1. We spend too much money on health care. 18% of GDP, a quarter of our total economic growth from 2000-2008, 20% of total government spending … you know the drill. And like the housing bubble, this is largely the result of misguided government policies that distort the market in the name of combating undersupply, on which more shortly.

2. We treat “health insurance” and “health care” as synonymous, but they shouldn’t be. Understanding the purpose of health insurance as that of paying for all of our health care expenses is a quite recent phenomenon, and it has a lot to do with the post-WWII policy of subsidizing employer-provided health benefits, which quickly became the norm (and was mimicked by Medicare and Medicaid) and crowded out alternative methods of payment. Among others, one consequence of this is the vast amount of money we spend – $500 per person, as of 2006 – just to staff the insurance bureaucracy.

3. There is a massive moral hazard problem. Patients have little direct financial incentive not to request whatever expensive treatments they see on TV, and doctors have clear financial incentives to provide them. Combine this with a massive informational asymmetry, and costs spiral perpetually upward; individuals with health insurance (or “insurance”; see #2 above) spend nearly four times as much of other people’s money on health care than do individuals without it, and in many instances the attendant benefits are marginal at best.

4. We’re the only ones who can pay. Not the health insurance or drug companies, whose profits would fund our appetite for health care for less than half a year. Not our employers, who just take it out of our salaries (and the would-be salaries of our would-be coworkers). And wouldn’t some of that money be better spent doing something else?

5. Governments can’t do enough reduce costs. Concerns about innovation aside, state bureaucracies aren’t actually very good at cost control; even the costs of Medicare have risen consistently (and their relatively low costs are largely the product of shifting costs onto non-beneficiaries anyway), while single-payer systems like those in France, Canada, and the U.K. have lately seen increases in per-capita spending comparable to our own.

6. Regulation limits competitiveness. State laws make interstate competition an impossibility. Licensing requirements form huge barriers to entry. Safety regulations are reshaped by powerful interests as a way to disadvantage their would-be competitors. Government laws and payment policies have encouraged a situation where large and powerful hospitals, rather than smaller specialty clinics, have a near monopoly on many forms of care. None of this is the result of a free market, and little if any of it works to our benefit.

7. Medical providers work to serve the people who pay them, not the people in their care. With the exception of billing, hospitals and other health providers have little incentive to make IT improvements. Costs are hidden from potential patients, which of course is a perfect way to inflate prices and discourage real competition. And very little is done to encourage greater transparency with respect to cost or quality of care.

8. The costs of medical technologies are vastly inflated. In contrast to the open, competitive, and relatively transparent market for ordinary consumer goods and, say, services like LASIK surgery (with insurance seldom covers), much new medical technology is used in a way that involves little incentive to lower prices. And as per the above, this can’t be fixed through supply-side remedies; the only solution is to alter the way we make our demands.

9. The present push for “comprehensive” reform will do nothing to solve the underlying problems. Rather, it will only perpetuate many of the present system’s worst excesses, thus further solidifying the sorts of tendencies that have given rise to the present mess. (This is an important point to be made in response to those who argue, not unreasonably, that the present situation demands that we move quickly and not sacrifice the better for the perfect; as I’ve suggested before, the flip side of this is the risk that self-styled “reforms” are passed with much fanfare, and then the demand for truly necessary changes comes to an end with a whimper. Short-term gains can easily become long-term losses.)

10. The proper response is a shift toward consumer-driven care, with subsidies for the poor and a single program of truly catastrophic insurance available to all. In other words, pretty much what I’ve been saying.

Please note that Goldhill is a Democrat, and that he comes at this issue as a businessman who recently lost his father to poor hospital care, rather than an industry wonk with a line to toe. If anyone knows of any especially forceful criticisms that have been made of his argument, please do link to them in the comments and I’ll take them up in a future post. In the meantime, you should read the whole thing.

P.S. Here are the transcript and audio from an interview with Goldhill on NPR’s Morning Edition.

Consumer-driven health (CDH) products [i.e., high-deductible health plans relying on HSAs or Health Reimbursement Arrangements to reimburse for qualified expenses] have been marketed in various forms since the early 2000s. While emerging data is [sic] not entirely conclusive, general directional conclusions can be drawn from the studies published to date. […]

With regard to first-year cost savings, all studies showed a favorable effect on cost in the first year of a CDH plan. CDH plan trends ranged from -4 percent to -15 percent. Coupled with a control population on traditional plans that experienced trends of +8 percent to +9 percent, the total savings generated could be as much as 12 percent to 20 percent in the first year. All studies used some variation of normalization or control groups to account for selection bias.

For savings after the first year, at least two of the studies indicate trend rates lower than traditional PPO plans by approximately 3 percent to 5 percent. If these lower trends can be further validated, it will represent a substantial cost-reduction strategy for employers and employees.

Generally, all of the studies indicated that cost savings did not result from avoidance of appropriate care and that necessary care was received in equal or greater degrees relative to traditional plans. All of the studies reviewed reported a significant increase in preventive services for CDH participants. Three of the studies found that CDH plan participants received recommended care for chronic conditions at the same or higher level than traditional (non-CDH) plan participants. Two studies reported a higher incidence of physicians following evidence-based care protocols.

The authors add that “no data-based study has emerged” to contradict the indication that CDH plans “can produce significant (even substantial) savings without adversely affecting member health status”. H/T to Alex Tabarrok, who adds that the effects of such plans would likely be much more significant if they were adopted more widely.

(Cross-posted.)

It is important to emphasize – as I’ve seen remarked before; I just can’t recall where – that the central argument of this chapter is not that healthy markets require robust regulatory states and political systems that ensure a just distribution of wealth; this is certainly among its claims (see e.g. the second paragraph of sec. 41), but it clearly is not the primary one. Rather, as suggested just above, the point Benedict makes most often is that since economic activity has a “human significance, prior to its professional one” (sec. 41), markets themselves must therefore be geared toward social justice and informed by the logic of gift; and so it is not enough for government to step in and impose these values simply as a corrective. As he puts it in sec. 39 (though note that one could pull a similar quotation from almost any paragraph in this chapter):

When both the logic of the market and the logic of the State come to an agreement that each will continue to exercise a monopoly over its respective area of influence, in the long term much is lost: solidarity in relations between citizens, participation and adherence, actions of gratuitousness, all of which stand in contrast with giving in order to acquire (the logic of exchange) and giving through duty (the logic of public obligation, imposed by State law). In order to defeat underdevelopment, action is required not only on improving exchange-based transactions and implanting public welfare structures, but above all on gradually increasing openness, in a world context, to forms of economic activity marked by quotas of gratuitousness and communion. The exclusively binary model of market-plus-State is corrosive of society, while economic forms based on solidarity, which find their natural home in civil society without being restricted to it, build up society.

(Whatever translator came up with “world context” should never be allowed near the English language again.) Hence our questions should be: In practice, what does it mean for everyday economic activity to incorporate such relationships? Beyond obvious demands like those of fair pay and honest disclosure, what does market ethics (if we might coin a term) consist in?

One suggestion that comes up repeatedly as an answer to the first of these questions is that the market must have room  for the economic activity of those “who freely choose to act according to principles other than those of pure profit, without sacrificing the production of economic value in the process” (sec. 37); hence for “commercial entities based on mutualist principles and pursuing social ends” (sec. 38) that exist alongside enterprises that are public or more narrowly profit-oriented. Benedict calls this a way of “civilizing the economy” (ibid.), and it can be seen as a counterpart to the call for dispersed, multi-leveled, and cooperative political authority that comes in the second paragraph of sec. 41. Similarly, in sec. 40 there is an articulation of the more familiar demand for corporate managers to be attentive to more than just the demands of their shareholders: workers, clients, suppliers, producers, and the broader “community of reference” all have a stake in the life of the business, and so a long-term and appropriately wide-ranging view of the ends of economic activity is consequently is an inescapable demand.

Ultimately, then, it seems best to read this chapter as directed toward business leaders even more than political ones, since as Benedict puts it “attitudes of gratuitousness cannot be established by law”, while markets and political institutions alike “need individuals who are open to reciprocal gift” (sec. 39). It certainly seems right to regard a widespread failure to embody such openness as among the chief causes of social injustice.

Thoughts?

P.S. Here is the text of the encyclical, and here are the previous entries for this reading group. Next weekend, we’ll discuss chapter four.

One of the reasons I don’t think of myself as a libertarian even though they’re the group whose actual policy preferences most closely mirror mine is because of things like this. Legislation reflects a society’s moral values. In fact, it should reflect a society’s moral values, consistent with individual freedoms, because it is what a democratic polis is all about: a nation deciding by which rules it wants to live.

Government can’t and won’t “just get out of our lives”, simply because what you describe as “getting out of our lives” isn’t the same thing as what I describe as “getting out of our lives”, and, until Jim Manzi finally succeeds at creating evidence-based social science, there is no scientific way to decide what government should or should not do — and nor should there be.

So if you want to disincentivize smoking through sin taxes, that’s perfectly fine. It’s okay to have public policy that disincentivizes bad things just because they’re bad, without having to make budget projections over the next 30 years. I’m willing to pay extra to feed my addiction. But don’t lie about the real reason you’re doing it.

Here’s an example of the kind of claims that have got free market critics rather up in arms about the message of this document:

Profit is useful if it serves as a means towards an end that provides a sense both of how to produce it and how to make good use of it. Once profit becomes the exclusive goal, if it is produced by improper means and without the common good as its ultimate end, it risks destroying wealth and creating poverty. (sec. 21)

Can this really be controversial, though? That there are such things as improper means to profit, and that it is possible for the profit motive to realize itself in ways that are exclusively self-seeking and that do not serve the common good as fully as they could, are claims that any reasonable person should accept as axiomatic; we need look no further than the example of the Madoff scandal for a case in which the destruction of wealth was the direct product of the disordered and improper attempt to realize individual profits. So the crucial questions, then, are those of what forms the proper sorts of profit-seeking should take, and of how it is that the production of wealth can best be in service of the good of the whole of human society. And what could be more reasonable than the thought that the answers to these questions have got a lot to do with caritas?

By my lights, the key phrase of this opening paragraph is opportunity for discernment: the present situation gives us a real opportunity, inasmuch as it is often times of crisis that best enable us to pay attention to fundamental matters; but it must be, contra many of our pundits and political leaders, a time for careful and attentive thought before it is a time for action – let alone the kind of action that centers on rewarding favored political constituencies. Benedict offers a glimpse into the form that such discernment must take when he talks in sec. 21 about interconnection, and revisits this theme throughout the chapter, perhaps most notably in secs. 30-32. For example:

… moral evaluation and scientific research must go hand in hand, and that charity must animate them in a harmonious interdisciplinary whole, marked by unity and distinction. The Church’s social doctrine, which has “an important interdisciplinary dimension”, can exercise, in this perspective, a function of extraordinary effectiveness. It allows faith, theology, metaphysics and science to come together in a collaborative effort in the service of humanity. It is here above all that the Church’s social doctrine displays its dimension of wisdom. (sec. 31)

Benedict laments the “excessive segmentation of knowledge” that allows, for example, economics to be regarded by many as a purely descriptive science without a normative dimension of its own, and calls instead for us to “broaden[] our concept of reason”, and to see it as perfected by love.

If I were to offer a criticism of the vision of public policy that begins to take shape in this chapter, it would have much less to do with any of its supposed ignorance about the ways that modern economies “work” (for example, the claim in sec. 27 that hunger and starvation in poorer countries often have less to do with food shortages than with institutional failures and a lack of social solidarity interestingly mirrors Amartya Sen’s research on the mechanisms of famine), but rather with what feels like an insufficiently articulated recognition of the ways that the various means and ends stand in tension with one another. At times the holism is spot on: Benedict is right, I think, to argue in sec. 32 that societal dysfunction, such as that which arises from unhealthy levels of social inequality, has negative economic effects as well, and so to see social capital and ecological health as central to proper economic development; and there is also a lot to the argument of secs. 28 and 29 that respect for human life and of the right to religious freedom are central to the vision of humanity that integral development requires. But to take just one example that jumped out at me: being troubled by the effects of outsourcing (sec. 25), supportive of the rights of trade unions (ibid.), and opposed to the tariffs for which such unions often lobby as a means to labor stability but which come at the cost of “mak[ing] it difficult for the products of poor countries to gain a foothold in the markets of rich” ones (sec. 33), is a challenging line to walk; of course such internal tensions are going to arise for nearly any comprehensive political vision, but it is nevertheless important to acknowledge them as such.

This is, however, hardly a devastating problem. As we were reminded all the way back in sec. 9, this encyclical is not a document that is meant to offer technical solutions to specific political problems, but is rather a proclamation of fundamental truths about the nature and aims of human society. And read along these lines, the central challenge of Caritas in Veritate is to a range of overly narrow conceptions of what the state is for – as a commenter helpfully put it last week, the central idea that is being called into question is that of a state that is scrupulously neutral with respect to visions of what the common good entails. The question of how to realize the goals that a properly ordered state must strive after – of how, for example, to ensure an appropriate degree of labor stability without implementing damaging trade policies, or to identify and respond to those instances in which labor unions (or private corporations!) are not genuinely working toward the common good – remains in many ways an empirical one, and is likely to have a large range of plausible answers. But the striving for these answers cannot be done in a way that reduces persons to labor inputs, or measures output simply in dollars and cents; we need, in other words, to seek that truth that is also the embodiment of love.

There, I think I’ve touched on about two percent of what comes up in this chapter. Your turn.

P.S. Here is the text of the encyclical, and here are the previous entries for this reading group. Chapter three is up for next weekend.

I think a few important lessons should be learned from this story. First, leave religion to priests and government to politicians. Second, pay your taxes, even if you don’t like it, because it’s only money. Third, religious leaders have more important things to worry about than economics. As a result, I think the Church needs to be very careful in telling governments what to do. And I think it agrees.

But do inexpert laymen who haven’t even done their homework need to be similarly careful in giving instruction to the Church? Heck no! I mean, where would we be without Indiviglio’s brilliant summary of the encyclical’s core theme?

I actually really love the notion of "Charity in Truth." By that phrase, the Pope means something like, by loving one another (God’s charitable truth), we’ll all be a lot better off. I think that’s right. Individuals, and even corporations, should be charitable. But that’s a lot different from saying that government needs to vastly redistribute wealth or crush profit-seeking business.

Or his take on how it applies to our present situation?

A denial of truth definitely played a major role in breaking the economy. I think a denial of charity had very little to do with it. Most of the banks or other corporations that failed, or nearly failed, were quite charitable. So were most of the wealthy individuals at the center of the tragedy. Goldman Sachs, a common symbol of greed, has a foundation that gave something like $120 million to charities in 2007. That number doesn’t include the countless of millions more their individual bankers gave to charity.

The past five to ten years also saw the growth of the non-profit industry — an entire branch of the economy entirely dedicated to charity. During this time, we also saw incredible sums of money go towards disaster relief for catastrophes like Hurricane Katrina, Darfur and the Tsunami in Southeast Asia. Charity seemed to be alive and well. Truth? Not so much.

I understand that I’m tilting at windmills here, but speaking as a libertarian-leaning Catholic with an almost reflexive skepticism of the real-world effects of governmental attempts to make our lives better, let me just say: Stop.

Please. Stop.

Not only does this sort of response to what is intended to be an authoritative proclamation rupture the Body of Christ and undercut the Church’s capacity to bear prophetic witness at a time when that witness is sorely needed, but it also contradicts any claim that you – we – might make to care more about fidelity than partisan alliances or ideological convenience. That many Catholic conservatives have consistently – and not unreasonably – levied exactly these sorts of criticisms against those who have dissented from texts like Humanae Vitae naturally makes this situation only worse; we can say what we will about widespread heterodoxy and ignorance about Church teaching being the result of liberal pastors and a generation of bad catechesis, but when this is how we respond to a document that is meant to, you know, catechize us, it’s hard to escape the conclusion that the rot spreads much further than that.

If the activity of reading a document like this one doesn’t challenge your biases and move you to shift at least some of the contours of your preexisting thought, then the fact is that you’re doing it wrong.

The potential significance of these data for any number of common understandings of the factors behind rising medical costs is immediate, but – and speaking as a statistical ignoramus, so pillar of salt and all that – the way that they’re being presented here is doing some pretty significant work, isn’t it? Crucially, it seems clear to me that the numbers should at least be calculated in terms of per capita expenditures, since as it stands we aren’t shown how much of the total growth in each case is due to simple increases in human and non-human animal populations. And based on what I could glean from a quick search, the U.S. pet population increased by about 17% from 2001 to 2007 alone, which would give an annual growth rate of almost 3% in contrast to a U.S. population growth rate of about a third of that. Biggs’s graph (I couldn’t figure out how to dig his original data out from the Consumer Expenditure Survey) does suggest an increase in veterinary expenditures more on the order of 30% or so during that same stretch, so it’s clearly not as if there hasn’t been a notable increase in veterinary expenditures per pet, but not accounting for this sort of complicating factor seems a significant omission, no?

I’m sure a better number-cruncher than I could use this as an inspiration to put a more revealing chart together – get to work, Conor Clarke! – but in any case the data were interesting enough that I thought it worth pressing on them a bit.

(Cross-posted at The American Scene.)

Update: Freddy has a wonderfully nuanced discussion of Caritas in Veritate up on the main blog.

Update 2: This is truly brilliant.

Meanwhile, here’s where our money is going instead:

This is the richest country on the face of the earth in the most abundant period that the world has ever known; do people really want to tell me that the average American consumer – as opposed to the one who’s especially poor, out of a job, etc. – can’t trim back the cell phone plan and buy some grass-fed beef instead?

Just so we’re clear: Congress deciding to de-regulate an industry isn’t necessarily any more of a favor to major corporations than when they decide to increase regulation:

It still might not have passed without the decision by Philip Morris, the industry leader, to accept regulation. The company apparently believes it can thrive better under regulation than its competitors, who complain that it will now be much harder for them to introduce new products to challenge Philip Morris’s dominance.

In fact, now that I think about it more, this might be a terrible example to choose.*  But I’m from Kentucky, so articles about tobacco regulation grab my eye.   (For example: do I really think that rigorous competition is going to result in any major breakthrough other than “Now easier on your breath!” in the tobacco industry? No.  So maybe this isn’t the best way to make my point.)

*Let’s just blame this on the fact that it’s surprisingly hard to jump back into blogging after about a month off.