Testing The GOP’s ‘People Are More Cost Conscious With Skin In The Game’ Argument Part XI

Yale professors Theodore Marmor and Jerry Mashaw have an editorial in today’s Philadelphia Inquirer that offers what may be the clearest explanation for why Republican prescriptions that try to lower health care costs by forcing individuals to have more “skin in the game” are likely to have a negligible impact on spending:

Over four decades of economic analysis of American medical care, there has been a persistent emphasis on patient cost-sharing as a solution to growing public health budgets. The case for it would be straightforward if medical care were an ordinary market good.

We allocate bread and circus tickets to those willing to spend what bakers and circus managers charge. Those willing and able to pay get the services and goods, and no central authority need interfere. Hence, if we make patients pay more, those who cannot pay will do without, and total costs will go down. This is doubtless true, but most Americans do not believe medical care should be allocated that way.

Or there’s the argument that cost-sharing will get patients to forgo unnecessary care. But there is no solid evidence for this claim, and much contrary evidence. If free medical care led to more reckless overuse, countries like Canada and Germany, where patient costs are either zero or minimal, would suffer disproportionate inflation in expenditures or severe access pressures. They don’t.

Indeed, the theory doesn’t even hold up in the American health care system. As Austin Frakt pointed out recently, if individuals with higher cost sharing really do use less care, then beneficiaries in employer-sponsored insurance (who receives a 40 percent tax subsidy, on average) should spend less than Medicare enrollees — who receive a far higher government subsidy. But data from the Kaiser Family Foundation suggest that this just isn’t the case: