The Health Care Mess: A Brief History

Do you regularly read the Marginal Revolution blog? If you care much about actual economics, and especially if you are a student of the same (either literally or figuratively), you would be wise to do so. This typically excellent post offers a brief review of a book called Money-Driven Medicine, by Maggie Mahar, whose argument Tyler Cowen summarizes thusly:

I interpret the basic story as this: the American health care cost spiral comes from suppliers and their entrepreneurial abilities to market expensive and highly specialized services of dubious medical efficacy. Medical care starts off as ambiguous in value and hard to measure in quality. Customers are cowed by doctors and other family members into accepting or even demanding what is offered to them. Third-party payments make the problem worse, and government intervention has stoked rather than checked the basic dynamic. You end up with massive expenses, lots of stupidity, and — because of its expense — radically incomplete coverage. Every now and then the extra services do pay off, but not frequently enough to boost American stats on health care quality.

Cowen calls the book “the most coherent, supportable, and fleshed out anti-market story I’ve seen,” while acknowledging that it does not dovetail precisely with his own view. (FWIW, here is another interesting and longer review of the same book.) Regardless, Cowen’s brief review is studded with points that we all recognize (“massive expenses, lots of stupidity, and — because of its expense — radically incomplete coverage,” e.g.), and which, to my mind, crystallizes what many, many smart people have been thinking about health care for the past 10 or 20 years. The comments are also very informative, including a long and thoughtful response from Maggie Mahar.


The thought that medical supply companies, insurance cos, for profit hospitals, and drug companies have managed to game America's health care system to realize enormous profits by using their considerable resources to effectively castrate and even co-opt the regulatory system without also providing workable and affordable health care is such abhorrently socialistic tripe that I for one cringe to think what other terroristic threats you liberals are lible to come up with next.


Private insurance in the US was bolstered as an employee benefit which provided income not taxed at onerous marginal rates of the 1950s and 60s.

In my youth, a dentist was a good tool and die maker level in society. Then dental "insurance" came into being in the 70s. Now dentists drive Porsches and their wives Lexus.


Dunno about you Americans, but the British system seems to be extremely efficient, and cheaper than the American system to boot!

Singapore's healthcare is twice as efficient as that, and 1/4 the price of American systems.

Tim Hardford also did mention about this slightly in his Undevocer Economist - the US healthcare system is driven by insurance (I was WTF??? when I read that, lol)

Maybe I should get Maggie's book to read :D


Free market zealots tend to forget the basic requirements of a functional market economy. To wit, rationality and information need to be available to the consumer.

Fact is, you're not rational when you worry about your health. And you don't always have a medical degree to be able to get all the information needed.

IMO a major problem is advertising. Advertising for health services and drugs should be completely banned (except possibly towards professionals), as it already is in most European countries, because by its very nature, it can only be misleading.


egretman's comment raises another problem with health care - you can't even have a discussion about problems and potential solutions, because if you do, you get labeled a sicko/pinko/communist/liberal. Sheesh.


While I have not read the book, I do have a thought which I have espoused many times. Our health care system is not market driven. Once we empower the insurance companies to make financial decisions, then we lose the advantages of a market based system.

In many ways, health care financing represents a "tragedy of the commons." Everyone wants everything (even if it does not make a difference). For example, how many unnecessary MRIs of the head do we do for benign headaches?

Could free markets solve the problem? Perhaps they could - but we will likely never know.


I wouldn't say there's something wrong with the free market system per se, it's just that we give it the wrong incentives.

Case in point: only 14% of the revenue Big Pharma gets goes into R & D, half of that gets wasted on looking for new (but not necessarily better) and therefore patentable treatments, and the remaining 7% that could be useful is spent only on potentially patentable treatments.

I think we should replace patent incentives with prize-based incentives, like the X-prize or the Methuselah Mouse prize. I've outlineda potential scheme in this blog post, but it probably needs some refining. Care to check it out and offer some suggestions?



One of the big problems I've noticed that butcher's patients credit ratings (for those that don't get regular credit reports and follow-up) is that during the process of health insurance company having arguments with the providers over what should be covered - that bill is unpaid and in the patient's name. Depending on how long it takes, the provider may enlist a collection agency to collect on the bill and report the late payment to an agency. An ER visit for my wife took two and half years to finally settle, I'm still cleaning up my credit report to this day with all the doctor, ER, hospital, and xray technicians.


The Treasury Department is not signing off on Medicade, which is the very foundation of our health care system. How is it that we all miss this point?


Here is a very indicative story from the near past:

Brazil is directly accusing large multinational pharmaceuticals to be holding developing nations hostages.

The thing is that they are holding hostages not only the developing nations.


If socialism is so bad, MR egretman, how come the CIA finds the health of cubans better than those of USians?

And don't get me started on the so-called "waiting lists" -- I'm French, and I've never heard, let alone experienced, those mythical "waiting lists", except of course on right wing US blogs. Something I've never heard of either is people going bankrupt because of cancer. Except, again, on US blogs.


egretman is being sarcastic.


At least I think he is...very well done if so.


I've noticed that many of the thoughtful comments on this and other blogs about America's healthcare system are from foreigners. And they are often confused by our system. So I want to address all you foregners out there. You Americans can stop reading NOW.

Ok, first, American free market capitalism is the biggest best β€œ-ism” left in the world today. It can be applied to anything. Take boats. In America, even the lowly college student can afford a canoe. And rich people of course are provided with yachts. And in America, there is a boat for everyone in between these two extremes. It's an amazing system!

Well, in America, the health care system is sort of like owning a boat. Let's call it boat-care. Rich people get yacht-care. College students get a very very good canoe-care because their parents are competing with all the other parents of Ivy league going students. Don't get me wrong, it's not yacht-care. You can't just go off to MD-Anderson for an instant and personal cancer diagnosis and personalized plan of action, but still it's pretty good for birth control pills and the clap. (And one eye-exam a year as a bonus, thrown in.)

Now this is where our boat analogy, as all analogies tend to do, begins to break down. Because some people, richer than college students but not qualifying for yacht-care are placed into different categories called groups. One such group is self-employed. They really don't qualify for any particular boat-care. They just have to dig around the used boat yards of the heath care system for anything. Usually they find a rather leaky but still floatable old dory without oars. A sort of dory-care that, get this, if used once they then have to pay for again at a higher rate. They don't really own their dory. It's just rented from the insurance companies. If they don't use the boat, then they get to keep it for another year. Think of it that way.

Lastly, if you are poorer than a college student, you are not allowed to own any type of boat-care.

Congratulations, you are now prepared to navigate the complex issues of the American healthcare system on blogs everywhere.



i'd like to know if you read (and what you vision about) the" Is Justin Timberlake a Product of Cumulative Advantage?" article that was on Times yesterday. thx.


yes agree with niczar, ban drug advertisement. our government should invest money in educating the mass, especially the poor whose health bills are picked up by tax payers, about healthy life style/habits. increase individual's out-of-pocket payments. should we have a national weight regulation? fine the obese. higher tax on fast food.


I agree with leDopore: almost everyone in the US Healthcare system is responding to bad incentives, whether it's parma patenting advances of limited potential rather than investigating non-patentable nutrients or low profit vaccines, or doctors tending to the therapies that give them the best return.

One factor that stands in the way of a solution is that Americans have been trained not to pay for healthcare. My wife works in a doctors office, and it's clear from her reports that doctors tend not to give and patients avoid getting care that is not covered by insurance, even if they can easily afford the cost.


living on Michigan Ontario border we have devolped quite a little trade business here , bus loads of American seniors come to Canada and go to to Casino and well they spend a few bucks can now get all their prescriptions filled for about 1/5 of what they would pay in the USA , course they gamble this money away so basically we end up with it all but they do have a chance to win some and if they do loose lots of drugs on bus ride home so they feel better .......please note l said bus - these aren't the boat people egretman was talking about {:}:}


Working in a hospital its interesting how many wealthy foreigners come to us for specialized care. Any one who believes health care is better in Cuba can have their appendix removed there. Finally, look around, many (read most) of the really impressive health care advances in the last fifty years were spawned here.

All those of you wanting your care in Europe (read France) will be lacking one thing-CHOICE.


wait a second alot of the best health care is in Mexico if you can afford it , so that arguement is poor and well USA thinks it has best doctors lots of european coutries miles ahead in research . not much l wouldn't want done in Germany if l could afford