Skin In The Game

Some time ago, I found myself needing short-notice dental surgery and the options available to me were to go see a highly rated oral surgeon who didn’t accept my dental insurance that very morning or else to wait four or five days in order to see a lesser-rated surgeon who did take my insurance. Since I was in a great deal of pain and experiencing a lot of anxiety and I had the money in the bank, I opted to go for the high-cost speedy route. Today, several months later, I came in for what I was told was an advisable follow-up visit. The visit was brief, but involved an x-ray with their fancy machine, which I recalled from the bill for my previous visit was surprisingly expensive. We’re talking a few hundred dollars for a device that, though doubtless expensive, seems to have very low marginal cost. So I came in today, did the x-ray, and all was well. The surgeon said to me that things seemed fine, healing was under way, and there was no need for me to come back in the future unless I was experiencing some specific problem. He’d send a note to my regular dentist and he’d be able to keep an eye on things.

So much the better.

But note here that there’s basically zero doubt in my mind that had the surgeon told me I needed to come back in six months later and have another x-ray that I would have happily made the appointment and spent the few hundred dollars. Like everyone who’s not David Koch rich, I do, of course, have limited financial resources. But I’m lucky enough to not face any sharp financial constraints, and if a well-regarded health care professional tells me that I’m in need of additional health care services, I go buy the service. Historically, I’ve consumed very little in the way of health care services and it’ll all been covered by insurance. So in terms of psychological introspection, I was open to the argument that my willingness to buy whatever the doctor wants to sell me was, in fact, driven by the existence of large-scale implicit subsidies for health insurance coverage. Now that I’ve been in the position to have major “skin in the game,” I can tell you that it made no difference whatsoever. What did make a difference, and what my situation has in common with the general case of insurance, is that I had the money. I have a good job, I have no chronic health problems, I have no dependents, I have no outstanding student loans, etc. Paying a few hundred dollars for a x-ray means I’ll delay my plan to upgrade the quality of the speakers in my apartment, not that I’ll be taking my kids to the food bank for meals.

It all suggests to me that if you want the “skin in the game” factor to seriously limit health care consumption, you’d really have to push people to the brink of desperation. The United States is, by and large, a fairly wealthy society. Middle class Americans are not generally teetering on the brink of starvation. If properly qualified health care professionals tell us we need more treatments, we’ll get the treatment.

The much more promising issue here, if you ask me, is why was the damn x-ray so expensive in the first place! Regular readers know that I’m a big fan of congestion pricing. If a highway is facing regular traffic jams, that means the price access to the highway is way too low. Charge a higher price and not only will the government have a big new source of revenue (let’s say it’s used on a 50:50 split of tax cuts and better services so everyone’s happy) but use of the resource will become more efficient. Win-win. But there was no x-ray machine traffic jam. The x-ray machine sits idle all day Saturday, all day Sunday, every major holiday, and the majority of the hours every business day. Even during regular business hours, the machine is usually not in use. And there’s no way that the marginal cost of using the machine runs to hundreds of dollars per use. If you regulated the prices of the devices and services more aggressively, this would drive costs down. It’s true that it would also tend to decrease the quantity of capital flowing into health care R&D. This, however, would be the consequence of any successful effort to control health care costs since cost = profit = investment incentive.