Last week at Vox, Sarah Kliff wrote, This Study Is Forcing Economists to Rethink High-Deductible Health Insurance. High deductibles were supposed to be a way to keep healthcare costs down by incentivizing patients to get cheaper care. This is what “health economists” thought. It goes along with something that should have been clear for a long time: most economists are so far removed from reality as to be useless.
Think about deductibles. They don’t cause people to shop around. For one thing, it is hard to shop around (I’ll come back to this in a moment). But more to the point, this isn’t how people look at their deductibles. If people have a $1,000 deductibles (roughly half of Americas have deductibles this high or higher), then they see it as something getting in the way of their insurance. It is just a barrier that stops the insurance company from actually providing care.
But most economists are above such real world considerations, so they had to study the question. And a great opportunity came back in 2013, when a company decided to shift “tens of thousands of workers into high-deductible insurance plans.” But to offset the cost, they provided “new shopping tools” that allowed the employees to compare prices. So at least the study did look at the question of whether or not people would shop around if they had an easy way to do so — the way they do when buying groceries. And the result was clear: no.
And it is worse than even this. What the company did was provide health savings accounts for the employees. So they really had an incentive to shop around! Generally, you get to keep whatever you don’t spend (although you would have to pay taxes on it). This is, of course, the Great Conservative Idea™. High deductibles and health savings accounts would solve all our problems — or so the story goes. But that story comes to us from reality deficient economists.
The new policy did work in that it reduced spending. And let’s face it: that’s all that conservatives care about. But it didn’t reduce spending because it made the market more efficient. And remember: that’s the key issue. We pay roughly twice as much for healthcare as people do for equivalent care in other advanced economies. So the fact that we can bring healthcare costs down by forcing people to consume less of it misses the whole point. By that logic, we should eliminate all healthcare availability — that would really bring down costs!
The study also found that the sickest people were the ones who reduced their spending the most. Again: this wasn’t because they were getting a cheaper MRI, but rather because they were getting no MRI at all. So the reduction in healthcare spending resulted in a reduction in health. This is not a solution to our healthcare problems — unless your point is to appear to be addressing the problem but to actually do nothing.
After sick patients reached their deductibles, however, they spent normally. Kliff wonders why this is, and presents a few possible reasons. But is it really that complicated? Isn’t it just that humans aren’t that rational? They don’t live in a world of perfect competition and information. And they have other things to do besides try and hunt down a great deal on their next procedure. Not surprisingly, one of the economists who did the study thinks it might just be a matter of time before people get used to the system and it starts cutting down on costs the way it was intended. Because we should never forget: people serve markets, not the other way around.