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Rand Paul’s Dubious Evidence for Consumer-Driven Health Savings

Opponents of Obamacare make a compelling case that the law “oversolves,” if you will, the problem of the uninsured. As Sen. Rand Paul argues in the Daily Show segment above, the Affordable Care Act’s mandate for “comprehensive” insurance plans will drive up premiums, and thereby hurt the very people the law was intended to help. […]

Opponents of Obamacare make a compelling case that the law “oversolves,” if you will, the problem of the uninsured. As Sen. Rand Paul argues in the Daily Show segment above, the Affordable Care Act’s mandate for “comprehensive” insurance plans will drive up premiums, and thereby hurt the very people the law was intended to help. (States have some flexibility on how this mandate is defined, and the early evidence on how its adoption has affected costs is mixed.)

But it seems to me that the argument for allowing young, healthy people the flexibility to purchase less-than-comprehensive plans is quite apart from its companion argument: that if consumers paid directly for more of their healthcare, they would become more frugal, cost-conscious “shoppers.” This market pressure would, in turn, force providers to lower costs. Ophthalmologist that he is, Paul cites as evidence for this dynamic the market for LASIK eye surgery: insurance doesn’t cover the procedure—and costs for it have fallen dramatically over the years.

I’m finding it hard to generalize out too far from the LASIK phenomenon. As Incidental Economist blogger Austin Frakt muses:

LASIK is an elective procedure, the purpose of which is well understood by the patient. I’m on board with the idea that insurance shouldn’t cover such things, or if it does, not the full cost and certainly not the marginal cost…

Now, let’s push the boundary. Let’s think of some things that are not exactly like LASIK. Here are some easy ones: trauma care, repair of a broken bone, insulin. I think one can make a case that insurance should cover those, either because their need is urgent and not predictable and/or because they are cost-effective in some sense. The cost liability for these can reasonably be assigned to third-party insurance.

What about an MRI scan? Is it elective? Is the purpose always clear? Is it urgent or not? What about an angioplasty? How about an antibiotic for a sinus or ear infection? Or a routine health check with various cancer screenings (prostate for men, breast for women, say)? Are these like LASIK or not?


Jeff Levin-Scherz, of Harvard’s School of Public Health, argues persuasively that the answer is “not”:

1. Lasik surgery is entirely elective.  No one NEEDS it!

2. Lasik surgery is never an emergency. Hence, it’s much more “shoppable” than most health care.

3. Lasik surgery is highly automated—the computers actually do a substantial amount of the work. Therefore quality is more uniform than most health care

4. There is very high fixed cost for the Lasik laser—and the low variable cost makes it more likely that providers will price this at “marginal” cost—leading to large discounts.  That’s not true of cognitive services.  Ten extra visits with a neurologists cost almost ten times as much as a single visit given the large variable cost of the neurologist’s labor. Ten extra Lasik surgeries cost only a small amount more than a single surgery—since the cost of the ophthalmologist and technician is a relatively smaller portion of the total cost.

Scherz concedes that “more ‘skin in the game’” can lead to “price sensitivity” and lower prices—but nothing in the neighborhood that the good Dr. Paul would have us believe.

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