Debunking THE Health Care Graphic

Medical Billing and Coding, an organization that teaches... well, exactly what you'd think it teaches, has entered into the fray over the fight to explain why Americans pay so much more for health care than people in other countries. They have even provided a fancy, easy-to-understand graphic to illustrate "myths" and "truths" about health care costs. You should really go look at it. It's an impressive piece of propaganda.

Oh, yes, I said propaganda because, although their numbers may be factually true, their delivery and conclusion are disingenuous, to say the least. The graphic claims to explain "why" but it doesn't. All it shows is that we spend more, which we already knew. Saying we spend more on health care because we spend more may be true but doesn't answer ther question they say they're answering. The graphic leaves you with a sense that you're being bilked. So, I went and read through the Incidental Economist posts by Aaron Carroll that were cited as sources, plus the ones that weren't, and Mr.Carroll has a different reason:

So here’s our first bit of depressing news.  The single biggest contributor to the money we’re spending that’s “extra” is for medical care.  It’s not a company or a crook.  It’s for actual stuff that we seem to value.

It's not private insurers, greedy CEO's, or even incompetent government bureaucrats; it's stuff. We buy a lot of health care stuff. We have an insatiable demand for health care. Unfortunately, there is a very limited supply. Low Supply + High Demand = High Costs

Then they come to their conclusion. After citing studies and posts that show empirical data of the drivers of our expensive health care costs they cite this. A survey that just so happens to reaffirm Medical Billing and Coding's work as the answer to healthcare. All we need is more transparency. That's it. Sounds like a good way for Medical Billing and Coding to get a nice, big, fat subsidy from the government to do the work they're already doing.

Here is how that would work out in real life:
Woman - "Doctor, how much is this runny nose medicine going to cost?"
Doctor - "Well, let's see.... We have this new tranparency initiative subsidized by the federal government. Let me ask my federally subsidized transparency agent trained at a federally subsidized Medical Billing and Coding College. Hold on. Yes, yes, mmmhmmm, ok, thanks! Exactly $5768.23."
Woman - "Is my insurance paying for it?"
Doctor - "Yes!"
Woman - "I'll take it!"
Now that we know transparency isn't the issue, what is?

Carroll's posts focus on the excess we spend over and above what you would expect us spending based on wealth trends in comparison to other countries. But how do we define excessive? Stan Liebowitz, in a policy paper titled "Why Healthcare Costs So Much," helps:

The economic concept of excess use of medical resources is illustrated in Figure 2, which is a version of a simple [demand curve] diagram that can be found in virtually any introductory economics textbook...

That can be understood by examining the implications of other quantities of medical service. For quantities of medical service greater than Q*, a unit of additional medical service is of lower value to patients than is the cost of providing it. In other words, patients would prefer cash equal to the value of the resources used to provide the medical services to receiving the medical services. Thus, it impoverishes patients and society to produce medical services when the recipient of the service would prefer those resources to be used for a different purpose.

So we're paying for medical care that we otherwise wouldn't pay for. Why?

Unfortunately, the current medical system does not induce patients to choose the efficient quantity Q*. Because patients largely have their medical bills paid by third parties, it is rational for them to consume medical services even when the value of those medical services is less than the value of the resources used to provide them. (emphasis added)

We demand more because we don't pay for most of what we get, somebody else does. Here's an analogy of how this has affected or health care system:

If the government told citizens that it would pay 80 percent of the cost of each automobile purchased, most citizens would march right out to their local dealerships and order very expensive cars. Automobile manufacturers, sensing profits in the air, would begin to offer far [less] standard equipment and would begin to offer more new types of equipment than they had previously. What was formerly a luxury car would become commonplace, and new, more luxurious automobiles would be produced. The newest technologies would be used (rather like those used in jet fighters), since the cost to the consumer would be only a fraction of the actual cost. Thus, the growth in automobile expenditures caused by the third-party payments could go on for many years.

Most people would recoil at treating health care like this. How dare I even suggest we use Ford Focus care when Lamborghini care is available. Lamborghinis are sweet but a Focus will get us where we need to go. So instead, we go to the primary care physician when an aspirin would suffice; the gastroentorologist when pepto-bismol could have taken care of it.

Unfortunately, their really is no easy political answer. Americans love our "Third Way" health care system. It provides us with Lamborghinis that we couldn't buy on our own. We have come accustomed to it. But their is only two ways to bring down costs; markets or rationing. European nations chose their path long ago and, now, we're in situation where we have to choose ours.