Thursday, May 17, 2007

HSAs and women.

I found this by Ezra Klein pretty interesting. According to him [Disclaimer: I didn't follow the link to see if he's accurately reporting the results.], a group of medical researchers at Harvard ran the numbers on male vs. female healthcare spending, only to find that HSAs advantage men over women. The issue is that, apparently, women need routine procedures (mammograms, for example) which are relatively costly, while men incur greater costs for serious illnesses and physical traumas. So, chances are, if you're a dude, you're not going to spending much money at the doctor's; while if you're a chick, chances are you will.

I'm not sure what I necessarily think about it (I just found the result interesting). It seems you could easily flip it around, though. If you put everyone under an insurance plan which took payments on the basis solely of ability to pay, then it seems to follow that men will disproportionately be funding the healthcare costs of the women -- so, we flip from misogyny to misandry. This is possibly justifiable on the basis that men tend to be advantaged economically (so they can afford it) as compared to women. That doesn't really look like a very strong argument, though; after all, discrimination is discrimination, isn't it?

So, overall, I'm not sure a gender bias is really avoidable when it comes to health insurance. Given that, though, then these data are no argument against HSAs, which just seems wrong. That they disadvantage women should be a bad thing. My general sense is that the latter system (ability to pay) is better, as it's blind to the gender of the insured in a way that the former (HSAs) system is not. Given that female biology isn't going to change any time soon, it follows that medicine for women will continue to cost more, on average, than medicine for men. However, the economic (and political and social...) conditions which produce more men in the higher income brackets are, in principle, changeable. (I suppose the biological conditions could be changed as well, but that looks a hell of a lot harder to me.) So, the misandristic consequence is really due to a historical accident, while the misogynistic consequence is due to natural features of human biology. It seems more right to punish (if that's the right word) men for being lucky than women for being women, so the misandristic consequence is no bad thing.

As said, though, I'm not totally sure what I think of all this. It's an interesting empirical claim, 'tis all.

6 comments:

undergroundman said...

Did I just blank out my long reply to your activism article? Oh well.

I wouldn't be surprised if HSAs are harder on women than men. This could easily be solved by making all these routine check-up procedures free - but only making these free. (Within reason and a certain time limit - older women need mammograms rather than young women, and male check-up procedures could be free as well.) This would help prevent costlier circumstances in the future.

It seems you could easily flip it around, though. If you put everyone under an insurance plan which took payments on the basis solely of ability to pay, then it seems to follow that men will disproportionately be funding the healthcare costs of the women -- so, we flip from misogyny to misandry.

I'm not following. Are you saying we implement a free but means-tested system? Why not just give the poor lots of HSA money, which can pulled out after a year or two to spend with? You keep good incentives (incentive to stay healthy, avoid pointless visits, moral hazard, and costs go down as patients are aware of the prices and hospitals must compete) but still help out poor people.

ADHR said...

I think you may have blanked it out, yes. I only got two comments from you, this one and the one to the chicken thing.

We could make those procedures free, I suppose, but really why stop there? It looks like a stop-gap measure against a systemic problem.

I'm not following. Are you saying we implement a free but means-tested system? Why not just give the poor lots of HSA money, which can pulled out after a year or two to spend with? You keep good incentives (incentive to stay healthy, avoid pointless visits, moral hazard, and costs go down as patients are aware of the prices and hospitals must compete) but still help out poor people.

My idea is something like what exists in Ontario, where health insurance is paid out of income taxes, and income taxes include a healthcare premium that scales upwards with income.

Giving the poor lots of HSA money looks, again, like a stop-gap measure.

I agree that there's a need to keep patients aware of prices and avoid pointless visits. HSAs aren't the only way to do that, though.

I don't see hospital competition on price as a good thing. Sooner or later that will turn into cutting back on quality of service, which would seem to encourage the Dr. Nick Riviera's of the world. Besides, price-fixing would also keep prices down, and could be accompanied by regulation forcing minimal standards of service.

As far as incentive to stay healthy, I'm missing something. How do HSAs encourage being healthy? It seems to me that they encourage avoiding medical treatment, which is not the same thing.

undergroundman said...

Stop-gag? What are you talking about? Explain your terms. Explain how free healthcare would offer any benefits over HSAs.

We could make those procedures free, I suppose, but really why stop there?

Because if we make things that aren't preventative free, people don't have an incentive to watch their health. They won't have to pay for smoking, doing risky activities, over-eating, not washing their hands, ect. Trust me - I'm on an HSA, and I actually act healthier because I don't want to spend money that could be going towards other things.


My idea is something like what exists in Ontario, where health insurance is paid out of income taxes, and income taxes include a healthcare premium that scales upwards with income.


How does any benefits over HSAs?

I don't see hospital competition on price as a good thing. Sooner or later that will turn into cutting back on quality of service, which would seem to encourage the Dr. Nick Riviera's of the world. Besides, price-fixing would also keep prices down, and could be accompanied by regulation forcing minimal standards of service.

Are you seriously advocating price-fixing? Did you ever take a class in economics? I'll go into why price-fixing is bad, I suppose - it creates a shortage, and regulation forcing standards doesn't accomplish high quality as well as doctors who are making sure that they offer high-quality so that they can keep making money. You may not like it, but people are motivated by money. If you price-fixed, you'd find doctors leaving the area or not really putting in the maximum amount of effort to offer high-quality service.

Cutting back on the quality of service won't happen because hospitals are competing on price and quality - and the one which consistently offers the highest quality for the best price will expand, while the others will lose business.


As far as incentive to stay healthy, I'm missing something. How do HSAs encourage being healthy? It seems to me that they encourage avoiding medical treatment, which is not the same thing.


I went into it above. Please just think about it. There is a bad habit among ultra-liberals and philosophers to be against common sense economically aware solutions to problems. People who spend money on healthcare through HSAs could, if they avoid those visits, spend their money on other goods. Therefore they will take vitamins, they will avoid risky behavior, and they will take better care of themselves - because they know that if they don't, they'll be sacrificing wealth. People won't avoid treatment unless they are stupid, very inexperienced, or suicidal, because they know that diseases will only get worse and eventually more expensive in the future. (Trust me - I've been through this myself.) Therefore they nip them in the bud. If you don't assume that people are idiots (I know, it's difficult for me too), you should see what I mean.

I agree that there's a need to keep patients aware of prices and avoid pointless visits. HSAs aren't the only way to do that, though.

Do tell.

Really, you haven't shown any evidence that a free system (where people will by definition overconsume, because it is free and the people offering the service are not rewarded according to their efforts - or if they are, they are only rewarded by a state bureaucracy, and because of this there will most certainly be a shortage only fixed through rationing and lines) would be better than an HSA system.

An HSA system would be far less bureaucratic and far better for both doctors and patients, who would be able to negotiate prices face to face. The highest quality doctors would earn more, as they should, and their operations would expand. Excess costs would be minimized because everyone would be competing to offer high-quality and competitive prices. This is simple and, in this case, very accurate economic logic.

You didn't respond to the fact that the current system promotes a vast amount of red tape bullshit and bureaucracy, either. It just doesn't make sense for people to pay into insurance when the insurance premiums are $500-$800. They are better off sticking that money in a savings account or a mutual fund, earning a 5-15% return, and getting a cheap high-deductible health insurance plan for the remote chance of disaster.

Also, I made a comment on Ezra's blog noting the same things, if you want another summary of why HSAs are good.

(By the way, these fucking confirmation codes are the fucking devil.)

undergroundman said...

Looked at the Nick entry - really, you can't deny that our current shady system is promoted by the state government and all the shady doctors who refuse to let their records to be known. And it's really very unconscionable.

It would be ridiculously easy for the state to promote a website where doctors' records where available and where people get to rate their experiences with doctors. Unfortunately, the doctors' have too much influence on the establishment for that.

Luckily, this is changing. You're never going to convince me to trust the government, however. Just this past week we had a story where the Department of Homeland Security tried to fine a poor man $60,000 for bringing home fake Rolexes. If you want wealth transfers, that's fine, but we don't need big fucking government for that - we just need simple electronic programs. The less discretion and regulations a government can impose, the better.

What's more is that HSAs very obviously benefit alternative medicine.

ADHR said...

Stop-gag? What are you talking about? Explain your terms. Explain how free healthcare would offer any benefits over HSAs.

If there is a systemic problem with HSAs as such, then slapping band-aids on it seems to avoid the point. I'm not sure there is such a problem with it, though. I'm starting to come around to the idea that HSAs and public health insurance may be a matter of six and three twos. I'm not sure, though.

Because if we make things that aren't preventative free, people don't have an incentive to watch their health. They won't have to pay for smoking, doing risky activities, over-eating, not washing their hands, ect. Trust me - I'm on an HSA, and I actually act healthier because I don't want to spend money that could be going towards other things.

This starts to seem profoundly illiberal ("liberal" in the classical sense). Isn't it bad for policy to be written such that cautious people are rewarded and people who want to lead riskier -- and, for them at least, more pleasant -- lives are punished? There's something to the idea that people should be allowed to choose their own ways of living without having to bear unreasonable costs.

Are you seriously advocating price-fixing? Did you ever take a class in economics? I'll go into why price-fixing is bad, I suppose - it creates a shortage, and regulation forcing standards doesn't accomplish high quality as well as doctors who are making sure that they offer high-quality so that they can keep making money. You may not like it, but people are motivated by money. If you price-fixed, you'd find doctors leaving the area or not really putting in the maximum amount of effort to offer high-quality service.

Cutting back on the quality of service won't happen because hospitals are competing on price and quality - and the one which consistently offers the highest quality for the best price will expand, while the others will lose business.


I don't really see how price-fixing leads to those problems. I didn't take any econ, which is an unfortunate gap in my undergrad. I took too many lit classes, not enough socsci and biosci. Regrets, I've had a few....

I'll take an example to show my confusion. If people are motivated by money, price-fixing doesn't defeat that motivation unless increasing prices is the only way to make more money. But, when it comes to, say, healthcare, there are at least two other ways to make more money: offer more services (work more) and offer services that carry higher pricetags (be an orthopaedic surgeon instead of a family doctor).

I think you're putting a bit too much faith in the ability of consumers to recognize good quality stuff. They're certainly good, generally, at weeding out utter shite. But, if consumers generally know what's good, why (taking an example entirely out of left field) is Windows the dominant OS? It's not the best, by any means. The trick seems to be to cut quality such that most people don't notice or realize that it's a cut in quality.

I went into it above. Please just think about it. There is a bad habit among ultra-liberals and philosophers to be against common sense economically aware solutions to problems. People who spend money on healthcare through HSAs could, if they avoid those visits, spend their money on other goods. Therefore they will take vitamins, they will avoid risky behavior, and they will take better care of themselves - because they know that if they don't, they'll be sacrificing wealth. People won't avoid treatment unless they are stupid, very inexperienced, or suicidal, because they know that diseases will only get worse and eventually more expensive in the future. (Trust me - I've been through this myself.) Therefore they nip them in the bud. If you don't assume that people are idiots (I know, it's difficult for me too), you should see what I mean.

I'm not trying to be economically unaware, honestly. I don't have much background in the discipline and I'm trying to think my way through the problems with what knowledge I have, which is basically ideas about justice and about motivation. From what I know about motivation, I'm not convinced that people have as much foresight as you're appealing to here. There's certainly a general bias in human cognition towards immediate gratification -- e.g., I'll eat a cheeseburger now and not think about what it does to my cholesterol. I'm also not convinced that you're taking into account the amount of wishful thinking that people do: "if I don't go to the doctor, maybe it'll just get better on its own". People are good at convincing themselves of profoundly stupid things (see religion for many examples). So, unless there's some kind of empirical support for the claim that people actually don't think the way I'm worried they will, I'm not sure that HSAs have the advantage here.

An HSA system would be far less bureaucratic and far better for both doctors and patients, who would be able to negotiate prices face to face. The highest quality doctors would earn more, as they should, and their operations would expand. Excess costs would be minimized because everyone would be competing to offer high-quality and competitive prices. This is simple and, in this case, very accurate economic logic.

I'm not convinced there would be price negotiation. You can only negotiate price when there's enough competition for consumers to go elsewhere. Consider banks, for example. No, wait, bad example for Americans (you guys have way more banks than we do). Airlines. Your options on airlines are pretty limited, and you don't have the option to negotiate the price at the counter. The price is the price; if you don't like it, then don't fly. Given the doctor (and other resource) shortages that exist pretty much everywhere, I would expect that doctors would do the same thing: this is the price, if you don't like it, get out.

Under a public system, good doctors do earn more and their operations do expand (unless, of course, they just don't want to). They do it by expanding hours or switching to high-fee services, but it does happen.

You didn't respond to the fact that the current system promotes a vast amount of red tape bullshit and bureaucracy, either. It just doesn't make sense for people to pay into insurance when the insurance premiums are $500-$800. They are better off sticking that money in a savings account or a mutual fund, earning a 5-15% return, and getting a cheap high-deductible health insurance plan for the remote chance of disaster.

I'm not sure the current system promotes that, though. There certainly is a lot of it. But is it a consequence of the system in itself or of the system being badly-run? I don't know.

The idea of reserving the healthcare money and earning return on it is a good one. I'm surprised governments haven't tried it. AFAIK, government pensions work that way.

It would be ridiculously easy for the state to promote a website where doctors' records where available and where people get to rate their experiences with doctors. Unfortunately, the doctors' have too much influence on the establishment for that.

Those actually exist in some Canadian provinces. There's been talk of creating such a registry in Ontario, for hospitals as well. There's been some high-profile cases of severe malpractice where the hospitals and medical colleges basically clammed up and let a butcher keep operating. ("Butcher" is accurate, BTW. This is a guy who, if I recall right, did things like perform a hysterectomy when someone went in for a colonoscopy. And didn't even do it right.) That's not a government thing, though. That's a problem with the hospital administration and the professions' regulatory bodies. Government's a way to solve that problem (when it's working right): hospital admins and the colleges could be forced by law to reveal that information.

Luckily, this is changing. You're never going to convince me to trust the government, however. Just this past week we had a story where the Department of Homeland Security tried to fine a poor man $60,000 for bringing home fake Rolexes. If you want wealth transfers, that's fine, but we don't need big fucking government for that - we just need simple electronic programs. The less discretion and regulations a government can impose, the better.

I agree with the suspicion of big government; I don't agree with a suspicion of government in general. For example, there's no in principle reason why, say, the province couldn't collect insurance money and then hand it off to local officials (distributed strictly based on population and need, say) who would administrate the system. Distributing authority more vertically seems the solution to the problems of big government.

What's more is that HSAs very obviously benefit alternative medicine.

Far as I'm concerned, that's a mark against them!

undergroundman said...

I'm starting to come around to the idea that HSAs and public health insurance may be a matter of six and three twos. I'm not sure, though.

Sweet! (And what does a matter of six and three twos mean?) When I said there's a bad habit, I meant that there is often a knee-jerk habit. You can think it through and we can debate criticisms of it, but at least you should be willing to admit that HSAs have benefits over a bureaucratic insurance system.

One of the things economists bring up is that insurance is generally for catastrophic events - typical health insurance has a very low deductible. It is not insuring against a catastrophe. As I said earlier, when premiums are 500 bucks a month and on average you only spend 100 bucks a month at the doctor or less, it makes more economic sense to save your money and get a catastrophic high deductible insurance policy for cheap. That way, if you get cancer, it's all covered, but you don't have to waste money paying into a bureaucracy - instead you save that money to cover that deductible, and after a certain amount of time it's all gravy if you stay healthy.

This starts to seem profoundly illiberal ("liberal" in the classical sense). Isn't it bad for policy to be written such that cautious people are rewarded and people who want to lead riskier -- and, for them at least, more pleasant -- lives are punished? There's something to the idea that people should be allowed to choose their own ways of living without having to bear unreasonable costs.

Classical liberalism isn't carpe diem or joie de vivre or basically anarchism. At its foundation it is probably best stated by John Stuart Mill:

"The only freedom which deserves the name, is that of pursuing our own good in our own way, so long as we do not attempt to deprive others of theirs, or impede their efforts to obtain it. Each is the proper guardian of his own health, whether bodily, or mental and spiritual. Mankind are greater gainers by suffering each other to live as seems good to themselves, than by compelling each to live as seems good to the rest."

(In looking for this at Wikiquote, I found this quote: "I never meant to say that the Conservatives are generally stupid. I meant to say that stupid people are generally Conservative. I believe that is so obviously and universally admitted a principle that I hardly think any gentleman will deny it." *chuckles*)

Now, let's people take risks and then add a policy of free healthcare and the idea of opportunity cost. People who live risky lives and don't take care of their bodies are treated for free, quickly driving up the costs of treatment for everyone else. Eventually something has to give. The government spends extra money funding the healthcare system, which means less money for the poor and other government services. Classical liberalism believes everyone should pay their fair share.

I don't really see how price-fixing leads to those problems. I didn't take any econ, which is an unfortunate gap in my undergrad. I took too many lit classes, not enough socsci and biosci. Regrets, I've had a few....

Yeah, you should try reading up on microeconomics on your own sometime, although I'll try to tell you what I can. I remember back in high school I was always confused by supply and demand curves because they didn't make clear their assumptions (i.e., the cost of making the item remains constant). The simple fact is that when price is fixed above market price (a price floor) a surplus results, and when price is fixed below market price (a price ceiling) a shortage results. This has been validated empirically. That's why no developed countries currently do it on a meaningful scale, although New York does impose rent controls with terrible results. Look at all those links - they will be fairly informative.

price-fixing doesn't defeat that motivation unless increasing prices is the only way to make more money. But, when it comes to, say, healthcare, there are at least two other ways to make more money: offer more services (work more) and offer services that carry higher pricetags (be an orthopaedic surgeon instead of a family doctor).

For the first one you are ignoring the fact that time is money. If a doctor is being underpaid, why should they continue to be underpaid? Their time is money! The doctor, instead of working like a dog (or a slave) in order to earn a good living, will simply move to the US or some other place, where the demand for the services is likely high as well. And what will happen if they move to a different profession where prices aren't fixed? Well, look at price ceilings again! A shortage in their old profession! Doctors can't magically provide new services at higher prices, also - they are providing all the services that they can think of. Obviously there will be an incentive to come up with new ways to make money, which brings up the black market problem...

Really, what it comes down to is that you want to sacrifice doctors' welfare to help out people who haven't taken care of themselves or planned for the future. We can take care of those people more efficiently if we just deposited subsidies into their HSA accounts. Price-fixing is forcing doctors' to work like slaves.


I think you're putting a bit too much faith in the ability of consumers to recognize good quality stuff. They're certainly good, generally, at weeding out utter shite. But, if consumers generally know what's good, why (taking an example entirely out of left field) is Windows the dominant OS? It's not the best, by any means. The trick seems to be to cut quality such that most people don't notice or realize that it's a cut in quality.


There is an information problem. In the perfectly competitive model we have a number of obviously false assumptions. Perfect information is one of them. But the internet has improved information by leaps and bounds. Doctors who cut quality run a high risk, and if we implemented databases recording their histories, that risk would be magnified. All companies try to balance price and quality, and they all face that risk, but we generally have items of OK quality.

Windows may actually be the highest quality operating system - I certainly prefer it to a Mac, which commands a premium because of "higher quality." Macs are even more proprietary and dumbed down. And Linux, while cool, still suffers in overall quality because it doesn't have the network quality benefits that Windows has (especially with drivers and such). Windows has reached its position through canny early movers, subsequent network advantage, and monopolistic business practices supported by the US government. Mac could have beaten Windows but they were too proprietary - arguably, they just got out-innovated in the beginning.

It's interesting that you bring up quality, however, because under a price-fixed system doctors have an enormous incentive to reduce quality in order to get what they should be getting. Most likely the best doctors in such a system will move to a different country. I think it's safe to say that price-fixing is cumbersome and bad - even a free system would be better.

From what I know about motivation, I'm not convinced that people have as much foresight as you're appealing to here. There's certainly a general bias in human cognition towards immediate gratification -- e.g., I'll eat a cheeseburger now and not think about what it does to my cholesterol. I'm also not convinced that you're taking into account the amount of wishful thinking that people do: "if I don't go to the doctor, maybe it'll just get better on its own". People are good at convincing themselves of profoundly stupid things (see religion for many examples).

Right. Lots of people have levied these sorts of complaints against economics, including plenty of economists themselves. They are, of course, legitimate. That's what the field of behavioral economics is all about - glancing across that page, I do notice "present-biased preferences" as a subfield. At the same time there are a lot of us who are fairly "rational." We avoid pain, try to make money, and
don't believe in God. Even Christians try not to waste money. We can say that people respond to financial incentives, it's just a matter of degree.

Consider banks, for example. No, wait, bad example for Americans (you guys have way more banks than we do).

Yeah. You might have seen the websites advising you to call up your credit card company and request a lower interest rate - because it often works if you have good credit. ;)

I'm not so sure there would be negotiation either. What I'm thinking is that there would be clinics charging different prices, and I don't think that's a bad thing. If you want the Harvard graduate, you pay a high price, if you want the regular old Joe, you pay a lower price. Some hospitals will run tighter ships than others (probably not hard to do - I've worked in a hospital before, and it was a mess). They may attract more patients through their brisk, good service and "fair prices." Badly run hospitals will need to shape up and hire better administrators. We know empirically that competition lowers price and increases quality, largely through the use of incentives.

Your options on airlines are pretty limited, and you don't have the option to negotiate the price at the counter. The price is the price; if you don't like it, then don't fly. Given the doctor (and other resource) shortages that exist pretty much everywhere, I would expect that doctors would do the same thing: this is the price, if you don't like it, get out.

We have plenty of clinics and hospitals around where I live, and they actually do charge different prices to some degree. Clinics always charge less than hospitals, for example. The problem is that people aren't all that aware of prices, and so they go to the hospital anyway when a clinic (which gets a lot less traffic) would do just fine. This is what I see happening rather than price negotiation.

However, historically the way poor people were treated was through the doctors offering them lower prices. In economics we call that price discrimination, and it's actually just a way to reap higher profits. Did you think student and senior citizen discounts were offered because businesses want to do a public service? Nope. They're just used to snag the people who's elasticity of demand is higher.


I'm not sure the current system promotes that, though. There certainly is a lot of it. But is it a consequence of the system in itself or of the system being badly-run? I don't know.


Eh? How could the large insurance bureaucracy not be a function of the rampant insurance system? All charges must be passed through the bureaucracy, filed, and reviewed. I'm starting to come around to the idea that HSAs and public health insurance may be a matter of six and three twos. I'm not sure, though.

Sweet! (And what does a matter of six and three twos mean?) When I said there's a bad habit, I meant that there is often a knee-jerk habit. You can think it through and we can debate criticisms of it, but at least you should be willing to admit that HSAs have benefits over a bureaucratic insurance system.

One of the things economists bring up is that insurance is generally for catastrophic events - typical health insurance has a very low deductible. It is not insuring against a catastrophe. As I said earlier, when premiums are 500 bucks a month and on average you only spend 100 bucks a month at the doctor or less, it makes more economic sense to save your money and get a catastrophic high deductible insurance policy for cheap. That way, if you get cancer, it's all covered, but you don't have to waste money paying into a bureaucracy - instead you save that money to cover that deductible, and after a certain amount of time it's all gravy if you stay healthy.

This starts to seem profoundly illiberal ("liberal" in the classical sense). Isn't it bad for policy to be written such that cautious people are rewarded and people who want to lead riskier -- and, for them at least, more pleasant -- lives are punished? There's something to the idea that people should be allowed to choose their own ways of living without having to bear unreasonable costs.

Classical liberalism isn't carpe diem or joie de vivre or basically anarchism. At its foundation it is probably best stated by John Stuart Mill:

"The only freedom which deserves the name, is that of pursuing our own good in our own way, so long as we do not attempt to deprive others of theirs, or impede their efforts to obtain it. Each is the proper guardian of his own health, whether bodily, or mental and spiritual. Mankind are greater gainers by suffering each other to live as seems good to themselves, than by compelling each to live as seems good to the rest."

(In looking for this at Wikiquote, I found this quote: "I never meant to say that the Conservatives are generally stupid. I meant to say that stupid people are generally Conservative. I believe that is so obviously and universally admitted a principle that I hardly think any gentleman will deny it." *chuckles*)

Now, let's people take risks and then add a policy of free healthcare and the idea of opportunity cost. People who live risky lives and don't take care of their bodies are treated for free, quickly driving up the costs of treatment for everyone else. Eventually something has to give. The government spends extra money funding the healthcare system, which means less money for the poor and other government services. Classical liberalism believes everyone should pay their fair share. (By the way, this is known as the free rider problem in economics.

I don't really see how price-fixing leads to those problems. I didn't take any econ, which is an unfortunate gap in my undergrad. I took too many lit classes, not enough socsci and biosci. Regrets, I've had a few....

Yeah, you should try reading up on microeconomics on your own sometime, although I'll try to tell you what I can. I remember back in high school I was always confused by supply and demand curves because they didn't make clear their assumptions (i.e., the cost of making the item remains constant). The simple fact is that when price is fixed above market price (a price floor) a surplus results, and when price is fixed below market price (a price ceiling) a shortage results. This has been validated empirically. That's why no developed countries currently do it on a meaningful scale, although New York does impose rent controls with terrible results. Look at all those links - they will be fairly informative.

price-fixing doesn't defeat that motivation unless increasing prices is the only way to make more money. But, when it comes to, say, healthcare, there are at least two other ways to make more money: offer more services (work more) and offer services that carry higher pricetags (be an orthopaedic surgeon instead of a family doctor).

For the first one you are ignoring the fact that time is money. If a doctor is being underpaid, why should they continue to be underpaid? Their time is money! The doctor, instead of working like a dog (or a slave) in order to earn a good living, will simply move to the US or some other place, where the demand for the services is likely high as well. And what will happen if they move to a different profession where prices aren't fixed? Well, look at price ceilings again! A shortage in their old profession! Doctors can't magically provide new services at higher prices, also - they are providing all the services that they can think of. Obviously there will be an incentive to come up with new ways to make money, which brings up the black market problem...

Really, what it comes down to is that you want to sacrifice doctors' welfare to help out people who haven't taken care of themselves or planned for the future. We can take care of those people more efficiently if we just deposited subsidies into their HSA accounts. Price-fixing is forcing doctors' to work like slaves.


I think you're putting a bit too much faith in the ability of consumers to recognize good quality stuff. They're certainly good, generally, at weeding out utter shite. But, if consumers generally know what's good, why (taking an example entirely out of left field) is Windows the dominant OS? It's not the best, by any means. The trick seems to be to cut quality such that most people don't notice or realize that it's a cut in quality.


There is an information problem. In the perfectly competitive model we have a number of obviously false assumptions. Perfect information is one of them. But the internet has improved information by leaps and bounds. Doctors who cut quality run a high risk, and if we implemented databases recording their histories, that risk would be magnified. All companies try to balance price and quality, and they all face that risk, but we generally have items of OK quality.

Windows may actually be the highest quality operating system - I certainly prefer it to a Mac, which commands a premium because of "higher quality." Macs are even more proprietary and dumbed down. And Linux, while cool, still suffers in overall quality because it doesn't have the network quality benefits that Windows has (especially with drivers and such). Windows has reached its position through canny early movers, subsequent network advantage, and monopolistic business practices supported by the US government. Mac could have beaten Windows but they were too proprietary - arguably, they just got out-innovated in the beginning.

It's interesting that you bring up quality, however, because under a price-fixed system doctors have an enormous incentive to reduce quality in order to get what they should be getting. Most likely the best doctors in such a system will move to a different country. I think it's safe to say that price-fixing is cumbersome and bad - even a free system would be better.

From what I know about motivation, I'm not convinced that people have as much foresight as you're appealing to here. There's certainly a general bias in human cognition towards immediate gratification -- e.g., I'll eat a cheeseburger now and not think about what it does to my cholesterol. I'm also not convinced that you're taking into account the amount of wishful thinking that people do: "if I don't go to the doctor, maybe it'll just get better on its own". People are good at convincing themselves of profoundly stupid things (see religion for many examples).

Right. Lots of people have levied these sorts of complaints against economics, including plenty of economists themselves. They are, of course, legitimate. That's what the field of behavioral economics is all about - glancing across that page, I do notice "present-biased preferences" as a subfield. At the same time there are a lot of us who are fairly "rational." We avoid pain, try to make money, and
don't believe in God. Even Christians try not to waste money. We can say that people respond to financial incentives, it's just a matter of degree.

Consider banks, for example. No, wait, bad example for Americans (you guys have way more banks than we do).

Yeah. You might have seen the websites advising you to call up your credit card company and request a lower interest rate - because it often works if you have good credit. ;)

I'm not so sure there would be negotiation either. What I'm thinking is that there would be clinics charging different prices, and I don't think that's a bad thing. If you want the Harvard graduate, you pay a high price, if you want the regular old Joe, you pay a lower price. Some hospitals will run tighter ships than others (probably not hard to do - I've worked in a hospital before, and it was a mess). They may attract more patients through their brisk, good service and "fair prices." Badly run hospitals will need to shape up and hire better administrators. We know empirically that competition lowers price and increases quality, largely through the use of incentives.

Your options on airlines are pretty limited, and you don't have the option to negotiate the price at the counter. The price is the price; if you don't like it, then don't fly. Given the doctor (and other resource) shortages that exist pretty much everywhere, I would expect that doctors would do the same thing: this is the price, if you don't like it, get out.

We have plenty of clinics and hospitals around where I live, and they actually do charge different prices to some degree. Clinics always charge less than hospitals, for example. The problem is that people aren't all that aware of prices, and so they go to the hospital anyway when a clinic (which gets a lot less traffic) would do just fine. This is what I see happening rather than price negotiation.

However, historically the way poor people were treated was through the doctors offering them lower prices. In economics we call that price discrimination, and it's actually just a way to reap higher profits. Did you think student and senior citizen discounts were offered because businesses want to do a public service? Nope. They're just used to snag the people who's elasticity of demand is higher.


I'm not sure the current system promotes that, though. There certainly is a lot of it. But is it a consequence of the system in itself or of the system being badly-run? I don't know.


Eh? How could the large insurance bureaucracy not be a function of the rampant insurance system? Doctors sometimes say that they are restricted in the treatments they can offer simply because of this bureaucracy. Patients hardly ever know what they are really paying for, and how much it costs.

The idea of reserving the healthcare money and earning return on it is a good one. I'm surprised governments haven't tried it. AFAIK, government pensions work that way.

My pension is run through that, yeah (I work for the government in the summer). Bush raised a plan to "privatize" Social Security by allowing workers to put their money into a restricted account where it would be invested. The problem was that a portion of the taxes I pay to Social Security (roughly 1/3 of my income, levied only on incomes up to 100k or so - we have a very regressive system in the US) go directly towards paying Social Security benefits out. So there would be a hole if we put it into an account. As far as the healthcare money, I believe it is taken from taxpayers and then paid to the hospitals and such - there's no time to invest it. Under HSAs everyone would invest their money, of course.

That's not a government thing, though. That's a problem with the hospital administration and the professions' regulatory bodies. Government's a way to solve that problem (when it's working right): hospital admins and the colleges could be forced by law to reveal that information.

Yeah. I directed my rant at government because that is their job, and they haven't done it. They are notoriously susceptible to special interest groups. I know there's some economic name for the problem, but basically most of us don't care/know enough to fight hard for the issue even though we're all being nickeled and dimed (or worse, butchered, as you noted above), while the special interest is deeply interested and fights hard through lobbyists. This is why we have tariffs, which generally hurt all of us and favor a few.

I agree with the suspicion of big government; I don't agree with a suspicion of government in general.

Well yeah. I wouldn't be anti-government if corrupt people didn't seem to rise to power every single time. Worse, they are economically illiterate half the time. Government should spend most of its time taxing activities with negative externalities (pollution, pesticides, drugs, unhealthy food ect), subsidizing things with positive externalities (education, clean energy, healthy food, organic farming) and doing simple wealth transfers. It can do a lot of things to fix market failures.

I'm actually not so sure that distributing to local officials would be ideal - it would certainly be better, as it's easier for a far-away government to be corrupt. Local officials can more easily be watched and held accountable, so your proposal is certainly a vast improvement.

I'd prefer to tie the government's hands in basic areas, like our Bill of Rights did. There could be an economic Bill of Rights.

Far as I'm concerned, that's a mark against them!

Pshaw. My parents have been sick maybe three or four times in 25 years or so? Why? Because they take care of themselves and eat right. Hippocrates once said "Let your food be your medicine", and that's right on. Today we know more about nutrition than ever, but your average doctor thinks that if there isn't a drug, it's not curable. When I first started having GI problems a year and a half ago or so, I was told that I most likely had spastic colon or IBS, which has no cure or treatment. I had to research on the internet to find out about celiac sprue. When I cut out wheat, I was immediately cured.