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What makes health-care and education costs similar to each other — and unlike anything else

By Ezra Klein,

Writing in the Daily, Josh Barro notes that “the higher education sector looks a lot like the health care sector”: Costs are up, productivity growth is flat, there’s little evident adoption of technologies that could make the sector cheaper, etc.

There’s another similarity that Barro doesn’t mention: Like the health-care sector, the higher education sector is heavily subsidized by the government. Some take that commonality as a causality: Health-care and college costs are out of control because the government subsidizes them. I think the truth is closer to the reverse: The government subsidizes them because their costs are out of control.

Health-care and higher education are similar in another way, too: People don’t think they can responsibly say no to either expense. Families take out hundreds of thousands of dollars of debt to pay medical bills and tuition costs. The only other cost that’s anything like that is housing — and it’s a much more optional expense. You can buy a house on your schedule. Health-care costs and your child’s 18th birthday tend to be somewhat less cooperative.

This inability to say no removes the ultimate form of market discipline: the consumer’s ability to simply walk out of the store. Oh, you can, at times, walk over to another store and try your luck there — though that’s not true if you’ve been brought into the ER in an ambulance, and it’s not true if your son only got into one decent college — but it tilts the power towards the sellers and away from the buyers.

There’s certainly more we could do to bring market pressures into play in both sectors, but the reason the government ends up involved in health care and education is that a real market would require us telling more people than we’re comfortable with that they can’t have the medical care or education that they need.

In other countries, they deal with this pressure by mainly having one buyer: the government. That’s how single-payer health care holds down costs, for instance. The government says no on behalf of all the people. But in the United States, we have a mix of public and private options, and so the public options have to compete with the private schools for faculty, doctors, patients, administrators and more — and that makes it harder for them to hold down costs.

I don’t really see a way out aside from technological disruption. It’s a common complaint that neither the health-care nor the higher education business model has been changed substantially by the Internet. But I’m an optimist on this point. The Internet has been with us for only a few decades. We’re just learning what we can do with online streaming video and big-data analytics. Or, to name another industry, we’re just now beginning to topple the fax machine.

Health care and education will be disrupted, too, and once it begins happening, it might happen much faster, and with much farther-reaching consequences, than any of us expects.

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