Politics & Policy

Half of All Health Spending Is Wasted

(Photo: Deborah Kolb/Dreamstime)
Experts agree, but prefer to pretend it isn’t true.

Editor’s Note: Pascal-Emmanuel Gobry, a conservative writer and fellow at the Ethics and Public Policy Center, is writing a series of columns on uncomfortable truths about health care in America. Some will make conservatives more uncomfortable, others will make progressives more uncomfortable, but most should make everyone uncomfortable.

We know the American health-care system is wasteful. But we don’t dare to look at how much money we’re throwing away — and we especially don’t dare to do anything about it.

There is a strange combination of two facts. First, it is the consensus of the relevant studies and health-policy experts that about half of all health-care spending in the U.S. is wasted. That is, if we spent half as much as we spend, we wouldn’t be worse off at all, so long as we spent the remaining money on what’s truly needed. In fact, we might be better off, and not just because an enormous dead weight would be lifted off the economy.

Second, not only has this fact not registered at all on the American public consciousness, but the vast majority of health-policy experts are in denial about it — not in the sense that they straightforwardly reject the non-controversial finding, but in the sense that they seem very reluctant to admit it or talk about it and certainly seem to behave as if it were not the case.

The Cato Institute, a well-known libertarian think tank, runs an online journal of ideas called Cato Unbound, with an excellent premise: For each issue, one thinker defends a provocative thesis; three other thinkers with opposite or orthogonal views respond; a blog-like debate ensues. In a 2007 issue, they allowed the iconoclastic economist Robin Hanson to advance the claim that half of all medical spending is wasted.

“King Solomon famously threatened to cut a disputed baby in half, to expose the fake mother who would permit such a thing,” Hanson wrote. “The debate over medicine today is like that baby, but with disputants who won’t fall for Solomon’s trick. The left says markets won’t ensure everyone gets enough of the precious medical baby. The right says governments produce a much inferior baby. I say: cut the baby in half, dollar-wise, and throw half away!” He laid out study after study showing no effect from differences in health spending on health outcomes, culminating with the famous “RAND Experiment” randomized field trial, the gold standard for evidence in social science, showing no improvement in health from increased medicine. (Since Hanson wrote, the Oregon Medicaid health experiment, with similar robustness, showed a similar result.)

It’s what happened next that was so fascinating. None of the respondents really disputed Hanson’s claim, and yet at the same time vigorously argued that it should be ignored. Spending is too high in some areas, but it’s also too low in others, one said. Invest in information technology, said another. Lots of medical technology is expensive. Currently half of the spending is wasted, but we might still want to spend more, albeit better.

Imagine a company that makes bars of soap. Its business consists primarily of two activities. With half of its revenue, it runs a soap business — manufacturing soap, distributing and selling it, marketing it, researching new and improved soap formulas. All of that goes on in a nice large building. But the company takes the other half of the money and burns it in an endless bonfire in the parking lot. Armored cars convert the revenue into cash and bring it to the bank. Other employees are staffed to take the cash and put it into a big pile, others still to make sure it all burns.

Suppose you are given a tour of this operation, and afterward you meet the CEO and ask for an explanation. “Well, the cash-pile-burn project is not very efficient, but the rest of our company is very efficient!” he responds. You press him for a meaningful answer. “With better IT, we can boost profitability!”

I might be exaggerating, but not too much. As a rule, in any field, when you find that experts all agree on a fact and yet are in complete denial of it, then you’ve found something important. Of course, these trillions of dollars wasted aren’t a literal pile of burning cash somewhere that we can just stop burning. They are profits and even livelihood for some of the most politically powerful actors in America — not just unpopular insurers and drug companies, but hospitals, doctors, and nurses. The bigger the problem, the more unlikely a solution can be feasible, either politically or practically. Told you this would be an uncomfortable truth.

At the same time, it would still behoove those who don’t run for office or prescribe unnecessary treatments or overcharge for medical devices for a living to, if nothing else, shout the simple fact from the rooftops.


Part One: There is No Such Thing as ‘Health Care’

Socialized Health Care: The Poor Will Be Worse Off

The Hard Truth about Health Care

Most Popular

Politics & Policy

Yes, They Are Coming for Your Guns

At the Democratic-primary debate in Houston last night, Beto O’Rourke formally killed off one of the gun-control movement’s favorite taunts: The famous “Nobody is coming for your guns, wingnut.” Asked bluntly whether he was proposing confiscation, O’Rourke abandoned the disingenuous euphemisms that have ... Read More
White House

Politico Doubles Down on Fake Turnberry Scandal

It's tough to be an investigative reporter. Everybody who feeds you a tip has an axe to grind. Or, alternatively, you find yourself going, "I wonder if . . . ?" You put in your research, you talk to lots of people, you accumulate a huge pile of information, but you still haven't proved your hypothesis. A wise ... Read More
White House

Rachel Maddow’s Turnberry Tale

To a certain kind of Rachel Maddow viewer, there are few more titillating preludes to a news segment than the one she delivered Monday: “If you have not seen it yet, you are going to want to sit down.” Maddow’s story began, as many of her stories do, with President Trump, this time focused on his hotel ... Read More

Four Cheers for Incandescent Light Bulbs

It brought me much -- indeed, too much -- joy to hear of the Trump administration's rollback of restrictions on incandescent light bulbs, even if the ban will remain in place. The LED bulbs are terrible. They give off a pitiable, dim, and altogether underwhelming "glow," one that never matched the raw (if ... Read More