Call it the "skin-in-the-game" argument: the notion that people will use medical care more sparingly -- and presumably more prudently -- if they have to pay a larger share of the costs out of their own pockets.
This is the idea behind health insurance deductibles and co-pays. It's the bedrock concept of the "consumer-driven healthcare" model, which has been smiled on by conservatives in
"It doesn't take a whole lot of smarts or a whole lot of blind faith in markets to recognize that when you don't charge people for things (including health care), they will consume too much of it."
Levitt's complacent confidence in this idea as it applies to health and medicine prompts us to inquire: Is he right? The answer, according to numerous studies and plenty of empirical evidence, is "No."
Levitt made his observation in the course of a debate he waged with economics blogger Noah Smith. We discussed that debate here, but Levitt's remark came later.
The country with the highest per-capital spending on healthcare, by an enormous margin, is the United States, where most people have to pay for at least some of it out of pocket and many have to pay for all of it or go without. In 2010, according to the Kaiser Family Foundation, the U.S. spent $7,910 on healthcare per capita, well beyond the spending of countries providing government-funded universal care such as Britain ($3,253), France ($3,835), and Canada ($4,285).
It does appear to be true that families in consumer-directed plans do cut back on healthcare services, at least at first. The question, however, is which services they reduce, and whether their choices are wise. A 2012 study by the Rand Corp. put this question at the forefront. It found that families on high-deductible plans cut spending in part by skipping such important preventive treatments as "childhood vaccinations...mammography, cervical cancer screening, and colorectal cancer screening" as well as "blood tests for glucose and cholesterol for diabetics."
If patients "skimp on highly valuable services that can prevent more costly problems later, the savings may be short-lived," Rand concluded.
Similar findings come from studies compiled by Aaron Carroll, professor of pediatrics at Indiana University. One examined asthma treatment among low-income families, and showed that "families with higher levels of cost-sharing were significantly more likely to delay or avoid going to the office or emergency room for their child's asthma," Carroll reports. "They were more likely to avoid care."
Another study found that even modest increases in co-pay and other cost-sharing among
As he points out, skin-in-the-game systems don't have to be blunt instruments; in some countries where they're the rule, patients with chronic or severe conditions are exempted. But you rarely hear that option being explored by consumer-directed healthcare advocates in the U.S.
But there's little evidence that decisions on cardiac or cancer care are affected by cost-sharing -- or if it is, whether it leads to the right decisions in the long term. As a British reader of Noah Smith's blog commented: "I have never woken up and thought: 'It's free, let's have some chemotherapy.'"
Faith in the idea has even led some states to propose adding premiums and co-pays to Medicaid, though the federal government has been very cautious in allowing them to do so. But even a small co-pay may be insupportable for a family living at the poverty line.