Tim Harford, of the Financial Times, writes in his The Undercover Economist,
“Health insurance is important because illnesses are extremely unpredictable and sometimes cost a lot to treat. Not only can some medical treatment be very expensive, it is often impossible to postpone it until a more convenient moment.”
Last week, Mr. Barack Obama addressed the American Medical Association (AMA) on healthcare reform in the country and the exigent necessity of correcting the market failures that mar the system in the world’s most powerful economy. A chunk of healthcare in the U.S is controlled by private players and is thus subject to crude laws of the market, hence the problem of asymmetric information between the insurer and the insured and high insurance premiums.
While the full text of the speech is here, and a brief analysis of the same here, it is of vital importance to note that the issue of healthcare cuts across spectrums of politics, economics and social dynamics above all; specifically, debate over capitalism v. role of the state (An excellent piece by Amartya Sen, on capitalism after the financial crisis and a review of criticisms against capitalism, can be found here ), and fairness v. efficiency.
The situation has assumed dangerous proportions after the sub-prime mortgage crisis, as more people laid off means more people left without resources to pay for their health. With ever-burgeoning insurance premiums, rising unemployment, falling wages and an unprecedented financial crisis, the subject of healthcare reflects important and interesting intersections between law, economics and policy.
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The last me isn’t me
but something this site’s web master should fix, that little picture place holder shows over the comment title in FF 3.x and IE 7. Very annoying.
Anyway, content wise, I think the statement “The key objective behind any kind of healthcare reform in the United States is reduction of the ever-rising costs.” is where you might want to consider alternatives. If that was the real motive, then it would be an easy problem to solve. Look at the stakeholders, their motives and what would benefit the society in the long term.
Some thoughts, patients do not necessarily require cheaper healthcare, they require better access, as long as it is affordable. It isn’t wrong for doctors to be paid for their services, a pay which will reflect the effort required to become one and the level expertise.
If is was just the money, why couldn’t legislation simply enforce that healthcare prices are to drop by x% for the next year. They could, but won’t, and there’s reasons.
I liked closing with peace, but it was hijacked, so….
Take care…..
Nevermind, somethings aren’t meant to be understood by all.
peace
It appears that to avoid sounding slightly wonkish, the post instead rung bells of too much generality and perhaps obscurity. Just to clarify, the purpose was to ring bells about the fact that economics, policy and law can have interesting cross-sections and healthcare was meant to be used as an example to demonstrate the same. Thus, furthering the argument from an economic point of view:
The key objective behind any kind of healthcare reform in the United States is reduction of the ever-rising costs. Indeed, with an expense of $2 trillion in healthcare every year, the U.S is the most expensive nation to live in when it comes to healthcare.
The reasons for a costly healthcare system, as has been correctly pointed out in the comments, are many. The system gets even more complex and so does an economic analysis of the same with different groups of players involved: doctors, patients, insurance providers/employers, employees and so on. Consider the following two.
Thinking of doctors, for instance, as rational economic actors trying to maximize their utility in the market of healthcare, expensive lawsuits besides the unregulated and in most parts a free hand system, indeed, provide an incentive for them to charge for the ‘quantity’ and not the ‘quality’ of health services, thus leading to inefficiency as one of the consequences.
Next, thinking of the benefits of capitalism in terms of competition among healthcare providers, information asymmetry occupies a large part of the problem though not the ‘only’ reason. Because of the already existent high costs, insurers wish to provide insurance only to the healthiest sections of the population, spending resources on finding out who is healthy and who is not, thus leading to the problems of adverse selection and inefficiency yet again. This carries the potential to mar the possibility of perfect competition at least among insurance providers. Another reason might also be what has been referred to as the ‘oligopolistic system of hospitals’. (http://www.economist.com/world/unitedstates/displaystory.cfm?story_id=13899647).
As for fairness and efficiency, no Daniel come to judgment here. While efficient spending of resources of a society is desirable, ensuring healthcare coverage of all sections of the population is an essential function of a welfare state. Even discarding the welfare argument, all-inclusive health coverage is important to avoid free riding and unintended but compelling misuse of taxpayers’ hard earned money. It seems that fairness and efficiency and the constant tussle between them, are integral questions in the all-big question of healthcare reform. Again, crossroads in the cities of law and economics.
Right, so any particular reason other than the crude laws of market that make the health care so expensive? If indeed it is the crude laws of the market, then perhaps the whole of America should be listed on the most expensive places to live in, L.A. topping the charts.
Ever considered the possibility that it could be the HUGE compensation awarded in claims against doctors?
And can we please not go into the “assymetry” of information, as being the cause and reason for ALL the problems in the world. I would look into the “other” pertinent causes of not-so-good yet over-the-top expensive healthcare in the U.S. And mind you, there are “other” causes.
Somewhat slanted take on things, you have an issue with capitalism? Laws of the market, crude? Really, I would say the market principles are basic. But law is not made by the market, it is imposed upon it to control the principle. You can easily argue that the same laws are the cause of the excessive costs in US healthcare, due to the vibrant claim culture it supports. That has nothing to do with private players, that’s the people making up the rules.
Ever since we’ve caught on to the idea that short term greed should not be rewarded as it has been, people seem so easy to declare capitalism defunct. I for one would prefer even the current greed to the alternative of having 20 completely uninterested people doing a job of one and having no choice in who looks after my health. Way too much soviet union for me (and history proved it was not the raving success we were told it was).
The discussion on the role a government has/should/must play in healthcare is very interesting, as healthcare is a field where there is a common interest, so society has a stake here. How to set a good playing field, ensure there is competition amongst providers, so that there is an incentive to improve, but to prevent excessive profits isn’t easy. But to turn every healthcare worker into a civil servant, might not be the best solution. Large numbers of civil servants waste money, slow things down and increase the level of corruption.
The US healthcare system has always suffered from not being accessible for those without money, lots of things in the US are not for those without money. That is a choice that that particular country tends to favour. However, the UK, with its NHS, also being hit by the credit crisis, sees a very different challenge in its healthcare. But it also has loads of private providers, the country favours capitalism, yet the dynamics are totally different, as are the problems. So I think this is a much more complex issue than simply ‘bash capitalism’.
One final thought, fairness is an argument commonly used by the ‘have nots’ in jealousy for the ‘have a lots’. Fair is ensuring everyone has the same chance, and given they fulfil their potential, can exist in a certain level of comfort. Of course some will fair better than others. But is it fair to give those that never made an effort something those that did had to work hard for to achieve? It is fair to expect societies money to be spent most efficiently and to ensure that will continue into the future. So perhaps it is not a conflict of fairness vs. efficiency.
Peace….