Health care in the US Notes for November 5

Main points

Today’s class was an overview of how health care is financed and provided in the US.

Concerning the financial part, there are public and private insurance providers. Care is provided by public, private, private non-profit, and private research institutions.

The topic of rationing comes up because the amount that we’re willing to spend on health care is smaller than the amount needed to supply all of the care that is provided. This gap is being exacerbated by the increasing cost of health care.

Why are costs increasing?

The reasons why health care costs are growing are controversial. Krugman and Wells emphasize technology and the inefficiency of private insurance. Aaron and Schwartz and Menzel emphasize over-consumption, partly driven by the fact that health care is paid for by insurance.

As Kari and Joe pointed out, it isn’t obvious how this diagnosis of the problem fit with Menzel’s program. His version of rationing seems directed at the really expensive stuff, like artificial hearts. But we were under the impression that the over-consumption problem (if there is one) had to do with smaller decisions, like going to see the doctor every time you get a cough. Then again, I’ve certainly had several x-rays that seemed pretty silly (in a research hospital).

I added that health care is what you buy when you’ve got everything else you need and that you’ll keep on buying it as long as you’ve got extra cash. Professor Brown had a fancy phrase for this, but I forgot it.

Your diagnosis of the cause of increasing costs will drive your policies.** Or vice versa. This is obvious in Krugman and Wells’s case. If you think over-consumption is the problem, you will favor pushing more of the cost of getting health care onto individuals so that the cost of health insurance will remain low enough for individuals to afford it.


This leads to rationing, denying care to people who would benefit from it. Is rationing necessary?

Krugman and Wells say it isn’t. But that’s because they think we can save a lot by moving to a single payer system that will capture the overhead in the private insurance markets.

Assuming that isn’t going to happen any time soon, we still have to make decisions about public programs that have budgets: what shall we cover in Medicaid? Organ transplants or prenatal care?

Also, the government can influence the cost of private insurance by withholding tax benefits for costly insurance plans; that would lower the cost of insurance and make it more widely available. Should it do so and, if so, what kinds of coverage should it discourage?

Finally, even if we have a single payer plan, we will have to decide how much to spend on health care, compared with the other things we want to buy as a society. And we will have to decide what kinds of health care or health care technology to fund.

So something like rationing is going to be on the table. We’ll talk about Menzel’s specific proposal in the upcoming weeks.


Please read the additional chapter from Aaron and Schwartz that was handed out at the end of class today. We will begin next time with that chapter.

If you weren’t there, come by my office (207 Pearsons) and get a copy.

This page was written by Eleanor Brown and Michael Green for Freedom, Markets, and Well-Being, PPE 160, Fall 2007.
Freedom, Markets, and Well-Being