Russ Roberts

Henry Aaron on Health Care Costs

EconTalk Episode with Henry Aaron
Hosted by Russ Roberts
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In this bonus middle-of-the-week podcast, Henry Aaron of the Brookings Institution talks with EconTalk host Russ Roberts about health care costs. Researchers in a New England Journal of Medicine article have estimated that the US could save $209 billion if the US went to a single-payer system like Canada. Is this number reliable? Aaron takes a deeper look at the estimate and discusses the relevance of such estimates for health care policy.

This is a special mid-week podcast. It's a follow-up to an earlier podcast with Arnold Kling that raised the issue of administrative costs and potential savings from going to a single-payer system. It also ties in with recent discussions here at EconTalk about the challenges of accurate measurement in the social sciences. We hope you enjoy it. If not, come back Monday when our regular schedule resumes.

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COMMENTS (9 to date)
Michael writes:

I'm a hospital administrator in Canada, though I take a very dim view of the social-insurance model. I remember sitting in the staff room reading the NEJM article in 2005 when a doctor (an American) came in, read the title over my shoulder, and immediately began crowing about the superiority of the Canadian system. Soon others joined in with her, until I started pointing out some of the same flaws that Prof. Aaron indicates. Most Americans (and Canadians) don't know that competition between American health insurers is severely limited by interstate trade laws, that labor supply is articially constrained by professional regulation (and in other countries, but that doesn't matter), that principal-agent/public-choice conflicts incentivize adminsitrators and politicians to overspend on technologies that drive costs at a rate far beyond productivity growth in healthcare, and on and on.

Most people also do not recognize that there are some very good things about those parts of US healthcare that are truly competitive. This includes--and let this be settled once and for all, please--the fact that Americans actually pay less for medication, because the higher price of their patented medications is easily offset by the very low cost of their generic medications, which are produced by a highly competitive and efficient industry.

The obsession with payer identity (apparently a trichotomy between state, insurer, or me) is also a great way to ignore the more costly and politically entrenched issue of professional regulation. Robyn Dawes, a former president of the American Psychological Association and accomplished researcher, published an excellent work called House of Cards, in which he debunks the relevance of professional regulation on healthcare quality. Is it possible under government-sanctioned monopoly regulations to err multiple times and still practice? Amazingly, yes. Is it possible that most of us just need the services of professionals who are average rather than Cadillacs, and that we would also be better off paying Prius prices rather than Cadillacs-for-all prices? Painful and humbling, but yes. There are dozens of other studies out there to prove the same point.

As for the willingness of the "average" taxpayer to part with more income in exchange for the promise of a universally accessible system of care, I think that says more about the auction value of political rhetoric than the taxpayer's perception and measurement of value-for-money. What a wonderful way to make informational asymmetry even worse.

Michael writes:

P.S. That was the last time anyone at the hospital ever asked me for my political opinions.

Unit writes:

Small example: Women in the US choose their OB very carefully, they sometime interview several of them until they find the right one. Then they plan their pregnancy and delivery-strategy with the doctor they have chosen. In some European countries, women don't have a choice, they have to show up at the hospital for the various routine check-ups and they are seen by the doctor on-call whoever that is, same goes the day of the delivery. Sure you could say that the second method saves money. But cost shouldn't be measured in dollars only.

paul roman writes:

I guess that looking at executive salaries
http://www.harp.org/hmoexecs.htm
Advertising costs, 1.3 billion DTC pharma.
profits to shareholders is where I would start looking before blaming the consumer for the problem.

John Alcorn writes:

Prof. Roberts, You asked for feedback about the bonus, mid-week podcast to follow up in more depth a particular issue. Your talk with Henry Aaron was a helpful supplement to the previous discussion with Arnold Kling. High caliber scholars, constructive conversations. Today's talk branched out usefully frrom the issue of administrative costs. I would have liked to see you dig deeper about what Henry Aaron callls cost-sharing. (I'm thinking of Arnold Kling's point that insurance against catastrophes has morphed into insulation from routine costs.) Your podcasts are very helpful to non-economists like me who want to understand policy issues. Thanks!

Floccina writes:

If we get only 55 percent of the care that we should and yet when you remove accident and homicide deaths we live longer than they do in other rich countries, you have to ask how much care do they get? Of course maybe it is not that, maybe we live longer because we are fatter than they are.

What great ironic data has been coming out lately. It seems we do not know much about this subject. I am loving it.

Hey pass that twinky over here.

Floccina writes:

Some insurance company should offer insurance where an attempt is made to equalize the payments over a life time. The insured’s early payments would go half to insurance and half to the annuity. The deducible on the insurance part would rise over time with the value of annuity keeping the premium down. The annuity money would be used by the insured at his discretion to cover his own medical expenses up to the deductable causing him to economize. The insured would get the annuity in cash when he becomes eligible for Medicare.

Also I think that more self care should be allowed and encouraged. All of those "see you doctor before you do anything" messages IMO tends to scare people from acting on their own. Some pre-scription drugs should be dispensed to anyone how passes a little test.

trumpetbob15 writes:

A great podcast and I enjoyed the extra information. I have one question however. It seemed to me that the study's authors were saying that by having government provided insurance forms, nurses and other hospital staff would have an easier time filling them out. However, being an accounting graduate student, I can't help but compare this idea with the current situation with our income tax forms. Sure, they all come from the government, but what is to say that we won't have a scenario where hospital staff would use a 1040-style form for this type of patient while this other patient type is eligible to use the 1040EZ-style? I guess I am just skeptical that everyone could use the exact same form without some sort of rent-seeking shenanigans creating ever more confusing alterations and form types, even though they are still all government based insurance forms.

drtaxsacto writes:

Russ-

This was a wonderful addition. Keep these kind of supplemental sessions coming. One would wish that Members of Congress would listen to both the Kling and this session.

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