Distribution of Health Care Spending
By Arnold Kling
Looking at a graph of the distribution of health care spending, Ezra Klein writes,
HSAs and their brethren like to pretend that by forcing caution on when you get a test for strep throat, we can significantly effect health costs. Not so. HSAs have a spending cap, and once it’s broken, all care is covered. They do nothing but disincentivize basic care, which doesn’t cost much anyway.
Instead, you’re going to need to attack these costs at the top. You may need to ration. You’ll definitely need to cut down on wasteful care.
The distribution of health care spending is quite clear in the Medical Expenditure Panel Survey (MEPS) data that I used for Crisis of Abundance. About 5 percent of individuals, spending more than $10,000 per year, account for about 50 percent of total spending.
Accordingly, I propose a different type of catastrophic insurance than what is common today. I propose a policy that covers the next five years of spending, with a deductible that might be as high as $30,000.
However, I did not assume any reduction in spending under this system. I simply showed that we could re-allocate spending away from employer-provided health insurance and away from government, while still protecting the very poor and the very sick. Thus, our health care finance system’s soundness could be restored, even if we do not slow health care spending.
I think that the key to slowing health care spending is getting a handle on which procedures are wasteful. First, we need research and analysis to determine the wasteful procedures. Then, we need incentives to cut down on wasteful procedures. Until we know which procedures are wasteful, any cutback in spending is likely to reduce both effective and cost-ineffective care.
Thanks to reader Trent McBride for the pointer.