Health

The Dilemna of Privatizing Healthcare

The New York Times is carrying an article on American healthcare, that points out how privatization has led to soaring costs:

In a saner world, the place where you live wouldn’t have much effect on how doctors treated your back problems. In our world, it can make all the difference.

In Idaho Falls, Idaho, anyone suffering from the sort of lower back pain that may conceivably be helped by the fusing of two vertebrae is quite likely to have the surgery. It’s known as lumbar fusion, and the rate at which it is performed in Idaho Falls is almost five times the national average. The rate in Idaho Falls is 20 times that in Bangor, Me., where lumbar fusion is less common than anywhere else.

These numbers come from the wonderful Dartmouth Atlas of Health Care. The Dartmouth researchers adjust the numbers to take into account age, race and sex, which is another way of saying that there is no good explanation for the huge variations they find. Doctors in the Idaho Falls area are probably just being more aggressive than doctors elsewhere.

But it’s not clear that their patients are any better off. The evidence for lumbar fusion is incredibly mixed. It seems to help people with certain kinds of pain, but many others recover just as well without the surgery. Of course, doctors are almost always better off if the surgery is done: The typical hospital bill for lumbar fusion is roughly $50,000.

A lot of inferences can be drawn from this one. One is that healthcare costs are rising for no other reason than healthcare is insured – and private. Economists call this moral hazard, and it suggests privatization isn’t always such a good thing. Incentives may lead to better performance, or they may lead to more exploitation.

For all those free-market economists looking to privatize everything under the sun, cause for pause.