Monday, May 19, 2014


This piece of a review of the newest Freakonomics book is a bit harsh:
They take this as evidence that even intelligent politicians don't like hearing uncomfortable truths that challenge positions to which they are committed. But it seems more likely that Cameron, who is indeed an intelligent politician, noticed they were talking nonsense. After all, it's a ridiculous analogy. People don't go to the NHS and "pick out" their treatment. They are in the hands of doctors and other healthcare professionals who collectively try to find the best treatments for them, within limits. Healthcare is nothing like transportation. If it were, the NHS, whatever future problems it might be facing, could hardly have survived so long (and performed more efficiently than the rival US system, where many patients really are "picking out" their preferred treatments). Only two economists (or rather one-and-a-half economists) could be so arrogant and so ignorant as to think that this was how to talk to a future British prime minister about healthcare. I imagine that what Cameron was really thinking was: if these are the clever people, spare me from the stupid ones.
But it does get at a very real issue -- different markets operate in different ways.   Noah Smith and Paul Krugman point out the difficult link between theory and empiricism here.  It is true that very few health care markets are purely socialist or free -- they are classical mixed markets in most places.  That said, the English model is hardly a disaster

What I generally want to see when people suggest large countries radically change an existing system (upsetting many stakeholders and people who planned their lives around a set of rules) is that there will be relatively immediate benefits (i.e. it is politically viable) or long term improvements for the country (i.e. it is worth losing an election over as it makes people's lives better). 

Levitt clarified his ideas, but I think they still have some serious issues.  He suggests:
On January 1 of each year, the British government would mail a check for 1,000 pounds to every British resident. They can do whatever they want with that money, but if they are being prudent, they might want to set it aside to cover out-of-pocket health care costs. In my system, individuals are now required to pay out-of-pocket for 100 percent of their health care costs up to 2,000 pounds, and 50 percent of the costs between 2,000 pounds and 8,000 pounds. The government pays for all expenses over 8,000 pounds in a year.
Yet, ironically, this approach requires a real faith in effective government.  Why?  Because there will be people who need different amounts of subsidy (currently poor elderly, for example, or those whose illness prevents them from working).  Or it requires getting rid of universality, which might be a feature in the long run but has many bad features in the short run.  It adds in layers of billing and pricing, that health systems are often poor at generating (or at least the US systems seem to be).  People need to be able to get accurate price quotes, collections for debt needs to exist, and the hospital have to set up payment under difficult circumstances. 

It also requires the government to dynamically adjust the "payout" and the "thresholds" as prices change.  Will that be done by a central payments board?  How is that really different than the current English approach of determining cost effectiveness in general?    You are still using expert opinion to run the system, just in a different place.  And there could be some real concern that the "thousand pound" subsidy could be used to replace current benefits or drop over time as it is eroded by inflation. 

So what is the evidence that this radical reform will reduce total health care costs?  Because this is a case where we want to have a clear test of the theory before completely reforming a relatively functional system (it's mediocre for the OECD but one can go down from average, as well as up).  There are some examples of health care systems that might be more free market plus regulation oriented (say Singapore).  But why not the French model


  1. I read the review and "if these are the clever people, spare me from the stupid ones" really summarizes my feelings about Freakonomics - I only read the published introduction and it left me fuming. It was idiotic and self-contradictory. They were saying what they're not doing (using one formula to fit everything) and doing it (applying incentives where they're not at all helpful - or at least not on a system level). I know Levitt gets a lot of credit for his clever little puzzles but listening to him on the podcast it feels a little like Erich von Daniken finding aliens in the measurements of the pyramids. Ignorant, irrelevant and irresponsible.

  2. My brother, a physician, says he's seeing the impact of the kind of policy Levitt supports: patients come in and realize they will have to pay a substantial amount and leave without care. His practice is in a middle income area where people think very hard about spending the kind of money that Levitt thinks should be common. So if the goal is to make people really sick and then take their money, then Levitt has the right formula.

  3. In defense of Levitt's position, if your plan covered it, wouldn't you be asking your dentist for lots and lots of root canals?

  4. Mark, maybe only if the alternative was to have your teeth pulled?