Confronting the Cost of Health Care

One of the major factors contributing to the general feeling that people aren't as well off as they used to be is that they are consuming more and more of their income as health benefits.  Though there's obviously controversy over how much of this represents real gains, there's no question that a lot of it is an actual material improvement in peoples' lives.  As Steven Paulson notes, "In 1965, a typical patient entering the hospital with a heart attack received care similar to the care given to then-President Eisenhower when he had his heart attack in 1954. Six weeks of bed rest, oxygen, and intravenous narcotics, with cardiac monitoring to manage arrhythmias, were followed by another six weeks of limited activity."  The patient was usually never the same again.  We have made major strides in both the quality and quantity of life given to post-heart-attack patients.


The problem is that people don't feel richer.  In part that's because the costs are hidden--employers rarely tell you how much health care you're being "paid" with--and in part it's because almost all of our health care compensation consists of embedded options, rather than direct consumption.  When we develop a new way to treat very premature babies which costs $1 million and shepherds 10% more babies to viability, we all have to pay for it.  And probably we'd all like to know that if we had a very premature baby, it would have a better shot at living.  But most of us don't have very premature babies, and those who do, don't really connect that event with a 1% increase in their insurance premiums 10 years ago.

Austin Frakt wonders what would happen if people realized how much of their wages were diverted into health care spending:

I think many people will be furious at how much of their paychecks are, effectively, being piped into the pockets of health insurers, health care providers, drug manufacturers, health IT gizmo creators, massive radiology machine developers, other device makers, and government programs. Some will think the return is worth the price. Many will not, particularly those who think insurers are wringing them dry.

What then? I can't help but think that's when people turn to government. After the market has adjusted, provided new products with higher deductibles and more managed care (or whatever the latest private-side cost control mechanisms are), people will still not be happy. More of them may then look to political leaders and say, "Do something about this. NOW!!!"

Transparency is the right way to go. But there's no telling what market and extra-market fury it might unleash. I'm not making any firm predictions here. My feet are securely planted in the zone of speculation. (I'm entitled to three seconds, right?) I'm just saying we don't know what passion can do. Be careful what you wish for. (And, for all that, I'm wishing it too.)

A couple of thoughts:


1.  People--particularly high consumers of health care--are not quite as ignorant about costs as you might think.  I am frequently struck by the way that high-utilization folks such as the parents of special-needs children, those with expensive chronic conditions, and people going through high-risk pregnancies voice the following thoughts in sequence:

a)  Health insurance is an overpriced rip-off administered by greedy insurers
b)  The prices are going up far too quickly
c)  They need health insurance because it's horrifyingly expensive to pay for the cutting edge treatments and supplementary therapy that gives them (or a family member) the best shot at living a quasi-normal life.

The delivery usually implies a total disconnect between items a & b, and item c.

You could maybe square this circle by saying well, the providers are gouging, and insurers ought to push the prices down instead of catering to them.  But none of these people, at least in my experience, think that their speech therapist, neonatologist, home health care aides, or immunologist should have their incomes cut by more than half; on the contrary, they usually regard these providers as dedicated professionals who are justly rewarded (maybe even somewhat underpaid) for the help they provide. The ire focuses on the insurance company, or maybe some faceless provider of drugs or medical equipment.

While there are obviously exceptions to this--I also know people whose deep experience with the health care system has made them appreciate all the complexities that reform would entail--in general, making people conscious of how much it costs to, say, spend an hour with the pulmonologist does not seem to make them eager to have either the government or an insurer bargain down pay or set hard treatment guidelines.  It just creates a vague sense that someone should somehow come in and make everything better.

That's not a policy program.  Policy programs require specifics.  And given that the specifics will specifically hurt beloved providers upon whom the high-utilization patients depend (as well as restricting their freedom to select a treatment with their doctor), I'm skeptical that they will "Turn to the government" in any way that would make Austin Frakt happy.  Special needs parents are a very powerful constituency in favor of more spending on special needs kids.  They are not a very powerful constituency in favor of cost-control or evidence-based treatment.

2.  There are entitites in the private sector like unions who do, in fact, directly confront the tradeoff between benefits and pay.  Many unions run their own health plans; most of them negotiate a pay package in which the tradeoff between more pay or more benefits is extremely specific.  What these entities seem to show is that even people who are very well aware of how much things cost, choose bundling and price insulation over transparency and efficiency.  As far as I know, they rarely choose cost control in any way that significantly inhibits participant autonomy, or increases price exposure.  

This is an important challenge for health care reformers on both left and right: even when given a direct choice, people seem to want a system that closely resembles the expensive and inefficient one we have; their main policy goal is simply to shift the bill onto someone else.  Obviously, this is not a feasible solution at the national level.

Presented by

Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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