All the Care that Money Will Buy

I believe we could spend our entire national income on health care. Not by frittering money away, but by spending it on goods and services that even in small ways could improve the odds of better health. (Examples below.)

I find that most people in health policy agree with that assessment, but rarely do they see its logical (and I would say obvious) implication. If we spent all our income on health, we would have nothing to eat, nothing to wear, no place to sleep. There would be only health care. Since that’s clearly an undesirable state of affairs, it must be good for people to refrain from obtaining all the useful care that money will buy. Further, such restraint needs to be exercised quite often.

What brings this to mind is a new RAND study finding that people with Health Savings Account plans consume less care than people with conventional insurance and have lower health care costs. The people who were studied cut back on such “useful care” as mammograms, screenings for cervical and colorectal cancer and even childhood vaccinations.

Some critics pounced on this result and claimed that consumer-directed care is bad for patients. The critics are, of course, very wrong.


One, two, three. It’s easy.
Like taking candy from a baby.

We have written before about the controversy surrounding mammograms, prostate cancer tests and other screenings. Studies differ about their medical value, and the cost per year of life expected to be saved can be quite high. All of this makes the case for individual choice. If not getting a $100 test keeps you awake at night, by all means get the test. There is no reason for private or public bureaucracies to make that decision for you.

This latest controversy also calls to mind the very famous RAND experiment conducted about 30 years ago. In that study:

  • People with a deductible of about $2,500 (in today’s prices) cut back on spending by about 30% relative to people who faced no out-of-pocket costs.
  • Aside from some minor quibbling there was no negative impact on health from the higher deductible.
  • But people with high deductibles were as likely to cut back on useful health services as they were to cut back on unnecessary care.

This third bullet was seized upon by latter-day critics to argue that patient choices appear to be random, and therefore the experiment in consumer-directed care showed it to be a failure. In fact, the patients’ behavior is exactly what you would expect from a rational consumer of any product. When something is free the temptation is to take everything that is offered. The incentive to distinguish between what is “necessary” or “useful” and “unnecessary” or “unuseful” is largely nonexistent. When you have to pay market prices, however, you have an incentive to pay more attention — figuring out what’s “unnecessary” and dropping that as well as those “necessary” items whose value is less than their price.

Which brings us back to how we could spend the entire GDP on health care if the socialist idea of free care — not based on ability to pay — were ever actually implemented:

  • The Cooper Clinic in Dallas offers an extensive checkup (with a full body scan) for about $4,000 or more. Its clients include high-profile individuals. Yet if everyone in America took advantage of this opportunity, we would increase our nation’s annual health care bill by nearly one-half.
  • More than 1,000 diagnostic tests can be done on blood alone; and one doesn’t need too much imagination to justify, say, $10,000 worth of tests each year. But if everyone did so we would more than double the nation’s health care bill.
  • Americans purchase nonprescription drugs about 12 billion times a year, according to a calculation by Simon Rottenberg some time ago, and almost all of these are acts of self-medication. Yet if everyone sought professional advice before making such purchases (as they probably would if there were no time or money price), we would need 25 times the number of primary care physicians we currently have.
  • Some 1,100 tests can be done on our genes to determine if we have a predisposition toward one disease or another. The latest charge for a full gene sequencing was $50,000. Yet if every American did that the expense would exceed the entire GDP.

Notice that in hypothetically spending all of this money we have not yet cured a single disease or treated an actual illness. We are simply collecting information. If in the process of searching we actually found something that warranted treatment, we could spend even more.

Spending all of other peoples’ money on health care is easy, like taking candy from a baby.  To prevent that from happening, public or private bureaucracies can ration your care and tell you what services you can and cannot have.  Or, you could manage more of your own health care dollars and make you own choices between health care and other uses of money.

Need I say which alternative is likely to work better for you?

Comments (16)

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  1. Joe Barnett says:

    Saving 30 percent of spending below a $2,500 deductible sounds like it would be worthwhile. If people save over their lifetimes to pay for routine expenses and episodic major illnesses — as with an HSA — we could bend the cost curve even more!

  2. Earl Grinols says:

    The Rand experiments show that individuals know their personal circumstances better than any others, including government norm-makers. Evidence? The individuals’ health care outcomes were the same, but with 30 percent less spending.

    Trying a competitive market in health care and health insurance would reduce national spending on health care by 5% of GDP with no loss in health care measures.

  3. Bob Blandford says:

    Good post, John. It’s amazing how hard it is to get ideas through people’s heads when conflicts of goods are involved.

  4. Kenneth A. Fisher, M.D. says:

    Add a trusting relationship between a patient and their physician and the high value preventable services would most likely not decrease in a high deductable plan.

  5. Devon Herrick says:

    When care is free or heavily subsidized at the margin, people consume infinite amounts of it. Critics may scoff at the notion that someone would consume more care than they need. But wasteful medical consumption doesn’t necessarily have to take the form of running to the doctor for trivial ailments or getting unnecessary surgeries. When care is heavily subsidized, over time the intensity of treatments rises until care is more expensive than society would otherwise pay given the level of resources. That’s why countries that make health care an entitlement have rationing mechanisms.

  6. ralph weber, MediBid says:

    Traditional healthplans encourage consumption, just like when you buy one of those entertainment books. After shelling out $800 a month people feel like they need to “get some value” out of the plan as if they had coupons. $25 for a doctors visit Coupon, expires Dec 31.

    It also makes people stop thinking. Patients start thinking “….hmmmm…I wonder what I am covered for, or what I can ‘get’ this month”. and doctors think “… why not get an MRI to diagnose a hangover, he’s covered for it”.
    We can never forget the roots of present day health insurance, and the fact that they were initially invented by doctors and hospitals to ensure they got paid more. Greg Scandlan has written a lot on the origins of Blue Cross and Blue Shield.

  7. George Sack says:

    Another fine presentation, John. It is important to note, however, that baseline data (some only once in a lifetime, others periodically updated – PSA, glucose, cholesterol…etc) are valuable when a new symptoms or problem develops. They may provide the basis for clarifying the diagnosis, prognosis or treatment. In addition, while genetic studies are expensive now the costs are falling even as their value for detecting predispositions (some actionable) and (with time) drug reactions – both of these could end up reducing long-term costs of care as well as improving health.

  8. Lowery Thompson, MD, FACP says:

    EMTALA forces hospital emergency rooms to provide at least an evaluation for all who present. Fear of litigation drives most medical providers in ERs to provide care to all who are evaluated (triaged).

    Should EMTALA be revoked?

    Cheers, Dr. T

  9. Vicki says:

    Very good post. I also like the musical pairing.

  10. M J Healthcare says:

    Agree with the thoughts, but mammograms, colonoscopies, and other tests cited do not require out of pocket payment from patients – even with HSAs. Therefore the statement is not a good example of a causal relationship. HSAs work because people are encouraged to have a savings account for healthcare– which all people SHOULD have (like you should for a car, vacation, home, and “emergencies”). Also, HSAs re-attach consumers to the cost of care. Having “skin in the game,” so to speak. All cost issues started when patients became divorced from the bill. Our problems are worsened by our need to stuff our piehole and sit on the couch, then breed children who do the same. Add in the “free money” disease of the late 1990s, and you get the Trifecta of warped thinking by the consumer. The reality is that we must reward those who take care of themselves, period.

  11. Erik says:

    People who have HSA plans consume less care because they cannot afford the initial high deductible. These plans are designed for catastrophic events not health care in general. Though for wealthier folks it’s simply another tax shelter.

  12. Jennie Fiedler says:

    What a great post. Yes, we could spend all of our money on tests, and I even read somewhere that thyroid cancer is on the rise in this country because of all the “defensive medicine” practiced on patients just to avoid malpractice suits brought on by missing a diagnosis. What I have found, however, is that there is a vast amount of valuable information everywhere in this country on how to maintain good health and therefore prevent disease. There’s even information on when to seek a doctor’s care.

  13. Al says:

    It sounds like Eric is suggesting that the tax deduction for health care should be ended. In that way health care couldn’t be used as a tax deduction for anyone. Not a bad idea.

  14. Bob Geist says:

    John, excellent post. An Added note: First, The majority of HSA/HDHPs pay for “prevention”–the old age preventions like PSAs could be adjusted for age and sex–simple. Second, HSA money is what is not spent on high priced premiums for ordinary HMO model policies and remains in the patients bank account–HSA money doesn’t disappear at years end. Thanks. Bob

  15. ceemac says:

    Goodman is demanding that I make decisions that I am not competent to make. If I had wanted to make medical decisions I would have gone to medical school.

  16. Robert Kramer says:


    Unless one has a little skin in the game, overuse of every aspect involved in the delivery of care will be abused. I am horrified every time the explanation for this is “lets do this since it doesn’t cost anything”. And on the flip side, the business of providing medical care (I used to think of how I earned my services as my profession began to sink) and today is anathema to everything I was trained to honor is now a profit centered, Wall Street controlled, and publically owned business whose only existence is to generate profits demanded by the shareholders and increase the avarice of the business of medicine by its practitioners whose overuse of services can be called usury, which is with all aspects geared to producing revenue, disregarding what would be best for the patient. I know that there must be a solution to this slippery slope where doctors do what is best for the patient, not to increase the revenue it generates for the hospital as well as the physicians but solely to extract more revenue which has no diagnostic necessity for the delivery of health care..and it joins the professions that have succumbed to this same avaricious dishonesty; law, religion, banking, investing, and consulting.

    Dr Bob Kramer