The Economics of Health Insurance. Three Stories.

The New York Times has posted a piece on the possible impact of Trump Care [sic] on how many people have health insurance:

The number of Americans without health insurance plunged after Obamacare started. Now, early evidence suggests, it’s beginning to climb again.

New polling from Gallup shows that the percentage of uninsured Americans inched up throughout last year. That trend matches other data suggesting that health coverage has been eroding under the policies of the Trump administration.

This early evidence must be treated as tentative, for reasons that have to do with Gallup's changing methods of polling people and because other sources are not (yet) showing a similar drop in the number of insured people.

On the other hand, the policies of the Trump administration are, of course, specifically intended to cut back on enrollment in Medicaid. for instance, and from that angle the results wouldn't be too surprising.

I like that NYT piece, because it doesn't treat us as grumpy and hungry children, demanding to be fed with the right political messages.  It's nuanced, points out several ways in which the findings can be interpreted, and explains what kind of data we should seek in the future.

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I broke a small bone in the table of my foot last summer.  Because of the high costs of my health insurance policy (it's the largest monthly expense in my budget), I first seriously considered not going to see a physician:  I wasn't sure if I could afford my share of the costs from my remaining monthly budget.

Remember that what we in the US call health insurance is only partial insurance and leaves us with some out-of-pocket costs, and remember that it's hard for the patients to predict how large those end up being, given that the insurer has power to refuse some items and leave paying for them to the insured person.

This experience made me think more about how buying health insurance both makes a person poorer and reduces the final prices of health care at the point of care.  (Those of you who like economics might want to think about how the conventional analysis of the income effect and substitution effect of a price change might be useful here, once we allow for the extra income change from buying a health insurance policy.  There are two income effects now.)

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Sarah Kliff talks about the way emergency rooms price their services in this Vox interview.  If you find reading the interview hard going, welcome to the club.  Studying the way hospitals charge for their services can be a truly nightmarish experience for anyone trying to use routine economic models for that*.

One obvious reason is that the patients might not even have the kind of price information which is required for those models to work.  Take "the facility fees,"for one example:

These charges, known as “facility fees,” are the price that patients pay for walking in the door of an emergency room and seeking service. Nationally, these fees are kept secret. Patients only learn their emergency room’s facility fee when they receive a bill after the visit.

So.  It's impossible to react to a price when one is not told what it is! 

Conservatives who advocate "free market" economics in health care tend to skip over problems of that sort, as they skip over the problems that local monopoly power of hospitals in many areas causes, as they skip over the lack of information most consumers have about what care is necessary and what care is of sufficient quality, and as they skip over the serious theoretical problem of the sellers in health care not only selling the product but also telling the buyers what they need to buy.**
 

The pricing patterns of hospitals and their emergency rooms link to health insurance.  

 

Consider the case of someone who is brought to an emergency room unconscious or too confused or in too much pain to think clearly.  This person may have private health insurance which only covers in-network services, and while the hospital itself may be in the network, it may employ providers who are not.  There's no way for someone in that condition to scrutinize the small print in their health insurance forms or to walk around checking which emergency room doctors or other specialists are in the network and which are not.

 

This could mean that someone with insurance is not, in fact, someone with insurance when the final bills come in for the emergency room and possible later hospital care.   

 

From a Vox article from last May:

Vox’s database shows that patients are especially vulnerable to these surprise bills when out-of-network doctors work at in-network hospitals.

“It does happen quite a lot in the emergency room,” says Christopher Garmon, an assistant professor at the University of Missouri Kansas City.

Garmon published a study last year that found as many as one in five emergency room visits led to a surprise bill from an out-of-network provider involved in the care.

“When somebody is out of network and the patient knows that, they can avoid those providers,” Garmon says. “Here, it’s very hard for patients to know this is going to happen.”

Garmon found that surprise bills are the most common in emergency room visits where the patient is ultimately admitted to the hospital for further treatment. Twenty percent of those patients end up with an out-of-network bill, often from specialists such as anesthesiologists and pathologists.

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*  The models are not completely useless, but to determine how they relate to the real-world patterns of hospital pricing can be excruciatingly complicated once we take into account how much information is hidden from the consumer side of the market, the monopoly power of many hospitals, their not-for-profit status (what do the try to optimize?  and how does that goal affect their pricing principles?) and the possibility that they compete mostly in perceived quality rather than in price.

** It's not that sellers are out there defrauding buyers out of all their money, but that the health care markets have special arrangements to safeguard the relatively uninformed buyers.  Those special arrangements, such as the agency relationships between providers and patients, licensing and the self-regulation of the medical profession, all tend to have side-effects which are not pro-competition.