Thursday, July 30, 2009

On the Increasing Cost of Healthcare

The Nobel laureate Ken Arrow:
Oh, why health costs increase? The basic reason why health costs increased is that health care is a good thing! Because today there is a lot more you can do! Consider all these expenses that are diagnostic. Cat scans, X-rays, MRIs and now the proton-powered whatever-it-is. Something that is the size of a football field, cost $50 million, and has all sorts of diagnostic powers. A lot of these technologies clearly reveal things that would not be revealed otherwise. There's no question about it. Diagnostics have improved. Technology has improved. You know, sending things through your blood stream to help in operations, instead of cutting you open. It's incredible. But these things are costly. But for older people longevity is increasing by a month each year. Now, whether that creates other problems with retirement and social security is another question. But, nevertheless, preserving life is a good thing.
(HT Greg Mankiw)

1 comment:

thinking said...

Ken Arrow is a great individual, who wrote the definitive paper on healthcare economics.

In the same interview cited by Mankiw, Arrow notes "The market won't work -- it doesn't work well in the health context."

Krugman, citing the same paper by Arrow, notes:
"There are a number of successful health-care systems, at least as measured by pretty good care much cheaper than here, and they are quite different from each other. There are, however, no examples of successful health care based on the principles of the free market, for one simple reason: in health care, the free market just doesn’t work. And people who say that the market is the answer are flying in the face of both theory and overwhelming evidence."

Arrows is also, to his credit, a leader in trying to waken society to the very real impact of climate change.

In that same interview, Arrow says, "We don't have much time left. We are moving towards temperature increases of around two degrees Celsius, which is going to have consequences in the tropics, and we will loose things like glaciers. That's not a theory; it's happening right now. It's not a prediction; it's happening right now."

Arrows is a major proponent of pricing carbon to encourage innovation in energy.

Arrows also has a neat contribution to his credit, called "Arrow's impossibility theorem." I like this guy.