America’s health care catastrophe

We know very well a married couple who traveled in spring 2013 to vacation in Ireland and England. While on the first part of their trip, in Ireland, each of them contracted a bad case of influenza, part of the flu epidemic of 2013, which is considered the worst in recent history. The symptoms started with a sore throat and headache followed by a runny nose and significant fever combined with extreme fatigue that made even getting out of bed a chore.

As soon as our friends arrived at their hotel in London, they asked for referral to a doctor. The hotel’s concierge referred them to a small medical group where they were able to get an immediate appointment. 1 A lady doctor examined them both, said she was confident in a diagnosis of the then current flu, prescribed ampicillin 2 and handed them the medicine in her office. Before leaving the medical offices they paid for the service, as the physician was in private practice and was not working in Britain’s National Health Service.

The husband of this couple said the experience reminded him of treatment by his family doctor as a child, when he came down with pneumonia. The family doctor, also a lady, came to his home, examined him and gave him penicillin, which she described as a new “wonder drug.” 3

This kind of prompt and effective medical service was once the norm, but has become unusual in early 21st century America, where the medical profession has acquired the reputation of having the worst service of any industry or profession. In Britain’s National Health Service, one can get an immediate appointment in case of emergency, but the doctor is prohibited from discussing any other medical concerns; there is a one condition per appointment rule; if the patient is referred to a specialist there is usually a wait which may take months. 4

In America, since the 1950s remarkable deterioration in customer service in medicine has been accompanied by continual escalation of the costs of medical services. The two are related. The factors which have caused ever higher costs for health care have also caused ever deteriorating quality of customer service.

Andrew Galambos remarked frequently that a medical customer is called a “patient” for good reason: patience is required while waiting for medical service.

An extraordinary new book by David Goldhill shows the way to solving the problems of poor customer service and health care expenses that threaten to bankrupt the people of America and the federal and local states. The book is Catastrophic Care: How American Health Care Killed My Father—and How We Can Fix It (Alfred A. Knopf, 2013). David Goldhill is a business man, CEO of The Game Show Network, who earned degrees in history at Harvard (BA) and NYU (MA).

There is another fine book that came out just before Mr. Goldhill’s Catastrophic Care. It is Priceless: Curing the Health Care Crisis (2012) by John C. Goodman, Ph. D., who is highly qualified to analyze the financing and other problems of American Health Care. The basic premise of Dr. Goodman’s book is the same as Catastrophic Care, namely that false beliefs about health care have eliminated normal market forces from American health care, making it almost impossible to solve problems in health care the way they are solved in other markets.

David Goldhill’s book describes a solution for the health insurance mess America is in—with some 18% of America’s production and income 5 being consumed by health care expenses and with some people paying nearly half their income for health insurance and other medical costs. Mr. Goldhill’s solution is one that the people of America may well embrace after (1) they fully appreciate what a financially disastrous monster America has in health insurance, public and private, (2) that insurance can work only if it is designed to share the risk of catastrophic events that are unlikely to occur to many people in any one year, and (3) that insurance cannot work if it is used to process and pay claims for relatively routine expenses.

That Mr. Goldhill could devise a feasible solution to health care finance provides good cause for optimism that Americans can surmount the ideological differences that have made health care a contentious political issue. He says:

“I’m a Democrat and once held views about health common in my party. But the more I’ve looked at our system, the more I’ve come to believe that the obsessions of our political debate—universal access, health insurance regulation, cost control—are irrelevant to the real problems that have created our mess . . . [D]espite more than sixty years of government efforts—representing the work of both political parties—we are moving further and further away from what we want. Prices are higher, more people are excluded from needed care, more excess treatments are performed, and more people die from preventable [medical] errors.”

NOTE: Unless otherwise indicated, all quotations herein are from Mr. Goldhill’s book. Assertions of fact and opinion not delimited by  quotation marks are those of Mr. Goldhill, either nearly verbatim or paraphrased. 

Malcolm Gladwell, bestselling author and staff writer for The New Yorker since 1996, said 6 in a televised interview of Mr. Goldhill, “I think this book is really quite extraordinary. Since reading it I have not stopped thinking about it. It had the effect of turning my own ideas about health care completely on their head.

“I’m Canadian. I was a dyed-in-the-wool universal health care guy. And now I’m not any more. I don’t really know what I am. All I know is that something in this book has dramatically up ended my carefully received wisdom about health care. . .” 7

Mr. Gladwell wrote an endorsement for the book that says “David Goldhill has written a devastating and utterly original analysis of what has gone wrong with the American health care system. Read it, and take a deep breath. He will convince you that our ‘solutions’ are not solving our problems. They are making our problems worse.”

David Goldhill’s own ideas about health care changed after his father’s terminal illness. Goldhill’s father was 83 years old and still active in his profession of psychiatry in a suburb of New York City when he came down with a respiratory problem. Mr. Goldhill says of his father’s last illness that Dr. Goldhill “. . . died from a hospital-borne infection he acquired in the intensive care unit of a well-regarded New York hospital. Dad had just turned eighty-three and had a variety of the ailments common to men of his age. But he was still working the day he walked into the hospital with pneumonia. Within thirty-six hours, he had developed sepsis. 8

“Over the next five weeks in the ICU, 9 a wave of secondary infections, all contracted in the hospital, overwhelmed his defenses and caused him great suffering.

“Have you ever had a loved one stay in a hospital for an extended period? If so, were you shocked at how much time your family needed to be physically present to prevent mistakes—both big and little ones . . . My father was taken twice for medical procedures meant for other patients, suffered the same tests multiple times, missed doctor and nurse visits, received incorrectly filled prescriptions, and so on. I now know our experience was typical, not unusual. Even more shocking is how many physicians confirm the need for family members to be present as much as possible to prevent such errors.” 10

Near the end of Dr. Goldhill’s stay in the hospital when it was clear that his life could not be saved, his family made the heart-rending decision that he should be made as comfortable as possible, meaning that he should be allowed to die without further medical intervention. The night before his father died, his son David was at his bedside when a technician came to take a blood sample. Even after David told him the decision had been made to let Dr. Goldhill die the technician insisted on taking the blood sample because it was required by the rules of the hospital. David had to block him physically to prevent him from drawing blood from his dying father.

“Keeping Dad company in the hospital for five weeks was an eye-opening experience. While the facility’s diagnostic equipment was state of the art, the technology used to record that diagnostic information and track the patient was less sophisticated than the desktop computer at my local Jiffy Lube. . . The patient’s trash was picked up only once a day and often only after overflowing onto the floor. . . We saw little or no effort to make the hospital room cheerful or even moderately comfortable. 11

“And whose needs are served by the bizarre and unpredictable scheduling of hospital shifts, assigning an endless string of new personnel to care for a patient?

“. . . [A]lthough his death was a deeply personal and unique tragedy for me and my family, dad was merely one of a hundred thousand Americans who died that year as a result of infections picked up in the hospital . . . The hundred thousand deaths from infections are compounded by a litany of routine mistakes that create preventable blood clots, drug dosage and prescription error, and any number of oversights. All this adds up to an estimated two hundred thousand Americans killed each year by medical mistakes.” 12

“A few weeks after my father’s death, The New Yorker ran an article by Atul Gawande 13 profiling the efforts of Dr. Peter Pronovost to reduce the incidence of fatal hospital-borne infections. 14 Pronovost’s solution? A simple checklist of ICU protocols for physicians and nurses governing hand washing and other basic sterilization procedures.

“Hospitals implementing Pronovost’s checklist achieved almost instantaneous success, reducing hospital infections by more than half. But many physicians rejected the checklist as an unnecessary and belittling intrusion, and many hospital administrators were reluctant to push this simple improvement on them.” 15

Mr. Goldhill’s mother received a statement from Medicare showing that the total hospital charges for her husband’s five-week stay in the hospital were roughly $670,000. In his interview with Malcolm Gladwell, David Goldhill commented that a charge of $670,000 for killing a man was the kind of thing that outside of the health care industry, one would expect only from the Mafia.

In the Malcolm Gladwell interview Goldhill compared the $670,000 Medicare statement of charges for his father’s hospitalization to a hypothetical alternative. In this alternative

  • Mr. Goldhill would take his father not to a hospital, but rather would install him in a large room at the Four Seasons Hotel in New York, a luxury hotel, where the daily room charge is around $1,000 a day, about the same as the daily charge for a private room at the hospital where his father died.
  • He would arrange for two hours a day of medical supervision, in the hotel room, by qualified doctors.
  • He would arrange for round the clock nursing care.
  • He would fill the room with a million and a half dollars’ worth of hospital equipment which he would rent.
  • His father’s food would be provided by hotel room service.

The total cost of this hypothetical alternative: $160,000, or less than one-fourth of the hospital charges reported by Medicare.

Goldhill says that nobody pays such outrageous hospital charges. Medicare does not. Insurance companies do not. But if someone without insurance has such a charge from a hospital, the hospital will hound them relentlessly, sometimes even to the point of bankruptcy. Note: According to a physician who works in administration of a large hospital in Southern California, some hospitals may agree to settle for the patient paying what Medicare would pay for the same hospitalization.

Goldhill believes that the only purpose of the statement from Medicare was to show his father’s family how lucky they were to have Medicare take care of his father’s expenses.

Nevertheless, despite the catalog of horrors described above, in looking for an explanation for his father’s death, Goldhill does not blame the physicians, who he says were “smart, thoughtful, and hardworking,” nor the nursing staff who were “without exception . . .dedicated and compassionate.” 16

The September 2009 issue of The Atlantic published as its cover story an 11,000 word article by David Goldhill entitled “How American Health Care Killed My Father.” 17 It was an extraordinary and implicit tribute to the passion and quality of the article for a journal as prestigious and sophisticated as The Atlantic to publish with such prominence the work of a man whose writing had never been published elsewhere and who lacked academic accreditation in the field about which he wrote.

Explaining how the article came to be published, Mr. Goldhill states: “I had the opportunity to write this book [Catastrophic Care] only because my favorite magazine, The Atlantic, made the courageous (or reckless, depending on your point of view) decision to give an unknown, nonexpert writer  the cover for an unorthodox take on the day’s most contentious policy issue.” 18

The Dean of the Medical Faculty at Harvard University, Jeffrey Flier, was so impressed and energized by Mr. Goldhill’s article in The Atlantic that he invited Goldhill to speak at a symposium on Health Care Reform at Harvard in January 2010.

Flier wrote an endorsement of Goldhill’s book, which appears on the back of the dust jacket. It says, among other things: “David Goldhill offers a brilliant and much needed antidote [to the failures of the health care system] . . . by calling out with remarkable clarity the numerous, but now almost invisible incentives and regulations that drive the dysfunction of our current system. [The book] provides an illuminating framework for understanding the crisis, and then a path to the kinds of reforms that will surely be necessary.”

Because of his article in The Atlantic Mr. Goldhill soon became a much sought after speaker and participant in meetings of experts on health care policy. Eventually he had to engage the services of a booking agency to manage a plethora of speaking and appearance requests. 19

One such recent appearance was a colloquy with Dr. Ashish Jha at Harvard Medical School in which Mr. Goldhill gave a good account of his position. 20 Introducing the two speakers, Dean Flier said of Catastrophic Care: “It is my view that he [Mr. Goldhill] is taking a perspective on health care that is likely to be informative to those who bother to read it and listen to his discussion.”

David Goldhill’s ideas have won the respect of some influential people. He was recently named a Director of The Institute of Medicine of the National Academies. 21

Nevertheless, as soon as Catastrophic Care appeared in January 2013, it was met by a salvo of criticisms that seem, at least in some cases, to originate in political ideology—particularly the belief that it is corporate greed that is the root cause of health care problems in America. However, some of the critics have their own horror stories of medical malfeasance that reinforce Goldhill’s concerns. For example, the following appeared in a generally unfavorable review of Critical Care in the San Francisco Chronicle. 

“Four years ago, my 69-year-old mother was admitted to a hospital through the emergency room. The plan was for her to start receiving blood-thinning medications to prevent a blood clot that might cause a stroke, and to undergo procedures the next day (a Friday), to correct her abnormal heart rhythm. A hospital bed was unavailable, so she was ‘boarded’ and spent the entire night sleeping on a gurney in the emergency room.

“Only when other patients had been discharged from the hospital on Friday was my mother admitted to a regular hospital bed. Because of the delay, her planned procedures were postponed until Monday. On Saturday, she suffered a severe stroke that would claim her life. She had not received the blood thinners as planned while she spent the night in the emergency room. Key treatments are often missed while patients are boarded this way.” 22

This tragedy illustrates and reinforces David Goldhill’s assertion that patients’ family members are needed in hospitals to prevent errors and omissions by medical professionals. The man who wrote the foregoing description of the circumstances that seem to have caused his mother’s probably needless death was himself a physician. One can only speculate that either he was not present when his mother was being neglected or that he was present and unable to get the hospital staff and his mother’s physicians to take immediate charge of what was clearly a medical crisis.

It is difficult, if not impossible, to do justice, in a brief review, to so original and analytical book as David Goldhill’s Catastrophic Care. However, the following is an attempt to provide a summary that evokes the ideas and qualities of the book, in large part by direct quotations from the text. This summary is based also on remarks of Mr. Goldhill in the above-cited video of his interview with Malcolm Gladwell.

The health care “island”

“Our health care system isn’t an example of ‘socialism’ or ‘profit-driven medicine.’ In fact, it is such a strange beast [for which] . . . the best analogy might be the Galápagos Islands, set so far offshore from the mainland of industrial evolution and economic laws that it has produced odd, anomalous creatures of policy and regulation. Though these products of convoluted laws and rules manage to thrive on the Island of Health Care, they would not survive on the Mainland, where all other industries are forced to compete for their customers.”

On the Mainland high prices, poor quality, and miserable service cause lost customers, lost revenue and lost profits. On the health care island “. . . bad behavior doesn’t produce these bad results; bad behavior is often rewarded with additional revenues, and efficiency is penalized with less.”

Insurance and the Surrogates

“At the heart of [the] perverse incentives [in health care] is insurance. Unlike with anything else in the economy, we rely on insurance as the sole means for paying for everything in health care—from the most routine to the most urgent. Even our government health programs take the form of insurance.”

“. . . [N]ot only is insurance the costliest way of financing our spending, it is the most distortive . . . [it] requires that we turn over our role as consumers to what I call the Surrogates: private insurers, Medicare, and Medicaid. . . Their actions—and our own absence as a disciplinary force in the health care marketplace—create many of the incentives for bad behavior.”

Goldhill observes, for example, that:

  1. Private insurers have no incentive to reduce health care spending. The more that is spent the higher their revenues and profits. Private insurers have an inherent conflict of interest in that they want as much business as they can get, but they also have an incentive to deny claims in order to protect their profits.
  2. Medicare and Medicaid have no incentive to reduce health care spending because they are “entitlements.” Medicare and Medicaid must pay for whatever services the participants choose to partake of, at little or no cost to themselves.
  3. For every two physicians in America there is one person working in the health care insurance industry, public and private, a bizarre phenomenon caused by having routine medical expenses processed through the insurance mechanism rather than being paid for directly by consumers. This alone adds a great deal of cost to the expenses the public must pay.
  4. When individuals pay for health care out of their own pockets, they are far more discerning and prudent in the expenses they incur.
  5. Medicare and Medicaid operate like a giant “all you can eat restaurant,” where the more customers consume the more the state pays, so that the more the customers consume the greater is the revenue to the proprietor. 23

True insurance is generally unavailable for medical expenses

The true function of insurance is to share the risks of events that are unlikely to happen to most people in any one year, but would be catastrophic to those who do suffer such an event. A true concept of insurance operates in homeowners’ insurance, auto insurance, and life insurance.

For example, damage to a house from fire, flood or other events can cause unacceptable loss. Insurance against such risks is relatively inexpensive, so people would be imprudent not to buy such insurance. However, it would be extremely expensive and foolish to buy insurance for the costs of routine maintenance of a house, such as plumbing repairs, painting the exterior, or replacing a roof. All such things can be paid for out of income and savings without undue financial detriment.

On the health care island, insurance pays for routine maintenance. Many people expect their medical insurance to cover visits to the doctor for a bad cold, acquisition of prescription eyeglasses and the cost of prescription drugs. In large part that is what drives up health care costs, by making everyone pay for others. That deludes people into thinking they are getting medical treatment at low cost, or even without cost. This misuse of insurance for payment of most medical expenses encourages profligacy and discourages frugality.

The worst customer service in the world

Goldhill points out that in health care we all put up with terrible service that we would not tolerate in any other activity. His father’s time in the hospital was an example. He provides others. Waiting time in a doctor’s office is generally far longer than in a dentist’s office. Why? Because most dental service is on a cash basis. Dentists are in competition with each other for business. Doctors on the other hand are getting paid by the surrogates, so they are relatively unconcerned about patients being dissatisfied with waiting.

If someone is planning elective surgery in a hospital it would be desirable to shop on the basis of price and quality. But hospitals do not quote prices to prospective patients. If you go to the hospital you find out the charges after you leave the hospital, and then there is nothing one can do about it but pay what is asked. Hospitals can get away with such conduct only because they are on the “island.”

Insurance companies have terrible customer service. They want the business, but all too often look for ways not to pay off. Of course, they pay in the overwhelming number of claims, but they may give the customer a hard time.

Goldhill describes his pre-adolescent son’s appendicitis as an example of terrible service from both the hospital and the insurance company. When he took his son to the hospital emergency department with the painful symptoms of appendicitis, the father had to fill out similar if not identical forms several times before his son could receive treatment. When he submitted the claim to his insurance company, at first they denied it on grounds there was no showing the appendix surgery was “medically necessary.” This was patently absurd. Eventually the insurance company paid, but not until Goldhill had to argue with them. And he was the CEO of the company that maintained the insurance contract with the insurer.

Prices and the law of supply and demand

On the health care island there are no prices to inform consumers of the real costs of what they consume. This does not happen on the health care island because everyone is operating under the delusion that somebody else is paying for what a consumer consumes.

Goldhill gives as an example the price for an MRI, the acronym for magnetic resonance imaging. Goldhill’s sister-in-law was visiting from her home abroad. As a foreigner she had no medical insurance, but she needed an MRI to determine the nature of an injury to her knee. Her sister, Mrs. Goldhill, called a radiologist to whom she was referred by the Goldhill’s family doctor. She asked the radiologist’s office staff for the price and was quoted $1,200. Mrs. Goldhill made a number of calls to find a lower price for what is, after all, now a routine procedure. After quite a few calls she found a radiologist who said $300, payable in cash, be here tomorrow at 4:00 p.m.

Behind this story is the fact that all radiologists could charge far less than $1,200 for an MRI, but they can get away with charging $1,200 because of insurance. The insurer may pay less than $1,200 but will surely pay a lot more than $300, so the radiologists prefer not to bargain with a medical customer, even one who will pay cash at the time services are rendered.

Off the island, on the mainland, such a thing would never happen. Radiologists would be advertising for customers on the basis of price as well as the quality of their interpretation of the MRI.

Goldhill compares it to the costs of any other service involving already paid capital costs for equipment, such as airline seats. In the market for airline seats individuals can search the internet for the lowest price, and there will be a price that is lower than others if not the lowest. That is because airline customers are paying out of their own pockets. They don’t send their insurance company a claim for reimbursement for air travel.

In the mainland economy prices work hand in hand with the economic law of supply and demand. An increase in the demand for goods or services causes an increase in their prices. Consequently consumers reduce their spending on pricey goods and services and direct their spending elsewhere. This has the beneficial effect of putting a non-coercive, automatically operating ceiling on the price of scarce goods and services; and the further benefit of creating a demand for goods and services that are relatively low in price.

NOTE: Andrew Galambos commented that the law of supply and demand was a law of nature, in that it is natural to humans to operate in the way described by the law of supply and demand.


While public “. . . debate has focused on the vulnerability of the uninsured and the uncovered . . . our current health care system is also a disaster for the insured,” according to David Goldhill. He gives an example of a real employee in his company, called Becky in the book, not her real name. She was hired at age 23 for a beginning salary of $35,000, plus health care insurance. The employer, Game Show Network (GSN) pays $6,000 a year for the insurance and Becky pays $2,000.

From the standpoint of GSN, the company provides health insurance because employees want it. They want it because there is an important tax benefit that came into the tax laws beginning in World War II: employer-paid medical insurance is treated as compensation expense to the employer, and is therefore a deduction from the employer’s taxable income, while the employee receives this benefit tax free. 24 Goldhill calls this a “mistake” in the tax law that has had the perverse consequence of contributing to a real, inflation-adjusted, tripling of health care spending as a percentage of national income, as represented by Gross Domestic Product. 25

Becky, the employee referred to above, was worth $41,000 a year to GSN as entry level compensation, namely her salary of $35,000 and $6,000 of the $8,000 of health insurance. Becky also pays other taxes, including almost 3% of pay for Medicare Part A (hospitalization). 20% of her income taxes actually go to other federal programs of health care.  Mr. Goldhill points out that the federal state spends $400 billion a year, nearly 20% of all its tax revenues, on programs other than Medicare and Medicaid. 26

Local states, such as California and New York spend about 10% of their tax collections on health care. The net effect of all this is that Becky, whose salary is $35,000, but whose real salary is $41,000 from the perspective of GSN, is paying $10,050 into the health care system, almost 25% of her true gross income.

If Becky works 30 years and costs don’t go up she will pay $300,000 into the health care system and then she will pay Medicare premiums taken out of her Social Security starting at age 65. But of course things will change. If she gets married and her income grows as would be expected she will pay more into the system. If she works to age 65 and stays in reasonably good health she will earn $3.85 million over her career and pay $1.9 million into the health care system (half her earnings).

That is right.  It is not a misprint. Half of her income will go for health care costs. If today’s youth continues to have the benefit of employer-paid insurance (which is dubious as discussed below), over their working careers half of their compensation will be in the form of health care costs.

The Beast

Everybody ends up paying for the actual costs of health care, one way or another. A principal form of “payment” is the relentless escalation of costs to society as a whole. Insured individuals and their employers see it in higher insurance premiums.

Medicare beneficiaries do not see the cost escalation because it is obscured from them by federal accounting for Medicare which, in effect, treats unfunded future liabilities as though they never have to be paid for. That is, people who are paying taxes into Medicare, and beneficiaries who are taking out health care benefits do not realize that Medicare is actually the world’s largest Ponzi scheme.

That is incendiary language, calling Medicare a Ponzi scheme. Medicare is widely considered the most popular thing the federal state does. Goldhill says, in effect, if the shoe fits, wear it. The characteristic of a Ponzi scheme is payment of supposed investment returns from new money coming in from other people. That is exactly what Ponzi operator Bernard Madoff did for thirty years or more. 27 The Madoff Ponzi scheme ended, as they all do, when the supply of money coming in from new people was not enough to pay prior participants the supposed “interest” on their committed capital, or even to return the capital.

The federal state has been advised by many credible sources, from the International Monetary Fund to academics, and staff of federal agencies such as the Office of the Comptroller and the Congressional Budget Office, that Medicare and also Social Security are, in effect, Ponzi schemes that must be reformed to avoid a disaster for the state and the beneficiaries of these programs. 28

The author calls health care “the Beast” because its insatiable appetite is consuming more and more national wealth, for example:

  1. Health care spending as a percentage of Gross Domestic Product (GDP) has gone from 6% of GDP to 18% of GDP since the enactment of Medicare and Medicaid in 1965.
  2. Since 1965, at the time of enactment of Medicare and Medicaid, Americans have grown healthier in many ways. Their work is generally less physically demanding and they retire earlier on average, they smoke less, they drink less alcohol, and eat in a healthier way. Therefore, it is paradoxical for health care costs to have escalated so much while the population was becoming healthier because of factors other than health care.
  3. Projections of federal agencies such as the Congressional Budget Office indicate that health care spending will continue to increase, taking more and more of the people’s incomes.
  4. As of 2012 the current administration (the executive branch headed up by the President of the United States) projects that over the thirty years starting with 2012 total compensation for work will increase at a moderate rate, but spendable (and taxable) income of Americans will decrease. How can total pay increase while spendable income decreases? Because more and more of individuals’ incomes will be taxed to feed the Beast of health care.

The growth of chronic conditions

The Beast is continually looking for ways to increase the amount of national wealth it consumes. One way is in the increase in chronic conditions classified as a threat to health, even though they may be asymptomatic and a natural consequence of aging. For example, hypertension, commonly called “high blood pressure,” tends to increase among individuals as they grow older. Although it has been called a “silent killer” because it may indicate a higher risk of having a stroke or heart attack, with most people hypertension can be controlled by inexpensive medication. There are also lifestyle factors that can help people minimize hypertension, a subject with an extensive literature beyond the scope of this essay.

Recently there has been talk in the health care industry of a condition called “prehypertension.” That means factors that can be identified by testing that may predispose a person to develop hypertension at a later time. The Beast is pushing to have prehypertension classified as a chronic condition so that its treatment may be paid for by insurance.

Medicalizing lifestyle choices

Another way for the Beast to increase its taking from society is in “medicalizing” what are really lifestyle issues, problems that may impact health negatively but are best handled by lifestyle changes rather than medical intervention.

Goldhill points out that the insurance industry (private and public) is complicit in this process, as perverse economic incentives motivate insurers, private and governmental, to push costs ever higher. With medicalization of phenomena that are really lifestyle issues not medical issues, people are encouraged to expect insurance to pay for fixing ill health caused by lifestyle choices.

On June 18, 2013, the American Medical Association (AMA) declared obesity a disease, defining 78 million obese American adults and 12 million children as having a chronic medical condition requiring treatment.

This action “. . . is certain to step up pressure on health insurance companies to reimburse physicians for . . . discussing obesity’s health risks with patients . . . It should also encourage doctors to direct these patients to weight-loss programs and to monitor their often-fitful progress.

“The federally funded Medicare program, which insures an estimated 13 million obese Americans who are over 65 or disabled, already covers the costs of ‘intensive behavioral therapy’ for obese patients, as well as bariatric surgery for those with additional health conditions. But coverage for such obesity treatments has been uneven among private insurers. . .

“‘As things stand now, primary care physicians tend to look at obesity as a behavior problem,’ said Dr. Rexford Ahima of University of Pennsylvania’s Institute for Diabetes, Obesity and Metabolism. ‘This will force primary care physicians to address it, even if we don’t have a cure for it.’ . . . [Emphasis added]

“The Food and Drug Administration, which has approved just two new prescription weight-loss medications since 1999, would probably face increased pressure to approve new obesity drugs, spurring new drug development and more widespread prescribing by physicians . . .

The AMA’s Council on Science and Public Health speculated that “employers may be required to cover obesity treatments for their employees . . . It might also shift the nation’s focus too much toward expensive drug and surgical treatments and away from measures to encourage healthy diets and regular exercise, the council wrote in a background memo for AMA members.” 29

The next day brought news that popular entertainer Christina Aguilera had lost 20 pounds by reducing her caloric intake to 1600 calories a day and increasing her exercise program.

The Mayo Clinic says: “You can usually lose weight through dietary changes, increased physical activity and behavior changes.” 30

According to the Dietary Guidelines for Americans 2010 Executive Summary, those who achieve and manage a healthy weight do so most successfully by being careful to consume just enough calories to meet their needs, and being physically active. 31

Health care is not health

Mr. Goldhill makes an assertion that will be a surprise to many, namely that there is no direct relationship, in any country, between life expectancy and the amount of nationwide spending on health care. Other factors are far more influential on life expectancy and health during one’s lifetime. These include wealth; leisure time; the relative physical effort required for work, e.g., the work of a coal miner compared to that of a teacher; cleanliness of the environment in terms of air quality and water quality.

The more that the people of a society spend on health care the less there is available to increase wealth, leisure time, advances in technology to reduce the strain of physical labor, etc. Thus, in a real way, excessive spending on health care decreases health and life expectancy.

The Fatal Conceit

David Goldhill does not use the term “the fatal conceit” in his book. That term was coined by famed economist F. A. Hayek (1899-1992). 32 However, the tenor of Goldhill’s argument is imbued with Hayek’s concept of the fatal conceit.

Hayek posited that the “fatal conceit” was the idea that top-down economic planning by the state was far more efficient, and led to better outcomes for society, than leaving choices to individuals. Throughout Catastrophic Care Goldhill makes the case that leaving health care decisions to individuals, with the advice of their physicians, of course, would be far less costly and would lead to far better outcomes than the centrally decided and directed administration of health care that has developed in America, specifically through having surrogates replace the individual as the payer for health care services.

As the payer of health care services, the surrogates are making choices for individuals that are inimical to the best interests of individuals, the medical profession as a whole, and society as a whole. Goldhill gives as an example the effect of the fatal conceit on that vital physician, the primary care doctor, also known as an internal medicine doctor or a family practitioner.

Some thirty years ago Medicare promulgated rules for hospitals known as “Diagnostically Related Groups” or “DRGs” as they have come to be known. There was a list of some 467 conditions that hospitals could bill to Medicare. Medicare instituted a fixed payment schedule for the DRGs. This was an attempt to control the escalation of hospital costs of Medicare patients.

The private insurance industry, and Medicare itself, began to apply a similar concept to physicians’ services. That is, all physician services were categorized in terms of the procedure involved in providing the service. Physicians were paid for doing specific procedures. In the case of a good internist or family practitioner, much of the benefit from their skill comes not from doing procedures, but from talking with patients to understand what is going on medically and otherwise in their lives–e.g., is the patient experiencing emotional distress–and then to counsel the patient or refer the patient to a specialist, as appropriate.

Insurers and Medicare do not pay much, if anything for such medical counseling by internists and family practitioners. This has had the following adverse consequences to the internists and to patients.

  1. Internists and family practitioners work as many hours, on average, as do specialists but earn half as much as the average for specialists because specialists get paid per procedure and the most important services of an internist or family practitioner do not qualify as a procedure.
  2. Medical students understand how this works. Fewer and fewer medical students are choosing to go into internal medicine or family practice. They can earn far more with no more effort in a specialty that has lots of procedures.
  3. The internist or family practitioner has several important roles in medical care. Often, acting as primary caregiver or first responder, he or she can do everything necessary to alleviate a patient’s symptoms and suffering. Specialists are not equipped to see the whole person and to deal with many patient issues in the way that internists and family practitioners do. For example, suppose one comes down with a severe respiratory infection, such as the flu or bronchitis. The internist can diagnosis the problem, advise the patient, and where necessary prescribe medication such as an antibiotic, or suggest an over-the-counter medicine that will alleviate symptoms.
  4. The primary care physician should also be the one to coordinate the activities of specialists if two or more are needed for a particular patient. The internist or family practitioner is the best qualified for this role.

The top-down specification of what will be paid for and price fixing by surrogates is driving a growing scarcity of the all-important internal medicine doctors and family practitioners.

In any other industry or profession, practitioners could decide for themselves what to charge and their clients or customers could decide what they were willing to pay. This is how everything works off the health care island. If health care were returned to the mainland the supply of internal medicine doctors and family practitioners would adjust to the requirements of patients as evidenced by their willingness to patronize the doctor.

A century before F. A. Hayek, famed French thinker, classical liberal theorist,  and political economist Frédéric Bastiat (1801-1850) anticipated Hayek’s idea of the fatal conceit in this way. He described the French socialist intellectuals of his day as people who considered themselves an elite class who knew better than the general population what was in their best interest. This political elite considered the rest of humanity to be like a malleable lump of clay that the elite could mold into whatever shape they thought best. 33

It seems self-evident that both Bastiat and Hayek would find much to like in David Goldhill’s argument that in health care individuals, not their surrogates, should be the ones to make the choices for their own health care.

There are several common arguments in the political discourse of our time as to why health care is so different that individuals are incapable of making the right choices for themselves. Goldhill points out that the surrogates, who are supposed to know better than individuals have done a miserable job of allocating resources. That is why health care  costs are have gone up so much and are likely to go up further.

The Affordable Care Act of 2010

Mr. Goldhill argues that we should not expect any relief in the escalation of health care costs from the Affordable Care Act of 2010, known by the acronym ACA and also as “Obamacare.” Rather, we should expect ACA to worsen the crisis in health care finance. How so? Because ACA itself is built on the idea that there is not enough insurance and there should be more of it for more people.

The insurance model has been instrumental in creating the health care island, where the economic law of supply and demand has virtually been abolished. David Goldhill remarked in his interview with Malcolm Gladwell that “once we have decided to move health care to this island and pretend that there are not prices, just costs, you’ve given up the whole purpose of prices, we have given up their whole use; they are the circulatory system of our economy and we have eliminated them from the biggest industry in our economy.” [Emphasis added] 34 In Mr. Goldhill’s view the ACA further weakens the already enfeebled law of supply and demand in health care.

ACA also further limits freedom of choice, which is a prominent defect in American health care. And ACA will probably have the effect of providing incentives to employers to stop providing health care insurance for employees. That, together with the provisions of ACA requiring the uninsured to buy insurance without providing a means for this to occur consistent with the law of supply and demand, means that ACA will exacerbate the problems he describes in the rest of his book.

America is on the verge of big changes in health care finance

Mr. Goldhill believes many employers will drop health insurance coverage for employees once Obamacare goes into full effect; and that many of those employees will choose to pay the tax (or fine) for not buying health insurance. That will be cheaper than buying the insurance through the mechanism provided in ACA. Such people will then become the payers of all their own health care. Mr. Goldhill expects them to act like they do in buying anything else. They will be price conscious and price sensitive and will not put up with bad service. That would be a huge change in American health care.

Furthermore, under the ACA an uninsured person can wait to buy insurance until he gets very sick. Insurance companies are barred from refusing to insure such people. Imagine such a provision in the law that affected homeowners’ insurance similarly. One could wait until one’s house was badly damaged, for example by storms, other natural conditions or normal deterioration with passage of time, before taking out insurance, and the insurance company would have to issue the insurance, at rates not taking into account the impending large loss to the already damaged home.


Mr. Goldhill does not conclude that America needs socialized medicine like Canada or England.  In an interview televised after publication of Catastrophic Care, Mr. Goldhill took note of a widely read article by Stephen Brill in Time magazine, in which Mr. Brill argues that to get control of health care costs Medicare ought to be empowered to set prices for all medical services and products. 35 Mr. Goldhill observes that Medicare has been setting prices for medical services and products since the early 1980s, yet Medicare’s costs have escalated far more rapidly over that time than the overall increase in the Consumer Price Index.

Further, Mr. Goldhill argues that insurance, including Medicare, is driving an explosion in costs and in inappropriate or improper health care; that there is so much money available for health care, and that individuals pay directly out of pocket such a small amount of their medical expenses that the system has been cut off from the discipline provided almost everywhere else in the economy by prices and the law of supply and demand.

Considering the single-payer systems of Canada and Britain, Mr. Goldhill observes that the single-payer mode of state-provided medical insurance will be undergoing severe cost pressures due to advances in what medical science can accomplish. When state-run medical insurance was originated in Imperial Germany under Otto von Bismarck in the late 19th century, the idea was that a worker could suffer a disabling injury or illness that would prevent him from working to take care of himself and his family. Therefore, the original German insurance plan was to get the worker repaired physically or cured of illness and back to work so he could support himself and his family.

With the passage of more than 100 years, the focus on health care has changed from repairing a catastrophic injury or curing a catastrophic illness to providing all manner of services and products in response to the demands of people for medical care. That is to say, the public’s demand for medical services has increased more or less in tandem with  the increase in the capabilities of medical science and technology. Because of this development, the state-run insurance programs around the world are coming under severe cost pressures that they can contain only by rationing health care, by making people wait or by denying treatment altogether, especially for the elderly.

That was clearly and nicely illustrated in the British motion picture The Best Exotic Marigold Hotel (2012). In an opening scene an elderly woman is lying on a gurney in a hospital corridor. She calls for a nurse, and tells her she has been lying there for hours without attention and wants to see a doctor. The nurse says the doctor has seen you, and points out a very dark-skinned man in a suit looking at papers down the hall. The patient says pointedly, “I mean an English doctor.” The nurse replies that she will send one right over.

In short order a handsome man, obviously East Indian, comes to the lady and addresses the patient in impeccable English, saying he has looked at her chart and she needs a hip replacement. I know that says the lady, when can I have it done? I am in terrible pain. The physician says there will be a six month wait, but there is a way to speed things up. The lady says how? In the next scene she is getting on an airline flight to India, where in fact she has the hip replacement almost immediately.

David Goldhill proposes several solutions to the health care crisis, including the following.

  1. First and foremost, getting health care off its island and eliminating the role of the surrogates by turning over to individuals the function of paying consumer that operates off the island.
  2. Making available true insurance, that is insurance for medical catastrophes, not routine care. At the time of writing his book, Goldhill said, correctly, that true catastrophic insurance was not available in most states. The anticipated cost of true catastrophic insurance (he calls it Tru-Cat) would be a small fraction of the cost of most medical insurance that Americans have.
  3. Change the tax laws so that individuals who do not have employer-provided insurance are not disadvantaged vis-à-vis persons who get insurance through employment.
  4. If a tax benefit for medical costs is deemed part of our social order, then Health Savings Accounts (HSAs) should be increased in scope. They exist already but their scope is quite limited. Individuals would have a tax deduction for funding their HSAs, and could take the money out tax free to pay medical expenses.
  5. Goldhill suggests that payments into HSAs be compulsory, whether it is an employer or an employee who funds the HSAs.
  6. In a most original and creative solution to another problem, Goldhill considers the situation of a person whose routine medical expenses exceed both his HSA account balance and his other liquid assets. He suggests that such people could find commercial loans given against the security of the mandatory future contributions to an HSA. While this could become feasible it would take some working out. But working out seemingly unusual arrangements is the strong point of a free market, so there is reason to take this idea seriously.
  7. For those economically disadvantaged people who cannot afford even cheap Tru-Cat insurance and cannot afford to fund HSAs Goldhill believes that the federal state ought to pay for such insurance and fund their HSAs. The expense of doing so appears likely to be far, far less than the amount currently spent on the Medicaid program for low income people.




  1. As foreigners they could have gone free of charge, except for medicine, to the “A&E” (accident and emergency) of a British hospital operated by the National Health Service, according  to “How healthcare can work when it is a right, not a privilege” by David Lazarus, Los Angeles Times, October 4, 2013,,0,1359951.column
  2. an antibiotic in the penicillin group of drugs,
  3. This event occurred in 1949, when the use of penicillin was relatively new. In 1928 Alexander Fleming (1881-1955) a Scottish biologist and pharmacologist working in London, England discovered penicillin, one of the earliest discovered and widely used antibiotics. Fleming published his discovery in 1929, but for over a decade the medical profession paid little heed. In 1940 pharmacologist and pathologist Howard Florey and biochemist Ernst Boris Chain together innovated a technology for mass production of penicillin, which was used extensively in WW II for treatment of wounds of war. In 1945 the Nobel Prize in medicine was awarded to Fleming, Florey and Chain for the discovery and development of penicillin.
  4. The source for the statement in this sentence is a telephone interview with a man at the concierge desk of the London hotel that referred our friends to a private doctor, as described above.
  5. As measured by Gross Domestic Product
  6. Mr. Gladwell has written four books that were on the New York Times Best Seller List. They are The Tipping Point: How Little Things Make a Big Difference (2000); Blink: The Power of Thinking without Thinking (2005); Outliers: The Story of Success (2008); and What the Dog Saw: And Other Adventures (2009), a collection of his journalism
  7. The interview, before an audience in Pasadena, California, ran 65 minutes, including a question and answer period with the audience. The interview is available on the internet at There are also televised interviews of David Goldhill at and
  8. According to the Mayo Clinic “sepsis is a potentially life-threatening complication of an infection. Sepsis occurs when chemicals released into the bloodstream to fight the infection trigger inflammation throughout the body. This inflammation can trigger a cascade of changes that can damage multiple organ systems, causing them to fail. If sepsis progresses to septic shock, blood pressure drops dramatically, which may lead to death. Anyone can develop sepsis, but it’s most common and most dangerous in elderly people or those with weakened immune systems. Early treatment of sepsis, usually with antibiotics and large amounts of intravenous fluids, improves chances for survival.” Quoted from
  9. well-known American acronym for an  intensive care unit within a hospital
  10. Catastrophic Care, pages 5-7 and 91
  11. There appears to be considerable anecdotal evidence that a cheery environment is a big help in getting successfully through serious illness and that there is truth to the saying that laughter is the best medicine. That was the premise of journalist and author Norman Cousins (1915-1990) in his book, Anatomy of an Illness (1979).

    After being diagnosed with a terminal illness while in the hospital, Mr. Cousins and his doctor worked out an unconventional treatment plan: leaving the hospital and checking into a hotel where the patient watched videos of movies by the Marx Brothers, prominent comedians who made fourteen successful comedy movies between 1929 and 1949. Mr. Cousins made a complete recovery. Impressed by Mr. Cousins’ hypothesis about the role of attitude in dealing with illness, the dean of the School of Medicine at UCLA invited Cousins to teach at the school. UCLA subsequently established and continues to maintain The Cousins Center for Psychoneuroimmunology. Its mission is to investigate the idea of recovery from illness being associated with positive emotions and attitudes, such as purpose, determination, love, hope, faith, will to live and festivity. See Cousins Center for Psychoneuroimmunology,

    In his book The Home Health Guide to a Cancer-Free Family (2005) Australian physician and author Gabriel Kune has written that a positive and optimistic outlook, coupled with a regular relaxation technique and regular exercise is a good indication of a better than average survival rate from cancer.

  12. Catastrophic Care, pages 6-7
  13. Atul Gawande, M.D., a contributing writer to The New Yorker, is a surgeon, a professor of surgery at Harvard Medical School and a professor in the Department of Health Policy and Management at the Harvard School of Public Health.
  14. Peter J. Pronovost, MD, PhD, FCCM is Senior Vice President for Patient Safety and Quality and Director of the Armstrong Institute for Patient Safety and Quality at the Johns Hopkins University School of Medicine.
  15. See “The Checklist,” by Atul Gawande, The New Yorker, December 10, 2007,
  16. Catastrophic Care, page 8
  18. Catastrophic Care, page 353
  19. See
  20. To watch this discussion, on the internet go to{A23E29CB-B5B1-4BD7-825C-109925EB5ED8}
  21. The National Academies is an independent, nonprofit organization that works outside of government to provide unbiased and authoritative advice to decision makers and the public. It was chartered by the U.S. federal state in 1863. The Institute of Medicine, established in 1970, is the health arm of the National Academy of Sciences. See
  22. Quoted from “‘Catastrophic Care,’ by David Goldhill,” a review by John Maa, San Francisco Chronicle, January 18, 2013 John Maa is an assistant professor of surgery at the University of California San Francisco, widely known as UCSF, the original medical school of the University of California system.
  23. This comparison is not from Mr. Goldhill’s book. It is an observation made by a Professor of Economics at the UCLA Anderson School of Management some years ago, in a lecture attended by the author of this website. However, the statement is consistent with the ideas in Mr. Goldhill’s book.
  24. The Internal Revenue Service allowed such tax treatment during World War II. The practice was codified in the U.S. Internal Revenue Code of 1954.
  25. The tripling of spending referred to by Mr. Goldhill occurred between 1965 and 2012;
  26. These other federal health care programs benefit active military personnel, veterans (via the Veterans Administration which operates the largest hospital system in America), Native Americans via the Department of Indian Affairs, etc.
  27. Bernard Madoff, a seemingly reputable stock broker, ran a Ponzi scheme for many years that ultimately caused billion in losses by those who entrusted their funds to him. It was the largest private Ponzi scheme in American financial history. See Bernard Madoff, Wikipedia, at
  28. For citations in support of the foregoing, readers are referred to a chapter of the book with which this blog is associated, namely the chapter entitled “Political Democracy in America,” and specifically the discussion within that chapter under the heading “The World’s Largest Insurance Company.”
  29. Quotations from “AMA declares obesity a disease,” by Melissa Healy and Anna Gorman, The Los Angeles Times, June 19, 2013.,0,4422080.story
  30. See
  31. See  The Dietary Guidelines for Americans is a publication of the Center for Nutrition Policy and Promotion, an agency within the U.S. Department of Agriculture.
  32. Professor Hayek authored an entire book with that title, The Fatal Conceit: The Errors of Socialism (University of Chicago Press, 1988)
  33. Bastiat said that “Socialists look upon people as raw material to be formed into social combinations . . . as an artificial creation of the legislator’s genius . . . To [them] the relationship between persons and the legislator appears to be same as the relationship between the clay and the potter.” Bastiat, Frédéric, The Law (1950 English language publication, translated by Dean Russell of the Foundation for Economic Education, Inc.) pages 34- 35. This essay was originally published in France in 1850 and entitled La Loi. As of the first decade of the 21st century Bastiat’s The Law is available from booksellers in hardcover, paperback, and electronic book versions. A PDF publication of a 1998 edition of the book may be read without charge at the website of FEE (The Foundation for Economic Education) The quotation above appears at page 31 of FEE’s 1998 PDF publication.
  34. Quoted from David Goldhill interview with Malcolm Gladwell, at 23:30 to 23:50 minutes.
  35. “Bitter Pill: Why Medical Bills Are Killing Us,” by Stephen Brill, Time, March 4, 2013,,9171,2136864,00.html
This entry was posted in Blog. Bookmark the permalink.

17 Responses to America’s health care catastrophe

Add a Comment

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.