What you're talking about is called asymmetrical information. And you're right: the doctors are at a distinct advantage in this situation. But are the types of procedures you're talking about (angiography, bypass surgery) really what's driving the escalating health care costs? I don't know the answer, but I suggest that there might be many more low- to mid-priced procedures that might be even less cost-effective than those you described. These might be an even bigger source of excessive spending on health care.

That might be true, Chris, but it doesn't change the argument because the consumer is just as ignorant about the value of low or mid-cost procedures as bypass surgery.

There is a health care market where people, not doctors are the primary deciders and the costs are not hidden behind an employer provided health care plan. It is called taking fido/mittens to the vet. I recall a recent article that said something about a shortage in large animal vets due to the huge financial incentives to go into practice treating pets. I have spent a lot of money on pets over the years, and I doubt I am far from the norm. Maybe I am just cherry picking anecdotal data, but it seems like the Conservative idea that people would be less likely to spend money on health care if they paid the true cost is deflated by the trends in spending on pets.

Chris, are you new here? I'm guessing you are. Ezra has chewed over these issues many times. Try this:

http://tinyurl.com/68jzao

The short answer to your question is no.

I have an example of a very cost ineffective low priced procedure for you Chris. My wife wanted to go to the dentist in our new city. She's gone to the dentist yearly for years. No problems. This new dentist won't do any procedures because she reports a heart murmur on the forms. She is informed that she needs to get an echo cardiogram by her doctor to see if she needs pre-med antibiotics before any minor dental procedure.

She does it. It costs about $1200 which my insurance paid. I paid $10 (I have great employer paid insurance). She didn't want to take off work, didn't feel like she needed this done, and as it turns out doctors have never been able to prove that these pre-meds do any good anyway. But of course, this isn't really a choice in any way like Jacoby fantasizes. The dentist won't put a filling in without a note from the doctor. The doctor wouldn't write a note until she got an echo cardiogram.

If the desk lamp purchase would have required an echo cardiogram, I would have not purchased a desk lamp. But teeth and health care are situations where people tell me what I need.

Verdict: Jeff Jacoby, still an idiot.

You can't do much to change their [patients] decision making because they are not making many decisions.

The only decision that the patient makes that is crucial is whether to have a symptom considered by a doctor, or to ignore it. Alternatively, in preventive care, the choice is yes/no on things like annual checkups/tests.

Those who want the patient in total control are (coincidentally!) those who really don't care if people make the dumb mistake of not monitoring their health, or those who want to provide care only for those who can afford it out of their pocket when it is needed. Economic gating writ large.

The conservatives that really hate Medicare/Medicaid don't like government, but even more they don't like anyone getting something that they can't immediately afford to pay for. But this applies to human things like healthcare - for these haters.

They are the first to pay for auto insurance with glee (god forbid that that their Mercedes would have a scratch) or homeowners insurance (there might be a Fire! - and they'd lose their McMansion investment.)

If we were talking about the per-capita cost of oxygen for all living organisms, they'd advocate that only those who can pay should get any.

Somewhere an illegal immigrant and a welfare queen are breathing our oxygen - for free.

And JimPortlandOR wants to let them keep doing it!

My insurance doesn't cover annual checkups, except gynecological exams. You must have that Cadillac plan with the hair plug coverage McCain was so skeptical of. And my plan for our family (2 adults, 1 college age kid) costs $1800 a month. I know this because our small business is run as a coop, and we all see the expenses.

Ezra: although I agree with the gist of your argument, the amount of money spent on a person's healthcare isn't only a matter of specific treatments and doctor recommendations. Might there not be some anti-inflationary merit (if we were able to de-couple insurance and employment) in requiring some "customer" input into say, whether or not you want to pay extra premium for private rooms, or greater choice of specialists, or smaller prescription copays, etc.?

It seems to me the real main reason the left opposes greater "consumerization" of health insurance is that such a move would be inegalitarian. I'm frankly not sure what I personally think about the issue, but cost-control is going to have to be looked at very seriously, very soon.

While I agree that healthcare cannot function as a perfect market because of many inefficiencies including the asymetry of information Ezra is referring to, this example is a bit off for a few reasons:

(1) Doctors have ways of maximizing revenues without completely violating the hypocratic oath. Sure, unnecessary heart procedures indeed do occur (and there are some famous cases of that), but are much less common than other (softer?) methods increasing income - for example, multiple testing, multiple visits, etc.

(2) The asymetry indeed exists but even in the example described it can be reduced by patients getting multiple opinions - in the case of more discretionary (consumer-like) procedures (like Lasik) this indeed occurs.

(3) Even if you establish that a procedure is necessary, there is room for consumerism in the choise of site of care - the way the system currently works is that there are huge disparities between cost of the same procedure in different hospitals, cities, etc. And that is entirely because people have zero incentive to shop around.

Your fave Orszag has a neat slide on this on page 31 of his powerpoint

http://www.cbo.gov/ftpdocs/98xx/doc9887/10-16-Seidman_Lecture.pdf

So I guess I'm a soft advocate of consumerism in healthcare. However I do think that the imperfections of the healthcare marketplace are often ignored or unappreciated by free market healthcare proponents.

I think there is a crucial part of the decision making process you overlook. Patients ultimately decide how well they take care of themselves, which correlates to what types of conditions will ultimately have to be treated/ paid for. Much of the diabetes, lung cancers, yes even angioplasties, that people deal with are in large part preventable. And frankly the fear of death isn't a big enough incentive for most people to change their behaviors.
Look at auto insurance. People go to great lengths to avoid getting speeding tickets/points, including limiting their speed to ~ 8-9 mph over the limit etc. It's not because they realize that speed kills, it's because there is a financial disincentive, on the order of a few hundred bucks per year, associated with those tickets.
I think similar personal accountability with health insurance would be helpful for both the consumer and the ins industry.
Similarly, when treatment is necessary, if the real financial cost was felt by the patient when making the decision to visit the ER vs. making an appointment, there would be less folks getting emergency room treatment for things that are clearly not emergencies, and a lot less people with actual emergencies sitting in waiting room for hours upon hours to get treatment.

You transport yourself to the Desk Lamp Emporium and compare different desk lamps.

Really? People still shop that way?

"Your doctor says that you exhibit various risk factors for heart disease, and he'd like to schedule something called a "coronary angiography." He'd like to do this because it's possible that doing it will keep you from dying. You say okay. You endure the invasive and unpleasant and expensive test, because you don't want to die. The results return, and are explained to you by a cardiologist. He recommends double-bypass surgery."

This scenario sounds extreme and frightening because it is. I don't think it's realistic, however. I'm fairly certain that coronary angiographies and CABG's are not performed on asymptomatic individuals who just have some risk factors. This is because they're invasive and expensive and are what you might call "overkill." A cardiologist doing what you just described would, I believe, basically be committing malpractice.

I almost always agree with your larger point, but often your examples leave something to be desired. I think your healthcare writing would be even stronger if you knew a little more about the medicine going on.

Apparently Jeff Jacoby would get visit the proctologist every afterrnon if it weren't for the co-pay?

Another aspect to keep in mind is that the consumer model puts a much greater burden on individuals.

One of the advantages to managed care is that it does many of the comparisons and checks on rational spending that an individual might want to do, but might find too expensive. For an individual to research the comparitive efficacy of medicines his doctor was considering prescribing, or for him to determine whether each and every preventative treatment is necessary requires inordinate amounts of time dedicated to second opinions and searches of medical literature. This makes no sense for an individual when individual treatment costs are relatively low. Under managed care, some of that is subcontracted out to bring about greater cost savings.

One way of evaluating the effect of a move to the consumer model is when looking at patients moving to higher copayments. Barron, Wahl, Fisher and Plauschinat (2008) find that higher drug copayments were associated with increased treatment failure and lower adherence to therapy when looking at oral antidiabetics.

In other words, under the consumer model, patients risk major costs, pain and amputation as they pay more themselves.

While I agree that healthcare cannot function as a perfect market because of many inefficiencies including the asymetry of information Ezra is referring to, this example is a bit off for a few reasons:

(1) Doctors have ways of maximizing revenues without completely violating the hypocratic oath. Sure, unnecessary heart procedures indeed do occur (and there are some famous cases of that), but are much less common than other (softer?) methods increasing income - for example, multiple testing, multiple visits, etc.

(2) The asymetry indeed exists but even in the example described it can be reduced by patients getting multiple opinions - in the case of more discretionary (consumer-like) procedures (like Lasik) this indeed occurs.

(3) Even if you establish that a procedure is necessary, there is room for consumerism in the choise of site of care - the way the system currently works is that there are huge disparities between cost of the same procedure in different hospitals, cities, etc. And that is entirely because people have zero incentive to shop around.

Your fave Orszag has a neat slide on this on page 31 of his powerpoint

http://www.cbo.gov/ftpdocs/98xx/doc9887/10-16-Seidman_Lecture.pdf

So I guess I'm a soft advocate of consumerism in healthcare. However I do think that the imperfections of the healthcare marketplace are often ignored or unappreciated by free market healthcare proponents.

This deserves to be read twice, because its a great post. Particularly #3. This is the point of a larger role in consumer-directed health care. Most people think they have a good doctor. They're wrong. There is data that could be collected and disseminated to help people understand that. Lower co-pays to see the better doctors further encourages this behavior.

Should a lot of this onus be focused on physicians? For sure. But you know what's the best "pay-for-performance" out there? An empty waiting room, because patients have chosen to go to a better doctor. Same for hospitals.

I've argued long before that Ezra's views of consumerism in health care are 10 to 20 years dated-- patients are unquestionably more involved in their decisions than they were a generation ago. Patients are more informed about their ailments (and physicians are actually less informed than they used to be given the explosion of medical information that exists today versus 20 years ago). The gap has closed significantly. Many practicing physicians see this day-to-day in their practice. So should patients have a greater role at the procedural level? Probably so, in limited ways.

But we can debate that. But what isn't in question is that patients choose the doctor or hospital. Encouraging patients to choose physicians that practice quality, value-based medicine is a concept that I simply don't understand could be considered bad.

Italics missing from the first half of the post-- which was a repeat of an earlier one up thread.

Green makes the point that financial incentives matter a lot more than an abstract fear of death or illness. We can think of all sorts of reasons for this - from hyperbolic discounting to uncertainty of death. But I think the point that financial interests matter more can go both ways. Green writes about it as not creating incentives for people to change unhealthy habits. At the same time, if people aren't rational about their health, which is still uncertain and in the distant future, they would have even less incentive to spend money on preventative measures now that they have to pay for those preventative healthcare as well.

I imagine this is why health insurance went from indemnity insurance to covering smaller, more preventative treatments.

A few thoughts from a specialist in obscure diseases:

In many cases patients do not "chose" their doctor or hospital. Rather, it's chosen for them by their primary care physician, their insurer or their HMO. In my medical specialty, we only see patients by referral from other physicians.

Regarding the idea that people will consume unlimited amounts of medical care if given the opportunity - No one wants to see me or my colleagues. On the other hand, fear of premature death or lifelong disability is a strong incentive to keep the appointment. Your best hope is that we don't come up with a diagnosis, as we don't have any good diagnoses to give out. The same can be said of some other specialities, e.g., oncologist.

Physician incentives and unnecessary testing - This is an area where tinkering with current practice patterns and reimbursement models makes sense. The physicians in our group practice are salaried. We don't have any strong incentives to order unnecessary tests (more paperwork for us) or see patients again and again (we're overbooked as it is). We periodically discuss how and when to channel straight forward cases back to the referring physician.

I have what I think must be one of those "gold-plated" health plans and, though I surely benefit from it, so does society. Ten years ago, while donating blood, I was told I had an irregular and slow heart beat and that I couldn't give blood anymore without a doctor's note saying I was fit to do so. After several visits to doctors, including a cardiologist, it was determined that I do have a couple of non-threatening heart anomalies but that I can give blood without risk, which I have continued to do ever since. Had I had to pay anything more than a co-pay for any of those doctor's visits, I wouldn't have bothered, since I've always had a low pulse rate and a slightly irregular pulse and it's never affected me; I just would have stopped donating blood.

With capitation and fixed salaries, you run the risk of undertreatment. No doctor would purposely avoid doing a test that he or she thinks would save a patient's life. But he or she has no incentive to invest in expensive (but sometimes useful) equipment, or develop any curiosity for any avant-garde treatments, altogether.

As a Canadian who's used to fully socialized medicine, here's the thing I think most Americans don't get:

Health care is almost completely price inelastic in BOTH DIRECTIONS. Not only will I pay everything I have (or more) not to die, but I won't increase consumption much even were cost totally removed - If you announce that plasma TV's are now free, I'm heading off to grab one for every room in the house. If you tell me that plasma IV's and bone setting are now free, I'm NOT looking for a hammer to break my own legs and femoral arteries with ("sweet, they'll be fix me FREEEE").

So if medicine is consumed almost entirely irrespective of its pricing, then how is market pricing the least bit useful as a means of parceling it out?