Levitt on health care

Freakonomics author Steven Levitt gives his take on Obamacare and health care more generally:

Well, my friends in the Obama Administration aren’t going to be very happy with me, but I really, I don’t think it solved any of the important problems that we’re facing with healthcare. So virtually every economist will tell you that there were two things you needed to do to healthcare reform to materially improve the situation. The first was to break the link between the provision of healthcare and employment. And that is just an archaic element of our healthcare system, which really makes no sense.

And yet because of tax subsidies, it’s the way most people get their healthcare — through their employer. It shouldn’t be. There’s no good economic justification for it. And yet, if anything, I think this healthcare reform bill actually strengthened that link. (emphasis mine)

...An even bigger problem with health care today, which was not addressed at all in the reform bill, is that people aren't paying for the services they get. It's virtually the only part of the economy where I can go out and get any service I want—cancer treatment, open heart surgery, have a wart removed, whatever it is—and I pay $3 for it or $5 for it or nothing, even if it costs $50,000 or $100,000.

I mean, imagine if you had the same situation with automobiles. Where I could show up at the car dealership and I could say, ‘I want the Mercedes for free.’ Well, people say, ‘You can’t have the Mercedes for free. You have to pay $50,000 for it.’ You say, ‘Why not, I have an inalienable right to free healthcare. Right? Why don’t I have an inalienable right to a free Mercedes?’

And to me it just makes no sense. Health care is just like any other good in the economy, and because we aren't charging people for it -- what it costs to produce -- people are inefficiently consuming it. They're making the wrong choices. You can tolerate that if it were a small part of the economy, but health care is 15-20 percent of GDP, and so we have to start treating it as what it is, which is another good.

Now, people hate to talk about this trade-off between health and life and money. But the fact is, if not today sometime in the not too distant future we're going to have to make trade-offs, such as my grandmother is in a vegetative state, being kept alive by machines pumping her heart. Instead of the state paying for that, they're going to say, well look, you've got for pay for some of this. You can either take the $150,000 and we'll keep your grandmother alive, or you can put your kids through college. Your choice.

People are going to have to start making those tough choices, and it won't be pretty and it won't be fun or happy. Economics is the study of scarcity, and in a world where health care becomes more and more costly, the scarcity is going to be more and more binding and we're going to have to make those tough choices that are imbued with this moral element but nonetheless it's an economic choice when you get down to it.

This is exactly right. All of it. I hope to follow up on this with a post about the morality and reality of health care sometime this weekend.