Hypothetical Mean

Commentary from an Actuarial and Economic Perspective

WSJ: Healthcare Spending in Decline … Good news or Bad?

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A front-page Wall Street Journal article today suggests that healthcare spending may be declining during this economic downturn.  I disagree with much of the interpretive context provided in the article.  Some thoughts.

*  The article asserts that healthcare spending was once thought to be recession-proof.  This is a bizarre and unsourced thought.  Health spending is a consumption good.  Perhaps some element of health spending is short-term and mandatory, but the vast bulk is discretionary.  In fact, actuaries have noted a reduction in healthcare expenditures during downturns even within groups that retain their insurance.  One hypothesis offered is that jobs become at-risk, deterring personal time off to see a doctor.

* Health-policy experts say that patients’ short-term care cutbacks could lead to more medical problems and higher spending down the road. As more people forgo screenings or wait until minor medical problems blow up into serious complications, hospital and emergency-room admissions could eventually spike.I am not aware of any empirical support for the proposition that ER visits “spike” in years subsequent to a recession.  Just as it is true that some minor medical problems blow up into serious complications, other minor medical problems resolve themselves through the natural healing process.  If between 30% and 50% of our medical visits and procedures are wasteful, it’s not clear to me whether a reduction in medical consumption driven by a deteriorating economy will ultimately lead to better or worse health outcomes.


* Walgreen’s is looking at ways to get more cash-strapped patients to get people to fill prescriptions.  I would argue that Americans are too eager to take full doses and obtain medication.  All medications have side-effects.  Again, economizing caused by a changed economic climate has both positive and negative effects.  My father-in-law skips doses of Gleevec when and if he can, in part to reduce cost.  I suspect that this austerity will prolong his life rather than shorten it.

* Marianne Falacienski of Pensacola, Fla., had health coverage through her husband’s land-surveyor job until he was laid off in April last year. Her husband, Brian, has since bought a policy for himself and their 2-year-old daughter on the individual market, but the family couldn’t afford to include Ms. Falacienski, who has a chronic inflammatory bowel disease called Crohn’s. The premiums charged by insurers for health plans purchased by individuals with pre-existing conditions can be prohibitive.This is a bizarre paragraph.  The author should have asked this family why they did not take COBRA.  If you take COBRA after a layoff and later seek individual insurance, insurance companies cannot then charge for or exclude coverage of pre-existing conditions.  This is an area where I have and will continue to propose reforms.  COBRA premium rates are usually very high, but they are likely less than going straight to the individual market and subjecting yourself to surcharges — the approach mentioned by the author.


* This confusion about COBRA extends to the anecdote about Gabrielle Kenna, who is on Remicade, which costs $12,000 per year, according to the article.  Her mother, Edith Kenna, “worries about the day her daughter’s Cobra benefits run out since Remicade can cost more than $12,000 a year.”  Again, if you stay on COBRA until it runs out, she has access to the individual market without consideration of her pre-ex.  At least in theory.

This article illustrates the impossible politics behind bending the healthcare cost curve.  If you allow for essentially unlimited access to services, there will be a plethora of news stories on wasteful medical spending.  If you allow individuals to face cost constraints, there will be a plethora of news stories where people mistakenly deferred needed medical care.  This is also true if they have their care restricted through other means (think managed care).

This is a recipe for dissatisfaction.  No solution can satisfy all of these constraints, and we must come to grips with that fact.


Written by Victor

September 22, 2008 at 3:26 pm

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  1. […] Acne Skincare wrote an interesting post today onHere’s a quick excerptJust as it is true that some minor medical problems blow up into serious complications, other minor medical problems resolve themselves through the natural healing process. If between 30% and 50% of our medical visits and procedures are … […]

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