I have an economist friend who nags me (appropriately) for not sufficiently discussing supply-side solutions to the high cost of medical care in the United States. Here’s one step in righting the balance.
Kayla Stetzel, a Spring 2018 intern at Reason, writes in “Start-Ups Make Cheap Alternative to Braces, Dental Trade Groups Cry for Regulation,” May 3:
Braces are a burden. People have to miss work, arrange for child care, and travel to the orthodontist office over the span of a two to three years. Teens have to cut classes and ditch those after school events to make room for appointments. Then there’s the price. Traditional Braces cost on average $5,000. Invisalign–a clear, plastic alternative to braces that is available only through licensed dental care providers–run around $8,000.
SmileDirectClub’s aligners–clear plastic mouth guards designed to straighten teeth–cost $1,850. CandidCo., another dental startup, charges $1,900. The fitting and monitoring uses a telemedicine model. Customers who can’t or don’t want to get their teeth scanned in store can have impression kits delivered straight to their door. “Alligners” based on those molds are then delivered to customers at home. It’s part of an emerging trend in dental care known as teledentistry, which uses alternative platforms like mobile apps, video chats, and dashboards to give people remote access to dental care.
The stark difference in cost and convenience matters. Many insurance companies do not cover orthodontic work, which is cosmetic for 98 percent of consumers. Private plans typically have a small cap for orthontic coverage, leaving most people on their own to foot the bill. The AAO states that roughly 80 percent of Americans could benefit from orthodontics, yet less than four million people receive orthodontic treatment each year. According to the ADA, high costs are the chief reason why one-third of Americans don’t receive adequate dental care.
Notice the price difference between this new technology for orthodontics and the old. You can see why orthodontists are arguing against it: some of them would lose their jobs and many of them would lose income from this new Schumpeterian competition.
Also, as the third paragraph above implies, it shouldn’t be surprising that we see such cost-saving technologies in orthodontics. Just as with Lasik eye surgery or elective plastic surgery, when customers are paying a huge percent–in many cases, 100 percent–of the bill, they are quite sensitive to costs. By the way, this shows that my emphasis on reforming the demand side of health care–one of the main ways being by having the customer face more of the incremental cost–might be justified. If customers face more of the cost, they will be more open to, and many will advocate, reforms on the supply side.
Aside: On the Hillsdale College web site, Ms. Stetzel writes that she “plans on attending law school with the intent of becoming an entertainment attorney.” That could make sense. I hope she doesn’t too quickly reject being a writer on public policy. She has a knack.
READER COMMENTS
michael pettengill
May 3 2018 at 5:49pm
Orthodontics are out of pocket.
Paying out of pocket will increase supply.
80% of the population would benefit from orthodontics, but only 1% pay out of pocket.
In contrast, high blood pressure is not a cosmetic problem, and easily 25% would get life extending benefit, and thanks to not requiring large out of pocket payments due to insurance coverage, a high percentage of those who gain the most benefit are treated, with coverage extending to many with benefits gained only after decades, in reduced disability, complications.
Reduced out of pocket costs by defining treating high blood pressure essential, and deserving of low out of pocket costs in the 70s greatly increased the supply of drugs. I was diagnosed in the 70s, and saw drugs common in Europe get approved in the US, the beta blockers and ACE inhibitors, replacing diuretics, with new classes of drugs, then a resurgence in use of diuretics in combination. My UK trained Indian or Pakistani doctor explained in the 70s that diuretics worked some unknown way other than reducing fluid volume. Which is why they have returned to favor at lower doses.
The past decade or two of pushing higher out of pocket expenses for these drugs has not increased supply or innovation, but prices and profits are higher for these drugs than ever.
Higher out of pocket, higher drug prices and profits seems to contradict the argument.
MikeP
May 3 2018 at 6:56pm
As someone who just got his kid Invisalign, I can offer some perspective here.
First, our orthodontist charges the same price for Invisalign as for traditional braces. The up-front price for the orthodontist is higher for Invisalign, but the chair time for Invisalign is much lower. So the net one-time price he charges for the whole treatment is the same, around the stated $5,000. In a couple years, Invisalign will likely be offered at a discount from traditional braces. One technology is still advancing in capability and cost cutting, and the other one is not.
Second, while I think no one should be prohibited by the government from providing any service, it doesn’t take a full Ideological Turing Test to recognize that orthodontists have an authentic concern. You get one shot at fixing teeth as the adult teeth come in. In the unlikely event that these less expensive plastic teeth movers are not doing the same quality work as the tried and true ones being watched over by an orthodontist rather than a mail order delivery person, there will be a lot of unhappy parents suing a company that will quickly go bankrupt.
RPhE
May 3 2018 at 8:59pm
MikeP,
The concern over the quality and performance of these alternatives is justified. But at a reduced cost it may offer an alternative that some people would prefer, even if it doesn’t stand up to the same quality of the more expensive options. Its up for the individual to decide. Paying $5000 for a great job vs $2000 for a decent job is a matter of preference in a cosmetic realm.
I’d like to point out also that you don’t have just “one shot at fixing teeth”. Adults get braces all the time, it just takes longer treatment. And the idea that a lot of people would be unhappy and suing these companies seems a little hyperbolic.
robc
May 4 2018 at 8:37am
I am not sure that people being unhappy and suing should be any concern of the orthodontists either.
Jon Murphy
May 4 2018 at 8:51am
@MikeP,
To RPhE’s point, the choice for lots of people isn’t between $5-8k for braces/Invisalign and $1,850 for SmileDirect. The choice is between $8k and nothing at all. For many people, if the $8k is out of their price range, then they get nothing. Even if the SmileDirect is inferior quality, it still represents an option.
For consider the following analogy. Lamborghini offers cars around $200k. They’re the only car maker on the market. For people, the choice is between driving a Lambo or nothing at all, and most of them have to choose nothing. Suddenly, a new competitor, Honda, enters and offers a $12k car. Sure, the Honda may not offer the same specs as the Lambo. It may have fabric seats rather than heated leather, it may have front wheel drive rather than all-wheel, it may go 0-60 in 30 seconds as opposed to 3 seconds, but it is still a vehicular option that is now open to people.
Demand curves slope downward. This means that quantity demanded increases as prices fall (all else held equal). The implication of an increase in quantity demand is not just that current market participants consume more of the good, but that new participants can enter as well.
Seppo
May 4 2018 at 8:55am
How about just dissolving FDA and most regulation regarding health industry?
They are very effective at preventing competition from showing up.
Tom West
May 4 2018 at 11:09am
> How about just dissolving FDA and most regulation regarding health industry?
I’d say that the population has made it abundantly clear that they do not want to have the responsibility for vetting medical efficacy placed on them.
I’d say that as society becomes wealthy enough to become comfortable, one of the first things it votes itself is security, even at the cost of growth and innovation.
TMC
May 4 2018 at 11:26am
Tom West, I agree that I don’t want to vet every healthcare supplier either, but maybe a middle ground? FDA gives a seal of approval that does not stop a supplier from selling his uncertified good?
Robert
May 4 2018 at 11:32am
It’s already placed on them in the form of limited clinical trials. The point is to not have it placed on a much larger group of people at once.
In medicine very few patients have the presence, inclination, or even plain time and ability to control their medical care in a system which by its nature is authority-driven.
Enough side effects are rare enough that even if a doctor knew about them they might decide to roll the dice without informing the patient.
As a hoi polloi I’m fine triaging a cut to determine whether I need to get stitches, and am fine diagnosing various ailments, but there’s a limit to my ability even with WebMD and the like.
robc
May 4 2018 at 12:21pm
Tom West,
But what if the attempt to vote oneself security actually decreases security?
FDA drug delays have caused more harm than unapproved drugs could ever* have caused.
*Crossing threads, Taleb might disagree with me.
MikeP
May 4 2018 at 12:24pm
I agree with the reactions to my comment above.
I guess I should have bolded “I think no one should be prohibited by the government from providing any service” and “the unlikely event” to make it more clear that I was presenting the position of the orthodontists, not of myself.
David R Henderson
May 4 2018 at 12:46pm
@Jon Murphy,
Very nicely done.
@Seppo and TMC,
Seppo gives my first-best solution; TMC gives my second-best, which is well preferred to the status quo.
@Tom West,
You present a false alternative. You’re right that as a layman, I don’t want to make technical judgments about quality of health care or drugs. With no FDA, I don’t need to. Other certifiers would arise and, indeed, currently exist. I’ve written about this many times. If you want cites, ask me and I will provide them.
@Robert,
See my response to Tom West.
@MikeP,
Thanks for clarifying.
David R Henderson
May 4 2018 at 12:50pm
@michael pettengill,
80% of the population would benefit from orthodontics, but only 1% pay out of pocket.
That runs counter to my impression. Almost everyone I know who got orthodontics, including my wife, my daughter, and me, paid out of pocket 100%. But I could be wrong about the overall data because I’m looking at an unexpectedly biased population. Do you have a cite to back your statement?
Justin
May 4 2018 at 12:53pm
–“By the way, this shows that my emphasis on reforming the demand side of health care–one of the main ways being by having the customer face more of the incremental cost–might be justified. If customers face more of the cost, they will be more open to, and many will advocate, reforms on the supply side.”–
It’s for this reason I believe that government provision in health care should be four-fold:
1) Locally funded ERs. Treat the ER basically like the Fire Department. Demand side pressure on cost isn’t really feasible here, with fees designed to limit unnecessary use.
2) Federally funded health spending accounts. Each year the federal government spends well over a trillion directly or indirectly (e.g. health insurance subsidies) on health care. Instead, take the present value of most of that spending and grant age-adjusted dedicated health spending accounts worth hundreds of thousands on average to each person, and let people determine their own health budgets, and effectively form their own mutual aid societies with their friends, families, churches, etc. Ideally, it places most health care decisions in the same financial context as braces are in this post.
3) Some form of long-term care insurance or savings mechanism.
4) Federally funded catastrophic health insurance as a fixed budget % of GDP (say, 0.5%), in which people present their cases before a state-level health board and are approved or denied financial assistance based on remaining budget and considering the details of other applicants. People who are denied assistance here can continue to seek the help of nonprofits and other individuals.
MikeP
May 4 2018 at 1:14pm
But I could be wrong about the overall data because I’m looking at an unexpectedly biased population.
Having recently gone through my pretty standard dental insurance policy, orthodontics is covered only for severe cases that produce an impact on actual health. Everything else is out of pocket. Given the descriptions in the policy of what impacts health, I wouldn’t dispute the original article’s claim that 98% of patients pay 100% out of pocket.
Tom West
May 5 2018 at 5:26pm
> Other certifiers would arise and, indeed, currently exist.
Indeed, but it’s pretty clear that the populace insists on not even wanting to have to worry about who the certifiers are.
I think politics has shown that the populace’s general attitude has been, as we grew wealthier, moving steadily towards “it should not be possible to buy a product that harms us”.
At least until those who value freedom push back enough to remind people what they are trading away for that security, in which case we see some push the other way.
Which is why, although I am not a Libertarian, I consider them to valuable to the over-all political process.
David R Henderson
May 6 2018 at 12:26pm
@Tom West,
Indeed, but it’s pretty clear that the populace insists on not even wanting to have to worry about who the certifiers are.
What’s your evidence that it’s clear?
I think politics has shown that the populace’s general attitude has been, as we grew wealthier, moving steadily towards “it should not be possible to buy a product that harms us”.
I think there’s definitely such a subset and it is large at times, depending on the issue. But motorcycles are still sold and people still ride horses, and I don’t see a lot of people saying those things should be banned.
Which is why, although I am not a Libertarian, I consider them to valuable to the over-all political process.
Thanks, Tom.
Robert
May 6 2018 at 1:39pm
@Justin
~1 trillion divided by the approximate population of the US is less than $3,100 per person, not hundreds of thousands per person.
Robert
May 6 2018 at 1:51pm
@David R Henderson
I believe Michael is stating that the vast majority of those who would benefit from orthodontics don’t get the procedure done, and thus don’t get the benefit, due to the out of pocket cost.
He may have meant to use the word “decrease” instead of “increase” in this sentence: “Paying out of pocket will increase supply.” This seems likely given his following paragraphs on blood pressure medication supply increases.
80% and 1% seem hyperbolic to me (my wife actually suffered from her orthodontic work, instead of benefiting, and I stopped using a retainer quite soon and am happy with my teeth reseting as much as possible to their earlier layout), but the overall point is evident enough that you probably missed it looking for something less basic.
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