Crisis of Abundance: Rethinking How We Pay for Health Care

by Arnold Kling

In "Crisis of Abundance: Rethinking How We Pay for Health Care," economist Arnold Kling argues that the way we finance health care matches neither the needs of patients nor the way medicine is practiced. The availability of "premium medicine," combined with patients who are insulated from costs, means Americans are not getting maximum value per dollar spent. Using basic economic concepts, Kling demonstrates that a greater reliance on private saving and market innovation would eliminate waste, contain health care costs and improve the quality of care. Kling proposes gradually shifting responsibility for health care for the elderly away from taxpayers and back to the individual.

Genres: Economics, Health Care, Nonfiction, Politics

112 pages, Kindle Edition

First published April 10, 2006

About the author

American economist, scholar, and blogger. He is an Adjunct Scholar for the Cato Institute and a member of the Financial Markets Working Group at the Mercatus Center at George Mason University. He teaches statistics and economics at the Berman Hebrew Academy in Rockville, Maryland.
Kling received his Ph.D. in economics from the Massachusetts Institute of Technology in 1980. He was an economist on the staff of the Board of Governors of the Federal Reserve System from 1980-1986. He was a senior economist at Freddie Mac from 1986-1994.

Reviews

[Paul Sand · Rating 5 out of 5]

[Imported automatically from my blog. Some formatting there may not have translated here.]

The subtitle: "Rethinking How We Pay For Health Care". The author, Arnold Kling, is one of the libertarian bloggers at EconLog; he's also an adjunct scholar at the Cato Institute, who published this book back in 2006. It's short, 87 pages plus front- and end-matter. Although Arnold's an economist, it's written very accessibly for the lay reader. To use an old cliché: he tells you what he's going to say, he says it, and then he tells you what he said.

Arnold ably lays out the issues; although the book is four years old, all of the same issues confront us today; in fact, they've been made even more painfully obvious. Key is his deft presentation of the trilemma confronting anyone daft/hubristic enough to redesign the "health care system". Principles that "must" be satisfied:

Unfettered Access. Consumers must be completely free to select any treatment that the health care provider and patient agree would be beneficial.

Insulation. Consumers must be protected from the financial and emotional burden of paying for health care procedures. They should have the security of knowing that health care will be provided by private insurance and/or government.

Affordability. The health care system must not absorb an inordinate amount of resources. Health care spending should not crowd out more valuable public- or private-sector needs.

Arnold notes that it's pretty clear that the three principles are incompatible in the real world. It must have been frustrating when nearly all players in the ObamaCare debate fudged and obfuscated that simple truth, continuing to assure the American people that they could have all three principles, presumably delivered by friendly ponies that eat rainbows and poop butterflies.

Still, there's always a chance that we could come to our senses and start looking for saner solutions to financing health care. Arnold's policy suggestions are modestly stated, but in fact would vastly improve our future: shift responsibility for health care spending back to individuals; allow innovative health-care insurance products that might provide access to high-cost care more efficiently; consider deregulation of the provision of health care.

All it would take to start down that path are honest and courageous politicians… oh, wait.

[Robert · Rating 4 out of 5]

Under 100 pages, but containing a dense amount of information, A Crisis of Abundance is not a quick read. Yet, it is rewarding. Kling offers a critical lens through which a citizen/voter/person concerned with the future of health care can understand how people pay for it all. The first few pages can feel odd, because Kling at first seems to argue in favor of the healthcare available in 1975 over what is available in 2005. He wrote something along the line of "the HC in 1975 was pretty good and it was cheaper compared to 2005." So it sounds like he wants "to go back" to 1975 - which the reader will find odd. Clearly, we'd want the medical advancements made in the meantime, and the healthcare today has treatment options not available in the 1970s. However, I don't think Kling necessarily wants to go back to the medicine available in 1975. He argues that the rise of what he calls "premium medicine" doesn't add much of value to healthcare. Yes, there have been improvements in treatment, but I think he'd make a distinction between those and the extra procedures of "premium medicine." Something like improved chemotherapy drugs is one thing - but the ordering of MRIs and CAT scans for ordinary complaints of back pain is another. It is the latter and the like that Kling says doesn't add value, raises costs, and is not an improvement over 1970s medicine. With this more nuanced interpretation, Kling's book doesn't appear as odd.
Once you get passed this initial part, the rest of the book is clearly argued with plenty of logic and data. Kling definitely prefers private approaches to paying for healthcare, but does make space for government in areas where true insurance would find it hard to offer a product, such as end of life care. Kling does argue for health insurance to be an actual insurance policy - paying for unexpected, high cost events. But Kling does mix and match forms of financing for what he considers a more optimal scheme. Some of his best work is on three areas that he says every health insurance/care scheme needs to take into consideration: unfettered access, insulating patients from cost, and overall affordability of the scheme.
Overall, in this short dense book, the reader comes away with a better understanding of the problems in medicine. This book came out in 2006, so long before the ACA/Obamacare legislation, and so there's not me took of it. It this book can be a good starting point for continued discussion on the ACA.

[Ray · Rating 4 out of 5]

Arnold Kling holds a Ph.D. in economics from MIT, served on the Federal Reserve Board, worked for Freddie Mac, and founded and sold one of the first commercial Internet enterprises. In the preface he writes:

The audience for this book is the concerned citizen. The analysis is intended to be credible to professional economists while readable for noneconomists. I hope that everyone who reads this book...will be able to take away useful insights.

As a noneconomist I was indeed able to glean several insights. This is only the second book I've read (I plan to read at least 8 more) dealing with the health care crisis in the U.S. so I have a size-able knowledge gap. Where this book fills in some of that gap is in the area of health care financing. Kling suggests that the rise of "premium medicine" (extensive use of high-tech diagnostics, specialists and surgeries) in America since the mid-1970's is the reason for today's soaring health care costs. And he presents a compelling argument.

Kling goes on to evaluate the principles behind calculating the cost of a given procedure based on the probability that procedure will result in a benefit for the patient. This cost-benefit analysis was, for me, the most useful information in the book. I'm not a numbers guy. I never made it past Algebra, cannot do arithmetic quickly in my head, and I still count some things out on my fingers. But Kling lays it out so even I can follow along. Where he started to lose me was chapter 6, "Matching Funding Systems to Needs" which, with it's many tables and pie charts, I found harder to follow.

This book clocks in at 95 pages and is by no means comprehensive nor does it contain fully-formed legislative proposals. As Kling concludes, "The goal of this book is not to offer a package of solutions. It is to raise the level of understanding of the realities, issues, and tradeoffs pertaining to health care policy." As someone with a favorable view of universal coverage, I found this book instrumental in reshaping how I think about the possible solutions to this crisis. If you're already familiar with the current health care finance schemes as well as the proposed alternatives, you can skip this one. I recommend this book for everyone else.

[Christian Ternus · Rating 1 out of 5]

Firstly, the Kindle edition was awful, with a nigh-unreadable headache-inducing font hardcoded into the document. Perhaps that biased me against the book, but I could not find myself agreeing with the basic premise: that our healthcare would be better, overall, if we went back to the methods and technology used in the 1970s. The basic problem Kling poses is certainly true; few could argue with the idea that we pay too much for health care, yet his solutions seemed unworkable and poorly supported..

[Heather · Rating 4 out of 5]

I really enjoyed this book. I know, I'm a total nerd, but I liked reading about health care from an economics/probability point of view. I didn't agree with everything he said, but still enjoyed reading his point of view, especially his thoughts on the cause of the problems. It wasn't really a comprehensive discussion, but it's hard to address such a big problem in 95 pages.

[John · Rating 5 out of 5]

Very insightful analysis regarding ways to reform and improve the healthcare system in the US. Provided some key concepts which I hadn't seen anywhere else (and I've read many books on healthcare reform).

[Ronando: I Stand With Palestinians · Rating 4 out of 5]

My 2nd book in my year long study of health care.

I got a lot out of Crisis. It had a ton of information that was very helpful in laying the foundation of my understanding of what's going on in health care.

I suggest reading this book if you want to learn about health care.

[John · Rating 3 out of 5]

Free market, objective view of the health care crisis. Well worth the time - very short.

[Lisa · Rating 4 out of 5]

A somewhat dry libertarian economist's view on the causes and solutions to the US health care crisis. Informative and—thankfully—succinct.