I believe we could spend our entire national income on health care. Not by frittering money away, but by spending it on goods and services that even in small ways could improve the odds of better health. (Examples below.)

I find that most people in health policy agree with that assessment, but rarely do they see its logical (and I would say obvious) implication. If we spent all our income on health, we would have nothing to eat, nothing to wear, no place to sleep. There would be only health care. Since that’s clearly an undesirable state of affairs, it must be good for people to refrain from obtaining all the useful care that money will buy. Further, such restraint needs to be exercised quite often.

What brings this to mind is a new RAND study finding that people with Health Savings Account plans consume less care than people with conventional insurance and have lower health care costs. The people who were studied cut back on such “useful care” as mammograms, screenings for cervical and colorectal cancer and even childhood vaccinations.

Some critics pounced on this result and claimed that consumer-directed care is bad for patients. The critics are, of course, very wrong.

We have written before about the controversy surrounding mammograms, prostate cancer tests and other screenings. Studies differ about their medical value, and the cost per year of life expected to be saved can be quite high. All of this makes the case for individual choice. If not getting a $100 test keeps you awake at night, by all means get the test. There is no reason for private or public bureaucracies to make that decision for you.

This latest controversy also calls to mind the very famous RAND experiment conducted about 30 years ago. In that study:

  • People with a deductible of about $2,500 (in today’s prices) cut back on spending by about 30% relative to people who faced no out-of-pocket costs.
  • Aside from some minor quibbling there was no negative impact on health from the higher deductible.
  • But people with high deductibles were as likely to cut back on useful health services as they were to cut back on unnecessary care.

This third bullet was seized upon by latter-day critics to argue that patient choices appear to be random, and therefore the experiment in consumer-directed care showed it to be a failure. In fact, the patients’ behavior is exactly what you would expect from a rational consumer of any product. When something is free the temptation is to take everything that is offered. The incentive to distinguish between what is “necessary” or “useful” and “unnecessary” or “unuseful” is largely nonexistent. When you have to pay market prices, however, you have an incentive to pay more attention — figuring out what’s “unnecessary” and dropping that as well as those “necessary” items whose value is less than their price.

Which brings us back to how we could spend the entire GDP on health care if the socialist idea of free care — not based on ability to pay — were ever actually implemented:

  • The Cooper Clinic in Dallas offers an extensive checkup (with a full body scan) for about $4,000 or more. Its clients include high-profile individuals. Yet if everyone in America took advantage of this opportunity, we would increase our nation’s annual health care bill by nearly one-half.
  • More than 1,000 diagnostic tests can be done on blood alone; and one doesn’t need too much imagination to justify, say, $10,000 worth of tests each year. But if everyone did so we would more than double the nation’s health care bill.
  • Americans purchase nonprescription drugs about 12 billion times a year, according to a calculation by Simon Rottenberg some time ago, and almost all of these are acts of self-medication. Yet if everyone sought professional advice before making such purchases (as they probably would if there were no time or money price), we would need 25 times the number of primary care physicians we currently have.
  • Some 1,100 tests can be done on our genes to determine if we have a predisposition toward one disease or another. The latest charge for a full gene sequencing was $50,000. Yet if every American did that the expense would exceed the entire GDP.

Notice that in hypothetically spending all of this money we have not yet cured a single disease or treated an actual illness. We are simply collecting information. If in the process of searching we actually found something that warranted treatment, we could spend even more.

Spending all of other peoples’ money on health care is easy, like taking candy from a baby.  To prevent that from happening, public or private bureaucracies can ration your care and tell you what services you can and cannot have.  Or, you could manage more of your own health care dollars and make you own choices between health care and other uses of money.

Need I say which alternative is likely to work better for you?

John C. Goodman, PhD, is president and CEO of the National Center for Policy Analysis. He is also the Kellye Wright Fellow in health care. His Health Policy Blog is considered among the top conservative health care blogs where health care problems are discussed by top health policy experts from all sides of the political spectrum.

8 Responses for “All the Care that Money Will Buy”

  1. Joe Barnett says:

    People will also comparison shop for the best price, the most effective therapy, the highest quality, etc. — if they have the right incentives.

  2. Devon Herrick says:

    The RAND Health Insurance Experiment found people cut back on medical spending by about 30% when exposed to significant cost sharing. Over a lifetime that could be the difference between spending $350,000 versus $500,000 on a couple’s medical needs. But what if third-party payment obscures the extent of medical spending to the point that couples begin to demand $700,000 or $1 million in lifetime medical care? The fundamental question is: are citizens are willing to accept a significant cut to their standard of living in exchange for an additional two years of life at, say, age 88? This is why patients need some control over their health care spending.

    Neither is public funding of health care the answer. If health care were “free” and paid for with public funds, the taxes required to fund health care would likely exceed what taxpayer were willing to pay if they had to fund medical care directly. Moreover, the politics of medicine dictate that politicians pander to healthy people (the many) and ration expensive care (the few) because that’s a method to maximize votes under the Public Choice Model.

  3. BobbyG says:

    “I believe we could spend our entire national income on health care. Not by frittering money away, but by spending it on goods and services that even in small ways could improve the odds of better health.”

    This is news?

    See Elhauge 1994, “Allocating Health Care Morally”


  4. rbaer says:

    This is the 1st post by Mr. Goodman that I have read would not reject as completely flawed from the start.

    The main premise is: if you reduce (both beneficial and nonbeneficial) care by asking for copays/deductibles, you don’t worsen outcomes that much, as the RAND experiment indicates (therefore, reduce costs via HSAs etc.).

    That premise may need some more in detail analysis, but I see the following problems:
    -the big benefits from routine medical care that are detectable on the population level are not so much from cancer screening, but rather from control of hypertension and management of diabetes, and of dyslipidemia. The benefits would likely not be seen within 3-5 ys of follow up as in the RAND study, but I would expect benefits if you would reevaluate the individuals once they are in good medicare age (of note that age of subjects was 14-61 ys, I could not find a mean/median
    -conservative outpatient management of the above problems is definitely more effective now than it was in the early 80s
    -moreover, people are likely sicker today (more obese and more sedentary) then they were in the 80s – i.e. BP differences would be probably larger, and prevalence of diabetes and hypertension higher, thereby possibly delivering demonstrable benefits if the same experiment was to be repeated today.

  5. Both left and right make the same fundamenta error. The Medical Enterprise has less to do with health outcomes that we think? We have all been royally duped into thinking otherwise by organized medicine and the parasitic bio-medical industries supporting the “BIG LIE”

    see http://www.unnaturalcauses.org


  6. MG says:

    What do we do though about the patients who have been diagnosed with diabetes? Do we cover their medical testing supplies? What about asthmatics and bronchodilators? No exceptions?

    Don’t disagree with the general premise but the specific get tricky on what you would cover (if anything) under a high deductible plan.

    You also need the quality/cost/safety information to make high-deductible health plans work as advertised and that information simply isn’t anywhere near ready nor will it be in another 3 years.

  7. steve says:

    There are several problems here. First, you need to get rid of the selection bias inherent in all of the HSA studies to date. Next, there is a time problem here. Short term savings may lead to larger costs later. Lastly, the studies showed not only mammograms not paid for, patients also did not take meds that they should have taken. John and Devon are not physicians. Perhaps they should read up on the long term consequences of not treating hypertension.

    Last of all, it would be good to know if John is sincere in what he wrote. has he counseled the women in his family to not have mammograms done? Does he know the literature? How many non-medical people understand the literature well enough t make an informed decision?



  8. Random Walk says:

    The writer brought up a terrible example (genomic sequencing) that illustrates potential lack of knowledge of the rapid innovation in sequencing. It took billions of dollars to sequence the human genome just a decade ago. The cost of sequencing a genome is declining at rate of Moore’s law (if not faster). $50,000 is a lot of money right now to sequence the human genome, but at some point in the near future it will be a few hundred dollars. Sequencing a tumor at that point will be so much cheaper than running a CT scan.

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