Tuesday, March 27, 2007

Health Care Spending--A Social Problem?

“There is widespread concern, though to a considerable extent politically generated, with the total amount of money spent on health care in the United States. To the extent that the money is spent by individuals or firms without any public subsidy, there is no economic problem. If people want to spend more of their money on medical care and less on food or housing because they greatly value good health and longevity, that is their free, legitimate, and authentic choice. It is a sign of affluence that the nation can afford to devote so high a percentage of national income to medical care.”
From Richard Posner, Becker-Posner Blog of January, 2007

This argument supposes that individual demand is not a social phenomenon. Other people’s consumption affects the demand of an individual. Robert Frank and Daniel Kahneman have it right—our attempts to keep up with others can result in a hedonic treadmill effect. It is hard to resist the availability of an expensive heart operation for a loved one even if it will only extend life for a few months. If other people are doing it, to deny the operation is to appear niggardly and mean spirited. If a whole culture says, “enough is enough, we just do not spend astronomical sums on marginal improvements in health,” one person’s refusal to spend would not stand out for social disapproval and guilt.
Posner is correct in saying that total medical spending is driven by technology. But, it is technology plus social expectations. Preferences are socially learned and changeable.