High-Deductible Health Insurance Crushes Health Spending

A new working paper published by the National Bureau of Economic Research (NBER) shows how much high-deductible health plans reduce spending:

We study consumer responsiveness to medical care prices, leveraging a natural experiment that occurred at a large self-insured firm which forced all of its employees to switch from an insurance plan that provided free health care to a non-linear, high deductible plan. The switch caused a spending reduction between 11.79%-13.80% of total firm-wide health spending ($100 million lower spending per year). We decompose this spending reduction into the components of (i) consumer price shopping (ii) quantity reductions (iii) quantity substitutions, finding that spending reductions are entirely due to outright reductions in quantity. We find no evidence of consumers learning to price shop after two years in high-deductible coverage. Consumers reduce quantities across the spectrum of health care services, including potentially valuable care (e.g. preventive services) and potentially wasteful care (e.g. imaging services).

(Z.C. Brot-Golberg, et al., What Does a Deductible Do? The Impact of Cost-Sharing on Health Care Prices, Quantities, and Spending Dynamics,” NBER WP No. 21632, October 2015.)

That is as far as the working paper goes before delving into economese, which I’ll refrain from quoting. Sarah Kliff of Vox.com summarizes the details:

Average per-patient spending fell from $5,222.60 in 2012 to $4,446.08 in 2013. That’s about a 15 percent decline in a single year — and it held true across all types of health services. Between 2012 and 2014, there was a 25 percent drop in emergency room spending, an 18 percent decline in physician office visits, and a 6 percent decrease in mental health services.

Ms. Kliff indicates “this study is forcing economists to rethink high-deductible health insurance” for a few reasons. The two most important ones are that sick people cut spending as much as healthy people; and that patients did not shop around for better prices, but simply did not seek care.

I don’t think this research demands a do-over for high-deductible health plans at all. First, it is not clear that all the wasted health spending in the U.S. is incurred by healthy people. Sick people get plenty of unnecessary care, too. (Just look at the spate of stories on how much “heroic” care is delivered to very elderly people near the end of their lives.).  The dogma that all preventive care is valuable is untrue.

What is very impressive is even patients who spend through the deductible reduce their spending under the deductible. Sure, they likely do not perfectly anticipate their risk of blowing through the deductible. Nevertheless, this is a powerful result.

Ms. Kliff is rightly concerned that all spending cuts were from not seeking care, rather than price reductions. However, as she recognizes, price shopping for medical care that is covered by health insurance is still very difficult for patients to execute. Health insurers need to get out of the business of fixing medical prices. Only then will true price competition arise.

Comments (38)

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  1. John Fembup says:

    “Sick people get plenty of unnecessary care, too”

    Wouldn’t one expect that sick people get more unnecessary care, because they receive more care in the first place? Seems to me that is a proposition to be tested.

    Anyway, what, I wonder, is a “non-linear” deductible? Is is parabolic or (heavens!) hyperbolic?

    • Devon Herrick says:

      You’re right about sick people getting more unnecessary care than healthy people. Just look at Medicare readmissions. I’m healthy and the closest I came last year to getting potentially unnecessary care was a trip to the dermatologist for eczema. The $60 charge pales in comparison to care people with chronic diseases get that does little good.

      The bottom line is that if we are truly going to put a dent in health expenditures we will have to lower the cost of caring for people who are in poor health. There simply isn’t enough money spent on the worried-well to make much of a difference.

    • I would just love to call an Obamacare navigator and ask what a “non-linear” deductible is, testing his calculus!

      You have a very economic mind. I should have thought of that: Of course, sick people will get more unnecessary care. Similarly, the optimal level of hospital-caused deaths is surely greater than zero.

      • Michael Gorback says:

        “Of course, sick people will get more unnecessary care.”

        I don’t see how this is self-evident. I’d also like a definition of “unnecessary care”.

        John Mauldin is always waxing poetically in his newsletter about his annual checkups with Mike Roizen at Cleveland Clinic. The annual checkup seems to involves multiple tests and an entire day. I’m in and out in 30 minutes for my annual checkup, which I undergo every 5-10 years.

        • John Fembup says:

          “I don’t see how this is self-evident.”

          I think it was in the late 80’s that NEJM published a study in which a panel of surgeons who performed carotid artery surgery themselves, reviewed medical records of patients who had the surgery. The panel found roughy 1/3 of the operations justified based on the medical records; 1/3 not justified; and the other 1/3 “equivocal”. Seems to me that suggests a fair amount of unnecessary medical care was being delivered to actual patients, not healthy people. I know no reason that finding would be much different today. I’m sure it’s true that healthy people get annual physicals which add nothing to their health, just as healthy people get immunizations regardless of their particular risk, but that seems beside the point.

          Anyway, to repeat what I said above “Wouldn’t one expect that sick people get more unnecessary care, because they receive more care in the first place? Seems to me that is a proposition to be tested. ”

          So I’m not suggesting anything is self-evident, only that the proposition be tested. Wouldn’t you agree that’s a reasonable point of view?

          • Michael Gorback says:

            Quis custodiet ipsos custodes?

            The problem is how do you set the standards, and how do you select the people who determine the standards? There’s no standard for picking the standard-pickers.

            Unfortunately, most of the time it’s shades of gray. There simply isn’t enough information to be absolute about many important medical decisions.

            On another blog post here I referred to a study where 18 patients with back pain were sent to 5 different surgeons. The surgeons were asked if the patient needed surgery and if so, what kind?

            The surgeons were unanimous in 12 of 18 as to the need for surgery and when you asked what kind of surgery, unanimity dropped to 50%.

            Which surgeons were “wrong”?

            Years ago BCBS tried to rate doctors on their cost efficiency. I received a low rating, so I demanded to see the data. After reviewing the first 20 charts they analyzed, I found 19 were mis-coded.

            They said I cost $30,000 to treat ankle arthritis. It wasn’t arthritis, it was RSD from a broken ankle and the spinal cord stimulator implant was most of the cost. Intrathecal drug pump refills were coded as “well woman visits”.

            There was so much backlash that BCBS gave up on it.

            Look up my Medicare stats. It looks like I do thousands of knee injections. If I did that many it would take up all of my working days. In reality it was 1% of that number. Synvisc for knee injections is billed in units. One syringe of Synvisc One is 96 units. So those thousands of Synvisc shots? Divide by 96.

            GIGO. Lots and lots of GIGO.

            • John Fembup says:

              i asked “So I’m not suggesting anything is self-evident, only that the proposition be tested. Wouldn’t you agree that’s a reasonable point of view?”

              Since you didn’t answer “yes”, I take it your response is “no.”

              It still seems to me it’s better to make decisions in the presence of information than in its absence; and that studying things is always worthwhile – the more complex, the more worthwhile. It’s the “garbage out” in medical care, as you put it, that worries me, and its my opinion that physicians should be leading efforts to reduce the volume of garbage out. If not physicians, who?

              I know that medicine is many shades of gray, few black-and-whites. But that can’t possibly mean physicians should be free to diagnose their patients however they please and regardless of any other physician’s judgement. I doubt you believe that so I also have this question: what are you suggesting to improve your situation, and that of your patients?

              • Michael Gorback says:

                To address your question (which I took to be rhetorical, sorry), of course we should test it.

                The problem is that testing is a very difficult epistemological process in medicine. The gold standard is a placebo-controlled double-blind study, which is usually very expensive and time-consuming. It often requires significant funding.

                The more rare the phenomenon, the more patients you have to study. If you want to study risk factors for pulmonary aspiration under anesthesia you need to look at hundreds of thousands of patients. That information will never be available.

                So when you say doctors should be unearthing this information you need to address how doctors are going to get the funds to do so. Government and charitable grants are hard to get and industry grants go where the money is. Lots of money for developing yet another stain drug, no money to figure out why people get coccydynia or how to treat it.

                Corporations won’t fund studies if their competitors might benefit from it. I have heard this directly from the executives: why spend $1 million on an efficacy study for our product if it will also show that our competition’s product will work too?

                Making decisions in the presence of information only works if it’s good information.

                We thought we had good information on dietary cholesterol. “Experts” determined that dietary cholesterol intake had to be curtailed, right up until we stopped knowing it this year. Too bad for the poultry farmers who went under 20 years ago.

                Then there are time constraints. Does chronic hypertension lead to higher risk of cardiovascular complications? The Framingham study began in 1948. It wasn’t until the 60s that they showed a correlation between elevated blood pressure and heart disease. By the 70s they had data on hypertension and strokes. You can’t speed this up. You have to wait for people to develop problems.

                What keeps the cowboys who might do silly things under control are (1) medical boards, (2) hospital committees and (3) malpractice suits. Note that all three often involve lawyers, which makes the process cumbersome and expensive. They are also reactive, ie., they only take action after something bad has already happened.

                I’m a reviewer for the Texas Board and some of the charts I have seen are sickening. The doctors are beyond salvage, yet the Board orders remedial activities and sets them loose, sometimes under supervision by another doctor. Loss of licensure usually requires a substantial body count. That takes years.

                I don’t know how you fix this. I really don’t. Even if we had all the money we could possibly want, we don’t have all the qualified researchers we would need, and no amount of money can speed up time-dependent processes.

                • Michael Gorback says:

                  erratum: “Lots of money for developing yet another stain drug” should be “statin”, not “stain”.

                • John Fembup says:

                  “you say doctors should be unearthing this information”.

                  I don’t think I said that. What I said was “It’s the “garbage out” in medical care, as you put it, that worries me, and its my opinion that physicians should be leading efforts to reduce the volume of garbage out. If not physicians, who?”

                  It doesn’t matter to me whether garbage comes out because of bad definitions, bad data, bad doctors, bad oversight, bad regulation, or bad anything else. It’s the garbage out that worries me, Everyone seems pretty sure it’s there – even though there’s lots of disagreement over exactly what it is. Perhaps Chekhov was right to say “when there are many treatments for a disease, you may be certain there is no cure.”

                  Or maybe you’re right, that medical necessity definitions are achievable, but they’re often too hard or too expensive to develop, especially for practicing physicians. After all, physicians are extremely busy and anyone who does not know that does not know much. Yet it’s also true that physicians are frequently unhappy with medical necessity definitions that businesses and government agencies impose.

                  My opinion? Medical science will continue to improve even if perfect studies remain impractical. (I also think there has been too little physician leadership on this issue, and on national health policy in general. One result: what are the chances that those same business and government types will spontaneously, all by themselves, revise medical necessity rules so that physicians will like them? Nil I think.)

                  • Michael Gorback says:

                    If you think physicians should be “leading efforts to reduce the volume of garbage out” I think you’re asking doctors to “unearth the information”.

                    Semantics aside, if Hercules were given a choice between cleaning the Augean Stables and cleaning up health care the stables are the obvious choice.

                    All doctors operate in an environment of uncertainty. We dont have enough data to rely on so we wing it using a concoction of limited data, training, and professional experience.

                    I saw a patient recently who had undergone spine surgery and still had severe pain. She sought an opinion from another surgeon who recommended more surgery. The surgeon who did her surgery (which failed) recommended no more surgery.

                    Which one is correct?

                    Guiding patients through these decisions is the art of medicine, not the science. We have to make decisions and provide recommendations without adequate data. It would be nice if it were all laid out based on data and formulaic. Then anyone could do this job.

                    I collect medical antiques and to get background on the items I also collect relevant literature. The debates as to whether tobacco is a health hazard or a therapy and whether sciatica is a spine disease or a nerve disease (in the 1800s the “experts” favored the latter) look a lot like the arguments we have today.

                    Medical science is more trustworthy than the “dismal science” but it’s no great honor when you consider the competition.

                    • John Fembup says:

                      “Which one is correct?”

                      Well, I asked you first, but you declined to play.

                      fwiw, you share the same points of view as most physicians I know, at least among currently-practicing physicians. But none of that says much for the future of the profession.

                      Thanks for sharing your thoughts.

  2. Don Levit says:

    High deductibles are neither good nor bad
    They simply shift risk from the insurer to the employer and employee
    This study seems to verify my belief that many people are forgoing care due to the increased out of pocket costs
    And the opposite is not necessarily true
    People are not overusing care just because they reach the deductible
    What is certain is that people need
    Help in meeting the out of pocket costs so they have a chance to access needed costly care
    To learn more how people have a new option visit nationalprosperity.com
    Don Levit

    • Michael Gorback says:

      I have a ring side seat at the margin when it comes to how people make these decisions. They behave exactly as one would expect with cost thresholds (a/k/a “cliffs”):

      1. High deductibles often delay seeking care and they present for treatment (or elect to undergo recommended treatment) when the problem has gotten so bad it can’t be ignored.

      2. Once the deductible is met cost no longer impacts decision-making for the vast majority of patients.

      3. More and more people are opting not to have insurance. They look at the premiums vs the deductible and decide to roll the dice. Who can blame them – $12,000/year to buy a $5,000 deductible? My own staff does this. I have suggested that perhaps they should bank what they would have spent on insurance against a rainy day. Their completely predictable response is left as an exercise for the reader.

      4. If you suggest that someone drop their cable service for a few months so they can afford a procedure they will look at you in horror.

      There’s no ideal way to approach this but I think cost-sharing all along the way is best. IOW, patients should always have skin in the game with a percentage of the cost and no deductible. Keep them aware of cost every step along the way for every test, drug, procedure, etc.

      • John Fembup says:

        I agree with your conclusion,

        In the same way, I think everyone should have some share in the cost of running the government.

        In other words, (and although this has precious little to do with medical care), I think everyone should pay some federal tax, some minimum amount per year, regardless of income.

      • Barry Carol says:

        Dr. Gorback –

        I think cost sharing along the way with no deductible but, perhaps, a reasonable out-of-pocket maximum amount is a reasonable idea. However, I wonder how you make an insured patient aware of costs for recommended procedures that you will provide if you are precluded by the insurer from disclosing your contract rate which would presumably be the basis for determining the amount the patient is responsible for paying.

        Also, as a practical matter, I also don’t see how patients would be in any position to determine what recommended care might be unnecessary or, at best, marginally useful. If they trust you, there is probably no such thing as unnecessary care in their mind but defensive medicine may be an important a factor in yours. No?

        Finally, what can you or any doctor really do if the patient raises out-of-pocket cost as a serious issue for him or her that stands in the way of receiving care that you think is useful and necessary?

        • Michael Gorback says:

          Excellent questions. I’ll address them starting with the easiest and work my way up to the unanswerable. My apologies in advance for posting comments longer than the blog entry.

          I can tell patients what the charges will be. In fact, we routinely check their benefits and how much of their deductible has been met. Then we have a worksheet that we show the patient that breaks down my fee, their co-pay and deductible, and what the out of pocket cost will be.

          That’s for services in my office. If I plan to do their procedure at a facility we get an upfront estimate from the facility as well.

          If the OOP cost is a problem we have options. Some patients I schedule at a facility because either I or the patient feel they require more sedation than I can safely provide in the office. If they are willing to try lighter sedation in the office then we go that route. Much cheaper.

          Unfortunately, some things can’t be done in the office. Sometimes I can work out a discount with the facility and the anesthesia group but if we’re implanting $10,000 worth of hardware that’s a problem. Even then, if I have a long-standing relationship with the manufacturer I can sometimes get a deal from them too.

          If even the office cost is a barrier I have the option of cutting my fee or offering a payment plan. On occasion I do it for free, especially if it’s an established patient who has fallen on hard times. I have even taken a loss for some of them.

          These kinds of decisions, including defensive medicine, are obviously unique to each practitioner. I know a lot of doctors who would never go to those lengths and I respect their decisions. We are small businessmen and women, not charities. In the old days there was a lot more free care but our fees have been slashed so badly it’s much harder to do. I make a little over half of what I made at my peak. There are nurse anesthetists, nurse practitioners and physician assistants who make more than many family doctors and pediatricians.

          I have no idea how to advise someone about “unnecessary” care and I don’t know if I could even define the term. There was a study about 15 years ago where they sent 18 patients with back trouble to 5 different surgeons. Each surgeon was asked two questions: (1) Does this person need surgery? and (2) What kind of surgery?

          They could only agree unanimously on half the patients. How does anyone decide what’s necessary or not?

          Similarly, at what point does a decision cross over the line to become “defensive medicine”?

          In all honesty, unless you’re a member of the Guild it’s hard to know how to evaluate any doctor’s recommendations. By that I mean I know who’s naughty or nice in my community and I also have the education to evaluate recommendations. I can also get a “sidewalk consult” and run a question by a colleague for a second opinion.

          In that sense it’s a crap shoot for the average patient. All I can say is it’s imperative that your entry point into the system is a good doctor because the good ones want their patients seen by other good ones. How do you know if you have a good doc or a predator? I wish I had an easy answer for that.

          How do you pick a good lawyer, accountant, or financial advisor? How do you know if your legal bill is padded, your accountant is just using Turbo Tax, or your broker is touting a stock the firm wants to dump? I’ve had so-called advisors try to put me into front-loaded funds, accountants completely screw up my taxes, and a lawyer tried to charge me $10,000 to set up a family limited partnership.

          • Barry Carol says:

            Dr. Gorback –

            Thanks for your very thorough and informative response to my questions.

            Your effort to develop a worksheet for each patient to quantify out-of-pocket costs looks like a very high level or service to me which is probably between rare and non-existent here in the NYC metropolitan area. It is especially difficult to get a reliable estimate of out-of-pocket costs from a hospital. They just don’t seem to be equipped to provide this information to patients, probably because they don’t perceive it as important yet.

            I also agree with John Fembup’s comment about the high cost of medical care being the fundamental reason why health insurance is expensive and why it continues to increase each year. So, I’m curious about where you think the excess costs in the healthcare system may be concentrated.

            My own perception is that they are mostly in the following areas: (1) hospitals, especially those with a persistently low occupancy rate and those that may also be buying up physician practices and then pressuring their now salaried docs to find legal ways to admit patients and fill beds. Bonus compensation driven by relative value units billed may also contribute to excessive utilization; (2) very high drug prices, especially for specialty drugs to treat cancer, MS, RA, Parkinson’s, and a few other diseases; (3) futile or marginally useful end of life care because family members can’t or won’t let go and someone else is paying the bill, and (4) fraud that may be especially prevalent in the labor intensive services like long term care in nursing homes, home health care and physical therapy.

            • Michael Gorback says:

              End of life spending can be crazy. I’ve seen people bankrupt themselves buying expensive chemotherapy for their terminally ill loved ones that either the doctors refused to order or the insurer denied.

              A Fable

              Once upon a time there was an oncologist who noted that one of his patients didn’t show up for chemo. He called the house and learned that the patient had been admitted to the hospital.

              He grabbed the chemo and ran over to the hospital only to learn that the patient had taken a turn for the worse and was transferred to the ICU.

              He ran to the ICU thinking he still might be able to give the chemo but they informed him the patient had died.

              He scurried off to the morgue where they told him the funeral home had already picked up the body.

              He drove over to the funeral home where they informed him that they burying the body right now.

              He hustled over to the funeral and saw that the grave was still open. Thinking he could still give the chemo he jumped into the grave and opened the coffin, which was empty, and there was a note that said,

              “GONE TO DIALYSIS.”

              Doctors don’t usually go through a prolonged end-of-life process themselves. Take a look at “How Doctors Die”


          • I think the key take-away from this interesting thread it is is not the deductible or copay that is the important factor, but who determines the price? The provider and the patient? Or a third party (insurer or government)?

  3. Devon Herrick says:

    The article suggests patients are not price-shopping. But, that may not be entirely accurate. Maybe they are substituting office visits for higher-priced ER visits. Maybe they are using self care with OTC drugs in place of higher-cost office visits. Substitution based on price is a form of price comparison.

    Granted, it would be great to find evidence that patients are shopping for free-standing imagine centers instead of expensive hospital-based imaging. Patients have long inquired about generic drugs to avoid higher cost sharing. But, as John said, patients don’t get much help with in finding out the price of alternatives providers prior to receiving care. Firms like Compass and Vitals provide this service to employers. I’ve always wondered why insurers don’t do more to help enrollees shop for care at better prices.

    My own opinion is that it has been too easy to raise premiums, raise deductibles or raise cost-sharing compared to investing resources into price transparency and decision-support tools.

    • Yes, and there is the poorly measured phenomenon of patients with high-deductible plans who pay cash to doctors and don’t even report it to insurers, because they do not expect to hit there deductible that year.

  4. Bob Hertz says:

    I don’t think there is any question that if employees must switch from a zero-deductible plan to a high-deductible plan, then health care spending will fall.

    Call this the low lying fruit.

    But then move over to the qualified plans on the state and federal exchanges. These plans in most cases had high deductibles right from the get go in 2014.

    And by now, many of those plans have had substantial premium increases. That would suggest that the spending reductions might be a one time phenomenon.

    • Barry Carol says:

      It’s hard to know to what extent the exchange plan claims are driven by high utilization as opposed to by adverse selection. I think it’s more likely the latter as the majority of people who could sign up for exchange plans but don’t are between 18 and 34 and, probably, largely healthy.

    • John Fembup says:

      “I don’t think there is any question that if employees must switch from a zero-deductible plan to a high-deductible plan, then health care spending wI’ll fall”.

      Really, Bob?

      After all these years and all the things you’ve seen and read, you haven’t noticed that spending does

    • John Fembup says:

      “I don’t think there is any question that if employees must switch from a zero-deductible plan to a high-deductible plan, then health care spending wIll fall”.

      Really, Bob?

      After all these years and all the things you’ve seen and read, you haven’t notiiced that using the term “spending” neither reflects, nor illuminates the crucial distinction between the cost of medical insurance premiums, and the cost of medical care?

      This is a crucial distinction. Crucial, because the underlying problem is high – and rising – medical cost. Rising medical premiums are symptoms, but they are not the disease.

      So long as medical costs increase, individual costs will also increase – whether we experience these costs as premiums, or as direct out of pocket costs, or taxes to support government subsidies. Either way, as long as medical costs increase, of course individuals will “spend” more.

  5. Barry Carol says:

    I wonder how much money our healthcare system could save if everyone died like doctors do when their time comes. I suspect it would be quite a large number, especially for Medicare.

    This is one area that I think other developed countries handle much better than we do largely because their societal norms and patient and family expectations are more sensible and reasonable than ours.

    • Michael Gorback says:

      I’m not so sure it’s societal norms as much as the people being used to hearing, “Sorry, we aren’t going to pay for that.”

      Your best defense against heroics is an educated advocate – a good family doctor who’s known the patient and family for years and is willing to say “No” when things are getting crazy.

      Good luck with that.

      One thing I see in other societies is that there seems to be far less expectation that nothing should hurt, ever.

      (Including feelings but this isn’t the right forum for that discussion)

  6. Bob Hertz says:

    We talk about end of life care being very expensive, but I wonder how much of that is due to the way that we pay for end of life care.

    In a word, we pay user fees for each day of intensive care, each surgery, each drug, et al.

    This may be a pipe dream, but what if we chose 100 publicly owned hospitals, covered their budgets, and directed all terminally ill patients to get care in those hospitals.

    The cost of care would be the budgets of those hospitals.

    In that context, we never hear any one say that fighting large fires cost the taxpayers $20,000 per fire.
    Instead, each city assumes that its fire department will cost $25 million or whatever on the annual budget. No one pays much attention to the accounting cost of fighting each fire.

    I do not expect American health care to change like this, if only because so many hospitals depend on big claims and outlier payments for their fiscal survival.

  7. Barry Carol says:

    As I understand it, one of the key assumptions underlying the Canadian and Western European concept of solidarity, at least as it relates to healthcare, is that you do not impose unreasonable costs and expectations upon your fellow citizens even if the system would pay for your care if you did.

    I wish more Americans thought that way. My own view is that if I would not be willing to spend my own money on care at the end of life even if I could easily afford to, I don’t think I should spend taxpayer or insurer money either.

  8. Bob Hertz says:

    My point was that end-of-life care actually does not cost so much if the hospital or hospice is on a global budget.

    My father spent most of his last month of life in the Minneapolis VA hospital. His care did not cost the VA system any more money than if his bed had been filled by younger veterans with broken legs. The total number of nurses and doctors and their compensation did not increase to care for my father.
    He surely used more morphine than others, and a nurse did check on him more often so there was probably some extra staffing cost.

    Some of this logic is on display currently in Maryland.
    The hospitals there are experimenting with global budgets for emergency care of Medicare patients.

  9. Bob Hertz says:

    I realize that I should expand my point about global budgets.
    Let me use the following example:

    a. In our American user fee system, we pay nothing toward the annual budget of the typical private hospital.
    Then when a dying person is in intensive care for many days, a public or private insurer pays a claim of $150,000 or whatever. If the hospital collects enough such claims in a year, then the hospital is solvent. As citizens we must buy insurance to pay those big claims.

    We observers then say that end of life care costs $150,000 and that this is a burden.

    b. In a global budget system, such as Canada’s, the hospital gets $20 billion a year up front. There are no bills or claims when the patient is in intensive care.
    We do not generally know or care how much a particular patient costs the hospital in accounting terms.

    I do not claim that the global budget system delivers better care or is cheaper overall. I do not have enough knowledge or time to research that enormous topic.
    The best non-academic book I have ever read on this is
    Competing Visions by Joseph White.

  10. Barry Carol says:

    Bob –

    How we think about the cost of and the need for hospital capacity can make a huge difference in how the market works. Your example of your father not costing the VA much, if any, more than a younger veteran with broken legs is thinking in terms of marginal cost. With a hospital in place with a given capacity that is not being fully utilized, the marginal cost of providing care for one more patient is indeed quite low.

    Suppose under the current payment system, 3,000 hospital beds are sufficient to provide hospital based care for the population of Minneapolis. If end of life care choices were more sensible and conservative, there were fewer hospital acquired infections and preventable readmissions and less defensive medicine, maybe 2,500 beds would be enough to provide care for the city’s population. Alternatively, the existing capacity could suddenly accommodate a population 16% greater with no need for additional capital spending or staff, a huge saving.

    The problem with the global budget system that you favor is really twofold. First, the hospital cannot accurately predict how much or what types of care it will have to provide in the next year. More importantly, though, under the budget approach, both patients and referring doctors will perceive care as free to the patient at the point of service. This means it will be easier for doctors to admit patients to the hospital and to keep them there longer without having to worry about out-of-pocket cost for the family. There is lots of care that’s at least somewhat discretionary. There are always more tests that could be done or more expensive drugs that might be preferred when there is no direct connection between price, cost and care. Under these circumstances, the hospital is highly likely to exhaust its global budget before the end of the year or will have to skimp on necessary care for many patients.

    If global budgets were such a great idea that provided outstanding patient care without rationing or other compromises, everyone would be doing it. Your earlier fire-fighting example where budgeting is used is not comparable because the cost of fighting fires is a comparatively small piece of total government spending and fires don’t happen very often. Healthcare is different on both counts.

  11. Bob Hertz says:

    Barry, your points are valid about the problems with global budgeting…..see the following paper about reforms to global payments being considered in Canada….


    Global budgeting would cure one huge American problem — namely, hospital bills and patients in debt because of those bills.

    But the same global budgets would lead to rationing.

    It is better to be cured and in debt, than to be still sick or even dead due to rationing.

    (I have never heard this expressed so bluntly in health care debates, but I see some truth in it.)

  12. Ron Greiner says:

    2016 Obamacare rates in Wyoming are crazy. A 64-year-old couple earning 64K per year has to pay $23,076 for the cheapest Bronze plan. If they put $2,000 in an HSA their income drops and they get $20,460 in tax credits. Hillary should explain how good the tax free HSA tax dodge is with Obamacare. Check it out with zip code 82601 at healthcare.gov.

    But, Blue Cross’s GOLD plan costs this couple $33,768 a year and they still owe $6,600 if they are hospitalized. Who in the world makes these rates up? OH WAIT, it’s Blue Cross.

  13. Sarah - summitmedicalcasper.com says:

    But still health insurance is pushing me to go to doctor on every occation when I feel I need to. Because I already pay for it and it will be a waste of money not to try to get advantage of it right? Before I had heath insurance, I rarely see any doctor by the way.

    Sarah – summitmedicalcasper.com

    • Ron Greiner says:

      Sarah, there is one plan on the EXCHANGE in Casper – BLUE CROSS. The cheapest plan has a $6,850 Deductible per person, $13,700 per family. Tell us again how people should just go to the doctor for everything and pay for it. Sounds like you summitmedicalcasper.com people are just trying to make as much cash as you can. Because you have no competition in Casper – ONE company, everybody now has to pay way too much. I used Casper as the example because BLUE CROSS is playing Wyominions like suckers.