Economist blogger: pvt healthcare is worse


1:30 pm - June 10th 2011

by Sunny Hundal    


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Even bloggers at the Economist magazine are come out against private healthcare! If you know the Economist, you’ll realise how astounding this is.

On the ‘Democracy in America’ blog, M.S. takes a shot at the New York Times columnist David Brooks for claiming governments cannot control rising healthcare costs.

Mr Brooks doesn’t seem to have an instinctive understanding of how it can be possible for unregulated free-market health-care systems to cost more and deliver inferior care than strongly regulated systems with heavy government involvement

He gives an example of private medical companies spending tens of millions of dollars just to market their product.

But beyond the added expense, why would anyone think that a system in which marketing plays such a large role is likely to be more effective, to lead to better treatment, than the kind of process of expert review that governs grant awards at NIH or publishing decisions at peer-reviewed journals?

Why do we think that a system in which ads for Claritin are all over the subways will generate better overall health results than one where a national review board determines whether Claritin delivers treatment outcomes for some populations sufficiently superior to justify its added expense over similar generics?

What do we expect from a system in which, as ProPublica reports today, body imaging companies hire telemarketers to sell random people CT scans over the phone?

The blog post ends by saying:

Health care is different from buying shoes. Which is why it wouldn’t be at all surprising if a board of 15 experts could play a major role in reducing expenses and improving care outcomes in the American medical industry. That’s what corresponding boards of experts in France, Germany, Britain, Canada, the Netherlands and so on do, which is why their health-care systems cost half what ours does, cover everyone in their countries, and generally provide better care.

Well at least some free-marketeers can have a sensible discussion on the issue.

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About the author
Sunny Hundal is editor of LC. Also: on Twitter, at Pickled Politics and Guardian CIF.
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Reader comments


1. Jimmy Hill

Sunny, despite blogging for The Economist I don’t think M.S. would describe themselves as a Free-Marketeer.

From what I’ve read of his stuff he seems like a left of centre liberal.

Wow! A blogger thinks something! Let’s run around abd wildly proclaim it to the world!

Short of positive spin left wing labour stories today are we Sunny? Must be terrible to have that embarrasing Brown/Balls backstabbing story all over the papers – which I notice you seem to be steadfastly ignoring (not the first time you’ve ignored stories which don’t fit your narrative).

Short of positive spin left wing labour stories today are we Sunny?

Right now I’m more worried about your employers, who seem to be paying you to spend the whole day trolling libcon. How is George Osborne going to get his magic recovery if all the right-wingers are trolling on left blogs? Do some work! Make your life useful!

Tyler, I used to run a website a decade ago that was so addictive this guy got fired from his job for spending all his time on it and not doing any work…. #justsaying

he seems like a left of centre liberal

the two are not mutually exclusive, surely? I like free markets.

5. Luis Enrique

The first sentence of the OP sounds surprised that The Economist should hold this position. Why is it that so few people know about what economics has to say about health care?

See for example this recent post by Krugman, in which he explains that mainstream economic theory of “why healthcare cannot be treated as a ordinary market” goes back to Arrow’s work half a century ago.

(Ken Arrow is a genuine economics superstar, the formalization of general equilibrium theory goes under the name Arrow-Debreu)

6. Luis Enrique

here are recent Economist articles on healthcare.

Can the second sentence of the article be amended to “If you don’t know the Economist but rely on ill informed prejudice, you’ll be astounded by this.”

7. Mr S. Pill

@5

I think the surprise is probably because the Economist is so pro-market that it supports (or supported) the legalisation of drugs – to its credit, I might add. So it’s surprising when they (or one of their commentators) comes out against markets in healthcare.

Tyler, do you actually have something to contribute?

The cost per capita of US healthcare is over $7200, with the UK costing under $3000. That’s for less good outcomes.

Small wonder that Warren Buffet said that healthcare costs were like an economic tapeworm eating at the US economy.

Anyhow, carry on with your sneerfest at “Auguste” Balls. As if we didn’t know that there was a bit of factionalism in the Labour Party. And guess what? There’s a bit in the Tory Party too. Maybe also in the Lib Dems.

What we should be doing is comparing the NHS with healthcare systems in other west European countries, not with the American way.

Odd headline.

The author cited said that an “unregulated” pharmaceutical industry is a bad thing.

I doubt there are many people who would support a fully deregulated pharmaceutical industry – and most people will support some degree of regulation.

However, you are then trying to compare an industry in the USA made up of thousands of customers to an industry elsewhere that is generally made up of just one major customer.

To try and impose a single buyer ethos is not what he is suggesting – but a degree of medical lead regulation.

Considering the problems that result from patients in the USA demanding unsuitable drugs due to being influenced by advertising – tighter regulation is something that most doctors and practitioners would probably support.

But try to get them to support state-controlled healthcare, and you will be thrown out of the door.

11. Jimmy Hill

[i]he seems like a left of centre liberal

the two are not mutually exclusive, surely? I like free markets.[/i]

Sure.

However the way I read the OP was ‘look even this free-market ideologue rejects private healthcare’. Whereas it was more like ‘person you would expect to be skeptical of private health care is skeptical of private health care’.

Jimmy – most people who claim to be pro-free markets are people who are actually pro-corporatism. Tyler, Tim Worstall are the biggest examples. For example, anyone who is for keeping the opaqueness, distorting effects and corruption offered by tax havens cannot be pro-free market.

13. Luis Enrique

most people who claim to be pro-free markets are people who are actually pro-corporatism.

this closely mirrors the sorts of thing commentators on Worstall’s blog like to say about left-wingers (you know, most “left-wingers are actually closet Stalinists with a Jesus complex” etc.)
.

13 – maybe that would explain the beard/moustache combo?

What I have also found is the pro-free market people seem to in general go running to the government for assistance when things go tits up.

16. Luis Enrique

FFS …. 64 per cent of Brits think people are better off in a free market economy.

this does not mean 64% of Brits are swivel-eyed glibertarian loons, corporatists, or any other brand of crazy/evil/stupid …. most Brits also like the NHS in government hands. oh my god how can we possibly make sense of these contradictions

17. Richard W

One of the most striking things about US TV apart from the relentless invitations to stuff your face with fast food if it has been more than 10 mins since you lasted stuffed your face is the amount of prescription drug advertising. Ask your doctor for X Y Z drug unsurprisingly leads patients to ask their doctor for X Y Z drug. Moreover, the fee-for-service open-ended reimbursement means their costs then rise because so many people receive drugs and treatments without any regard to clinical benefit. There is no reason to expect that private healthcare would be cheaper than public healthcare because the providers have an incentive to spend as much as possible. Controlling costs in a public system are relatively easy if a government wants to endure the unpopularity. You just cut the budgets and to hell with the consequential reduction in service.

I tend to agree that comparisons with the US are not what we should be doing. The US system is not public and is not private. However, it manages to achieve the worst elements of both to create a monumental mess. Other states in the EU should be the benchmark that we compare the NHS model against.

15
I totally agree, those who criticize ‘the nanny state’ and argue that they want to make their own decisions tend to demand that the government does something when eg they make a poor investment. This idea is reinforced when we look at the problems created by the financial sector.
Most people in the UK hedge their bets towards the state when it comes to healthcare, in fact, most insurers will not pay for long term treatment, and the NHS picks it up after their private healthcare provider discharges them because of lack of funds.
No contradiction Luis, freemarket with a safety net like it’s always been.

the headline is so misleading – it doesn’t come out against private healtcare at all. Instead it contrasts an unregulated market with “strongly regulated systems with heavy government involvement”, which sounds very much like the Dutch model of compulsory “private” healthcare, and not the travesty of high spending and poor outcomes that we have in the shape of the NHS.

Sunny,

Jimmy – most people who claim to be pro-free markets are people who are actually pro-corporatism. Tyler, Tim Worstall are the biggest examples. For example, anyone who is for keeping the opaqueness, distorting effects and corruption offered by tax havens cannot be pro-free market.

Really? Since tax havens are actually alternatively seen as low tax economies in a market for tax revenues, I think that your position might be seen as bloody stupid. If you believe in free markets, you have to believe in competition, and you cannot really not believe in competition between jurisdictions (indeed, most free marketeers who experience the idea tend to agree with variable local business rates for example).

I’m also mystified as to how allowing a small number of governments to impose their will on everyone through taxation (it is a tool of government as well as a way of raising money you know) is pro-market? Surely that reduces competition?

Cari,

What I have also found is the pro-free market people seem to in general go running to the government for assistance when things go tits up.

Examples? Or are you confusing free marketeers with cartels like banking (as steveb clearly does), which are clearly not a free market (and are protected from competition to a large extent by the burden of government regulation)? For simplicity please try to remember capitalist does not equal free marketeer, and may equal anti-free-marketeer (look at all the big companies that such up to the governing political parties and ask yourself is that the behaviour of free-marketeers?).

22. Luis Enrique

whooosh

21
I said free-market with a safety net ie as most people want
And my point was that the state steps in when there are problems which reinforces the view, pointing to the problems caused by the financial sector, I never said that they operated in a free-market.
You seem to have a few strawmen to burn today.

Watchman: I’m also mystified as to how allowing a small number of governments to impose their will on everyone through taxation

Four reasons why tax avoidance makes us all worse off
http://liberalconspiracy.org/2011/02/14/four-reasons-why-tax-avoidance-makes-us-all-worse-off/

and
http://liberalconspiracy.org/2011/03/29/why-tax-avoidance-is-among-the-biggest-issues-of-our-generation/

25. Sean Ferguson

Hasn’t the Economist always been pro-government on healthcare? I could swear I remember reading stuff like this in there years back. They may be pro-free market but they’ve never been one-note ideologues.

26. Luis Enrique

Sean

not according to those who know The Economist.

27. So Much For Subtlety

24. Sunny Hundal – “Four reasons why tax avoidance makes us all worse off”

Sure, you have shown that tax avoidance is bad according to your lights. What you have not done is shown that being for a free market means you have to oppose tax havens. You seem to be assuming that tax avoidance is wrong, and the free market is good therefore the two cannot have anything to do with each other.

Watchman @21:

(look at all the big companies that such up to the governing political parties and ask yourself is that the behaviour of free-marketeers?)

Absolutely; that’s exactly the behaviour of a free-marketeer. The market in political influence is free; in fact, both sides of any issue will usually bribe purchase make a donation to any given politician.

In fact, precisely because it is not publicly described as a market, and thus goes untaxed, undeclared and relatively unscrutinised, it qualifies as a ‘grey’ market and is therefore considerably freer by definition than any white market. Black markets such as the street drug trade are the freest currently available for analysis, since they entirely escape duties, tariffs and regulations.

Black markets such as those for illegal drugs do not qualify as free markets, John Q. Publican. The price paid by end users has an embedded cost that reflects the illegality of the product far in excess of its production cost. Those involved in drug production, transport and supply have to invest considerable capital to avoid detection. The end user pays the cost but the costs were borne by all those further up the chain. In the absence of illegality those costs would not exist. Therefore, illegal drugs can’t be a free market as the end price has no relationship to marginal cost. The availability of super-normal profit means attempts to interrupt supply only increases profitability attracting new entrants.

Moreover, there is no reason why the illegal drugs trade should be significantly more violent than the stamp trade. The violence is not an externality created by the product, it is the illegality that causes the violence. The participants have no legal way to redress disputes and grievances so they have to resort to violence to protect their profits and market share. The forex is the closest thing we have to a pure free market.

Richard W:

I’m aware of the second half of your point; I appear to have had a partial understanding of what constituted a free market though.

My initial experience of black markets is of Africa in the early 80s, where what made the market black was not particularly it’s illegality so much as its choice of currency (hard rather than local) taking control of the market away from the local government.

I understood that ‘free market’ meant ‘only market forces apply’. No government subsidies, no government taxes, no cut going to anyone but those in the supply chain. Prices react to market stimuli very quickly and very efficiently. That most certainly does describe such black markets as the street drugs trade.

You are entirely right that the violence is caused by the illegality. It’s no secret here that I’m in favour of consistent drugs policy (i.e. legalisation and regulation, along the same lines as alcohol, tobacco or coffee). Removing the inevitable trade in intoxicants from the hands of criminals is my main reason for that position.

“only market forces apply”

Think about what that means in effect. Profits should be competed away. In a truly free market there are no long-run profits beyond the opportunity cost of time and capital. That is obviously a theoretical assumption that rarely describes reality. However, it is a useful benchmark for determining the freeness of a market. The existence of supernormal profits in the drugs market must mean that there are barriers to entry or monopoly pricing power in the chain. The barriers to entry exist because although the market is profitable not everyone will chase those profits in an illegal market. In effect, states are creating the supernormal profits for drug dealers and in a free market capitalists and entrepreneurs would compete them away.

Ed Dolan had a good blog post about the economics of drugs. I suspect you probably agree with him about the futility of our current policies.

http://dolanecon.blogspot.com/2011/03/econ-101-hayek-and-why-we-are-losing.html

Richard W @31:

The barriers to entry exist because although the market is profitable not everyone will chase those profits in an illegal market. In effect, states are creating the supernormal profits for drug dealers and in a free market capitalists and entrepreneurs would compete them away.

It seems as though I have indeed misunderstood how an economist sees a free market. ‘Barriers to entry’, as I read it, could easily include ‘work’; not everyone can be arsed to actually make something or do something useful for their money, therefore there are ‘barriers to entry’ in every single market that can exist.

The idea that ‘free’ = ‘free of government regulation’ is clearly not sufficient for academic rigour; but I suspect it’s what most of the people in this thread meant, and it’s certainly what most of the free-market fundamentalists over the last 30 years meant. They all wanted government to go away and let them be exploitative in private, thank you very much.

They certainly didn’t want a mathematically ‘free market’ as you’ve described it here. Supernormal profits have been the only type worth bothering with, as far as the free-market fundamentalists are concerned. Why be in an industry that makes something, when you can engage in arbitrage and get paid enormous amounts of money for being a middle-man?

Regarding drugs policy: Me, Ed Dolan and quite a few famous people, yeah.


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