Why The Conservative Alternative To Obamacare Is A Giant Non Sequitur

CREDIT: Shutterstock


CREDIT: Shutterstock

While the GOP still lacks an alternative proposal to Obamacare, conservative writers and wonks have actually coalesced around a collection of ideas usually labeled “consumer-driven health care.”

The basic theory behind this idea is that the existence of health insurance itself is the main problem driving health care costs. The act of shopping is the fundamental way that market forces cut costs for any product or service — but since insurers provide comprehensive coverage, they dissuade individuals from shopping around for health care, so people end up over-consuming it. And since Obamacare discourages bare-bones plans and pushes the system towards more comprehensive coverage for everyone, critics say it makes this problem worse.

At least, that’s the story conservatives tell. But the actual data doesn’t back it up at all.

For instance, Harold Pollack recently broke down the spending numbers for Illinois’ Medicaid program in the Washington Post. The blue line is the program’s cumulative cost, the vertical axis is the percent of that cost, and the horizontal axis is the percent of the program’s enrollees responsible for that cost:


CREDIT: Harold Pollack

As Pollack points out, “72 percent of Illinois Medicaid recipients account for 10 percent of total program spending.” National studies reveal a similar pattern: just five percent of Americans account for half the country’s health care spending — on average, about $40,000 per individual in 2009. The routine care, which makes up all of the medical services that most Americans ever use, just isn’t a big part of the system. Most of the spending goes to big-ticket items and services.

That’s a huge problem for conservatives, because their health care proposals would move Americans out of comprehensive insurance and into catastrophic coverage — plans that leave individuals paying the first $5,000 or $6,000 of their health expenses in a single year out of pocket. The theory is that this would force Americans to shop for health care again, market forces will reassert themselves in the realm of health care, and prices will come down. In the wake of a study that found little difference in health outcomes between people on Oregon’s Medicaid program and the uninsured (though Medicaid significantly reduced the risk of financial hardship) conservatives argued for this change for the Medicaid population specifically.

But the charts above show that people who only spend $6,000 a year or less on health care are already a tiny part of overall spending. The supposed over-consumption of care below that threshold just isn’t happening. If it were, the curve in the blue line in Pollack’s graph would be much flatter, and higher up on the left side.

That makes consumer-driven health care a giant non sequitur, even on its own terms. It claims costs are going up because insurers muddy the price signals between customers and providers — but its own proposals would leave insurers as the middle man for the vast majority of health care expenses.