A health-care economics primer for Dick Armey

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I’ve been hesitant to post much about health-care reform in this blog, because compared with people like Maggie Mahar and Jonathan Cohn and Tyler Cowen and Brad DeLong and the younger of two perfectly good Kleins, I just don’t know very much about health-care economics.

But I’ve learned from reading the exchange between Joe Klein and Dick Armey today on Swampland (thanks, YMM, for pointing me to it) that I seem to know at least as much about health-care economics as former economics professor Armey does. A typical Armey claim:

On health care, Americans can go the route of markets, innovation, flexibility and efficiency, or we can turn to government agencies, one-size fits all programs, rigid payment schedules, formularies and wasteful rent-seeking.

Now I’m as pro-innovation and anti-rent-seeking (until that day when I actually own some rental property) as the next guy, but there’s been an awful lot of serious economic research over the years–of which Armey appears to be blissfully unaware–demonstrating why health care markets don’t work like the markets for, say, wheat or semiconductors or blog posts. There are big information asymmetries that skew interactions between patients and their doctors, hospitals, and insurance companies, meaning that well-informed purchasing cooperatives might be able to achieve more economically efficient results than a bunch of poorly informed individuals. That doesn’t necessarily mean we need single-payer health-care. It just means that citing Milton Friedman again and again, as Armey does, is almost entirely beside the point. (And this is coming from a semi-Friedmanite.)

Also, Armey nowhere addresses the basic truths that (a) we Americans spend more on health care than any other wealthy nation and (b) we’re less healthy than the inhabitants of just about any other wealthy nation. I’m not sure that health-care reform would actually make us all that much healthier: It seems like the two big causal factors of our poor performance in comparison with Japan and Western Europe are that (a) we don’t do nearly as good a job at making sure everybody gets prenatal and early-childhood care and (b) we eat lots of junk and don’t exercise much. Health-insurance reform would address the first only partially and the second not at all. But you just can’t go around praising free-market health-care without acknowledging that it doesn’t appear to make us any healthier than the inhabitants of countries with cheaper, more “rigid” health-care systems.

Update: As noted in the comments, Armey responds here. He makes more sense this time (and displays more knowledge of health-care economics). I was taken by this point:

Look at the healthy components of our health care system. What they have in common is a large measure of independence from government subsidies and price regulation. For example, eye surgery centers, fertility specialists and cosmetic dental surgery. Costs have fallen dramatically, innovation abounds and safety improves.

I don’t know if this is in fact true. But if it is, it’s very interesting: These are all areas covered spottily if at all by health insurance. They also all involve matters where it’s pretty easy for a layman to judge whether (a) something’s wrong and (b) the procedure helped fix the problem.

Update 2: I’ve posted more on the topic here, and Jay Carney’s smart post about elective health-care procedures is here. And I’d advise everyone to read the comments to this post; this is one subject (of many, I guess) where the good commenters of the world appear to know an awful lot more than I do.

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