Economists having a field day with healthcare…*

I have had a bee in my bonnet since last year about something on a Freakonomics podcast and I will now finally vent about it.

I enjoy the Freakonomics podcast in spite of its often flouted market bias. I think Stephen Dubner manages to talk with some good people and to usefully explore a lot of compelling subjects. Somewhat in the other hand, Steven Leavitt strikes me a someone who has certainly learned to “think like an economist” as our principles textbooks always admonish us to do. I would consider that as much of a handicap as a skill, but anyway, in a nutshell, I tend to enjoy this show in spite of my misgivings about the backstory and some of the content. It is thought provoking. But one thing that really deeply offended me as a listener was this ultra shoddy, intellectually insulting analogy made by Leavitt last year apropos of discussing health care and the ACA (from this podcast):

LEVITT: Well, my friends in the Obama Administration aren’t going to be very happy with me, but I really, I don’t think it solved any of the important problems that we’re facing with healthcare. So virtually every economist will tell you that there were two things you needed to do to healthcare reform to materially improve the situation. The first was to break the link between the provision of healthcare and employment. And that is just an archaic element of our healthcare system, which really makes no sense. And yet because of tax subsidies, it’s the way most people get their healthcare — through their employer. It shouldn’t be. There’s no good economic justification for it. And yet, if anything, I think this healthcare reform bill actually strengthened that link. … [Healthcare] is virtually the only part of the economy where I can go out and get any service I want—cancer treatment, open heart surgery, have a wart removed, whatever it is—and I pay $3 for it or $5 for it or nothing, even if it costs $50,000 or $100,000. I mean, imagine if you had the same situation with automobiles. Where I could show up at the car dealership and I could say, ‘I want the Mercedes for free.’ Well, people say, ‘You can’t have the Mercedes for free. You have to pay $50,000 for it.’ You say, ‘Why not, I have an inalienable right to free healthcare. Right? Why don’t I have an inalienable right to a free Mercedes?’ (my bold…)

Maybe you have to “think like an economist” and I just don’t have it down yet, but this analogy is absurd. Someone might want a wart removed, but NO ONE WANTS OPEN HEART SURGERY! NO ONE! It is hard to see anything beyond ideological bullshit in venturing such an analogy (I guess brainwashing is feasible, but I give Leavitt credit as an intelligent person). Many studies have been done showing that access to healthcare can increase use of healthcare. But no studies can show convincingly that this increase is driven by the elective use of healthcare by the patient and NOT by problems of physician agency and supply side issues (translation: your doctor has incentives to over treat you either financial, legal, customary or any combination of the three). Here is a study from UIC Professor Robert Kaestner, hot off the presses and featured in a blog post on Freakonomics no less (funded by the AEI too), which shows just this sort of result. In fact, this paper shows that even people with insurance in the form of a health reimbursement account (HRA) that ONLY PAYS for outpatient doctor visits and DOES NOT pay for inpatient services ended up consuming more of these inpatient services (surgeries and other procedures requiring a hospital stay). Why would they do such a crazy thing!? It’s not even free or nearly free, the condition which Leavitt attributes overuse of healthcare to. It is very simply occurring because some expert called a doctor says “you need this” and virtually all sane patients say “okay.” Many of them go broke taking this advice.

To follow the ridiculous analogy to it’s reductio ad absurdum, if we lived in a world where your doctor told you that you needed a Mercedes or you would drop dead within a year, you would probably not think twice about getting a Mercedes with your health insurance (at least those like Leavitt and other academic economists who have insurance coverage through a well-endowed private university, or even Medicare, would).

Apropos of that seemingly absurd hybrid analogy, I bring you this NYT article to the effect that the justice dept is investigating the Hospital Corporation of America for systematically performing heart procedures on patients who did not need them. Surely HCA would be a darling of any free-market economist, the very type of organization Leavitt would applaud as bringing a market structure to the provision of health care. And bring it they did. Sounds like quite a few old people didn’t even want their “Mercedes,” but the HCA insisted.

To finish the rant, though I like the podcast and even enjoy listening to Leavitt in spite of utterances such as this, listen with caution (to everyone, for that matter). Like the old nugget of wisdom “when all you have us a hammer, everything looks like a nail,” when all you have is a U of C PhD, everything in the world looks like a market auction waiting to happen. Other things make the world go round too though.

* The title of this post is a reference to this Freakonomics podcast, in which Steven Leavitt waxes hopeful about how great the health care system could be if economists could “have a field day” with it. I shudder to think…



About theunlikelyeconomist

theunlikelyeconomist is in the midst of the long slog to attain a PhD in economics.
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