The Adverse Incentives of Health Care Spending

Mark Perry is batting strong with another great post on health care over at Carpe Diem.

As I pointed out previously, health care does not cost enough to the individuals actually receiving the goods and services. Third party payers (public and private) increasingly insulate patients from the real cost of medical care, and thus protecting them from the financial consequences of poor life-style choices. (We are now down to personally paying only $12 out of every $100 spent--one of the lowest out-of-pocket expenditure ratios in the world.*)

As out-of-pocket expenditures fell, health care spending as %GDP has risen.


Analysis of research** in preventive medicine and health promotion reveals that 70% of health care costs are driven by behavior, and that 4 chronic conditions are responsible for 74% of costs, with smoking and obesity being the two most costly contributing factors for individuals. Two other major contributors are uncontrolled high blood pressure and uncontrolled diabetes.

Putting these two factors together, that the bulk of medical expenditures are related to behaviors, and that personal financial responsibility for medical care is plummeting, is it any wonder that over-all health care spending has sky-rocketed?

Any attempts at "reform" must address these facts.

If government intervention is to effectively decrease health care costs, laws and regulations will have to coerce people into healthy behaviors--outlawing smoking completely, fining people for being overweight, mandating physical exercise, taxing hypertension and hypercholesterolemia. Is that really the path we wish to take?

Alternatively, we could choose the path of freedom and personal responsibility.

Funny how freedom is never free.




* Once I complete the end of the year excavation of my desk, I will post the sources for this fact.
**Fabulous work in this area has been performed by none other than Safeway leading to the implementation of Healthy Measures, a unique health care program for their non-union employees which has kept their health care expenditures flat. More on this will be posted in the future.
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