The Ethical Foundations of Health Policy

One thing that seems to be completely lacking in contemporary discussions of health policy is any discussion of what is and is not morally justified. In what follows I will propose some principles that should govern our thinking about the ethics of health policy.

I’m going to sketch out this topic in an informal way that won’t satisfy the philosophy professors. But I hope it will serve the lay interest, which is our normal way of communicating at this blog.

Foundations of Ethics. Consider this paradigm:

Ethics  → Choice  → Rights

Ethics implies choice and choice implies a right to choose.

Johnny being good

Ethics is about what you should or shouldn’t do. Ethical questions arise, however, only if people are free to make choices. What does “free to choose” mean? In this context it means politically free (uncoerced). Choices are meaningful only if others respect your right to exercise them.

The Context for Ethical Reasoning. Let’s pursue that last idea a bit further. Suppose you are chained to an oar on a trireme. Should you keep up with the others and pull your own weight? Or should you try to maintain your health and your energy by slacking off and letting others do more of the work? Or should you do more than your share?

I know what you’re thinking, “How can I answer those questions? I shouldn’t be chained up like a Roman galley slave in the first place.” True enough.

Context matters. So what context should we start with? There is a tradition in political philosophy of starting by imagining a world with maximum individual choice, then asking what role there is for government.

John Locke and Robert Nozick began their investigations by imagining human beings interacting in a state of nature. (Not a Hobbesian state of nature, but a classical liberal state of nature.) Classical welfare economics begins in much the same way. John Rawls accomplished something similar by imagining people free to choose political institutions while standing behind a veil of ignorance.

Ethics and Rights. In keeping with tradition, we begin our analysis of the ethics of health policy by imagining a world in which individuals have rights and they are free to exercise those rights.

As I explained in my essay on “Classical Liberalism,” if you have the right to do X, everyone else is obliged not to interfere with your doing X. So at a fundamental level, ethics is connected to our notion of individual, political rights.

Moreover, there is an ethical principle implicit in the writings of the philosophers that I want to make explicit.

Rejecting an Unwarranted Proposition. I am going to assert that ethical reasoning is almost impossible unless we accept this foundational principle:

Need is not a claim.

Other people’s needs, regardless of how they are expressed (wishes, hopes, fears, wants, desires, etc.), are not a claim on your mind, your body, your assets or your productive ability. The political version of this idea is well known and is reflected in the Declaration of Independence: Everyone has a right to pursue his own happiness. But underlying the political principle is a moral principle, without which the political principle would be largely vacuous.

If you do not accept the moral principle that need is not a claim, be prepared to get bogged down in a hopeless morass of competing claims, emanating from every direction. There are throughout the world about 1 billion people living on a dollar a day. There are about 2 billion people living on no more than two dollars a day. There are at least 5 billion people who are substantially less well off than you are. How would you cope with even getting up in the morning if you believed that all those people had a moral claim on your daily activities?

Throughout human history most people in most places have thought that need is a claim. But the claim typically did not spring from the needs of poor people. More likely it was the needs of the rich and powerful — like kings and queens and various tyrants. Or the needs of the race. Or the class. Or the clan.

Bottom line: if you can’t get past the idea that need is a claim, rational discussion is almost impossible.

Articulating the Problem. So what is the fundamental problem in health policy? The problem is not that other people have needs. It’s that we are not indifferent about their needs. In particular, we are not indifferent about other people’s ability to obtain health care. As with other people’s poverty, we care — or at least most of us care. It is precisely our concern for others that turns the relief of poverty and the meeting of the health care needs of the indigent into a classic “public good,” with many of the very features of the proverbial lighthouse.

As with all public goods, each of our actions (or failures to act) has external effects. If I take care of a needy person, you don’t have to. If you take care of the needy person, I don’t have to. My charitable activity doesn’t just affect the recipient of my charity, it also affects you. And your charitable activity affects me.

As with all other public goods, in a world with no coercion, each of us has an incentive to be a free rider and benefit from the contributions of others. Hence this classic conclusion of welfare economics: Public goods will tend to be under-produced and private goods will tend to be over-produced.

Does this make the case for coercive government action? Not by itself. The problem is that there are imperfections in the public sector that arise for the same reasons they arise in the private sector. (See my paper with Phil Porter on this.) In general, good laws are also public goods. They benefit everyone, including you and me, even if neither of us does anything to help get the law passed. By contrast, bad laws that benefit narrow special interests at the expense of everyone else tend to have more of the features of private goods. Hence this classic conclusion of public choice economics: good laws will tend to be under-produced and bad laws will tend to be over-produced.

Government action to deal with a public good can make us worse off than if the government had not acted at all.

Case Study: the Lighthouse. Let’s consider how these considerations affect the classic lighthouse problem, for a moment — since I find that people are able to think much more clearly about lighthouses than they can health care. Once the lighthouse is constructed and starts emitting warning lights, all ship owners benefit whether or not they contributed to the costs of construction and maintenance. This doesn’t mean that there will be no voluntarily constructed lighthouses. In fact, historically there were many lighthouses built through voluntary action. Yet economic theory would lead us to believe that there were too few.

Now let’s suppose that a government could very carefully levy a tax on ship owners and build additional lighthouses, making sure that in each case the levy was less costly than each ship owner’s benefit. This is a case of government coercion that leaves everybody better off. Although the key is that everybody gains, there is no doubt that some ways of distributing the burden are better than others. In general, the more efficient the distribution of the levy, the better off everyone would be in the aggregate.

Rawlsian Choice. (Warning: this is Rawls ala Goodman.) Now suppose we all were standing behind a Rawlsian veil of ignorance. Each of us is about to be born into a new world in which we could end up as any of the people in that world. If you could choose the world you are about to be born into, wouldn’t it be rational to choose the world in which government was empowered to impose a carefully levied tax to build additional lighthouses as opposed to a world in which such taxes are not allowed. Of course it would. In the former case, national income will be higher. Everybody would expect on the average to be better off.

The ethical case for coercive, collective action then is straightforward: more is better than less.

Principles of Ethical Collective Action. Here are some suggestions. Coercive acts by government to produce collective consumption goods are generally permitted so long as:

  1. There is a rebuttable assumption that everyone is gaining in his relationship with the state. That is, the coercive cost to each citizen is less than the resulting benefit.
  2. The distribution of the coercively imposed burden is selected to minimize aggregate social cost. That is, among all possible taxes (all of which distort producer behavior) choose the one which causes the least harm (produces the most national income).
  3. Government is constrained in ways that prevents future policy from violating principles 1 and 2.

I believe these principles are explicit in the writings of Richard Epstein and implicit in the writings of Milton Friedman, Friedrich Hayek, Adam Smith and a long line of classical liberal thinkers.

Applying the Principles to Health Care. In contrast to lighthouses, it’s far more difficult to know how much the average person cares about whether other people get all the health care they need. In Characteristics of an Ideal Health Care System, I argued that an indicator of that concern is the amount we spend subsidizing the care of people who cannot pay their own medical bills (through private and public subsidies and through participating in price discrimination arrangements we could easily avoid if we felt strongly enough about it). At that time my back of the envelope guess was $1,500 per uninsured person, or $6,000 a year for a family of four. Today, I’m prepared to concede that figure may be as high as, say, $8,000 per family.

If we all agree on that ball park number, there is an efficient way of imposing and distributing the costs and benefits of a rational health care system. Let the government offer every family an $8,000 refundable tax credit to fund a basic amount of health insurance and a Health Saving Account deposit. For the vast majority of taxpayers, this credit would be a more efficient form of subsidy to replace the perverse tax subsidies already in the IRS Code. For the uninsured indigent, the credit would be a replacement of all the inefficient ways in which we now subsidize “uncompensated care.”

Funding the New Program. Where would the money to fund the $8,000 tax credit come from? The simplest and most straightforward answer is: from existing tax and spending subsidies and by making certain tax breaks ($1,000 child credit, standard deduction, etc.) conditional on proof of health insurance. (See my previous post.) Something no one in Congress seems to understand: there is no need for a higher tax burden in the aggregate.


Comments (46)

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  1. Nichole says:

    Everyone has their own choice…

  2. Ken says:

    Interesting economic approach to ethics.

  3. Brian says:

    “Need is not a claim” – give credit where credit is due. You’re paraphrasing Ayn Rand’s writings in this section, very obviously. Don’t bother trying to pretend they’re your own original ideas.

  4. Kyle says:

    Massive social welfare programs are just another means of accruing power. If you saddle people who understand responsible dissent with false imperatives (legislating the us/them mentality) you secure a voting block in the most undemocratic way possible.

    Locke would have quite a bit to say about our obligation to reject some of the recent security/liberty tradeoffs, and he would most likely he would have an aneurism over such massive social programs.

    Let’s face it, our concept of individual responsibility is careening downhill like a runaway beer truck.

  5. Uwe Reinhardt says:

    Interesting post, John, although it is bold to claim that a debate on what is morally justified (and, you might have said, morally compelling) has been completely absent from the debate on health policy, don’t you think? Many of us routinely teach theories of justice — the foundation of ethical thought — in our classes.

    And while your discussion on moral claims is thought- provoking, I find it only loosely connected to your pragmatic policy prescription. As you note, you have offered it before on this blog and we then tilted lances over it, until you were prepared to treat Medicaid as a Fail-Safe system for people whose health status would not allow them to purchase for $8,000 per family even a minimally adequate health insurance policy in an insurance market free to price policies on actuarial principles, that is, reflecting the individual’s health status.

    Your idea, on which I even wrote my own post, was to let such families buy into Medicaid for the $8,000 — a very progressive idea, I would add.

    Practically it would mean, of course, that Medicaid would become even more the catch basin for very sick people. It therefore would need added funding, on top of the $8,000 premiums it could collect from its clients.

    Finally, your presumably tax-preferred HSAs still contain the weird feature that they make health care bought with out-of-pocket payments for high income people lower (on an after tax basis) than it would be for low-income people. You may belong to a religion that deems this cool; I don’t.

    I would much rather see employer-paid premiums added to employees’ taxable income. Romney seems to have that in mind when he talks about closing loopholes, but, alas, he lacks the temerity to say so.

  6. Don McCanne says:

    “Need is not a claim” is hardly a fundamental ethical foundation of health policy. Instead we should begin with the ethical foundation that it is “wrong to accept unmet health care needs in the face of plenty.”

    With that foundation, it is a highly empirical conclusion that the role of government would be to grant a fixed voucher ($8000) for purchase of an HDHP with an HSA. Far more rational would be a single payer national health program since it would improve access to health care by removing financial barriers (such as would occur with an empty HSA account and an insurmountable deductible), while eliminating the profound administrative excesses and waste of the private insurance industry, while at the same time creating greater health care value through the dynamics of a beneficent public monopsony.

    Other nations do this at an average of one-half of the per capita cost compared to the United States. This should be forefront in the discussion of the ethical foundations of health policy.

  7. Robert A. Hall says:

    Excellent article. A system that cannot be sustained fiscally, and thus eventually collapses, is not ethical. I will link to this from my Old Jarhead blog. (

    Robert A. Hall
    Massachusetts Senate, 1973-83
    Author: The Coming Collapse of the American Republic
    All royalties go to help wounded veterans
    For a free PDF of my 80-page book, write tartanmarine(at)

  8. Al says:

    @Brian: ““Need is not a claim” – give credit where credit is due. You’re paraphrasing Ayn Rand’s writings in this section, very obviously. Don’t bother trying to pretend they’re your own original ideas.”

    Brian why so harsh? I believe the idea John presents long preceded the fictional John Galt’s radio address where Galt said “We do not consider need a claim”. That claim is a very old idea and one is unlikely to find the one who stated it first. At best one might find the earliest recorded record of that idea.

  9. Al says:

    @ Uwe: “I would much rather see employer-paid premiums added to employees’ taxable income. Romney seems to have that in mind when he talks about closing loopholes, but, alas, he lacks the temerity to say so.”

    It seems there is some doubt with regard to the legitimate ownership of taxes not paid by the employer when put towards health insurance.

  10. Uwe Reinhardt says:

    To A1:

    You state: “It seems there is some doubt with regard to the legitimate ownership of taxes not paid by the employer when put towards health insurance.”

    Please explain what you mean here so that a little country economist from rural New Jersey can understand it.

  11. Studebaker says:

    Consider a lighthouse, whose light is both non-rival and non-exclusive. As such, it’s a public good for shipping companies – and quite possibly consumers who buy goods arriving by ship. However, a lighthouse only helps those ships that sail near it. It makes sense for maritime associations, or the government to assess a lighthouse levy on ships based on size. But it would make more sense to assess a port of entry fee on ships. Ships entering a port near a lighthouse might have to pay a fee upon entering to discourage ships from taking undue risks. Or, maybe a fee could be assessed on the cargo entering ports near lighthouses. In addition, maybe the townspeople living near the port could subsidize the port lighthouse if they gained from the additional trade as a result of the ships entering the area safely. Even for an example as simple as a lighthouse, it’s easy to see how it could turn out bad. The policy should be designed to discourage undue risk-taking and the fees should be borne mostly on those with the most to gain and the least on those with the least to gain.

    But what does this example have to do with medical care? Really nothing. The notion that medical care falls within the arena of collective action is problematic. Medical care is neither non-rival, nor non-exclusive. Except for contagious disease, we are not affected by other people’s medical conditions. That’s not to say that we should not help the less fortunate. But it should not the role of government in a free society to decide who gets help; who doesn’t; who gets a free pass; and who has to pay for everyone’s care. There are institutions that provide for the needs of those who cannot help themselves. These are funded, in part, by people who willingly give of their resources. I support the idea of a safety net, and I am glad people in need get care. However, I still understand it’s a corruption of our freedoms. There is this idea that it’s somehow unethical for government not to take from groups of people and redistribute the resources to those less fortunate. But that is one of the excuses despots use to legitimize taking power.

  12. John Goodman says:


    I do favor actuarially fair premiums but I also favor “change of status” insurance that pays a high premium for you if you develop a health condition. For that reason, we do not need Medicaid to pick up all the high-cost enrollees.

    As you know I favor a fixed sum refundable tax credit – same number of dollars for everyone – in place of our highly regressive current way of subsidizing private health insurance. That would be combined with a Roth Health Savings Account, with after tax contributions that do not favor the wealthy.

    You really need to spend some time reading Priceless.

  13. John Goodman says:


    Your missing the point. Medical care is not a public good. Getting care to people who otherwise cannot afford it is a public good — at least if we all care about what happens to others.

  14. John Goodman says:

    Don McCanne:

    All you are doing is asserting that need is a claim, but using different language.

    Even if need is a claim, meeting it with a
    Canadian-style health system would be terribly wasteful and bureacratic.

  15. John Goodman says:


    If I say A is A, do I have to credit Rand for that as well? Or can interesting tautologies stand on their own, without a reference?

  16. Al says:

    @Uwe: “Please explain what you mean here so that a little country economist from rural New Jersey can understand it.”

    To the little country economist from rural NJ: I don’t think it is something that you would have substitutive disagreement with. Claims on that money are being made all the time. You even presented one claim in your initial statement. In fact I see discussions about that money all the time. Let this little country individual know exactly what you are looking for and then maybe he can provide you with a “Priceless” answer. :-)

  17. Robert Kramer says:

    Reminds me of Kramer’s “rule of 7″

    Dr Bob Kramer

  18. Uwe Reinhardt says:

    To John Goodman:

    Ayn Rand never said “A is A,” so you don’t have to cite her on that. She said “If A is preferred to B then B cannot be preferred to A, although you are free to act that way, if you wish.” It had something to do with “free to choose.”

    But I said A = A a while ago, when in an Econ 100 lecture I solved for my class AE Neuman’s classic equation: A = A times B to the power ln(1). So you should cite me.


  19. Uwe Reinhardt says:

    To A1:

    Heaven forfend that we should have a “substitutive disagreement”, for I know not what that is!

    The money whereof I wrote and you wrote is a so-called “tax expenditure” begotten by the tax preference accorded employer-paid health insurance premiums. They represent personal income taxes not paid because a part of the employee’s compensation under employment is excluded from taxable income, namely, the part of an employee’s health insurance premium ostensibly paid by the employer.

    The taxes not paid because of this preference — estimated to be anywhere between $250 to $300 billion a year — have to be made up through higher taxes paid by other taxpayers, either contemporaries (if we ever balanced the budget) or by future generations paying off Treasury bonds we issued to cover the tax leakage.

    John Goodman lose much sleep over this leakage, which is why he looks so much older than his 40 years.

    So, fight with him!


  20. Robert says:

    Interesting explanation and touch on ethics. I feel I will be reading over this again.

  21. Janice Michaud says:

    Charging ships by size is a sensible solution. These costs will be passed on to consumers according to amount consumed.
    Or perhaps a charge according to cost of cargo would be fairer.
    Whichever most reflects experienced value, will be the least coercive, this will be in evidence by how easy it is to collect the “dues/sell the product.”
    Only state power could distort this free market formula, so eventually the cost is too much, but there is no alternative.

  22. seyyed says:

    interesting read. very well thought out

  23. DK says:

    In your research you might find this essay titled “Healthcare Is Not A Right” of interest. You share strikingly common ideas with its author.

  24. wanda j. jones says:

    Dear John, Uwe and especially McCann….

    I just have to blast back on your greatly-mis-informed advocacy of single payer. I have a 65=page analysis of a single payer plan that California once proposed that I will send you if you want it. There are so many problems with it that I’ll just mention a few:

    Under-payment of providers so that there are fewer of them, and longer waiting lists. This is not trivial as people die on waiting lists. And once set on this death spiral, the healthcare system just decays as there are fewer people interested in entering the system, fewer suppliers, more regulation, more gaming of the system, and slower adoption of innovation. Check out all these factors in other countries that you think are doing so well.

    The US has one of the most dysfunctional legislative bodies outside of the Middle East, with the single most incompetent president since Hoover. In effect, you are advocating giving these or some unknown successors, the power of a Board of Trustees and CEO of the entire healthcare system. It will be impossible to use a central planning mechanism to accommodate all the regional, population, disease patterns, and cultural preferences of our 370 million people; the result will be the excess regulation and regimentation that we are now headed for.

    As to administrative costs–the government gets credit for low admin costs when they actually pass those costs onto the private health plans they use as fiscal intermediaries, as well as so under-paying for government patients that the uncovered costs are shifted to privately-insured people. This is not a trivial matter. Also observe the hundreds of millions being directed to establishment of state insurance exchanges–those are administrative costs, as well.

    Among the effects of Obamacare, via the application of totally-retrograde taxation of medical device companies is that these are shifting manufacturing to other countries. The tax is on gross revenue and ends up claiming 15% of net income. Medical devices are a tremendous source of value for patients, so there will be a slow-down in new devices, in patient access to them, in jobs created by these industries, and in the research component of this part of our industry.

    Gaming the system is the name of the behaviors very apparent in single payer plans. Providers bill too many ghost claims; budgets are inflated as to future demand, and so on, so that fraud and abuse becomes a culture. Look at our current example–Medicare. (How do crooked doctors get away with bad billing for, literally, years?!)

    Look at any single payer country–they will still be using hospitals built in the sixteenth century (Paris–Hotel Dieu, and a hospital north of Paris in Neuilly, dedicated to surgery; and in Toronto there are five hospitals to be replaced by McGill University, one dating back to the late 1800′s. So old the windows won’t stay in the brick frame. We have a lean hospital stock (@ 4 beds per 1000 population) compared with a country like Japan where there are 10 beds per 1,000 and a length of stay of 10-12 days, compared with our 3.5 days. I really wish that people who laud other countries would find out more about them and compare their features with ours. We are more modern, more efficient in use of capital resources than any country in the world, except, perhaps, Switzerland.)

    Why anyone with experience in healthcare policy would fail to raise a red flag about more responsibility for government after seeing their performance in managing Medicare and Medicaid is beyond me. All the problems we are exercised about have their roots in government’s mis-management of their own healthcare programs while they are ever more adept at blaming the private sector, which, with country healthcare, provides the essential safety net beyond the de minimus national and state government plans..

    John–There are areas of healthcare ethics that I would suggest bear scrutiny:

    1) Provider organization decisions being made for the benefit of physicians or health plans rather than patients. Boards of Trustees don’t even recognize this as an ethical problem as they are so used to it. The ethical question is whose rights are primary?

    2) As Nietzche says: “People have a will to stupidity.” This aphorism encompasses managers who know nothing of the science of medicine so do little to promote growth in knowledge capital; medical professionals who try to discourage competing providers with newer techniques; regulators who favor some providers over others out of political motivations, and vendors who over-design their products to justify very high prices that they know providers will pay, even though the same organization can produce miniature versions for foreign countries.

    I have a million of these. I commend to you all a book on management mistakes edited by a fine healthcare ethicist, Paul Hofmann, of Berkeley. (I have a section in it.) It outlines a number of decisions that have both business components and ethical questions..

    John–I do think that the term “choice” is inadequate to serve as a launching pad for ethics; it implies that choice is always on the part of the customer/patient, as contrasted with the choices made by purchasers, health plans and providers. For example, the entire industry is mired in a steady stream of historic choices about how to price services in which all collude. Theoretically, it is to keep physicians from making choices of what care to give on the basis of price or ability to pay. That is why some hospitals do not allow the medical record used by the doctor to state the source of payment. This is great, and a good thing when applied to seriously high-cost care. But it is not still appropriate when the specific service itself is a consumer good rather than a pure medical good. That is why cosmetic surgery is not covered by insurance; the patient already has a choice of whether to get it or not. But facial reconstructive surgery is covered, as the patient should have it regardless of price. There are lots of blurry lines as when a whole lot of politics enters the discussion; so we now have insurance that covers Viagra, and now birth control. If the patient is to have a choice based on knowing retail or packaged prices for truly high end are, everybody has to do it. And the other systemic reason for not displaying prices is that health plans do not want every provider to know the various prices it has negotiated among the area’s providers lest they all oogie to the same level.

    For all of us, it would be good to share the work of doing two things: 1) Make visual the policy options that are heretofore rendered in text, and 2) stretch out a modernization program that could take place year by year by year. If we are going to still be here, we can make improvements faster if all sectors are moving along the same tracks.

    Let’s not just complain, guys, but use our collective need to interfere in priming a lot of pumps.


    Wanda J. Jones
    New Century Healthcare Institute

    PS: Making a snotty reference to Ayn Rand belongs in the same category as complaints about Michelle Obama’s fashion sense.


    Wanda J. Jones
    New Century Healthcare Institute

    PS: Making a snotty reference to Ayn Rand belongs in the same category of complaints about Michelle Obama’s fashion sense.

  25. Uwe Reinhardt says:

    Dear Wanda:

    Wow! We must have struck a nerve in you, judging by the length, content and vehemence of your essay.

    Your characterization of our system of governance – bestowed upon us by the much revered Founding Fathers – is truly fascinating. The most dysfunctional outside the Middle East! Makes me wonder why we are so proud of it and send our troops abroad to export it thither.

    I am also fascinated by your characterization of our own health system – of provider organizations run for the benefit of doctors and health plans rather than patients and boards of directors that do not even recognize this as an ethical problem, of managers who know nothing of the science of medicine, of collusive pricing, of vendors who over-design their products to justify high prices, selling cheaper copies abroad …. and so on. And you claim to have a million of such disparaging and discouraging stories about our system. Nice, Wanda!

    And you plum forgot to mention that we spend about twice as much per capita in PPP$s than any other country in the OECD (save Switzerland, where the ratio is 1.4 to 1.5) and that households and governments at all level are braking under the load of health care and routinely declare it the nation’s most serious problems.

    Mazel tov!

    You are free to blame it all on government, Wanda, but secretly you must know that private employers had every opportunity – for four decades or more — to implement many of the things of which you dream. Where have they been?

    You argue, for example, that government shifts costs to private payers. Do you realize that this is tantamount to saying that private insurers do not know or are not able to provide adequate countervailing power to the providers of care in negotiating prices? Why else wouldn’t they just say “No” to the cost shift?

    I would not advocate a single payer system for this country either, precisely because of our dysfunctional government, but as to the rest of your sweeping characterization of foreign health systems, it is so classically American and I heave heard it so many times before that I inclined to disregard it other than to encourage you to travel more. Look to countries such as Germany or Switzerland or the Netherlands. All of them pay significantly lower prices to the providers of health care (in purchasing power parity), and yet they do not want for health care resources. They have more physicians per capita, more pharmacies and more hospitals beds per capita. They also spend much less per capita than does the U.S. I don’t think you will find many old hospitals with windows falling out of brick frames in Germany or Switzerland or Holland. And so on.

    Be well!


  26. Al says:

    @Uwe: ““substitutive disagreement”, for I know not what that is!”

    My favorite country economist, ‘substitutive’ was supposed to be ‘substantial’, but I am sure even out in the country you have spell check that sometimes inadvertently substitutes other words for those intended. In some cases it can be quite embarrassing, but this is not one of them. I didn’t think you would, but did you have a substantial disagreement with what I said above? Also, why should I fight with John?

    Yes, I believe we both understand the discussion involves what can be called a “tax expenditure”. That has caused great havoc and many unintended consequences. I know to a little country economist from rural New Jersey the $250 to $300 Billion doesn’t mean much but to the rest of us that is a lot of money worth worrying about especially with all the unintended consequences that accompany that trifling sum.

  27. John Goodman says:

    Uwe writes this:

    “Look to countries such as Germany or Switzerland or the Netherlands. All of them pay significantly lower prices to the providers of health care (in purchasing power parity), and yet they do not want for health care resources. They have more physicians per capita, more pharmacies and more hospitals beds per capita.”

    As I have pointed out many times before, these statistics imply that the countries mentioned are using more real resources to provide health care. And if they are using more real resources, they are not spending less than we are. They are spendng more.

  28. Don McCanne says:

    John Goodman writes, “As I have pointed out many times before, these statistics imply that the countries mentioned are using more real resources to provide health care. And if they are using more real resources, they are not spending less than we are. They are spendng more.”

    With absolutely no intent to be disrespectful, this comment does remind me of the title of the classic Health Affairs article by Uwe Reinhardt and his colleagues: “It’s the Prices, Stupid: Why the United States Is So Different from Other Countries.”

  29. Alex says:

    Excellent read; thanks John!

  30. Uwe Reinhardt says:

    To John Goodman:

    Yes, John. You got it! Mark Pauly wrote about that years ago, as did McKinsey and yours truly with col-authors.

    But citizens there have to fork over to the providers of health care fewer claims to GDP per unit of health-care resource. Top those who have to fork over these claims, it matters.


  31. Linda Gorman says:

    Instead of giving those claims to GDP to health providers directly, citizens in those other countries fork over GDP claims to tax collectors, health bureaucracies, and special interest groups like unionized hospital workers. And, they bear all of the costs of waiting and waiting for care.

    This matters to those who have to fork over those GDP claims, but not, apparently, to those who insist on ignoring these and other problems in comparing health care costs across countries.

  32. Uwe Reinhardt says:

    To Linda Gorman:

    Good thing we do not do that in the U.S.!

    QUIZ: What fraction of our health spending is out of pocket here relative to, say, Canada or Germany?



  33. Linda Gorman says:

    I’m not sure what your point is, but if one wants to use the OECD data for roughly 2010, OECD average OOP was 20.1 percent of total expenditure. US was 11.8 percent. The UK was lower (8.9) as were New Zealand (10.5) and France (7.3). Germany was 13.2. Canada was 14.2.

    Though waiting lists are important sources of cost in other countries they have not been an important factor in the US. Their costs are not included in the OECD calculations.

    None of these data include spending for medical tourism. All are subject to the problems outlined in the OECD SHA project.

    The Health Basket project tried to look at national costs using bottom up microcosting and found that costs varied from 8 euros in Hungary to 160 euros in England. a great deal from country to country for something as simple as a dental filling. For the 4 countries studied, the correlation coefficient between reimbursement and the total cost of a tooth filling was 0.285.

    I’d say that John is correct in saying that it is certainly possible that other countries have higher cost health care than the US.

    Personally, I prefer to pay cash. Often get better service and end up paying less overall.

  34. Uwe Reinhardt says:

    To Linda Gorman:

    Interesting numbers. So it would seem that as only 11.8% of health spending was out of pocket in the US, we must be turning a lot of dollars over to public or private bureaucrats who control or at least strongly influence how that money is spent.

    But you point seemed to be that such a thing characterizes mainly other countries with queues, when you write: “Instead of giving those claims to GDP to health providers directly, citizens in those other countries fork over GDP claims to tax collectors, health bureaucracies, and special interest groups like unionized hospital workers. And, they bear all of the costs of waiting and waiting for care.”

    By the way: Have you watched health care delivered in Germany, the Netherlands and Switzerland. Did you see many queues there? Do many Germans, the Dutch and the Swiss travel abroad for health care?

  35. Linda Gorman says:

    I’ve experienced German health care, so I guess one could say that I’ve watched it delivered. Judging from some recent papers, the Germans are concerned about the inequities in care that are developing in the treatment of those who are publicly versus privately insured. They are also concerned that Germans are receiving suboptimal care according to newspaper reports (,,5139759,00.html)

    My point about queues was simply that they are a cost that must be included when making international comparisions if the comparison is to be fair.

    In the OECD accounting system OOP costs are those borne by patients. As John has repeatedly pointed out, because US patients pay for their health care indirectly, they have little incentive to shop for health care, or limit their use of it.

    I don’t know the numbers of people who travel abroad for health care in any country. I do know that people travel abroad in Canada and the US. I’ve met some of them. If you have data on medical tourism that you’d be willing to share, I’d be most grateful.

  36. Uwe Reinhardt says:

    To Linda Gorman:

    I was in Germany about 3 weeks ago and, on the occasion, visited a hospital. Private insurance buys you better accommodations (the rooms were a little larger, although in this hospital both privately and publicly insured patients had rooms with only two beds. Also the TV screen was a bit larger in the private rooms.

    Private patients can contract with the chiefs of the department on a private basis (although at government regulated fees), but Germans tell me that chiefs don’t always give the best care, because their strength is administration. There is always a concern in super egalitarian Germany about difference in quality; but I am not aware of any scholarly paper demonstrating such differences.

    I am not surprised that newspaper claim Germans get sub-optimal care. It is true everywhere. In this regard see the work of Elizabeth McGlynn of RAND That research team found that on average Americans receive the appropriate care only 53% of the time. See also the several IOM publications on that score.

    There is medical tourism from Canada to the US and, it may surprise you, vice versa. Americans also sometimes go to India or Thailand or Mexico. And many foreigners from all over come to our academic health centers; but many Middle Eastern potentates go to Germany as well and even England.

  37. Al says:

    @Uwe: “Interesting numbers.” Linda correctly stated: “they are a cost that must be included when making international comparisions ”

    Uwe, do you think our costs would go up or down if instead of spending a fortune trying to save very low birth weight babies we let them die on the table like they do in, I believe, France and Switzerland?

    Remember that hot summer in France? Just how many people died with everyone out of town? What happened to the A/C in the hospitals that didn’t exist? Costly stuff that air-conditioning.

    Death toll France heat wave 14,802
    Population France ~ 60,000,000
    Population U.S.A. ~300,000,000

    15,000 X 5 =75,000 or comparatively more than were killed in the entire Vietnam War (<60,000.) that lasted years. The heat wave lasted a few weeks.

    Numbers are funny and can take very bright little country economists down the wrong path. I think most of the number comparisons are bull.

  38. Linda Gorman says:

    It’s nice that you saw the rooms in the German hospital. The standard where I live is heading towards private rooms as this speeds recovery and helps control infection.

    I think, however, that the more important question is access to care. There is a small literature suggesting that this is a problem in Germany. Unfortunately I can only access it in translation. See, for example, D. Stech (2010 and 2009) on hospital rationing, Brockmann in a working paper for the Max Planck Institute in 2000 that informal rationing by age may be more common in Germany than in the United States.

    The RAND study looked at recommended care using a bunch of quality measures that may or may not have significant clinical effects if they are skipped once and a while–for example, is getting a mammogram every 18 months rather than every 12 months a sign of low quality care? And that may be under patient direction. Is a patient refusing a colonscopy a sign of low quality care?

    I don’t think that it is at all the same as being refused appropriate care. It is not uncommon for people needing surgery in countries with waiting lists to be made to wait so long that they become too sick to withstand the operation.

  39. Uwe Reinhardt says:

    Ms. Gorman:

    I know it gives Americans please and reassurance to find fault with other countries — be it health, education or railroads — and I am sure there are always anecdotes or even papers to buttress that feeling.

    But I am sure that for every flaw you will find abroad I can find you one in our system, don’t you think?

  40. John Sweeney says:

    Thanks for this one! Love your approach.

  41. Lucy Hender says:

    A strong and consistent ethical foundation is what politicians and policymakers lack these days…and always.

  42. Uwe Reinhardt says:

    To Lucy Hender:

    What you say seems to be right. Politicians brazenly look into the camera and promise voters things these politicians know cannot be delivered. We are seeing it again this fall.

    But are we, the voters, free of culpability in this game? Do we shun politicians who do this to us? I believe on the contrary: we reward them at the ballot box.

    I know many politicians personally and find them (a) bright and (b) potentially ethical. By the latter I mean that, ideally, they would like to conduct themselves on consistent ethical principles (not the same for all politicians, of course, because ethical principles vary among people). Alas, the politicians deviate routinely from their own ethical principles because our system of governance and elections literally forces them to do it. No matter what a politicians may think privately, when he or she is from New York they will shill for the financial sector.

    Furthermore, of course, when you examine the conduct of our financial sector and the ways corporate CEOs in general are compensated (should I say “have themselves compensated”?), do you find that conduct based on consistently ethical principles?

  43. Al says:

    Uwe: “I know it gives Americans please and reassurance to find fault with other countries — be it health, education or railroads — and I am sure there are always anecdotes or even papers to buttress that feeling.”

    Uwe, isn’t that a major part of your argument and others? ‘The US spends more than everyone else, along with a whole host of other things’ We spend too much and that we understand. Our problem, however, is the rate at which expenses rise. No matter how much we reduce expenditures today the rise itself is eventually unsustainable. We are not the same as Europe and we think, act and have different needs.

    I think we should not be using these international comparisons to pre determine a system and only use them as suggestions for working with the data to see what works best for us, but I keep hearing these remarks  from others and possibly you that we need to adopt systems similar to those of other nations that have the same unsustainable course. Germany is one of them and though it appears to have one of the best systems it too has some problems similar to the US including adverse selection. Ie: Those with private insurance and chronic disease might be refused private insurance and end up in the public system.

    I’m not quite sure the course you are suggesting except that you do not seem to like a market system where regulation not direct involvement by government exists.

    I would like you to clarify any misunderstanding I might have.



  44. Uwe Reinhardt says:

    To Linda Gorman:

    Many people believe that I have advocated a single-payer system for the US; but when I challenge them to cite me a paper in which I said that, they fail to produce.

    As it happens, I don’t think our system of governance, in which the votes of politicians can be purchased retail, is not ideally suited to run such a system well. It is easier in parliamentary systems.

    So I once did advocate a single-payer system for Taiwan, which they have been able to operate reasonably well, albeit not perfectly. The problem of under-funding such a system, which you alluded to, is real in such systems.

    At the same time, I would tell you than I have never been at health care conferences in other countries that would adopt the US system for their country. On the contrary, it is the bogeyman at such conferences. This does not prevent other countries, however, from copying this or that facet of our system–for example, the DRGs or certain clinical facets.

    I supported Alain Enthoven’s concept of managed competition, because I thought it combined the best of social-solidarity sentiments with market forces. Alain’s concept is really like Ryan’s the premium support model that this blog will dutifully embrace, if Romney wins.

    What shocked me, though, is that when President Bush and his Republican Congress had the opportunity in 2003 to fashion Medicare Advantage along those lines, they opted instead for an approach that cost taxpayers MORE per elderly in Medicare Advantage than that elderly would have cost in traditional Medicare. How can that be defended?

    In a recent paper for the IMF, whose editors wanted some cross-national surveys, we cited a Commonwealth Fund table but hastened to add that we personally do not much like such league tables, because too much is going on underneath them to give much guidance for policy within a given nation. The worst of these, of course, was the WHO 2000 report.

    What the survey’s do show, though, is that it is possible to give a population reasonably good comprehensive and universal health insurance coverage with reasonably good health care for much much less than we spend in the US. So the challenge would seem to be on us to show that for the huge amount of extra money spend per capita we get commensurate extra benefits. I can’t recall ever seeing that done other than by anecdote. On the contrary, after a deep dive, abetted by 12 highly reputable health economists, the Business Roundtable a few years ago came out with a report stating that given what Europe spends and gets as a baseline, the US system has a 23 percent value gap. These are not left-wing radicals concluding thus.

    Finally, I do believe that a highly fragmented insurance industry will never get good prices from an increasingly consolidated supply side. Just check out this link…1c.1.6YH7F25IaFE&pbx=1&bav=on.2,or.r_gc.r_pw.r_qf.&fp=4bf76621ca799f85&bpcl=35243188&biw=1024&bih=555

  45. Don McCanne says:

    Even when private insurers are under more direct government supervision, as with the Medicare Advantage plans, they still fail to provide us with greater value. A new report released today shows that taxpayers have overpaid the Medicare + Choice and Medicare Advantage plans by $282 billion. This link is to a press release, and within the press release is a link to the full article.

    In spite of Uwe Reinhardt’s legitimate concern about our highly dysfunctional Congress, it would still be better to have an improved Medicare that covered everyone – a single payer system.

  46. Linda Gorman says:

    I completely agree about the WHO survey. And share the concern about the pricing power of the increasingly consolidated hospital sector, a result that, in my view, is largely the result of inept regulation.

    But if the Business Roundtable Health Care Value Comparability Study is a “deep dive,” then scholarship is in more trouble than I thought. No wonder ObamaCare is such a mess.