• What makes the US health care system so expensive – Areas of Underspending

    If you haven’t read the introduction, go back and read it now.  That introductory post also includes links to all the posts in this series on what makes our health care system so expensive.  Each of these pieces is going to discuss one of the components of unexpected spending that accounts for why our system is so expensive.

    Remember, these posts are going to follow a common theme.  I am going to highlight how the United States is spending more than you’d expect given our wealth.  Much of this comes from the McKinsey & Company study, Accounting for the cost of health care in the United States.

    Some of you may be confused.  We’re spending so much more than we likely should be on health care that it might be hard to accept the idea that there are areas that we really need to spend more.  But those areas exist.  As I’ve said before, we’re not spending wisely.

    The largest area of underspending is in long term care or home care.  Long term care is usually provided by nursing home; home care is provided by home health agencies that employ providers to go into homes.  And, based on our wealth, we spend $53 billion less than you would expect us to:

    Some of this can be explained by the fact that the people in the United States are, on average, younger than most other countries.  So some of the lower spending is totally rational.  If we have fewer elderly people, than we should have less people consuming long term and home care.  When you factor in the age of the US population, that explains more than 40% of the underspending.

    But that still leaves us spending $36 billion less than you might expect given our wealth.  And it’s not because long term care and home care don’t do any good.  In most countries, such care is part of the basic coverage of insurance.  In the United States, though, that’s not so.  Most private insurance plans do not cover such care, and even Medicare covers only temporary stays as step-down care after discharge from the hospital.  While Medicaid, interestingly, does cover a fair amount of such care, the vast majority of individuals don’t qualify for Medicaid.

    That means that, until people are poor enough to get Medicaid, they have to pay for long term care or home care out of pocket.  It should surprise no one that this means people spend less than if it was covered.  Moreover, we consume more home care than long term care, because home care is cheaper.

    The second area of underspending is for durable medical equipment.  This category includes contacts and eyeglasses, wheelchairs, rented medical equipment, and surgical or orthopedic products.  Our spending in this category, which was $24 billion in 2006, was $19 billion less than you’d expect given our wealth:

    As with the long term and home care, this is likely due to the fact that insurance coverage for many of these products is skimpy, if it exists at all.  For instance, relatively few plans will cover eyeglasses in the United States, especially compared to other countries.

    In fact, in the United States, more than half of the money spent in this category is out-of-pocket.  When people have to pay with their own money, they spend less.  That’s not a surprise.  Unfortunately, that doesn’t mean people don’t need corrective lenses or other products.  It just means they choose not to get them.

    Of course, in a series dedicated to the fact that we’re spending too much on health care, it’s hard to simultaneously make the case that we need to spend more.  That doesn’t mean it’s not true.

    No changes to the chart here.  Just a reminder of where we are overspending.

    • Or it means that, like food, corrective lenses are something that get more expensive for the wealthy. We may not be underspending at all.

    • It’s a cost/benefit thing. Obviously everyone without perfect vision “needs” glasses, but does the cost of glasses match the value you receive from having them? That value is different to every person and varies according to how bad their sight is and how much they care about being able to see at a given detail level.

      I think it’s interesting how insurance and government programs tend to value these services higher than individuals. In other words it’s interesting to see how everyone will demand the care if the payment for it goes to the government as taxes and/or insurance as premiums first and THEN goes to the medical provider, but if they have to pay the medical provider directly, they often decide to live without.

      Obviously for the very rich and very poor not caring about price or not having enough money might be relevant to the decision, but for average people it boils down to: “I only want this service if you put in a bureaucracy to obscure the real cost so I can’t see it.”

    • More critical analysis needed here. While we have a more mobile society, we also have more kids: I know of plenty of cases where kids are taking care of elderly parents. This will reduce the cost of home care. Maybe this isn’t a bid deal, but it needs to be accounted for.

      Second, hardly anyone is going without corrective lenses. They’re just not buying as expensive glasses as they would if they were covered, or not buying them as often.

      • John 4,

        I’d be careful about blanket statements like “hardly anyone is going without corrective lenses.”

        This is from the National Center for Health Statistics:

        In 2005, more than 40 million adults (about 19%) did not receive “needed services” because they could not afford them (Figure 21). Nearly 15 million adults did not obtain eyeglasses, 25 million did not get dental care, 19 million did not get needed prescribed medicine, and 15 million did not get needed medical care due to cost.

        Try again.

        • I’d clarify it too further. It may seem like many are not going without glasses, but what you don’t see are people who need *new* glasses who don’t get them, and keep wearing an old pair. It’s one thing if your eyes have not changed, but that’s the exception not the rule. Many many many people use the same pair of corrective lenses far longer than they should be, and well past the point where they should get an updated prescription.

    • This only talks about categories; what about subpopulations? Presumably there are groups of people that account for less outpatient-visit expense than they should, even though the US as a whole spends more on outpatient care? Does the McKinsey data address this?

    • Competition might be factor in the lower spending on glasses, dentistry and medical devices. Unlike the other medical services I consume, I have many choices in where I may go and there are competing providers advertising their services. I think this relates to the doctor’s compensation issues as well.

      I would think that the lower spending on home care and long term care could be related to the spending on drugs and procedures such as knee replacements and hip surgeries that let people function at a higher level.

      It would be nice to do more to encourage pro bono practice similar to that followed in the legal profession to provide services to those unable to afford them.

    • You’re conflating issues when you compare “lower total spending” to “people not getting healthcare.”

      Canada doesn’t cover corrective eye surgery, so it’s handled privately and via cash. As a result, it’s both quite a bit cheaper and seemingly more common in Canada (hard to tell because the clinics are so visible there.) So you can have lower total spending without really consuming less.

    • Aaron,
      How does NCHS define “needed services” and how do they define “could not afford”?

      I know a lot of people who COULD afford basic insurance if they really wanted it, but they spend their money on other stuff like alcohol, cigarettes and partying, Then they bitch that they can’t afford stuff.

      Second, like I said, “need” is flexible. If they’re saying “needed services” = “treatments a patient is eligible for” that’s a much different thing than saying “needed services” = “treatments a patient must get to avoid permanent damage and/or death”
      Which sense are they using?

    • Interesting point…. if people have to spend money out-of-pocket, they tend to spend less. It makes perfect sense. I work in healthcare and can say that many of the people on Medicare or MA Health tend to head to the Emergency Department when they can’t get an appointment that fits into their schedule at their Primary Care. This costs more and they honestly do not care because it is not coming out of their pocket. The system is broken – people are allowed to spend carelessly because they do not see it hitting THEIR bottom line. Plug the holes, lower the demand, spend on what is necessary, create incentives for staying healthy.

      This is a GREAT series of articles. Thank you.