Oct 1, 2018

The Din of Healthcare: Myths and Maybes

The Common Tropes That Derail Healthcare Policy Debates
Robert Graboyes Senior Research Fellow

This is the second installment in a five-part series on the fallacies and gaps in America’s healthcare debate. 

19th-century humorist Artemus Ward wrote: “It ain't so much the things we don't know that get us in trouble. It's the things we know that ain't so.”

America’s bitterly partisan healthcare debate is driven by the things everyone knows, but ain’t so—or at least maybe ain’t so. From the first installment in this series:

“There are widely held propositions, perceived as truths, which are (or may be) exaggerations, half-truths, non-sequiturs, or outright falsehoods. Many are accepted by the political left, right, and center, as well as by political agnostics. They lead policymakers into futile efforts to solve problems that don’t exist and to ignore problems that actually do.”

Tropes and More Tropes

Consider the following complaints:

  • American healthcare spending is excessive and unsustainable; no other country spends as much on healthcare. Healthcare bills are America’s leading cause of bankruptcy. Also, those without health insurance foist enormous costs on the rest of us. One of the really big cost-drivers is the number of people—many uninsured—who seek care for routine healthcare problems in expensive emergency rooms rather than in lower-cost doctor’s offices. More preventive care will lower healthcare spending. 
  • Malpractice litigation and defensive medicine drive healthcare costs through the ceiling. Our private insurance system has much higher administrative costs than public programs like Medicare or single-payer systems in other countries.
  • Unfortunately, competition just doesn’t work in healthcare because the issues are too complex for laypeople and because so many decisions involve life-and-death matters; you can’t shop around when you’re lying on a gurney having a heart attack.

Whether you’re liberal or conservative, many or most of these statements likely ring true. But so far as healthcare policy is concerned, every sentence is arguably an exaggeration, a half-truth, a non sequitur, or an outright falsehood. And basing public policy on these tropes will yield results that are far weaker than expected, nonexistent, or counterproductive—and expensive.

Let’s explore the mythology, sentence-by-sentence:

“American healthcare spending is excessive and unsustainable; no other country spends as much on healthcare.”

In “Maybe We’re Not in a Health Care Crisis?”, I describe statistical analyses by Peter Laakmann. He argues that Americans spend more on healthcare because, comparatively speaking, we’re wealthy spendthrifts and not because of anything intrinsic to American healthcare. America spends more of GDP on practically everything because Americans save less and consume more of most goods and services—education, housing, travel, and, of course, healthcare.

But American healthcare spending as a share of household consumption (not GDP) is only slightly higher than that of other developed countries. Additionally, Americans have massive accumulated wealth, and we use this wealth to buy things, including healthcare. Low saving and high consumption may be problems, but they won’t likely be solved by reforms limited to the healthcare sector. 

“Healthcare bills are America’s leading cause of bankruptcy.”

This trope comes largely from a Harvard research team (Himmelstein, Woolhandler, etc.) that used poor methodology and preposterously broad definitions of medical bankruptcy. In “Exposing the Myth of Widespread Medical Bankruptcies,” Aparna Mathur describes how that research massively biased results toward findings of medical bankruptcy. In “Medical Bankruptcy: Myth Versus Fact,” David Dranove and Michael Millenson dissect the Harvard team’s definitions of medical bankruptcy. Lose your fortune in Las Vegas? That’s a medical bankruptcy since compulsive gambling is a medical condition. Lose $10 million investing in pork bellies? That’s a medical bankruptcy if you had $1,000 in medical debt when your investment luck ran out.

Medical bills can devastate a family—no doubt—but the frequency is far less than this trope would have us believe.

“Also, those without health insurance foist enormous costs on the rest of us.”

The Obama Administration and Families USA called this a “hidden tax,” but uncompensated care (e.g., hospitals absorbing the costs of non-paying patients) was just 2.4 percent of healthcare spending in 2009. Some researchers argue the actual burden was considerably less.

Obamacare wasn’t actually designed to get rid of hidden taxes but, rather, to convert them into explicit taxes. Many non-paying ER visitors already had health insurance or had simply failed to sign up for Medicaid. Plus, many uninsured patients did pay their ER bills—at rates high enough to offset much of the non-payers’ costs.

“One of the really big cost-drivers is the number of people—many uninsured—who seek care for routine healthcare problems in expensive emergency rooms rather than in lower-cost doctor’s offices.”

In “How Is an Emergency Room Like a Monkey Wrench?,” David Goldhill and I argued that for equivalent cases, ERs actually consume fewer resources than a primary care doctor’s office. ERs seem more expensive because our accounting systems shift unrelated costs onto ER patients’ bills.

“More preventive care will lower healthcare spending—detecting problems earlier and avoiding preventable conditions.”

The assertion, “Preventive medicine cuts healthcare spending,” is commonly accepted by both sides of the political aisle and, ironically, rejected by health economists of both parties. Preventive measures actually increase costs. This doesn’t mean preventive care is bad—only that it won’t save us money.

In “Preventive Medicine and the Curse of Common Sense,” I explain why common sense about prevention fails us. Population-wide preventive care means testing vast numbers of people at a high cost for illnesses most would never have acquired. False positives often greatly outnumber true positives, spurring unnecessary treatments. Some treated will suffer from side effects that necessitate further expenditures. Finally, preventive care helps us live to old age, where the really expensive ailments occur. Living longer is fantastic but doesn’t lower healthcare spending.

“Malpractice litigation and defensive medicine drive healthcare costs through the ceiling.”

This assumption is widespread among doctors. Former Health and Human Services Secretary Tom Price said in 2016 that one-quarter to one-third of American healthcare spending ($600 to $800 billion a year) goes to defensive medicine—unnecessary tests and treatments to protect doctors against litigation.

In fact, academic studies tend to place total costs much lower. Typical is a 2010 Health Affairs study which put the cost of malpractice litigation, malpractice insurance, and defensive medicine at roughly 2.4 percent of healthcare costs. If true, a miraculous reform eviscerating malpractice-related costs would decrease American healthcare costs to the levels of a few months earlier—a one-time improvement. A PricewaterhouseCoopers study put the estimate at 10 percent, but that is a high-end outlier among credible studies.

“Our private insurance system has much higher administrative costs than public programs like Medicare or single-payer systems in other countries.”

One often hears that Medicare’s administrative costs are lower than those of private insurers. There are several problems with that assertion. First, costs are often stated as percentages of overall spending. But Medicare’s population is older and sicker. If it costs $1 to mail a letter to a younger patient with a $100 medical bill, administrative costs are one percent. If it costs $1 to mail a letter to a Medicare patient with a $1,000 medical bill, administrative costs are 0.1 percent—one-tenth the percentage, but no more efficient.

Second, David Goldhill (Catastrophic Care) suggests another weakness in the comparison. He notes that private insurers spend considerably more administrative dollars than Medicare on fraud prevention; predictably, Medicare has a much bigger fraud problem. As Goldhill notes, a bank that cuts administrative expenses by eliminating guards isn’t being more efficient; it will likely lose more to robberies. This article quotes economist Sherry Glied as saying private Medicare Advantage plans have higher administrative costs than traditional Medicare, but, "They bring costs down in other ways but they have to use administrative spending to do that."

“For all this spending, American healthcare is inferior to that of other developed countries; Americans have shorter lifespans and higher infant mortality, for example.”

The American healthcare debate has been clogged for years by the national healthcare rankings produced by the World Health Organization (WHO) in 2000—the source of the endlessly repeated, nonsensical US-is-only-37th-in-healthcare meme. But that figure, like much of the report’s content, is indefensible. Even some of the report's editors later renounced the rankings. Still, 18 years later, the report haunts the internet, and that bogus #37 ranking remains a staple of policy-makers, entertainers, activists, and ordinary citizens.

Glen Whitman and Scott Atlas detail the rankings’ poor qualities. Among the problems were dated, spurious, and made-up data; ideology-infused ranking criteria; and reliance on self-reported data.

On infant mortality, self-reported European data systematically understate reality. Some countries, for example, count low-birthweight and short-lived babies as “stillbirths,” omitting them from infant mortality statistics.

Perhaps the biggest weakness is counting aspects of health as black marks against the country, even if those aspects have nothing to do with healthcare. The US does have a moderately shorter lifespan than some other countries, but that is likely due entirely to our high number of instantaneous deaths from murder and accidents—events for which the healthcare system bears no responsibility.

“The health of a nation’s population depends primarily on the quality of that country’s healthcare.”

Healthcare is extremely important but isn’t the dominant factor in determining a population’s health. This is beautifully summed up in a chart produced by Juhan Sonin and colleagues. I summed up this chart in “Data Visualization: Simplifying the Complex”: “Individual behavior (smoking, guns, sleep patterns, etc.) determines 38 percent of the variation. Social circumstances (friendships, family, literacy, etc.) explains 23 percent. Genetics and biology determine 21 percent and environment 7 percent. Only 11 percent of the variation derives from medical care.”  

“One obvious reason for our shortcomings lies in the tens of millions of uninsured people; being uninsured, after all, has a large negative impact on health.”

One can no doubt find examples where having health insurance meant the difference between sickness and health or even life and death. But the relationship is far murkier than one might imagine. Megan McArdle has written extensively on the weak linkage between health insurance, healthcare, and health, for example.

As noted above, healthcare has a smaller-than-expected impact on health. And having health insurance has a smaller-than-expected effect on healthcare. America’s uninsured do get care, albeit less than insured people do. 

“Unfortunately, competition just doesn’t work in healthcare because the issues are too complex for laypeople and because so many decisions involve life-and-death matters; you can’t shop around when you’re lying on a gurney having a heart attack.”

In a reductio ad absurdum piece, “The Case for a Single-Payer Legal Profession,” I said these same characteristics apply to law, yet no one calls for a centrally planned, federally funded, price-controlled legal system.

In “Defying Gravity,” I argued that markets barely function in healthcare because over the course of a century, we have imposed customs, regulations, and laws that choke off mechanisms necessary for a competitive market.

The vast majority of healthcare spending doesn’t involve people on gurneys or in other emergency situations. Most care is primary or chronic, where—given a workable market—one has time and ability to shop around.

Conclusion

20 years ago, I wrote, “Economics, at its very best, is an assault on common sense. Common sense is often incomplete, misleading or flat-out wrong. And commonly held beliefs, no matter how wrong they might be, are exceedingly difficult to dislodge.”

In the words of humorist Josh Billings (written in authentic frontier gibberish style): “I honestly beleave it iz better tew know nothing than two know what ain't so.”

None of this means that American healthcare is what it ought to be. It is not. But take the myths and maybes with the canisters of salt they deserve, and we can have a far more productive, pleasant national discussion of healthcare. 

Photo credit: Lex Van Lieshout / Epa/Shutterstock

Support Mercatus

Your support allows us to continue bridging the gap between academic ideas and real-world policy solutions.Donate