Hidden Costs of Health Care

It is undisputed that consumers are bearing more and more of the total cost of health care.  A new report from Deloitte’s Center for Health Solutions identifies a significant pool of health spending, all borne by consumers, that is not included in the official National Health Expenditure accounts.  (Deloitte Report) The official spending in 2009 was $2.83 trillion, of which $760 billion was for hospital services, $832 billion was for professional care and $246 billion was for prescription drugs.  Deloitte, with the help of an economics firm and a phone survey of 1008 adults, finds an additional $363 billion, or 14.7% more than in the official figures.

This amount includes such items as functional foods and supplements, complementary and alternative medicine, health publications and ambulance services and unpaid care by family and friends.  In fact, the imputed value of this last category accounts for 55% of the extra health spending.  But the extra spending did not include things like gyms or spas, organic foods or herbs and botanicals, so it is little hard to understand the rationale for what was in or out.  Some of the spending is discretionary and probably is largely done by relatively well-off people.  A significant part of the informal caregiving, however, is probably not discretionary, as many insurance plans, including Medicare, don’t always cover all needed or desired home care.  But even much of this category might not impose a hardship, as it is provided by people who want to assist a loved one or who don’t work.

It is hard to tell what the overall point of the study is.  Certainly it supports the already well-understood notion that consumers are stressed about health costs.  But a great deal of the truly discretionary costs identified in the report are being absorbed by people who have the incomes and the will to do that spending, as the data in the report demonstrates.  And basic economics suggests that having the person who uses a service or good pay for it directly creates the strongest incentives to spend wisely.  In health care that rule must take into account the complexity of understanding medical decisions for most consumers.  But in the long run, a system that continues to move in the direction of having consumers directly bear more and more costs, especially middle and higher income consumers, is a better system than the mess we have now.