good, short read

I just finished Arnold Kling's Crisis of Abundance, and I thought I'd share some of what I learned. It's a great, short read. He compares today's health care with health care thirty years ago and illustrates why today's hc is more accurately labeled premium medicine: 'premium' because it is so much more expensive, and he gives two reasons for the increased cost:
1. physical capital in the form of expensive medical technology and equipment such as MRI scanners.
2. human capital in the form of specialists--who are becoming more and more specialized--such as neurosurgeons.

The U.S. spends 15% of GDP on health care while most European states spend about 9 or 10%
You'd think with our increased budget that our society would be healthier than others, but Kling argues that the value given by aforementioned capital does not always make up for the costs. Just because we now have the ability to rule out unlikly possibilities (through expensive diagnosis) does that mean we should practice these expensive procedures? He has some interesting research on the statistics of all this, and he concludes that people are overconsuming health care not because they need it, but because it is available. He outlines three major preferences that are essential to a perfect health care system:

1. unfettered access to individuals: consumers must be completely free to select any treatment that the health care provider and patient agree would be beneficial
2. affordable for society as a whole: the health care system must not absorb an inordinate amount of resources. It should not crowd out other more valuable public goods
3. consumer insulated from the costs: consumer must be protected from the financial and emothion burden of paying for health care procedures

The third is exactly what private insuranace companies do, but he points out that our health care system goes beyond real insurance. Real insurance protects people against catastrophic costs from unpredictable damages. In addition to this, health care provides routine care for predictable damages.
The bad news: these three are incompatible, and that means there is no perfect health care. The best we can do is maintain two of the three and sacrifice (to some degree) the other. He systematically describes each system and discusses their strengths and weaknesses, ultimately maintaining 1 & 2, sacrificing 3. Also, # 3 gives no incentive to purchase health care wisely, and doctors have been pressured from mal-practice litigation to administer more health care than is necessary.

In the end, this means more out-of-pocket spending from everyone except the very poor and permanently ill. The very sick and wealthy would buy insurance from private agencies. Everyone else would pay from their pocket.

This is a brush stroke picture, but it was a great little read.

Kling, Arnold. Crisis of Abundance : Rethinking How We Pay for Health Care. Annapolis: Cato Institute, 2008.