RALEIGH – I run into many politicians, political commentators, and public-policy analysts who routinely distrust what they hear from “special-interest groups,” such as trade associations and professional societies. This is, by the way, a useful mindset to have when making governmental policy. But when in comes to health care, many of these same folks exhibit not the least degree of skepticism when repeating the familiar argument that inflation in medical costs is driven largely by uncollected bills for emergency-room care or other services that could have been headed off by earlier treatment.
You’ve heard the explanation. Providers – doctors, hospital executives, and pharmaceutical companies, among others – offer it all the time. And health insurers make the related argument that these uncompensated costs are shifted to paying customers, thus explaining why health-insurance premiums are rising. Naturally, providers want to be paid for their services (as long as the government doesn’t use uncompensated care as an excuse for British-style socialized medicine or Canadian-style socialized health insurance, which they typically oppose). But more than that, they want to encourage the purchase of additional services, under the category of preventive care, for which providers will also be paid and on which insurers will earn their cut, as well.
This is not a criticism of the desire for compensation, which is what makes markets function and makes capitalism the most successful means of harnessing human potential to meet human needs in human experience. Nor am I suggesting that preventive care doesn’t result in long-term cost savings in many cases (along with other benefits), though the savings are all-too-often exaggerated and misunderstood.
But as a major explanation for the decades-long trend of escalating health-care costs, this just doesn’t suffice. For one thing, emergency-room care is not large enough a category of medical consumption to make the math work: about 3 percent of total spending. And most of this is for those with insurance, not those without it.
A closer look at expenditures on behalf of the uninsured reveals another problem with the argument. A February 2003 article in the journal Health Affairs (not online) reported that those Americans uninsured for at least part of a year accounted for about $100 billion in medical spending in 2001. That was about 19 percent of all medical spending in the country that year.
Of the $100 billion, about a quarter was paid for in cash by the uninsured (they aren’t all poor or deadbeats). Another quarter was financed by private insurance – either during the months of the year when the individuals were insured or via worker’s compensation claims. Still another $14 billion was covered by existing government health programs, again during spells of enrollment. That leaves $36 billion as truly uncompensated care for the uninsured – about 7 percent of all health spending. I’m not saying this is a trivial number, but it is certainly not large enough to explain double-digit premium increases and the basic structure of the medical and insurance markets. Furthermore, some of this is financed by other public funds and private philanthropy, not cost-shifting.
When someone tells you that our health-care affordability problems would be solved if only government would guarantee insurance coverage for everyone, be skeptical. Replacing an insurance cost-shift with a formal subsidy of the same amount will not significantly reduce the cost to insured consumers/taxpayers. And insuring the uninsured will, indeed, increase their consumption of medical services, possibly resulting in some modest net savings in the long run (though changes in diet and lifestyle appear to be far more important in heading off future illnesses). But it won’t address the larger issues of generational change, medical innovation, consumption shifts, and third-party payment that are really driving the cost trend in health care.
Hood is president of the John Locke Foundation.