Friday, February 4, 2022

Covid tests parable

The saga (WSJ) [link now works] of "free" Covid testing is a great parable for many things wrong with the American health payments system. 

... On a recent Sunday my family got tested at a pop-up tent outside a gasoline station. The sign on the tent advertised “free Covid testing.”

...The cost is billed to my health insurance. A few days ago, I received a routine letter from my insurance company summarizing what it paid: $1,140 a month for my daughter’s weekly PCR test. That comes to about $285 per test, 20 times the cost of an at-home rapid test.

Policy makers at both the state and federal levels have opted to finance Covid testing through private health insurance. ...Insurers must reimburse testing providers, even out-of-network ones, and the state places no restriction on the amount reimbursed.

"We'll make the insurance companies pay for it," rings the standard-issue progressive policy-maker. Except, as should be obvious to anyone who has ever heard the word "budget constraint," 

...Insurance companies will inevitably pass the costs on to policyholders through either higher premiums or reduced benefits.

And no small amount of money: 

Let’s revisit the $1,140 per month for testing at my daughter’s preschool. On an annual basis, that would add up to $13,860—a sum that comes close to the $14,974 average yearly expenditure per student in California public schools.

What's going on? The government doesn't want to be seen as taxing and paying for things. So, it commands that insurance companies or hospitals provide services for free. Those, however, fact actual budget constraints, so the money comes from somewhere. It must come from overcharging others. Overcharges cannot stand competition, so the government allows massive overcharges on some to cross-subsidize others. 

This is far worse than taxing and spending, as massive bloat creeps in to the system. Look at any medical bill to see the crazy results. 

The hilarious thing is how small the numbers are, actually. Compared to the $5 trillion the government has spent so far on the crisis, free tests are a drop in the bucket. Fighting about who pays for vaccines is even more pointless. 

Taxing and spending isn't great -- but it can be a lot better than the alternative of forcing a transfer, and allowing an uncompetitive market to support the system

A far better approach would have been for the government to foot the bill for testing. .. Last fall the Los Angeles Unified School District provided an estimated nine million Covid tests for students and staff. The price tag was hig: $350 million. But that’s $39 a test, or about one-seventh of what my insurer is paying for my daughter.

Government spending, on budget, allocated, also has the advantage of forcing those in charge to think just a little bit about whether it's worth it. Even at $39 per test, are two tests per week for every gradeschool child really the most cost efficient way for the U.S. to fight the pandemic? 

Tests are, of course, one of the most natural externalities. 

(An old essay on the larger point.) 



  1. Here in Canberra, Australia the government is handing out 2 free RATs a week per student. But you only need to report a positive test. So, in fact you don't have to do any tests at all...

  2. Agree on the opacity of health care costs, lack of incentives to allow at least information to be "provided". On the bright side, the focus on vaccines since early 2021 has been relentless. Someone has to be commended for that. If we had vax rates close to that of Denmark or Portugal, the number of deaths would be much lower. The current number is heartbreaking, as is the suffering of the families left behind. I don't know how diluted the focus on the vaccines has been by policies on masking, testing, etc. Things are not mutually exclusive, so I think the effect has been minimal and vaccines remain front and center of the public health strategy. Of course, the focus on vaccines could be even clearer, but not sure hesitancy would be lower with more aggressive efforts on that front. And at least we do not have people in positions of power at the Federal level questioning the efficacy of the vaccines. That would have been a bigger problem given how effective vaccines remain. Cheers.

  3. Seems like every nation ends up losing against Covid-19. Testing, testing, vaccinations, lockdowns, no lockdowns, masks what have you, it all ends up in the same place.

    If I am doing my math correctly, the latest strains of Omicron are 200 times more infectious than the original virus. And who knows, perhaps even more infectious variants are on the horizon.

    Covid-19 strikes me as the public health sector's Vietnamistan.

    Some wars you lose.

  4. Ironically, when one clicks on the embedded web page at the start of the blog article, a new web page is generated that displays the following message:

    Bad Request
    Error 400

    Intentional or not, the message is appropriate as either a judgement on the administrations policy, or a warning to the reader seeking information directly from the original source.

    1. The top of page correct paywall link to The Wall Street Journal Article, "The High Cost of ‘Free’ Covid Testing Insurance has to pay for it, with no limits. What could go wrong?" By Cameron Kaplan, Feb. 3, 2022:

    2. Here is the link to the original source:

    3. Thanks! Sorry to be slow on this. I kept thinking the comments were going to another post and couldn't figure out the problem. Now fixed.

  5. Why am I not surprised? It has always been and will remain that someone's need will be someone else's opportunity. You also make clear the point that, in the end, it is the consumer/taxpayer who foots the ultimate bill. If we want cheaper health care, someone's ox will need to be gored. Either consumers will need to accept a lower (less costly) standard of care, or health care providers, pharmaceutical companies, etc., will need to earn less. Without serious federal government action, it seems unlikely that the cost side of health care will fall anytime soon.

    The pandemic has also made clear that our current health care system operates on a "just in time" service basis. It works as long as the demand is not too high, but in the case of a broad based emergency, that model can quickly break down.

  6. Could be time to go with herd immunity. (Trump was right.) With the less deadly viruses, especially. And if unvaccinated folk perish, it was time to cull the herd of stoopid Libertarian Republicans, in any event.

  7. In France a PCR test is free for the citizen (you don't even need to bring a payment method) and the lab charges 40euros to the state.

  8. Hey, Really it was an great blog to read, Waiting for another one till that get more information about ,Keep it up!
    Read More


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