Liberal Bad Ideas: Incentives & Outcomes in Healthcare

It should probably come as no surprise that I’m a pretty devoted Democrat: I mean, I’ve worked for Democrats, I vote for Democrats, I don’t see much of a viable option outside Democrats when it comes to advancing the things I care about. But I’m also a political scientist, economics enthusiast, and a skeptic, and I can’t give lousy thinking a pass just because it’s my team pushing it.

In this case, I’m talking here about the idea that because Americans seem to spend a heck of a lot on healthcare, with results that are poorer than many other nations, that this proves our healthcare system is subpar. Like’m or hate’m, Greg Mankiw does a pretty good job of laying bare how those sorts of claims mislead rather than inform.

Now, I’m not saying that our healthcare system isn’t screwed up, or couldn’t get any better. It’s just that tropes like “Americans spend more on healthcare and get less out of it” are just maddeningly foolish and simplistic as indictments against our system. Any good scientist should know that it just isn’t that simple to draw causal conclusions from such things: there are just too many counter-intuitive factors, countervailing effects and complications. And any good economist should know that changes in, say, the effectiveness of healthcare will unavoidably change people’s behavior, and the effects of those changes can have surprising and often unpredictable confounding results. Reform of our system should be based on understanding, not ignorance and slogans.

Heck, while Mankiw doesn’t really delve into this, the fact that Americans have such seemingly poor comparative health outcomes despite putting so much more money into healthcare could just as well be evidence that our healthcare system is actually well worth the money rather than the claimed opposite.

Consider this: people like to be healthy and live as long as possible. But they also like to enjoy life, take risks, eat fatty foods, and so on. And to some extent, these good things trade off with each other: you can either eat McDonalds every day of your life, or you can live a long healthy life, but you can’t have both.

Or can you?

Well, in fact, more efficient and effective healthcare does provide exactly that: if you are willing to spend the money, modern healthcare really can allow you to enjoy more burgers without as many of the negative consequences on your lifespan. Whether that means you live longer and healthier or just as long but more gluttonously, or even shorter: that’s all up to the particulars of people’s preferences (which is one reason why you can’t just “know” what’s really going on with healthcare from a few stats: you have to do the hard work of finding out).

Now, unless you really love graphs, this is hard to envision without an abstract example, so… consider Jim. Jim currently chooses to enjoy eating a 40% fast food diet which will shorten his life by 10 years. Were he to increase his percentage to 50%, it would shorten his life by 30 years: the cost (dying that much younger) is no longer worth the benefit (Big Macs) to him.

But along comes modern medicine: instead of the snake oil tonics of yesteryear, there are cutting edge cholesterol drugs, EMTs with defibrilators, and heart valve replacements. If Jim is willing to increase his healthcare expenditures considerably, then he can increase his fast food consumption to 50% but only shorten his life by 20 years.

This all being worth it to Jim, he does so. And the outcome is 1) way higher healthcare costs 2) seemingly worse healthcare outcomes 3) Jim is happier overall.

Now, you can claim that Jim is nuts, or you can claim that Jim isn’t representative of most Americans. Those are, in fact, important empirical matters when it comes time to debate the reality of healthcare reform. But my point here is simply that unless you understand and consider the possibility of cases like Jim, and how they can have counter-intuitive effects that totally negate any simplistic comparisons of inputs to outputs, you’re pushing crap rather than understanding.

Don’t DO that!

3 Responses to Liberal Bad Ideas: Incentives & Outcomes in Healthcare

  1. jp says:

    Enjoy your blog very much. However, I have to take issue with your Jim example. Why? Jims can exist in other countries too. In fact, since their healthcare is “free,” they should have more incentive to eat crap (because they don’t have to worry about their health care bills). So if a Jim lives in, say, France, he will affect France’s input/output numbers in the same way it affects the US numbers.

    If I’m missing something, please let me know.

  2. Bad says:

    It’s a fair point, but in the example I’m mostly just illustrating how spending more on healthcare can lead to worse health outcomes while still being a positive choice overall (and masking the true effectiveness of the health services.

    While it’s true that in other systems, the supposed “free” healthcare leads to what economists call “moral hazard,” that’s actually subtly different problem (it causes society as a whole to consume much more healthcare than it actually really wants or can justify when weighed against other priorities, which is a very different problem from individuals wanting to spend ridiculous amounts on healthcare when they face more of the full costs of everything themselves). The short answer is yes: “free” healthcare causes more healthcare to be consumed. But the long answer is that it still doesn’t cause as much to be consumed as in the US, and it’s the total spending vs. the total outcomes we’re looking at. We aren’t necessarily really inquiring as to why America might have more Jims that wish to buy a more gluttonous lifestyle: we’re just observing that, in fact, Americans DO spend more, period. The Jim story is an example of why outcomes alone cannot tell us whether the care is effective or not. France may or may not have lots of Jims, but the mere fact that they don’t spend as much on healthcare negates the issue of whether those Jims are going ahead in their spending to the degree that American Jims are.

    And in this case, how much money there is to spend in the first place matters too. Socialized systems provide a great solution to a lot of healthcare delivery problems and externalities, as well as doing away with administrative costs (which are not, in fact a 100% win, as often presented: people only pay attention to the sad stories of insurance denials for seemingly important treatments, but they then don’t count the undeniable avoided costs of catching and preventing fraud and overuse) but none of that actually makes their countries overall richer or their healthcare systems more effective. Americans in general simply have more money, period, to spend: even relatively poor Americans.

    Which is actually another reason why the straight spending/outcome comparison of the US to other countries is bogus. Because Americans have vastly more money overall, they HAVE to spend more overall than other countries on at least SOMETHING, if not everything (and in reality, they spend more on pretty much everything). Heck: the fact that they choose to spend a greater percentage of their own incomes on healthcare than in other countries (even those countries where the “spending” choices don’t directly impact the decisionmaker) should at the very least be taken as a signal that Americans really think there is some value in healthcare worth the expense to the degree that people in other countries don’t healthcare is that effective/valuable to them as a service.

  3. Being a scientist myself, with doctorates in Neuroscience and Molecular Biology, boy, have you got it wrong.

    Cholestrol drugs cause more harm than gone in a vast majority of patients. Statins are fatal in a subpopulation of individuals with a specific genetic profile.

    The state of personal genetics and pharmacogenomics are nowhere near to being to prevent ‘the burger boy’ from dying at a young age. The Pharm industry are one of the real culprits here – suggesting there are drugs that can delay Alzheimer’s disease and this is pure BS, having just been Chief of Molecular Neurobiology at the NIH, responsible for AD basic research.

    I am a libertarian, but it is clearly the republicans have tried to turn this country into a second tier biomedical R&D research community.

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