How much should we pay for health care?

A stethoscope wrapped around a roll of $20 bills represents the costs of health care.

TEXT OF INTERVIEW

Tess Vigeland: We mentioned earlier that Philadelphia is home to the nation's first hospital, Pennsylvania Hospital, founded in 1751 by Ben Franklin. On the top floor of the grand Colonial building is a surgical amphitheater. It's where med students and locals paid to watch doctors perform surgeries. Without anesthesia.

We decided it was a good place to meet Mark Pauly. He's a health economist with the Wharton School at the University of Pennsylvania. I wanted to ask him a question I've long had about health care, which is: If we all complain that we pay too much for it, then how much should we pay?

Welcome to the show.

Mark Pauly: Thank you.

Vigeland: I want to start with a personal anecdote if I may: I was diagnosed with melanoma seven years ago and had to have surgery for that. I'm one of those strange people who kept my explanation of benefits. And I added up the total, and the cost for my cancer was just shy of $30,000. I paid $25 in co-pays. Is that appropriate? Should I have paid more?

Pauly: To judge from what Americans prefer, the answer's no. We don't want to have to worry about paying and we don't want no stone left unturned in our treatment. And then we are outraged when we discover how expensive health insurance premiums are. And here's a case where imagining that there's some way you can have it all and not pay for it is just not going to happen anymore than it happens anywhere else.

Vigeland: Who pays the rest of the cost of my cancer treatment, and what goes into determining who pays?

Pauly: Well, if you were privately insured, you probably paid for the cost of your treatment and then some. Because hospitals provide care to a lot of people who don't pay the cost, so the rest of us pay that have private insurance a bit more to offset that. The other thing that economists are programmed to mention is that, in a way, the tax payers are paying for our health insurance. When we get compensation in the form of health insurance, we don't have to pay any income tax, any payroll tax. So, we're subsidizing each other's health insurance.

Vigeland: We don't seem to really question when we're told we're going to pay a lot of money to drive a car or to own a house. But there is a large human cry about what we pay for health care. Now, given, we are paying more for health care than we are for those other things. But when you're talking life and death, how much should that burden fall on the patient?

Pauly: Well, of course, sooner or later, we all end up paying for our insurance. The idea that our employer pays it is a bit of a fiction, because that comes out of what otherwise would've been our wages; probably doesn't come out of the employer's profit. The main place, I think, where people do make a choice is not in the surgery room, like we are here, but when they're sitting in their living room, looking over benefits options for the upcoming year.

Vigeland: I want to talk a little bit about the variability in what you pay versus what I pay versus what other people would pay. Most people know the factors that go into determining the cost of car insurance. It's how many tickets you have, it's your age, it's how many accidents you've had. Health care doesn't work remotely that way. Why?

Pauly: I think it's because health care has high fixed costs, which means there's always room to negotiate a discount. Some insurers are better, for various reasons, at negotiating discounts compared to others. But no matter what kind of deal you get, it's going to be expensive.

Vigeland: So what will the impact be of health care reform on the consumer pocketbook?

Pauly: Obviously, if you're a low-income, uninsured person, it's a good impact. You are going to have what is not only a major threat to your life, but also a major threat to your financial well-being protected. And for the rest of us, I think we're back to, unfortunately, my grim story, nobody wants to sit next to health economists at a dinner party, because all we have to say is, "Well, if you want to save money, we can save you money. You'll just have to tell me what you want to give up."

Vigeland: Alright, yes. I think I will pass on that dinner party with you.

Pauly: O.K., thank you.

Pauly and Vigeland laugh

Vigeland: Mark Pauly is a health economist at the Wharton School of the University of Pennsylvania. And we've been talking in the surgical amphitheatre of Pennsylvania Hospital. Thanks so much for your insights.

Pauly: Thank you.

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