“People are far more likely to go to an MD for sniffles if they are shielded from the total costs of the bill.”
Max Borders (Policy analyst John W. Pope Civitas Institute)
Is Max right? Is reckless over-consumption a major factor in increased American healthcare expenses? In a word…no. First some background.
Max is from the “consumer-directed” school of health care reform who believe that Americans consume too much health care because insurers pay the bills. In Max’s world, costs skyrocket because Americans over-consume healthcare so that our “sniffles and sore throats” can be treated, our Viagra prescriptions filled, and astronomically priced new treatments are demanded “whether or not they are necessary.” You can read Max’s essay here, which he and his colleagues have linked to on two occasions. Max is a frequent dissenting commenter on this site, and I do not want him to feel he was taken out of context.
So why is Max wrong? Simple. He works for the Civitas Institute. But more than that, it is the “80 –20” rule. This rule applies to patients with chronic illnesses, not sore throats or erectile dysfunction. In health spending, 20% of the population (the chronically ill) account for 80% of expenses. Half of us have virtually no medical expenses at all in a given year. In 2003, 1% of the population accounted for 22% of expenses, 5% accounted for 50% of expenses.
To be sure, health expenses are rising at an alarming rate. However, this is mostly due to the development and increasing use of new medical technology, not over-consumption. And this is not necessarily a bad thing, either. It’s called medical progress. We have expanded our medical choices, something the John Locke boys should appreciate. We spend more because we can do more. And here is the take home message: unlike the usual market forces in business, technological advances in health care have generally raised costs rather than lowered them. MRI’s, drug-coated stents, PET scans, titanium joints, dialysis machines, robotic surgeries, implantable defibrillators (yes, I mean you Mr. Vice-President), bone-marrow transplants, respirators, and neo-natal nurseries…these are all things that increase medical spending. Anybody out there willing to forfeit these therapies for themselves or their families? People with sniffles are not racking up medical expenses other than their $50 visit, $25 of which is an out-of-pocket expense for them. On the other hand, chronically ill patients are not over-consuming. (“Doc, this one’s on Uncle Sam…can you indulge me in some excessive chemotherapy, unnecessary dialysis, and a needless colonoscopy?”) I don’t think so.
Having diagnosed the patient incorrectly, Max prescribes the wrong treatment: high deductible health plans and HSA’s (health savings accounts), presumably to discourage excessive consumption of small-expense items. While being excellent tax saving vehicles for the healthy and wealthy, these plans will do little to curb the appropriate consumption of medical services by chronically ill patients. Don’t forget the “80 –20” rule: most medical expenses are generated by a small number of chronically ill patients requiring advanced technological and very expensive treatments. Oftentimes, they are sick and tired and scared. They are ill-suited to be the rational, informed purchasers of health care that Max envisions.
That’s not to say that there is not massive waste and inefficiency in the US health care market. The most obvious one being the 15-20% administration fees in private insurance (as opposed to 2-3% in Medicare), closely followed by pharmaceutical profits. And I have a particular gripe with my physician colleagues who practice inefficiently in a world of finite health care dollars. For that, there is no excuse. Those are topics for another day.
Table 1 sums all of this up. In comparison to other countries, the United States health care system is vastly inefficient. There are a variety of major factors, but reckless over-consumption is not one of them. Indicators of the quantity of care such as number of physicians, nurses, and hospital beds per capita, show that we are similar to Canada, France, and the UK. Unfortunately, we are twice as expensive as other developed countries, with similar or worse outcomes in life expectancy or infant mortality.
Finally, in fairness, I urge you to read Max’s essay Government’s Healthcare Pathologies. Certainly, I take issue with his over-emphasis on over-consumption, but he has other ideas. Read it and decide for yourselves.
The August 2007 Kaiser Health Tracking Poll finds that health care remains the top domestic issue that the public wants presidential candidates to address, trailing only Iraq in the overall priority list. This is true of all groups (Republicans, Democrats, and Independents). Since North Carolina and our Appalachian neighbors are among the unhealthiest states, this is a particularly important debate for our citizens.
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