Saturday, March 11, 2017

The economics of health

The economics of health has been complex. Diverse stakeholders - patients, providers, manufacturers and payors - who all seem to have a partial picture of the whole problem, have made it more difficult to solve. To top it all off, policy makers, with little understanding of this complex picture, seem to trade in photo ops and healthcare acts.

The value accruing to society is an important and possibly the only consideration of policy. The evaluation of policy choices will require an understanding of the value of the foundational units - the individuals, themselves. Unfortunately (or fortunately), the value of an individual is not the discounted stream of utility to society and thus healthcare systems around the world, making decisions on a fixed value of a human, are misguided. Since the individual is perfectly capable of changing the future stream of utility, she can only be considered to be a basket of interacting options. Thus, any policy that forces the individual to prematurely exercise such options is unambiguously suboptimal.  Additionally, policies that reduce the flexibility afforded to the individual to pursue new ideas will devalue the options held by the individual. This automatically reduces the value of the individual, both to herself and to society.

For example, any policy that can be shown to reduce the incentive of an individual to move from one job to a more attractive one, will have a deleterious effect on aggregate utility. Any policy that does not allow an individual to climb out of a low value position, either due to a capital constraint or due to failing health, will reduce aggregate utility. Any policy that does not provide incentives to prevent health problems for individuals will automatically increase the expected future costs in the system. Any policy that does not allow market forces to move the complex system to an optimal position by sharing the economics among the various participants will have a negative value to society.

Politicians are likely the worst people to create and implement healthcare policies. It has been known for ever that "healthcare is this complex." It will take a bit more than theatrics and politics.