Cliff Asness writes The Healthcare Myths We Must Confront in The American, 6/29/12.


Myth #1:  Healthcare prices have soared in the recent past

Everyone knows that healthcare prices have soared, but everyone may well be wrong. The statistics we see are always about the amount we spend on healthcare, not the price of healthcare. Consider a comparison of healthcare in the 1950s versus today. In the 1950s, you had none of the subsequent developments in pharmaceuticals, surgery, diagnosis, etc. How much would you pay for that versus today’s healthcare? Not so much, I’m guessing. In fact, if you look around the world, in impoverished countries you can probably find a reasonable facsimile of this 1950s healthcare at a low cost. While this example is intentionally extreme, the measurement problem it illustrates is important. The quality of the best healthcare has soared over time. This measurement problem is not unique to healthcare. Measuring the price inflation in computers is incredibly difficult. If the price of a laptop today is the same as 20 years ago, but the laptop is ridiculously better now, hasn’t the price really fallen dramatically?

Consider another hypothetical. Imagine we develop a cure for all cancers that costs a flat $1 million per person and works perfectly. Let’s assume this is more than the total cost to treat these cancers otherwise. In this case, the amount we spend on healthcare will likely rise dramatically, because it just got much better and we chose to spend more on it. The cure we are talking about did not exist before now, so it does not make sense to ask whether the price rose. Here’s a better question. Are we better off even though we are spending much more on healthcare? Yes, we are, although some will cite the dramatic rise in our healthcare spending and demand that action be taken.

Even if correctly referred to as the “soaring cost of healthcare,” this is presented as an unambiguously bad thing, when that is certainly false. It’s bad when it’s a function of waste or monopoly power gained through cronyism—undoubtedly part of our system and, as usual, with government the main culprit—but not bad when it’s the result of improvement, undoubtedly a huge component over time. The price of healthcare over time is hard to accurately measure, but those screaming about the price soaring are probably wrong.

HKO Comment:

We downplay the quality of our healthcare system and overstate the cost.  A more affluent society will spend more on health care such as cosmetic surgery and orthodontists.  We spend more on end of life care because we can afford to be more humane to our elderly.

By not facing this reality he have engaged in health care reform that threatens the quality we take for granted.  Perhaps we spend more for health care because we want to.