Least Surprising Fact Ever

Via Carpe Diem

Almost all discussions about Medicare reform ignore one key factor: Medicare utilization is roughly 50% higher than private health-insurance utilization, even after adjusting for age and medical conditions. In other words, given two patients with similar health-care needs—one a Medicare beneficiary over age 65, the other an individual under 65 who has private health insurance—the senior will use nearly 50% more care.

Several factors help cause this substantial disparity. First and foremost is the lack of effective cost sharing. When people are insulated from the cost of a desirable product or service, they use more. Thus people who have comprehensive health coverage tend to use more care, and more expensive care—with no noticeable improvement in health outcomes—than those who have basic coverage or high deductibles.

Its amazing that we still have serious public debates about which way demand curves slope.

  • a_random_guy

    This is bleedingly obvious to anyone who thinks about it: one must have cost-sharing. No one should ever receive any healthcare service without paying some portion of it, however small.

    The other elephant in the room, which you do not mention, is care rationing. If you can afford private health insurance, you can choose the plan - plain or fancy - that covers what you consider important. If your care is paid by the public, then it *must* be basics only. No alternative medicine, generic medicines only, no transplants or other heroic measures. In short, give people who can afford it a reason to pay for private insurance. It is a two-class system? Yes. Life's ain't fair, and if you've made it to retirement age without figuring that out, well...better late than never.

  • someone-else

    I have OK health insurance; not the best I've had, but certainly not the worst.

    I'm on a daily prescription drug. No generics. Turns out it "costs" something like $4000/month.
    My health insurance (a big well-known name) covers 70% or so - when I went to my pharmacy to pick up an order in my new state, my part of the bill was about $1200. And I could only get a 30-day supply. (It was about $400/month in my old state)

    Well, what'cha gonna do? My health. My payment.

    Then I found if I went through this mail-order outfit - via my same insurance company - I could get a 90-day supply - of the same stuff - for $70.00. Seventy. For 3 months. Not Twelve Hundred for one month.
    Great service - no problems ... but?

    Something weird going on here...

  • rox_publius

    i'm on your side of the argument, but all this proves is that old people go to the doctor more.

    i'm pretty sure you can come up with a few reasons - even after adjusting for age and medical condition.

  • Dan

    I agree, Rox. Old people go to the doctor more because they're old. They tend to get sick or injured.

    But I also agree with a random guy. The publicly-funded healthcare plan needs to be a bit more bare bones. Good enough so that the basics are covered, like regular checkups to make sure people aren't developing heart disease, cancer or diabetes, but not necessarily enough to cover the type of thing that Dick Cheney is using (left-ventricular assist device), which is like an artificial heart and costs about $225,000.

    I have no idea if Medicare covers that device or others like it, or if it covers biologic medicines that can cost $100,000 a year, but if it does, it explains pretty simply why the country is going bankrupt.

  • Dr. T

    I have already posted on Carpe Diem and Cafe Hayek that Mark Perry's analysis is wrong:

    Mark Perry blames the increased numbers of Medicare patient clinician office visits almost entirely on increased demand due to minimal co-payments. His analysis is flawed because he completely disregards the effects of Medicare reimbursement policies on health care providers. The federal government repeatedly reduced inflation-adjusted reimbursements to clinicians for office visits by Medicare patients. Clinicians have responded to these reduced reimbursements in three ways: 1. Stop seeing Medicare patients, 2. Reduce time spent with Medicare patients and order more laboratory tests and imaging studies to compensate, 3. Schedule more visits such that a problem that previously required two visits now is handled with three or four shorter visits. The latter two responses are most common. The proportion of Medicare patient office visits due to response 3 is unknown but likely exceeds one-third and possibly exceeds one-half.

    The above explanation fits the facts and logic. Few retirees rush to their clinicians whenever they sneeze, cough, ache, or feel fatigued, because going to a physician has costs. Even if the direct monetary cost is low or zero, there are other costs such as travel time and travel hassles (especially for those who can’t drive), filling out forms and questionnaires, waiting in the clinician’s office, undressing and donning flimsy gowns, answering numerous questions (some embarrassing), feeling cold stethoscopes, undergoing poking and prodding, etc. Because of the above costs, one of the common difficulties clinicians face is Medicare patients failing to keep their appointments. Visits by Medicare patients for trivial medical problems are much less frequent than missed appointments.

  • Wait, so demand curves are real?! 😉

  • I think I read somewhere that seniors get bored and go to the doctor's office to socialize. Can't find the link, I think Carpe Diem had something similar for Walmart.

    You want more interest in cost containment, just get rid of the FICA category and split it out as Social Security and Medicare on our paychecks.

  • Dan

    I thought seniors went to church/temple for socializing. That's the only reason I could explain for why my older relatives seem so much more interested in religion. I can't imagine that ever happening to me.

  • Dr. T

    @Ian Random: Someone reads a survey somewhere that finds that a few retirees seek medical services partly because they want to socialize in their doctors' offices. This morphs into "Seniors Abuse Medicare to Gossip with Cronies" or some such bullcrap.

    I understand demand vs. cost curves, and they apply in numerous situations. However, they are not the primary driving factor in the increased physician visits by retirees. The two main driving factors are clinicians splitting visits due to low reimbursements per visit and that today more conditions affecting the elderly are treatable than when Medicare began in 1967. More treatable conditions = more office visits for diagnoses, drug dosage adjustments, and ongoing assessments.

    Mark Perry has a history of cherry-picking data that support his biases. For example, he has claimed since mid-2009 that the US economy is better than it seems, and he uses biased data, trends not corrected for inflation, and trends not corrected for population increases to support his incorrect views. He jumped on the demand curve for Medicare without taling to any clinicians or even considering alternate explanations.

  • Steve

    There is more visits and spending more. Medicare may be even less costly even though the number of office visits is higher. The other thing that is not mentioned is outcomes and mortality. If medicare encourages more doctor visits that yield better health, than that is a different story altogether. Office visits is a very imperfect proxy for healthcare costs and effectiveness.

    The real big question in this study is this: Who over 65 in the US has ONLY private health insurance and no medicare? Where are they finding those people (I don't know of any with the exception of retired Canadians and Europeans who live here) and how are they normalizing the data?