Arnold Kling  

Reality and Health Care Spending

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David Leonhardt writes,


No one really knows whether preventive medicine will save money in the long run, let alone free up the billions of dollars a year needed to help pay for universal health insurance. In fact, studies have shown that preventive care — be it cancer screening, smoking cessation or plain old checkups — usually ends up costing money. It makes people healthier, but it’s not free.

“It’s a nice thing to think, and it seems like it should be true, but I don’t know of any evidence that preventive care actually saves money,” said Jonathan Gruber, an M.I.T. economist who helped design the universal-coverage plan in Massachusetts.

...“Fundamentally, if you’re going to control health care costs, it involves denying people care they want — or things they’ve been trained to think they want,” Mr. Gruber says. “There is no easy answer.”


Michael Cannon calls it Kling's Iron Trilemma. We want:

--what I call insulation, where consumers enjoy the peace of mind of having their medical services paid for by a third party;

--unrestricted access, where consumers and doctors can choose medical procedures without bureaucratic interference or government budget limits;

--less stress over rising health care costs.

The trilemma is that we can have at most two out of three. Much of the "reality-based community" (an Orwellian label if there ever was one) denies that the trilemma exists. Gruber does not deny its existence, but he prefers restricting access to reducing insulation. I prefer the latter.


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TRACKBACKS (3 to date)
TrackBack URL: http://econlog.econlib.org/mt/mt-tb.cgi/745
The author at In the Agora in a related article titled Kling's Iron Trilemma writes:
    Arnold Kling comes up with a new one: insulation, unrestricted access, and less stress over rising healthcare costs -- pick two. For more on "pick two," see my previous post.... [Tracked on August 8, 2007 7:07 PM]
COMMENTS (13 to date)
bingo writes:

"...but I don't know of any evidence that preventative care actually saves money."

I think it depends on how broadly you are willing to define preventative care. If we limit the definition to the examples that are so widely cited (colonoscopy, cancer screening, etc) I think the quote is accurate. However, having just examined 3 new diabetics, all of whom are at least 100 lbs. (ONE HUNDRED POUNDS) overweight, and having counselled several macular degeneration patients on the added risk of blindness associated with smoking, "non-medical intervention" to improve health has surely been shown to reduce cost. Smoking cessation reduces the risk of a cardiac event, certainly an expensive medical experience. Losing weight and reducing % bodyweight fat reduces the incidence of diabetes and all of its associated pathology and necessary treatment, decreasing medical outlays.

As an admitted "health care policy geek" I once thought that policy alone was sufficient to solve the health care financial problem. I have now come to realize that a dramatic effort to improve the general health of Americans (their state of health or lack thereof before medical intervention) will need to be combined with a new policy of health care financing.

Indeed, I feel that the state of health care in the U.S. insulates us from the risks our health pose to our lives. I contend that the average lifespan in the U.S. would be 2-3 years shorter if our ability to treat disease were not so advanced.

Our American system of health care insurance and medical care not only insulates us from the cost of medical care, through its excellence it also insulates us from the consequences of unhealthy life choices (2 scoops of Ben&Jerry's, couch vs. treadmill). At the end of the day, no matter how you pay for it, it costs less money to keep someone healthy than it does to treat them when they're really sick.

Kimmitt writes:

I agree that the trilemma exists, but we have, what, one out of three right now? Maybe?

Lance writes:

It seems the choice of restricting access, but not reducing cost insulation is the same method of Health Management Organizations, or the often-cited Plagues of health care, HMO's. They were great at restraining cost at some measure, but at the same time they grew to be 'evil' in the eyes of the American public. Despite the generous benefits of a HMO (limited co-pays, low deductibles, relatively cheap premiums), they were viewed as restricting choice to American consumers to which doctor you could go to or what-have-you.

We've already tried an experiment with the HMO route, and it has largely been rejected by the American public.

I think it's time to go for the route of reducing cost-insulation, making consumers more sensitive to their individual or family consumption of health care.

As for preventive care through a person taking good care of their own personal health, I think an analogy may prove fruitful that shows the costs of cost insulation in regards to American health.

Say your car insurance covered minor incidentals (oil changes, air filters, other maintenance always paid out-of-pocket and that might be prevented from good care of your car), what incentive would there be to take good care of your car when your insurance coverage easily picks up the tab? On the same point, if you can easily go to the doctor, get interventive care in regards to personal health with cost concealment, why spend the money or the time taking care of your personal health when a third-party payer stands ready to pick up the tab?

It's a matter of incentives with American health care. Until politicians realize this, the problem will never be solved.

Bob writes:

Can anyone speak to why, if preventative care is such a bargain, systems to deliver it have not appeared? Regardless of insulation, *someone* is paying the presumed excess cost. Is that someone so powerless? Or stupid? I don't know anyone who likes to go to the dentist, but they all seem to go for preventative care when they have dental insurance that covers it 100%, a common practice that apparently saves the insurer money in the long run. Are we to believe that this lesson has been lost on medical insurers? That only Hillary (or W, or whoever thinks they are smarter than the stupid insurers with their $billion incentive) can lead us to salvation?

I recently read, in either the WSJ or NYT, an article praising low-cost *private* clinics located in high traffic stores with pharmacies (Walmart, Walgreens) staffed primarily by nurse practitioners supervised by a small number of doctors. The article implied that the cost was low enough that insurance wasn't an issue - you could just pay, say, $15. Perhaps the trilemma is really a single monster where limited access keeps costs high, making us demand (what appears to be) insulation, which helps keep costs high. Perhaps we need *more* access, at least at the low end, to break the cycle. Perhaps another case where obsessing about equality ends up hurting those at the bottom the most?

Dan Weber writes:
On the same point, if you can easily go to the doctor, get interventive care in regards to personal health with cost concealment, why spend the money or the time taking care of your personal health when a third-party payer stands ready to pick up the tab?

Why? Because you don't wanna die!

I agree that there is a point in that a significant portion of people's health care costs are related to how well they take care of themselves, but let's not overstate the case.

Dan Weber writes:
Can anyone speak to why, if preventative care is such a bargain, systems to deliver it have not appeared? Regardless of insulation, *someone* is paying the presumed excess cost.

When insurance companies pay for smoking-cessation programs, they're doing just that.

When insurance companies pay for colonoscopies, they're doing just that.

The problem is getting people to follow them. Employer-provided insurance won't kick you out if you don't stop smoking, so why bother? And I would be a little scared of getting into a private insurance program where I had to do whatever they asked in order to be covered. (Maybe I really don't want the doctor to stick a camera up my colon.)

Another question is "are we spending too much on useless preventative care?", such as testing healthy people for diseases they probably don't have.

Lance writes:

Oh, I agree Dan that the trade-off involved in personal health decision is more paramount than in the car analogy. That's probably the main pitfall of the car insurance analogy.

However, if we look at a person's lifestyle choices in increment values, increased precaution that may delay or prevent doctor visits (doctor visits that are mainly picked up by a third party), rather than premature death or a delibetating illness, the incentive to take care of oneself will be less if the true cost of health care is not completely realized by the patient.

Michael F. Cannon writes:

Kling's Impossible Trilemma.

:)

Bob writes:

Dan, that's my point. Today the insurer has an incentive to encourage (economical) preventative care and I'm inclined to believe there are no easy solutions that they are missing. I can't see how a Federal healthcare system could be so good at identifying economical preventative care and getting people to use it as to lower overall costs. Counters might be that employment is too fluid to assume that the insurer that pays for preventative care today reaps the benefit tomorrow, but then why are insurers paying for cleanings and the examples you cite? And even if I grant the point, why not simply move away from employer-provided insurance to solve the problem? Or perhaps the unspoken assumption is that a Federal system will justify a coercive lever to force behavior changes? This might include forced participation in a national system - something that private insurers are unable to mimic. However, extending the economical preventative care in effect today to the uninsured population seems unlikely to generate huge savings.

My original curiosity remains: What makes people think that there are easy, untapped opportunities to use preventative care to reduce costs that the greedy, but expert, medical insurance companies are unable to identify?

testcase writes:

"...but I don't know of any evidence that preventative care actually saves money."

this is just factually incorrect. First of all, he should append "in the US" on the end to this statement since preventative care in other countries has proven cost effective. However, even in the US preventative care such as childhood vaccinations, prenatal care for women and early testing for childhood diseases, among others, all have been shown to save money.

Floccina writes:

More and more I am coming to believe that Robin Hanson may by right that most healthcare spend is a waste or worse negative. Get a load of this!

http://news.scotsman.com/index.cfm?id=11972006
“TODAY, The Scotsman reveals the true extent of inequality across Scotland, in a devastating study showing the country's wealthiest suburb has a life expectancy of 87.7 years, while a boy born in the poorest area of Glasgow can expect to die at 54.”

See also the "Eight Americas" life expectancy study (google it).
It shows that Poor rural whites live longer than others, could it be because they have less access to hospitals? Very confusing!

I am stunned absolutely floored!

Floccina writes:

Here is the link to the eight Americas study.

http://medicine.plosjournals.org/perlserv/?request=get-document&doi=10.1371/journal.pmed.0030260

BTW I am aware of a program to get doctors into the USA if they promise to work in underserved rural areas.

Kimmitt writes:

"Today the insurer has an incentive to encourage (economical) preventative care and I'm inclined to believe there are no easy solutions that they are missing."

I both agree and disagree with you.

On the one hand, I definitely agree that obesity-related illness can be both chronic and very expensive. Diabetes, arthritis, all of these last a long time and require extensive care.

On the other hand, I see insurance companies consistently doing precisely what they would need to be doing -- subsidizing basic doctors' visits heavily,* subsidizing basic testing heavily, and even going so far as to offer fitness courses and discounts at local health clubs.

The problem is the folks who don't have insurance. They're not getting access to the preventative medicine, and I can't help thinking that this is relevant.

*in a bureaucratic fashion; the reduction in appointment length is getting silly.

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