Beware Double-Standards

Consider a health policy issue like child car seats in the U.S., mosquito netting in the third world, preschool education for poor children, or the immunization of immigrants. Imagine that for this issue there were many good studies over several decades, including some recent studies. Imagine that after controlling for many factors, these studies usually found that variations in spending or usage were significantly, substantially, and positively related to variations in health. Furthermore, imagine this result was confirmed by a thirty year old randomized experiment.

In this situation I predict most health policy experts would clearly and publicly say that we should act now to promote, e.g., child car seats or mosquito netting, via crude policies like subsidies or mandates. Such experts would not say we should wait for more studies to examine other possible explanations, or to better identify more when, e.g., child car seats or mosquito netting are the most useful, to better target policy.

But when many good studies over decades, and a thirty year old randomized experiment, show little or no relation between aggregate variations in health and medical spending, we see a different reaction. None of the diverse health policy experts commenting here or on other blogs will accept my challenge to say clearly to the public “simple crude cuts, such as price increases or spending caps, would produce little or no net health harm.” None will even join my call to redo the thirty year old RAND experiment again today. Instead, they say we should wait to clarify the health-medicine relation, and focus instead on better policies to distinguish helpful from harmful medicine.

When asked what reasons they have for doubting that existing aggregate studies suggest crude medical cuts will not hurt health, the three commentators here at Cato Unbound do not point to the same reasons. At first none of them will even consider simple crude cuts, but when pushed David Cutler suggests aggregate studies are missing important controls (which he does not identify). Alan Garber dismisses simple cuts as politically infeasible, but does seem willing to endorse lower tax-based subsidies. Dana Goldman first points to “the existence of identifiable treatments with positive benefits, which are cut when spending is cut.” Instead of responding to questions about this, he switches to suggesting high spending region doctors have invested more in learning expensive treatments, and when questioned about this he switches to unmeasured differing preferences; “Maybe people in Miami prefer surgery, and people in Minnesota prefer medical management.”

If aggregate studies had suggested medical spending helps health a lot, I can’t imagine health policy experts being nearly as reluctant to endorse simple crude spending increases. This seems a double-standard.

Also from this issue

Lead Essay

  • 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

  • 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.”

  • Robin Hanson is half right, says Dana Goldman, the RAND Chair of Health Economics and Founding Director of RAND’s Bing Center for Health Economics. Medicine can only do so much, and most recent increases in longevity are the effect of healthier habits and living conditions, Goldman says. However, Goldman notes, the RAND Health Insurance Experiment, which Hanson leans on, is more than thirty years old, and many new therapies have emerged since then. In particular, new drugs have been shown to have a large impact on health. Patients required to pay for more of their care often cut out what they neeed, not what they don’t. Improved living conditions may do more for future health than more medicine, Goldman suspects. “But it may also turn out society should be spending more, not less, on medical care — just doing so in a more prudent manner.”

  • 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.