

Milton Friedman: How to Cure Health Care (2001) - mhb
http://www.hoover.org/publications/digest/3459466.html

======
Empact
MSAs were expanded into HSAs in 2003. As of now there are some 8 million
enrollees.

IMO the most interesting effect of the spread of HSAs is the emergence of
clinics which forego the overhead of the insurance system altogether[1],
dealing with patients directly in a more value-conscious way. These clinics
tend to be both more available (longer appointments, weekend appointments) and
more flexible (phone, chat, email communications w/ the doctor). They also
tend to use technology to reduce overhead. Hello Health doesn't need any
support staff for their doctors, rather than the 4-5/doctor average, because
they use an online system for managing appointments, communications & billing.

I'm pretty excited about the spread of this system - in a month or two, Hello
Health will be opening up their web platform to doctors across the country,
which will enable them to more easily transition their practices and also
provide a facebook/amazon for medicine. They claim they've been contacted by
thousands of interested doctors.

If you're interested, take a look at HSA/HDHP plans
(<http://hsainsider.com/>), or if you're relying on your employer for care and
they don't provide an HSA option, it's worth bringing up, as the HSA option
can be much less expensive
([http://blog.jayparkinsonmd.com/post/70104332/high-
deductible...](http://blog.jayparkinsonmd.com/post/70104332/high-deductible-
health-insurance-saves-you-54-395-60)), so they should be amenable. Even if
you don't have a cash-friendly doctor in your area already, I predict most
will by the end of the year.

[1] e.g. Hello Health in Brooklyn (<http://hellohealth.com/>), Qliance in
Seattle (<http://qliance.com/>)

~~~
russell
I am going to argue with you sideways. :-) I dont think Hello Health is an
argument for HSA's so much as a streamlined reimbursement system with some
kind or reasonable accountability for costs. The current structure optimizes
for assembly line medicine rather than good patient care. Most people go with
factory doctors, because of the small co-pay. You can go to a doctor outside
your plan, but you typically get only 50% reimbursement. My doctor costs me
$100 out of pocket instead of $25, but she is worth it because I get a one-
hour appointment instead of 15 minutes.

On to Milton Friedman. He makes a very good case for single payer health
insurance (11% of GDP vs 17%) and then comes to the opposite conclusion. He is
drinking the perfect market koolaid. He assumes that, if people have to pay
their own money, they are going to make rational economic decisions about
health care purchases and will shop around for the best price. This is such
utter crap that it is hard to believe that an open minded economist would
utter it. Health purchases are not rationally economic. They are made on other
considerations like trust in the doctor and increasingly on patient
evaluations of treatment options. If you have a kid with a high fever, you
dont start googling for the best price.

A part of the conservative economic fantasy is that consumers have negotiating
power in the market. Yes, I by drugs at Costco because they are cheaper, but
that is because Costco has negotiating advantage, not me. A single payer would
have a huge advantage in negotiating drug prices. There is a reason that drug
prices in the US are the highest in the world.

Health care reform in the US is hugely complicated and a simplistic approach
is not going to cut it, even a single payer system isnt enough. Drug costs
need to be cut. Defensive medicine needs to be brought in line. (Practice to
the patients needs not the doctors.) On and on. Hello Health looks to be a
good start in the microcosm.

~~~
jacoblyles
You don't think people respond to prices? Consumers are not perfectly
rational, but that's a bit of a straw man argument. On average, in the
aggregate, they do respond to incentives. On average, in the aggregate, a
first-party consumer payer is more likely to be price sensitive than a
consumer purchasing medical care by way of a third-party employer health plan.
The fact that most consumers don't fit some perfect model doesn't seem
particularly relevant.

Finally you say:

"Health purchases are not rationally economic. They are made on other
considerations like trust in the doctor and increasingly on patient
evaluations of treatment options."

Purchasing based on quality is not "rationally economic"? Have you studied any
economics at all? That's just ignorant. You don't know the meaning of the
words you are using.

This is why I stopped arguing with people on the internet.

Edit: Yes, this is a little mean and not within the style guidelines of Hacker
News, but you will have to excuse me if I am not impressed by yet another
person "disproving" the entire discipline of economics with the pseudo-
intellectual observation that people make decisions on considerations other
than price, as if that fact had been overlooked by every economist for the
last three centuries.

~~~
mellis
Health insurance is a difficult thing to price. Do you know the probabilities
that you will need treatment for any particular condition? Can judge how much
more you should pay for a policy with a million dollar limit on total
reimbursement than one with a $500,000 limit? Unlike most goods, we don't get
lots of chances to evaluate the quality of the product and then switch
providers if we're not satisfied. Once you realize your health insurance isn't
good enough, you're probably already in trouble. There are a lot of factors
required to ensure the proper performance of a free market, and health
insurance fails to satisfy many of them.

~~~
mhb
You don't know any of these things for car insurance either. That's what
Consumer Reports and their ilk are for.

~~~
mellis
Car insurance is simpler than health insurance. There are fewer types of
covered conditions, and it's easier to make direct comparisons. Health
conditions are more numerous and vary more depending on the individual in
question. It's also easier for car insurance companies to make predictions
about the expected costs for a customer. People buying health insurance
individually face increased costs because of an assumption that those seeking
coverage are more likely to need it. In general, this is an area in which the
conditions required for an efficient free market do not exist. And, this is
one reason why, as Friedman notes, those countries with universal single payer
systems spend less than the United States, which is closer to a market system
(however imperfectly).

For more information, see, for example:
[http://www.americanprogressaction.org/issues/2009/03/adminis...](http://www.americanprogressaction.org/issues/2009/03/administrative_costs.html)

~~~
mhb
I find it hard to believe that the government can make a decision that is
better on any metric than the consumer whom it directly affects.

There is a fundamental problem with medical insurance though. Insurance only
works because of uncertainty about the future. As information about
individuals' medical conditions becomes more detailed, this uncertainty is
reduced. For that reason, it seems like, ultimately, this has to lead to the
distasteful prospect of some kind of universal insurance that people acquire
at birth. As knowledge increases, every condition becomes a preexisting one.
(Except for injuries due to accidents)

------
KaiP
This article is a pretty clear demonstration of what I dislike about popular
economics (liberal and conservative) compared to hard science. Conclusions are
drawn up based on ideological assumptions, then evidence is gathered, then
public policy is changed. In any given case, several explanations are
possible, but rarely is empirical testing done to prove that one is more
feasible than the other. Instead they coexist as equals, gaining support based
on random political futures. Perhaps this is a fundamental weakness in
economics and cannot be overcome, but it seems to me that not enough pressure
is being put on the field to make the ideas fully testable. As a engineer and
numbers guy, I want to see my tax dollars spent (or not spent) only on ideas
that have been rigorously examined and tested to be the most productive for
society.

~~~
astine
Fair enough, but how would you rigorously test economic principles without
ruining the lives of millions?

~~~
limmeau
I see some possibilities to test hypotheses like "$MEASURE will achieve $GOAL"

a) Gather historical data where $MEASURE was attempted and see whether $GOAL
was reached. This can give results like "$MEASURE is positively correlated
with achieving $GOAL".

b) Test it on a smaller scale. Instead of reforming the entire health-care
system, search for something small but similar to reform.

c) simulate. Build a simulation of economic subjects and, before simulating
the Friedman health-care reform, test it on past scenarios whose outcome is
known.

~~~
amalcon
These usually just result in people picking holes in the
dataset/experiment/simulation -- and rightly so; circumstances change too
quickly for historical data to be much use, simulations necessarily have some
severe assumptions, and small-scale tests don't simulate macroeconomic effects
very well.

This is the reason that I've long classified macroeconomics in with religion:
they're both very influential ideas, but neither are really based on any
evidence.

~~~
limmeau
Hmm yes... fairly quickly, one runs out of large rich countries at the
beginnings of twenty-first centuries to draw parallels from.

I liked A Mind Forever Voyaging, though, which is about an attempt to do c)
properly.

------
davidw
I'll be the sacrificial lamb and remind people that if we start posting this
sort of article, there will be a whole lot more like it, from reason.com,
Krugman, Thoma, Cowen, and so on and so forth. They may be interesting and
stimulating, but because of their ability to stimulate heated debate, they
_will_ eventually crowd out other things unless they are controlled.

I mean specifically articles about politics/economics, things which people
hold strong opinions about, and are of interest to pretty much everyone.

------
narag
Yes, bureaucracy is a terrible thing. But universal health care paid by
employer and administered by the state is a proven and mature technology. In a
lot of countries it works without much noise. And health care and basic
education free for everybody is something I absolutely want.

People with low income are still motivated to work for food, clothes or a
home. Threatening them with illness or death is not a more effective
incentive, and has the colateral effect of upsetting people. and lowering
general health conditions that could cause epidemies.

~~~
sarvesh
The fact that it works in many other countries doesn't mean it will in the
United States. Agreed that it successful in many other countries like Canada,
UK and France but if you look closer there are a lot of factors that will work
against universal health care being successful in the United States. To see if
this will work you also need to look at failures. Take India for example
government health care in India is awful for the obvious reason, population.

United States population is growing at almost the same rate as India. We also
have a new immigrant population every year. We also have the most expensive
form of health care thanks to the system that rewards bad doctors. Given this
if one were to start universal health care for everybody it would just mean a
lot more taxes for all of us. Which is fine with me if I knew that it would
work but these issues that I stated above cannot be solved by throwing in more
money. There need to be a change in attitude of health care providers towards
the business. It might be rewarding them for now but in the long run it is
self destructive.

HSA like the earlier comment made on the thread is step in the right direction
but it is mostly optimal for younger people. Also even in places like India
people have come up with novel ways to solve this problem
(<http://iaimtomisbehave.org/2009/06/04/healthcare-doctors/>). There are
alternatives out there we should consider before taking this big step towards
universal health care.

~~~
philwelch
"United States population is growing at almost the same rate as India. We also
have a new immigrant population every year."

There's no "also" to it. Reproduction of those already inside the US is below
replacement rates. Immigration is our only source of population growth.

------
iamelgringo
Mr. Freidman discounts a little too quickly the incredible changes and
advances in technology in the past 60 years. If you consider per capita
technology spending in the last 60 years, I suspect there might be a suprising
correlation to health care spending.

In 1946, oxygen administration was considered "advanced". Penicillin and sulfa
antibiotics were just begining regular use in World War II. Before that people
died from infections like pneumonia very frequently. Diseases like polio,
smallpox, measles, tetanus, mumps, were devastating and crippling diseases. We
rarely see those any more. Advances in microbioligy and pharmacology have
greatly reduced morbidity and mortality. It's harder than it used to be to die
from an infectuous disease in a country with modern healthcare.

But, people in the US now have a cultural expectation that medicine can
dramatically fix or cure a lot of diseases, like we did with microbial
diseases. But, the diseases that we are left with tend to be chronic and a lot
harder to cure: heart disease, diabetes, cancer. Low hanging fruit are easiest
to pick.

15 years ago, when I started my nursing career the state of the art in
emergency heart attack treatment was a $1000 single dose of a clot busting
medication. 1 out of 20 people bled to death from that cure. So, $300,000
emergency heart catheterization and angioplasty was developed to limit the 5%
mortality rate.

One of the big focuses in the US medicine is technological innovation and
critical care, because that's what our insurance pays for. The focus in many
other developed nations is primary care, prevention and cost effective
treatments.

Also, other areas of technological innovation benefit from exponential
decrease in costs because of Moore's law. Medical and biological technology
have the inherit limitation of the human body. That's going to influence cost
structures dramatically in comparison to other technologies.

------
mellis
I don't get it. Friedman points out that while the U.S. government spends less
on health care than almost any other OECD country, the country as a whole
spends much more. And yet his solution is less government spending on health
care? He points out a number of factors which allow a single-payer system to
control costs, and yet argues against it. The conclusions don't follow from
the facts.

------
dboyd
"Spending on medical care provides a reasonably good measure of input, but,
unfortunately, there is no remotely satisfactory objective measure of output."

Seriously? An economist, of all people, is trying to convince me that we can't
estimate the effectiveness of a health care system? At the same time he thinks
he can estimate the effectiveness of a theoretical economic model for paying
for a health care system? I call B.S.

His comment about Physicians earning much less in Canada than in the U.S. is
also disingenuous. Canadian doctors spend the vast majority of their 40-hour
workweek being doctors. In the U.S. doctors have to deal with both patients
and insurance companies equally, raising the time they spend working and
lowering the overall efficiency of providing care.

Besides, lawyers also make much less in Canada than in the U.S., as do senior
executives. Is this also because of the health care system?

I like his thesis. I find it elegant and simple. It's too bad that any time he
approached presenting a real fact in the article he did so dishonestly.

------
asdlfj2sd33
I can't take any analysis of the American health care system seriously when it
makes no mention of tort reform.

Compare litigation awards in the US and the rest of the world, or just Canda,
and you'll see a huge difference.

This leads to much, much higher health care costs, and the practice of
defensive medicine, and most perversely HMOs which can not be sued for denial
of care.

That by the way is the only way HMOs can exists at all, by being put entirely
out of the legal system.

I am not suggesting that tort reform is the ONLY way to fix health care in
America, but it should at least be part of any discussion on the topic.

~~~
moss
Some initial Googling finds one article putting malpractice claims at about
half a percent of the total cost of health care in the U.S. ("The cost of
defending U.S. malpractice claims is estimated at $6.5 billion in 2001, only
0.46 percent of total health spending." [1]). On the face of it, that doesn't
sound like a place to look for serious improvements. Is there something non-
obvious that makes it more significant than it sounds?

[1] <http://content.healthaffairs.org/cgi/content/full/24/4/903>

~~~
byrneseyeview
Risk preference? Individual doctors are exposed to a risk of many times their
annual salary if something goes wrong and a patient gets a lawyer. If they
have the choice between an operation costing $X with a 10% chance of failure,
and one costing 50*$X with a 1% chance of failure, they may choose the latter
so they don't need to worry so much about getting sued.

------
pradocchia
He comes out on the side of Medical Savings Accounts (MSAs) as a political
expedient alternative to the elimination of Medicare, Medicaid, and the repeal
of tax exemptions for employer-provided health care.

I can't see how this would help control costs. Sure, it might reduce the
individual cost of healthcare (pre-tax vs post-tax), but in aggregate the
supply of available funds would increase (at general tax-payer expense) and
push the demand curve out, raising prices overall. What happens to supply in
all this?

~~~
Radix
One place a savings might be found is in reduction of tests done just to
protect the physician from liability.

Also, the cost of keeping up medical billing companies is high enough that
there might be a good savings if the local clinics and doctor offices didn't
have to run all the paperwork for every checkup and infection.

------
fcox
Milton Friedman scares me almost as much as this article. Friedman's ideas
have failed the proof is 60% of the shares of GM is in the hands of US
Government, and a mega zillion tax dollars spent in buying the banking system,
all for the lack of regulation. Free markets degenerate into speculative short
sighted machines of stealing dollars. It's time to find the sweet spot between
free market and communism. And the US will either do that or lose relevance
once and for all

~~~
CWuestefeld
This stands in stark contrast to the political alternative. In our democracy,
politicians are committed public servants who universally put the long-range
well-being of the republic ahead of their own political interest. In this way
we benefit from their wisdom, shown time and again to be superior to that of
conventional public opinion, having carefully weighed and integrated the best
ideas from leaders in every field.

</sarcasm>

Seriously, do you think that the US today is a free market? I challenge you to
show me one area of endeavor that's not subject to government regulation.

The history of health insurance is completely dependent on government
meddling. In the past, people were not dependent on their employers or any
public assistance for healthcare. It was generally funded by the patients
themselves, with help from mutual-aid organizations like churches and unions.

It was FDR's socialist wage freezes that forced companies to find other ways
to compete for the most talented employees (the market always finds a way,
despite government interference[1]). The way the income tax worked, offering
healthcare benefits was advantageous. Thus, the government warped the existing
market and changed the expectations of people. Now employees gripe that
employees are greedy by not paying more and more for medical coverage -- but
their offering any coverage at all is a very recent development.

[1] This is pretty much always true. Why do people drive gas-sucking SUVs
today? Because CAFE regulations in the '70s killed the family station wagon,
but exempted cars. People want big vehicles, and found a way around the
regulations. And the work-around was worse than what we had initially.

~~~
michael_dorfman
_Why do people drive gas-sucking SUVs today? Because CAFE regulations in the
'70s killed the family station wagon, but exempted cars. People want big
vehicles, and found a way around the regulations. And the work-around was
worse than what we had initially._

In that case, the problem is that the CAFE regulations weren't broad enough--
not that someone tried to regulate the market. "Government meddling" is
necessary, and desirable.

~~~
grandalf
see my comment on government subsidy of oil and burb living, which is a sister
to yours.

------
marshallp
What everyone seems to miss in this is that maybe healthcare shoudl be an
increasing percentage of spending. If your basics like food and entertainment
are getting cheaper, spending on your health is a good investment (other than
simply saving - which you want to eventually spend somewhere anyway before you
die).

Would you pay all your life savings to live another five years? most people
would.

Or put another way, would you work 20 and give 99 percent of earnings after
tax/food/basic living to live another 5 or 10 years? at age 20 you might say
no, but on yor deathbed you sure wish you had.

According to this scenario then, a government funded system would be better (a
20 year old would make poor choices thinking death is far away), but should in
fact be increasing spending to far higher levels, maybe 50 percent or 80
percent of budget so that we can extend healthy lifespans

~~~
pradocchia
> Would you pay all your life savings to live another five years? most people
> would.

Some would rather pass it on to their children, you know.

Besides, why should we be so scared of death?

~~~
randallsquared
> Besides, why should we be so scared of death?

Avoiding death is the one goal that's clearly built in. Why should we want to
change it?

~~~
pradocchia
If you're 25, sure, but 80? When the choice is between spending down a
lifetime's accumulation of resources, or handing said resources off to the
next generation? I think evolution would have favored the latter.

~~~
marshallp
Most retirees don't have much in the way of savings anyway, and their adult
children tend to earn their own way through life. It's not necessary to "pass
on your lands" as is done less industrialized countries. (Warren Buffet
intends to give almost none of his wealth to his children).

The question could also be rephrased as would you move from your 2000 dollar
mortgage home to a 1000 dollar rent apartment if it meant you live 5 or 10
more healthy years, much of consumer spending is on housing.

