My Books, Essay #5

An enduring look at the problem of American health care policy

Recently, James Capretta wrote,

For years, the US has spent far more on health care than any other high-income country, as documented by data compiled by the Organization for Economic Cooperation and Development (OECD). In 2022, the US spent 56 percent more than the next highest-spending country—Switzerland.

Yet for all of this spending on health care, we don’t see signs of better health outcomes for Americans, especially on longevity. Why is this?

I explored this question for several years, and the answer I arrived at was published in 2006 as Crisis of Abundance: Rethinking How We Pay for Health Care. That book is as timely today as it was then.

The answer I give is that the U.S. leads in what I call “premium medicine,” by which I mean procedures that require capital equipment, such as MRI machines, and highly trained medical specialists. These procedures offer minimal benefits at high cost.

Crisis starts with an anecdote about a patient who was given an MRI by a doctor expecting to find a herniated disc in her back and instead was found to have cancer, which was fortunately treated. This is an example of premium medicine prolonging someone’s life.

But in general, getting an MRI for back pain serves no purpose other than to reassure the patient that the doctor is “doing something.” It rarely has any effect on the choice of treatment.

I conduct a thought experiment in which America is offered only the medical procedures available in 1975. In that experiment, health care becomes much more affordable than it was in 2006, or than it is today. But health care outcomes are not much worse.

To explain why, I write,

It is not true that health care is a black-and-white proposition in which services are either utterly necessary or else utterly unwarranted. In fact, many services fall in what I call the “gray area.” Services that fall in the gray area are services that offer some benefits but which are not absolutely necessary.

One example I give is a new pair of glasses that let you see slightly better than the old prescription. If you were paying your own money, you would not choose to get them. But if your health insurance makes them “free,” you decide to get the new glasses.

Gray area medicine includes diagnostic procedures that might turn up something but usually don’t. I cite routine colonoscopy as a cancer screening tool as an example of a procedure with a very high cost per life saved. In Canada, they did not do routine colonoscopies in 2006, and yet nobody thought that Canada’s health care system was inhumane.

Americans obtain a lot of gray-area medical procedures because we do not pay out of pocket for health care. Even though we do not have “single payer” (meaning government as the sole provider of health insurance), once you include private health insurance Americans have more of their health care spending paid for by third parties than do people in most other countries.

In fact, I argue that the term “health insurance” is a misnomer. What we actually have is what I call “insulation,” meaning that consumers are insulated from having to pay for the cost of medical treatment. With genuine insurance, such as homeowner’s insurance, you rarely make claims, but when you do the amounts involved are large. With insulation, you make claims for every little expense.

Consumers want unlimited access to medical procedures without having to pay for them out of pocket. In the United States, we try to satisfy this desire, and the result is exorbitant spending. In other developed countries, access is limited. For example, when we stayed at a Bed and Breakfast in the Canadian province of Prince Edward Island twenty years ago, our host said that he was told that he needed to see a cardiologist, but it would take a year to get an appointment.

Capretta sees us moving in the direction of government control over access.

For many decades, there has been a steady movement toward federal control of the US health system. Public subsidies have grown, as have the rules restricting what is and is not allowable among those providing services to patients. It is not hard to imagine Congress taking the final steps toward full price regulation of the entire system, by extending the rules already embedded in Medicare to the commercial market. Once Congress makes such a choice, it will not be reversed quickly or easily or perhaps ever.

For those who might be concerned about the US adopting a health system under full federal control, they must coalesce around a viable alternative. Market discipline is possible but only with rules that make it clear to all concerned who is offering the best value to patients, and who is not, and then rewarding those providers who have done the hard work to become more productive and efficient over time.

I don’t think that provider incentives are the solution, either. I think we need to confront directly the excessive use of premium medicine that has high costs and low benefits. The argument I make in the book is that we should try to reform our system so that more people have to pay out of pocket for gray-area medical procedures, and that insurance should cover only the large, necessary expenses.

This approach would lead people to reduce spending. But taking away people’s insulation from their medical expenses is a tough policy to sell.