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14 Cato J. 135 (1994-1995)
Buy Health, Not Health Care

handle is hein.journals/catoj14 and id is 137 raw text is: COMMUNICATIONS

Robin Hanson
U.S. per-capita spending on health care is at an unprecedented
high. Fear that something is terribly wrong with our health care system
is widespread, and proposals to nationalize the industry are even
taken seriously.
Perhaps some simple change will do the trick, like relying less on
insurance and employers as middlemen. But if we are willing to
consider radical change, let me offer a different suggestion. We are
buying the wrong thing. What we want is health, i.e., a long healthy
life, but when we sit down and draw up a contract, what we buy is health
care, i.e., a certain degree of attention from health care specialists.
Of course there is some relation between the two-a concerned
health specialist can help us improve our health. But there is also a
difference-when we reward our advisers just for giving advice, do
they try hard enough to give the best advice they can find for a low
price? Or are they satisfied to give costly mediocre advice that is also
comforting, authoritative, and requires their further services?
In theory we have a variety of institutional mechanisms to deal with
this so-called agency problem. Strong legally backed professions
raise prices, but supposedly avoid quacks. Malpractice law and
internal professional review punish advisers from drifting too far from
local standard practice. However, current legal practice is biased
toward advising more expensive care, and all this may do too little to
encourage the evolution of a better standard practice.
For patients with long-term contracts, Health Maintenance Organi-
zations (HMOs) have an incentive to invest now to prevent future
symptoms, at least when standard practice requires attending to those
Cato Journal, Vol. 14, No. 1 (Spring/Summer 1994). Copyright @ Cato Institute. All
rights reserved.
The author is a graduate student in social sciences at California Institute of Technology.


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