Why Do Medicare Patients See the Doctor Too Much? They Usually Pay Nothing Out-of-Pocket; So Demand Curves Really Do Slope Downward
Several factors help cause this substantial disparity. First and foremost is the lack of effective cost sharing. When people are insulated from the cost of a desirable product or service, they use more. Thus people who have comprehensive health coverage tend to use more care, and more expensive care—with no noticeable improvement in health outcomes—than those who have basic coverage or high deductibles.
In addition, Medicare's convoluted benefit structure encourages the purchase—either individually or through an employer—of various forms of supplemental insurance. Medicare covers roughly three-fourths of total costs, but about 85% of the Medicare population has expanded coverage with small to limited cost sharing. This additional cost insulation pushes seniors' out-of-pocket costs toward zero, thereby increasing overall utilization."
MP: This crystallizes one of our main health care problems: spending other people's money (see chart above, data here). When out-of-pocket costs for medical care approach zero, it shouldn't be any surprise that utilization goes up, that's just the Law of Demand.