Victims of Health Care Reform

Who will be hurt the most by the health reform legislation Congress passed last year?

Answer: The most vulnerable segments of society: the poor, the elderly and the disabled. That’s right. Virtually everyone in Congress who is left-of-center voted for a law that will significantly decrease access to care for the people they claim to care most about.

Why isn’t anyone writing about this?

Answer: Because almost all the people who write about health care know almost nothing about economics.

Basically, there are two ways to reform health care. One way is top down. The other is bottom up. The latter is based on the economic way of thinking. The former rejects that way of thinking. The latter gets the economic incentives right for all the individual actors, leaving the social result largely unpredictable. The former starts with a social goal and tries to impose it from above, leaving individuals with perverse incentives to undermine it. The latter depends for its success on people acting in their self-interest. The former depends for its success on preventing people from acting in their self-interest.

I think I can probably count on the fingers of two hands the number of people in health policy who accept the economic way of thinking. All the rest — 99.9% of the total, including a lot of people with “Ph.D., economist” after their names — reject it in spades.

Almost everybody in health policy thinks you can have a plan designed by people at the top that will work, even though every doctor, every nurse, every hospital administrator and 310 million patients all have an economic self-interest in defeating the plan.

They are so convinced of the collectivist vision of health care they do not even think it’s necessary to discuss the incentives of individuals. For example, Harvard health economist David Cutler (who admits to having a hand in the health reform bill) wrote an article the other day entitled, “The Simple Economics of Health Reform,” in which he mentioned the word “patient” not even once. For perspective, this would be like an economist writing about the market for gasoline without even mentioning the people who drive cars, trucks and vans. It would be like an economic analysis of the housing market that completely ignores the role of homebuyers.

Here are some points I’ve made before that completely escape Cutler, but should be included in any economic analysis of health reform:

  • Thirty-two million otherwise uninsured people will try to double their consumption of medical care.
  • Almost everyone with private insurance and all Medicare enrollees will try to increase their consumption of preventive services — promised without deductible or copayment.
  • With no increase in supply, doctors and patients will face a huge rationing problem.
  • There will be up to 900,000 additional emergency room visits and the time price of care (rationing by waiting) will jump substantially at every emergency room, every primary care facility and for most specialty services as well.
  • If everyone in America succeeds in getting all the recommended preventive care, for example, primary care physicians will have to spend more than 7 hours of every working day delivering services to basically healthy people.
  • Patients whose plan pays below-market rates will be pushed to the rear of the waiting lines; this includes our most vulnerable populations — the elderly, the disabled and poor families on Medicaid.
  • In the meantime, a large flourishing market for concierge services is likely to emerge — draining resources from the third-party payer system and making the rationing problem worse for all who are left behind.

In general, the left is obsessed with distributional issues. That’s why it’s so surprising that they passed a law that is going to force middle- and upper-middle-income families to have more insurance than they really want. Once they have it and act on it, they will in the process make access more difficult for the poorest and most vulnerable segments of society.

It’s amazing how much you can learn if you really do take advantage of some “simple economics.”

Comments (36)

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  1. Jeff Miles says:

    The overriding problem is that health care literacy has declined dramatically in this country. You would think that after years of partisan debate on health care that people would at least learn some new information. Instead, I see people becoming dumber by the day as to health insurance issues.

  2. Uwe Reinhardt says:


    Do you speak from introspection, or are you referring to others only?


  3. Uwe Reinhardt says:


    This is an interesting sentence in your post:

    “The latter gets the economic incentives right for all the individual actors, leaving the social result largely unpredictable.”

    You are right. The market approach works precisely like that, although I think the social results from it are rather more predictable than you may think.

    We can clearly see these social results in the developing world, where 90% or so of health spending is out of pocket.

    One must wonder why Americans do not adopt the more efficient style of health care financing of the developing nations. We could learn so much from Africa or India — Afghanistan even.

    I do blame it on Dave Cutler and his ilk, and Socialist Chancellor Otto von Bismarck, of course.



  4. Earl Grinols says:

    One of your best posts because it is a linearly logical application of microeconomic principles that leads us to the rational consequences on the patient and selected patient groups. Certainly Medicare patients will be sent (in cleverly disguised ways) to the back of the waiting line! If doctors and hospitals refuse to accept Medicare, we can envision new punishments to force them to accept Medicare patients, etc.

    One wonders what can explain the behavior of David Cutler and others. Paul Krugman shows us how excessive partisanship can degrade the advice of an otherwise capable individual to questionable twaddle.

    I see only one problem with your current post: It makes much too much sense.

  5. Al says:

    Fine post.

    It was mentioned that we could learn so much from Africa, India and even Afghanistan and I suppose we could, but I think we could learn a lot more from just looking at what makes America great. It certainly isn’t the socialistic nature of the EU.

  6. Tate says:

    The word patient is used in Mr. Cutler’s article 4 times. He also uses the word people interchangeably with how the word patient would be used.

  7. Devon Herrick says:

    In his article Professor Cutler claims that we may waste $1 trillion annually on unnecessary care. I find it interesting that he wrote a book in 2004 “Your Money or Your Life” where he explained that the patients in the United States pay a lot for care but that we get a lot for the money in terms of longevity.

  8. Erik says:

    This reads like Abbot & Costello’s who’s on first bit with a lot of speculation thrown in for partisan bait. You can do better.

  9. Linda Gorman says:

    Regarding India and Afghanistan–brilliant rhetoric, but not germane due to obvious income, cultural, legal, and political differences.

    A more relevant comparison would be with the health arrangements developed by U.S. fraternal societies and charities long before the Flexner report and its sequelae started government on the its long march towards wrecking U.S. health care by suppressing markets and distorting incentives.

  10. Tom Henry says:

    Tate is right, “patient” is mentioned 4 times and the word “people” in the article is often used interchangeably with “patient.” John, I have been a fan of you, but this makes me wonder. Did you even read Cutler’s article?

  11. I was thinking the same thing this morning, when I read in the WSJ (Jennifer Levine, “Postal service eyes closing thousands of post offices”) that the USPS is planning to close up to 18,000 post offices (2,000 for sure and 16,000 under review).

    Back when the so-called “public option” was in play, President Obama compared it to the USPS, which (he noted) loses money while FedEx and UPS were “doing fine”. I wrote about this at the time (, noting that even with a monopoly over letter-mail, the USPS could not compete against private couriers.

    But the government cannot ignore profits forever. The post offices that it will close will be in rural areas, where residents have fewer choices than urban residents do. A government monopoly is the worst way to subsidize the political objective of mail delivery to rural areas!

    Just as the closing of post offices will most harm those who have few other choices for mail delivery, Obamacare will most harm those who have few other choices for medical care.

  12. Joe Barnett says:

    It’s obvious from Cutler’s article that he has no idea how much ACA will cost, or if the period of “experimentation,” will lead to lower costs — or will double the cost of health care to federal and state governments. This is like jumping off a cliff into a river and hoping you don’t hit a rock.

  13. Devon Herrick says:

    David Cutler uses the word “patient” as an adjective or as the recipient of action. He seems to ignore any active or decision-making role for the patient as a buyer of medical services. In his worldview the U.S. health care system is a top down model where the only decision the patient makes is to walk through the doctor’s office door.

  14. Eric Novack says:

    Pointer to my oped from May 2010:

    “Health care reform or a war on minorities?”, May 3, 2010:

  15. Linda Gorman says:

    Yes, patient does appear four times: there’s “patient information” which the government gets, “patient outreach” in which patients are told what to do, “follow-up care for patients” which capitated payments are supposed to cover but won’t, and “bundling payments for patients” rather than letting patients decide what to buy on their own.

    In short, these patients are not real patients, they are little Lego people that the architects of The Plan get to push around at will.

    Incentives? Lego people do not need incentives, they do what they are told. No wonder academics hate it so much when markets gang up on their beautiful theories.

  16. Diana Furchtgott-Roth says:

    I did write that Obamacare would hurt low-skill workers:

  17. Wilkinson, Greg says:

    This is a very good explanation of some of the major faults in the new ObamaCare law.

  18. Robert Kramer says:

    And they don’t know anything about health care either.

  19. Daniel Johnson, Jr says:


    The summation of your excellent post is so simple: Put the Patient in the driver’s seat!

    Best regards,


  20. P Jones says:


    Clearly, you understand the health care situation and the economics of it.

    But, I think it is a misconception to assume that the left has a primary motive to “reform” health care.

    Actions of the political left indicate that they are more likely in pursuit of using the health care issue to increase the size of government, and that the consequences of that, in regard to patients (or “people” if some prefer), are not an issue in their plan.

    You are right–there will be damaged people from this health care bill, if it is allowed to unfold. Americans are not accustomed to the kind of treatment that this monster will create, health wise, economically, and otherwise.

    Most Americans are only vaguely aware of the consequences that this bill will have for them. You are due credit for your efforts to inform them more specifically.

  21. John Goodman says:

    @ Devon and Linda

    I agree with your comments regarding the use of the word “patient.” I should have been a bit more precise.

    @ Uwe

    You should learn to distinguish between poverty and the free market. India has no third-party payment to speak of. And there is a lot to be learned from studying it. Not so much by looking at health care services for the impoverished, but by looking at services for people who are not poor.

    Indian’s finest hospitals compete for patients all over the world. They compete on price and on quality, the way normal firms in a free market do. Imagine that. No Medicare DRGs. No HHS regulations. No ACOs designed by bureaucrats. Funny how the invisible hand manages to solve problems and meet needs.

  22. John Goodman says:

    Here’s a post that includes information about India:

  23. HD Carroll says:

    Hmmm, economists don’t know about health care, doctors don’t know about economics, so I guess doctors of economics know squat about either? I wish people would do a better job of keeping the distinction between “health care provision” and “health care financing.” The only professionals that do a reasonable job at bridging the gap are actuaries, who get little to no play in comparison to the so called health care economists. A knowledge of health care economics doesn’t make you knowledgeable about insurance, either, something that is clearly demonstrated time after time. Use, or abuse, as you choose, the actuaries – that is what they are there for – but for gosh sakes stop ignoring them.

  24. Why isn’t anyone writing about this?
    Answer: Because almost all the people who write about health care know almost nothing about economics.

    Well said John…

    HC economics in my primary care world is face to face interaction b/n a patient and their physician.

    e.g. – I just got of the phone with a 21 yo fem who’s BCP prescription costs her $90/mo… I simply called the pharmacy and changed to one that costs about $30/month.
    She saved $720/year and now gets 24/7access to her trusted PCP for $11/month…

    The point…Stay out of the way of people who know what they are doing…

  25. Uwe,
    I agree with you about India’s finest hospitals…as well as other medical tourism sites….They may be a big player in the free market sooner then later…

    Marcy Zwelling,MD, president of the American Academy of Private Physicians (AAPP/concierge physicians), is working on avenues for concierge physicians to help coordinate pre- and post-op care for our patients that would benefit from procedures with similar outcomes/quality as hospitals in the US…

    It’s all about the patient and I agree completely..cut out all of the bureaucrats….

  26. Blake Woodard says:

    Well written. I looked at a couple of your links, including the one from David Cutler. There’s nothing more dangerous than a moron who thinks he’s a genius.

  27. Morris Bryant, MD says:

    It truly amazes me that one can make a comparison of medical care in developing countries as opposed to developed countries and draw social conclusions. Of course, the more we give over our health care and other economic planning decisions to the government, the sooner we might actually know what it feels like to be in a developing country………

  28. Al says:

    I note a lot of comments about David Cutler. I casually had a short conversation with him some months ago and he seemed to be inattentive to some of the concerns here. Asked about his fears about the bill not doing what was intended, he commented that his biggest concern was that the fight over the bill could last a decade or more and then it wouldn’t have been worth it.

  29. chase says:

    “Because almost all the people who write about health care know almost nothing about economics.”

    I swear last week it was the oppisite, ‘people who write about economics know nothing about health care.’

    anyway, I love these blogs.

  30. Jared says:

    Apparently politicians find it easier to sell flowery top-down social goals than freedom.

  31. Ralph F. Weber says:

    Thanks John,

    This is good, you always stand out and address the public choice theory.


  32. Jesse says:

    Whether they know a lot about economics or not (from the article) I’d put a lot of stock in what the MDs have to say. Thanks for your posts Dr Chris and Dr Morris.

  33. This is a straw man argument. Those people don’t have health care access now. The real concern underlying this kind of commentary is that the “haves” will be forced to share with the “have nots”.

  34. xinspiration says:

    I bookmarked this particular entry because I saw interesting debates occurring through the comments section. Now I can see it’s pretty obvious that only the benign comments are remaining, with the rest all removed. This makes me sad.

  35. gzuckier says:

    “The word patient is used in Mr. Cutler’s article 4 times.”

    It’s clear you’re one of the people who “know almost nothing about economics” or you would realize that 4 times and “not even once” mean the same thing. Similarly, you probably don’t know that “99.9% of the total” is synonymous with “A bunch, I guess”.

  36. R Day says:

    I know about both economic and health care because I come from a family of physicians. But as a survivor of brain cancer (2004) and having graduate degree in Public Policy from the University of Chicago with a specialization in microeconomics, I know the benefits of pooled risk. It’s a free market thing!

    If only high risk people purchase insurance, then all insurance will be more expensive and the low risk 20-35 year-old healthy population, except for hopefully women planning to become pregnant, will eschew insurance. The institutions rendering medical services should not be in the position of picking and choosing whom to treat in emergencies…

    Inculcated in me by my family to think the American way of medicine in best, but even I can be priced out of the health insurance market. Since my brain cancer in 2004, I cannot afford to give up my private policy – even though: the preferred provider network does not include my neurosurgeon; my co-pays and deductibles keep increasing; no coverage for glasses which I will need pretty soon; no coverage for psychiatry; and my insurance premiums has ascended from $9300 in 2009 to $22,000 in 2012 as my salary has declined.