February 19, 2020


Random Critical Analysis on Health Care (Alex Tabarrok, February 19, 2020, Marginal Revolution)

The excellent Random Critical Analysis has a long blog post, really a short book, on why the conventional wisdom about health care, especially in the United States, is wrong. It's a tour-de-force. Difficult to summarize but, as I see it, the key points are the following. (I also drawn on It's still not the health care prices.)

1. Health care spending is well predicted, indeed caused, by income.

Notice that the United States doesn't look unusual when income is measured at the household level, i.e. Actual Individual Consumption, which measures the value of the bundle consumed by households whether the bundle items are bought in the market or provided by governments or non-profits. (AIC also avoids some issues with GDP per capita when a country has lots of intellectual property and exports, e.g. Ireland).

2. The price of health care increase with income but at a slower rate than income.

As a result of the above:

3. The price of health care relative to income is lower in rich countries, including the United States.

Let that sink in, health care prices are lower relative to income in richer countries. Health care in the United States is cheaper relative to income than in Greece, for example.

Since spending is going up faster than income but prices are not it must be the case that quantities are also increasing with income.

Posted by at February 19, 2020 9:55 AM


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