Monday, December 26, 2011

Health economics by anecdote

In a big-think post  "Is capitalism sustainable" on Project Syndicate, Ken Rogoff put in this little zinger
A third problem is the provision and distribution of medical care, a market that fails to satisfy several of the basic requirements necessary for the price mechanism to produce economic efficiency, beginning with the difficulty that consumers have in assessing the quality of their treatment.
Ok, a difficulty of the blogging/oped medium is that you have to keep things short, and I too hate to be quoted for little snippets out of context...But, really, Et tu Ken?

It's hard to know if the car mechanic is doing a good job. Get ready for the Federal takeover of the car industry. I can't tell B grade exterior from A grade interior plywood, so we need a Federal takeover of home rehab. Vets and dentists operate outside of the mass of stifling health care and insurance regulation, so I guess they're in for the treatment next.

Is it really that much harder to assess the quality of treatment for all health care than the other services we receive? For all medical care, not just extreme cases? Actually, my doctor complains that everyone who comes in has spent a week on the internet and knows too much about treatment options. The internet is ushering in a grand era of star ratings and consumer information.

Where is the evidence? Just this sort of armchair argument has been used for centuries (remember the guilds?) to justify competition-stifling regulation of all sorts of businesses.  Milton Friedman's PhD thesis showed that licensing doctors was good for raising doctor's salaries, but didn't do much for the quality of health care. (His later essay on health economics is still a classic.)

And as always, the real argument for the free market is not that the market is perfect, but that the government is usually far worse. Do we have any evidence that government regulators assess the quality of care better than the people whose lives and money are at stake? Is there any vaguely plausible way that the small asymmetric information in health care justifies the monstrous system we have constructed?

Rant over. But really, there is a lot of harm passing around anecdotes like these as if they are agreed-on economic facts, representing both documentation and a serious cost-benefit tradeoff of viable alternatives. 

(I've written a bit more on free-market heath insurance here. )