Ezra Golberstein put up an excellent tweet last night that I want to deconstruct a bit as he makes an amazingly good point. He pulled data from the National Health Expenditure Analysis tables to make two pie charts.
Chart #1 is where all the money goes systemically.
As we eyeball the chart, hospital spending makes up a little more than a third, doctor/clinical services are somewhere between a fifth and a quarter and drugs are probably about a sixth. Another half dozen service types makes up everything else.
This is the accounting that insurers think about, this is the accounting that policy wonks who want to either reduce or slow the rate of growth of healthcare spending think about. This is the start of the business case of trying to move services out of inpatient units to outpatient units.
It is also a very different layer of reality than the one experienced by most people.
The two biggest sources of system spend that make up over half the societal spend now make up a quarter of out of pocket spending. Physician and clinical spending out of pocket is more than hospital spending out of pocket.
Out of pocket drug spending, nursing home and durable medical equipment (DME) have much larger personal share of out of pocket costs than their share of total medical spending. Dental services is almost entirely out of pocket.
Ezra makes an incredibly astute point:
One of the reasons that the politics of health policy are complicated is that these two pie charts are distinctly different from each other. Patterns of total health care spending differ a lot from patterns of what people and families pay out-of-pocket.
Most people fundamentally care about the spending that they see. People see the co-pay and deductible at the pharmacist counter. People see the employee contribution to premium on their paycheck. They don’t see high per unit costs driving up premiums which lowers take home pay. People respond to direct connections as real problems that they need to solve in the second graph while policy makers and wonks focus a lot on the first graph.
Another Scott
Maybe I’m being dense (wouldn’t be the first time), but I’m not at all surprised by the differences in the graphs. Most people don’t deal with hospitals unless they’re delivering a child, or have an accident/illness that requires a visit to the emergency room or etc. And those things don’t happen every year for most people. But every year (most of us) get an insurance bill and visit doctors for wellness exams at least.
We can address the astronomical costs of hospital visits the same way we address the astronomical costs of a new fleet of jet fighters – by having sensible people looking over their shoulders and making them justify their costs, and by (to the extent possible) encouraging competition.
The general public shouldn’t have to get outraged by the once in 20 years $1M hospital bill for Congress to make sure that people don’t get socked with abusive bills. Congress should make sure that there are systems in place to control costs without the public having to be directly impacted by it.
tl;dr – if the only way consts can be contained is if the two pie charts look similar, then we’re all doomed.
My $0.02.
Cheers,
Scott.
dr. bloor
@Another Scott:
The F-35 says hi. Pretty sure the very last thing we need is for Pentagon-level standards and sensibilities to be applied to health care spending.
I expect this disparity and the relative ignorance of the public to persist as long as a majority of the electorate are covered by the combination of employer-sponsored plans or medicare.
Bradley F
David
I am not jazzed over this as well. When 80% of folks say they are SATISFIED or VERY SATISFIED with the health system, its because of system contact. Its low cost and high volume services that impact most voters and patients. But how about doing the same pie graph for the top one-third of patients who are getting whacked from underinsurance, HDHPs, or going bare. Or break it out by payer.
The above is too narrow a sliver and it oversimplifies the incongruent state of payer and spend play.
Brad
Another Scott
@dr. bloor: Heh. ;-)
Not to derail the thread, but the F-35 is a bargain compared to the F-22. The Pentagon killed the F-22 because costs were out of control. Modern planes of any sort are expensive. A 737 Max 8 supposedly costs $122 M each, according to Wikipedia. (As always, the true cost depends on how much is included over the lifetime, etc.). Why wouldn’t a state-of-the-art fighter cost more than a flying bus?
It’s just an example. Systems can always be improved, but the point is, someone independent has to be watching the people who are demanding the money.
Thanks.
Cheers,
Scott.
L85NJGT
Until they get to the last 18-24 months of life, and then they are steered to spending their way to immortality, regardless of the actuarial realities. (death panels!).
Ohio Mom
For me, I divide things up. I like and trust (as much as one can) Ohio Family’s doctors — if I don’t like ‘em, they are replaced. So if anyone asked me something relating to direct care, I’d be very positive.
I hate everything that has to do with our health coverage, with one exception, and that is Ohio Son’s Medicaid coverage that he is entitled to because of his disability.
Due to the quirks of Ohio’s disability programs, he is not in a managed care plan. Whatever Ohio Dad’s employer-provided plan does not cover, Medicaid pays for, no questions asked.
Now this could change, and he could end up in a restrictive managed care program because Ohio is a heavily gerrymandered Red state and Columbus is looking for ways to cut back on anything humane. They are zeroing in on Medicaid even as I type.
Our primary insurer is a nasty piece of work; we’ve had three big arguments since we were forced to start with them two years ago.
The most significant argument was about an expensive genetic test that would show if I needed to continue the estrogen-blocking medication for my breast cancer follow-up for more than the old standard of five years.
We asked for the test, the insurer said no, but fortunately the testing company has a scholarship program (the test is fairly new and they want more data). I came out “strong likelihood of reoccurrence without continuing the hormone blocker.”
What would have happened if I was less of a natural pain-in-the-ass?
I know this is off-topic but it’s been eating at me.
Zelma
@Ohio Mom:
Interesting info about that genetic test. I guess it wasn’t available 6 years ago when I went off my estrogen blocking medication. Of course, for me it’s now moot since I’ve had my reoccurrence and I’m back on the blockers. I wish I had known before my second mastectomy!
Zelma
@Zelma:
Addendum: I imagine the test would have been cheaper than the second surgery.
Zelma
A question for Dave: What are “other non-durable medical products”?
bbleh
@dr. bloor: The disparity will persist as long as we have ANY form of insurance — i.e., forever — simply because people can’t afford to pay out-of-pocket for even a proportional share of the costs of dealing with truly catastrophic events, notably those that require hospitalization. In other words, we have insurance precisely to cover the relatively rare but huge costs that only some people face, so people will never see the true costs of care.
I would also add, if you consider not only the direct costs but also the cost-effectiveness of healthcare expenditures, the picture becomes even more distorted. For example, a member of the public may pay a sizable co-pay for an annual checkup or a specialist visit or a regular prescription, but the value of those things in preventing larger future expenses far exceeds even their total cost (i.e., counting insurance as well as copay). The public are not only unaware of what is actually spent on them; they are also unaware of the relative benefits (i.e., reducing future costs). And calculating these things is enormously complex.
All of which is to say, whenever you hear arguments like “healthcare consumers need more skin in the game” or “better information will allow healthcare consumers to make better choices,” you should laugh out loud.
Amir Khalid
@Another Scott:
The 737 Max is an incremental development of a plane that has been around for decades, whereas the F-22 and F-35 were new-generation aircraft developed from scratch. That difference alone would make the latter two much more expensive. But from the reporting I’ve seen, the Obama administration killed off the F-22 because the delays and cost overruns had put it beyond the means of even the most generously funded air force on Earth. And given its own price tag and development issues, the F-35 isn’t exactly a bargain either.
It appears to me that this is the greater issue re the F-22 and F-35: the DoD lost control of the development process, and needs to address that failure if future weapon systems projects, not just fighter planes, are not to become money pits.
Ohio Mom
@Zelma: It’s called the Breast Cancer Index test, and I don’t know exactly when it became available. I think the “retail price” is four or five thousand, definitely cheaper than surgery. And since the test uses a sliver of the tumor, definitely not disruptive and painful as surgery is too (I often try to imagine what the storeroom full of wax-encased tumors looks like, and how long they keep each sample).
My onc was not convinced I needed it — my Oncotype score had been a 3 — but went along. I’d heard about the test on the Breastcancer.org discussion boards. Do you know that site? I think it’s the best for info (the founder is a breast doctor) and perspective.
Anyway, Rats! on your recurrence. I hope it is responsive to the estrogen blocker.
mad citizen
Interesting charts/post. I’ve experienced this in recent years, and am on a high deductible plan (roughly $8000) with HSA. I suppose this discrepancy is why employers have gone so big on wellness programs, trying to prevent big ticket items. (I’m sure this is an obvious point to David and others here).
Also, my insurer changed some rules and really doesn’t want you to go to the ER. A couple years ago I got kind of forced from a cardiologists office to the ER (same location essentially) and into an overnight stay for no good reason. Big mistake by me. But when I asked about checking myself out they threatened me with the “your insurer might not pay the bill” thing. A bad Catch-22.
Ruckus
@Zelma:
Cheaper and maybe better for your health.
A big problem is that spending is current, saving is future.
What’s the bottom line for this quarter or year, not what is best for the patient or even the insurance co long term.
Another Scott
@Amir Khalid: Good points.
Briefly: I’m no expert, I think a big problem with these huge military programs is that R&D is going on concurrently with early production. It’s been happening for a very long time (see the wing cracking problems with the C5-A cargo plane). They’re trying to do a lot of things that haven’t been done before to meet current and future needs. That’s very expensive, no matter how good the oversight is. But that means the oversight has to be even more careful given the stakes ($ and lives).
Cheers,
Scott.
Ohio Mom
@bbleh: When I hear that canard of “skin in the game,” I have always snorted. The Ohio Family experience is very illustrative.
If the Breast Cancer Index company hadn’t had the scholarship program, I would have probably passed on paying for and taking the test — my onc didn’t think it was necessary and $4-5K is a lot of money for my family. I would have thought, I don’t need peace of mind THAT much.
Meanwhile, six years ago when I thought Ohio Son needed a sleep study and the screening NP was unconvinced and tried to scare me off with, “It costs $15,000 and your insurance probably won’t pay for it,” I was able to respond, “Eh, he has Medicaid.” We had NO “skin in the game,” if all you count is money (and ignore the value of parental concern).
The day after the study, the very same NP called in a panic. “He has severe apnea! He needs a tonsillectomy as soon as possible! You have an appointment with the ENT in two days, be there!”
Now I know anecdote is not data, and in retrospect, I will admit that I once asked for an throat endoscopy I didn’t need, but to me, these are scary stories.
How could anyone count the lost health and lives caused by testing foregone because patients had too much “skin in the game”? It must be real, and untraceable.
Well, we can certainly count the insurers’ profits, and isn’t that all that matters?
Brachiator
Also, the whole point of insurance is that it helps to defray the costs of hospitals and doctors’ fees (especially specialists). So there would naturally be a difference between an individual’s out of pocket costs and total spending.
Ruckus
@Amir Khalid:
It’s worse than that. Not having a “common sense” look at what kinds of combat that may take place. It’s pie in the sky all the way. An upgrade on the A10 would make a lot better sense than one plane that can never do everything, except the one thing that defines a major way air fighting has taken place. Look at the whole AF process and one wonders if they are more interested in Officer Club bragging rights than actual world issues. And the navy is not any different.
And coming back around to the subject at hand – costs of healthcare and what we get for the huge expenditures, it seems to me that a lot of the issue is that we aren’t even asking the right questions in what it is that we need in healthcare. We always seem to be asking how much does it cost as first issue, rather than what is it that defines actual healthcare for an individual. Example, dental costs are noticed by individuals because it’s not treated like a healthcare issue by both the overall system and by insurance companies but something that is almost a vanity issue. The consumer has the overall care of teeth in their hands, every day and this doesn’t bode well for insurance company control of costs, so they wipe their hands of the whole concept.
Ohio Mom
@Ruckus: Add to that the increasingly clear connection between dental and overall health.
Sab
@Ohio Mom: Another anecdotal. One of my husband’s oldest friends was having severe back pain. Insurance wouldn’t pay for an MRI so he skipped it and went to a chiropractor, since the MDs and ODs had nothing to offer. After six months of not helping, his chiropractor said that he wasn’t helping and sent him back to the MDs. They finally did an MRI and found tumors on his spine from lymphoma was the problem.
He is still alive after multiple rounds of chemo etc, but his back would be a lot better if it had been diagnosed months earlier.
TenguPhule
@Another Scott: There does seem to be a problem with the F-35 though.
The F-35 is the cheaper plane to build but it seems to require much more upkeep and maintenance over its operational life to keep it flying.
Ruckus
@Ohio Mom:
Was going to add that in but my overly long posts………
Ruckus
@Sab:
Diagnosing is an art. A learned art but still an art. And not everyone is an artist. Medicine has developed methods/questioning/investigation/testing to determine issues and it doesn’t always work. It works less often when the doc thinks he knows better and doesn’t even do that. But the primary issues are money, probability of the worst case and experience of the doc.
KithKanan
@TenguPhule: Which version of the F-35 is that flight cost per hour (or is it the average of all of them)?
Without knowing all the details, I would imagine the USAF F-35A (conventional takeoff and landing) is the cheapest variant to fly and the only one you could compare apples-to-apples with the F-22.
The Marines’ F-35B (short takeoff and vertical landing) is likely much more expensive to maintain because of the added complexity of the STOVL systems and the extra stresses on the aircraft from that type of operation, and I would expect the Navy’s carrier F35Cs to fall somewhere in-between (again from added complexity and extra stresses from carrier landings).
Ohio Mom
@Sab: That is a sad and frustrating story about points of no return.
The ironies are, the insurance company certainly did not save any money — they ended up paying for a MRI anyway, plus possibly more in treatments to try to make up for lost time — and your husband’s friend spent who knows how much money on the chiropractor unnecessarily.
So much for cost-consciousness. And then there is the unmeasurable suffering and angst this poor fellow continues to go through. Bah!