Megan McArdle and Health Care

So far, McArdle is definitely earning the praise heaped in her direction. She has a post today on health care innovation where she captures the market-based argument against single-payer health care without ever mentioning it. Citing two other bloggers, Glenn Reynolds (actually an op-ed at the Washington Examiner… blog, rag; tom-ay-to, tom-ah-to) and Andrew Biggs (at the American Enterprise Institute’s blog) who both supply the kinds of anecdotes and clean identifications that make dry policy debates moist and juicy, McArdle gives us an insight into views that are currently out of favor. Good oppositional research to be had here.

The basic argument against a government monopoly on health care is that markets fund innovation. Drug research, clinical trials for new surgeries, new medical equipment: these are all very, very expensive. When they pay off, they pay off with drastically improved patient outcomes. Thus, the increased costs and profits associated with the US health care system are not the results of rent-seeking or lack of regulatory oversight, they’re not the result of health care professionals repeatedly mugging us with “Your money or your life” price gouging. Instead, it’s the result of people paying more to get more: specifically, more health, more quality adjusted life years, better outcomes and capacities than they could have hoped for before the expensive innovations. Reynolds supplies examples from his own family of life-saving and -improving treatments that would have been unavailable thirty years ago. Ignore the partisan rhetoric, but remember this: they lived because of markets and profits, because someone in the sixties was priced out of the market which diverted its resources to research rather than care.

But this cuts against conservative arguments, as well. Here’s McArdle, on the finding that veterinary costs have risen apace with human health care costs:

Veterinary spending is subject to few of the perversities that either left or right suppose to be the main problems afflicting health care spending.  Consumers pay full frieght most of the time.  They are price sensitive, and will let the patient die if keeping him alive costs too much.  There is no adverse selection.  There is no free riding on mandatory care.  Government regulation is minimal.  Malpractice suits are minimal, and have low payouts.  So why is vet spending rising along with human spending?

The answer is the same: pet owners pay more to get more, in this case, to get more quality-adjusted life years with their beloved pets. Again: forget the rhetoric. Ignore your disgust that animals lives are being equated with human lives, or that suffering is being economized, or lives and deaths transformed into a ‘standing reserve.’ Just add this fact to your repetoire: profit-seeking promotes innovation which leads to improved outcomes. No one is proposing a public option for veterinary health insurance, though maybe they should. I dread the thought of our cats getting sick, becase I know we’d spend thousands to save them in the right circumstances.

Economists have long recognized that part of the increase in health care spending is due to improved quality. Yet of course they also acknowledge the innovation and inequality of outcomes go hand-in-hand. The improved outcomes of the rich aren’t available to the poor, and they’re frequently financially devestating to the middle class.  Though improved health care quality eventually ‘trickles down,’ it’s hard to accept this present inequality when the promise of future health care improvements is going to be achieved by someone else. In short, future sick people are benefitting at the expense of present poor people.

So the question that economists can’t answer is: how much inequality is innovation worth? That’s a public policy question, but also a justice question. John Rawls asked it this way: what is the just savings rate? What do we owe our children and their children rather than our own least advantaged? The answer depends on how we expect populations to grow and how we rate the suffering due to unsupplied medical care, which is to say, how we rate premature and avoidable morbidity and mortality, and how we discount future benefits. Still, kudos to McArdle for making the case.

One last thing:  innovation can happen at the level of distribution and institutional design as well as drug treatments and surgical techniques. For instance, many proponents of single-payer site the gains to be had by emphasizing preventative care. Since most poor people still get treated, albeit through emergency rooms where the treatment is most costly, improving our services to these groups seems likely to improve outcomes throughout the system, taking the strain off emergency rooms and treating conditions early, before they become acute and require major interventions. Similarly, disconnecting coverage from employment might suppy other goods, like allowing entrepreneurs to take more financial risks without also risking their families’ safety and health because they are uninsured. These are questions economists can answer, and we ought to be paying more attention to their responses in the public debate.

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