Chapter 1.C.2--The Crisis in Coverage and Spending

This page has excerpts from two articles:

Gourmand and Food--A Fable
From, Medical Care and its Delivery: An Economic Appraisal
Judith R.Lave & Lester B. Lave
L. & Contemp. Prob. 252 (1970)
Reprinted with Permission

The people of Gourmand loved good food. They ate in good restaurants, donated money for cooking research, and instructed their government to safeguard all matters having to do with food. Long ago, the food industry had been in total chaos. There were many restaurants, some very small. Anyone could call himself a chef or open a restaurant. In choosing a restaurant, one could never be sure that the meal would be good. A commission of distinguished chefs studied the situation and recommended that no one be allowed to touch food except for qualified chefs. "Food is too important to be left to amateurs," they said. Qualified chefs were licensed by the state with severe penalties for anyone else who engaged in cooking. Certain exceptions were made for food preparation in the home, but a person could serve only his own family. Furthermore, to become a qualified chef, a man had to complete at least twenty- one years of training (including four years of college, four years of cooking school, and one year of apprenticeship). All cooking schools had to be first class.

These reforms did succeed in raising the quality of cooking. But a restaurant meal became substantially more expensive. A second commission observed that not everyone could afford to eat out. "No one," they said, "should be denied a good meal because of his income." Furthermore, they argued that chefs should work toward the goal of giving everyone "complete physical and psychological satisfaction." For those people who could not afford to eat out, the government declared that they should be allowed to do so as often as they liked and the government would pay. For others, it was recommended that they organize themselves in groups an pay part of their income into a pool that would undertake to pay the costs incurred by members in dining out. To insure the greatest satisfaction, the groups were set up so that a member could eat out anywhere and as often as he liked, could have as elaborate a meal as he desired, and would have to pay nothing or only a small percentage of the cost. The cost of joining such prepaid dining clubs rose sharply.

Long ago, most restaurants would have one chef to prepare the food. A few restaurants were more elaborate, with chefs specializing in roasting, fish, salads, sauces, and many other things. People rarely went to these elaborate restaurants since they were so expensive. With the establishment of prepaid dining clubs, everyone wanted to eat at these fancy restaurants. At the same time, young chefs in school disdained going to cook in a small restaurant where they would have to cook everything. The pay was higher and it was much more prestigious to specialize and cook at a really fancy restaurant. Soon there were not enough chefs to keep the small restaurants open.

With prepaid clubs and free meals for the poor, many people started eating their three-course meals at the elaborate restaurants. Then they began to increase the number of courses, directing the chef to "serve the best with no thought for the bill." (Recently a 317-course meal was served.)

The costs of eating out rose faster and faster. A new government commission reported as follows: (1) Noting that licensed chefs were being used to peel potatoes and wash lettuce, the commission recommended that these tasks be handed over to licensed dishwashers (whose three years of dishwashing training included cooking courses) or to some new category of personnel. (2) Concluding that many licensed chefs were overworked, the commission recommended that cooking schools be expanded, that the length of training be shortened, and that applicants with lesser qualifications be admitted. (3) The commission also observed that chefs were unhappy because people seemed to be more concerned about the decor and service than about the food. (In a recent taste test, not only could one patron not tell the difference between a 1930 and a 19[95] vintage but he also could not distinguish between white and red wines. He explained that he always ordered the 1930 vintage because he knew that only a really good restaurant would stock such an expensive wine.)

The commission agreed that weighty problems faced the nation. They recommended that a national prepayment group be established which everyone must join. They recommended that chefs continue to be paid on the basis of the number of dishes they prepared. They recommended that every Gourmandese be given the right to eat anywhere he chose and as elaborately as he chose and pay nothing.

These recommendations were adopted. Large numbers of people spent all of their time ordering incredibly elaborate meals. Kitchens became marvels of new, expensive equipment. All those who were not consuming restaurant food were in the kitchen preparing it. Since no one in Gourmand did anything except prepare or eat meals, the country collapsed.


For a more recent version of a similar extended metaphor, using "Breakfast Insurance: A Metaphor for Health Insurance," see Regina Herzlinger, Consumer-Driven Health Care (2004), at 61-73.  For additional discussions of all the things wrong with U.S. health care, see Paul Krugman & Robin Wells, The Health Care Crisis an dWhat to Do About It, 53 N.Y. Review of Books No. 5 (March 23, 2006); Julius B. Richmond & Rashi Fein, The Health Care Mess: How We Got into it and What it will take to Get Out (2005);

Recent spending and other statistics

Udates on coverage and spending statistics can be found on the web pages of CMS and the Census Bureau.  In 2002, health care spending grew by 9.3%, more than twice the rate of inflation.  This continued a similar trend from the prior year.  Spending growth slowed a bit, however, in 2003, to 7.7%, still more than general inflation, to reach to reach $1.7 trillion, or $5,670 per person.  As a result, the share of GDP devoted to health care rose from 13.3% in 2000 to 15.3% in 2003.  Hospital spending  was the major driver of these increases.  See Stephen Heffler, et al., Health Spending Projections Through 2013, Health Affairs Web Exclusive (Feb. 2004); and Health Affairs, Vol 24, Issue 1, 185-194.

The California HealthCare Foundation has prepared a visual analysis of costs and financing trends over the past decade and some predictions of future costs, taken from numerous public and private organizations.

For an analysis supporting the position that the benefits we receive from health care spending outweigh the costs, see David M. Cutler, Your Money or Your Life: Strong Medicine for America's Health Care System (Oxford Univ. Press, 2004).  For a counter argument and evidence, see Elliott S. Fisher, Medical Care -- Is More Always Better?, 349 New Eng. J. Med. 1665 (2003); Nortin M. Hadler, The Last Well Person (McGill-Queen's Univ. Press, 2004).

International comparisons are reported in a continuing series of articles in Health Affairs by Gerard Anderson and colleagues.  A recent article, It's The Prices, Stupid: Why The United States Is So Different From Other Countries, 22(3) Health Aff. (May 2003), shows that higher spending in the U.S. is due mainly to higher prices for the services delivered than to U.S. doctors and patients using services more intensively.  For a comparative analysis of quality, see Peter S. Hussey, et al., How Does the Quality of Care Compare in Five Countries?, 23(3) Health Aff. 89 (June 2004).  One prominent study found that the British are much healthier than Americans in all major disease areas, such as diabetes, heart disease, stroke, lung disease, and cancer, even after controlling for all relevant socio-demographic factors.  J. Banks, M. Marmot, et al., Disease and Disadvantage in the United States and England, 295 JAMA 2037 (2006).

New York Times columnist Paul Krugman wrote a series of  penetrating articles in 2005 analyzing various problems in the U.S. health care system, and proposed solutions.  Tom Mayo has posted a summary and links to the articles  on the Health Law Prof Blog.

Previous reports appear to be overstated that a majority of bankruptcies are caused by medical bills.  Instead, the majority of medically-related bankruptices result from losing jobs for health-related reasons, such as disability, or needing to quit to take care of a family member.  See Melissa B. Jacoby and Elizabeth Warren, Beyond hospital misbehavior: an alternative account of medical-related financial distress, 100 Nw. U. L. Rev. 535-584 (2006); David Dranove and Michael L. Millenson, Medical Bankruptcy: Myth Versus Fact, Health Affairs, March/April 2006; 25(2): w74-w83.

The following graph illustrates the highly skewed distribution of health care costs across the population. It shows, for instance, that 70% of people account for only 10% of health care expenditures, and that the top 10% of people account for 69% of expenditures. (The graph is taken from John V. Jacobi, Consumer-Directed Health Care and the Chronically Ill, ___ U. Mich. J. L. Reform __ (2005) and ba sed on Marc L. Berk and Alan C. Monheit.  See Marc L. Berk and Alan C. Monheit, "The Concentrations of Health Care Expenditures Revisited," Health Affairs, 20 (March/April 2001), 9, 12.) 


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