Our managed healthcare system frequently irritates me. It seems complex, expensive, bureaucratic, and prone to mistakes. Insurance companies seem to be making a ton of money while nickel-and-diming their customers. Meanwhile, the people and institutions who actually provide health care have experienced financial decline.

When I was a child, I understood the socioeconomic status of MDs to be extremely high. Physicians were well-respected and either wealthy or super-wealthy. This made perfect sense to me: health is valuable, and the people trained and skilled at maintaining and improving our health should by all rights receive rich tangible and intangible rewards. As I have grown older, the wealth of physicians seems to have declined. Worse, the idealism that drove them seems to have been crushed by the bureaucracy and controls of bean-counters in the managed care system. The intangible benefits of being a good doctor seem to have declined considerably. It seems doubly unfair when so many doctors remain willing to make personal financial sacrifices to ensure broader access to health care. Admittedly, these are my subjective impressions.

I was eager to understand why this was happening, and this book went a long way toward explaining it.

Cutler starts with a strong argument that though health care costs are rising, the increased costs are amply justified by the benefits of modern products and services. (For this analysis, he employs the economist’s technique of assigning a monetary value to each productive year of life. It may seem cold and calculating to do so, but the technique is justified by the very decisions we make regarding health and safety.)

The book then traces the history of our modern healthcare system. Two of Cutler’s insights stuck in my mind. The first is that once our society decided to make employers pay for (or at least subsidize) health insurance, managed care was required to reduce costs. Otherwise, wages would not have increased as much as they did.

The second is that healthcare insurance tends to be focused on the intensity of care as opposed to its quality. We can understand why this is so. For example, it does seem more important to make sure expensive emergency heart surgery is covered and less important to make sure that cheap routine physicals are covered. Unfortunately, this has skewed the incentives for requesting, providing, and innovating health care. (In my opinion, it has also increased costs. Penny-wise-pound-foolish people who neglect preventative care end up requiring expensive invasive care, which raises premiums for us all.) Although it seems more difficult to determine quality, there are in fact many medical studies that quantify the benefits of various noninvasive and preventive services.

On how to fix the system, the book seemed weak (despite its subtitle, Strong Medicine for America’s Health Care System). Cutler suggests quality-based bonuses to service providers. Noting that universal health care must be paid for by the government, he complains that George W. Bush’s tax cuts should have gone toward financing this benefit. Overall, this is an excellent and timely book.