The End-of-Life Buy-Out Option

An astonishingly large fraction of healthcare expenditures go toward heroic end-of-life treatments. I don’t know the exact percentage, but it’s big. What’s more, the benefit of such treatments is not terribly great; they typically extend one’s life by a few low-quality weeks or months. So why do people spend the money? Obviously, it’s hard for both dying people and their families to let go at the end. But just as important, the medical expenses are usually covered by health insurance or Medicare. When there’s a third-party buyer, there’s no reason to economize.

I’m not going to suggest that people should be forced to cover their end-of-life medical expenses out of pocket. It’s true that we use health insurance to cover lots of things that should be paid out of pocket, and would be if the tax code didn’t encourage employer-provided comprehensive health plans. But given the cost and risk associated with end-of-life treatments (your time of death is uncertain, as is the amount of money your pre-death treatment will involve), it’s sensible enough to insure for them. The problem is that once these expenses are insured, patients will consume medical treatment until the marginal benefit is zero or the insurance money runs out, whichever comes first.

So here’s my modest proposal. Health insurers (both private and public) should offer their customers a buy-out option: you can either incur the big end-of-life expenses, or you can accept a cash payment equal to some substantial fraction of the expected cost (say, 50%). Some people would still choose to take the heroic measures (and everyone would still have that option, at least among those who have it now), but others will take the cash in order to leave a larger inheritance, pay a grandchild’s tuition, take one last vacation, or throw an ass-kicking rock-your-face-off party. The insurers would be better off because they’ll pay out less than the expected cost of end-of-life treatment, and the patients will be better off, or at least no worse off, because they’ll have an option they didn’t have before.

Why aren’t insurers doing this already? The neoclassical economist in me says that if my plan were viable it would already have been implemented (at least by private insurers), so I must be missing something. The Austrian economist in me sees dollar bills on the sidewalk.