The Affordable Care Act is going into operation, at least if conservative Republicans in the House fail to repeal it. Yet regardless of that or other changes in health financing, we will continue to struggle with rising costs of care itself.
The act may boost some incentives for providers to do things at less expense. The announced costs on various state exchanges is notable for the range of prices between different insurers within any single state and between states. That itself is supposed to impose competitive pressures: High-rate insurers lose customers to lower-cost ones. Competition forcing down insurance rates is supposed to lead insurers to pressure actual health providers to charge less and find more efficient ways of providing care.
But there still will be few incentives on the patient side. Until that changes, evermore high-tech treatments and an aging population are likely to drive spending upward at a faster rate than growth of the overall economy.
I am a poster boy for the lack of incentives to economize. With a torn retina, a cataract, neck cancer, appendicitis and an infection in my radiation-damaged neck, I have interacted frequently with the U.S. health care system in the last 49 months. I probably have cost our insurer at least $200,000 between two eye operations, chemotherapy, radiation therapy, two surgeries and four separate hospital admissions.
In all of this, the question of cost has never arisen. No doctor has ever mentioned the cost of any elective procedure and, since I have good insurance coverage through my wife’s employer, I have never asked.
Indeed, since our coverage includes an annual out-of-pocket maximum, in the past two years I have not had to consider even the $20 co-pay that would otherwise apply to office visits. In economics terms, after the first month or two of the year, my “marginal cost” of additional care has been zero. Econ theory says that in this case, the only thing keeping me from demanding an infinite amount of care is the opportunity cost of my time and the possible discomfort of procedures.
Getting a tooth pulled this week, however, was a different situation. Our dental coverage is not quite as generous as our medical. For example, it will only cover two teeth cleanings a year, but with periodontal problems, I have four, the second two entirely out of our own pocket. And while it covers extractions or a simple denture with a 20 percent co-pay, it won’t cover an implant. Nor, to the best of my knowledge, will it cover nitrous oxide for procedures where simple local anesthesia will do.
Such decisions on coverage must have been made by some “death panel,” albeit one in the administrative bureaucracy of the insurance company rather than in the federal government. This is common.
Despite much overblown rhetoric about how the health care act is going to interpose government between doctors and patients, limits on what is covered by any plan, including Medicare, are ubiquitous.
People always have been able to obtain any procedure that they and their doctors think is necessary. This does not mean that an insurer will pay for that procedure. Across the globe and at all times, a plan that covers every conceivable treatment did not exist.
I had a molar with a large cap put on decades ago and a root canal. It simply snapped off when I flossed. There was not enough left for another cap, so the roots had to be pulled. It was uncomfortable enough that I certainly was willing to pay 20 percent of the cost to get them removed. This also was necessary if I wanted a denture so I could chew normally.
Recognize, however, that if I had less income or no insurance at all, I might have chosen to just live with it.
There are plenty of people who do so just because the $310 for “surgical rem. residual roots” would take money needed for other necessities.
And then there were the options. Nitrous oxide in addition to the local anesthetic would add $99.
A bone graft, necessary if I wanted to get an implant instead of a denture, costs $420.
However, just as I did not even inquire about the costs of six versus seven weeks of radiation or chemo versus not, I did not even ask about these prices.
On impulse I said I wanted the nitrous oxide. Afterwards, when I misread the bill and thought it had cost $299, I kicked myself for doing so. Why, I could have used that money to buy the pistol I had seen recently.
My wife and I could have had a nice weekend at a B&B or I could pledge more to my church.
Spending that much for less discomfort was not worth giving up these alternatives. That is precisely what economists call opportunity cost.
But when I read more carefully and realized it only was $99, I was happy. My “willingness to pay” was somewhere between the two figures.
Economists long have argued that for cost increases to moderate, consumers have to face more such marginal costs in choosing health care. This was a central feature of the Heritage Foundation-Senate Republican plan that morphed into the health care act rather than the “single-payer” alternative desired by most Democrats.
But there also is an issue with imperfect information. I had some idea of the levels of discomfort with or without the gas.
But a year ago, in deciding between 30 or 35 radiation sessions and whether to have chemo or not, I did not know their monetary cost and had only a vague idea of the discomfort and collateral damage to my body from the additional treatments.
My chemo and radiation doctors did not even give the same answer on survival rates for my carcinoma.
They certainly could not tell me that having another week of radiation would increase my odds of living from X percent to Y percent, not that for chemo nor for the two combined.
They did warn me of possible damage to salivary glands and taste buds, but could not give me the probabilities for each condition that economic models always assume are available and there certainly was no information on how probabilities would be increased by the more intensive treatment options.
When you are thinking about the possibility of death, it’s hard to place a value on the possible “disutility” of not being able to taste or of having to schlep a water bottle around.
So the idea that consumers who are faced with some marginal costs for treatments will make benefit-cost choices to maximize economic efficiency is subject to serious limits.
Nevertheless, I am sure if I had been told my nitrous oxide would cost $299 and if I had known ahead of time how well the extraction would go, I wouldn’t have paid for it.
I would have had greater satisfaction from the same resources if I had spent the money on something else. That is the meaning of “economic efficiency.”
This clearly could happen in more situations. But structuring things so this happens is difficult.