more on health care than other countries is not necessarily a bad thing. At the aggregate level he’s right. We should expect the share of income spent on services like health and education to rise as income increases, driven by productivity growth in the goods-producing sector. In the case of medicine, the regular discovery of new and costly treatments adds to the problem (there’s an argument that this technological innovation is an endogenous result of the way health care is financed but I’ll leave that for another day).
Worstall is also right to imply that systems of public provision have, at least in some cases, led to pressure to hold expenditure below the socially optimal level. This was most obviously true of the National Health Service in Britain, though expenditure and service provision have increased greatly since the election of the Blair government, and are set to rise further. The same pressures are evident here in Australia.
That said, when you look at the US system in detail, it’s clearly not a matter of paying more to get more. While the health care available to the top 20 per cent of Americans (those with unrestricted Blue Cross style insurance) is probably the best in the world, the average American (insured by an HMO or a fee-for-service insurer with restrictions) doesn’t get any better care than in other developed countries and the uninsured are much worse off.
The real problems are the financing system (Worstall gets off a neat crack at the expense of JK Galbraith here, but the real problems go back to the 1930s, as discussed by Robert Moss in When All Else Fails) and the very high salaries of US doctors compared to those in other countries, reflecting both higher inequality in the US and the huge cost of becoming a doctor through the US higher education system.
One result is that, despite relying primarily on private, employer-provided insurance, the US government actually spends more, relative to GDP, on health than most others.
Finally, there’s the balance between medical care and public health, broadly defined. It’s well known that the US has a lower life expectancy than other countries that spend much less on medical care. This isn’t however, primarily due to inadequate access to lifesaving treatments (the poor miss out on lots of routine health and dental care, but they can usually get emergency treatment). Rather, it’s the result of unhealthy living conditions broadly defined to include guns, car crashes, the consequences of obesity and so on. These things aren’t easily fixed, but there’s more resistance to doing anything about them in the US than in most other places.
fn1. Why he keeps writing for them, I don’t know. Tim would do much better as the opposition writer in residence at a left or liberal site, a slot that is very hard to fill in my experience. He makes good points, is willing to admit that he’s wrong on occasion, and is gracious when he catches someone else in error, as he has done with me. Still, that’s his business.
John Quiggin 
I didn’t quite get the point as to why medical salaries are too high? Where’s the distortion? Are you saying their training is unnecessarily complex? Its hard to believe they have more monopoly power than the AMA.
I think the large number of low-income workers not covered by medical insurance for whom treatment can mean bankruptcy or worse is a major problem. Despite incentive problems I think the Australian Health care system is better – and that it offers the option of private cover for higher levels of service mean its better than the Canadian public system too.
“Rather, it’s the result of unhealthy living conditions broadly defined to include guns, car crashes, the consequences of obesity and so on.” The other large explanatory variable for poor U.S. health outcomes is the large difference in S.E.S between the poorest and the most rich.
See a book you reviewed https://johnquiggin.com/index.php/archives/2005/01/17/autonomy-crossposted-at-ct/
This has application to aboriginal health in Astralia.
Without anything other than anecdotal evidence (on my part, not yours), I’m sceptical that the top 20% of Americans have uniformly better health care than anywhere else. I suspect it depends on the disease. For the kind of disease that attacks you quicly before old age (e.g. cancers that tend to attack while young, like testicular cancer), I think it’s the luck of the draw – if you’re close to a hospital that happens to be really skilled at your disease, then you’ll have fantastic care, and that hospital could be anywhere in the first world. Probably the thing you miss out on here is treatment for conditions that don’t threaten your life, just your health, like hip replacements. But in the US, if that kind of thing lasts too long, you may lose your job, and hence your insurance.
I don’t quite get the argument about why medical salaries in the US are so high either. Surely most doctors, including those in Australia, are simply going to charge the maximum amount they possibly can, whether they paid lots of money to get their degree or didn’t pay anything.
I’m also not neccesarily sure that doctor’s salaries being high is bad thing. If salaries are high, then people may be prepared to pay huge amounts to become doctors, and hence training institutes can charge the huge amounts needed to train them, unlike Australia — The only reason places like Australia have managed to get enough doctors without the huge resources needed to train them is that it has pillaged the third world for them, thereby being complicit in creating a situation in many countries where you have few doctors (perhaps we could call these countries frontiers san medicins).
Many thanks for the kind words John.
Re the AMA. They have huge monopoly power, along with all of those State Certification boards. There’s a very real limit put on the number who are “allowed” to qualify in the specific specialities. Very much like the effect of a closed union shop. Well, it is a closed union shop.
I may be out of date on this but didn’t there used to be a Federal subsidy to the medical schools not to expand their intake? So as to continue to restrict the supply of doctors?
It wasn’t exactly a subsidy, Tim, but you’re right. There was a “supply creates its own demand” theory of overservicing. Thanks to the shortage of supply produced by these policies we’re now importing foreign-qualified doctors at a frantic rate. Most are good, but hospitals are so desperate they’ve hired at least one pathological incompetent (Jayant Patel) now facing extradition from the US for multiple manslaughter charges.
JQ: (the poor miss out on lots of routine health and dental care, but they can usually get emergency treatment).
Which is, in itself, one reason US health costs are higher.
Subsidising routine health care would prevent a lot of those emergencies from arising in the first place.
One issue I’m curious about in this context: to what extent do the regulated drug prices paid in countries such as Australia represent those countries free-riding on US drug expenditure?
To clarify: drug prices in the US are largely unregulated and tend to be higher than in most other countries. Presumably, that means that drug sales in the US are more profitable and the US is therefore contributing disporoprtionately to the returns the drug companies make on their investment.
If US drug prices were lower, would drug companies invest less?
I just came back from a few days in hospital, a public hospital where I didn’t have to pay a cent, and the service and professionalism was wonderful. I got to thinking why I shouldn’t have to pay for the service, my wife and I both earn a healthy salary and it’s really just middle class welfare. But then I realised that the reason the hospital was so good was because it wasn’t just for the poor people. My involuntary contribution of the medicare levy (which I don’t understand is separate to income tax still) pays for my bit and allows all the poor people to also get great service, and if I was off in private and paying less taxes, the poor people would have had a crappy run down hospital.
Some of the higher costs in the US can be attributed to malpractice insurance and the rise in ‘frivolous’ lawsuits. Insurance companies have raised premiums and lowered maximum payouts leaving medical practioners exposed to the potential of personal loss. To reduce their risk doctors tend to overdiagnose, overtreat and over admit patients which places additional strain on services. This is called “defensive medicine” and it has been estimated to cost $US60-100B p.a.
There was an attempt by GWB to cap malpractice payouts but the issue remains unresolved.
A friend of mine who practiced in the US said when it comes to diagnosis they “shake the tree” ie for a symptom they use every known diagnostic in an effort to define the ailment and if they can outsource the diagnostic or service all the better, let someone else be sued.
wilful,
it is not true that rich and poor alike benefit from public hospitals in equal measure. If you are rich and have cancer, you will organise yourself to get treated by the best oncologst in the land. If you are poor, you will get treatment, but by someone is competent but not as good. If you are a poor and unluck, you will get operated on by Jayant Patel at Bundaberg Base Hospital.
Rog : I was under the impression that lawsuits for medical malpractice now happened at quite a similar rate in Australia and the US (in fact possibly higher in Aus). I can only find anecdotal sources now (e.g., ttp://www.freehills.com.au/publications/publications_1582.asp), so it would be good if you had the figures.
This is where Americans are lucky and Australians are not. In the Australian case, it means that in the long term, many types of doctors that get sued too much will not exist since they will either retire or move overseas, or the people going into that type of medical practice will not be the type you neccesarily want (you don’t want your neuroscientist to be a cowboy). Occasiaonly you hear people complaining about this on TV or other media in Australia, although whether there is a lack of student demand for specializations like obstetricians might be more hype than reality. I guess we’ll find out the true story in 10 years. Alterntively, in the American case, doctors can charge more to compensate, which means that whilst it might cost you a lot to get these services, at least they will exist to a greater extent.
JQ. I take it that you don’t subscribe to the Jeff Richardson “supply driven demand” theory. One of my friends had a severe falling out with Prof Richardson over a paper he published questioning that approach.
Neophyte, The ‘supplier-induced-demand’ theory (whatever else you can say about it) was not the theory of Jeff Richardson. Its been around for yonks. It is strange that this theory which suggests doctors behave dishonestly to augment their incomes when customer numbers fall off, is used by the AMA and dills like Jenny Macklin, (she was a health hack before she became a populist political hack!) to justify heavy-handed government regulation of numbers entering the medical profession.
HC. So what should we do to increase the number of medical practitioners, or increase their coverage within the entire community, without inordinately increasing the level of health expenditure by the community, ie, government and individuals together? Should we allow them to take up full fee places at uni and pass the cost on to their patients or offer bonded scholarships and send them where we need them?
Uncle Milton,
Assuming you are not an ‘uncle oncologist’, how would you know in advance who is ‘the best’ oncologst? Never heard of adverse selection?
The suggetion that anybody could determine who is ‘the best’ is, IMHO, naive.
And, Uncle Milton, how does indemnity insurance help to reveal who among the oncologists is good at all and who is ‘shaking the trees’?
Neophyte, increasing the number of MDs is only a part of the equation; reducing their ongoing costs to practice is the main game.
When indemnity insurance premiums are >$100K p.a. it’s an expensive occupation.
Neophyte, The answer to your question requires a book not a posting. You need to disable the AMA, liberalise entry requirements to the profession (you don’t need 99.6 VCE to enter), allow qualified foreigners to practice, and then regulate to prevent overservicing. The doctors are not saints, nor are they villians. They are human beings who don’t wish to disturb the good life they are getting. Who would?
The liability insurance issue should be manageable. You can see the problem easily so prevent it.
Uncle Milton – it’s always a giggle to see people talk about “having the best surgeon/ oncologist / gyny ” etc. The favoured method seems to be repeating dinner party conversations from other patients. No one talks about having the 3 rd best specialist or even the best GP.
There is no way of deciding who is the “best” specialist as there is no ratings table available publically or secretly. Medicos are either good or a bit better for your purposes than someone else. Until error rates, near misses, volume, unplanned re-admissions and recovery rates are published there is no way of deciding best. Even then it is teams of people who do things the days of heroic gentlemen doctors who, like Sherlock Holmes, bring unique super human skills to the job are over, if they ever existed outside mythology.
There will be no best, but there will be a worst. The curve will be a large lump up the best practice end and a longer tail down the other end.
JQ – the Patel issue wasn’t necessarily a direct reflection on overseas trained doctors. From what I remember he was largely post grad surgery trained and experienced in USA. [You’ll note when people speak of O/S Trained they usually don’t include USA and UK.]
The Patel problem is more a reflection of the recruitment issues in regional Australia and the bizarre notion that in an ever increasing technology upward spiral we should have all manner of highly specialised services available to small population centres.
Patel is also somewhat a reflection of the USA system, which like Australia, doesn’t seem to have a decent Federal / National system of tracking under par performers or banned medicos. From memory Patel was banned, warned and / or restricted in several USA states well before he came here.
Most importantly he is a reflection on the Bundaberg Hospital which appears to have had no ongoing systematic quality monitoring systems in place at all except gossip and tittle tattling. Oh and a reflection on the lack of a Federal registation system.
I agree with what Harry says in his last post
There is usually a good clue as to whether things are set up as barriers to entry or as quality control measures: do they only cut in at the beginning of a professional career, or do they continue throughout? It’s only indicative, of course.
rog, HC. So should the provision of medical services be seen as a public good, ie, something that keeps the rest of us working and contributing to the GDP or the means to earning a private income based on one’s university studies?
Harry, I’m not sure why you and other people think the problem of shortages would be even remotely solved by simple deregulation and the like (I’m sure it might help) as it seems pretty clear to me it wouldn’t.
I’ve been lucky enough to work in three different university deparments offering three different types of clinical programs, all of which were cheaper to run and people are payed less than medical doctors. Despite this, in all of these places staffing was a big problem (including in one OS university where pay rates were very high) since most people able to teach clinical stuff can also earn a fair bit of money not working in universities, and in addition, they don’t have to put up with all the bother associated with universities. You also need low student/staff ratios for these sorts of programs (perhaps a 10:1 Student/Staff ratio as an estimate if you wanted to do a good job) , because teaching clinical stuff takes a lot of effort, so to expand the system, you need a lot more staff than most courses.
I therefore tend to suspect that even if you could get the money from the government (or wherever else) for new staff and payed them much more than now, any expansion of these systems would run into the problem where it is simply not possible to find staff unless radical changes were made, and those changes are much more than simply getting rid of the AMA monopoly and liberalising entry requirements.
FXH said:
My brother-in-law is a physiotherapist. He gets to see the results of alot of procedures by the same swag of doctors. Some people recover alot more quickly than others, and there is definitely a correlation with who was the doctor.
The moral? If you are getting a procedure done, see is there is a downstream medical provider who is willing to give you a recommendation.
“He makes good points, is willing to admit that he’s wrong on occasion, and is gracious when he catches someone else in error, as he has done with me.”
Would that all bloggers were like this. It suggests to me that bloggers may need to observe some commandments, or at least a code of ethics, such as:
1. Thou shalt be truthful, quoting accurately, and representing facts and other people’s opinions fairly.
2. Thou shalt endeavour to ensure the accuracy of all facts one relies on in so far as one reasonably can.
3. Thou shalt not conceal the existence of contrary expert or reputable opinion, or treat complex issues as simple or one-sided.
4. Thou shalt admit one’s own errors fully and apologise promptly.
5. Thou shalt not harry other bloggers over trivial errors like spelling mistakes etc.
6. Thou shalt be as generous towards others’ substantive mistakes as one would have them be unto you. Thus, when one discovers a substantive mistake in another blogger, one shall point it out graciously and gently, without seeking to humiliate.
7. Thou shalt not pursue minute, obscure, trivial points, of no interest to anyone but oneself and one’s rival, just in order to score a point.
8. Thou shalt not encourage disciples and sycophants – or ban the postings of one’s critics.
9. Thou shalt assume the goodwill and honesty of opponents until their perfidy is proven.
10. In general, thou shalt be charitable and humble – none of us knows it all.
There may be more – but that’s a start.
3. Thou shalt not conceal the existence of contrary expert or reputable opinion, or treat complex issues as simple or one-sided.
Andrew – slow down – That one commandment, if observed, would bring down our whole political system and the mainstream media.
There’s no question that Americans are willing to spend more on healthcare than others are. I’d say most Americans would rate healthcare among the top 3-5 things they’d be willing to spend big to get the best. As to whether Americans do get the best, I think if we didn’t, we’d be leaving the US in droves to get it elsewhere. I’ve had to bring relatives to the US from Germany for healthcare and I helped an employer bring someone to the US that the NHS had written off and refused to treat.
I agree that Americans die from gunshots more than most others. Personally, I’m anti-gun. But on obesity, we’re not actually that far ahead of many others. In some cases, we’re LESS obese. Part of the US mortality rate issue is the huge number of people coming here from countries where they have had NO healthcare at all, EVER. We lead the world in taking in such people. Car crashes? I don’t know, I’d say one is less likely to survive a car crash in other places than in the US. Certainly, not many people survive car crashes on the autobahn. Perhaps it was meant that more people die in car crashes in the US because we have more cars than anyone else, I believe we lead the world in per capita car ownership.
“I’ve had to bring relatives to the US from Germany for healthcare
avaroo, it’d be interesting to hear the details behind that, because Germany has a respectable system. I can’t see them refusing to treat someone (or not being able to).
avaroo just makes stuff up. It’s pointless asking for details.
SJ, I was just interested to find out what was impossible to get in Germany, but readily available in the US, (and presumably on the same insurance).
So come on av – what was it?
hirvi, my mother-in-law was deemed too old to get cataract surgery in Germany. At 72. She was sent home with a huge magnifying glass that she was supposed to wear on a chain around her neck. Truly astounding. We brought her here and she had the surgery, lived another ten years. Age has a lot to do with what you get or don’t get in Germany.
My nephew needed growth hormone, badly. But the German healthcare system didn’t think he qualified. He should have qualified, there’s little justification for leaving someone who can be helped, simply because it costs some money.
Avaroo
Your story about your 72 year old mother-in-law not getting a cataract surgery in Germany (without private health insurance) is believable if you brought back to the US an immediate post-WWII bride, aged between 20 and 30, borne to a woman at the age between 20 and 30.
As for growth hormones – you wouldn’t be using Texas measures of adequate size by any chance?
Ernestine,
All healthcare must ration healthcare in one way or another. Germany does it on a “needs based” analysis, where the “needs” are determined by legislation/regulation. Britain typically does it by establishing long queues. The US tends to ration by price.
All are reflective, in one way or another, of what the population are prepared to put up with or vote for or perceive as fair. We have a hybrid system, but one more like the British, with queues but the ability to “jump” them if we pay – something like the US.
No system is perfect, but to assume that the US is terrible, as you seem to be, is just as wrong as saying that Germany’s is wonderful.
Andrew,
Please don’t twist what I said. I made a comment on Avaroo’s assertions. Avaroo should have the right to clarify his strange assertions.
As for your comment. Yes, it is the case that health care is rationed and there is more than one rationing mechanism. You are not saying anything new here.
It is also the case that health care rationing mechanisms change over time in many if not all countries.
I don’t have up-to-date information on health care systems in the U.K., the USA and Germany. However, I do know that your information on Germany is not correct.
For at least the past 50 years, the FRG has a dual or hybrid system. There was and still is a compulsory national health care system where employees pay contributions (a bit akin to the medicare levy). For at least some time, self-employed were not allowed to participate in this national system. Self-employed could buy private insurance or they could self-insure. I believe in the past decade (or possibly earlier), the exclusionary rule for self-employed people was changed such that self-employed can contribute to the national health system, like employees, and high income employees can opt out of the national health system and buy private insurance. Of course, at all times anybody was free to buy private insurance in addition to the national health insurance. So, it seems to me, the basic structure of the rationing mechanism is similar to the present system in Australia
As for ‘on a need basis’, determined by legislation/regulation: With due respect, the legislators and regulators do not determine the needs of individuals. The legislators and regulators determine guidelines. It is up to the medical practitioners to assess the needs of individuals. Just like in Australia, certain items are covered by national health insurance, others are not. And, just like in Australia, the list of items covered changes over time. I did hear about people having to wait for certain treatments – I don’t know whether the queues are longer or shorter than in Australia or the U.K.
I have yet to find one Australian or one EU person who does not adjust to the differences in detail between the U.K., the German (or French ….) system and reached the over-all conclusion that in any one of these countries, people are not turned away from hospitals when in need. But, I’ve met many people from Australia and from the U.K. and other EU countries, who take out a lot of private insurance when going to the U.S.A. I hear the U.S.A. has made some improvements to its money driven health system. But I don’t know the details and I don’t care because I don’t live there.
There is one noticable difference between the German (and French and Dutch and possibly other EU countries) system and Medicare in Australia. The former includes dental and optical services.
Incidentally, I found the Australian system prior to medicare one of the most sophisticated health insurance systems – sophisticated in a very special sense. One could buy private health insurance at reasonable prices by the week, by the month, by the quater, by the year by simply going to a Chemist shop. The payments were recorded in a little booklet – a bit like a savings bank booklet. No bureaucracy, no reems of forms to fill in. One could apply to have a lost booklet replaced – those who tend to lose things could buy by the week and then avoid paperwork in case of loss. The system was complemented by an Honorory doctor service system. That is, specialists worked free of charge in public hospitals for a certain number of hours per period of time to treat those who did not have private insurance. As far as I could see it worked. But then the population was only about 8 to 10 million, the average age of the population was relatively (compared to say the U.K.) young and the life style was so relaxed that it was difficult to imagine that anybody would prefer to spend time at the doctors or popping pills (ie over-servicing) to avoid their daily life. A lot was done on trust. But these days are gone.
So, I don’t know where you got your information from as to what I “seem to say”. It certainly wasn’t I who provided it.
I still look forward to Avaroo’s clarification of his strange assertions.
“All healthcare must ration healthcare in one way or another. Germany does it on a “needs basedâ€? analysis, where the “needsâ€? are determined by legislation/regulation.”
Exactly. And unfortunately for my mother in law, age was a factor. She didn’t have private insurance, couldn’t afford it and so simply would have had to do without had we not been able to bring her here for treatment. Perhaps the thinking is that older people have already had their “share” of healthcare. Germany rations based on perceived need AND by price unless you can afford to buy private insurance.