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Home Publications Blogs Beat the Press Ross Douthat: Conservative Who's Scared of a Free Market in Health Care

Ross Douthat: Conservative Who's Scared of a Free Market in Health Care

Sunday, 27 October 2013 01:08

It's always fun to see conservatives arguing for the preservation of big government, especially when they don't even seem to understand this as their position. Ross Douthat gave us a great example of such an argument as he warned that squeezing costs in the U.S. health care system might not just damage the quality of the U.S. health care system, but the quality of health care worldwide.

The story is that without government guaranteed patent monopolies, drug companies and medical device companies would not do all the wonderful research they are now doing into developing better drugs and devices. Of course granting these companies monopolies is a form of big government. That doesn't get changed just because people like Douthat like the beneficiaries or think the purpose is good.

If the government allows drug companies to pull in an extra $300 billion a year (@1.8 percent of GDP), by threatening to arrest anyone who competes with them, it is pretty much the same thing as if the government were to raise taxes by $300 billion and hand it to the drug companies. The biggest difference is that in the latter case there would be more public control over what happened to their tax dollars.

There are other more efficient and more market oriented mechanisms for financing drug research. It is striking that people like Douthat seem unable to even conceive of alternatives to a grotesquely inefficient and corrupt system. (Ask any economist what they would expect to see if we had a tariff of 2000 percent in a market. That's the story with prescription drugs.) 

Of course we also could have enormous savings from freer immigration for doctors bringing their wages in line with doctors in other countries. That would come to around $1 trillion (@$7,000 per household) over the next decade. But again, conservatives seem to have little interest in the free market. Perhaps they have too many friends and family members who are doctors.  



I have a few quick thoughts in response to comments below.

Yes, around 25 percent of our doctors were trained abroad, and the point is what? If 25 percent of our shirts were manufactured overseas, this would be evidence of huge protectionist barriers. That is the story with doctors as well.

We're supposed to believe that more doctors won't lower their wages. Really? So if we double the number of doctors in the country we would double what we pay for doctors? Sorry, I don't think the world works that way and the doctors' lobbies that fight for protection agree with me.

No, excessive pay for doctors is not the only source of waste in health care, but $1 trillion over the course of a decade (@ 2.5 percent of federal spending) is real money no matter how you slice it.

Could we bring down doctors' pay by other mechanisms? Sure, but none of those seem very likely right now and this one has the beauty (to me) that we can make conservatives argue against the market and free trade. Perhaps there is some huge force for radical change that I haven't seen, but until that force shows up, I can see few better options than to show that the professed advocates of free markets and free trade are harsh opponents of freedom when it might hurt the income of their friends.

We must recognize that the only ideology these people support is that the ideology that the wealthy should have more money.

Comments (16)Add Comment
I Prefer Many More American Doctors
written by jerseycityjoan, October 27, 2013 3:40
I looked it up recently and evidently, much to my surprise, 25% of our doctors are from other countries. That doesn't seem to have lowered any costs so far.

As I mentioned in a prior comment, I am much more interested in getting more Americans into more medical schools. We have been criminally lax in producing a sufficient number of doctors to keep up with population growth. Now that many of the Army of the Uninsured will transfer -- at last -- over to the Army of the Insured, we will need more doctors than ever.

I would far rather have the federal government pay for the creation of new medical schools, new residency programs and the education of new primary care doctors -- and heavily subsidize the education of the higher paid specialties too -- than poach foreign doctors from other countries.

I'd like to make a deal with future doctors that for a better quality of life -- minimal debt, less financial pressure and fewer hours -- we are going to change compensation. I would think the lowest paid primary care doctors would even come out ahead.

I think the idea that every generation of Americans will bring in most of their doctors from overseas is just undesirable and unsustainable. And I think the overseas doctors, once they get here and transition from temporary visa holders to green card holders, will have the power to refuse to accept to go along with any program they don't like. What would we do if 75% of our doctors were from overseas and they went on strike?

More doctors; more costs.
written by anon, October 27, 2013 7:24
You keep suggesting that having more doctors would lower the cost of health care, but studies have shown that, in the United States, the more doctors a region has the higher its health care costs (without no improvement in results). Without effective competition, having more doctors would not help.
OT - Side effects of High Unemployment - Bruni's Column
written by A Populist, October 27, 2013 7:38
Bruni is upset that in Italy, people hire and do business, based on personal allegiances, and apparently thinks they should be implored to stop.

I have long been of the opinion that high unemployment and lack of demand, corrupt a society in many ways - including this one.


Re: (Bruni writes) "...Italy’s current way of doing business [...] based on personal allegiances, debts owed and time served instead of merit."

Of course. In an environment where jobs are extremely scarce, this is exactly what should be expected.

In the US in the 1950's and 1960's, there were extended periods in many locations, where jobs were so plentiful, a worker could leave at any time, secure in the knowledge that another job could be found easily. Similarly, a boss needed not worry about letting go of a poor performing worker (even a friend or relative), as that person could naturally be expected to get another job capable of supporting a family, keeping up with house payments, etc.

Too little attention has been paid to the less obvious benefits that the US economy had during the period 1950 thru 1980, due to higher minimum wages, unions, and the resulting consumer-driven demand.

A scarcity of jobs due to lack of demand, corrupts a society in many ways.

Simply preaching to people to fire poor performing workers, is easy to do. But it is unrealistic to expect people to ignore allegiances, when doing so will lead to personal and family economic ruin."

I think much more could be made of the corrosive effects of high unemployment, low wages, and low demand.

For example, when the risk is very high that another job may not be forthcoming, worker mobility will decrease. Also, politicians like to talk about small businesses, but act as if these will spontaneously appear from thin air - In reality, the high minimum and typical wages of 1950 - 1970 allowed those among us who started with nothing (but have the ability and drive to start small businesses) to quickly amass capital, and start a business. Now, many of those people have no hope of doing so.

High Unemployment and lack of Demand are causing long term damage to our society.
Interesting where he wants to put the money
written by Jennifer , October 27, 2013 7:47
" . . . comprehensive health insurance is, at its heart, a deeply wasteful use of resources: Modern people, and especially modern Americans, are much more likely to overconsume health care than to underconsume . . . suggests that there are better ways to allocate our resources than comprehensive coverage, and that most people would be better off if public policy didn’t push so much money into that direction."

So Douthat thinks it's important to put money towards the drug companies, high tech medical devices, research, as opposed to comprehensive care. There is a general conservative argument I've noticed regarding concern about this shift, to the point some have suggested the effect of the ACA will be so dire (draining money from these areas) as to be responsible for deaths. First of all, medical research and companies closely linked to it have a lot of friends, and have always managed to look out for themselves. Also, there are real questions about how many actual "life-saving" breakthroughs have occurred in the past 10-20 years.
Aside from all of that is the economic distribution of these choices-pushing money towards comprehensive care mean putting money out into communities-hospitals, doctors' offices etc.- contributes more to the local economies in terms of income generated and increased employment.
OT - Another NYT column needs beating...
written by A Populist, October 27, 2013 8:22
NYT article: "In Fed and Out, Many Now Think Inflation Helps"

The sad part of this article, is that many of those cited (Wal-mart, etc), are interested in inflation as a way to reduce real wages, and feel that inflation is the way to go. They have been successful at preventing the rise of nomimal wages, and reducing the worker share of productivity gains, but they want MORE.

The article also speaks highly of cutting real wages (via inflation) and increasing profit margins, so companies can hire workers - ignoring the obvious fact that companies hire workers only if they need them - not because they have extra cash. Stupid or Evil?

Of course, it mentions past correlations of rising prices and wages, but ignores that chronic high unemployment, weak unions, and a low minimum wage have changed the conditions, and that no longer holds.
written by skeptonomist, October 27, 2013 8:49
On the issue of free trade in health care workers, Dean seems to be to the right of Ted Cruz; he thinks the market for physicians in the US is not "free" enough (although, as others point out, about a quarter of US physicians are already foreign and some additional citizens get training abroad). This attitude must be a result of blind faith in free-market dogma, because there is no evidence that physicians' compensation can be held down this way. Other countries have lower costs, but it is not the result of "free" markets, it is the result of direct government control and in some countries more support for training health-care workers. The US has about the "most free" market in health care among advanced nations in the world, and it has the highest costs. Does empirical evidence mean anything in this subject?
Cowards of Competition: The Ignored Counterfactual Used to Justify Economic Predators
written by Last Mover, October 27, 2013 9:00

Douthat says:
But we also think that Americans really do get something for all the extra money that we spend: Specifically, a system that appears to drive a leonine share of global health care innovation, creating the drugs and procedures and life-extending technologies that then ripple outward, improving health and life expectancy in the developed and developing world alike. And the great fear on the right is that if we, too, end up controlling costs from the top down the way other countries do, then we won’t just squeeze waste out of the system, we’ll squeeze out innovation and drive out talent as well … and worse, we won’t even know it, because we’ll just assume that the innovations that we get are the only ones there could have been.(emphasis added)

In economics, counterfactuals are not just speculative assumptions. They are called opportunity cost.

When conservatives justify the provision of goods and services by economic predators who depend on monopoly profit to exist - unnecessary profit justified as necessary to "create and innovate" advances in goods and services that otherwise would not exist - they conveniently ignore the obvious counterfactual, the opportunity cost of killing off what would have been produced in working, competitive markets.

Douthat says Americans "overconsume comprehensive" health care from the demand side without the slighest hint of glaring contradiction he admits in the statement above ignoring the counterfactual elephant in the room on the supply side:

What drugs would be produced by many "Little Pharmas" for example, than one Big Pharma that exploits and abuses patent protection under the phony guise of "free markets" necessary to innovate to the tune of $300B/year in pure monopoly profit? Why is the extraordinary economic waste of monopoly profit (economic rent) glorified by coupling it with innovation rather than the huge economic loss it is?

Not a day goes by that conservatives are not ranting about government subsidies abused by those who take them but don't need them. Stop the subsidies and the abuse will stop.

Exactly. So why do economic predators continue to get huge subsidies in the name of preventing suffocation of their so called innovations at the opportunity cost of killing off what would have been provided in the obvious counterfactual?

Why isn't Big Pharma expected to work for a living the same way labor is when the subsidies are yanked away? Why does Big Pharma retain the privilege of shoving down the throat of America gold plated grossly overpriced comprehensive drug plans that Douthat then criticizes as "excess" at the same time he glorifies them as necessary for "innovation"?

Why is Douthat a coward of free market competition? Is he a loser liberal in disguise? After all, the counterfactual is an economy ruled by economic predators.
written by Kat, October 27, 2013 9:20
The link provided that demonstrates that America leads in innovation is to put it charitably, underwhelming. Tyler Cowen really strains to make the facts fit his thesis. I mean he really, really strains.
Has any research been done that the long schooling + residency of doctors is economically worthwhile
written by John Wright, October 27, 2013 11:58
I have asked this question before, but might the USA's medical doctor expense also be high due to the many costly years spent training and paying to become a doctor?

In this specialized world, with advanced diagnostic equipment, and diagnostic software, do we need to invest as many years (and capital) educating the people who use these tools?

How do we know the medical profession has settled on the societal optimal amount of training?
written by PeonInChief, October 27, 2013 12:18
I agree with skeptomonist on this one. Other countries control costs not through the free market (if there ever is such a thing in a necessity market), but through "no, we're not going to pay that much for this" regulations.
written by AlanInAZ, October 27, 2013 1:05
@john Wright
You may be interested in this piece a few days ago.

written by AlanInAZ, October 27, 2013 1:12
Dean has been a proponent of showing the impact on total budget when reporting. I think the same should apply to health care spending.

Total US health care spending per person is now about $8,600/yr. Physician salaries are less than 10% of the total HC spending or $860/yr per person. Drug spending is about $900/yr per person. Combined spending is about 20% of total cost. Reducing the combined spending by 50% (very very optimistic!) will save about $900/yr per person. That's the good news. The bad news is that per person spending remains very high at $7,700/yr. The entire system needs revision to gain meaningful cost control.
written by watermelonpunch, October 27, 2013 6:58
written by skeptonomist, October 27, 2013 8:49
The US has about the "most free" market in health care among advanced nations in the world

written by PeonInChief, October 27, 2013 12:18
I agree with skeptomonist on this one. Other countries control costs not through the free market (if there ever is such a thing in a necessity market), but through "no, we're not going to pay that much for this" regulations.

Why is it that companies collective bargaining via insurance companies is "more free" than citizens collective bargaining via their government?
They Also Love Immigrant Labor - Why Give Them What They Want?
written by jerseycityjoan, October 27, 2013 11:36
"We must recognize that the only ideology these people support is that the ideology that the wealthy should have more money."

They also have an ideology that a foreign worker is great, an American worker is an unnecessary cost and burden. In addition, they have shown no inclination to be reasoned out of their beliefs. I would expect any "proof" offered that they aee wrong will simply be denied and ignored.

If we engage in games with our future by trying to outfox these people, we have no assurance that we will win.

They forget that we are the citizens and owners of this country. If we forget that ourselves, then all is lost.

If we tell ourselves it's better that members of our most educated and honored profession should not be our own people but instead should mostly be foreign workers who we hope to use and abuse for our purposes, we have turned into the same unethical and immoral people we criticize.

Where doss it all end?

And what will we have gained?

Doctors' wages are only a small part of the reason our healthcare costs are so high. And I don't think the primary care doctors we all see most often bear a lot of blame at all. We are asking them to take on a lot of new Medicaid and Medicare patients. The Medicaid reimbursement for primray care office visits doesn't even cover their costs.

India Importing Doctors from China
written by AlanInAZ, October 28, 2013 12:36
Cheap medical education in countries like China, Russia, Ukraine, Philippines and Nepal is attracting many aspirng doctors from India who cannot afford the exorbitant cost of private medical education in India and are unable to make it to the limited seats in government medical colleges.

US Cost of diabetes: going on $3 trillion over 10 years, partly due to MD monopoly
written by Rachel, October 29, 2013 9:12

This is shameful, and appallingly expensive. We suffer excessive rates of other preventable/controllable diseases as well, such as hypertension. I suggest that these high disease rates are in no small part due to overpriced, inaccessible, and (at least to the lower classes) often unaccomodating doctors.

For instance, the number of doctor visits in the US is below average in the developed world, and has fallen further in the past decade, probably because (as observed by a family practice journal) middle class incomes have fallen, and people might prefer to spend their money on food for the table rather than on preventive procedures.

There is also the problem of vacation time. We trail most of the world in number of vacation days, presumably a factor in our climbing obesity rates. And why so little vacation time? It began decades ago, in response to soaring health care inflation, partly due to restricted medical training, which happened, naturally, because of pressure from the doctors' lobby. Costs soared, and what could labor unions do but give away their time? Doctors all over the country moved up from Buicks to Mercedes. But what union member was in a position to think that the market was rigged?

Will the ACA improve this situation? I fear not. As noted in a chart on Robert Laszewski's site (which I had to use since the actual CCa site was tremendously slow), Covered California offers a single person making $25k a plan with a $40 co-pay for an office visit, and co-pays for lab tests. Added to the cost of the insurance. Then add in the commute cost, and the cost of time off work, and the problem that Silver Plans provide a very short list of doctors, hence long waiting times, and short appointment time. Put that all together with the lack of vacations, and I fear that many almost-hypertensive or diabetic people will go on to get sicker.

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Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.