Penny wise, dollar foolish

The Incidental Economist is passing along an interesting study that looks at how people respond to co-pay changes for treatments of acute crisis:

study just published in JAMA Pediatrics looked at how children with asthma obtained care under different levels of cost-sharing, and how much stress their families were under financially because of their child’s illness. It’s important to understand that children with asthma, by definition, require care.

We want them to use the health care system. With respect to asthma, prevention and maintenance are far better than trying to treat a child already suffering from an attack.

What we see from this study is 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. They were more likely to have to borrow or cut back on necessities to afford care. They were more likely to avoid care.

This isn’t a good outcome. We’re talking about children with a completely manageable chronic condition who are being hampered by cost-sharing. That’s not what cost-sharing is supposed to do.

This is why I don’t think high deductible health plans or HSAs are a good policy solution.  They work reasonably well as true insurance products.  They are horrendous at the health maitenance component of health insurance.  As I’ve said before, HSAs and HDHPs can be an appropriate health insurance offering for a small class of people:

If I was the health insurance dictator in this country, I would allow high deductible plans to be sold.  They would only be sold to individuals and families who are reasonably young (age is a pre-exisiting condition) without any signifcant claims history.  The policies would not be automatically renewed until the most recent claims and medical history was reviewed.  Furthermore, the potential buyer pool would be limited to people who have the ability to absorb a one-time shock of several thousand dollars without it being a crisis.  This sub-population is fairly small, and can absorb the risk shifting that is inherent in a high deductible plan design.  Anyone with chronic conditions or recurring health maitenance problems should not be a plan designed like this

 If we assume that there is a general public policy goal of promoting good health at reasonable cost, then the obvious solution is to redesign out healthcare delivery and financing systems to account for reality instead of theory.  The obvious solution with plenty of real world comparables is some type of regulated public utility model of healthcare delivery plus social service enhancement plus collective single payer or regulated public utility payer systems mostly funded by general taxation.  Every other OECD country can make it work better and cheaper, so there are easy gains available.  However, I don’t think we’ll get to a national single payer or single payer-like system before my almost 2 year old can rent a car without surcharge, so I’ll be posting on a couple of second and third best kludges over the next week.

43 replies
  1. 1
    Baud says:

    What we see from this study is 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.

    Are you saying demand goes down when the price goes up? That’s some weird shit.

  2. 2
    Richard Mayhew says:

    @Baud: Econ 101 with Health Econ 202 massive failures which drive up system costs.

    The cheap treatments and maitenance are individually avoided on the hope that this wheeze ain’t that bad and not going to the ER will save the family a $50 copay but when a treatable wheeze goes to full scale attack with massive airway constriction — hello $15,000 bill

    Reading further down the TIE post, the cost-sharing for another population reduced offices visists signfiicantly (20 fewer visits per 100 patients at roughly $100 per visit) at the trade-off of 13 days of hospitalization for two patients. Assume a hospital day costs the system $2,000, so to save 2 grand, the increased co-pays lead to $26,000 in system costs.


  3. 3
    D58826 says:

    I think your being an optimist with regard to your 2 year old. If the GOP gains control of both ends of Pa. Ave. in 2016 or 2020, I suspect that by the time they finish destroying Obamacare, Medicare, social security and the rest of the safety net high deductible plans will be the least of our worries..

  4. 4
    wvng says:

    Richard, frankly, this is clearly the problem with plans having any meaningful deductible – people, particularly lower income people, don’t want to pay out of pocket. But the whole purpose of the higher deductible is to reduce premium costs. When you add up deductibles and premiums don’t they tend to ultimately be a wash if you are actually in need of regular medical care that exceeds the deductible amount? So your out of pocket is actually the same but it feels higher?

  5. 5
    dr. bloor says:

    Good post. I’m seeing more and more folks who make maybe $30,000 a year, whose employers have parked them in plans with $4000-6000 deductibles, which for them is effectively no insurance at all unless they get hit by a bus. And for most of them, if they do get hit by that bus, a $6,000 bill will have pretty much the same impact as a $60,000 bill on their financial future. They ain’t paying either off anytime soon.

  6. 6

    @Richard Mayhew: It takes some really serious guts to pay more out-of-pocket on health care when you’re wondering how you’re going to pay the rent. Most people are not steely-nerved money managers, and false hope is a powerful force in economic psychology.

  7. 7
    dr. bloor says:

    @wvng: For most folks, the higher premium cost is coming out of an employer’s pocket, while the high deductible is coming out of your own.

    I don’t think the premium/deductible balancing act would work for a deductible of more than 2-3 K per year anyways. There are folks out there with 5-10K deductibles. The intention there is to suppress utilization, nothing more.

  8. 8
    azlib says:

    I had a high deductible HSA plan when I was self-employed and you are exactly right. I could take a $10K hit without going bankrupt, since I had sufficient savings I could borrow against or use in an emergency. But I am aware I am a small subset of the overall population. HSAs are a SOP to the upper middle class. They are a crule joke for anyone without a high salary or savings.

  9. 9

    @dr. bloor: The exchanges would work for people who are solidly middle class, and have steady incomes and assets to protect or sell. But many people in the exchanges are lower-middle class or working poor, and have uncertain incomes.

    The ACA is a tight-fisted law. The negotiated drug and service rates are a pretty good deal for people with modest medical needs. People who have “silver” plans and income under 250% FPL get additional subsidies, which help. But in that range of 250% to 400% FPL, a major medical expense is likely to lead to a medical bankruptcy. And if a windfall takes a family over 400% FPL, the family will have to repay all the ACA tax credits, which can easily run into the thousands.

  10. 10
    gian says:


    the flexible spending plans – the stuff the local CVS puts on your receipts as eligible are a pain in the ass to actually use, and if memory serves if you don’t use the money in them it goes poof. I think they’re a great way to get laser eye surgery for the upper middle class, but to use the money to essentially get a tax advantaged copay on your prescriptions…
    if the money didn’t go poof, it would be a decent way for the working poor to put away $10 a week for a couple years for when they really need to see the doc. (not saying it would work for everyone but large numbers could use it.)

    hell just issuing a debit card for the flexible spending plans to use on copays instead of requiring spend first and do paperwork to be reimbursed with your own money would be a major improvement.

  11. 11
    Crusty Dem says:

    I think the legalization of the copayment, the concept of moral hazard, and the insistence upon “the best healthcare system in the world” are the foundation upon which our failed health care system was constructed. The first two are such ridiculous constructs, as if people want to spend their time at the doctor?

  12. 12
    Baud says:


    FSA’s go poof. HSA’s do not. And many now give out debit cards, although I don’t know the extent to which they charge fees for using them.

  13. 13
    nhoj says:


    We actually get Flexcard ( for our hsa/hra/whatever. But yeah if you don’t use all the money you still lose the balance at the end of the year.

  14. 14
    nhoj says:


    We actually get Flexcard ( for our hsa/hra/whatever. But yeah if you don’t use all the money you still lose the balance at the end of the year.

  15. 15
    🌷 Martin says:

    Carson continues to lie. He’s a medical professional and knows better than this:

    “I think what’s happening with the veterans is a gift from God to show us what happens when you take layers and layers of bureaucracy and place them between the patients and the health care provider,” Carson said on Fox News, using the veterans hospital backlogs to criticize Obamacare. “And if we can’t get it right, with the relatively small number of veterans, how in the world are you going to do it with the entire population?”

    There are 21 million veterans in this country. They are the 2nd largest single ‘insurer’ after Medicare, and treat more people than any other health provider in the country – and not just in this country, there are VA offices and hospitals outside the US as well. It’s a compound lie – one to diminish what the VA does and one to diminish the GOPs role in creating so many veterans in need of so much care. That’s more people than live in NY State.

    It’s just a straight up dick move, as usual.

  16. 16
    azlib says:


    I had and still have an HSA (different than an FSA) and, yes, it does come with a debit card. The bank I use does not charge any fees for management if the account, although some do. All I do is only expense medical procedures on the account, which include eyeglasses, chiropractors, etc. And if you put money into the account it is tax deductible. In effect at my tax bracket, the Feds are paying about 25% of my out of pocket medical costs. It is a great deal if you have reasonable savings and can potentially take a big hit, if you get ill. I can also continue to use the account, even though I now have a more traditional health plan. I just cannot add to the HSA.

    As I said, it is mostly a SOP for the upper middle class. For people with low incomes an HSA is a cruel joke. Personally, I’d much rather see a single payer system. It is simpler, cheaper and less confusing than all the crazy options we have right now

  17. 17
    Higgs Boson's Mate says:

    @🌷 Martin:

    Carson continues to lie.

    He will lie and dick-move his way on to the ticket as Veep to whichever dickheaded liar the GOP nominates in ’16.

    ETA: The MSM will fawn all over Carson, touting him as a VSP with The Answers to Our Healthcare.

  18. 18
    raven says:

    BAGRAM AIR FIELD, Afghanistan (AP) — President Barack Obama secretly slipped into Afghanistan under the cover of darkness Sunday for a weekend visit with U.S. troops serving in the closing months of America’s longest war.

  19. 19

    @Higgs Boson’s Mate:
    He sold his own damn people out by telling FOX that blacks these days are lazy and don’t want to work. Either he did it for the money or he believes it. Either way, he’s scoring some Scalia level asshole points and I would expect him to keep racking ’em up.

  20. 20
    Schlemizel says:

    @Higgs Boson’s Mate:
    I don’t see him as veep yet. The goopers desperately want a Hispanic on the ticket so Cruz or Rubio. I doubt either can be the head of the ticket so one of them will be the veep choice. If, by some miracle, one were to finish 1st they sure are going to need a “wholesome white man” as veep to placate the real base. After that ticket fails maybe he could be #2 in ’20.

    But then again, they all look like #2 to me.

  21. 21
    gian says:


    that card is cool.
    The reason I’ve never used the option of the flexible spending account is the small of the expenses to be reimbursed versus the paperwork to be done is more than I’d like to deal with.

    If I made enough money I’d use it to get lasik, but I don’t. When my kid needs braces (which seems inevitable, one got my teeth, and the other got lucky) I’ll open the thing up because the savings will be worth the paperwork

  22. 22
    Just Some Fuckhead says:

    Wait. What? Co-pays and deductibles are specifically intended to discourage people from visiting the doctor where the insurer will have to pay out.

    Sick and dead children are a feature of the system, not a bug.

  23. 23
    aimai says:

    @Richard Mayhew: My daughter has asthma. When she was really little, like 5, she wound up in the emergency room (twice) and was admitted to the hospital (twice) before we knew what it was. They thought it might be Pneumonia the first time. She had a tendency to go downhill very fast during high pollen seasons and we were on tenterhooks. We had to take her to the doctor/nurse practitioner fairly frequently while we were getting the hang of pre-treating and trying to head off hospitalization.

    We have good (ish) private insurance through our employer with a high deductible. She is now 14 and doesn’t really “have” asthma any more so we don’t keep her prescriptions filled except when we are going to be traveling so we don’t run the risk of having to hospitalize her in a strange place just because we can’t get Flovent and Albuterol for her. One of them, I think its the Flovent, costs us 138 dollars Out of pocket.

  24. 24
    Central Planning says:


    FSA’s go poof. HSA’s do not. And many now give out debit cards, although I don’t know the extent to which they charge fees for using them.

    Yup. I have a debit card for our HSA but I never use it. Everything required additional paperwork so it was easier to pay out of pocket and just reimburse myself.

    We’re also on a high deductible plan. Because of chronic healthcare issues in my family that ends up being cheaper than an HMO with 10% co-pays. For the past 2 years we have maxed out the plan in the March/April timeframe… weekly physical therapy and monthly migraine meds add up fast!

  25. 25

    I have to think that the 2016 GOP VP candidate will be chosen entirely based on the personal issues of the presidential candidate. The last two were. Since the field is currently filled with nothing but deranged monkeys and 2016 is so far off that speculation is just guessing, I think the VP race is a formless void.

  26. 26
    BBA says:

    But skin in the game! Singapore!
    …never mind that Singapore has explicit cost controls on medical providers, and that’s the only thing that makes its “Medisave” accounts a reasonable approximation of universal health care.

    I’m increasingly convinced that the whole concept of insurance networks was a step in the wrong direction. If we could require hospitals and doctors to charge the same amounts to Medicare, Medicaid, CHIP, private insurers, people with HSAs, the uninsured, rugged individualists who refuse to buy insurance, and foreign oligarchs who could just buy the hospital, the system would be far more equitable to patients as a whole. But I’m not holding my breath.

    (I got sick just after I left my job and before I could set up COBRA. Dealing with the huge pile of inflated bills and trying to get reimbursed was almost as painful as the actual illness.)

  27. 27
    FlipYrWhig says:

    @🌷 Martin: Carson does know that the whole existence of insurance puts layers and layers of bureaucracy between the patient and the provider, right? And that the VA actually has fewer such layers than anyone else? What a fucking imbecile.

  28. 28
    FlipYrWhig says:

    @Frankensteinbeck: it’ll probably end up being Dick Cheney again.

  29. 29

    I hope so. He’s, like, the most unpopular man in the country.

  30. 30
    FlipYrWhig says:

    @Frankensteinbeck: I think they’re going to end up doing the young gun/old hand pairing, sort of like Obama/Biden, because they’ll want to come across as forward-looking and refreshingly new, especially if they’re running against Hillary Clinton. I suppose they could try the Clinton/Gore strategy of doubling up on the new generation, in which case they’ll probably end up with a VP like Jindal, who has no personality other than “weird and discomfiting” but a pretty decent resume. Most of their Presidential candidates aren’t going to accept a #2 spot because of their egos: Cruz, Paul, etc. So I think they’ll end up with two general categories: young and non-Anglo (Jindal, Susanna Martinez, Nikki Haley) or old and aggressive (John Bolton?).

  31. 31
    Dee Loralei says:

    @Frankensteinbeck: I finished “Don’t tell My Parents…” today. Loved it! While reading it, at first I thought I’d love to see the movie, but before I finished it, I realized it needs to be a tv series. I would totally DVR it, if it were. I wish I had the money to secure the rights to it, seriously. I’ve already cast Dawn French as LucyFar, I kept hearing Dawn say Lucy’s lines while reading it. And my 23 yr old son could totally be Ray, yes he does look 13. Is Penny of Japanese descent, or was that just my inner casting director?

    Last Monday I had lunch with an old friend and her 10 yr old daughter. The subject of her summer reading list came up and I mentioned that I had heard really good things about your book. Her mom said the daughter wasn’t really a reader, hadn’t been bitten by the bug the way her Mom and I had as children. I told the daughter, Ashton, that if she read your book by the next time the three of us had lunch, that I would give her my late Mom’s KindleFire.

    And dude that story is sprinkled with all sorts of BJ, or just internet, in jokes. I totally loved it! So thanks for the several hours of amusement. They were much needed.

  32. 32
    Schlemizel says:

    True but it would be wrong not to speculate!

  33. 33
    Stella B. says:

    I don’t have a HSA since I couldn’t make my husband understand the difference between an HSA and a FSA, but the HSA is an absolutely splendid tax shelter for those in the higher brackets. It is even better than an IRA as the money in it may never be taxed. The GOTP’s idea that it is useful for people in lower tax brackets or could be used in place of O’care is cruel. Oh yeah, that’s a feature, not a bug.

    We have a bronze plan which lowered our monthly premium by $400 per month and raised out yearly OOP by $5000. I still find myself delaying care — which I can easily afford — rather than pay the deductible even though I will not in the long run pay any more than I paid last year. Fortunately, I’m putting off comfort-only issues and I’m an MD with insight into my plan. I’ve certainly seen people make really bad choices for amounts of money that should be trivial (believe me, I understand how tight money can be in some households, but if you’ve had one heart attack already, don’t smoke for half a day and spend the savings on the damn aspirin.)

    Medical bankruptcies usually occur because only high income people have access to decent disability insurance. Even if your health insurance covers your medical care, your rent and bills aren’t being paid if you can’t work.

  34. 34
    Higgs Boson's Mate says:


    Selling out your own people is known in the GOP as a smart career move. If Cruz or Rubio run any benefit with Latino voters will be lost because because a Hispanic candidate will have to throw shit all over his own people to get through the primaries.

  35. 35
    Ruckus says:

    If we assume that there is a general public policy goal of promoting good health at reasonable cost,

    To my ever lasting despair I think that about half this country believes that is horrible public policy.

  36. 36
    Davis X. Machina says:

    …then the obvious solution is to redesign out healthcare delivery and financing systems to account for reality instead of theory.

    Faith, not works, is the path to salvation. “For by grace are ye saved, through faith; and that not of yourselves: it is the gift of God: not of works, lest any man should boast.” (Ephesians 1-8-9)

    “Now faith is the substance of things hoped for, the evidence of things not seen.” (Hebrews 11:1)

    John Calvin kills more people every year than 9/11.

  37. 37

    @Dee Loralei:
    D’AWWW. I’m so glad you liked it! It’s really great every time I hear someone liked one of my books. Movie rights are in negotiation, but I don’t expect them to go anywhere. The book has a female protagonist, and that’s a major challenge right there. If it’s sprinkled with internet jokes, that’s a random side effect of the internet shaping me.

    I love your casting ideas. They are so neat. I had not considered Penny having Japanese ancestry, but as long as her bloodline allows for brown hair and eyes, I’m open to any ideas. A bit of an Asian cast to her features would be interesting, wouldn’t it?

    The book has sold really, fantastically well. It was the #1 selling children’s ebook for about 12 hours, kicking O’Reilly off the top spot (from which he kept falling). Sadly, the rush is ending, and it’s going down to merely selling well. I’m writing a sequel, because at this point I think the book reviews will change to death threats if I don’t. I believe I have a fair chance of supporting myself entirely off of book sales by the time the series is done. That’s actually really hard for an author.

  38. 38
    pseudonymous in nc says:

    This is why Stephen Levitt’s hare-brained “reinvent the NHS!1! Freakonomics!” scheme is prima facie bullshit: if you divvy out a year’s worth of Health Vouchers, then people aren’t going to use them until their health declines to a point where treatment gets much more expensive.

    I honestly think that many Americans resent the people they see in the waiting room around them when they have medical appointments, and that resentment fuels the “skin in the game” mentality, even though it’s perverse and the exact wrong way to build an actual healthcare system. (The right way? Low barriers of entry to primary healthcare; tight triage for specialists; non-bankrupting emergency care. Can’t do that in the US where everyone in med school wants to coin it in as a specialist, and every hospital administrator wants to be on the cover of CEO Monthly.)

    HSAs were sold as a nice little tax dodge for the comfortable middle-classes, and sold by the kind of people who sell nice little tax dodges to the comfortable middle-classes, and I don’t see any reason to change my opinion of them.

  39. 39
    Dee Loralei says:

    @Frankensteinbeck: YAY sequel! I love the idea of turning it into a book series. See, I am right about a tv series, I think it would be a hoot to follow their adventures every week. But great news about someone’s interest in doing the movie. Hunger Games and Twilight both had female protagonists, heck Hannah Montana and a bunch of other female protagonists are in Disney shows. The reason I asked if Penny was Japanese was because I kept seeing a much younger Lucy Lui or Keiko Agena in the role. If I were the mother of a tween daughter, I would hope that she would read and watch anything involving a girl like Penny.

    Let me know when I can buy the sequel! And won’t that be wonderful when you can live solely off your writing? I’m impressed. And thanks to ObamaCare that will take another worry off your shoulders, should you decide to take the plunge.

  40. 40
    JoyfulA says:

    @Stella B.: As an AFT teacher, my late husband had disability insurance (2 years) at $1/month. When he had a stroke at 31, it covered the time when he was trying to get fit enough to go back to work and then the time to file and be accepted for Social Security disability.

  41. 41
    Schlemizel says:

    I am soooooo envious, you are one lucky bustert! I will read the book simply because you are here and it has gotten great reviews. I imagine you already know how hard it is to support yourself as an author these days so I am very glad to see a good guy and apparently a good writer be able to do that. GIves me hope that the whole world has not gone completely to hell. Congratulations.

  42. 42
    Monala says:

    Maybe Richard can help us figure out what to do. I have shared before that my husband was uninsured (a contractor) for several years, and he is a diabetic. I was insured through my workplace, which only insures the employee. We are at about 350% of poverty (family of 3), but didn’t qualify for a subsidy when we bought my husband’s insurance on the exchanges, because of my being covered with affordable coverage. But his insurance was doable – $520 a month with a deductible of $1200, and 20% cost-sharing after the deductible is met.

    However, all these medical bills are starting to sink us, and we’re struggling with this same thing — not going to the doctor and hoping to wait things out. We already have four medical bills we’re paying in installments, two from bills my husband generated when he was uninsured, and one from me from last year (for a breast biopsy that turned out to be negative, which I resent now, because my doctor didn’t tell me I had the choice to refuse it), and one from my husband for medical tests he received shortly after he got insurance in the new year.

    We have a 9-year-old, who, like most 9-year-olds, generates her share of issues that need a doctor. A bump in the head on the playground, and now she has a headache: do we take her in to be sure it’s not a concussion? A sore throat — do we take her in to be tested for strep, or wait a few days to see whether it goes away? Because taking her in will generate a new bill, since her insurance carries a deductible, too. (We purchased insurance plans under the same coverage I have at work, which was actually the least expensive on our exchanges, since we were paying out of pocket. The difference is, we were already covering our daughter this way prior to Jan. 2014). The answer was, after wrestling with it, yes, we took her in. And now we know that some bills our coming our way.

    Plus, my husband just had laser eye surgery to correct some damage that his untreated diabetes had done to his eyes, so a bill for that is also on its way. All of these things would be more expensive without insurance, but they’re still eating away at us now. The way our insurer works, if you have a current payment arrangement, you have to pay that off before they’ll let you set up a new one. All the four payment arrangements I currently mentioned will be paid off in 6 to 7 months. But when these new bills arrive, they’ll expect full payment, and won’t let us wait the 6-7 months before we can pay them.

    Any suggestions?

  43. 43

    @Monala: that 250-500% of FPL range is hard. Look for local hospitals and doctors that will cut you a deal. Don’t look for help from your insurance company.

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