RAND Again

The RAND Corporation has issued a paper on out-of-pocket (OOP) spending that, again, relies solely on studies that suggest OOP spending is a growing burden for Americans and is not distributed fairly between economic classes. It applies such a shallow analysis that it provides absolutely no understanding of the issue.

The paper cites various studies from people fretting that some folks are paying 5% to 10% of income for HC services. Yet the nation as a whole spends 16% of its income on HC. Anyone spending 10% is getting a bargain.

Except, this paper conveniently neglects to factor in what people are paying in taxes and lost wages. That is of no concern to them, even though there is a direct trade-off between direct OOP spending and higher taxes or lower wages. Let me illustrate –

A worker who makes $50,000 may have $5,000 in medical expenses, perhaps because he has a $5,000 deductible. This paper considers that a very bad thing.

That same worker might avoid the $5,000 if his employer enriches his benefits. But to do so the employer would reduce his wages to $45,000. The authors of this paper would say HOORAY!!!!! Zero out-of-pocket!!! Nirvana has been reached!

But the worker is no better off. Actually, the worker is worse off because of the administrative cost of processing that $5,000 though a health plan. He gets fewer medical services for the same amount of money.

The same thing applies to taxes. This paper bemoans the fact that lower-income people pay so much OOP as a percentage of income, but it completely ignores the fact that the higher income folks are paying heavy taxes to pay for the health care needs of those same low-income workers. Ironically, RAND uses the slogan "Facts you can use, analysis you can trust" at the top of its papers. It may provide lots of analysis but it offers zero understanding.

Comments (4)

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  1. Ken says:

    What’s wrong with RAND. Isn’t this the very same outfit that showed years ago that in health care incentives matter?

  2. Joe S. says:

    Ken, it’s the very same organization.

  3. Neil H. says:

    Previous research by RAND indicates that out-of-pocket spending of 5% to 10% is good. It reduces health care costs without any harm to the patient.

  4. Greg Scandlen says:

    Right. I originally headlined this blurb, “That was then, this is now.” The RAND Health Insurance Experiment (HIE) took place in 1978-1981, thirty years ago.

    Today’s RAND also authored the paper on Health IT (http://www.rand.org/pubs/research_briefs/RB9136/) that is the basis for the claim that $88 billion a year could be saved. This paper looked solely at supportive research and deliberately ignored all of the other research that said just the opposite would occur.

    Today the organization is about as objective as the Commonwealth Fund.