• Skin in the game – ctd.

    I have to admit, I’ve having difficulty understanding how so many of you think we’re not spending enough of our own money on health care. While I disagree, I’m trying to keep an open mind.

    I was reading Ross Douthat’s column this morning, and was struck by this line:

    Today, for instance, a family of four making the median income — $94,900 — pays 15 percent in federal taxes.

    That seemed insane to me – way too high. Looking at the comments, I found I wasn’t alone. And, to his credit, Ross posted a correction in his blog (emphasis mine):

    My column today includes an estimate, taken from this Congressional Budget Office report, of what a median-income family would pay in taxes over the next few decades under the “current law baseline” — a scenario in which tax rates rise fast enough to cover the budget deficit without any kind of entitlement reform. The median income figure the C.B.O. used (see Table 4-4 on p. 65 of the report) is $94,900 for a family of four, which (as a number of readers have noted) seems much higher than the usual estimates for median income in a four-person household. It turns out that I didn’t catch a crucial footnote in the C.B.O. document: “All income is assumed to be from compensation, which includes employment-based health insurance and the employer’s share of payroll taxes.” That is to say, the $94,900 in income includes the estimated value of the median family’s health care plan as well as their salary, which is not what most people think of when they hear the term “median income.”

    Health care is expensive! Amazingly so, as including the cost of  health care plans in estimates of compensation results in much higher numbers than salary alone.

    I think saying this over and over might get people to see just how much we are spending on health care. I’m not sure that informing people about how much of their compensation goes to health care will make them better consumers, but I bet it would make them better citizens. It might mobilize them to demand better cost controls and a better fiscal outlook.

    How about this: it’s not that we lack skin in the game; it’s that we don’t realize how much of it we have in there already.

    Comments closed
    • Hmm, I don’t think that will satisfy the critics, because the extra health care cost is in premium payments as part of a group plan. If the individual spends less that usually has a negligible effect on premium, and hence there are the usual free rider problems.

      That said, I agree with you that more skin in the game is by no means necessary to control costs. The international comparison data definitively refutes that hypothesis. So I’m confused also when the debate looks like this:

      Free-marketeer: you can’t control costs without more cost sharing.
      Evidence-based person: nearly every other nation controls costs better than we do with cost sharing the same or lower than ours.
      Free-marketeer: you can’t control costs without more cost sharing

      • At the link is a chart of healthcare spending growth in various countries:

        Even in the leach period when medical care was very negative, Americans spent more on healthcare than people in other countries. In the USA sometimes spending grows faster than in other countries and in other times it grows slower but it started from a higher base. BTW We also spend more on schooling.

        • No, actually it didn’t “start” from a higher base. It started from the same base. The US started pulling away from other nations around the time they adopted universal coverage systems and we adopted a mixed employer and government-based non-system with weak cost controls. In other words, post WW II, and especially post 1965.

    • “How about this: it’s not that we lack skin in the game; it’s that we don’t realize how much of it we have in there already.”

      I do think this is key. Out of pocket costs are only 12% of health care expenditures.
      Here is a graph of OOP costs 2008 OCED data.

      I would love to know what it is now and for more countries.

      @Jonathan H.–that’s a bit snarky toward people who support free markets. A key component of a free market is the preservation of individual freedom and property rights.. Other countries achieve what they do by replacing individual freedom of choice with centralized global budgets.The more complete depiction of the free market point of view is: you can’t control costs in a system of individual free choice (and property rights) without more cost sharing.
      Other countries control costs with similar levels of cost-sharing—but they don’t do it while preserving a system of individual free choice and property rights.
      Some people are willing to make that trade off. Others aren’t.

    • Maybe we are narrowly understanding “free marketers” in healthcare. In my opinion, the entire system needs to be more market driven. I think the failure of some market based reforms will caused by the supply side. Doctors and insurers will be turtles in the mud concerning market driven reforms. If individuals have more skin in the game and it is more market based, Dr.s will still be complaining that some people are not getting the care they need… yadda yadda, while the AMA and other bodies continue to have high burdensome requirements on foreign medical students to artificially constraining supply.

      The basic problem in healthcare: Doctors like a certain level of mystery about their profession.

    • “Other countries achieve what they do by replacing individual freedom of choice with centralized global budgets.”

      You are thinking of Canada and the UK. Most OECD countries dont function like that. Most of the others have some private, usually non-profit insurance companies paying for care. If you have not read it, let me recommend T. R. Reid’s book The Healing Of America. Very readable and describes how other countries manage costs. Also, if you get a chance and are still in academia, talk with colleagues who trained overseas.


    • @Beth H “The more complete depiction of the free market point of view is: you can’t control costs in a system of individual free choice (and property rights) without more cost sharing.”

      I agree with you that you need to qualify like this, but the free market advocate rarely stops with that qualified statement. One hears over and again that a system with less cost sharing “won’t work” because of free rider problems, or the inefficiency of systems that aren’t market driven, or an inevitable slide into self-immolating socialism, etc.

      It is very tempting to defend one’s ideology by claiming that it is also the approach that is most practical and leads to the most happiness. We typically suffer from cognitive dissonance if we don’t believe that. Yet, obviously this alignment can’t be true for more than one of the many flavors of ideology out there.

      So it isn’t a mystery why free market advocates who’s ideology is getting the better of their commitment to evidence discount or deny the relative success experienced by other nations that do things with less of a role for markets. But it happens, and it’s wrong.

      I don’t have an anti-market bias. I appreciate freedoms both trivial and profound. But let’s be careful not to confuse preferences with causation.If the French llike their health care system more than we like ours, and have lower costs, and get less stress from it, and fewer bankruptcies, and is compatible with freedom of choice of provider (more than in the US), etc., then it needs to be admitted and understood, and the free market defender will need to show how you can do even better in a very different system, rather than just assume it.

      • It is not as if Free marketers are speaking from ignorance or a lack of evidence. It is a debate. There is evidence on both sides. Both sides have its pluses and minuses. For example, free marketers want more cost control driven by consumer/patient behavior. What is result of this? Some people will not get the healthcare “they need” (which I think is a vague and clouded value proposition to begin with). If we take the government approach, we should not expect a high standard of efficiency or customer friendliness. These are all generalizations but they hold some grain of truth.

        I have a problem when big government folks believing that CMS can solve our problems. I think it is laughable. Honestly, when you read the proposed ruling on ACOs it is rather funny they think this will be the nail in the coffin.

      • Perhaps we should do what Utah does.
        Spending by state:

      • It’s not all about evidence–plenty of which exists to support many different points of view.
        It’s also about values–which some call ideology, but that term as of late brings with it the negative connotation of blind observance to a set of received beliefs rather than a rigorously developed ethical philosophy.

        Please don’t forget that there are well meaning people with access to different sets of data, and/or who disagree over which evidence is good or even important, and/or because of differing hierarchies of values will disagree on which sets of solutions should even be considered.

        I like this site precisely because it is giving me access to information and points of view which expand my data base and challenge my thinking on the issues. It’s all part of the civil conversation as we struggle to find common ground.

    • 1. Aaron Carroll. you must have been misunderstanding us all this time, I am pretty sure that us free marketers are all talking about direct spending and not insurance.

      2. I see a few other ways to control spending like monopsony, price controls, banning of very low bang for the buck procedures. I just would like to try more out of pocket first.

      3. A good reason that I advocate more out of pocket direct spending is because I hate dealing with insurance companies and governments. The higher the deductible the less I need to deal with insurance companies and governments. I wish that I could have gotten a life time $400.000 deductible plan.

      4. We free marketers always say that we need more freedom on the supply side to go along more out of pocket.

      • “banning of very low bang for the buck procedures”

        Really??? How is that a free market approach? I understand and can support removing such procedures from the list of things that are insured, but I see no reason to ban their purchase if someone wants to do it out of pocket.

        • It is not it is my list non free market ways to reduce spending along with monopsony and price controls. I list those as ways that are used in other countries to help explain why they can spend less on healthcare. Sorry if I gave the wrong impression.