[ExI] USA Health Costs

Stathis Papaioannou stathisp at gmail.com
Tue Jun 2 14:06:04 UTC 2009

2009/6/2  <dan_ust at yahoo.com>:
> --- On Mon, 6/1/09, Stathis Papaioannou <stathisp at gmail.com> wrote:
>> 2009/6/1 BillK <pharos at gmail.com>:
>>> Good analysis here in the New Yorker magazine:
>>> http://www.newyorker.com/reporting/2009/06/01/090601fa_fact_gawande?currentPage=all
>> The article is about overservicing. Medical overservicing
>> is not only
>> expensive, it can also be dangerous. Free market medicine
>> encourages overservicing.
> How's that?  In this particular case, the article mentions "In 2006, Medicare spent fifteen thousand dollars per enrollee here, almost twice the national average. The income per capita is twelve thousand dollars. In other words, Medicare spends three thousand dollars more per person here than the average person earns."  Is Medicare a free market institution?

Medicare in the US still encourages doctors to overservice, since they
are paid per patient or per procedure. This stands in contrast to
salaried doctors, who have no incentive to overservice (if anything,
the opposite). In countries that have Medicare-like health schemes,
where the government insurer pays private practitioners, the idea is
to (a) make insurance universal and (b) make insurance and hence
health costs cheaper by reducing the administrative overheads,
increasing bargaining power eg. when dealing with drug companies, and
promoting preventive health measures in everyone rather than waiting
for for the uninsured to get sick enough to be treated in emergency

> Anyone grounded in economic theory would expect the price of subsidized whatever to rise -- as, regardless of supply, users of the whatever have their costs redistributed.*  This is, in fact, what we see.  The overservicing arises because people who use the services are not price sensitive anymore.  Were this their money, they might economize better.  (Or they might -- if they truly wanted to be overserviced.)

Doesn't this also apply to private health insurance, or any other type
of insurance? The insured pays their premiums then gets the service
"free", so is tempted to get as much out of it as possible. In
practice, this is stopped by the insurer only paying for medically
appropriate treatment, whether the insurer is privately or government

> In this particular case, what's happened is, I believe, the subsidized healthcare -- a government intervention -- is being "gamed" to use Bill's term.  The solution to the problem -- if one doesn't want to see overservicing -- is to remove the subsidy.  Some might still prefer higher levels of service (especially those accustomed to it now), but they will then bear the costs of this or, at best, only be able to spread those costs locally (to friends, family, their insurers, or charities wishing to oblige them).  The service providers, too, will either have to change or continue to "overservice" will invite competitors in.

I don't see why I'd be more tempted to "game" the government service
than a private service.

Stathis Papaioannou

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