David Leonardt takes a look at the costs of different kinds of prostate cancer therapies:
This is America, and we have come to accept that not everyone has access to the same treatment. In fact, the chart excludes proton therapy, which apparently costs about twice as much as IMRT (~$100,000). On the other hand, there are a lot of people with Porsches, and I’d bet each of them would give up his car if it meant avoiding cancer.
Problem is, there is no evidence any of these treatments work, and certainly no idea one works better than another:
“No therapy has been shown superior to another,” an analysis by the RAND Corporation found. Dr. Michael Rawlins, the chairman of a British medical research institute, told me, “We’re not sure how good any of these treatments are.” When I asked Dr. Daniella Perlroth of Stanford University, who has studied the data, what she would recommend to a family member, she paused. Then she said, “Watchful waiting.”
That doesn’t seem to make sense. We assume things that cost more are better; otherwise the cheaper item drives the more expensive item out of existence. It would cost a fortune to try to build a semiconductor by hand, and the resulting product would be orders of magnitude less effective than the chips that come out of Flextronics’ lines. So you don’t see too many garage semiconductor fabs.
Would anyone faced with a diagnosis of cancer not want the most advanced, aggressive treatment? If a health insurer – government or private – declined to cover such a course of treatment (perhaps on the grounds that there was no evidence of its merit) and I could not afford it, I would take such a denial as a literal attempt to kill me. Yet if new treatments that cost hundreds of times as much as previous practices and have no discernible positive impact on health are sanctioned, we will continue to be the nation that spends the most on health and gets the least.
There are many good reasons for systematic reform of health care, and I hope Obama has the strength to see the public option through. But I fear that until we find a way to deal with the fact that health is so far from our typical understanding of a market that we have terribly few tools to assess our purchasing, we are doomed to spend ourselves into a hole regardless of the payment mechanism.
T,
The problem in health care is that the consumer is disconnected from price. If the government denied employers a deduction for employee health care premiums or other spending, and gave individuals a deduction for them, individuals would pay for their own health insurance and do their own cost benefit analysis on whether to consume or not.
The deduction could be substituted with a refundable credit (up to a specified amount) for low income taxpayers to prevent it from being regressive. And the deduction could be below the line to subject it to phase out for high income taxpayers. These are just details though, the main thing is that consumers must bear costs or they will try to consumer unlimited health care, which is bad for the economy.
The customer is always going to be disconnected to the price.
The information asymmetry is enormous. The customer has no rational way of evaluating costs and benefits; if he knew the intricacies of the various treatments, he would be a doctor himself. In the prostate cancer example, $100,000 proton therapy may be a reasonable expense – if the stuff works and an alternative doesn’t. But how does a typical patient know?
Secondly, the lumpy nature of medical expenses means that most people need some sort of mechanism to smooth the expenses over a lifetime (insurance), and society needs some method of smoothing the high-cost people (folks who get a chronic condition early in life) across the general population. Someone who gets leukemia at 22 cannot be charged the actuarially likely cost of treatment; the person cannot possibly pay it, and we as a society are not (at least, should not) be prepared to let the person die for lack of money for treatment.
If we are fundamentally unwilling to let people die of neglect, we need to acknowledge that medical care is a societal problem that needs a societal solution. Health care simply does not lend itself to the same sorts of free market feedback mechanisms as virtually every other good or service. It’s more like war in that respect.
The information asymmetry is enormous. The customer has no rational way of evaluating costs and benefits; if he knew the intricacies of the various treatments, he would be a doctor himself. In the prostate cancer example, $100,000 proton therapy may be a reasonable expense – if the stuff works and an alternative doesn’t. But how does a typical patient know?
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T,
I don’t buy that. I believe the average joe can bear a significant (but not too high) deductible relative to their income. Enough that they can listen to the doctor’s story about the benefit of treatment, and decide whether they’d rather spend the money on a new blender, line of blow, or whatever.
I think the average person can understand enough about medical research to decide if the doctors and drug companies are feeding them a line of BS, in order to line their pockest. I have been subjected to unecessary treatments, and now I don’t trust a damned thing these people tell me. Unless there is a clear and simple argument on why I need something over the time, costs, and inconvenience of treatment, and potential false positives from tests, leading to a new cycle of BS, I refuse treatment and testing.
If the average person paid their health care premiums directly with some kind of regulated health care plan, with a floor health care companies were required to offer everyone and a floor consumers were required to buy (with subsidy for the poor), then I think wages for the average person would not have been stagnant since the 1970′s and I don’t think health care costs would have increased as rapidly. I cannot fathom that the average person would have chosen to spend most of their wages since the 1970′s on health care. And if the average person understood that the current system effectively forces them to put their raises into health care spending, I think they’d say “screw off”, and rather have a choice of spending the money however they want.
Your ideas on cost spreading is off target. Any health care plan spreads costs, and has deductibles, premiums and such to force the consumer to bear some costs of treatment — although obviously not anywhere near the costs of catastrophic care, which is fine, you don’t need that degree of price signals to get somewhat efficient consumption of health care. The problem, again, is that the consumer doesn’t feel any of the cost of premiums. The provision of health care by employers is a historic accident created in WWII to evade certain tax issues. There is no reason to continue it. It horribly distorts the market.
It is inconceivable to me that Joe and Jane Q Public would give up raises for another 30 years in exchange for unlimited health care on demand. I think they would demand raises to spend as they see fit, maybe on health care and maybe on something else. Now, as noted, to deal with free riders and such, you need to force people to buy base line coverage, and subsidize it, but some basic plan covering catastrophic care is very different from some union plan giving plastic surgery, sex change treatment, organ transplants for people with little chance of survival, etc.
If you think this is too right wing, 10 years ago, I read a marxist saying the problem with health care was that people wanted unlimited demand, so it had to be rationed some how. He wanted to spend the savings on various social programs that he viewed as better for society that unlimited health spend.
I agree with you that the current system of non-cash benefits is a holdover from WWII wage controls and immediate post-WWII labor strife. I’d like a French-style effective single-payer system; I just realize we are about as likely to get it in one go as a French-style rail system or a French-style bakery system.
I disagree absolutely that the average person can understand enough about medical research to evaluate the alternatives at the time the alternatives are presented. A quarter of Medicare expenses – so let’s call it roughly 10% of our entire health care spend – goes to end-of-life care. If your average 76 year-old literally on his deathbed can even understand the $25,000 in intervention he is receiving – he is, after all, dying, and therefore not a good approximation of Economic Man – do you really think he is in a position to assess it? Medicare is paying, but if it were not, what would he do – simply die, as would have happened in the 1930s?
Working backward, suppose the 76 year-old is diagnosed with an early stage cancer. Prostate cancer, for example. The “watchful waiting” option is almost certainly the best; the metabolism is slow at that age, which means the patient is far more likely to die with the cancer than of it, and given the weakened immune system there is a significant risk that an aggressive intervention will cause something worse than cancer. But you haven’t been around a lot of sick people if you seriously believe the 76 year-old is going to accept “do nothing” as a viable answer; he has a cancer and he wants it out.
And let’s go to catastrophic care. You share the view identified here by Don the Libertarian Democrat that some measure of catastrophic coverage needs to be treated. I suspect this misunderstands the nature of high health care costs. It takes as a model the lightning strike – you are walking down the street, healthy, minding your business, when all of a sudden something hits you and you wake up in the ER. They fix you at great expense, and you’re back in society, but now you have this huge catastrophic bill. However, what if the lightning bolt isn’t sudden at all; rather, it is something like a treatable leukemia early in life, where the total costs over time could be millions of dollars because it’s never done and, with treatment, might never kill you?
The bulk of America’s health care costs are not generated by plastic surgery or sex changes. They are generated by things patients think they need, and the patients’ thoughts are inevitably affected by all the fallacies to which our species is prone. Of course, the patients do not price-shop, and we’re going to disagree about whether that could ever be possible in a useful way. The government is going to have to do that for people, and that will entail to some large degree pushing back on the health care provider industry. And yes, it will involve some level of rationing…but then, we have rationing today insofar as people would consume more care for free than the industry is capable of providing at full capacity. We just ration by net worth, employment status, residence, and the trivia of coverage provider.
Mr/Ms. Taunter: Of course, the patients do not price-shop, and we’re going to disagree about whether that could ever be possible in a useful way. The government is going to have to do that for people, and that will entail to some large degree pushing back on the health care provider industry. And yes, it will involve some level of rationing…but then, we have rationing today insofar as people would consume more care for free than the industry is capable of providing at full capacity. We just ration by net worth, employment status, residence, and the trivia of coverage provider.
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We aren’t doing enough rationing. I regard that as obvious given that middle class wages have been stagnant since the 1970′s, and health care premiums have skyrocketed, so effectively, employees have been forced to put all their raises into health care. If you want to force people to spend their money that way, then we have to disagree. I don’t really care if you want single payer or heavily regulated and subsidized, I’m indifferent. I just don’t want people forced to spend all their raises on health care if they’d rather spend the money on babes, blow, and bookies, or whatever.
I’d love to find a way to control the growth in health care costs. Isn’t that the point of the entire debate?
You suggest letting patients feel more of the impact of their health decisions. It makes sense, but I suspect the behavioral patterns of humans make that loop just about impossible. You simply attribute more ability to assess health care to the population than I do. In fact, I find it at least as likely that humans’ tendency to fail to plan for the long term (paging the housing bubble) will cause people to underinvest in preventive care and consequently overspend in aggregate when problems emerge that cannot be ignored. Put only slightly differently, a population that eats Twinkies and buys negative amort ARMs with no appreciation of the consequences is not a population I trust to evaluate comparative medical therapies.
So I suggest a combination of cost control measures: bulking up the buying power of Medicare, Most Favored Nation treatment for ourselves on pharmaceuticals, cutting out some of the admin arms race by increasing the public percentage of the health coverage market, admitting more doctors to the US to drive down prices, tort reform, etc. I think it’s the best we can do; well, that an stop subsidizing the row crops so that our entire food supply is no longer a derivative of corn and soy with some sugar on top.
[...] I look at conservative proposals – or, for that matter, the comments to my prostate post from Joe – and am reminded of Atul Gawande’s New Yorker article: The third class of health-cost [...]
[...] is shockingly cheap; all the more so when compared with, say, the cost of various insurance-covered prostate therapies. I have tended to dwell on the information and fear asymmetries that prevent non-elective health [...]