Half Right

Robin Hanson wants to cut the medical baby in half — an ironic twist given that he is half right.

He is certainly correct that the role of medicine has been overstated. Health care can only do so much to improve population health. Much of the dramatic mortality improvements over the last century can be attributed to changes outside of the medical system: better nutrition, improved sanitation, reduced smoking (at least over the last half century), and other public health improvements are but a few examples.

Diseases like hypertension, cancer, and diabetes explain much of a person’s longevity and quality of life, and medicine can do little to prevent them. Onset is mainly linked to genes, socioeconomic status, environment, viral exposure, and perhaps most importantly, health-related behaviors. The rest is random luck.

He is also correct that the strongest evidence comes from the RAND Health Insurance Experiment (HIE). The HIE randomized families to health insurance plans of varying generosity. One of the main findings of this experiment was that families in the least generous plan (95 percent coinsurance) spent nearly 30 percent less on medical care with little or no difference in health. Although there was not compelling evidence that higher cost-sharing led to worse health outcomes, low-income participants who were in poor health appeared to be more vulnerable to adverse outcomes. For example, poor people with high blood pressure had slightly higher mortality rates if they had higher cost-sharing. While Robin Hanson rightly questions the statistical criteria in this study, the relationship between insurance and outcomes has been corroborated in other settings — for example, when Medi-Cal suddenly and unexpectedly removed eligibility for certain hypertensive patients, and their blood pressure control worsened.

However — and where Robin Hanson goes astray — is that once someone has a disease, the health care system now offers valuable therapeutic choices. The HIE is more than three decades old, and in that time period many new therapies have emerged. Drugs in particular can be very effective when used properly. For patients with HIV, congestive heart failure, high cholesterol, diabetes, and schizophrenia, evidence is emerging that drugs are providing long-term health benefits. One study found that HIV drugs alone have generated more than one trillion dollars in value. In fact, better treatment and drugs are responsible for approximately half the decline in U.S. deaths from coronary heart disease from 1980 to 2000.

There is a lot of waste in the system, as the evidence cited by Hanson and others makes clear. But how do we eliminate it? Asking people to spend more out-of-pocket clearly isn’t enough. The HIE found that participants in the high cost-sharing group were as likely to reduce “appropriate” as “inappropriate” care, as defined by groups of medical experts. The reality is that there is enormous variability in the benefits that different patients receive from treatment, and hence much of the medical care we buy gets wasted. So, while on average, care is worth it, the marginal dollar may not buy much. There is both overtreatment and undertreatment at the same time. The lesson, then, is that we should be spending a lot less in some areas, but also spending a lot more elsewhere.

I agree with Robin Hanson’s view that the health policy debate is preoccupied with the wrong issues — for example, covering the uninsured. The real challenge for society is deciding how we can best buy better health, not just health care. In fact, I suspect that early child development, education, clean air, and medical research may offer better returns than health insurance and more medical services. But it may also turn out society should be spending more, not less, on medical care — just doing so in a more prudent manner.

Dana Goldman is the RAND Chair in Health Economics and the Founding Director of the Bing Center for Health Economics at RAND.

Also from This Issue

Lead Essay

  • Cut Medicine in Half by Robin Hanson

    In this month’s lead essay, the iconoclastic George Mason economist Robin Hanson argues that “our main problem in health policy is a huge overemphasis on medicine.” Hanson points to a spate of studies – especially the huge RAND health insurance experiment – to show that “in the aggregate, variations in medical spending usually show no statistically significant medical effect on health.” Hanson lays down the gauntlet and “dares” other health policy experts to publicly agree or disagree with this seemingly well-confirmed claim and its implications for policy. For Hanson, those implications are clear: “Cutting half of medical spending would seem to cost little in health, and yet would free up vast resources for other health and utility gains.”

Response Essays

  • Use a Scalpel, Not a Meat Cleaver by David M. Cutler

    Harvard’s David M. Cutler agrees with Robin Hanson’s claim that “a lot of medical spending doesn’t add much value.” However, he is “surprised by Hanson’s argument that this hasn’t been much noted,” pointing to major media coverage of this point and to his own work. According to Cutler, Hanson’s argument is “too simplistic,” suggesting that people in 1975 were better off with half today’s average medical spending. New technologies are both very successful and very expensive, and Cutler argues this extra cost is worth it. Citing research that demand-side approaches to cutting wasteful spending, such as raising consumer prices, are ineffective, Cutler plumps for a supply-side approach: “invest in information technology, monitor what physicians do, and pay providers more for better care than for less good care.”

  • Watch Where You Cut by Alan Garber

    According to Alan Garber, the Henry J. Kaiser, Jr. Professor at Stanford, “Hanson’s diagnosis … is not particularly controversial. His solution is.” Efforts to trim excess medical spending must confront the highly variable benefits of certain medical treatments. Garber argues that Hanson’s eagerness to implement cuts, largely regardless of the details, risks cutting high-value treatments along with lower-value ones. According to Garber, what we need, first, is more and better information about the value of particular interventions. Second, we need incentives not to guide people away from overconsumption generally, but to guide them away from low-value care. Third, we need to increase the sensitivity of consumers to the costs of their health care by exposing them more to prices. Improved information and education, Garber says, will help consumers choose wisely.