Arnold Kling  

Distribution of Health Care Spending

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Culture or Institutions?... Ezra and Elasticity...

Looking at a graph of the distribution of health care spending, Ezra Klein writes,


HSAs and their brethren like to pretend that by forcing caution on when you get a test for strep throat, we can significantly effect health costs. Not so. HSAs have a spending cap, and once it's broken, all care is covered. They do nothing but disincentivize basic care, which doesn't cost much anyway.

Instead, you're going to need to attack these costs at the top. You may need to ration. You'll definitely need to cut down on wasteful care.


The distribution of health care spending is quite clear in the Medical Expenditure Panel Survey (MEPS) data that I used for Crisis of Abundance. About 5 percent of individuals, spending more than $10,000 per year, account for about 50 percent of total spending.

Accordingly, I propose a different type of catastrophic insurance than what is common today. I propose a policy that covers the next five years of spending, with a deductible that might be as high as $30,000.

However, I did not assume any reduction in spending under this system. I simply showed that we could re-allocate spending away from employer-provided health insurance and away from government, while still protecting the very poor and the very sick. Thus, our health care finance system's soundness could be restored, even if we do not slow health care spending.

I think that the key to slowing health care spending is getting a handle on which procedures are wasteful. First, we need research and analysis to determine the wasteful procedures. Then, we need incentives to cut down on wasteful procedures. Until we know which procedures are wasteful, any cutback in spending is likely to reduce both effective and cost-ineffective care.

Thanks to reader Trent McBride for the pointer.


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COMMENTS (7 to date)
Bruce G Charlton writes:

"I think that the key to slowing health care spending is getting a handle on which procedures are wasteful. First, we need research and analysis to determine the wasteful procedures. Then, we need incentives to cut down on wasteful procedures."

There has been a couple of decades of big government spending on this kind of research in the UK. I don't think we will ever know much more about this subject than we do already. But it doesn't really answer the question, because there is no objective viewpoint from which to judge 'waste'. What seems wasteful to a government healthcare provider may simply be higher quality healthcare to the consumer.

Mcwop writes:

Why not add a free checkup every two years to an HSA? No coverage unless you get your checkup. I would rather ration my own care, tahn have it rationed for me.

dearieme writes:

Is it true that 40% of deaths in the US are a consequence of life-support being switched off? If so, do you really have to look any further?

jmay writes:

dearieme asks "Is it true that 40% of deaths in the US are a consequence of life-support being switched off?"

Such a claim seems beyond ludicrous to me. What is the source of this figure?

spencer writes:

So under your proposal the "authorities" would determine which procedures are wasteful and cut down on them.

Sounds like non-price rationing to me.

How would that differ from the British system where the authorities do not "waste" resources keeping 85 year olds alive for another six months?

David Locke writes:

I do not engage in recreational healthcare. I had to go to the hospital a few months ago. Ninety percent of the cost were to pay for defensive medicine. Instead of concluding that my chest pain was not related to a cardiac event, they kept me over night and ran tons of tests.

I would have loved not to be in the hospital, not to spend the money, not to end up with a ton of bills--despite having medical insurance, so don't talk to me about how HSAs will cut expenditures.

As an Army brat, who lived in the Army's clinic medical system, I learned not to go to the doctor. Once you start, you are dying. The HSA rhetoric is bunk. It just provides the justification employers need to cut benefits without increasing wages, which if you haven't noticed, isn't really an exercise in free market economics.

Costs need to be controlled. Not, expenditures.

Even with health insurance, the bills do not get paid, because benefit administration companies just don't write the checks, so the employees get stuck with the costs. It isn't like the employees don't know this.

David Locke writes:

Investment in public health infrastructure forces all of us to live well beyond our deaths. It's not a matter of resources that dictates that you let dying people die. It's simply a respect for life, the quality of life, and the quality of our deaths. It is far more humane to let us die, than to keep us alive while billing us endlessly and rob out estate.

Another Big Mac and a DNR--freedom from the public health infrastructure, priceless.

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