• Skin in the game

    Yesterday, I received a letter in the mail that took issue with my piece in CNN last week. One of the points made by the author was that if people had more “skin in the game”, they would not spend as much on health care.

    This is a pretty common sentiment. It seems like many people think that out of pocket expenses are too low. They believe that if more of our health care spending was out-of-pocket, then we’d have lower health care spending overall.

    If this were so, you’d expect that out of pocket payments would be low compared to other countries? Let’s see if that’s so, using OECD data and G8 countries (minus Russia), as I usually do:


    In terms of per capita costs, the US has the highest out of pocket expenses. Notice I’m not even talking about premiums – this is out of pocket expenses above that. It’s what most people think of when they talk about “skin in the game”. We’ve got a lot.

    But, some people argue that it’s not total amount that matters, but the percentage of health care costs that matter. Since the US spends more total, we should have higher out of pocket percentages per capita. But are our out of pocket payments as a percentage of total health care spending low?

    We look pretty middle of the road to me.

    I’m not trying to argue that our out of pocket expenses are too high. But these data make it hard to argue that our out of pocket expenses are too low. In other words, it’s not really apparent that we don’t have enough “skin in the game”. Nor is it clear to me that there’s some sort of easy-to-see relationship between “skin in the game” and overall health care spending.

    • The only thing that having a higher out-of-pocket cost does is to delay routine treatment or visits until something is *really* wrong. i.e. if your out-of-pocket is $160 vs. $20 you’re not going to visit the doctor until something is *really* wrong.

      Doesn’t that always work well for healthcare outcomes? I can’t think of the number of times I’ve heard ‘delay X screening’ from health professionals.

    • This week at our tumor board we had a case presented of a lady living in her car, unemployed for a year, with widespread colon cancer. She presented with large liver metastases, and active bleeding with a hemoglobin of 5 (severely anemic).

      Her diagnosis was delayed by her lack of insurance (she was flushed from the system when she became unemployed) and inability to pay anything for care when she became symptomatic.

      Copays, skin in the game, are fine but there is a population for whom any co-pay is too much.

      Our problem is we have a system to maximize the incomes of providers and suppliers, not to optimal care.

      • Yes the poorer the person the lower the deductible should be. Thus I would like Gov. provided insurance for all where the deductible is equal to your last year’s adjusted income minus the poverty line income. This would encourage the most capable people to push the system to lower pricing.

    • I am one of those calling for much higher out of pocket. The way I see it is if we do not want to use price controls or monopsony to lower costs more out of pocket spending is the logical thing. When you compare USA spending to Japan they use price controls and Canada they use monopsony so of course their spending lower, not to mention the fact that they have always had lower medical spending even before they started using monopsony and price controls. The point is holding all other things equal more out of pocket should lower spending.

      Of course on the other end is how to reduce costs on the supply side by, for example making it much easier to become a doctor and making it easier for non doctors to do more types of things.

      • >The point is holding all other things equal more out of pocket should lower spending. <

        And worse outcomes because of delayed care,

        Like the lady above with terminal cancer not diagnosed until she was nearly dead. We could really lower our costs by keeping her deductible too high for any further care.

        Our focus is better care, and better care will reduce spending.Germany and France are showing us the way to the best quality and vastly lower cost, but we have our "Exceptionalism blinders" on so can't see past the ends of our noses.

    • Dr. Carroll,

      I think the top chart maybe bad data. Does it exclude inflation? Would inflation mater?

    • [This is not a comment from me. I’m moving it from another post, where it was submitted by accident. –AF]

      I was actually going to pose this question to you in response to your post yesterday “there are differences among us.” I’m not sure I support an actual transition to a more market-based system where consumers have more “skin in the game”, but when you pose it as a choice between an expert panel or consumers themselves deciding what has value, I am very torn. Considering that there is evidence that physicians have not acted as good agents on behalf of their patients and the healthcare system has not been very responsive to consumer needs, I like the idea that I could use purchasing power to effect change. It’s true that people tend to reduce both necessary and unecessary care and delay treatment when cost-sharing rises, and rising consumer cost-sharing does not seem to be doing anything to lower overall health care costs. But as I understand the economic theory, it takes a critical mass of consumers with “skin in the game” to drive the market, and it is the savvy health care shoppers who will drive prices down and innovation up for everybody. If the system had support for the poorest, sickest, and least well educated, it might work very well.

      So if a critical mass of consumers is needed, we may not know if such a system will work better until we try it. I’m not sure any of the countries above, have the same kind of private enterprise that we do here, and that is necessary to respond to the market. Still, it is the best evidence I’ve seen in support or opposition to the idea (besides citing the HIE’s findings on the association between cost sharing and delaying needed care). But in the end, I don’t have enough faith in the market to risk such an experiment without solid evidence and not just economic theory.

    • Whether or not people get sick has no relation to their co-pays (skin in the game). An individual’s need for medical care is not determined by the generosity of their insurance plan.
      The co-pays do influence whether or not they will seek immediate care or delay and “hope it gets better”. This is not generally a good strategy when dealing with health. It is usually best to seek care early so that more serious complications of disease progression can be avoided. If people seek care early, there will be a number of self-limited conditions which will have the usually small expense of a medical office visit but this is a small cost (with a benefit of peace of mind) compared to the expense of advanced untreated disease.
      Rationing care by increasing patient expenses is a false economy.

    • A couple things. First, I assume this is aggregate data leading to an ecological fallacy. I sincerely doubt that the out-of-pocket “costs” are born in an “equitable” manner by all healthcare consumers.

      Second, didn’t we answer these questions with RAND HIE? There is an optimal level. However, I realize HIE didn’t answer every question we have.

      Also, to Austin’s comment, I believe there is a “critical mass” needed, but economists also tend to point out that the mass does not have to be a majority, just a loud group of consumers. There are other factors playing into consumer’s inability to be better consumers, including but not limited to the problem of agency (as was stated) as well as obscure pricing in healthcare. The second is unlikely to change as long as Medicare and Medicaid make up a large proportion of payments. Wasn’t this part of the idea behind HSAs?

      People are myopic, and we would likely need the help of behavior economics to force them to think about their future health.

      I don’t think that anyone can argue that if we had more “skin in the game” coupled with clear prices and higher health literacy that prices wouldn’t fall. Look at LASIK. Look at other insurance. Getting to that point while still believing that healthcare is a “right” is impossible.

    • ” Look at LASIK. ”

      Let’s not look at LASIK. It meets perfect conditions for a market. It is not really medicine. Both parties can walk away, including the physician, from any potential negotiation w/o damage. This applies to little else in medicine. Think of LASIK as like getting a tatoo.


    • The tricky thing about this issue is that it is an incorrect solution to an actual problem. There ARE people in the ER unnecessarily. Some studies show around 20%-40% are there for non-urgent causes. The crude solution is to make it cost more. The data supports that the same people who are coming in for non-urgent services would be just as likely to not come in once they believed it would cost them too much.

      It’s not an insurance problem, a provider problem, or a government problem. The problem is the patient.

      In all of the debates about health care reform, no one spends anytime talking about educating patients and making patients better consumers. It’s not a politically popular angle, granted.

      In most cases, you shouldn’t have an ambulance take your child the ER with a fever; but in a few cases, you really, really should. The difference is patient education. Sure, some delivery system reforms could help here; telemedicine needs to evolve. But, really, everyone sort of tiptoes around the idea that we need to reform patients.

    • Yes, there are people in the ER who would better be treated by a primary care doctor. The problem is, there is a shortage of primary care doctors (the average wait to see one is 6 days) and many people don’t have a primary care doctor (don’t have insurance, etc.) so they go to the ER.
      The fact is the ER is already significantly more expensive in terms of out of pocket expenses. The charges are higher and there is less coverage by insurance. Poor people without insurance often go to the ER because they have no alternative but they end up paying much more for care. (They may end up not actually paying for the ER care, but that is a different problem.)

      I always hate to “blame the patient” since patients only have the information that the market medical system gives them which in this case is:
      – I can’t get in to see a primary care doctor until next week
      – I can go to the ER can get care now
      – I really don’t know about the costs since nobody publishes prices

      After the visit and getting the bill, they can learn about costs but they still have the problem with access.

      The system could give them better information to make the choice by making prices transparent and giving better access to primary care doctors.

    • What I am still looking for and cannot find is the evidence that market can play any role in healthcare. Is there any evidence of that in history of any country? It does not seem to me that market at all possible in healthcare. The basic law of market is your ability to say “No”. It is impossible in healthcare. You cannot say No to better treatment in exchange for a cheaper one. And since this is a fact, market is irrelevant. And so out of pocket makes no difference.

      • Yes, there are examples of markets in health care. Are you familiar with medical tourism? While a person may not have the option of declining a procedure and walking away, we can still have competition to perform that procedure and a choice in providers. Refusing to purchase food isn’t really an option either, but I have my choice of grocery stores.

        Here are some examples of market forces at work in health care:



        • No, this is not an example because it has to do with hig-income households, not market in general. That is the whole point. Yes, you do have a choice in foods. You can choose organic versus non-organic. But when someone tells you about desease you have, you will not choose worse medication because it is cheaper while you would be perfectly OK with worse orange. This is not an example of market. The end product has no choices because there is only one goal in the purchase – to live at any cost possible. You can make any choice you want about groceries as long as you get something. You cannot apply the same to healthcare.


            What are you talking about? I seriously do not understand your point. What do high-income households have to do with anything? Did you click the links I included?

            While we may not have a choice in medication — although sometimes we do with generic alternatives — we do have choice in many other things, such as which doctor and facility performs a needed procedure. Prices can vary wildly here.

            • Examples from these articles do not offer any market decisions here because most people will not travel thousands of miles to cure most deseases – it is unreasonable to assume so. This is not how it works. Plus, how can you say we have a choice what doctor will perform procedure? Will you go to just graduated doctor to perform surgery instead of seasonal professional just to save on the price? This will never happen. If you think so you never had any health issues. You will always choose the best you know because it is about you life. This is where I am completely puzzled by people who say we have a choice. No we do not. This is why medical prices are so high. Your skin in the game is actually your skin.

    • My brother-in-law just died because he chose not to go to the emergency room when he was suffering from what he thought was chest congestion. He got the first possible appointment with his doctor, which was on a Tuesday morning. He died on Monday. As between making that error and making the error of going to the ER when you don’t have to, I can tell you which error I would prefer to make. It’s just stupid to imagine that people will make wise choices about this question if they’re ”educated” or given more information. My brother-in-law was a smart guy and he had government health insurance, so he had no reason not to go to the ER except that he just didn’t want to bother the ER docs with something he thought wasn’t that bad. We need a system of health care in this country where there is someplace everyone can go and when you go there they have to screen you, and have to treat you if you have a serious problem. In return, you have to go there every three years (more frequently when you get older) for a checkup and participate in a wellness program. Too much consumer choice generally results in bad outcomes.

    • I don’t understand why anyone thinks that co-pays will really help to bring down health care costs. If I have a $25 co-pay regardless of which doctor I go to, there is still no incentive for me to shop around for the best price, which is what we really need.

      Quite simply, we need to end this absurd employer-provided, insurance-centric approach in which everything, save some co-pays and deductibles, are paid for by a third party. Insurance should be purchased by individuals for emergency and catastrophic care.

      When people start shopping around good things will happen, just like with every other market out there.

      • “Insurance should be purchased by individuals for emergency and catastrophic care. ” – the problem is any illness today is an emergency. You speak as a person who never had to face these dicisions. And you are asking society to ignore seeing you dying just because you made a choice not to pay. This is not what society will or should do. And because illness in many cases has nothing to do with your history and can just appear out of nowhere there is no way for you to insure against it.. Health cannot be planned as most other things in life.

    • What America needs is for everyone to travel more. Really – if you spoke with people in France or Germany or Canada, you would learn that they get better care, have a better life, live with much less stress, AND they have an affordable health care system.

      But that would despoil a lot of Americans’ self-image – that we MUST have the best system in the world. (damn all the evidence)