HEALTH CARE/Joan Retsinas

Brutal Lessons in the Economics of Health Care

For years economists (healthy ones, I trust) have called us a nation of health-care profligates. We have been consuming vastly more health care than our counterparts throughout the developed world, at far higher expenses. Arthroscopic knee surgery. In vitro fertilization. Bone marrow transplants. Anti-depressant medications. Whatever the prescriptive cure, we Americans have demanded, and gotten it, at least we insured Americans.

The problem, according to economics-speak, is that the consumers – we the patients – are not the payers. Our employers pay. And even though insurers may enact barriers to tamp down profligate consumption, we the patients have no incentive to economize. If a commodity costs very little out-of-pocket, why say no? If demand is elastic, though, then the more we patients must pay for a service, the more rigorously that we will evaluate our need for that service.

The free-falling economy has put the elasticity of demand to a test. For huge swathes of Americans, health care now looms as a major out-of-pocket expense. Suddenly the newly unemployed are likely to be the newly uninsured. They must pay the full retail cost of their care, unless they crowd under the umbrella of a safety net health clinic, or a pharmaceutical free-care program. These people are suffering sticker-shock at the “real” costs of their care. Those who elect to stay insured via COBRA are discovering the sticker-shock of their premiums: instead of paying 20% of the cost of insurance, they face a higher tab. Soon more of the employed may join the ranks of the uninsured: in a Hewitt survey (“The Road Ahead: Emerging Health Trends 2009), 19% of companies planned to drop health insurance over the next 3 to five years. (Four percent were planning to drop it in last year’s survey). Their employees will suffer sticker-shock. And companies that don’t eliminate benefits may well downgrade them. Employees will remain insured, but with higher co-payments, higher deductibles, more restrictions. Those people too will suffer sticker-shock.

So at last we have a genuine test of Americans’ propensity to spend for health care. It is no longer free for large numbers of us; indeed, depending on the service, the costs range up to six-figures. At last more patients are the payers. The question is: will patients consume less?

The answer, not surprisingly, is yes. Households weigh costs against annual income; and at a time when some households have watched their income plummet, those health care costs – even the minor ones – loom large. Patients who used to grumble at a $15 co-payment for a prescription find the retail price exceeds $100. Patients who used to go to the doctor for annual check-ups when it was free stay home when it costs $80. Patients who would undertake surgery for a hip replacement, or a rotator cuff injury, are holding off. Medical advancements have given us promising treatments for a host of maladies. Consider direct brain stimulation for neurological disorders, cardiac catheterization, open heart surgery, organ transplants. Only the super-wealthy can budget for those. As for the preventive screenings, like mammograms, PAP smears, colonoscopies – many people will consider these non-essential and forego them. Patients may even forego vaccinations. With a simple shot or two, people can reduce, or eliminate, their risks of contracting measles, diphtheria, polio, tetanus, chicken pox, the HPV virus, and most recently shingles. When insurers pay, we take those shots for granted.

Hospitals, physicians, clinics, pharmacies have noted the decline in patient revenue. The economists were right: the demand for health care is elastic. The surest way to reduce utilization is to raise the costs.

This recession has proven that.

But consider the consequences of decreased utilization: a sicker, more impaired populace.

Joan Retsinas is a sociologist who writes about health care in Providence, R.I. Email

From The Progressive Populist, May 1, 2009

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