• Why we spend so much on health care

    Why do we spend so much on health care?

    I’m not talking about why “we” as Americans spend more than other nations or why we spend more today than last year, even in real terms. I’m talking about why we as humans spend a lot on health care.

    My answer is simple. It’s pure psychology. It’s this: you could die,* you don’t know how to avoid it, and that person in the white coat with the prescription pad or knife just might.

    * Don’t be so literal. Bad health outcomes that don’t kill you are sufficiently frightening. I’m using “die” as a stand in for “suffer the bad health outcome you fear” (loss of function of any number of body parts, cognitive impairment, loss of income, loss of time with family or on the job, and so forth).

    • Back from a short vacation in Oregon.

      I think we’d all spend a lot less on medicine and health care if we could live in a place that allowed you to climb 1,200 ft to see Mt. Hood after just a short 1.5 hr drive from where you lived. We also enjoyed a 12 mi hike on Thursday – good to see some folks on the trail (but wished there were more!). Was also nice to see lots of folks in relatively great shape – all ages. Truly refreshing!

      We also had the occasion a month or so ago to enjoy the blessings of a robust health care plan as it paid for the majority (and I mean majority) of a couple of unplanned surgeries in our family. Prompted us to continue to pray that this country doesn’t try to repeal the ACA (or, I’m guessing, the part that mandates coverage). Even when you don’t over-use your health insurance, when you do need it, you really do need it.

      It caused me to wonder what the impact would be if those fortunate enough to have insurance got a yearly report from their company indicating how much they paid in vs. how much they received in benefit (over their lifetime). I wonder if it would sway those who might feel that those not in the workforce don’t “deserve” any government-paid health care. I have a hunch that it doesn’t take many claims before the benefits received far outweigh the premiums paid. I’m not keeping any side records – so I haven’t any idea what my situation is, even.

      When I reflect on the fact that somewhere around 80% of those (under 65 years or age) voluntarily select insurance when their employer offers it, I have a hard time believing that the mainstream of American citizens would be against the ACA’s mandate. They already see the value of owning insurance – or they wouldn’t be buying it (and benefiting from it). I really believe that it has to be a small minority of Americans who want the mandate repealed – like all of this Country’s loud-mouthed Republican Senators, eh?


    • Feeling philosophical? I think a big part of the puzzle, besides your idea here, is that things are just so complex. Was reading Scientific American article on migraines today. Yet another diagnosis where we thought we understood what was going on, but were wrong. The mixture of technical complexity and emotional vulnerability is deadly, in the economic sense.

      I would also note that we can actually do much more now. Many people have made the argument that medical spending took off when Medicare came along. There is some truth there, but it should also be noted that prior to the 60s-70s, medicine was much more limited in its options. No MRIs or CAT scans. Catheter technology was essentially unknown. No implantables. Hard to remember that we really just developed pediatric ICUs in that era. Now we need to decide if we should do something just because we can.


    • Unfortunately, it seems like anything we try to do to contain costs now ultimately is classified by the naysayers as “rationing.” And the average American looks at “rationing” only in a negative sense. So its difficult to even hope for a rational discussion on this topic.

      Curious… Has anyone ever done a straight up comparison between other countries and what they “ration” (no doubt for “rational” reasons according to their policy makers) vs. what a typical (if such a thing exists) USA health care policy would cover? Maybe with such a side-by-side comparison available, we could easily see that we have gotten to a point where some things could logically be rationed. Or, better yet, should be rationed.

      While on vacation, I read the book The Healing of America, by T. R. Reid (Penguin Press, 2009). Fairly easy read (and no, I wasn’t reading while at those Oregon microbreweries!). The book seemed to suggest that rational people could logically arrive at a comprehensive health care policy for a country if they carefully studied what other countries were doing and weighed the pros and cons of alternative approaches within their own country.

      Hopefully, as ACA takes hold, as a country we will slowly agree that yes, everyone deserves access to health care. That is really an important first step! Then, as many other developed countries have already done (i.e., good examples exist if we would cast aside our American arrogance and take the time to study them!) we will acknowledge that costs have to be controlled and begin to work the other side of this equation.

      Almost every example in the book seemed to suggest that medical providers – in countries that conscientiously provide health care access to everyone – would have to be paid less than they are today in the USA. As a doctor, how would you weigh in on that? Is such a future even remotely possible?

      I still think our physicians and medical providers are the ones who need to come together to craft the new (OK, call it a strawman) policy and then ask politicians to get to work in developing the laws it takes to enact such policy. But part of this new policy surely has to involve a realistic contraction of either the services we provide (i.e., more rationing) or the costs for these services (i.e., lower salaries and capital investment expectations for the provider community). Something has to change on the cost side of this equation – we can’t stick with the status quo…


    • We know that the expected net marginal benefit (ENMB) of additional medical care (q) equals the difference between the expected marginal benefit (EMB) and expected marginal cost (EMC), or ENMB(q) = EMB(q) – EMC(q). Thus, we will spend a lot on medical care because EMB exceeds EMC over a broad range of expenditures or because (1) our expectations are wroing, (2) we overestimate or face distorted high benefits, or (3) we underestimate or face distorted low costs.

      • @steve – That post expressed the fundamental underpinning of a much longer post I expect to publish in a week or two.

        @Rex – Yes, and what I wrote is why I think the EMB > EMC for much higher q than others seem to suggest. I also don’t think there is any objective way to say this is “bad.” It is an expression of what we actually want. However, EMB is lower and EMC is higher than they need be due to a host of inefficiencies (of which you know as well as I). The effect of removing or reducing those inefficiencies won’t be to change the fundamental fact you provided, that we’ll keep going until EMB = EMC. That is to say, we’re headed for very high health costs relative to GDP and the chief effect of reforms will be to get more for value for our spending, but not to reduce the level of spending in the long run.

        I think reforms will mostly shift the level or temporarily delay rates of increase (which amounts to the same thing in the long run), not to permanently change the rate of growth.

    • Austin, my net benefit calculus was meant in jest …I should have provided a smiley face.

      Yes, I agree, as long as new technologies offer the promise of people living an additional moment of life, health care reform, as designed, will only shift the cost curve down but not bend it.

      • @Rex – But why does the net benefit calculus not apply? Or why is the model underlying it not appropriate? If it is, it does predict higher spending. I’m even tempted to draw the graphs that show that, unless you can explain why the concept is inapplicable. Either way, it’s educational!

    • The model is definitely applicable.