Hanson presents good evidence that keeping medical spending lower as a % of GDP is a good thing.

But that’s not a valid attack on socialist provision of health care. Consider which system causes a greater % of GDP to be spent on medicine and medical technology – a socialist health care system or a private health care system? Answer: ‘private’ health care leads to greater (not lesser) spending on medicine and medical technology. The inefficiencies in free market health care are famous (mostly caused by the fact that it’s actually insurance-based health care, not a simply user-pays system).

So an obvious conclusion to draw from the evidence Hanson cites is that a socialist medical system is the right way to go.

Of course, many readers are leaping from “we should reduce health spending as a % of GDP” to “we should move to a more free-market system” – but the two are not the same at all. And don’t let misinterpretation of that RAND study fool you – that isn’t a study of the two approaches to health care but is instead a study of highly insured vs less insured participants in a free market.

1) People’s health (lifespan) has improved over time
2) Micro-studies (ie of individual drugs or treatment) do show health benefits
3) Macro-studies do not show health benefits for aggregate health spending

Hanson has convincing arguments for why 2) is the erroneous fact, but given 1) and 2) there had to be some chance that 3) is in fact the suspect result. I’m not familiar with the studies upon which 3) is based, but it strikes me that it would be rare to completely get rid of problems of endogenity. Or maybe it’s like compulsory seatbelts, where more healthcare encourages off-setting behaviour.

I know the Rand study is the best experiment for answering questions like this, but it is only one study, it’s out of date, and it didn’t follow subjects for a long-enough duration. Hence I’d concur that a good first step would be repeating the study. In fact, I think that public policy in general is desperately short of random experiments.

Megan McArdle argued the other day that US health spending subsidizes the rest of the world (I believe this is at least true in pharmaceuticals), and from memory I think Tyler Cowen made the point once that to the extent American medical care is just over-priced, it just works out to being a transfer rather than a waste of resources. I’m too lazy to provide links sorry.

BTW, if we’re this wrong about healthcare then surely we could be wrong about the benefits of most spending. Perhaps the opportunity cost of wasteful health spending is just wasteful spending elsewhere.

That’s the best my evil twin can do today.

I think in NZ we already have half or less of US health care spending, especially if you measure in PPP terms. And our life expectancy is better (at least before you throw in controls)

http://en.wikipedia.org/wiki/Insurance

I am going to follow it up, but if I am right, in a few generations there may be an entire industry devoted towards a “pooling of risk”.

Specifics to follow.

I am sure that someone could make a strong economic case for current health spending, without falling into the old trap of blaming institutional design. However, I can’t, all I can think about is the poor institutional design of health care. Maybe you could do a post on it, I know you’re good with micro models 😉

In fact, how would your ideal health system work? Mine would be funded from a tax on the risks associated with different activities. The only problem with this would be the fact that we do not know the risks associated with many of these activities, and the cost of setting up such a scheme would likely be ridiculous:p