The Market for Medical Care Should Work Like Cosmetic Surgery
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N AT I O N A L C E N T E R F O R P O L I C Y A N A LY S I S
The Market for Medical Care Should Work
Like Cosmetic Surgery
Policy Report No. 349 by Devon M. Herrick May 2013
Every day, millions of American consumers go shopping. In the process, they compare
the prices and quality of goods and services ranging from groceries to cellular
telephone service to fast food to housing. But that daily ritual changes when it comes to
comparing prices for medical care. Health care is the only major sector of our economy
where consumers typically do not make decisions based on comparison shopping.
Executive Summary
Cosmetic surgery is one of the few types of medical care for which
consumers pay almost exclusively out of pocket. In health markets without
third-party payers, doctors and clinics use price competition, package
prices, convenience, and other amenities in order to attract patients willing
to purchase their services. When patients pay their own medical bills, they
become prudent consumers. Thus, the real (inflation-adjusted) price of
cosmetic surgery fell over the past two decades — despite a huge increase in
demand and considerable innovation. Since 1992:
■■ The price of medical care has increased an average of 118 percent.
■■ The price of physician services rose by 92 percent.
Dallas Headquarters: ■■ All goods, as measured by the inflation rate, increased by 64 percent.
12770 Coit Road, Suite 800 ■■ Cosmetic surgery prices only rose only about 30 percent.
Dallas, TX 75251
972.386.6272 Cosmetic services have become competitive for a variety of reasons: As
more people demanded the procedures, more physicians began to provide
www.ncpa.org
them. Licensed medical doctors are free to perform any cosmetic procedure
Washington Office: they have been trained to perform, so there are few barriers to entry among
601 Pennsylvania Avenue NW, competing doctors. Physicians hire and train aestheticians and nurses to
Suite 900, South Building
perform some minimally-invasive cosmetic treatments — boosting capacity.
Washington, DC 20004
202.220.3082 Many providers increase efficiency by locating operating rooms in their
clinics to reduce the cost of outpatient hospital surgery. Surgeons generally
ISBN #1-56808-229-0 adjust their fees to stay competitive and quote package prices. New products
www.ncpa.org/pub/st349 and procedures have also become available.
Consider the ubiquitous deal-of-the-day emails where Groupon and
Living Social offer subscribers goods and services at greatly reduced prices
for a limited time. A quick Internet search of these discount websites will
find numerous medical-related services offered to the public, including:
Botox, corrective eye surgery, dental teeth cleaning, teeth whitening, laser
hair removal, laser facial resurfacing, cosmetic fillers, spider vein and blown
spot removal, and numerous other cosmetic procedures at highly discounted
The Market for Medical Care Should Work Like Cosmetic Surgery
prices. For example: price comparisons and acting like consumers because third
■■ The cost of having a physician administer botulism parties — employers, insurance companies or government
toxin averaged $365 in 2011, about the same as it was — pay most of the costs of their health care. Consider:
more than a decade earlier. Yet deals on Groupon and ■■ For every $1 worth of hospital care consumed, a
Living Social occasionally offer Botox for as little as patient pays only about three cents out of pocket, on
$99, with $149 quite common. the average; a third party pays the other 97 cents.
■■ The price of liposuction has steadily increased in price ■■ For every $1 worth of physician services consumed,
from $1622 in 1992 to $2,859 in 2011, but deal-of- a patient pays less than 9 cents out of pocket, on the
the-day web sites show physicians willing to perform average.
liposuction on one area for $999. ■■ For the health care system as a whole, every time a
■■ The cost of laser skin resurfacing was $1,223 in 2011. patient consumes $1 in services, he or she pays only
Yet, couponing websites have offered numerous laser 11 cents out of pocket.
resurfacing deals for only $299. When consumers pay only a small percentage of their
Wherever there is price competition, quality competition medical bills directly, they have little reason to discover
tends to follow. Consider corrective eye surgery. From or care about prices. Thus the incentive for patients is to
1999 through 2011, the price of conventional Lasik fell consume health care services until those services are worth
about one-fourth due to intense competition. Eye surgeons only 11 cents on the dollar, on the average.
who wanted to charge more had to provide more advanced
Prior to the advent of Medicare and Medicaid in 1965,
Lasik technology, such as Custom Wavefront and
health care spending barely reached 6 percent of gross
IntraLase (a laser-created flap). By 2011, the average price
domestic product (GDP). Today health care spending
per eye for doctors performing Wavefront Lasik was about
is 18 percent of GDP. In addition, medical prices have
what conventional Lasik had been more than a decade ago;
been rising at three times the rate of inflation over the
but the quality is far better. In inflation-adjusted terms, this
past few decades. The price of medical care has risen
represents a huge price decline.
about 2,700 percent of what it was in 1950. By contrast,
By contrast, the market for medical care does not work inflation has only boosted the prices we pay for consumer
like other markets. In most markets, prices and quality goods and services by about 800 percent. Although health
indicators are transparent — clear and readily available care inflation is robust for services paid by third-party
to consumers. Health care is different: Prices are difficult insurance, prices are rising only moderately for services
to obtain and often meaningless when they are disclosed. patients buy directly. Economic studies and common
Most patients never learn the true cost of their care. sense confirm that people are less likely to be prudent,
Why do doctors and hospitals fail to disclose prices careful shoppers if someone else is picking up the tab.
prior to treatment? The answer is simple: because they The contrast between cosmetic surgery and other medical
do not compete for patients based on price. Patients are services is important. One sector has a competitive
largely insulated from the adverse effects of not making marketplace and stable prices. The other does not.
About the Author
Devon M. Herrick is a health care economist and senior fellow with the National Center for Policy
Analysis. His focus includes 21st century medicine, patient empowerment, medical privacy,
pharmaceutical drugs and health technology-related issues. He spent six years working in health care
accounting and financial management for a Dallas-area health care system. Herrick received a Doctor
of Philosophy in political economy and a Master of Public Affairs degree from the University of Texas
at Dallas. He also holds graduate degrees in finance and economics from Amberton University and
Oklahoma City University, as well as a Bachelor of Science degree in accounting from the University of
Central Oklahoma.
2
Introduction advocates often cite Nobel Laureate never make price comparisons, and
Kenneth Arrow, who authored they do not behave like consumers in
Every day, millions of American the classic 1963 journal article a normal market. Consider:5
consumers go shopping. In the “Uncertainty and the Welfare
process, they compare the prices ■■ For every $1 worth of hospital
Economics of Medical Care.” 3 Arrow care consumed, patients pay
and quality of goods and services asserted that medical care does not
ranging from groceries to cellular only about three cents out of
have many of the characteristics of pocket, on the average; a third
telephone service to fast food to other consumer markets, and that party pays the other 97 cents.
housing. But that daily ritual changes patients do not respond like typical
when it comes to comparing prices ■■ For the health care system as
consumers. For instance, while
for medical care. Health care is the food or housing needs are relatively
a whole, every time patients
only major sector of our economy constant, consumers go for years
consume $1 in services, they
where consumers typically do not pay only 11 cents out of pocket.
requiring little medical care, then
make decisions based on comparison suddenly become afflicted with a life ■■ For every $1 worth of physician
shopping. This is unfortunate, services consumed, a patient
threatening condition. Economists
because health care consumes pays less than 9 cents out of
have often argued that a dying
about $2.7 trillion dollars annually pocket, on the average.
patient’s desire for life sustaining care
— nearly one-fifth of our national does not follow a normal demand When consumers pay only a small
income.1 curve. Moreover, Arrow believed percentage of their medical bills
that patients are no match for savvy directly, they have little reason to
The Market for Medical doctors’ superior knowledge when learn about prices — or care whether
Care2 the service is a good value for the
dollars spent. Thus patients consume
The market for medical care does hospital services until those services
not work like other markets. In most “Patients pay 11 cents are worth only three cents on the
markets, prices and quality indicators dollar, on the average. For the health
are transparent — clear and readily out of pocket for each
dollar of callout
Insert here. care system as a whole, patients have
available to consumers. Health care health care they an incentive to utilize everything
is different: Prices are difficult to modern medicine offers until the
obtain and often meaningless when
consume.” marginal benefit to them is only 11
disclosed. Most patients never learn cents out of the last dollar spent. And
the true cost of their care. Why do patients have an incentive to consume
doctors and hospitals fail to disclose discussing the need for a treatment physicians’ services until they are
prices prior to treatment? Because or negotiating the price of a medical worth only 9 cents on the dollar.
they do not compete for patients procedure.4
based on price. Many public health For example: assume physician
advocates and health policy experts Even when patients do know visits costs an insurer $91, while the
have long believed that most patients the prices, they usually pay only enrollee only has a $9 copayment.
are incapable of assessing the quality a fraction of the total cost; thus, Insured patients with even trivial
and necessity of medical services, and prices do not affect their demand health complaints will schedule
that paying at the time of service is a for medical services. For their part, physician appointments until those
barrier to receiving the care patients doctors often do not even know the services are no longer even worth
need. Furthermore, these advocates prices of the services they perform. the $9 copay. A patient who paid the
believe medical care should not be Doctors, therefore, do not compete on entire bill directly would be more
allocated on the basis of price through prices to attract patients or compete price-sensitive and weigh whether or
a market system. with other doctors. Because the cost not a $100 physician visit was worth
of patient care is mostly paid by the $100 cost, rather than whether
Prices and the Demand for third parties — employers, insurance it was worth a $9 copayment.6
Medical Care. Public health companies or government — patients Moreover, if patients paid a larger
3
The Market for Medical Care Should Work Like Cosmetic Surgery
health care costs outpace the growth
Figure I in national income. Why? Because,
Health Care Inflation when people enter the medical
(1950-2012)
marketplace, they are almost always
4000%
spending someone else’s money.
3500%
Medical Services
3000% Health Markets
(% Increase)
2500% without Third-Party
2000% Medical Care
Payers
1500% To examine a medical marketplace
1000% where third-party payment is all
but absent, consider the cosmetic
500% All Goods
surgery industry. Cosmetic surgery
0% is one of the few types of medical
care for which consumers pay almost
Year
exclusively out of pocket. Even so,
Source: U.S. Bureau of Labor Statistics the demand for cosmetic surgery has
exploded in recent years. Estimates
vary, but according to the American
share of the cost of their medical care, prices of other goods and services Society of Plastic Surgeons (ASPS),
they would ask about alternatives for decades. Indeed, the price of 1.6 million cosmetic surgical
prior to ordering an expensive medical services has risen about procedures — and another 13.0
diagnostic scan, and likely look for 3,300 percent in a little over 60 years. million minimally-invasive cosmetic
the best price if it is needed.7 The price of medical care in general procedures — were performed in
has risen about 2,700 percent what 2012.12 The American Society for
Wages and the Cost of Medical Aesthetic Plastic Surgery (ASAPS)
Care. Economists have long known it was in 1950. By contrast, inflation
that workers themselves bear the since 1950 has only boosted the has a slightly lower estimate of
prices we pay for consumer goods the market for elective cosmetic
entire cost of employee health procedures — about 12.6 million.13
benefits indirectly, in the form of and services by about 800 percent.
lower take-home pay.8 Health benefits Thus, medical prices have been Even that number is more than
are a form of noncash compensation climbing at more than three times 10 times the number performed
in lieu of cash wages — mostly the rate of inflation.10 [See Figure two decades ago. And the market
because employer-sponsored health I.] Not only are health care prices continues to grow. One estimate puts
coverage is tax free. In addition, soaring, health care spending is rising the number of cosmetic procedures
the health plan premiums workers as well. Health care expenditures that will be performed in the United
ultimately pay are a function of over the past 50 years rose as the States in 2015 at 55 million — four
medical claims paid.9 As a result, proportion of health care paid for by times the number performed in 2005.
third parties increased. Prior to the Surgical procedures are growing
workers who receive medical care
advent of Medicare and Medicaid at nearly 8 percent annually, while
unknowingly pay indirectly for
in 1965, health care spending barely minimally–invasive cosmetic services
services they would deem a waste of
reached 6 percent of GDP. Today that are growing 28 percent each year.14
money if they had to pay the costs
figure is 18 percent.11 [See Figure II.]
directly. Free Market Medicine: Cosmetic
Tax-subsidized employer spending on
Health Care Costs Rise When health care has also increased. These Surgery. Though health care inflation
Others Pay. Prices for medical factors, rather than the cost of new is robust for those services paid
services have been rising faster than technology and drugs, explain why by third-party insurance, prices
4
are rising only moderately
for services that patients buy Figure II
directly. For example, the real U.S. Health Care Expenditures
(inflation-adjusted) price of (Percent of GDP)
20%
cosmetic surgery fell over the 18% of
GPD
past two decades — despite a 18%
huge increase in demand and 16%
considerable innovation. [See
14%
Figure III.]
12%
Cosmetic Surgery Prices.
Despite the huge increase in 10%
demand, cosmetic surgeons’ 8%
fees have remained relatively
6%
stable. Since 1992, medical
care prices have increased an 4% 5.2% of
GPD
average of 118 percent and the 2%
price of physician services rose
92 percent. [See Figure III.] The 0%
1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012
price of all goods, as measured Source: U.S. Department of Health and Human Services.
by the consumer price index
(CPI), increased 64 percent. Yet,
cosmetic surgery prices only rose them. Licensed medical doctors are cost of health care. But in cosmetic
about 30 percent. While medical care free to obtain training and perform surgery, innovation often lowers the
prices generally rose almost twice the cosmetic procedures they feel cost. Take facelifts, for example.
as fast as the CPI, cosmetic surgery qualified to perform. Physicians also Surgical fees for facelifts increased
prices went up less than half as much. hire trained aestheticians, or hire about 50 percent between 1992 and
Thus, while the real price of health or partner with nurses or physician 2012 (just slightly less than inflation),
care paid for by third parties rose, the assistants to assist with minimally- according to data from the ASPS.
real price of self-pay medicine fell. invasive cosmetic treatments. Thus,
Cheaper, minimally invasive and
entry into the field is not restricted
In addition, Figure III shows that nonsurgical procedures that diminish
to board-certified plastic surgeons.16
during downturns in the economy, the appearance of aging have helped
A third reason is efficiency. Many
consumers become more price- hold the cost of facelift surgery in
providers construct operating rooms
sensitive and providers respond check, including laser resurfacing
in their clinics — a less expensive
accordingly with more competitive ($1,113 to $2,222), botulism toxin
alternative to outpatient hospital
prices.15 Note that this did not occur injections ($369), collagen injections
surgery. Surgeons generally adjust
for medical care or physician services ($428 to $529), chemical peels
their fees to stay competitive and
paid by third parties. ($712), dermabrasion ($1,262)
usually quote patients a package and fat injections ($1,604). These
Keeping Costs Down. What price. Absent are the gatekeepers, less invasive (and less expensive)
explains the price stability of prior authorization and large medical procedures are attractive, compared to
cosmetic surgery? One reason is office billing staffs needed when a facelift costing $6,630 in surgeons’
patient behavior. When patients pay third-party insurance pays the fees. fees alone.
with their own money, they have A fourth reason is the emergence of
an incentive to educate themselves substitute products. (See below.) Cosmetic surgeons also have
— to become savvy consumers. A incentives to find new products for
Cosmetic Surgery and
second reason is supply. As more their customers. Whereas the volume
Innovation. People commonly
people demanded the procedures, of surgical procedures increased 80
assume that innovation increases the
more surgeons began to provide percent during the past 15 years,
5
The Market for Medical Care Should Work Like Cosmetic Surgery
In most areas of
Figure III medicine, physicians
Nominal Health Care Inflation find little incentive to
(1992-2012)
120% Medical Care repackage, reprice or
118% bundle their services
in patient-pleasing
100% ways, because doing so
would not increase their
80%
Physician revenue. When demand
Services
92% or technology changes or
new information becomes
60% available, individuals in
Inflation
64% every other profession
40% have incentives to
rebundle their services and
Cosmetic Services charge a different market
20% 30% price. For example, the
growth of information
0% technology has had a
1992 1996 2000 2004 2008 2012 profound effect on the
Note: Cosmetic Services is a 3-year moving average. way intellectual property
Source: Devon M. Herrick, National Center for Policy Analysis. Author's calculations using data from the American Society of Plastic is shared and distributed.
Surgeons; and Consumer Price Index, U.S. Bureau of Labor Statistics, U.S. Department of Commerce. Yet, because most health
plans refuse to reimburse
for telephone or email
the volume of minimally-invasive Medicaid, and every health plan or
consultations, most doctors will
procedures (such as Botox, laser third-party payer provides slightly
not consult with their patients this
skin resurfacing, skin rejuvenation, different payment rates.
way. New opportunities, such as
laser hair removal) increased by Physicians are arguably the only information technology, are critical
461 percent.17 Substitute procedures professionals in our society who to accountants, lawyers, engineers
such as laser hair removal and body do not commonly disclose prices and, architects when competing
contouring are now commonplace.18 to their customers or compete on for customers, but the health care
The Market for Physician price. In a very real sense, doctors industry ignores them.
Services. Americans see their doctors (and hospitals) do not compete for
During any discussion about why
more than a billion times each year. patients at all — at least not in the
doctors and hospitals do not discuss
They make another 136 million way normal businesses compete for
prices prior to providing services,
visits to hospital emergency rooms customers in competitive markets.
participants invariably claim that
and 96 million visits to outpatient This lack of competition for patients
price comparison is impractical.
departments annually. Patients rarely has profoundly affected the quality
Indeed, the medical community
discuss price in advance of receiving and cost of health care. Long before a
insists that surgical procedures
medical care — or know the cost patient enters a doctor’s office, third-
are not homogenous services that
after the service is provided. In fact, party bureaucracies determine which
can be treated like commodities
the doctors who perform medical medical services they will pay for
or priced alike. For instance, if a
procedures often do not know how (and how much), and which ones they
patient needing coronary bypass graft
much they will be paid for their will not. This practice has created
surgery inquires about the price, he
services to a specific patient. Provider a highly artificial market which
is generally told the price cannot be
fees are negotiated in advance departs in many ways from how other
determined in advance, because each
with networks or set by Medicare/ markets function.
patient is different and may require
6
different levels of care. The attending and LivingSocial finds numerous multiple areas performed in the same
physician, hospital or surgeon cannot medical-related services at highly session; as a result, price comparisons
predict the exact amount of blood that discounted prices. Among them: are difficult. Yet, a review of deal-
might need replacing. The number of Botox, corrective eye surgery, dental of-the-day web sites found offers
sutures and bandages, or operating teeth cleaning, teeth whitening, laser from physicians willing to perform
theater time or recovery time could hair removal, laser facial resurfacing, liposuction on one area for $999.23
vary. The time required to convalesce cosmetic fillers, spider vein and Laser Facial Resurfacing. Deal-
until able to go home also varies from brown spot removal, and numerous of-the-day websites have launched
patient to patient. Indeed, doctors other cosmetic procedures. The another round of strong price
will insist they cannot compete for prices defy conventional wisdom competition between providers of
patients on price because no two that a doctor would never advertise laser facial resurfacing. According to
patients are exactly alike. a bundled price — much less extend surveys by the ASPS:
However, the argument about the offer to hundreds of thousands
of random people, sight-unseen, in a ■■ The average surgeon’s fee
patient diversity apparently does not for laser skin resurfacing was
mass emailing. Yet these offers arrive
deter doctors who provide services
in millions of email inboxes in cities $2,556 in 1996, rising to nearly
that third-party payers do not cover, $2,800 by 1998 but falling back
such as cosmetic procedures and across the United States every day.
The competition is astonishing! to $2,222 by 2007.
corrective eye surgery. In these ■■ During this same period,
health care markets, providers Botulism Toxin. Consider some physicians introduced
behave much differently. Indeed, botulism toxin injections, such as less intensive nonablative
entrepreneurial physicians compete Botox and Dysport. According to (fractional) CO2 lasers to the
for patients’ business by offering surveys by the American Society of market, such as Fraxel® and
greater convenience, lower prices and Plastic Surgeons (ASPS), the cost to SmartXide® DOT. Newer
innovative services unavailable in have a physician administer botulism fractional lasers use a matrix of
traditional clinical settings. Consider toxin ranged from $366 in 2000 to tightly-packed laser dots that
the ubiquitous emails that deal-of-the- $501 in 2007.19 Likely due to the reduce the time required to heal,
day website subscribers receive every recession — and competition — the which has greatly increased the
day from firms offering goods and price fell back to $369 in 2012, the popularity of these less invasive
services at greatly reduced prices. average cost a decade earlier. More procedures.
than 1,000 people commented on In 2008, the ASPS began tracking
Medical Services in the their experience receiving Botox nonablative (fractional) laser skin
on the website RealSelf.com over
Information Age the past several years — reportedly
resurfacing procedures:
So-called deal-of-the-day websites spending an average price of $425 ■■ The average fee for nonablative
are Internet marketing firms that per episode.20 Yet a recent review of laser skin resurfacing in 2008
compete to attract price-sensitive offers on Groupon and LivingSocial was $1,359, falling to $1,113
shows Botox deals occasionally by 2012, with the actual price
customers with heavily-discounted
offered as low as $99.21 varying from doctor to doctor
goods and services for a limited
and by the size of the area
period of time. These daily deal offers Liposuction. The price of treated.24
are emailed en mass to millions of liposuction steadily increased from
subscribers. Discounted services range ■■ According to consumer reviews,
$1,622 in 1992 to $2,852 in 2012. 88 consumers paid an average
from restaurant meals to concerts to Nearly 900 patients have written
sporting events — even health care. of $1,525 for SmartXide DOT
reviews of the procedure on RealSelf. fractional laser resurfacing;25
The firm Groupon is probably the best com — reporting an average cost
known, but LivingSocial and imitators ■■ Fraxel cost $1,750, on average,
of $5,875.22 Liposuction can be based on 592 reviews.26
have also begun to flood the market. performed on more than one body
A quick Internet search of Groupon location at a time, with discounts for In Dallas, numerous deals for
7The Market for Medical Care Should Work Like Cosmetic Surgery
SmartXide DOT laser
Figure IV resurfacing appear
Average Lasik Prices on both Groupon
(1999-2011)
and LivingSocial, for
$299.27 One of the
sponsoring firms offers
$2,600
Custom Wavefront
with Laser Flap
memberships where
$2,400
Groupon and Living
Social customers can
$2,200
be converted into spa
Average Lasik Price “members.” The spa’s
$2,000 $149/month one-
Custom Wavefront year contract allows
$1,800 members to choose
Conventional Lasik among more than
$1,600 two dozen different
cosmetic services and
$1,400 use any two services a
month as a benefit of
$1,200 membership.28 Laser
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 skin resurfacing with
Source: Author's tabulations using data from multiple published sources, including: MarketScope LLC, cited in Ha T. Tu and Jessica H.
May, “Self-Pay Markets in Health Care: Consumer Nirvana or Caveat Emptor?” Health Affairs, Vol. 26, No. 2, February 6, 2007, pages
the SmartXide DOT
w217-w226; and Liz Segre, “Cost of LASIK Eye Surgery and Other Corrective Procedures,” AllAboutVision.com, November 8, 2012. laser counts as two
Note: Dashed line represent estimated prices to replace missing data. treatments. In other
words, with a one-year
membership, customers
Figure V can purchase a $1,500
Package Prices vs. Multiple Prices laser treatment for $149
(Laser Eye Surgery 2011) — about 90 percent
less than the average
physician fee in the
marketplace.
Quality
Multiple Prices Competition:
Based on Technology / Single Price Charged for Corrective Eye
Refractive Error all Laser Procedures Surgery. Wherever
44% price competition exists,
55% competition in quality
naturally follows. In the
Lasik surgery market,
for example, patients
can choose traditional
Lasik or newer, more
advanced procedures.
From 1999 (when
eye doctors began
Source: AllAboutVision.com. 2011 data provided by independant opthamology analyst.
performing Lasik
in volume) through
82011, the price of conventional had merely tracked inflation, the become conservative, market savvy
Lasik fell about one-fourth due to price would currently run about consumers. Moreover, when patients
intense competition. Average prices $2,850 per eye. pay their own medical bills, doctors
for conventional Lasik hovered ■■ If conventional Lasik tracked and clinics respond with price
just above $2,100 per eye in 1999 medical inflation, the price competition, seeking innovative ways
compared to about $1630 per eye in would have reached around to attract new patients. The contrast
2011.29 $3,360 per eye by now. between cosmetic surgery and
■■ However, conventional Lasik other medical services is important.
In patients with myopia (near
was about $1,630 per eye in One sector reveals a competitive
sightedness) the eye cornea is too
marketplace and stable prices. The
round; in hyperopia (farsightedness) 2011, with most people opting
other does not.
it is too flat. However, patients often for the more advanced Lasik
have subtle differences in the shape of surgery at an average cost of
their corneas that affects their results. $2,150 per eye. Endnotes
By the early 2000s, eye surgeons ■■ Indeed, 95 percent of surgeons National Health Expenditure, which was
1.
had developed the ability to map the surveyed report charging from 17.9 percent in 2012, is expected to climb to
shape of the cornea and customize 19.6 percent by 2021. See “NHE Projections
the surgery to each patient’s unique 2011-2021,” National Health Expenditure
condition. Technology, such as Data, Centers for Medicare & Medicaid
Custom Wavefront (that customizes “Cosmetic surgery Services, U.S. Department of Health &
the surgery to an individual’s specific provides price Human Services, June 12, 2012.
eye characteristics) and IntraLase (a Insert callout here.
bladeless surgery with a laser-created competition because See discussion in Devon M. Herrick and
2.
incision) began to improve the quality patients pay the bills.” John C. Goodman, “The Market for Medical
of Lasik and achieve superior results Care: Why You Don’t Know the Price; Why
compared to traditional Lasik. When You Don’t Know about Quality; And What
customized to the individual, a laser Can Be Done about It,” National Center
can reshape the cornea to improve $1,501 to $2,500 per eye for for Policy Analysis, Policy Report No. 296,
vision often better than 20/20. Eye Wavefront Lasik with a laser- February 2007. Available at http://www.ncpa.
created flap — most quote a
surgeons who wanted to charge more org/pdfs/st296.pdf.
single price inclusive of all
began to demonstrate they provided
services.31 [See Figure V.] Kenneth J. Arrow, “Uncertainty and the
3.
better quality.
This change represents a huge Welfare Economics of Medical Care,”
By 2011, the average price per eye decrease in the inflation-adjusted Economic Review, Vol. 51, No. 5, December
for doctors performing Wavefront price, along with a large increase in 1963. Available at http://www.who.int/
Lasik with a laser-created incision quality. bulletin/volumes/82/2/PHCBP.pdf.
was $2,151 per eye.30 In other words, 4.
Ibid.
the nominal price of advanced Lasik
surgery (not adjusted for inflation) Conclusion National Health Expenditure, which was
5.
is about what conventional Lasik Both economic studies and 17.9 percent in 2012, is expected to climb to
cost more than a decade ago, but the common sense confirm that people 19.6 percent by 2021. See “National Health
quality is far better. [See Figure IV.] do not shop carefully and prudently Expenditures by type of service and source
In inflation-adjusted terms, these when someone else is picking up of funds, CY 1960-2011,” National Health
costs reveal a huge price decline, the tab. Thus, health care spending Expenditure Data, Centers for Medicare
considering the cost of most other has increased because third & Medicaid Services, U.S. Department of
medical services has risen at more parties — employers, insurance Health & Human Services, 2012. Available
than twice the rate of general inflation companies or government — pay at http://www.cms.gov/Research-Statistics-
over the past few years. For example: almost all the bills. When patients Data-and-Systems/Statistics-Trends-and-
■■ If conventional Lasik surgery pay their own medical bills, they Reports/NationalHealthExpendData/
9The Market for Medical Care Should Work Like Cosmetic Surgery
Downloads/NHE2011.zip. “Economic Analysis of the Future Growth After Photos, Results, Cost,” RealSelf.com
6. of Cosmetic Surgery Procedures,” Plastic & website. Accessed April 25, 2013. Available
See Rexford E. Santerre and Stephen P.
Reconstructive Surgery, Vol. 121, No. 6, June at http://www.realself.com/SmartXide/
Neun, “The Relationship between Health
2008. reviews.
Insurance and the Demand for Medical
15. 26.
Services,” in Health Economics: Theories, The income elasticity of demand varies “Fraxel Worth It? Reviews, Photos, Forum,
Insights, and Industry Studies (Chicago, Ill.: by procedure. Some procedures are inferior Costs,” RealSelf.com website. Accessed
Irwin, 1996), page 53. goods; some are necessities, and others April 25, 2013. Available at http://www.
7. are luxury goods. See Lara L. Devgan realself.com/Fraxel-Laser/restore/reviews.
The price for a magnetic resonance image
and Robert T. Grant, “Is Plastic Surgery A
scan (MRI) or a computed topography (CT) Groupon website, offered by SkinSpaMed
27.
Luxury Good? An Economic Analysis of
scan can vary from $400 at a free-standing Medical Spa & Laser Clinic, Dallas, Texas,
Income Elasticity of Demand for Commonly
imaging center to more than $3,000 at a April 2013.
Performed Plastic Surgery Procedures,”
hospital outpatient clinic.
Plastic & Reconstructive Surgery, Vol. 126, SkinSpaMed Medical Spa & Laser Clinic
28.
8.
Jonathan Gruber, “Health Insurance and Supplement 4S, October 2010, pages 117- website, Dallas, Texas.
the Labor Market,” National Bureau of 118. 29.
Data from MarketScope LLC, cited in Ha
Economic Research, Working Paper 6762, 16.
This is especially true for minimally- T. Tu and Jessica H. May, “Self-Pay Markets
October 1998. Available at http://economics.
invasive procedures like Botulism toxin, skin in Health Care: Consumer Nirvana or Caveat
mit.edu/files/69.
rejuvenation, laser hair removal and so forth. Emptor? Experience with LASIK, dental
9.
For a discussion of how claims can affect crowns, and Other Self-Pay Procedures
“Cosmetic Surgery National Data Bank:
17.
insurance premiums, see “Cost of the Future Reveals Key Barriers to Robust Consumer
2012 Statistics,” American Society for
Newly Insured under the Affordable Care Act Price Shopping,” Health Affairs, Vol. 26,
Asthetic Plastic Surgery, 2013.
(ACA),” Society of Actuaries, March 2013. No. 2, February 6, 2007, pages w217-w226;
Available at http://cdn-files.soa.org/web/ 18.
American Society of Plastic Surgeons and also Liz Segre, “Cost of LASIK Eye
research-cost-aca-report.pdf. the American Society for Aesthetic Plastic Surgery and Other Corrective Procedures,”
10. Surgery. AllAboutVision.com, November 8, 2012.
Consumer Price Index, United States
19. 30.
Bureau of Labor Statistics. American Society of Plastic Surgeons Liz Segre, “Cost of LASIK Eye Surgery
website. and Other Corrective Procedures,”
“NHE Summary Including Share of
11.
AllAboutVision.com, November 8, 2012.
GDP, CY 1960-2011,” National Health 20.
“Botox Worth It? Reviews, Forum, Photos,
Expenditure Data, Center for Medicare & Costs,” RealSelf.com website. Accessed 31.
Ibid.
Medicaid Services, United States Department April 25, 2013. Available at http://www.
of Health and Human Services, 2012. realself.com/Botox/reviews.
In addition, an additional 5.6 million
12.
Groupon website, offered by Aesthetic
21.
reconstructive cosmetic procedures took Medicine, Lake Oswego, Oregon, December
place in 2012. “2012 Cosmetic Plastic 2012.
Surgery Statistics,” 2012 Plastic Surgery 22.
“Liposuction Worth It? Reviews, Photos,
Statistics Report, American Society of Plastic
Cost, Forum,” RealSelf.com website.
Surgeons, 2013.
Accessed April 25, 2013. Available at http://
13.
This number includes procedures www.realself.com/Liposuction/reviews.
performed by non-physician professionals
Groupon website, offered by Heron
23.
performed under the supervision of a
SmartLipo Center, Maryland and Virginia,
physician. See “Cosmetic Surgery National
April 2013.
Data Bank: 2012 Statistics,” The American
24.
Society for Aesthetic Plastic Surgery, 2013. American Society of Plastic Surgeons
14.
website. Accessed April 25, 2013.
Tom S. Liu and Timothy A. Miller,
25.
“SmartXide: Is It Worth It? Before &
10About the NCPA
A major NCPA study, “Wealth, Inheritance
The NCPA is a nonprofit, nonpartisan organization established in and the Estate Tax,” completely
1983. Its aim is to examine public policies in areas that have a undermines the claim by proponents of the
significant impact on the lives of all Americans — retirement, health estate tax that it prevents the concentration
of wealth in the hands of financial
care, education, taxes, the economy, the environment — and to dynasties. Senate Majority Leader Bill Frist
propose innovative, market-driven solutions. The NCPA seeks to (R-TN) and Senator Jon Kyl (R-AZ)
unleash the power of ideas for positive change by identifying, distributed a letter to their colleagues about
encouraging and aggressively marketing the best scholarly research. the study. The NCPA recently won the
Templeton Freedom Award for its study
and report on Free Market Solutions. The
Health Care Policy. report outlines an approach called
The NCPA is probably best known for NCPA President Enterprise Programs that creates job
developing the concept of Health Savings John C. Goodman is called opportunities for those who face the
Accounts (HSAs), previously known as the “Father of HSAs” by greatest challenges to employment.
The Wall Street Journal, WebMD
Medical Savings Accounts (MSAs).
and the National Journal. Retirement Reform.
NCPA President John C. Goodman is With a grant from the NCPA, economists
widely acknowledged (Wall Street at Texas A&M University developed a
Journal, WebMD and the National model to evaluate the future of Social
Journal) as the “Father of HSAs.” NCPA Taxes & Economic Growth.
Security and Medicare, working under the
research, public education and briefings The NCPA helped shape the pro-growth direction of Thomas R. Saving, who for
for members of Congress and the White approach to tax policy during the 1990s. years was one of two private-sector
House staff helped lead Congress to A package of tax cuts designed by the trustees of Social Security and Medicare.
approve a pilot MSA program for small NCPA and the U.S. Chamber of Com- The NCPA study, “Ten Steps to Baby
businesses and the self-employed in 1996 merce in 1991 became the core of the Boomer Retirement,” shows that as 77
and to vote in 1997 to allow Medicare Contract with America in 1994. million baby boomers begin to retire, the
beneficiaries to have MSAs. In 2003, as Three of the five proposals (capital gains nation’s institutions are totally unprepared.
part of Medicare reform, Congress and tax cut, Roth IRA and eliminating the Promises made under Social Security,
the President made HSAs available to all Social Security earnings penalty) Medicare and Medicaid are inadequately
nonseniors, potentially revolutionizing became law. A fourth proposal — funded. State and local institutions are not
the entire health care industry. HSAs now rolling back the tax on Social Security doing better — millions of government
are potentially available to 250 million benefits — passed the House of Repre- workers are discovering that their pensions
nonelderly Americans. sentatives in summer 2002. The NCPA’s are under-funded and local governments
The NCPA outlined the concept of proposal for an across-the-board tax cut are retrenching on post-retirement health
using federal tax credits to encourage became the centerpiece of President care promises.
private health insurance and helped Bush’s tax cut proposals.
formulate bipartisan proposals in both the NCPA research demonstrates the Pension Reform.
Senate and the House. The NCPA and benefits of shifting the tax burden on Pension reforms signed into law include
BlueCross BlueShield of Texas devel- work and productive investment to ideas to improve 401(k)s developed and
oped a plan to use money that federal, consumption. An NCPA study by Boston proposed by the NCPA and the Brookings
state and local governments now spend University economist Laurence Kotlikoff Institution. Among the NCPA/Brookings
on indigent health care to help the poor analyzed three versions of a consumption 401(k) reforms are automatic enrollment
purchase health insurance. The SPN tax: a flat tax, a value-added tax and a of employees into companies’ 401(k)
Medicaid Exchange, an initiative of the national sales tax. Based on this work, Dr. plans, automatic contribution rate
NCPA for the State Policy Network, is Goodman wrote a full-page editorial for increases so that workers’ contributions
identifying and sharing the best ideas for Forbes (“A Kinder, Gentler Flat Tax”) grow with their wages, and better default
health care reform with researchers and advocating a version of the flat tax that is investment options for workers who do
policymakers in every state. both progressive and fair. not make an investment choice.
11About the NCPA
The NCPA’s online Social Security
calculator allows visitors to discover their
expected taxes and benefits and how What Others Say About the NCPA
much they would have accumulated had
their taxes been invested privately.
“The NCPA generates more analysis per
Environment & Energy. dollar than any think tank in the country.
It does an amazingly good job of going out
The NCPA’s E-Team is one of the largest
and finding the right things and talking about
collections of energy and environmental
policy experts and scientists who believe them in intelligent ways.”
that sound science, economic prosperity Newt Gingrich, former Speaker of the
and protecting the environment are U.S. House of Representatives
compatible. The team seeks to correct
misinformation and promote sensible
solutions to energy and environment
problems. A pathbreaking 2001 NCPA “We know what works. It’s what the NCPA
study showed that the costs of the Kyoto talks about: limited government, economic
agreement to reduce carbon emissions in freedom; things like Health Savings Accounts.
developed countries would far exceed These things work, allowing people choices.
any benefits. We’ve seen how this created America.”
John Stossel,
Educating the next generation. host of “Stossel,” Fox Business Network
The NCPA’s Debate Central is the most
comprehensive online site for free
information for 400,000 U.S. high school
debaters. In 2006, the site drew more than “I don’t know of any organization in America
one million hits per month. Debate that produces better ideas with less money
Central received the prestigious Temple-
than the NCPA.”
ton Freedom Prize for Student Outreach.
Phil Gramm,
Promoting Ideas. former U.S. Senator
NCPA studies, ideas and experts are
quoted frequently in news stories
nationwide. Columns written by NCPA
scholars appear regularly in national
publications such as the Wall Street “Thank you . . . for advocating such radical
Journal, the Washington Times, USA causes as balanced budgets, limited government
Today and many other major-market and tax reform, and to be able to try and bring
daily newspapers, as well as on radio power back to the people.”
talk shows, on television public affairs
programs, and in public policy newslet- Tommy Thompson,
ters. According to media figures from former Secretary of Health and Human Services
BurrellesLuce, more than 900,000 people
daily read or hear about NCPA ideas and
activities somewhere in the United States.
The NCPA is a 501(c)(3) nonprofit public policy organization. We depend entirely on the financial support of individuals, corporations and foundations that believe in private
sector solutions to public policy problems. You can contribute to our effort by mailing your donation to our Dallas headquarters at 12770 Coit Road, Suite 800, Dallas, TX 75251,
or visiting our Web site at www.ncpa.org and clicking “Support Us.”You can also read
