# Calculating Costs

When I was a kid, calculating costs was easy. I made \$5 a day working in my family’s store for 8 hours on Saturday. A piece of gum cost 5 cents. So 8 hours got me 100 pieces of gum, or figured another way, each piece of gum cost me 4.8 minutes of work. Now, I must say, I never did this calculation back then at age 10 but I understood it alright. I knew that I was buying the gum. I knew that I was working to get the money to buy the gum. I knew that a decrease in what I got paid meant less gum. I knew that if I paid less for the gum, I didn’t have to work as long for each piece. Things seemed simple when I was a kid.

Now fast forward to today. Calculating costs seems so much more complicated. I had no idea back then that with every piece of gum I chewed I was increasing the sugar content of my saliva and changing the microbiota of my mouth. I had no idea that such a thing would lead to cavities and on going problems with fillings and crowns, so that now at 55, I’m facing the expensive replacement of a lot of dental work. I had no idea that the sugar was increasing the metabolic load and hastening the day when I’d have age related increase in insulin production in an attempt to keep my glucose down. Even aside from health costs, I had no idea that chewing the gum affected the customers I waited on in the store, and may have decreased my sales.

Of course you’re thinking that such things are ridiculous to think about, even if the crowns cost thousands of dollars, averaged across the years and the number of pieces of gum I chewed the additional cost wouldn’t be worth noticing. Also, it’s not the like gum was the only thing that influenced these costs. The costs need to be averaged over all of the things I ate and drank that had an effect in that direction. Okay, I agree with you, but even if the cost increase was 10% I wouldn’t have noticed it. What’s the difference between 5 cents and 5.5 cents when you’re 10? So given it was more like 1% it would have been even harder to notice. But then again, my teeth aren’t the point of why I’m writing this. I’m just pointing out that everything is connected, even a kid’s gum.

The point is how we calculate costs. We have a tendency to calculate only the primary savings or loss when dealing with what things cost. If we can pay less for a car, we figure we’re getting a good deal. We don’t think at the time of the secondary costs that go along with the primary savings. What was the cost of saving the \$1000 on the price of the car? Did we go to a dealer with less service? Will we lose time from work in the next year because of that choice? Will service have to be redone? Will something not be done correctly that could put us or our family in danger? The problem isn’t cost, it’s value, and we never calculate value unless someone makes us.

Let’s take addiction treatment for example. Given that addiction is a primary chronic illness with no cure, the goal of treatment should be to turn the patient into someone who can self manage the illness with free outside help (recovery community, friends, family, etc) through the life cycle. If I were paying for addiction treatment, that’s the product I’d want to buy. But that’s not the product most addiction treatment facilities sell. Some claim they sell abstinence from a specific drug or drugs for a certain length of time, others sell specific education but give no warranty as to the patients’ having heard it, and some claim they sell the personality change leading to recovery but can’t tell you how reliably they do that.

So if you’re an insurer buying “substance abuse treatment” from a bunch of providers in an area and one of them is significantly cheaper than the others, it looks like a good deal to start lowering payments to the higher cost places or shunting patients to the low cost ones. My experience with such payers is that they rarely look at outcomes to see what is the value they’re getting. Also, we’re still in a world of mental health carve outs where all the mental health and addiction treatment comes out of a different bucket of money than the rest of the medical care. In that case, if you’re in charge of the mental health money, you don’t want to spend it even if your spending more would give you outsized savings on the medical side. You just don’t get any credit for that, and, in fact, you’ll get in trouble for higher costs.

This isn’t only insurance companies, and that’s why I started with the gum. It’s all of us. We see a problem associated with a cost (drug use in society) and we try to fix it  (prohibition and the war on drugs); we expect primary savings if the fix works. But even when it does (it didn’t in this case), we still get the secondary cost that we didn’t take into consideration (increased incarceration, decreased work force, decreased GDP, etc) when we started. We seem to be so attached to simple solutions that sound great in a 10 second sound bite, that we can’t be bothered to look ahead a few years to see if we’d actually be better off. It’s not limited to social rules on drug use, or payment for addiction treatment. It’s the environment, it’s social justice, it’s local police budgets, it’s everything. It’s even a kid’s decision to buy a pack of gum. Everything is connected and when we change one thing we change everything. I didn’t learn that until I was fairly old. We should be teaching it to our kids before kindergarten. Otherwise there’s really no hope for the future.