RALEIGH – Health care costs in North Carolina and across the country are too high, and a big part of the problem is that too few people have health insurance, keeping them from getting adequate preventive care and thus leading to illness and higher costs later on.
That’s a proposition you often see advanced by a wide variety of groups engaged in debate about health care policy. It forms part of the (rickety) case for a universal, government-run health insurance system. It is frequently cited by lobbyists for hospitals, doctors, and other providers who warn that inadequate insurance coverage for some raises the price for others through cost-shifting.
It is also mistaken.
No, I’m not suggesting that there aren’t patients, many of them, who might have improved their health and thus reduce the cost of their care by seeing their doctors and adopting healthier lifestyles. But that fact doesn’t settle the matter. While many think that the old saying “an ounce of prevention is worth a pound of cure” pretty much sums up the mathematics of the issue, the reality is more complex.
You have to factor into the equation the number of individuals who consume preventive care but would not have developed the more costly medical condition if they hadn’t. To continue the analogy, if prevention is 1/16th the cost of a cure, paying for prevention saves money only if the incidence of the illness needing the cure is at least 1 in 16.
That is, if 15 people get preventive care costing $1,000 each, and the result is that one of them avoids an illness costing $16,000 to treat, then whoever is paying the bill has just saved $1,000 ($16,000 minus $15,000). However, if a payer offers prevention for 30 and heads off the same single case of illness, it loses $14,000 on the deal.
Of course, that still means that one person has received a valuable benefit. He or she has avoided developing a potentially disruptive, painful, or debilitating condition. But here’s the problem: if you socialize medical costs, then you cannot afford to spend an unlimited amount of money achieving individual health outcomes. What if instead of spending $30,000 on that prevention, you can spend $16,000 treating the illness and the remaining $14,000 treating another person or on a more cost-effective prevention? If the goal is simple utility-maximization, that’s probably what you should do.
Careful analysis of the preventive-care argument suggests that collective action to offer free health care does not always, or even usually, save money for insurance subscribers or taxpayers. “Preventive medicine is a health strategy, not a cost-management strategy,” wrote Linda Riddell in an article originally appearing in Health Insurance Underwriter magazine.
Medical-cost inflation is really driven primarily by the problem of third-party payment. If you perceive that someone else is paying the bill, whether it is for hotel rooms or medical care, you are less likely to be judicious in how and how often you consume the service. Health care models that allow individuals to make more of the decisions for themselves – and providing cash accounts so they can buy preventive care when it makes sense but also keep the money when it doesn’t – offer a more realistic prospect of controlling health care costs.
Beware of promises that sound too good to be true. They probably aren’t.
Hood is president of the John Locke Foundation.