Jan 24, 2017
An X-Ray is not a table
And Ben Shapiro is not a smart man
Health economics is hard. It’s also incredibly important. We spend on average about 10% of our total income on health, making it one of the biggest expenses that any economy faces. It’s also mindbogglingly complex because unlike purchasing office supplies, when we buy healthcare we are literally paying for our lives.
Unfortunately some people think that comparing spending on healthcare and furniture is a fair comparison. Because in the black-and-white world of the ideologically simple-minded, the difference between life saving medical procedures and chairs is government regulation.
Ben Shapiro’s article explaining this tweet has everything; free market rationale, libertarian ethics, and a record-breaking 25 uses of the word “rights” in a 1000-word piece about furniture.
Ethics and Economics
Before we talk about money, it’s important to consider why we are spending it. Almost every discussion about health economics comes back to who pays for whom, and how, because on the one hand we want everyone to be healthy but on the other hand it’s unfair for me to be forced to pay for someone else’s healthcare.
Right?
It basically boils down to what we think is important.
A libertarian like Shapiro will say that we can’t force someone to do something good, because forcing them to do it is bad. If I want to give my money away (or pay for a socialized health system) that’s fine, but forcing me to do it is unethical because you are impeding on my right to live a free life.
In practice this means that if a baby is dying, I have no duty to save them, and taking my money (or belongings, time etc) away to save them is wrong.
The other main school of thought is called utilitarianism, and it’s much more common in public health. A utilitarian would say that what’s more important is that happiness is maximized, and if I can afford to give away some of my money to save someone’s life, it’s unethical for me not to do it. If I don’t do it freely, creating a law (or tax) to force me to do it is fine, because I only lose a little to save someone else’s life.
Practically this means that saving a dying baby is my responsibility, whether or not I want to do it. If I can, I should.
It’s important because Shapiro’s argument is basically that forcing him to pay for other people’s health is unethical. Even if it were cheaper (I’ll get to that in a sec), it is wrong to tax one person to pay for another’s healthcare because freedom is the only thing that matters.
This brings us back to the economics…
Free Market Furniture
If I were to choose an adequate comparison to healthcare, a notoriously complicated subject, I’d probably try for something equally difficult. Maybe talk about pollution and environmental economics, or the effects of regulation on the food industry.
I probably wouldn’t compare life-saving tests to dining accessories.
This is a stupid comparison.
That being said, furniture is a great example of a free market at work. Buyers have significant information about the products, suppliers can easily enter into the market, there’s a lot of competition, there aren’t many externalities (outside forces that influence the market), and for small failings (such as products being fraudulently labelled as antique) there are easy legal remedies.
If I want to buy a chair, I can comfortably Google the required information in an hour or two and find a provider who I trust to sell me a good product.
Cheap, efficient, easy. A free market at work.
What happens when we try the same with an x-ray?
Free Market Failure
Buyers have virtually no information on products in the health market. There’s been some effort to force doctors and insurers to publish things like death rates, but there’s also evidence that these aren’t a good guide for picking your doctor. It takes months of research to understand what makes a good x-ray and why (not to mention identifying the specific test you need), whereas you can look up the key characteristics of a dinner set in half an hour.
We see doctors to solve this problem. They know enough about medical care to choose a good x-ray clinic and refer us for the right test. But doctors themselves often have limited information on treatments, and they also have their own agenda (including not getting sued) which can influence their decisions.
America is facing an epidemic of over-servicing when it comes to healthcare because of exactly the kind of free market rationalizations that I’m talking about. Doctors who are terrified of litigation (and financially rewarded for doing more tests) refer people for unnecessary tests, which turn into unnecessary procedures, which end up costing billions.
And this is only one kind of knowledge that we don’t have. Most people barely understand health insurance and what it covers. We are easily swayed by direct-to-consumer marketing of drugs to buy branded products even when there’s little evidence that they’ll do anything for us at all. In a field where even professionals struggle to keep up with new evidence it is impossible for consumers to understand what differently-priced products offer.
So when I try my quick Google search for an x-ray, I’m stumped. After two hours of reading about tomography and wavelengths, I give up and try to find a good doctor. I have to go by online ratings, but I’m a bit skeptical because the person I eventually see is brusque and barely talks to me. They recommend a radiologist, who apparently is “the best” but when I get there the clinic is dingy and the receptionist rude. I have no idea what the films I get given mean, so I am forced to go back to my doctor. I don’t even know enough to properly rate the services I’ve been given.
This isn’t just hypothetical.
This happened to me.
2 degrees and years of working in health and I still ended up sitting across from a doctor telling me things I barely understood, with almost no idea what had just happened.
It’s easy for someone like Ben Shapiro to talk about shopping around for x-rays. I’m guessing he has excellent cover, and can have his pick of clinics to go to.
But ask him to pick a radiology clinic for his scan? I’m sure he’d be as lost as the rest of us.
This is just one small example.
There’s so many more. Adverse selection. Problems with competition. External (non-market) factors. It would take 1000s of pages to even begin to describe how complex the health market is.
What Works?
We know healthcare economics is hard. We can theorize all day about what might happen if we relax or increase regulation without learning anything.
So let’s look at some real-life examples.
Only two developed countries allow pharmaceutical companies to market drugs directly to consumers, America and New Zealand. In both cases the theory was that this would promote competition and consumer knowledge and decrease costs.
Deregulating the marketing of drugs actually caused the price to increase, because of the imbalance in knowledge that I’ve mentioned above. There’s also no sensitivity in the market to price; if you need a drug to save your life, you’ll pay the cost regardless of how high it might be.
Countries that regulate their pharmaceutical markets more heavily tend to have lower drug prices. Australia is a great example of this; the government basically dictates the price that it’s willing to pay, and the vast majority of drugs are sold through government systems.
In general, countries with more regulation have much better health outcomes and spend significantly less than countries who attempt a free market approach to healthcare. This is partly because these countries do a better job of addressing the social determinants of health, but also because free market solutions usually don’t make things any cheaper.
This brings us full circle to the ethics. The evidence says that if we want a cheaper system, government regulation is good.
45,000 people in the US die each year due to being uninsured. In Australia that number is 0. We have lower costs, longer lives, and better health. And a socialized healthcare system.
The cost of ‘freedom’ is billions of dollars and tens of thousands of lives each year. I’m not enough of a hypocrite to say that’s an ethical payoff.
The idea that deregulation will drive down healthcare costs has been proven wrong time and again. In theory it might sound good but in practice it rarely works, and it will literally kill people who can’t afford healthcare.
