Bienvenidos readers! It’s your hombre-in-chief Angry New Mexican here again and once again serving as AOC’s editor, since he writes up these great posts for our super-secret email list and then is too lazy to post them to the blog.

Anyway, what started the discussion was this article about health care being a very inefficient market due to poor information among consumers, even when people’s own money is at risk. Translation: You can’t just blame insurance companies for people’s ignorance. The opening example in the article goes something like this,

“Five years ago, former President Bill Clinton developed chest pains caused by blockages of several coronary arteries… It’s hard to imagine a savvier, better-connected health care consumer than the former president. But consider this: Beginning in 1991, state health officials in New York began releasing hospital- and surgeon-specific death rates from heart surgery. Anyone can see them online. At the time of Clinton’s surgery, the most current report showed that Columbia-Presbyterian had the highest death rate of any of the 35 hospitals doing bypass surgery; it was twice the expected rate (about 4 percent instead of 2 percent, a margin not explained by random chance). Clinton’s surgeon was the chief of cardiothoracic surgery, a man named Craig R. Smith. Among the four surgeons at Columbia-Presbyterian who performed more than 100 bypass surgeries each year, Smith had the worst mortality rate.”

It was an anecdotal example, of course, but it goes to illustrate just how uninformed Americans are about the health care they spend 16% or so of GDP on. AOC responded by attacking the article for being long on anecdote and short on facts, but he brings up enough interesting points in the process that I think it was a worthwhile read. Anyway, without further ado, I give you AOC…

Angry Overeducated Catholic
Of course we don’t actually know if Clinton made a poor choice. I would be willing to bet that, in [a certain] town, [Hospital A] probably loses more patients on the table than [Hospital B] across a good number of categories. But you would be foolish for thinking that [Hospital A] is the inferior hospital.

Instead, it is a regional trauma center and gets many of the hardest cases as a result.

So, it could well be that the hospital Clinton chose is very very good at doing this in complicated cases (like his) and the doctor he chose, quite possibly the lead surgeon in the area for the hospital, might have the record he does because he takes on the hardest cases in his field.

It would be like concluding that the fictional doctor House is the worst doctor ever since he loses something like 5-10% of his patients—and in fact kills through provable medical errors a sizable percentage of those. But in reality all of this is because he takes on the ridiculously tough cases (and because the show needs tear jerkers and personal errors from time to time to keep the dramatic tension high).

We don’t know whether that’s the case here because, as usual, the article is short on facts and long on media pontification.

What we can take away from this without question is the great value of catastrophic insurance blended with out-of-pocket payments for lesser costs. As stated:

“To date, only one study from way back in 1982, the remarkable RAND Health Insurance Experiment, addresses this question clearly. When patients were forced to shoulder one-quarter of their medical costs, for example, overall medical spending fell a remarkable 20 percent. But the pattern was telling. Patients failed to spend their money wisely and cut back equally on highly effective and largely pointless treatments. They couldn’t tell what really mattered. The cost savings mostly came from avoiding doctors altogether. Once someone was ill enough to need hospitalization or surgery, there was no difference in costs between those with free care and large co-payments.”

Once you get to the hospital, the market efficiencies collapse for most folks because nobody can pay for surgery out of pocket…so there’s no inefficiency to have insurance at this point. But as RAND found unsurprisingly, having folks pay even 25% of their normal costs made a significant difference in overall expenditures. Remember, overall expenditures fell 20% even though, as stated, nearly none of it came from the supposed bank-breakers of hospitalization or surgery. So you can bet that routine costs went down a good deal more than 20%.

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