Friday, November 7, 2008

Price of Health Care

I voted for McCain. There, the cat’s out of the box. I was undecided for a while, interested but not very passionate either way. I recently started Thomas Sowell’s epic on economics (Basic Economics), and the opening discussion about prices tilted me towards McCain.

His Basic Economics is built upon price – as in, the price that any item costs. Prices pack an incredible amount of info: It includes not only the resources - both in material and labor – that go into a product, but the alternative uses for those resources as well. Milk for example, can be used in many ways – and if the price of milk goes up, then so does the price of everything that has milk. This goes for labor too. If a new industry requires workers from an old one, then demand for the workers increases as well. It’s an intense web, you might not know it, but it's all intimately interconnected.

This makes sense, but in another way it’s completely counterintuitive. Day-to-day, price doesn’t inherently seem to be connected with an item’s value. This is because we use our own subjective value. I’m going to want ice cream regardless of the price – if it goes down, I think, “more for me!”, not “It seems like some of the alternative uses of milk have been curbed this year, so the inherent value of ice cream is temporarily down”.

Prices are so naturally informative that their import can best be seen when they’re artificially manipulated. Sowell cites an example from communist Russia, where all prices were government-set:

Two Soviet economists, Nikolai Shmelev and Vladmir Popov, described a situation in which their government raised the price it would pay for moleskins, leading hunters to get and sell more of them: State purchases increased, and now all the distribution centers are filled with these pelts. Industry is unable to use them all, and they often rot in warehouses before they can be processed. The Ministry of Light Industry has already requested Goskomstein twice to lower purchasing prices, but ‘the question has not been decided yet’. And this is not surprising. Its members are too busy to decide. They have no time: besides setting prices on those pelts, they have to keep track of another 24 million prices.
It’s tempting to think “well, that’s Soviet Russia, it’s completely different from us”, after all the situation there was so depressing, but setting prices is not a far cry from Obama’s call for universal health care.

This harks back to how counterintuitive prices are. The liberal perspective is that, after all, health care is too expensive for most people, so we need to lower the price to make it affordable. But really this is the same logic that says that printing more money is good for the economy: After all, if we all had more money, we’d be able to buy more things.

The real question is “Why is health care so expensive?”, and by expensive, I mean not only its superficial price but the inherent value in the material and labor underlying health care. For some reason, this question is scarcely asked. The answers lie in basic economic principles.
It starts with medical education. Medical schools are expensive and selective. Doctors that do graduate find themselves in high demand, and it’s suiting in proportion to all the time and money spent on their education. This, I suspect, is partly why medicine has developed many specialties: If all trained doctors became general practitioners, then they’d make significantly less money, and might not recover their educational costs.

Can we manipulate medical training? Can we lower the standards to produce more doctors? Or can the government make training more available or bear more of the cost? The answer is not clear, but either way, this is the place to start because on the most fundamental level this is what’s driving up prices. Personally I suspect that standards of training can be lowered, such that medical school might come to resemble law school.

I hear already the doctors groaning that one’s health should not be taken as precariously as law. This is the argument of authority, which we'll return to yet again. And law is complicated too, yet somehow we find ourselves with enough lawyers.

Either way, this is the place for any creative government manipulations, not the at the end-user patient level, where the inherent value of health care – regardless of any superimposed price – has already been determined.

The second way to address the price of health care is to inspect current regulations that unintentionally affect price. Most relevant is drug-policy. Our top-down drug regulations are rotten from the bottom-up (take a moment), as they’re predicated on governmental concerns about what someone puts in their blood. (The entire annual budget for the war on drugs could send almost 3,500 students to med school).

The FDA are overburdened and inefficient, but even in a perfect world their standards would still send drug prices skyrocketing. The risk of lowering drug standards is offset by the benefits. But you can’t have your cake and eat it too: You can’t require drug companies to spend years, often decades, to develop drugs and then keep the price low. And right now we just have our cake, as drug companies spend forever getting drugs approved, and their value is high as well.

The prescription system increases the end-cost of drugs even more by requiring superfluous paperwork from doctors and pharmacists.

Economics is a science of consequences, ripple-effects. You can learn a lot about it by watching The Wire, one of my favorite shows, because it’s all about delving into consequences, and displaying them in stark and gritty detail. Even though the show’s liberal, with socialist tinges, it’s a great lesson in economics.

I’ll end with a personal anecdote about the prescription system and consequences.

For some time, I was on an extended course of antibiotics. After a few months, I started noticing a chalky white substance on my tongue, it was a yeast infection. My doctor had warned me about this ahead of time, and through his convenient online system I was able to request prescription Clotrimazole – oral tabs that inhibit fungal growth. However, this was a Thursday, meaning that it wouldn’t be faxed over until Monday. In the meanwhile, I felt like I had to address this somehow. Yeast, just like any indoor fungi, needs to be nipped in the bud early before it has a chance to spread. I went over to the local CVS, but the pharmacists told me that there weren’t any over-the-counter meds, I’d just have to wait for the prescription to arrive.

I’m not the sort of person who likes to wait for others to do things. I took to browsing the aisles at CVS. Oral clotrimazole, mind you, is one of the most harmless drugs out there. Side effects are rare, and even the listed ones – which are normally over cautious – are pretty benign. But here I find myself empty-handed with a yeast infection, having to wait 4 days for a fax, under the ugly florescent lighting of a CVS, and I came across Clotrimazole Topical Foot Cream. I stopped and thought for a minute and turned the box around. Clearly written: “Do not apply this medication in the eyes, nose, mouth, or vagina.” I chuckled and looked at the ingredients. I thought some more.

The above health care recommendations would be next to impossible to tinker with. The medical profession profits from keeping training prices high and doctor supply low. The FDA employs over $2 billion worth of jobs. Drug companies – although screwed in one sense by the FDA – benefit from prescription practices, which allow them to charge more. These factors all drive up the cost, but in an artificial manner and often justified as yet more ways to protect the public from themselves.

It all goes back to how counterintuitive concept of price is, which unfortunately is manifested in a fatal flaw of democracy that when things are wrong we feel the need to do stuff, even if the problems are originally due to stuff we did in response to past problems. You'll remember a congressmen who gets money for a library named after him sooner than one who sweated hard to balance the budget. In this case, we’re trying to do stuff with the outward price, which is already elevated from stuff we did in response to past problems.

The counter argument is almost always one of authority: “Health is too important to leave it up to the whim of patients”, underscored by the attitude from medical professionals, “You wouldn’t know, you’re not a doctor, but I know.” But this falls flat when you hear it from so many different angles and in all sorts of industries (like the automobile industry trying to say that it’s as important as the credit industry & that it needs it's own bailout). Flaws in such expert arguments are compounded by their narrow point of view: An expert physician probably knows how important medical care is, but does he know how important it is relative to, say, the automobile or financial industry? Or relative to everything else that you spend your money on? Or relative to the American economy as a whole? The true importance of most public versus private issues is determined not by individual experts, but by associated prices.

Media (in order of appearance)

Photo: (1) Thomas Sowell; (2) Got Milk?; (3) three days late -- happy birthday di!, 03/07/2006, by chocolate monster mel; (4) Soviet Revolutionaries, 02/26/2006, by Dunechaser; (5) Joseph B. Martin Conference Center at Harvard Medical School, 10/27/2008, by Cliff1066; (6) FDAlogo; (7) Paperwork, 07/05/2007, in neilsphotoalbum; (8) Japanese Rock Garden, 04/02/2008, by vgm8383; (9) too many choices, 01/06/2008, by D'Arcy Norman; (10) Eye Doctor, 09/21/2007, by Samuel Duhamel

Video: (1) Mogwai: Hunted By A Freak, video from MountCyanide, music by the band Mogwai, from the album Happy Songs for Happy People, released 07/17/2003

Upcoming ideas
  • Other effects of over-regulation in combination w/
  • Medical & academic elitism
  • Simplicity versus complexity, both have roles
  • Nothing in the world is complex, we simply perceive various things as such
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