Health policy: Excerpt from Economics in Two Lessons

by John Quiggin on January 8, 2017

Another excerpt from my book-in-progress, Economics in Two Lessons (partial draft here). As usual, praise is welcome, useful criticism even more so.

On most measures, health care is among the largest industries in a modern economy, and its share is likely to grow in future. Health costs are a major item of expenditure for Individuals, families, employers and governments, amounting to 16 per cent of national income in the US (costs are lower, but still substantial in other developed countries with more sensible policies). Yet only a tiny fraction of this expenditure takes the form of standard consumer market transactions; that is, purchases of medical services by patients at a price equal to the opportunity cost of their provision.

The majority of private health expenditure is funded, in whole or part, through insurance. Once the premium is paid, all or most of the cost of visiting the doctor or going to hospital is borne by the insurer. So, the opportunity cost to the household of using medical services is far below the opportunity cost of providing those services.

The same is true of publicly provided health care. Public health services are funded from tax revenue, sometimes specifically allocated to health care and sometimes derived from general revenue. Either way, the opportunity cost for patients of using these services is far below the opportunity cost to society of providing them.

More generally, the health sector of a modern economy involves a complex mixture of public provision, for-profit corporations, non-government organisations and individual professionals such as doctors. Systems for providing and financing health care differ radically, from comprehensive public systems like the British National Health Service to predominantly private systems like that in the US. But nowhere are such services provided primarily on the basis of prices that reflect the opportunity cost of their provision.

This was not always the case. Until the late 19th century, markets for health care were much the same as other service markets. Doctors and pharmacists provided services and medicines as patients (at least those who could afford them) demanded, and were paid fees, out of the patient’s pocket, in return. Those who could not afford to pay (the majority of the population) relied on charity or went without. This ‘fee-for-service’ system has not entirely disappeared, and remains dominant in some poor countries. But developed countries have abandoned it almost completely.

To understand why health care systems are the way they are, we must apply the Second Lesson. This will help us to understand why simple markets for health care do not work to tell us about social opportunity costs. The more difficult problem is to work out the best way of making prices and other market signals work where they can, and how to replace them where they do not work.

Rationing and opportunity cost.

Economists are frequently criticised for assuming (as they mostly do) that the wants of consumers are limitless. Why, it is reasonably asked, can we not learn to be satisfied with what we have?

One field in which the assumption of limitless wants seems plausible is that of health care. New and improved treatments are being developed all the time, offering us longer and healthier lives, and cures for previously entreatment ailments and disabilities. Whatever we might think about consumption in general, few of us are so stoical that we would willingly choose to accept death or disability if it can be prevented or cured by medical treatment.

The problem is that, while the range of potentially beneficial treatments is effectively limitless, the resources available to the health care system are not. In a simple market system, this problem resolves itself automatically; those willing and able to pay for health care services receive them, and those who are unwilling or unable do not.

As we have already seen, however, markets in health care do not work well. For this reason, they have been replaced by a mixture of public provision and insurance. Both for public health services and insurers the problem then arises: which health services should be funded?

The general idea may be seen by an example. Consider a hospital which finds that it has a small amount of additional money that can be allocated either to the orthopaedic ward, where it would fund additional knee reconstructions, or to the emergency ward, where it would increase the survival chances of patients involved in car crashes.

The opportunity cost in this example is clear. The opportunity cost of improving the mobility of orthopaedic patients is that fewer emergency patients will survive. The patients involved may or may not be the same people (since car crashes are a common cause of severe injuries requiring orthopaedic surgery). T

There is no simple way of making this choice. Obviously, saving a life is of greater significance than a knee replacement, but the opportunity cost trade-off is unlikely to be one for one.

There are various ways in which the trade-off may be assessed. Some methods rely on the expertise of doctors. These face the problem that, being human, most doctors regard the conditions treated by their own speciality as being more significant than those treated by others.

Another approach is to rely on the expressed preferences of potential patients. In the example above, we might ask people who are not currently in need of a specific treatment to make judgements of the general form “I would (or would not) prefer a treatment yielding 20 years of additional life with full mobility to one yielding 25 years of additional life with a requirement to use crutches to move about”. [A formal version of this approach, using the concept of Quality Adjusted Life Years or QALYs is sometimes used. This approach and its strengths and limitations will be discussed in an Optional Extra section]

Judgements about the relative benefits of alternative outcomes may be translated into medical decisions in various ways. The simplest is to specify a list of treatments approved for funding. An alternative, referred to as case mix or activity-based funding relies on providing a specified payment for each kind of treatment, based both on the cost of provision and the requirement that benefits should exceed costs.

These price-based approaches can provide useful signals when hospitals or other health care providers are making treatment decisions in combination with their own judgments about what policies are most consistent with a mission of providing care. The price paid for an activity provides an indication of the social benefit perceived by the government. However, given a sufficient surplus, providers can choose to provide services that they judge to be desirable, even though they are funded at less than the cost of provision.

As with other price-based policies however, activity-based funding models are vulnerable to exploitation in a system dominated by profit motives. Profit motives are obviously dominant when services are provided by for-profit corporations. The may also dominate when resource constraints are so tight that a non-profit provider has no alternative but to maximise returns by providing only those services with a price sufficient to cover the opportunity cost of provision.

In these cases, various forms of cost-shifting may emerge. For example, doctors funded on an activity-based model may attempt to divert ‘unprofitable’ patients to the emergency wards of public hospitals rather than spending the time necessary to treat them. Similarly, it may be cheaper, from the provider’s perspective, to give a patient a prescription (the cost of which is borne elsewhere in the system) rather than to spend the time necessary to treat the underlying condition.

Ultimately, given scarce resources and effectively unbounded wants, some form of rationing is inevitable. The opportunity cost approach makes explicit the fact that, for any given level of resources, providing one kind of medical treatment comes at the expense of the alternative treatments that are not provided.

No approach is perfect, but reliance on markets and incentives is likely to lead to highly unsatisfactory outcomes. The best options involve a combination of explicit policy judgements on the general value of particular treatments and reliance on the expertise and commitment of medical professionals to provide the best possible treatment within the constraints of those policies.

{ 23 comments }

1

TheSophist 01.08.17 at 5:29 am

Should the second para maybe include something about deductibles, which are an ever-larger part of the US healthcare landscape, and which aren’t exactly a cost borne by the insurer?

2

Peter T 01.08.17 at 8:31 am

May be worth pointing out some technical peculiarities of health care.

First, until the late C19, doctors were more or less useless. It was not until germ theory and the associated importance of hygiene (clean water, washing hands, antiseptics and so on) were recognised that doctors became less dangerous than diseases. And these aspects are not private goods – my dirty water/hands/infection is everyone else’s problem too. Everyone has an interest in keeping everyone else healthy.

So over-servicing (or unlimited wants) is not the major problem; under-servicing is. Antibiotic resistant strains develop when patients do not take the full course; having sick people wander the streets exposes others; low immunisation rates threaten repeated epidemics. A mass of unhealthy people is a greater burden on society at large than a mass of people who are simply poor. The rich can, of course, avoid some of these problems, but they cannot avoid all (being the rich they are, of course, often oblivious to their own dependence on others). Much health-care is more like defence than a private purchase.

3

Layman 01.08.17 at 11:29 am

“New and improved treatments are being developed all the time, offering us longer and healthier lives, and cures for previously entreatment ailments and disabilities.”

I’m guessing ‘entreatment’ is meant to be ‘untreatable’ here?

Also, agree with TheSophist here – private health insurance in the US is quite stingy, while service prices are quite high, with the result that much more of the cost of health care is being shifted to the consumer through 1) substantial premium increases, 2) shifting more of the premium cost to the employee in employer-provided insurance, and 3) high and ever-increasing deductibles. Basically, I’ve paid all the cost of health care services delivered myself for the past two years for two people, due to a plan deductible of $14,000 individual / $28,000 plan per year; plus paid some $8500 per year in premiums for insurance. Luckily, we’re healthy, but as a result we’re certainly considering cost when we ‘shop’ for health care services.

4

Phil 01.08.17 at 11:59 am

comprehensive public systems like the British National Health Service

It depends what you mean. The NHS is certainly a comprehensive service in the sense that it aims to meet all our healthcare needs, and it’s public in the sense that it’s funded from general taxation. But the days when it was a comprehensive public service in the sense that every part of it was run as a public service are long gone; see this article from the LRB, more than five years ago (and the trends described haven’t gone into reverse since then).

divert ‘unprofitable’ patients to the emergency wards of public hospitals

You’re assuming a mostly profit-driven system with a ‘public’ safety net, a setup that’s far from universal. We in the UK seem to be heading for the worst of all worlds – a comprehensive profit-driven system.

5

Thomas Beale 01.08.17 at 2:54 pm

While theoretically questions of rationing and opportunity cost are interesting, they are not currently of much practical interest because of the massive wastage in most nations’ healthcare systems that renders such questions irrelevant. This wastage is most extreme in the US (hence the 16%+ of GDP), but occurs elsewhere for other reasons as well.

In the US it occurs due to the built-in tension between the instincts of for-profit enterprises that perform a piece of healthcare (e.g. pathology and imaging laboratories) trying to maximise their business (i.e. do more testing) and the needs of the overall group of providers that together take care of a patient to be as cost-efficient as possible (which would reduce path testing and imaging down to what is really needed).

Clayton Christensen analyses all this in The Innovator’s Prescription.

Other factors create waste as well in the US, particularly the huge costs of medical school which lead to the greatly inflated professional salaries in the US healthcare system.

The solution in a free market like the US is something like the full-service health management organisations such as Kaiser Permanente, Mayo Clinic and Intermountain Healthcare. These are all non-profit. They work on the principle of owning all the different types of providers needed to provide complete care, i.e. hospitals, GPs, various other types of clinics, specialists, path labs, all of which operate as parts of a whole rather than separate profit-making economic actors. These HMOs resemble the socialised healthcare systems of smaller European countries and are evidence that to make healthcare provision at least efficient (i.e. before getting to the question of ethical choices in rationing), the economic actor needs to encompass all the types of provider needed to provide full care (rather than those actors being self-standing in the economy).

This doesn’t preclude a market in such entities – and it exists in the US, more or less. In the UK it doesn’t (or barely, since there are in fact some private insurers). The balance differs across Europe, but always some distance away from the default open market of the US.

Interestingly, these HMOs in the US pay substantially lower salaries (still very respectable professional levels) than some other institutions in the US, and doctors queue round the block to work in them.

Ironically, these HMOs, which generally provide the best quality care in the US, match the description of what US consumers have been conditioned to think of as a socialist / communist approach – remember the violent and irrational protests against the inception of Obamacare?

Another source of wastage in all countries is the lack of joined up information systems (particularly patient health records) that provide a full picture of the patient over the course of his or her visits to all the various providers. Even in socialised systems, this causes errors, missed diagnoses, delays and other inefficiencies.

6

reason 01.08.17 at 4:31 pm

Reply to TheSophist http://crookedtimber.org/2017/01/08/health-policy-excerpt-from-economics-in-two-lessons/#comment-701756

Deductables are always tricky. They are a standard part of the insurer strategy to combat moral hazard (in this case for both the insured and providers). I’m inclined to think that some deductables are necessary, but how high they can be (especially for low income people) is a very difficult question. It may be a rare case where a means test makes sense. There certainly should be an annual limit on total deductables. Yes, but it is an important topic.

7

Mike Huben 01.08.17 at 6:03 pm

Once again, the passivity of this passage is a major problem: nobody will read through it.

But there is another major problem: the reading level is obviously too high. I did a brief comparison with the reading level of EIOL chapter 15 (chosen in the middle), using https://readability-score.com/text/.

Here are the results for EIOL:
Readability Formula Grade
Flesch-Kincaid Grade Level 10
Gunning-Fog Score 13.5
Coleman-Liau Index 11.6
SMOG Index 12.8
Automated Readability Index 10
Average Grade Level 11.6

Here are the results of your text:
Readability Formula Grade
Flesch-Kincaid Grade Level 12.8
Gunning-Fog Score 16.7
Coleman-Liau Index 14
SMOG Index 15.2
Automated Readability Index 13.2
Average Grade Level 14.4

Notice that your text scores almost 3 years higher on reading level.

Nobody want to read soporific text at a college graduate level. No matter how wonderful the points are. This is one of MY favorite subjects, where I agree with you, and I kept wanting to stop reading it.

Even a diagram of the players, the money flows, the locations of demand, the limiting factors on payment, and where the market failures exist would make this better. The text could be structured around the diagram. The diagram would give the quick overview, and generate desire to read about the problems in the text.

Some additional points that you missed (or maybe I missed reading because I was glossing):

Each person represents an investment in social capital. It is inefficient for that capital to be wasted by shorter lives or debility just because an individual cannot afford health care when it is needed.

Insurance averages costs over time and uncertainty, which creates efficiencies. But private insurance has such enormous market failures that public insurance cannot fail to do better.

8

Thomas Beale 01.08.17 at 8:36 pm

Peter T @ 2
So over-servicing (or unlimited wants) is not the major problem; under-servicing is. Antibiotic resistant strains develop when patients do not take the full course;

This would normally be termed ‘non-compliance’ which means failure to (fully) follow a prescribed intervention, rather than ‘under-servicing’ which to my ear at least implies too few fee-based encounters, which is not the cause of the mentioned problems.

Although people are all aware in the abstract of the costs of non-compliance, for example of anti-biotics, or the most basic – healthcare professionals not observing anti-infection protocols in hospitals – it’s difficult to make people follow the rules. The costs of not following the rules are certainly real, but I would suggest are not linked to any particular economic model or country or healthcare system.

9

John Quiggin 01.08.17 at 11:30 pm

@2 Actually, there is (at the least) some doubt about whether it’s necessary to complete courses of antibiotics after symptoms disappear
https://theconversation.com/no-you-dont-have-to-finish-all-your-antibiotics-38774

10

Oxbird 01.09.17 at 12:04 am

Re completing courses of antibiotics: The article you reference so states so there is “some doubt.” But what is needed are rules or methodologies that thousands of practitioners of varying skill and background can follow and not rules dependent on exquisite judgments based on the latest research. As a sometimes patient, I would of course follow a doctor’s instruction not to complete a course of antibiotics if I felt it was evidence based in the particular circumstances. But I expect that will be a rare event given current knowledge.

11

bruce wilder 01.09.17 at 12:23 am

I have read this bit several times and it seems oddly unfocused. Maybe as other commenters have noted, you are falling too much into the passive voice when affirming Lesson 1. Your rhetoric repeatedly claims clarity: “The opportunity cost in this example is clear.” But, your thesis is actually the opposite: that the trade-off in the example is difficult and problematic to assess.

You seem to want to make a point about how funding and budgets as an extended form of allocation by price work, and work quite differently in for-profit and non-profit or public provision. To do that effectively, you are going to have explain what is meant by surplus and residual. You refer to “surplus” both implicitly and by name without explaining what a surplus is or how it might arise. I do not recall you ever invoking “residual” though you really need that concept here to make a sharp contrast between for-profit, non-profit and public (state) provision clear.

It does seem to me that the market failure frame continues to be too abstract and too restrictive. In general, the economic problem as people experience it in life and business has allocative efficiency entangled with technical efficiency, and technical and managerial problems dominate the resource allocation problem.

Knee replacements are going to have a clear “opportunity cost” in terms of emergency services only when both production processes extraordinarily well-controlled medically and administratively. An allocation of additional resources (funds) might be directed to additional output, but it is just as plausible that additional resources would be deployed to improve the quality of outcomes by improving the technical control of process. Such investments in process improvement are part of untutored intuition and I would be careful about an economist’s inferior and arbitrary conventions muddling things.

The emergency room will be worrying about whether nursing triage is separating the common colds and keeping slack resources available to treat the accidental injuries requiring immediate attention. They might be concerned about whether they are detecting clusters of food-borne illness and aiding public health authorities. They might be concerned with whether their systems of procedures and turn-around on lab tests are sufficient to successfully treat hemorrhage in accident victims, heart attacks or drug overdoses.

The knee replacement clinic may be worried about recovery from surgery or premiums on insurance to pay for the consequences of surgeries gone wrong.

Things might go wrong when the knee-replacement clinic starts sending their patients for MRIs to a specialist for-profit firm owned by the clinic doctors and financed by the MRI manufacturer.

These technical problems arise alongside the insurance and incentive problems within the context of administrative hierarchies and schemes of technical standards regulation and networks of procurement where nothing recognizable as a market is in sight. I think you are right to bring in professionalism and organizational mission as institutional factors, but the abstractions of the market failure canon may not cover the case. I see you may want to make a point about how the different ways the residual income from managed control of production in for-profit versus non-profit or public agencies could shape the dynamics in health care. That is good, but it requires building this fuller vision of a managed process, I would think.

12

Peter T 01.09.17 at 12:51 am

Thomas @ 8

By “under-servicing” I meant a level of delivery too low to deal with the threat. Since the threats are to the public generally as much as to any individual, any system based on fee-based encounters will fail in this regard. See, eg the outcomes of moving to this model (and away from general provision) in the former Soviet Union. Or, less catastrophically, the general health of European populations contrasted with the US one.

13

Peter T 01.09.17 at 12:55 am

JQ @9

The example I had in mind was drug-resistant TB, which is widely credited to failure to treat properly the homeless population of New York. But I think the general point stands – health is population-wide problem as much or more than an individual one.

14

Faustusnotes 01.09.17 at 3:16 am

John a few quibbles:

1) I don’t think you can say healthcare has unlimited demand, quite the opposite: you only seek care when you’re sick, which is quantifiable. Consider maternity care: it’s expensive but happens 1-3 times in a person’s life and in the majority of cases is managed routinely within a framework of highly limited demand (<48 hours labour with one midwife and a dr on call). The problem is that a small number of cases have near-infinite wants but on the whole healthcare demand is the exact opposite of unbounded. In fact we all want as little of it as possible (we want to stay well).

2) most systems that used activity based funding or case mix also have a list of prescribed services. In the NHS there is a whole organization, NICE, devoted to making those lists, and hospitals abide by them even while being forced to use a (hybrid) form of casemix. In Japan the system is heavily activity based but still has those lists. These lists partially exist to manage the problem of excessive costs in rare cases (eg the high cost experimental treatments for rare cancers) not as a response to the general problem of unlimited consumer needs.

I think Peter T makes an important point about the demand consequences of under servicing, too. The basic theory of immunization is a good example of a range of ways in which standard economics fails (eg it's rational to free ride but if everyone free rides you'll lose the benefit of free riding, there is a very small probability of unlimited costs, etc)

15

Thomas Beale 01.09.17 at 9:15 am

Peter @ 12
The well-known emergence of lethal bugs in the ex-USSR (mainly multi-drug resistant tuberculosis aka MDR-TB) occurred due to lack of drugs (i.e. non-completion of course), and somewhat due to long-stay facilities that aided transmission. Even today, wrong diagnosis means that MDR-TB is often treated as if it were normal TB (which will fail).

So you are right if you are postulating a healthcare economy in which absolute limitations can occur on basic drugs. But if that’s the case, all bets are off for all kinds of illness and treatment.

I think your point was mainly on the fact that the health needs of a population are not necessarily served automatically when just only individual needs are met. That’s clearly true and would need to be taken account of in a theory of health system economics.

One of the issues that may not be obvious is the need for standardised evidence-based protocols for complex conditions such as sepsis, ARDS, etc. It has been shown in the past that where complexity is too high, doctors (no matter how experienced) can easily make wrong choices. For conditions for which a protocol has been developed, survival rates have been greatly improved (e.g. doubled or more). The lesson here is that the patchy application and use of protocols that have been shown to create great benefit is a significant unnecessary adverse outcome that does not need a lot of new funding or resources to fix, it needs changes in medical culture, i.e. professional education. This situation could be considered a hidden inefficiency in a system.

There are many other such problems hiding inside the healthcare system. I’m not sure how easy it is to analyse their economics, but I think that they can’t be ignored.

16

Val 01.09.17 at 12:51 pm

I haven’t followed the series of posts closely so maybe not quite getting the points, but as a health policy wonk I’d suggest you might look at actual logical alternatives eg lap band surgery vs obesity prevention measures (eg sugar taxes). These are the kinds of issues that acute health services in a publicly funded health system may actually look at (probably not so much incentive to do so in a privately funded one) eg The Alfred hospital has looked at these issues because the demand for lap band surgery was growing so fast.

With knee replacements and ED presentations (car accidents in your example), the decisions hospitals and funding bodies make are complicated and you’d need a specialist health economist to discuss this in detail, but basically they aren’t alternatives so are more likely to lead to overall increased demand than be weighed against each other.

A lot of health planning does have some evidence base (more than we probably give credit for usually) so in terms of accidents, the fact that the rate of accidents has been falling due to preventive measures (though the situation regarding injury especially brain injury is more complicated) might be taken into account by hospitals in planning ED resources. However you can get unexpected increases, as we’ve had recently, and that throws it out.

Opportunity costs seems a bit of a blunt instrument in this complex area, as the aim of health systems (at least publicly funded ones) is at least in part to improve population health rather than increase the production and trade of goods and services, and I’m not convinced that mainstream economic measures can really deal with that.

I’m not sure how all this fits with ‘opportunity costs’ but it (opportunity cost concept) does seem a bit of a blunt instrument in this complex area.

17

Glen Tomkins 01.09.17 at 5:11 pm

“…the opportunity cost to the household of using medical services is far below the opportunity cost of providing those services.”

That’s a really fundamental error. Medical care is always expensive in human terms, in literal blood, sweat and tears, to those who receive it. And there is a strong correlation between how monetarily expensive it is to provide a given medical intervention, and how expensive it is in human terms to receive that intervention. Expensive equals invasive.

At the extreme, you don’t have to ration liver transplants because receiving one is such an incredible, brutal, life-threatening ordeal, that no one would be willing to receive one unless they had a disease worse than the cure, and that level of disease, treatable by liver transplant, is quite rare.

But the same principle works to hold down use of even much less horrible interventions. At the other extreme, while it isn’t too horrible to see me in appointment, it is generally a frightful bore and total waste of time. But I don’t cost much monetarily. Not as much downside in either human or monetary costs, but still a definite burden just to keep an appt with a primary care provider. Even one less depressing and boring than I am.

Medicine rations itself.

If our system suffers from costs that are out of control, the problem isn’t the lack of adequate rationing.

18

Francis Spufford 01.10.17 at 12:17 am

Serious question: what is a ‘deductible’? I can never work it out clearly from context in discussions of US healthcare.

19

ZM 01.10.17 at 5:55 am

One thing I think you might want to mention is that traditional medicine focused more on prevention and health promotion compared to modern medicine, this is probably an area where you have integrated medicine today mixing traditional medicine and healthcare with the modern approach.

Integrated medicine is becoming more popular, and I think it might be interesting to look at consumer preferences in driving this demand.

I would guess (I’m happy to be corrected) that the beginning of government funded healthcare was very modernist like the medicinal equivalent to brutalist public housing blocks, and consumer demand, as well as interest by some physicians, has meant that traditional medicine or alternative medicine gradually became more popular, including things like drug companies investigating the medicinal properties of herbs and things used in traditional medicine, and subjecting them to the trials using the scientific method.

In many cases traditional and modern medicine can be complementary, but in other cases you have contestation between them, and in the case where something is contested, such as vaccinations, the government makes public health interventions using its powers if necessary.

20

Glen Tomkins 01.10.17 at 2:18 pm

Francis Spufford,

A deductible is a sum of money (per year) that the insured has to pay before the insurer will start picking up any costs.

If your deductible is $6,000, as it typically is in ACA Bronze plans, then before your insurance plan starts paying for your medical care, you have to spend $6,000 on your medical care that year.

21

derrida derider 01.11.17 at 12:08 am

Yep, a deductible is what is called in Australia (and I think the UK) an “excess” in insurance. If you smash your car, your insurance company pays to repair he damage less your excess/deductible.

22

Glen Tomkins 01.11.17 at 7:17 am

Yes and after you paid your premiums to buy the insurance, then paid your deductible before your insurance pays any claims, with US healthcare “insurance”, you still have co-pays. The insurance only pays part of the charges, as low as only 70% in Bronze plans.

If the patient has enough wealth and income, deductibles and co-pays merely act as hidden costs. You pay your premium up front or in fixed monthly installments, so that’s an up front cost. But if you generate claims, if you actually need any medical services, then your actual cost is the premiums plus the deductible plus co-pays. It is inherently somewhat deceptive to have costs that, while not completely hidden, are at least easier for the consumer to not notice when choosing an insurance plan.

Against that, apologists for US health insurance argue that deductibles and co-pays are necessary to keep the patients’ skin in the game, as if they would be profligate in seeking medical care unless they had to pay some price for it. You can hold down your costs to just the premium if you choose to not seek any medical care. As I pointed out above, this is ridiculous, as the inherently painful and dangerous nature of medical treatments is disincentive enough to make people avoid unnecessary medical care.

But co-pays and deductibles are even more pernicious than their role as unnecessary hidden costs. Insofar as the patient is not so wealthy that the deductible and co-pay are trivial expenses, they act to reduce demand for medical care. At an extreme, an insulin-requiring diabetic with a $6,000 deductible who doesn’t have $6,000 of liquidity lying around, is going to have to do without insulin, which could easily run $600 a month out-of-pocket. The insurance wouldn’t pay dime one until the 11th month into the year if the patient had $600 per month to spend for insulin the first 10 months. But a patient who doesn’t have $600 a month to shell out will never meet the deductible, and thus never collect the first dime in coverage from the insurer.

Not everyone in the US who has “insurance” actually has anything that will ever do anything for them, except send them a bill every month.

23

Francis Spufford 01.12.17 at 8:51 am

Glen Tompkins: thank you. Good grief.

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