On Healtcare as Commodity

“We want you to engage honestly on the issues in this debate on healthcare” … “but if you oppose the healthcare bill, you are a racist.”

“This healthcare bill will not raise taxes or deficits at all” … but Mr Wilson is “officially” reprimanded for accusing the “One” of lying and an apology is demanded (although it was already tendered within hours of the speech) … this in a bill the CBO flat out says will raise spending and for a bill which specifically includes new taxes.

We’re not going to have any death-panels … We want this instead. It’s not a panel, it’s a formula.

So, let’s attempt some more rational discussions on healthcare. Hopefully, some progressives will be able, unlike the President, to engage in actual debate that isn’t accompanied by poisoning the well.

An eminent not-so-directly politically connected (Nobel winning) economist has an interesting offering here. He concludes:

Why is it that although the average age of onset of disabilities has been delayed by ten years, and that these disabilities have become milder than they used to be, the share of GDP spent on health is rising? One factor is the increase in the proportion of the population that is elderly. However, such changes in age structure account for a minor part of rising expenditures, on the order of 10 percent.

The main factor is that the long-term income elasticity of the demand for healthcare is 1.6—for every 1 percent increase in a family’s income, the family wants to increase its expenditures on healthcare by 1.6 percent. This is not a new trend. Between 1875 and 1995, the share of family income spent on food, clothing, and shelter declined from 87 percent to just 30 percent, despite the fact that we eat more food, own more clothes, and have better and larger homes today than we had in 1875. All of this has been made possible by the growth in the productivity of traditional commodities. In the last quarter of the 19th century, it took 1,700 hours of labor to purchase the annual food supply for a family. Today it requires just 260 hours, and it is likely that by 2040, a family’s food supply will be purchased with about 160 hours of labor.¹²

Consequently, there is no need to suppress the demand for healthcare. Expenditures on healthcare are driven by demand, which is spurred by income and by advances in biotechnology that make health interventions increasingly effective. Just as electricity and manufacturing were the industries that stimulated the growth of the rest of the economy at the beginning of the 20th century, healthcare is the growth industry of the 21st century. It is a leading sector, which means that expenditures on healthcare will pull forward a wide array of other industries including manufacturing, education, financial services, communications, and construction. [Ed: Emphasis mine]

So, my argument all along has been that if you want to increase the availability of healthcare and to increase the quality you need to encourage and advance ways of making the healthcare product we consume today an easier and more available commodity. That will take a radical restructuring and a heavy reliance on automation which is not available today. Entrenching the current system in heavier and ever more layers of bureaucratic burdens is exactly the wrong way to go about reshaping healthcare for the future. Regulation is not the means by which innovation is found. The only innovation heavy regulation and control achieves are innovative ways to get around said innovations.

All of the industrial commodities and consumable items today which have been reduced in price over the past decades have achieved their price reduction via automation. From the humble tractor to automated robotic lines and CAD/CAM processes. Computer automation and information technology are going to be a big part of the innovations that we will need in order for the price to drop by an order of magnitude or more. We are famously told that since the mid-80s the capabilities of biotechnology have been increasing exponentially faster than our computing power (Moore’s Law). Much of the computer industry derived its innovations from very small scale startups and single individuals. Yet it is impossible to imagine a single individual or small group in today’s regulatory environment getting a new drug, therapy, or diagnostic device to market. If it is impossible to imagine … it won’t happen. If Congress gets its hands on managing (and likely micro-managing) healthcare for the nation, innovation will require an act of Congress.

Congress can fix healthcare. By taking its hands off, letting go. By simply burning the as many regulations as it can and lighting the a fire of innovation into the field. Put cost and accountability and choice in the hands of the consumer. Release restrictions and let the market reward successful innovation.

Filed under: Government • Healthcare • Mark O.

Like this post? Subscribe to my RSS feed and get loads more!