Milton Friedman on Health Care

It is not any of that! it is the way people think! My ex husband never took us on vacation until I pushed him to buy time share & then we were always there! Peopel do not care about what is the most significant thing for them which is vacation and health care!But if it is paid for already? They will always go as if someone else pays for it!

Please don't insult our intelligence. A few moments of thought will show the fallaciousness of the argument that when the consumer is directly responsible, costs are controlled.

Consider

1)housing costs, until recently
2)cost of airfare
3)cost of gas at the pump
4)credit card interest rates

The last I checked, there is no govt intermediary in any of these and yet with the recent exception of home purchases, they all go up despite consumer discontent. When consumers rebel at high airfares,for example, the airlines just cut back the number of flights or hide the costs as a charge for checking baggage,etc.

If there's any institution that should be freely competing for consumer's dollars it should be banks (look at how many of them there are) yet mysteriously, they all have very similar credit card terms and charge similar amounts for their services.

Some areas of the economy do respond well to consumer's demands but it is utterly simplistic to imagine this is true for every area and assuming it applies to health care borders on the absurd.

Does anyone honestly think that when a person is sick or injured they are going to leave the doctor's office because they think what they are charging is too much ? Even if their condition is not serious enough to force them to accept whatever conditions they first encounter, how would they go about finding a cheaper alternative. Obtaining quality health care is not like buying a new TV. The only exception might be when a person has a problem with a clearly defined solution and which is non-urgent and uses medical tourism to get it fixed (e.g. traveling to India) but this is hardly a general solution.

Please don't insult our intelligence. A few moments of thought will show the fallaciousness of the argument that when the consumer is directly responsible, costs are controlled.

Consider

1)housing costs, until recently
2)cost of airfare
3)cost of gas at the pump
4)credit card interest rates

The last I checked, there is no govt intermediary in any of these and yet with the recent exception of home purchases, they all go up despite consumer discontent. When consumers rebel at high airfares,for example, the airlines just cut back the number of flights or hide the costs as a charge for checking baggage,etc.

If there's any institution that should be freely competing for consumer's dollars it should be banks (look at how many of them there are) yet mysteriously, they all have very similar credit card terms and charge similar amounts for their services.

Some areas of the economy do respond well to consumer's demands but it is utterly simplistic to imagine this is true for every area and assuming it applies to health care borders on the absurd.

Does anyone honestly think that when a person is sick or injured they are going to leave the doctor's office because they think what they are charging is too much ? Even if their condition is not serious enough to force them to accept whatever conditions they first encounter, how would they go about finding a cheaper alternative. Obtaining quality health care is not like buying a new TV. The only exception might be when a person has a problem with a clearly defined solution and which is non-urgent and uses medical tourism to get it fixed (e.g. traveling to India) but this is hardly a general solution.

Steve, how is there no government intermediary in the cost of gas at the pump? Government determines where and how many refineries there are, huge taxes are imposed, special blends of gas are required... government's fingerprints are all over the oil industry.

Can someone remind the Pres that Medicare decides what Medicare will pay for each procedure. And in some cases what they pay is at or significantly below cost. They only way for providers to make up the diffence is to increase prices on private pay insurance or (God forbid) cash paying patients. So if you increase the amount of Gov't funded healthcare you are going to drive up the cost of private pay insurance. It was completely disengenous of the president to flippantly remark that it "goes against logic" to think that private insurance can't honestly compete with gov't insurance. How can they when gov't insurance sets its own prices, and private pay have to make up the difference. "Keep you healthplan..." yeah right...

Housing costs were directly related to credit availability controlled by the Federal Government through Fanny Mae, Freddie Mac and the OCC which forced banks to make mortgage loans. Additionally, the Federal Reserve system kept short term interest rates artificially low for years encouraging home buyers to buy more house than they could afford.

Air fare is directly influenced by government through ownership or control of airports, air traffic, controllers, landing slots, FAA, ticket taxes etc.

Brian covered gas pretty well.

I pay my entire credit card balance every month and now will be penalized for doing so by my credit card company because the Federal Government is "protecting" consumers who don't pay their balances.

Health care isn't a right and high quality health care should require individuals to budget responsibly for it.

There are two basic ways to allocate scarce resources--through the index of scarcity, known as the price system, or government fiat. Accurate information re: relative scarcity of goods leads to prosperity. Government fiat leads to poverty.

Milton Friedman's entire paper is a simple work of genius.

It just goes to show you why another sector of our economy is in a mess: GOVERNMENT INTERVENTION.

If government hadn't instituted wage controls after WWII, companies wouldn't have used health care benefits to entice employees, and then when the IRS couldn't tax it, we saw the explosion of the employer-provided health care. Why in the hell is a third-party determining our health care needs? Can you imagine if a thrid party was determining what car or house we needed? (And government is trying to do that today) .

And what does Obama want to do? Turn over our health care needs to the most inefficient third party: government.

Read the whole Friedman piece. Very enlightening and relevant to today's 'debate.'

Absurd, we have competitive Electric in TX, it is some of the most expensive anywhere.

When it comes to a necessity there is no competition, it is called rape and pillage.

Either turn out the lights or invest in solar then, pal.

"Steve, how is there no government intermediary in the cost of gas at the pump? Government determines where and how many refineries there are, huge taxes are imposed, special blends of gas are required... government's fingerprints are all over the oil industry."

The government also subsidizes the oil industry indirectly. How much would oil cost if billions weren't spent assuring access through military aid and forces? You also leave out that many refineries aren't built because of NIMBY, not some government edict.

Milton Friedman economics were used in Chile which is held up as a shining example of his economic policies, when in reality, they have one of the highest disparities between rich and poor in the world http://en.wikipedia.org/wiki/File:Gini_Coefficient_World_Human_Development_Report_2007-2008.png

They have people digging through trash piles for food http://mrxfromplanetx.com/the-war-on-democracy

Just because Friedman won the Nobel Prize, doesn't mean he's such a great guy. John Stossel you have been pretty critical about global warming, so how about Al Gore winning the award for scaring the crap out of people. [Off the subject the Great Global Warming Swindle has been shown in the UK, Australia, and Canada, but not the US]

We can look at cosmetic sourgery, which people pay for out of their own pockets and see that the cost is going down.

Friedman's comment is so true. The half and half system- where the government pays a for-profit entity is messed up. Where is the incentive on the consumer to save money? The consumers incentive is to get as much service as they can out of everyone else's money.

In addition to the great examples of government meddling Steve thought of look at what it has done to the cost of college education. People get government backed loans to pay $200k for a BA in Anthropology.

If we force the costs back on the consumer, new options will emerge. You might not have to go to the doctor to get a prescription because you have a simple, easy to diagnose illness. You might not choose a prescription for the hot new brand name drug that is driving up costs and might have a few side effects that haven't been discovered yet.

Friedman's comment is so true. The half and half system- where the government pays a for-profit entity is messed up. Where is the incentive on the consumer to save money? The consumers incentive is to get as much service as they can out of everyone else's money.

In addition to the great examples of government meddling Steve thought of look at what it has done to the cost of college education. People get government backed loans to pay $200k for a BA in Anthropology.

If we force the costs back on the consumer, new options will emerge. You might not have to go to the doctor to get a prescription because you have a simple, easy to diagnose illness. You might not choose a prescription for the hot new brand name drug that is driving up costs and might have a few side effects that haven't been discovered yet.

Friedman's comment is so true. The half and half system- where the government pays a for-profit entity is messed up. Where is the incentive on the consumer to save money? The consumers incentive is to get as much service as they can out of everyone else's money.

In addition to the great examples of government meddling Steve thought of look at what it has done to the cost of college education. People get government backed loans to pay $200k for a BA in Anthropology.

If we force the costs back on the consumer, new options will emerge. You might not have to go to the doctor to get a prescription because you have a simple, easy to diagnose illness. You might not choose a prescription for the hot new brand name drug that is driving up costs and might have a few side effects that haven't been discovered yet.

Steve,

You wouldn't be able to pass my micro principles class.

We need more Milton Friedman's in this world - people who have common sense and don't put blind faith in big brother.

Housing prices rose due to an increase in demand. That's exactly what you want to happen. Higher prices calm a rush, such as the housing bubble. But, don't forget. Had the federal government not forced the price of money (interest rates) so low, and had they not developed Fannie and Freddie, the housing bubble would never have happened. Uncle Sam's dirty little hands are everywhere, and you can tell from the smell.

The point being...

Health care is a commodity which, in one form or another, must be rationed -- just like any other commodity. There can never be unlimited medical care for free, because at some point, every job would then be taken fulfilling the demands of the public for free. Look at the socialized medicine countries like Canada... there is so much demand, the wait list is up to a year for an appointment for critical need!

The insurance companies interfere with the free market economy because it becomes someone else's money. If the insruance companies shifted to a plan with high deductibles, so they covered catastrophic care, then the customer would have to pay for the low-end services (regular exams, checkups, minor issues like cold/flu). Doctors would have to compete for that business, prices would fall and service would likely improve. As long as the link is broken, the system fails.

Consumer directed health care... what a joke.

It imagines that the health care industry is perfectly competitive. That there is no information asymmetry between provider and patient, and that in many cases the fact that the patient's life/quality thereof may be on the line doesn't distort the buyer/seller relationship.

Studies have been done on this before - and people who bear most of the cost skimp on treatments across the board, regardless of the relative benefit. Why? Because despite what some people say, WebMD doesn't equip you with the knowledge so that you're on equal footing with your doctor - that's why doctors spend years and years in schooling and residency. People pick and choose - sometimes they guess well, other times, whoops, saved money on the doctor bill but your family gets stuck with picking up the tab for your funeral.

So you have a high deductible insurance plan with a $10,000 deductible. You start feeling ill. You see your doctor and she says you might have some sort of rare but serious illness, that you need this and this test to figure it out, and time is of the essence. You don't know how much it will cost (because doctors/providers often don't/can't tell you), but you know it will be a lot. WebMD says there is a 10/100,000 incidence of the disease your doctor is talking about. You aren't sure if the symptoms even line up perfectly.

Do you
a) Gamble your life and ignore your doctor?
b) Pay for the tests anyway, and hope you don't end up as another medical cost related bankruptcy?
c) Spend several months shopping around for second opinions and cost estimates, effectively recreating Europe's much maligned waiting list through your effort to save money?

Or would you rather the government have already aggregate best practice data regarding your symptoms, and aligned the doctor's incentives via reimbursements with their study of best practices, while keeping the expense to you down to a relative minimum?

In all honesty, for serious conditions nearly no one in this country could afford it out of pocket - but that's where the costs are. It isn't spending an extra $300 on an x-ray. It's the end of life care, the open heart surgeries, the cancer treatments. And consumer directed health care doesn't really affect spending levels on those, since deductibles are rapidly hit.

Medical costs are pushed by supply. Putting costs onto consumers will marginally reduce spending, but because consumers have an equal chance of making good vs. poor choices on what to spend on and what not to purchase, it is probably better if a large entity (say the government) does a lot of cost-benefit and best practice analysis to determine the most effective course of treatment and provide the highest reimbursements when those procedures are followed?

John - Well said.

In that same article, Friedman scratches his head on why health care spending in the U.S. is a higher percent of GDP than in other nations where health care is paid by a third party, with little discernible difference in outcomes (measured by problematic stats such as life expectancy and infant mortality).

I think the reason is two-fold. First, the third party payments as Friedman points out. Second, inherent value trade-offs other nations have made in wait times, quality of personnel and innovation. We haven't made those trade-offs yet.

I'd rather those trade-offs be made by individuals than Obama or Sebelius. As you point out, where we let value trade-offs be made by individuals it has worked out relatively well for everyone. The problems are generally where we haven't let that happen.

My parents aren't the pictures of health, but they believe "the country is rich enough to provide everyone health care." I hope they don't get what they wish for and have to experience being turned down for service because some bureaucrat decided they've made poor life style choices and don't deserve treatment.

And that's the biggest concern I have about government provided health care. It opens the door for one group of people to coerce others' choices on the "as long as I'm paying for your health care, you must..." basis.