• Health Care and Cars Are Different

    The following is a guest post by Dan Franklin, the lead server programmer for the kids’ website Poptropica.com from Pearson Education.  Outside of work Dan sings with the a cappella group Blue of a Kind and reads extensively. What he reads, and more importantly, how he speaks about it has impressed me for years, so I asked Dan to submit some posts. I hope this is the first of many. –Austin

    Periodically, one sees the assertion that it’s a good thing that health care expenditures are rising, just as it would be good if more people bought Priuses.  Last year, Geoff Colvin, Fortune senior editor at large, emitted this opinion.

    We’ve all seen the graph that shows health-care costs increasing much faster than GDP; it’s usually presented as evidence of the crisis we’re in.

    Take a graph with that same trajectory and label it “Sales of hybrid vehicles” or “Downloads from the iTunes Music Store,” and nobody proposes government intervention to stop it. Yet health-care costs, too, are in fact revenues, and fast-rising revenues are generally seen as exciting and laudable in every industry except one. How come?

    To compare health care expenditures to car purchases is absurd.  Purchasing a car is a discretionary purchase that improves the buyer’s life.  The vast majority of health care expenses are to fix something that is no longer working properly. They are a necessity, and only serve to bring you back to the state of health you previously enjoyed.  Health care is not like car purchases; it’s like car repair.  You don’t do it unless you need to.

    Every dollar spent on health care is a dollar not spent on increasing productivity or improving our lives.  It is purely remediatory.  By Geoff Colvin’s reasoning, the citizens of Florida should rejoice every time a hurricane passes through, because of the high construction expenditures that will surely follow.

    Health care imposes a further unique burden.  Every dollar spent represents time spent away from more productive or enjoyable pursuits.  Those hours in the waiting room, on the operating table, recuperating, buying medicine, or just dealing with your health insurer are simply gone.

    In short, this assertion is completely backwards.  I devoutly hope it will stop circulating.

    • Hi Austin and Dan,

      Welcome to Dan to Austin’s blog, but I’m sorry, this view seems to me as deeply flawed as the opposite one that you criticize. We economists are trained to seek balance and equilibrium and the equilibrium to me is that both of these views are partly right. It is scary to me sometimes to watch people “consuming” that which you call “purely remediatory”. Sometimes these people are disparagingly called “hypochondriacs”, though this too is too “either/or”, most every health care service provided has these elements in complex and myriad ways. This is what makes it so insidiously difficult. It actually would be much easier if health care services were like Priuses or if it were like car repair. No, humans are always seeking (sometimes irrationally) new things and new ways of being, and health care is that and more so. That’s why it both scares me and amuses me that I see health care services rising to about 1/3 of GDP in the US before the nature of the debate may begin to change.


    • I have to agree with Jim. The real issue is that our health care system is riddled with inefficiencies (and inequities) so rising health care expenditures may reflect failure rather than success. The inefficiencies result from asymmetric information, third-party payers, noncompetitive markets, and fee-for-service reimbursement, among other characteristics of the health care system. These same characteristics do not hold in the marketplace for cars.

    • Dan, as much as I agree with your point that we need to stop generally thinking hurricanes are good for Florida b/c of the economic stimulus they consequently provide, I think the thesis of this post confuses two different ideas: the rapidly rising cost of heatlh care services and the increasing utilization of health care services.

      One can debate if higher utilization of constantly improving medicine is better or worse overall (as many health economists do), but it seems to me undoubtedly bad that costs have grown out of proportion to what basic supply and demand would suggest. In that sense, I agree that runaway costs are a bad thing, but only b/c it reflects a breakdown in the market process, NOT b/c it means that people are consuming “excessive” amounts of health care, given your assumption that the very act of consuming health care is ipso facto a bad thing.

    • Well this is a bit of a strawman, because the idea that rising health care expenditures are not a problem is not a widely held belief. But what’s more, if you truly believe that the vast majority of health expenses are a necessity, then how do you propose reducing them? The apocryphal “waste, fraud and abuse” only gets you so far, the real challenge is going to be reducing utilization. This challenge is not made any easier by promoting the idea that most of the utilization is “a necessity” and “You don’t do it unless you need to.” In fact I don’t see how you can state the latter as fact when you’re describing a system dominated by third-party payment. Health care is not cars, but there are parallels one can draw between the two. And if the market for cars had the same level of third-party payment as health care, you can be sure that it would have the same cost and demand problems that we have in our health care system.