Noah Smith has an interesting piece on health care at Bloomberg. The piece is worth a read, although there are some head-scratchers in there. Smith’s big conclusion is this:
In other words, don’t believe the argument that the cost difference between the U.S. and other countries is the inevitable price of a more innovative health-care system. Americans really are being greatly overcharged for their care. For whatever reason, health seems to be one industry where government does things more cheaply than the private sector.
There’s a problem with this conclusion, namely that it uses biased data to support the claim. Health care is cheaper in other countries because the price system is rigged: universal health care keeps prices down by refusing to let them rise. So, one cannot compare prices in a system where prices are allowed to fluctuate vs one where prices are determined by government diktat.
Prices are a signal. They provide us valuable information about the relative scarcity of commodities. When prices are allowed to adjust, they provide accurate information. When they are not, they provide poor information, and lead to worse outcomes.
It is also important to note that monetary costs are not the only costs involved. They are one cost, sure, but there are many other kinds of costs: wait times, quality, quantity supplied in general, that sort of thing. Monetary prices can/will adjust for these different factors (for example, a luxury higher quality car may sell for more than a lower quality car), but if prices cannot adjust, these other costs will rise; there ain’t no such thing as a free lunch, after all.
Let’s take, for example, Canada. In the US, monetary costs for doctor visits may be higher, but in Canada, wait times are much longer (in the US, it’s approximately 24 days to see a doctor. In Canada, it’s 20 weeks). This is a real cost. Quality of care is another cost. In Britain, for example, you’re about 45% more likely to die in a hospital than the US. This is a real cost.
It’s admirable to want to compare costs and benefits among two systems like Smith does, but he makes two major mistakes when doing so: 1) he compares price signals from a relatively free market to price signals that are artificially low, thus biasing his estimate (this is a point Bob Higgs has made repeatedly when discussing GDP), and 2) does not do a full accounting of the costs. Smith may be right that health care is an area where government can provide cheaper than the private sector, but the evidence he puts forth for his claim is weak.