Health Care

Don't Trust the Rand Corporation on Health Care

| by The Heartland Institute

By Greg Scandlen

The Rand Corporation was once considered a respected source of objective information. It used rigorous analysis to help shape public understanding of the issues before us.

That was then, this is now.

Although it still sticks the slogan "Facts you can use, analysis you can trust" at the top of its papers, today it is so lazy and superficial that it is a wonder they actually pay people to write this stuff. One example was the short paper Rand did on health information technology. The paper was widely cited as supporting a major appropriation for health IT, but in fact the paper was completely one-sided and looked only at positive research. It deliberately ignored any research that suggested health IT would increase medical errors or would be difficult to implement.

More recently, Rand issued a paper on out-of-pocket (OOP) spending that, again, relies solely on studies that suggest OOP spending is a growing burden for Americans and is not distributed fairly between economic classes. And it applies such a shallow analysis that it provides absolutely no understanding of the issue.

The paper cites various studies from people fretting that folks are paying 5 percent to 10 percent of income for health care services. Yet the nation as a whole spends 16 percent of its income on health care. Anyone spending 10 percent is getting a bargain.

Except, this paper conveniently neglects to factor in what people are paying in taxes and lost wages. That is of no concern to them, even though there is a direct trade-off between OOP spending and higher taxes or lower wages. Let me illustrate:

A worker who makes $50,000 may have $5,000 in medical expenses, perhaps because he has a $5,000 deductible. This paper considers that a very bad thing.

That same worker might avoid the $5,000 if his employer enriches his benefits. But to do so the employer would reduce his wages to $45,000. The authors of this paper would say HOORAY!!!!! Zero out-of-pocket!!! Nirvana has been reached!

But the worker is no better off. Actually, the worker is worse off because of the administrative cost of processing that $5,000 though a health plan. He gets fewer medical services for the same amount of money.

The same thing applies to taxes. This paper bemoans the fact that lower-income people pay so much OOP as a percentage of income, but it completely ignores the fact that the higher-income folks are paying heavy taxes to pay for the health care needs of those same low-income workers.

This business about the "underinsured" has become a major theme for the Left. The Commonwealth Fund hired Watson Wyatt to do a study of out-of-pocket costs for people with employer-sponsored health insurance. It found, "In 2007, adults with employer coverage faced an average of $729 annually in out-of-pocket costs for medical services, including deductibles and other forms of cost sharing such as copayments and coinsurance. That represents a 34 percent increase from 2004, when the average out-of-pocket burden was $545," according to the San Antonio Business Journal. ( It is not clear whether "faced" is the same as actually paying these costs or if this was simply the amount of exposure people had.

Curiously, the United States has one of the lowest rates of out-of-pocket spending of all the OECD countries -- 13 percent of total spending in 2005. Only France (7 percent), Luxembourg (7 percent), and the Netherlands (8 percent) have less. Even Canada relies on OOP spending more than the U.S. at 15 percent. The OECD average is 20 percent. The OECD average for all non-governmental spending is 26 percent. That means there is not a single country in the industrialized world that really has "single payer." They are all a mixture of public and private spending.