Is medicine a money pit?
Posted September 11, 2007on:
The experiment’s random assignments allowed it to clearly determine causality. Being assigned a low price for medicine caused patients to consume about 30% (or $300) more in per-person annual medical spending… For the five general health measures, [they] could detect no significant positive effect of free care for persons who differed by income … and by initial health status.
Despite this and other studies, governments still devote huge proportions of their budget to health care. Hanson points out that, despite the apparently negligible returns to greater medical care, there are “apparently strong aggregate relations between health and many other factors, such as exercise, diet, sleep, smoking, pollution [and] climate.”
If this evidence is to be believed, leading a healthy lifestyle is far more beneficial to one’s health than free health care. In light of this, is the government’s emphasis on providing low cost health care a good idea? Low cost health care results in far greater consumption of medical services, but does not appear to appreciably increase aggregate health. It seems an expensive strategy for a government to pursue and one that may provide perverse incentives to live unhealthily. If health care is seen as a substitute for a healthy lifestyle then cheaper health care may lead to people living less healthily than they otherwise would if they had to pay for their own health care. The moral hazard problem engendered by these incentives could further raise the costs to the government of health care, yet without appreciably improving health care outcomes. Does this mean that a new approach to health care funding, focussed on encouraging healthy living, is required?