Do Americans spend more money on the health care of the poor than the rich?

by on June 26, 2017 at 12:36 am in Data Source, Economics, Medicine, Uncategorized | Permalink

From Twitter I see this statistic:

Ratio of mean health care spending in richest quintile to mean health care spending in poorest quintile

For the United States, as reported, that ratio is 0.884 for ages 25-64, and for 65 and up the ratio has two varying estimates, from 0.87 to 0.9.

If I am understanding the numbers and presentation correctly, that indicates more health care spending on the poorest quintile than the wealthiest quintile (for below 25 however the ratio is 1.3, namely more spending on the wealthy).

I believe this comes as a surprise to many people, though it is arguably intuitive, since poor people become sick more often, and furthermore sick people are more likely to lose income.

I tracked down the source paper by Eric French and Elaine Kelly (pdf), and it does seem to be true, noting that the numbers exclude long-term care for the elderly.  By the way, that piece is full of fascinating, under-reported medical expenditure statistics, for other countries too.

A number of points suggest themselves:

1. You still might feel we are neglecting the health care of the poor, but I am not sure the majority of the American public would react that way, upon hearing these numbers.  Usually the poor get less of things, as measured by expenditures, even if they might “need” it more.  Health care is an exception to what is otherwise a pretty general rule.  I believe it should be such an exception, but to what degree?  I see a lot of pretty aggressive intuitions out there, mostly without serious justification or without any presentation of what the stopping point should be.

2. Those numbers don’t prove anything, least of all normatively.  Still, they do point my attention in the direction of wondering — yet again — if public health programs are not better than spending more on health care coverage of the poor.  Let’s stop or at least limit poor people from getting sick so many more times.

3. That poor people get sick more times, how much of this is a) poor environment including higher stress and exposure to crime, b) genes, c) inability to afford proper preventive care, d) bad decision-making, including diet, lifestyle, and exercise, and e) sickness causing poverty, and f) other factors.  I know of plenty of individual papers on these topics, but would it go over well to write an “apportionment” paper doling out the relative responsibilities?

4. How much should our decisions on the best health care policy depend on the answer to #3?  How many people are even willing to talk about this right now?

5. Why does the ratio flip so significantly toward the wealthy for younger people?  Can we use that fact to make any general inferences about the apportionment outlined in #3?  On the surface, it seems to suggest a significant possible role for d) and e), since those might affect children less.

6. What else?

The original pointer was from a retweet by Garett Jones, the tweet from Houston Euler, the Great Firewall is making direct links to them very costly right now.

1 Steve Sailer June 26, 2017 at 12:44 am

Being sick can make you poorer. When I was getting expensive cancer treatment in 1997, I was only making 60% of my salary on disability. If I’d been feeling better in 1996 I would have accepted an offer tendered to me to move to Silicon Valley and get rich off the Internet Bubble.

2 Captain Obvios June 26, 2017 at 3:40 am

How much proportion of poor, are poor due to bad health? I have heard some stat that said the number 1 cause of bankruptcy in America is health care spending (true?). If its true, then you could say that the American system is quite unfair…

3 rluser June 26, 2017 at 5:48 am

Why is that unfair? Because it enriches bankruptcy lawyers at the expense of the “poor” or health service providers? To whom is it unfair? To me it (if true) merely indicates that medicine is expensive and incurring medical bills correlates with reduced cash flow. Rational actors should avail themselves of bankruptcy laws to buy time and/or dispose of debt.

4 Troll Me June 26, 2017 at 9:49 am

Those individuals may have been just as competent and motivated, etc., but for whatever reason did not end up in a high income situation.

If one person had few opportunities (e.g., born in wrong place, wrong time) and the other had many opportunities (e.g., born in right place, right time), then when faced with an equally negative health event, it is unfair that one person can afford it with hardly batting an eye at the cost and that the other person must liquidate and more to meet the expense.

5 Stubbs June 26, 2017 at 11:46 am

Too bad that, for whatever reason, many people don’t agree with you.

6 rluser June 27, 2017 at 4:57 am

I don’t have my Ferrari either.

7 JonFraz June 26, 2017 at 2:50 pm

Unfair, maybe, maybe not. But it is absurdly inefficient to process the redistribution needed by a universal healthcare system through the bankruptcy courts.

8 rluser June 27, 2017 at 4:59 am

Have you data for that? From your claim, I am tempted to believe it might be the most efficient mechanism.

9 Veobaum June 26, 2017 at 5:58 am

It’s not true in any meaningful way. The study essentially calculated at the proportion of bankruptcies in which healthcare debts were present, regardless of amount of healthcare debt. Most healthcare debt was less than $2k, iirc.

No evidence was provided on the tougher problem of what actually was the ’cause’ of the bankruptcy. Which type of debt was too overwhelming? Was there a straw that broke the camel’s back?

Not to mention, there was no attempt to deal with any reverse causality: did the health event cause both the general bankruptcy and the new healthcare debt.

10 Troll Me June 26, 2017 at 9:51 am

If five straws broke the camel’s back, then regardless of which was the fifth, all other five were one of those five.

Does it matter if the $20k health bill comes before or after the car broke down? Either way, it’s pretty much the same situation.

11 Daniel Weber June 26, 2017 at 12:17 pm

If you get in a car accident and are unable to work, you are going bankrupt even if your health care costs are covered.

12 TMC June 26, 2017 at 8:05 pm

So starbucks could also be that main cause of bankruptcy. Good to know.

13 Ricardo June 27, 2017 at 2:30 am

“If you get in a car accident and are unable to work, you are going bankrupt even if your health care costs are covered.”

Some days, people around here like to claim that disability is such a sweet deal that it is almost certainly being abused by people who just don’t want to work. But then we get to discussing people who suffer real disability through accidents or serious illness and then some people seem to forget that disability benefits exist or dismiss them as so minimal that, of course, anyone in that situation will go bankrupt. The truth is in the middle: people can and do recover enough from an injury or acute condition to rejoin the workforce and the combination of health insurance and disability benefits can easily be the difference between bankruptcy and a reduced but still acceptable standard of living.

14 Boonton June 26, 2017 at 10:11 am

True it’s more complicated because if a big health care bill is the ‘straw that breaks the camels’ back’ you would still take advantage of bankruptcy to toss in any other debts that are holding you down, including credit cards and other things. On the flip side not captured might be a small health bill that masks the income loss caused by an illness. Imagine a person who has a sudden heart attack, gets charity care and other assistance. In the meantime he has lost a few weeks of income, possibly a job, is behind on rent and car payments etc. His bankruptcy filing might not have any medical bills but nonetheless his lack of coverage might have been a causal factor, esp. in not taking advantage of preventative care.

IMO the problem here is greatly increased by the lack of savings for those with lower incomes. The tools to help those in lower incomes set up savings are few and the means to fleece them into high interest debt rackets are very high. This sets ups a dynamic where any minor setback like a ticket, auto breakdown or medical bill sets off a catastrophe.

One idea I would suggest is a rolling savings plan to replace the unemployment insurance system. Instead of unemployment insurance, both worker and employer would put money into a 401K type account. Unlike the 401K account, money put in could be taken out 5 years later with just normal income taxes withheld and no special penalty. Over time this would create a modest emergency fund that a low income person could tap without too much hassle or it could become a serious amount of savings that could help people accumulate capital.

15 Normal June 27, 2017 at 7:51 am

Really? Poor people don’t save because they don’t have good “tools”? What good are tools if you nothing to save?

16 Steve Sailer June 26, 2017 at 6:31 am

Good question.

I was sick for about 20-24 months with cancer/chemo in 1996-97. I was never as ambitious for money again.

17 The Other Jim June 26, 2017 at 8:18 am

If an American Dem is throwing a statistic at you to convince you to give him more power, you can rest assured it is a lie. This is a universal truth.

18 Troll Me June 26, 2017 at 9:52 am

Any information is anti-information .

Any other expert recommendations on how to firmly plant one’s head in the sand?

19 GoneWithTheWind June 26, 2017 at 9:51 am

It’s unfair because the socialist want your money and you aren’t simply turning it over to them. So dammit they are going to elect a dictatorial socialist government to take it by force if necessary. After all it worked so well everywhere else in the world. The lure of “free stuff” is strong and the lazy and indigent are easily bought with the promise of free stuff so sooner or later they will take it from you. Why should YOU enjoy the fruits of your labor when so many lazy bums want it for free???

20 Troll Me June 26, 2017 at 9:55 am

The market system enables many opportunities to become fantastically wealthy.

This does not work out that way for everyone. So it is fair to tax some of that income and ensure access to basic services for all, even those who did not end up on a pathway that could lead to high income.

So when they tax back 30 or 40% of total income, well … if you’re paying that rate after all deductions, you have a high-income high-consumption lifestyle and it’s hard to have any sympathy for you.

21 Hazel Meade June 26, 2017 at 10:57 am

It’s hard to have a high-consumption lifestyle if 30-40% of your income is going to taxes.
And where do you come with the number of 30-40% as a fair amount of income to be redistributed to the people who are less lucky? Why not 10%? Why not 90%?

22 GoneWithTheWind June 26, 2017 at 10:37 pm

“The market system enables many opportunities…” And THAT is the answer not taking people’s property and wealth. The opportunities are there for all. But the lazy and indigent want free stuff not opportunities to earn a living. Screw them. Life is a bitch some people make and some do not. The incentive to work is starvation and lack of comfort. If you provide everything they need where is their incentive to do for themselves. Would you do this to your own children??? Would you provide everything cradle to grave denying them the opportunity and satisfaction of learning to take care of themselves? The bottom line is welfare is essentially a system to subsidize booze, cigarettes and drugs for the lazy. What is worse is you have to punish the productive and good people to keep the free stuff flowing to the lazy bums. What an incredibly stupid system. If you wanted to destroy a generation you couldn’t do better than welfare.

23 Normal June 27, 2017 at 7:55 am

Fair tax rates are when all economic classes have an equal propensity of tax revolt.

24 HF June 26, 2017 at 12:57 am

Answering #3, genes play the dominant role. Its underestimated, because genes, environment, and lifestyle are all confounded. The same genes that make people unhealthy also make them behave poorly, make less income, and make bad decisions. This is because the genes involved with behavior are widespread and affect a lot of different parts of our biology.

Since its genes, the answer to #4 is really hard, and completely unpalatable politically. You could ignore the genetic reality of their situation, and just make their lives better, but welfare payments will motivate people to have kids. If you give unhealthy people healthcare, the genes that are causing poor health will increase in their relative share of society, and the “genetic debt” will just be that much larger in the future.

I dont see things changing, so either the cost of living will be enormous simply due to medical expenses, eventually causing society to collapse; or some kind of eugenic effect returns to society. Designer babies, which companies are now providing as a service today, might be the solution. But if the only thing that changes is that rich smart people engineer super children, then we are just setting up the next century for a caste system of super humans and a deformed underclass.

25 Dzhaughn June 26, 2017 at 9:19 am

That explains why phrenology was such a scientific breakthrough.

26 JonFraz June 26, 2017 at 2:55 pm

The poster could also use a visit to the 14th century and a first hand study of the art form known as the Danse Macabre, in the shadow of the Black Death, where the lesson was driven home that Death comes for everyone and social status is no protection against sickness and the grave. We moderns do a very good job of hiding from that reality, but it’s just as true for us as for the people they dumped in the old plague pits.

27 Anonymous June 26, 2017 at 9:27 am

Before I clicked on comments I came up with my answer to the question at 3: some people will avoid the question, and some people will assume it is genes.

Given the lack of apportioning data, the former is actually more rational, defensible.

28 Troll Me June 26, 2017 at 10:02 am

“The same genes that make people unhealthy also make them behave poorly, make less income, and make bad decisions”

Please report back to grade 8 and get back to us in a few years.

29 Troll Me June 26, 2017 at 10:04 am

For example, if I have bad genes for eyesight, this does not cause other diseases (and in fact there would be higher evolutionary pressures towards overall higher fitness in other attributes).

30 HF June 26, 2017 at 11:03 am

It actually does. If you have some allele that causes bad eye sight, its very unlikely that that allele doesnt also affect some other bodily function. And given that it does likely affect another bodily function, its very unlike that it does so in a positive way.

You probably heard in your biology class that mutations are rarely positive. Since each gene plays a role in many bodily functions, its a lemma that mutations are usually negative in many systems simultaneously.

31 Hazel Meade June 26, 2017 at 12:50 pm

We can pinpoint genes that code for eye color. What other bodily functions does that have?

32 HF June 26, 2017 at 2:12 pm

“We can pinpoint genes that code for eye color. What other bodily functions does that have?”

I dont know. I am not sure that anyone does. But based off what we know about human genetics, the default assumption shouldnt be “nothing”.

33 Hazel Meade June 26, 2017 at 2:28 pm

So, we should be able to detect noticeable behavioral differences between blue-eyes people and brown eyed people right? Because every gene codes for multiple things, many of which have behavioral influences?

Same thing for hair color, right? So blond haired people should have obvious behavioral differences from brown haired people, right?

34 Ricardo June 26, 2017 at 5:00 pm

“We can pinpoint genes that code for eye color”

Is that really true? It is certainly *not* true for skin pigmentation, which is affected by many different possible alleles. (A Sri Lankan may have very dark skin — indistinguishable from a Nigerian, even — but it is dark in a genetically different way.) I would have thought eye color would be likewise influenced via multiple paths.

35 HF June 26, 2017 at 7:21 pm

In Response to Hazel
“So, we should be able to detect noticeable behavioral differences between blue-eyes people and brown eyed people right?”

I wouldnt say that.

In Response to Ricardo
“Is that really true? It is certainly *not* true for skin pigmentation,”

How is it certainly not true? If you can identify a gene that causes skin pigmentation, them, I think youve pinpointed a gene for eye color. The genetic mechanism of eye color might vary across populations, but, within each population that gene is one relevant to eye color. Anyway, my understanding is that skin color is determined by a remarkably small number of genes. I think in east asian and european populations, the mutations that cause white skin actually do come down to one gene. Thats unusual, and its a different mutation between the east asian and european populations, but it still comes down to one gene, which has been “pinpointed”.

36 HF June 26, 2017 at 7:22 pm

Oops, I meant “If you can identify a gene that causes eye color, them, I think youve pinpointed a gene for eye color.” in response to Ricardo

37 Hazel Meade June 26, 2017 at 10:05 am

The same genes that make people unhealthy also make them behave poorly, make less income, and make bad decisions.

Oh come on. Ashkenzi jews are smart but also more likely to have Tay Sach’s disease. There’s no reason to think that genetic disorders are negatively correlated with intellegence.
The diseases that are MOST strongly genetically determined are likely the LEAST associated iwth intelligence.

The link, if there is any, is that poor impulse control leads to both poor health and lower incomes. But it’s not clear that poor impulse control is genetic, as opposed to due to environmental exposure to toxins like lead.

38 dearieme June 26, 2017 at 10:17 am

“it’s not clear that poor impulse control is genetic”: possibly but it’s probably the way to bet. Why would it be different from other profound personality traits?

As for health expenditure being high for wealthier under-25s, could it be expenditure on turning mouths into rows of tombstones?

39 Hazel Meade June 26, 2017 at 10:30 am

Lead exposure is known to cause impulse control problems.

Exploiting the rich historical dataset available for the 19 to 24-year-olds in the CLS, Dietrich and colleagues evaluated the association between early blood lead history and arrests, since the age of 18 years, for violent offenses, drug offenses, theft or fraud, obstruction of justice, serious motor vehicle offenses, and disorderly conduct. The covariate-adjusted rate ratios for number of arrests associated with each 5 μg/dl increment were modest, but statistically significant, for prenatal childhood blood lead and blood lead at six years of age. The adjusted rate ratios for arrests for violent crimes were significant, and again modest, for average childhood blood lead and blood lead at age six. In other studies, increased lead exposure has also been linked to attention deficit hyperactivity disorder [16], teen pregnancy [17], and, in animals, to certain forms of substance abuse [18]. The underlying common pathway for all of these associations might be lead’s adverse effects on executive functioning [19–21], resulting in poor impulse control.

40 Hazel Meade June 26, 2017 at 10:31 am
41 HF June 26, 2017 at 11:13 am

Thats like saying that intelligence isnt genetic, because head injuries are known to cause lower intelligence. Its both. Impulse control is largely genetic, and you could induce it with lead poisoning.

42 Hazel Meade June 26, 2017 at 12:31 pm

We don’t really know how much of intelligence, or impulse control, is due to genes versus environmental factors.

My point is that a genetic relationship between low income and poor health is pretty tenuous GIVEN that we can’t really link impulse control to genes. It’s a very indirect genetic influence at best.

There are lots of health problems that have strong genetic links, but there no reason to think those genes are co-located with intelligence genes in the genome.

43 HF June 26, 2017 at 2:10 pm

“We don’t really know how much of intelligence, or impulse control, is due to genes versus environmental factors.”

We do actually, its just not that fashionable to concede right now.

44 Hazel Meade June 26, 2017 at 2:49 pm

You completely missed the fact that lead is KNOWN to cause impulse control problems.
I mean, that’s a well established scientific fact. So, obviously, there must be SOME cases in which impulse control is NOT caused by genes, right?
Or do you think that lead has no effect on cognitive function whatsoever?

45 HF June 26, 2017 at 7:23 pm

>So, obviously, there must be SOME cases in which impulse control is NOT caused by genes, right?

No that doesnt follow at all. Whether or not lead poisoning is a factor has no implication on whether genes are a factor.

46 JonFraz June 26, 2017 at 3:01 pm

Re: “it’s not clear that poor impulse control is genetic”: possibly but it’s probably the way to bet.

No, impulse control is a learned behavior, unconnected to intelligence– since obviously animals can also be trained to control their behavior and delay gratification (for shorter periods than humans however). People who grow up with poor impulse control were raised with a severe disconnection between their behavior and reward/punishment. This is very common among the poor (where there’s not much reward to begin with), but you can also find it among the rich, whose children might be “spoiled” as our grandparents would say– not called to account for their actions. And even among the middle class you can see this effect sometimes when children are raised in dysfunctional homes. It really is as simple as that. In this much at least the Social Conservatives are right: Culture matters. Home life matters.

47 P Burgos June 26, 2017 at 3:20 pm

What about research that finds the the big 5 (OCEAN) personality trait conscientiousness is to some extent heritable?

48 Hazel Meade June 26, 2017 at 6:00 pm

I’m sure there are genetic influences to impulse control and everything else. It’s just far too strong a statement to say that poor health is correlated to low income because both poor health and poor impulse control are literally linked by the same genes.
Really, both have genetic influences, but those genes are independently distributed in the population. Add environmental factors and it’s pretty much a wash.

49 HF June 26, 2017 at 11:08 am

See above, I posted:

“You probably heard in your biology class that mutations are rarely positive. Since each gene plays a role in many bodily functions, its a lemma that mutations are usually negative in many systems simultaneously.”

Its a general rule, so you can find counterexamples like Tay Sach’s disease. Another counterexample is bad eyesight. It appears the same genes that make people smart give them bad eyesight. Smart people usually have worse eyesight, and it cant be attributed to environmental factors. But again, these are the exceptions, not the rule.

Among the genes that do anything at all, most have some role in the brain. Most mutations are bad. Most genes play a role in many bodily functions. The expected consequence of any random mutation is poorer health generally, especially mental health.

50 Hazel Meade June 26, 2017 at 12:32 pm

Smart people have worse eyesight because they spend a lot more time reading.
It CAN be attributed to environmental factors.

51 HF June 26, 2017 at 2:06 pm

It can be attributed so, but wrongly. Its a valid hypothesis that hasnt turned out true.

52 Hazel Meade June 26, 2017 at 2:29 pm

Got any citations for that?

53 anon July 8, 2017 at 12:46 am

It’s lack of sunlight that leads to bad eyesight, not reading.

54 Hazel Meade June 26, 2017 at 12:40 pm

When you are talking about mutations that cause severe mental problems, you’re usually talking about the deletion or duplication of an entire chromosome, not one gene (i.e. Down’s Syndrome). Single gene mutations generally have a pretty specific effect. Not always, but it’s certainly not the case that all single gene mutations are going to have spillover effects on intelligence.

55 HF June 26, 2017 at 2:09 pm

Im not talking about only about severe mental problems, or huge genetic errors. Im also talking about the small mental problems due to single gene mutations (of which there are many between parent and child). I am talking about mental changes that are so mild they could be mistaken for an unattractive personality trait, or very mild mental illness.

56 Hazel Meade June 26, 2017 at 6:09 pm

So if every gene has such effects, there must be billions of such possible effects, randomly distributed in the population, and every one of us has thousands of such mutations. So it’s basically just a random Gaussian distribution of wierd personality traits. How do we decide which one’s of us are “normal”?

57 HF June 26, 2017 at 7:29 pm

” How do we decide which one’s of us are normal?”

How do you decide what a normal height for a 5 year old is? How do you decide what a normal diet looks like? Its not a mystery, just go measure it. Biology is not normative. Its not telling people how to be.

58 JonFraz June 26, 2017 at 3:03 pm

Many mutations do nothing at all: the genes do not code for anything. Others may produce some effect but it’s neither positive not negative in its survival value, at least not under normal circumstances.

59 HF June 26, 2017 at 7:26 pm

Yes thats right. But the probability that they do something bad is much larger than the probability that they do something good. Talking to a few geneticists on this very question, Ive gathered the following estimation: Between parent and child there are about 100 new mutations, pretty small considering how many mutations there could have been. Of those, about half are bad, and the other half do nothing. Among the half that are bad, about 6 are really bad. As in, if you had two copies from each parent you likely wouldnt be alive. The problems of inbreeding come from the high probability of getting two copies of those most recent negative mutations.

60 JonFraz June 26, 2017 at 2:53 pm

Re: The same genes that make people unhealthy also make them behave poorly, make less income, and make bad decisions.

Classic case of assertions made without a shred of evidence offered to back them up.

61 Normal June 27, 2017 at 8:01 am

Agreed. Lots of argument but no evidence.

62 Elan June 26, 2017 at 1:01 am

A ratio of <1 is entirely consistent with the very likely possibility that the poor get sicker more often than the rich and that they're *still* not getting nearly as much treatment as they would like (if, for example, they were gifted a health savings account.) As you can see from the chart, European countries have an even lower ratio, something like 0.5, and I would guess there's even more "health inequality" in the United States.

That said, when I first encountered it, I was astonished because although I was aware of some basic statistics like the fact that the poor die earlier from lifestyle factors, I did not realize just how much sicker they were than the rich.

63 mavery June 26, 2017 at 9:35 am

When you say “Richer” do you mean by income (typically measured annually) or by wealth?

Having high healthcare costs in a given year is likely negatively associated with your income in that particular year. There may also be an association with your wealth, but I imagine its a less strong association. (Since for most folks in this country, their wealth is effectively zero throughout most of their life.)

64 Troll Me June 26, 2017 at 10:06 am

Interesting point.

They way you say it makes it more obviously of relevance than might first seem apparent.

65 Anon June 26, 2017 at 1:03 am

The poor may receive less preventative care and thus get seriously ill more often, leading then to get more (more expensive) care overall. The young experience health crises less often.

The poor are also more likely to have mental health problems that make them poor.

66 Anon June 26, 2017 at 1:04 am

And those mental health problems kick in around 25

67 Lord June 26, 2017 at 9:05 am

Yes, it is a question of how effectively it is spent as much as how much.

68 Dzhaughn June 26, 2017 at 9:22 am

In your model, why doesn’t the ratio increase for the older segment? The spending ratio is essentially constant, according to the study.

69 Troll Me June 26, 2017 at 10:09 am

“The poor are also more likely to have mental health problems that make them poor.”

Or maybe high income people in white coats are biased, in the sense of writing off as mentally ill those with an “east end way of talking” or whose apparel does not meet the psychiatrist’s definition of “proper”.

Remember about that black guy who was a legal scholar from Harvard, but then things went sour and ended up on the streets, and the quacks wrote him off as schizophrenic when he mentioned about his educational background?

70 Daniel Weber June 26, 2017 at 12:25 pm

We need to be really suspicious about “preventative care.” Things that are proven to lower costs and improve results are generally already universally done.

It’s worth investigating, because sometimes there is a ten-dollar bill on the ground there, so it’s an easy win if there. But it’s probably not there.

71 gogo gadget June 26, 2017 at 1:05 am

I would think that the mid quartiles might be more averse to going to the doctor or ER for minor to moderate things — for 2 reasons

1) the lower middle class may be more averse to an expensive ER visit than someone who has no real hope of ever building assets or a positive net worth – the 30-50 percentile for income probably worry more about paying debts back than those in the bottom quintile.

2) for moderate injuries, like cuts on the finger, or bad fevers that may or may not call for stitches and a doctor visit – the poor may feel less security in taking care of themselves at their homes (for a variety of reasons) and so on the margins may go to the doctor more quickly

72 Thin-Skinned Masta-Beta June 26, 2017 at 4:29 am

Exactly what I was assuming.

With government financed health-care paid by Medicaid, I can’t imagine the bottom quintile having as much “restraint” about watching the bottom line like those who have to worry about paying cash out of pocket or deductibles.. or even worse… no cover at all…

For those at the very bottom, in the “not exactly working class,” what incentive has a patient to consider any restraint if an insurer, whether private or public, is paying for the whole thing?

73 Boonton June 26, 2017 at 10:21 am

If you’re not quite a the bottom, a visit to the doctor for something minor is not a costless exercise. Expect to lose a day of work, long waits in a crowded waiting room and rude service. If you just cut your finger you probably would rather opt for a band aid if you could.

But in terms of hard health costs this is not, IMO, a major cost driver. You are discussing simple health interventions that can be done by almost any healthcare professional using cheap, generic drugs and materials. Even if someone insisted on going to the clinic for a finger cut, there’s no economic reason that should drive health costs through the roof anymore than going for a weekly haircut drives the cost of hair salons through the roof.

74 JonFraz June 26, 2017 at 3:07 pm

People with insurance are probably more likely to visit an urgent care center, as I did when I broke a bone in my foot last year. The bills from such a visit will be cheaper. People without coverage are used to going to the ER because it’s the only place that will take them- -and the bills are much larger.

75 rluser June 27, 2017 at 5:43 am

Untrue. There may be ignorance which causes some to hit the ER instead of the Doc (or Nurse Practitioner) in a box, but you are making poor assumptions about the uninsured.

76 JonFraz June 27, 2017 at 2:30 pm

First off, an Urgent Care Center is NOT a “Doc in a box”, by which I assume you mean something like a CVS Minute Clinic where nurse practitioners can diagnose and treat simple problems (or send you somewhere more appropriate). Urgent Care Centers are what the name says: for treating things that are not life threatening but also cannot be put off until the next available appointment with your doctor later in the week.
They are Also not ERs, and are not obligated by EMTLA to accept patients. If you cannot show ability to pay you can and will be shown the door and probably directed to the nearest ER.
I will be charitable here and assume you do not live in the same timeline as the rest of so this sort of thing is unknown in your world. In this one however the uninsured and impecunious only have guaranteed access to the ER– and this drives up spending on their healthcare.

77 PF June 26, 2017 at 1:43 am

I would suspect the difference in under 25yos may be pushed by NICU stays. Wealthier people have more fertility assistance and therefore more multiples that end up there for a bit after an inevitable premature birth. That gets to seven figures very quickly and does not require high frequency to distort some numbers.

78 Techy June 26, 2017 at 10:42 am

+1 to this, sadly.

Also, It’s worth pointing out that a small number of very poor people cost consume a lot of pricey sickness care. I worked through Business School as a paramedic and we spent a lot of time taking homeless people to ERs largely because they fell down while drunk. The amount of time spent drunk (btw I am not a teetotaler and don’t object to drinking) is a big risk factor for urgent care needs.

I think causation runs almost entirely from sickness to reduced income even excluding the homeless and alcoholism (which are a big part of this result) for a small number of people who are affecting these results. Someone born with Cystic Fibrosis will need a million dollars worth of health care before they’re thirty and a having such a child will demand a lot of the parents’ time and energy thus reducing career advancement.

79 Hoosier June 26, 2017 at 2:05 am

Good topic, but the real debate is how much of the possible actions outlined above are to be taken care of by the government, and how much by private charity? My reading of conservatives on this is that government should have limited to no role, and that charity is the way to help the poor- if they’re to be helped at all.

Admittedly, they claim that government can’t provide care or services of any value, so the only way to help the poor is through promoting private initiatives and getting the poor to take care of themselves, But that would mean abandoning initiatives above like “Let’s stop or at least limit poor people from getting sick so many more times.”

80 Thanatos Savehn June 26, 2017 at 2:10 am

Poor folks ‘got poor ways.

PS An HR friend jokes “our motto is ‘no fat chicks'”. Yuge drivers of a firm’s healthcare spend.

81 Captain Obvios June 26, 2017 at 3:37 am

Depends on age….if they are young I don’t think they will sick often.

82 Troll Me June 26, 2017 at 10:12 am

What about the fat guys?

83 Troll Me June 26, 2017 at 10:12 am

He said it’s a money question, right?

84 Fred Bush June 26, 2017 at 2:41 am

So according to that article 5-10% of lifetime medical costs are in the last year of life, and the poor have a significantly shorter life expectancy than the rich, I think 10+ years. That means that if you compare them by age cohort the poor are disproportionately going to have end-of-life costs factored in.

85 byomtov June 26, 2017 at 9:49 am

Good point.

86 prior_test2 June 26, 2017 at 10:05 am

And do note that ‘the numbers exclude long-term care for the elderly’ – the poor do not receive anywhere near the same level of long term care when elderly.

87 Jonathan June 26, 2017 at 10:33 am

The problem is that a large part of long term care isn’t medical spending… it’s hotel rent.

88 prior_test2 June 26, 2017 at 1:33 pm

Depends on how you look at it, I suppose – there is a spectrum between assisted living and a stroke victim unable to move being take care of essentially 24 hours a day and someone with ALS unable to vacuum their lungs by themselves every hour or so, in part to keep the risk of lung infection lower, and in part to keep from drowning in the fluids that have accumulated in their lungs since they can no longer cough at all.

You are not wrong, but there are likely 10,000 or more ALS patients who fit the above description – and who are likely excluded from this study.

89 prior_test2 June 26, 2017 at 2:04 pm

Or maybe not ALS patients, precisely, on rereading – they tend not be end up as elderly. Nonetheless, it seems likely that enough people suffering from Parkinson’s end up in a roughly comparable situation at the end of their lives.

90 Matt June 26, 2017 at 3:05 am

How much might be that the well to do have good insurance plans that have negotiated lower costs for services. The poor pay, or “pay” (as in, are charged, but may not actually pay in the end) “full freight” for the services, because they are not covered by insurance that has negotiated a better price? Of course, this isn’t everything, but I’m surprised it’s not noted above. (It would go in as another example of the high cost of being poor.)

91 Amigo June 26, 2017 at 4:17 am

Insightful comment. Makes me wonder if there’s a standardized “cost of care” index independent of insurance negotiated rates. Perhaps it can be segmented by insured vs. uninsured costs for each group.

92 steve June 26, 2017 at 8:13 am

Also poor receive much of their medical care from the emergency room, which is far more expensive.

In keeping with the prior note, do the numbers reflect the amount billed, or the amount actually paid? If the former, it reflects hugely exaggerated bills from emergency rooms and other hospital bills.

93 Picador June 26, 2017 at 11:20 am

My first thought as well. The post ignores the elephant in the room, it seems to me: the much greater EFFICIENCY of health care provided to the rich. Which is one of the big arguments in favour of universal health care: if poor people have free visits to PCPs, their health care expenditures are likely to DECREASE significantly, because they will be relying on low-cost preventive care for most issues instead of ERs,

94 Picador June 26, 2017 at 11:27 am

I should add: I can’t find comparable data from Canada, but the trend that does jump out from Canadian data is that healthcare expenditure per capita in the remote northern territories is MUCH higher than in the provinces: about 2-3 times as much. It may be worth considering that many low-income Americans living in rural regions may have greater than average health costs due to the expense of maintaining medical facilities and paying doctors to work in the sticks.

95 Daniel Weber June 26, 2017 at 2:45 pm

It’s very hard to find preventive care that isn’t already being done, even for the poor.

You are welcome to look, but a lot of people have already looked before you, some of them the people who are responsible for the end bill and have every incentive to find the ten-dollar bill everyone else has missed.

96 Ricardo June 26, 2017 at 5:06 pm

“because they will be relying on low-cost preventive care for most issues instead of ERs”

Many conditions treated by ERs would not be improved by preventative care. Cancer, for example, is not treated in an ER. Show up at an ER (without insurance) with a bleeding tumor and they’ll put a bandage on your wound, but they won’t give you chemo.

97 Sure June 26, 2017 at 8:20 am

Virtually nothing.

The poor typically are covered by Medicaid. In every state except Alaska, Montana, and North Dakota, Medicaid pays only a percentage of what is paid by Medicare. Medicare has a Resource Based Relative Value Scale that establishes basic prices depending on the complexity of the medical procedure and adjusts for local costs (e.g. NYC is higher than Indianapolis). This establishes what Medicare will pay for a procedure. Typically, and often by statute, Medicaid payments are a percentage of those values. Nationally Medicaid reimburses at about 66% of Medicaid.

This price differential results in a substantial minority of physicians and other healthcare providers not serving Medicaid recipients; this is sufficiently bad that scholarships exist which will refund the full cost of medical school (call it $250,000) if a physician will accept Medicaid patients at their practice in a less desirable location for a few years (typically four). These scholarships are generally poor value for physicians concerned with maximizing compensation, but they do front load compensation. When you have to resort to such measures it should give you an appreciation of how poorly Medicaid pays.

As Medicare covers the old who are by far the wealthiest the cohort in American society, the price per procedure for the upper quintile will be dominated by the RBRVS. Due to the lack of overhead in Medicare, more procedures are covered with more providers.

Private insurance typically reimburses at higher rates than even Medicare per procedure, but they are not typically as large of a driver of care consumption. With Obamacare even the stingiest plans are so heavily subsidized by the government and enroll such a small percentage of patients that they do not change this basic calculation.

As far as paying cash, pretty much everywhere cash payers get billed at discounted rates, not increased rates. This is because cash removes a huge amount of overhead needed to process, dispute, and haggle with insurance companies. There is no need for prior approvals, which suck down MA and MD time. There is no delay in payment which may require selling the debt to improve cash flow, there is no ability of the patient to skip out on the bill or go bankrupt. It has gotten so bad that many patients are having to choose between paying cash or going through insurance that has a high deductible. If they pay cash and are healthy they save money by not using their health insurance if they are healthy. If they pay via insurance, they lose cash now but will more quickly top out their deductible if they become sick again.

So long story short, no the poor get some of the cheapest medical care per procedure in the country. This may affect quality, but as you move up the income ladder your health care only tends to get more expensive (there is a small exception for people who are totally self-pay, but they are still pretty small in bulk numbers) per procedure.

98 JWatts June 26, 2017 at 10:15 am

+1, informative post

99 Oreg June 26, 2017 at 10:24 am

Very insightful. Thanks!

100 Matt June 26, 2017 at 10:58 am

As far as paying cash, pretty much everywhere cash payers get billed at discounted rates, not increased rates. This is because cash removes a huge amount of overhead needed to process, dispute, and haggle with insurance companies.

I think you’re confusing different sorts of “cash payers”. Look closely at the “explanation of benefits” for, say, your dentist the next time you get one. Even if a person with no insurance managed (somehow) to haggle down the cost of a necessary root canal, it wouldn’t be as much as my (just okay) insurance does.

101 Sure June 26, 2017 at 12:19 pm

No, I am on the provider side and every single hospital for which I have worked charges cash paying patients less than insurance paying customers. I have met many patients who elect to pay cash because they are unlikely to meet their deductible and this is cheaper.

Take a simple example. Your PCP finds a nodule on your throat and your blood work comes back with high calcium. You hit a high PTH titer so you go the ENT and he tells you need surgery. Medicare will pay around $1000 to the surgeon and around $4000 to the hospital. Those numbers are of course adjusted for locality and complexity (e.g. if you need to explore under the sternum that jacks up the price), but assume this is the baseline. The “list” price may be around $2000 and $8000; everyone gets below that by a lot. Private insurance might come in around $1200 and $4800, but not a whole lot different.

Because at the end of the day if the surgeon and hospital are not making money off operations, they will not due them. So assume they are making a profit off parathyroidectomies at Medicare rates. Okay we know the revenue, what are the costs? Well the surgeon needs to have very pricey malpractice insurance, he may need to pay an admin assistant, a medical assistant, a separate surgical scheduler, and often a billing assistant. If you pay cash, he does not have to pay his MA to call the insurance company for prior approval, his admin does not have to print & fax as many forms, and he does not have to spend time talking to insurance. Afterwards, his billing assistant does not have to figure out which paperwork (because every insurer is different) to send. That can all easily hit north of one hundred dollars in time spent (and remember all these support staff need to be paid, their benefits pro-rated, and all applicable taxes taken out). The surgeon still is not paid though. The bill will go to the insurer and they will decide if they will pay it, if they will send it back for more documentation, or if they will merely forward it on to the patient (e.g. the patient has $7000 left on their deductible this year).

Option one is dandy and honestly does happen most of the time. But option two is common enough that you can figure on maybe another fifty bucks in time being burnt. Option three is scary one for physicians. Patient can end up bankrupt, they can have a whole slew of creditors ahead of you, or they can have simple things like moving out of state so their kids can care for them. All of these mean you are not getting paid. So you can either eat the loss, go hound your patients yourself to get paid, or take by far the most common route and sell the debt to someone else at a discount.

No consider cash payment. You offer the physician $800. He does not need to fill out insurance paperwork, nor does anyone in the office have to waste time calling an insurer. If you pay up front it does not matter if you have other debts with seniority or if your address is lost during followup. The expected cost for physicians drop dramatically with cash payment. He would be a rank idiot not to split the difference and give you 10% lower prices given you are handing him 20% lower costs.

The same story plays out on the hospital side.

And think about it, why would the insurance company cost less? It takes more time to do up their paperwork. You have more restrictions about where you can perform procedures, which drugs are on the formulary, and which techniques the surgeon can use. What insurance offers is volume. If you do not play ball with insurance, then you lose a wide number of potential customers and if you have slack in your practice that is far more costly than a volume discount. Doctors should only give bulk discounts when they would otherwise have insufficient Relative Value Units and need more patients in play.

And this is exactly what we see. Young docs are vastly more likely to see Medicaid patients (who pay the worst per RVU) as they have slack in their practice still. Areas with many competing health groups see steeper insurance negotiations, as is also the case for areas that have fewer insurance players in the market.

But places where the bulk discount makes sense are diminishing. Look at an average place like Greenville, SC. Greenville Health Systems has just announced a merger with Palmetto. Why? To reduce competition and overhead. In many places there is no longer meaningful competition among healthcare providers. Bulk is meaningless when you have over 95% of your beds full.

So yes, you absolutely can easily get cheaper rates paying cash. Every hospital I have ever worked for does it.

102 JonFraz June 26, 2017 at 3:17 pm

I agree that hospitals and doctors are not all stone-hearted Simon Legrees and they are often willing to write down larger bills for people in financial distress. However only a fraction of the population can offer cash (or even a credit card payment) for a major medical expense. Certainly the poor can’t.
And I am very skeptical that if I marched into my doctor’s office and told the office staff “If I pay cash will you charge me even less than what you settle with my insurance for?” the answer would be Yes.

103 Sure June 27, 2017 at 6:26 pm

Depends on the doctor. Some insurance companies make the doc sign that they will not offer services for less than they charge the insurance company (I have not seen one of those in a while and I am sure they are not valid in all states). Most offices are no longer independent and they have rules about charge rates (often to prevent competition between docs in the same health system).

But give it a go. Hospitals and docs do not give a cash discount because they are charitable; most cash customers are not poor as again those below the poverty level typically are on Medicaid (mileage varies by state and if they have expanded Medicaid eligibility). Hospitals and docs give cash discounts because we do not have to pay billing costs. 0% of up front cash customers will need to go to collections. Historically hospitals managed to recoup (either directly or from selling debt) about 50 cents on the dollar for patient bills and about 90 cents on the dollar for insurance billing. With Obamacare favoring high deductible plans like crazy more and more hospital bills end up in the first pile. Depending on the insurance mix in your area you can get quite steep discounts because you are offering to pay 100% of the bill up front.

Responsible people who are going to pay their bill regardless, they may learn about this and opt to gamble by not going through insurance. I had two of them today in the emergency. They were both solidly middle class based on profession, both insured, but both had insurance that follows the school year and odds are they are not hitting their deductible this year for anything. They did not use their insurance because they believe they will save money this way.

Paying cash is only more expensive when you have a large imbalance of power towards a couple of insurance companies. Working with insurance companies sucks down man hours and is a pain in the ass for everyone who has to do it. Unless volume concerns come into play no medical provider would EVER charge more for cash.

In the old days, sure you would be absolutely correct. We had thousands of practices, many competing hospitals, and large scale employers who controlled all the volume in town. Being out of network for a major insurer would leave beds empty and appointments open. These days? Independent practices are largely being eradicated, hospital groups are getting ever larger and they can tell insurers to pound sand (e.g. Medstar has half the Baltimore/DC hospitals). The insurers, of course, have responded with aggressive merging as well. Today both sides have inordinate power and exactly who is winning changes from time to time; but for a large number of places you just do not need to give volume discounts to fill your beds.

104 Ted Sanders June 26, 2017 at 3:07 am

I really wish we measured wealth by something other than annual income. If I’m wealthy, get cancer, and quit my job, my wealth hasn’t disappeared. I’m just choosing not work during chemo or during my final years. Income is not wealth.

105 Nick Bradley June 26, 2017 at 3:43 am

Wow, just wow. You never stopped to think that causality runs the other way? That many poor people are poor because they’re sick? That the extremely sick are also extremely poor?

Sorta by definition, but old people in nursing home consuming massive amounts of Medicaid – soon to be snuffed out by the GOP – have no assets or income.

All those lucky duckies on disability that can’t work…what’s their income bracket?

106 Amigo June 26, 2017 at 4:13 am

see his 4th paragraph: “…and furthermore sick people are more likely to lose income”

107 Nick Bradley June 26, 2017 at 7:00 am

No – it’s not really discussed at all – and that is my point. It’s just in there to cover his ass while he discusses a bunch of things he feels like talking about…while it’s such a huge factor that the rest of his analysis is rendered pointless

108 The Other Jim June 26, 2017 at 8:22 am

Well Nick — at least he left out the fact that some terrible life choices will make you poor and some terrible life choices will make you sick. And it shouldn’t shock anyone that people prone to the first may well also be prone to the second.

You may have needed your fainting couch if he mentioned this.

So give him an attaboy, why don’t you.

109 prior_test2 June 26, 2017 at 10:10 am

Driving a car is a terrible life choice, and I am certain you would be one of the first to agree that anyone injured while at the wheel of a car deserves absolutely no medical care apart from what they pay out of pocket, right? Look at this number of preventable deaths and injuries (do note the definition of injury, however) – ‘The United States is on track to have its deadliest traffic year since 2007, the National Safety Council says, with nearly 19,000 people killed as a result of motor vehicle accidents between January and June—a 14 percent increase over the same period last year. The number of injuries and the costs associated with traffic accidents also rose significantly, according to estimates from NSC’s statistics department released Monday.

Nearly 2.3 million “serious injuries,” which the NSC defines as those requiring medical consultation, were sustained during the six-month period, up 30 percent when compared with the first half of 2014. In a similar upward trend, the estimated costs of these crashes—including medical expenses, wage and productivity losses and property damage—increased 24 percent, to roughly $152 billion.’

110 Ricardo June 26, 2017 at 5:10 pm

The expected value of driving a car is positive. (Yes, you might die, but it is much more likely that you will be able to commute to a higher paying job than those within walking distance of your home, and you’ll come out ahead, on average.) The expected value of a steady diet of junk food is negative. That is the difference.

111 TMC June 26, 2017 at 9:23 pm

“anyone injured while at the wheel of a car deserves absolutely no medical care apart from what they pay out of pocket, right?”

Don’t really understand insurance, do you?

112 CG June 26, 2017 at 11:14 am

BS. People are poor because they make terrible decisions with money for an extended period of time so that when bad things happen they’re not in a position to deal with them. If you’re bankrupted by a medical procedure or expensive set of treatments then you probably made some bad financial decisions leading up to that point, including spending beyond your means, not taking on extra work when available or deciding not to prioritize proper health insurance coverage in the household budget. Nobody on the left is willing to acknowledge this because there is such a strong aversion to anything that resembles “blaming the victim”. And somehow it’s controversial now to say that people end up where they are due to the decisions they make.

113 JonFraz June 26, 2017 at 3:20 pm

Even the ancients were wise enough to know that random chance– the fickle Goddess Fortune in their world view– has a huge effect on human life. It takes a sheltered and shielded Pollyanna in an ivory tower wearing the densest of rose-colored glasses not to see that this is indeed life.

114 TMC June 26, 2017 at 9:25 pm

You are right, in both bad and good in life, but CG is right 90% of the time. Good luck favors the prepared.

115 JonFraz June 27, 2017 at 2:31 pm

And you have performed experiments that prove this 90%? That would make for an interesting dissertation.

116 Thin-Skinned Masta-Beta June 26, 2017 at 4:21 am

Would most of the bottom quintile be eligible for Medicaid and other government financed health care schemes?
Acquaintances who are doctors have explained that while reimbursement by Medicaid can be stingy, they often prefer it to many private employer based insurers that get very complicated or stubborn about reimbursing therapeutic procedures or pharmaceuticals that Medicaid covers without problem. Would be interested to hear more testimonial / evidence.

Finally, while it’s obvious the sick and infirm will not be earning well while weakened or otherwise incapacitated by their condition, there is certainly something to the impolitic truth that stupidity penalizes not just in poverty but also in ill-health. Irresponsible, reckless or plain stupid behavior make it not only hard to prosper and build savings but risky, unwholesome and unhygienic lifestyles also cause illness and injury and then delay in treatment results in even more serious health complications. Sure we can have compassion for those who suffer the consequences of their own mistakes, but if one lives a “Tobacco Road” lifestyle, it should be no surprise that one’s both poor and in bad health.

117 PTB June 26, 2017 at 5:52 am

Wondering… and having difficulty articulating: to what degree does the health care spend measured take into account that the poor quintile spend consists of government programs whose relative rigidity, reliance on public administration monitoring of costs, and relative inefficiency may permit more money to be extracted, vs. the rich quintile spend which consists of either out of pocket or private insurance outlays which are more closely monitored for relative inefficiency?

118 Evans_KY June 26, 2017 at 6:57 am

From my experience, the poor are more likely to end up waiting for care and using emergency rooms for all treatment. Many are unaccustomed to how the medical apparatus works and how to be efficient in its usage. Headaches, toothaches, and oftentimes attention/company.

#3 is definitely a factor but I would also add inexperience. If you gave a poor person a million dollars would they act like a richer person by investing a large portion? Or would they blow it on frivolous things and their family members? We assume they would act rationally but if they do not have the experience with money, they may not.

Not to mention those in deep poverty who have slipped between the cracks of the safety net.

I once listened to a political hack compare health care shopping to buying a television. There are so many factors that are hidden from the average shopper. Definitely not like buying a TV.

119 JWatts June 26, 2017 at 10:25 am

“I once listened to a political hack compare health care shopping to buying a television. There are so many factors that are hidden from the average shopper. Definitely not like buying a TV.”

I think that was one of the best features of Obamacare. A more standardized, easy to use web site for purchasing health care.

120 Daniel Weber June 26, 2017 at 2:47 pm

While I think Obamacare made the system unstable, it really is so much easier to buy insurance on the private market now. It took me about 2 minutes and I didn’t stress if I had forgotten to list my bout with acne 20 years ago.

121 Doc at the Radar Station June 26, 2017 at 7:02 am

#3… Need to separate the working poor from the non-working poor (25-64 year olds). You might find most of the increase in health care expenditures is coming from *injuries* related to work.

122 rayward June 26, 2017 at 7:47 am

Nearly half (45%) of Americans suffer from at least one kind of chronic illness. More than two-thirds of all deaths are caused by one or more of five chronic illnesses (heart disease, cancer, stroke, COP, and diabetes – the big five). As several commenters point out, chronic illnesses not only cause much higher health care spending but much lower levels of income. Indeed, that fellow at the low end of the top quintile making a little over $100,000 per year who contracts a chronic disease will soon find himself in a much lower quintile, as his income drops and his savings are depleted due to recurring high annual deductibles and copays. Obamacare helped those with chronic illnesses by eliminating the lifetime cap but still left them vulnerable due to recurring high annual deductibles and copays. The Senate version of health care reform would restore the lifetime cap. It’s chronic illnesses that are the cause of the health care crisis. And the big five chronic illnesses that are the cause of two-thirds of deaths don’t even include old age, which I consider a chronic illness because there’s no cure for it. With an aging population, chronic illnesses will be cause for an even greater health care crisis even if medical science achieves advancements in the treatment of the big five.

123 Sure June 26, 2017 at 8:38 am

Age drastically increases the risk of each of the top five chronic illnesses. So much so that it dwarfs pretty much all other factors in impact analysis. By far, the best single predictor of general cancer risk is age. For heart diseases, age is again so terribly strong that you will very likely be misdiagnosed if you are too young.

Obamacare did pretty much jack-all for chronic disease expenditures. The vast, vast majority of chronic disease spending occurs in Medicare. For instance, the average age of diagnosis with diabetes is around 54. Medicare eligibility occurs at 65, so at best our average diabetic only has 11 years of private expenditure. Of course, 54 is an age group extremely likely to have employer provided health insurance, but ignoring that you have only 11 years of treatment costs before Medicare takes over. The vast majority of diabetics will live at least 20 years. And the vast majority of their medical costs will occur in the final years as their disease progresses to truly costly complications.

For the first few years, you can typically respond well to drugs (cheap) or basic insulin (cheap). For the final years you get fun things like surgery (expensive), falls (really expensive), and dialysis (astonishingly expensive).

This pattern is repeated for most chronic conditions. There are, of course, thousands of people for whom this progression does not hold, but statistically they do not impact aggregate spending patterns that much.

124 Mike W June 26, 2017 at 10:20 am

“Obamacare did pretty much jack-all for chronic disease expenditures.”

What does that mean?

125 Sure June 26, 2017 at 12:51 pm

Obamacare dealt mostly with the individual insurance market. This is a relatively small piece of the American healthcare system. Most Americans are insured through private employer provided insurance, Medicare, and Medicaid. A 100% swing in costs for people with individual health insurance has only a small change in aggregate expenditures.

One part of Obamacare, referenced above, does eliminate lifetime caps. These are largely irrelevant. The average American is still (I think) short of $400,000 in lifetime healthcare costs. Lifetime limits were typically above $2 million so the vast majority of Americans would never hit them. Beyond that for chronic diseases the timing of expenses is very important. Once you hit 65 you go into Medicare. For something like diabetes you are likely diagnosed in your 50s. You will incur most of your expenses in your late 60s, 70s or 80s. Even for someone facing $3 million in costs if half of the costs fell after age 65 you would again be fine. But what about someone who incurs big bills when they are younger? Well Medicare disability kicks in after 3 years or so of disability, this again removes a large slice of the patient population as $3 million in healthcare tends to disrupt your ability to work.

Were there people who got screwed by lifetime limits? Absolutely. People with freak cardiomyopathy that needed heart transplants and took poorly HLA matched donor organs in their 30s went bankrupt, leaving the costs to the hospitals who then passed it on to everyone else who gets healthcare. But their numbers are relatively small and for a few billion in direct expenditure the problem could go away. We have not seen a large drop in overall bankrupcy numbers and we have not seen a drop in the numbers of people with chronic conditions.

Obamacare increased access to health insurance, it does not appear to have done much to change cost trajectories or change mortality.

126 JonFraz June 26, 2017 at 3:24 pm

Re: Lifetime limits were typically above $2 million so the vast majority of Americans would never hit them. B

If it’s not a major issue then did insurance companies bother with them?

127 Sure June 27, 2017 at 6:42 pm

Fraud and adverse selection.

Say I know I have one of those $2 million diseases (e.g. I have blood work off the books). I sign up for insurance, swear I have no known preexisting conditions, and then let insurance pay for my quite extensive claims. I, of course, will pay a pittance and rack up huge bills.

One bright guy at one insurance company says, you know if we have a lifetime limit we can stop this sort of fraud from happening to *us*. So they write it into their contracts. Everyone committing this sort of fraud goes with a competitor. This is a slight increase in your bottom line and a slight decrease for the competition.

But the competition is normally not dumb either. They track their claim trajectories and actually read your policies. It does not take a rocket scientist to note that adding that lifetime limit will dump these problems to yet another competitor.

As an added bonus, people who are not committing fraud but are worried (for whatever reason) that they might end up over the limit go with unlimited policies. This is an added bonus as it removes some hypochondriacs and some people with family histories that increase risk.

Eventually you end up with two pools – those shopping for unlimited coverage and those shopping for typical needs. If you were silly enough to offer a policy aimed at both, then you would see adverse selection of the high risk individuals in and the low risk individuals out. This is very bad for your insurance company.

But for the system as a whole? Not a huge issue. Once one guy did it, they all did it, and equilibrium was reached again. After all why were the typical caps around $2 million instead of $1 million or $5 million? Because $2 million was a nice round number that gave average people peace of mind. If it was about saving expenditures, $500,000 is far more effective price point, you will actually have a substantial number of bills you get to walk away from … it just pisses off way more people/people do not think it is large enough to make them “safe”.

Again remember, this was back before the Obama era mergers. Holding the bag for the most expensive 1% of the patient population may well have been 20% of your customers. This is also why the insurance companies did not give a rat’s ass about eliminating these caps (beyond some general pro forma bitching which they did about everything) – if everyone has to do it, the risk is spread among all competitors. Lifetime limits were a collective action problem, not a particularly large financing problem.

128 Ricardo June 26, 2017 at 11:18 am

PPACA created an institution called the Independent Payments Advisory Board (IPAB) to find ways to arrest the growth in Medicare spending. I am not sure what the IPAB has been up to over the past few years (or even if its recommendations would mean anything with Republican majorities in both houses of Congress) but if you google it, you will find some hysterical denunciations of it by various right-leaning authors.

129 Sure June 26, 2017 at 12:35 pm

IPAB has done jack-all. No one was ever appointed to it and it was not triggered in 2016 because Medicare expenditures did not rise fast enough to cross the threshold. Even in the best CBO scoring its effects were scored as less than .5% expenditure reductions relative to baseline projection by 2021.

The only on the ground effect I have seen is that the hospital carve out until 2020 made it even easier for hospital based healthcare systems to consolidate providers.

PPACA did take some money out of Medicare expenditures and it did increase coverage rates. It has not, however, appreciably altered mortality rates or most of the other relevant health metrics (e.g. obesity, blood pressure). Unlike Romneycare, we are not seeing a huge change on the consumption side. What is changed is who is paying for the same or increased healthcare consumption.

Frankly, I am highly skeptical that IPAB was ever more than CBO window dressing. The NICE in the UK has been having vastly higher rates of medical inflation in the UK than Medicare has been having in the US. The NICE is empowered to cut and limit costs vastly more than IPAB could dream of, yet they cannot contain costs.

130 Mike W June 26, 2017 at 10:15 am

“Nearly half (45%) of Americans suffer from at least one kind of chronic illness.”

That sounds like a campaign sound bite. “Chronic illness” that requires a doctor’s attention…e.g., asthma…or something that can be treated at the Minute Clinic or with over-the-counter pharmaceuticals…e.g., seasonal allergies?

131 JonFraz June 26, 2017 at 3:29 pm

I have asthma, well controlled. I visit a doctor twice a year. I had a prescription inhaler. *Maybe* the asthma makes me somewhat more susceptible to other respiratory illnesses requiring a visit to the doctor and additional Rx. (I do seem to get bronchitis more than most people do). My total healthcare spending in an average year is still under $1000.

132 Edward Burke June 26, 2017 at 8:01 am

#6. What else?

Best question of the lot, not that mine rises to the challenge necessarily, but: what is it about health care availability and delivery in the US that exempts so many of its constituent elements and features from the regulation of “the marketplace”? how has it come about that the Federal and state governments have HAD to intervene in health insurance markets, drug pricing, “reimbursements to health care providers,” et cetera, et cetera, et cetera? (We could also wonder about the need for government licensures, accreditations, etc.)

Economic historians: when did the US health care system make the transition (specify the decade, or the year, if you’re that good) from “market regulated” to “state regulated”? In this era of high-tech health care delivery and Star Trek suites of diagnostic and treatment and pharmaceutical options, CAN or COULD the US health care system return or be returned to “marketplace regulation”?

The failure of both Senate and House bills that I have been given to understand is that the Federal government keeps its mitts on this 15%+ sector of the US economy, and for the life of me (good or ill locution there) I don’t understand why that should be promoted or deemed desirable, how it has been allowed to happen, what really prevents the return to robust market functionality, or whether at this stage such a return is simply “not realistic”? (Quite obviously, I am no economist.)

133 Troll Me June 26, 2017 at 10:49 am

Why have to intervene in health care markets.

a) because markets often tend towards uncompetitive practices in ways that lead to underserving certain populations.

b) because of labour market aspects where people will individually tend to underinvest in their health care in ways that imply opportunities for net social gain through subsidization of health care.

c) Because some people don’t need to see a sick person right in front of them to think that a sick person in the wealthiest time and place in human history should go without access to basic health care services. (We’re not talking million dollar cancer treatments, for example.)

Of course, that does not imply that any particular intervention or strategy should be necessarily supported just because of those things. They must be compared with other feasible options.

Don’t know about the second question.

For the third one, outside of the USA, an extremely common belief is that the main reason for the high cost of health care in the USA (reflected as the 15% of GDP you refer to) is mostly due to private markets, and is considered as a silly, deadly, and extraordinarily expensive alternative compared to approaches used by most other advanced countries.

134 Hazel Meade June 26, 2017 at 11:14 am

a) because markets often tend towards uncompetitive practices in ways that lead to underserving certain populations.

Not everyone agrees that’s true. Very often there is some sort of distortion caused by government intervention in the market.

c) Because some people don’t need to see a sick person right in front of them to think that a sick person in the wealthiest time and place in human history should go without access to basic health care services. (We’re not talking million dollar cancer treatments, for example.)

Actually, we ARE talking about million dollar cancer treatments. The ACA specifically forbids lifetime limits on payouts.

135 Oreg June 26, 2017 at 10:50 am

It’s a question of values. Some people think that everyone, independent of income or wealth, should have access to health care, typically in a limited range of effectiveness and urgency. Others think, if you can’t afford that life-saving health care, that’s bad luck, not my problem. And then there is the additional question of how far basic health expenditures should be allowed to affect an individual’s finances.

Different values lead to vastly different policies.

136 Hazel Meade June 26, 2017 at 11:08 am

There’s a significant number of people who think that not only should everyone have a “limited” access to health care, but that any attempts to limit such access are immoral and evil and that everyone deserves the same high standard of care as the wealthiest people in the country. We already have basic health care for the poor (Medicaid), the debate is really over whether lower-middle-class people should be allowed to go bankrupt over medical bills or not. And there are many advocate who think that narrow provider networks, high deductibles and so on are evils that should be eventually eliminated. In other words, that everyone (except maybe the very poorest people) should have access to high quality care, at a low deductible, and at a low insurance premium.

137 Viking1 June 26, 2017 at 11:46 am

There is this idea that grabbing one doctor, and making him a slave, for the need of those that need treatment is immoral, but confiscating 10% of the output of 10 peoples labor is somehow OK.

138 JonFraz June 26, 2017 at 3:34 pm

No one advocating making anyone a slave.

Taxes are not “confiscation”.

Lurid hyperbole adds nothing to these discussions.

139 prior_test2 June 26, 2017 at 1:49 pm

‘There’s a significant number of people who think that not only should everyone have a “limited” access to health care, but that any attempts to limit such access are immoral and evil and that everyone deserves the same high standard of care as the wealthiest people in the country. ‘

Well, basically all Germans believe that, with a couple of caveats –

1. resources are not infinite, so you get the standard of care that pretty much else gets for your condition, which could be considered an ‘attempt to limit’ care, though that is most certainly not how it would be viewed by Germans – there is only so much to go around, and as long as it is distributed fairly, everyone accepts that reality quite easily
2. the rich are more than welcome to spend as much money as they wish getting health care – after all, the entire German health care system is basically private. The point is what is the bottom floor for everyone, not that there is somehow a limit for a billionaire to spend on health care. To use a dental care example – apparently, there are dentures that cost a few thousand, and there are implanted replacement teeth that cost tens of thousands of euros. Basically, the only way to get such implants is to be pay for them extra- which everyone considers completely acceptable, and not something that is ‘immoral and evil.’

140 Hazel Meade June 26, 2017 at 2:47 pm

Well, there are a lot of people who want to go much further than the German system. In Canada, many people object ot the very idea that rich people be allowed to spend extra on their own medical care, because that would create a “two-tier” (that is unequal) system. Private fee for service clinics are considered very controversial.

141 prior_test2 June 26, 2017 at 3:49 pm

‘Well, there are a lot of people who want to go much further than the German system.’

Sure, but not that many of them are Germans.

‘In Canada, many people object ot the very idea that rich people be allowed to spend extra on their own medical care, because that would create a “two-tier” (that is unequal) system.’

There is always a certain amount of tension in such things. For example, most Germans reject the idea of selling organs, while Prof. Tabarrok seems to feel that it is a fine way for someone needing a bit of cash to make a market transaction. There is actually a couple of related scandals going on right now in Germany concerning manipulation of organ donor list priority, in return for whatever it was that motivated the manipulation, which was not exactly a direct money transfer – it is not unlikely that a couple of doctors/administrators are going to jail, and the damage to the organ donation was noticeable with a drop off in people being willing to donate organs, which prompted a fair amount of action to get donation levels back to the pre-scandal levels.

‘Private fee for service clinics are considered very controversial.’

This is most definitely not the case in Germany. Though in part that is because the difference between being a ‘private’ patient and a ‘normal’ patient is simply not that large in most cases. To give one almost amusing example – a ‘private’ patient expects to be treated by the head doctor, while everyone else is treated by whatever doctor is available – and as noted here, younger doctors may be better than older ones.

142 Oreg June 27, 2017 at 4:59 am

Hazel, note that I talked about thresholds in effectiveness and urgency, not cost. Those are also the metrics the German system considers.

I wouldn’t recommend the German system as a model, though, as it is convoluted and inefficient. It segregates the richest 10% into a private system, while in the public insurance system for the rest of the population the middle class is left to cover the bills for the poor.

143 Mike W June 26, 2017 at 8:34 am

Beyond just the issue of health care, the broader question presented here seems to be about how public policy questions do…and should…get resolved.

“I see a lot of pretty aggressive intuitions out there, mostly without serious justification or without any presentation of what the stopping point should be.”

And it doesn’t appear that there will be any rational “presentation” but rather that the question will be resolved through “mood affiliated” advocacy and negotiation. The rational thinking of economists seems merely to provide ammunition for each side’s “aggressive intuitions”.

144 Sean June 26, 2017 at 8:55 am

Drawing on my own experience here, it seems that the ability for families with more marginal time (families with enough income to support stay at home moms and dads) to take their children to the doctor more often is a driver of higher cost for affluence. In moving from a single parent family as a child to my circumstances now in a family where my wife, previously professional but now staying home with kids, seems to take one of my kids to the doctor a week for something, would have been unsustainable for my mother because of her work requirement.

145 Sure June 26, 2017 at 12:57 pm

Doctor’s visits are cheap. Even weekly PCP visits are only around a couple of grand a year; this is less than many inpatient procedures.

The poor consume more healthcare because they are sicker and because they lack the financial constraint. Medicaid often pays first dollar and if you are not employed you can visit the ER many times.

146 Troll Me June 26, 2017 at 9:46 am

5) Poor parents often cannot take time off work to take a child to the doctor when they need. So children of wealthy parents will tend to be more habituated to seeking medical care when they think it might be useful (possibly they overuse it, going to the doctor for any sniffle …).

Possibly this is related to the better health at older ages when the observation of wealthier people using less health services during their working years.

147 byomtov June 26, 2017 at 9:54 am

There are lots of good comments here, I think.

I myself wonder whether occupation matters. Do poor people tend to have more physically demanding or dangerous jobs, leading to higher rates of injury, accident, and so on?

148 prior_test2 June 26, 2017 at 10:13 am

Of course they do – how many people earning over $200,000 are working as roofers?

149 Hazel Meade June 26, 2017 at 10:11 am

I would have to guess that a big part of the difference is due to people getting chronically ill, becoming disabled, and then consuming large amounts of health care resources due to their diability/chronic illness.
Did the study control for income prior to diability or exclude the seriously disabled. It could be that a small group of disabled people are classified as poor but are consuming the bulk of the health care spending in that group.

150 prior_test2 June 26, 2017 at 10:15 am

A reasonable point – that the sick consume more health care than the healthy is pretty fundamental to this public policy debate.

151 Hazel Meade June 26, 2017 at 10:24 am

Right. If you want a good comparison, you should look at health care spending for nominally “healthy” people. People healthy enough to work. If you’re throwing all the permanently disabled people in the “poor” bucket, that’s going to skew spending in that bucket way higher.

152 Devin Lavelle June 26, 2017 at 10:52 am

I wonder how much of that difference is driven by rates of childbirth?

153 dearieme June 26, 2017 at 11:10 am

Congratulations to French and Kelly: interesting work clearly reported.

154 Ben June 26, 2017 at 11:13 am

Is this really a mystery?

Cigs, booze, McDonalds, rage, not exercising.

155 Oreg June 26, 2017 at 11:34 am

Keep in mind that the U.S. healthcare system is actually six fundamentally different systems:
* employer-provided
* individual
* Medicaid
* Medicare
* VA
* uninsured (ER)
Each of these in itself is extremely complex and the complexity of it all distorts any effects and their analyses in any number of ways. Only one fact seems certain: There is enough money in the system, it’s just being spent very inefficiently. It’s also a good bet that segregating the population into a zoo of different systems is not a good idea.

Best to look at what works in other countries and learn from them, e.g., France (single payer) vs. Switzerland (market-based).

156 prior_test2 June 26, 2017 at 2:00 pm

I do not believe that the French system can properly be called single payer the way that term is used in American discussion. Unfortunately, the Wikipedia article seems about as dated as the discussions I’ve had with French people about their health care use (births, motorcycle accident, skiing accidents, and such like) – ‘These funds, unlike their German counterparts, have never gained self-management responsibility. Instead, the government has taken responsibility for the financial and operational management of health insurance (by setting premium levels related to income and determining the prices of goods and services refunded). The French government generally refunds patients 70% of most health care costs, and 100% in case of costly or long-term ailments. Supplemental coverage may be bought from private insurers, most of them nonprofit, mutual insurers.’

YMMV, of course – I find the term ‘single payer’ to be amazing imprecise in these discussions, but then, most American have little experience of going to a hospital in France or Germany while being part of the French or German health insurance/care system. The French system is much closer to the idea of single payer in the sense of government funding, but further away from that idea in terms of providing health care whose costs are basically fully covered in the way German health care costs are.

157 Oreg June 27, 2017 at 5:14 am

Even if the French state has outsourced the day-to-day basic insurance business to a few non-competing non-profits, it is still very much a state-run system for all practical purposes.
The question of co-pay is orthogonal to single-payer vs. market-based. All combinations exist. The German system, however, is a convoluted mess, neither single-payer nor a functioning market.

158 Grum June 26, 2017 at 11:42 am

Classifying “diet, lifestyle and exercise” choices purely as “bad decision making” ignores the vastly reduced availability of “good choices” in these areas for the poor. That’s beside the main point of this post, but still pretty obtuse.

159 Hazel Meade June 26, 2017 at 12:43 pm

Surely you’re not talking about the thoroughly discredited “food deserts” research.

(Someone make it stop)

160 Grum June 26, 2017 at 1:37 pm

I am not.

161 david b June 26, 2017 at 12:03 pm

would REALLY like to see “quintile of prior year’s income” or “quintile of two-years-ago’s income” or even “quintile of parents’ income” vs. spending, to remove the causal effect of illness on income.

162 Sure June 26, 2017 at 1:01 pm

This would not change much. The old are the wealthiest in the country pretty much across the board. You build seniority in traditional jobs and build equity in your home on the low income side. On the high income side, you have many more years of compounding. If you dice the population on wealth or income they will be old and they will thus be sicker. Unless you control for age’s twin correlations to wealth/income and to sickness you really are not seeing much more than the impacts of age.

163 Scott Swank June 26, 2017 at 12:57 pm

New-ish research has highlighted interesting causal relationships between 3a (stress) and 3d (poor decisions). People seem to simply run out of the bandwidth to consider each decision prudently when they are faced with onslaught of choices between bad/worse/terrible. Here’s an overview from The Atlantic.

164 PLW June 26, 2017 at 1:52 pm

Another interesting observation in this paper is that spending on those in the last calendar year of life is not only an issue in America or unique to one health delivery system. In fact, there’s actually a negative (but weak) correlation between spending as a share of the economy and spending in the last calendar year of life as a share of aggregate spending.

165 Boonton June 26, 2017 at 8:52 pm

I’m not really clear what people are trying to say when they fret about the spending in the ‘last year of life’. Why wouldn’t one normally expect spending in the last year of life to be much higher than, say, in the middle? I suspect people here have some mental image of someone spending a year in a coma on life support machines. But the reality is this does not happen all that often and even when it does it isn’t hugely expensive. Well it might be expensive in terms of what a hospital will bill but hospital invoices are mostly fiction exercises ($500 aspirin…). In terms of resources you aren’t consuming huge amounts of energy or even skilled labor for the hypothetical ‘last year in a coma on life support’.

There is a discussion to have about huge interventions late in life….questions like is a quadruple bypass a sensible thing to do or does it mean someone will spend their last 5 years in a slow rehab rather than 3 relatively healthy years? But these are discussion that are useful to think about without even considering the price tag.

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