Saturday, 31 December 2011

A Short Thought on the Economics of Health Care

I've read arguments from those opposed to socialized medicine, who point out that as price for a good or service drops, demand rises, and at a price of zero, demand can be very high indeed.

I never really bought this argument, and I'm less convinced than ever, owing to my recent health issues. In June of this past year, I was diagnosed with colon cancer, and underwent surgery to have a tumour removed in July. I'm now nearing the end of about six months of chemotherapy "just to make sure". It's been interesting in its own way, and I do feel intellectually richer for having experienced it first hand (notwithstanding that what they call chemo-brain may have impaired my ability to learn as much as I might have hoped), but realistically, I'd really rather have learned all this stuff from a book. And it's true what they say about chemotherapy being a generally unpleasant ordeal, although the precise details vary greatly from patient to patient.

I only bring this up because it drove home to me just how ridiculous the idea of cost influencing demand for things like this is. You could lower my out-of-pocket expenses for this treatment to well below zero, offering to pay me to go through this, and it wouldn't increase my demand for the service one bit. Well, unless you offered to pay me an awful lot, and I mean a lot.

(I don't even want to bother addressing the patently obvious but morally obscene observation that as you raise the price, "demand" drops. That's just a bloodless way of saying that as you raise the price, people who can't pay for the treatment won't get it, regardless of how desperately they might need it. That's not really a drop in "demand" except in the technical sense used by economists, but unfortunately, expressing the idea in terms of demand curves allows us to import the unfounded inference that people who can't afford a treatment just don't really want it as badly as those who can afford it.)

Now, it is true that free health care does tend to encourage people to use more of it for non-essential purposes. People go to the doctor more for minor things that they might otherwise have stayed home and treated themselves. I'm not convinced this is necessarily a bad thing; while it certainly increases the work load and wait times on the front lines, it also may help to identify and perhaps prevent minor conditions from escalating into to something most serious and thus more costly to treat.

But let's suppose that overutilization of non-essential health care services is, on balance, a problem to be addressed. Yes, one way to reduce that utilization might be to raise prices, though I'm concerned that this might deter people from getting something looked at that might really need to be looked at. (It wasn't the price that deterred me, but I really wish I had got that colonoscopy five years earlier.) However, maybe it's not exactly the price that's the problem.

Or more accurately, maybe it's the whole economic paradigm that's the problem. When you pay for something, you're the customer. We have strongly ingrained attitudes about customer-seller relationships, as evidenced by trite sayings like "The customer is always right." But health care doesn't work that way, or rather, it shouldn't. A patient has a complaint, and concerns that need to be addressed, and of course there's the whole issue of informed consent and patient autonomy, but it's the expertise of the physician that is critical; the patient is not always right about what needs to be done.

I suspect that our habit of thinking in terms of serving customers may be responsible for a lot of inefficiencies in the medical system. We already know that antibiotics tend to be overprescribed, in part because physicians sometimes find it easier to write a prescription because that's what the customer expects, rather than to give advice about how to deal with a common cold virus (against which antibiotics are useless). I realize that may be more a matter of trying to make the patient feel better because they can go home with something tangible, but I wonder how much of it has to do with unconscious assumptions about the role of the customer leaking over into our expectations as patients.

So while it may be true that free health care leads to certain inefficiencies, raising prices to lower demand may not be the best way to address those inefficiencies. In fact, it might well make them worse, by reinforcing the idea of the patient as customer. When you're a paying customer, you're more likely to demand "value for your money", and just being told to go home and rest for a couple of days doesn't seem like good value (even if it is sound professional advice for your condition).

I'm not sure what the solution is, but part of it at least might be for all of us potential patients to remember that a doctor is an expert to whose judgment we should have considerable deference, and if the advice is to go home and sleep it off, then that's probably what's best for us. It's also necessary for some doctors to be more aware that a major part of their role is to advise and educate patients about their health, not merely to provide treatment.

I understand that's especially challenging when you have a big caseload, and it takes a lot of time to explain to a patient why, for example, antibiotics are useless for viral infections. As a lawyer, I've felt myself subject to the same sort of pressures to do something more than simply advise, but to do something. Very often, though, the best legal advice I can give someone is to how to resolve a dispute amicably so as to avoid the need to involve a lawyer at all. It's good advice, and well worth the hourly fee to someone who needs it, but it doesn't seem like what you'd expect to pay a lawyer to do for you. Even so, one serves one's clients better by giving them what they actually need, rather than just what they expect. This is true of all professionals, and it's something that patients/clients should respect as well.


  1. Good grief.

    Yes, there are those that would take advantage.

    And, I'm so sorry for your health issues.

    Now, me . . . even though I think a great deal of my current doc [whom I can't see for lack of a car], if I never see another doc in my life, it'll be too soon.

    I have both cuff neurosis and white coat syndrome. Related, not identical.

    I'd rather be tortured than go to a doctor; though I've had to a couple times in the last two years [and been fortunate with who I got being sensitive.][Bleeding issues; one external one internal. Not like I had a choice except "dead."]

    I suppose as to supply/demand it all evens out as to the hypochondriacs and those like me who want as much as possible to adhere to "an apple a day keeps the doctor away."

    Whichever there are more of will help determine supply and demand.


  2. Yes, I've always had this issue with the economic supply-demand model. Just because I can't afford something doesn't mean that I don't want it! And isn't that what demand means? Of course modern economic theory doesn't account for things in that way. And I totally agree with you on this with health care. I feel that there are other things that should be this way, but aren't (eye care, dental care... and a certain level of legal "care", too). Maybe at least a couple of these will happen in my lifetime. But I also feel that the entire economic model that most of our world currently follows is antiquated and very bad. Bad, as in poor and too easy for those with power and evil intent (greed) to exploit).

    And I also agree that ALL professionals should give people what they need, rather than what the expect or want (because that may not be the best thing for them).

  3. Interesting you should mention legal care. For a long time I've been thinking about how one could structure a kind of legal care system along a public health care model. We have Legal Aid, of course, and lawyers are ethically obliged to provide some pro bono service, but we don't really have a system in place to ensure that everyone is entitled to proper representation, and often it's the middle class who suffer most, as they don't qualify for Legal Aid, but they don't earn enough to be able to afford what can quickly become very costly litigation.

    And however strong the practical arguments are for public health care, they are even stronger for public legal care, because the whole purpose of the State is to establish and secure the legal rights of its citizens. Where it gets tricky is in preserving an independent legal profession that is not beholden to the State or any other power. But I think a solution exists. I'm just not ready to compose a blog posting on it yet.