• Skin in the game – even more

    Something’s been bothering me about the last few days’ discussion of skin in the game, or out-of-pocket payments for health care. I’m not going to review all of it, but I encourage you to go read posts by Andrew Sullivan, Megan McArdle, Tyler Cowen, and Paul Krugman if you haven’t already. And me, of course.

    What’s been bothering me is how to accurately portray how much we’re paying out-of-pocket. One way is to list the amount that people pay, standardized to $US purchasing power parity. When you do so, with the exception of Switzerland, we have pretty much the largest amount of “skin in the game” of any country in the world.

    If, however, you use out of pocket spending as a percentage of all health care spending, then we look like we have relatively little skin in the game.

    I think there’s still a problem with that methodology, however. We spend so much more on health care than everyone else, even when you account for our GDP, that even though we have a lot of out-of-pocket spending, it’s going to look small when compared to total health care spending.

    So I came up with this:

    What you’re looking at is out-of-pocket spending per person in 2008 versus GDP per capita in 2008 for all available OECD countries. In essence, I think this is a fair way to look at how much we are spending per person on out-of-pocket health care costs versus how much money people have, in their respective countries. When you look at this, Switzerland still spends more (they’re the dot at the top of the chart), but the US (the red dot) is not an “under-spender” when it comes to out-of-pocket health care costs.

    In fact, I think it’s fair to say, from the above, that we’re likely “above average” when it comes to out-of-pocket spending versus GDP. I still maintain that it’s hard to claim we don’t have plenty of skin in the game.

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    • Perhaps healthcare spending as a percentage of median income?

    • I still maintain that it’s hard to claim we don’t have plenty of skin in the game.

      1. But if the percent of GDP that is spent on healthcare is rising, then perhaps the percent that we pay out of pocket should be rising. Perhaps 3rd party payment is fine for 5% of GDP but not for 10% of GDP.

      2. It is somewhat illogical for most people want to insure against average costs. The last I read that the typical life time medical expenditures in the USA is about $300K. So perhaps it would be desirable to have a life time deductible of $300K.

      (http://www.ncbi.nlm.nih.gov/pmc/articles/PMC1361028/
      Per capita lifetime expenditure is $316,600, a third higher for females ($361,200) than males ($268,700). )

      3. There are more options today than their were in the past and this argues for more out of pocket payment. Consider that Apollo Healthcare (http://www.apollohospitals.com/) can deliver health care at a fraction of USA prices. Apollo has even written about possibly making surgical cruse ships. Consider that the Amish often travel to Mexico for cheaper care. With much higher deductible much more of these type options might become available.

      4. Very high deductibles might cause voters to put pressure on Gov. to ease up on licensing doctors and nurses and ease up on prescription drug laws which might help curb spending.

      5. The Rand health insurance experiment showed the more out of pocket does reduce spending with little or no effect on health.

    • Obviously no chart will completely express the relationships in question but this one seems to place the emphasis in the right places.

      I wonder how much difference the use of median vs. mean would make. Under some systems out of pocket costs may be somewhat evenly spread while in others the uninsured may pay large costs while large numbers pay little. Likewise, using GDP per capita would understate (groan) skin in the game for countries with high income inequality.

    • Where skin-in-the-game is defined as the consumer’s share of total expenditures, out-of-pocket expenditures as a percentage of total expenditures makes perfect sense. One only has to look at the relationship between this measure and total expenditures to see the suggestive nature of the decline in the former driving the rise in the latter. We have gone from a system where consumers paid nearly half of all expenditures out of pocket to one where consumers expect to be reimbursed for nearly 90% of all costs.

    • Do we know how this compares against developing countries?