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Controlling Healthcare Costs
Can Barack Obama and congressional Democrats control healthcare costs? Megan McArdle doubts it:
I'd say we have substantial empirical evidence that we are not going to control the health care cost inflation which is busting Medicare's budget, much less the new costs the administration is planning to add. We have been trying to control health care costs since the 1970s made it clear that Medicare was going to get really, really expensive. And any idea that you care to name, from comparative effectiveness research to healthcare IT to preventive medicine . . . these have all been on the table for more than thirty years, under one name or another. They haven't happened.
The answer that those promising magical cost reductions need to ask is "Why haven't they happened?" and "What has changed to make them feasible now?" But when I ask this question, I get angry demands that I put forward my plan for cost control, rather than merely critiquing everyone else's. This seems rather like demanding that I put forward my design for a perpetual motion machine before I am allowed to point out problems in the US energy market.
This is an entirely reasonable position. But I suspect the answer to cost containment lies less in technical arguments about healthcare policy than it does in arguments about taxation. Right now, not only is America is rich enough to afford expensive healthcare, but the cost of that care is largely hidden. For seniors, it comes via Medicare, and Medicare taxes haven't gone up much recently. Its problems are still largely in the future. The rest of us mostly get healthcare from our employers, and the only cost increases we see are higher copays — which are painful, but not quite painful enough to spur us to do much about them.
So what will spur us to get serious about cost containment? My guess is: universal healthcare, paid for out of taxes. A taxpayer funded system actually makes healthcare costs more visible than our current system, and a universal system is much bigger than Medicare alone. A universal public system will, eventually, require painful tax increases, and that's the point at which the public will finally be willing to accept cost containment measures.
And if it doesn't? Then it means, via revealed preferences, that Americans want expensive, unlimited healthcare even when the costs are fully and completely known to them. That's not my preferred outcome — I think a lot of that money could be far better used on other things — but if that's what taxpayers turn out to want, then that's what taxpayers turn out to want. That's how market democracies work. My guess, though, is that it's not what they want. They just don't know it yet because they're too far removed from the costs of the current system. National healthcare will change that.
Cost Containment
Private insurers have no incentive to contain costs, they simply increase their rates.
As someone who worked for years for local governments which operated money losing ambulance services, I can tell you that Medicare has been far more effective at containing costs than have the private insurers.
What McArdle is saying, whether she realizes or not, is that it is time to completely change how we provide ourselves with health insurance. Enactment of a single payer, not for profit, publicly owned health insurer is not likely, given that congress is bought and paid for; but the provision of a publicly owned option to compete with the privates will contain costs and, eventually, probably run the privates out of business.
Probably the best we can hope for is inclusion of a public option in whatever emerges from Congress, so call your rep and sens to demand inclusion of the public option.
Strive For The Ideal, But Deal With What's Real
It's not just overusage ...
we are not going to be able to do anything about costs until we can confront the overpayment issue - the fact that we pay an unreasonable amount for each unit of service. It would seem like the place to start would be with big pharma - why can't Congress enact legislation that would forbid pharmaceutical companies from charging more for a product in the US than the highest price that they charge in any other country? (BTW, agree that the best we can hope for at this point is a public option which can in time evolve into single payer, which is why it is so discouraging to see so many Dems bailing on this at this point - although mandatory coverage with no public option would probably drive costs up so far that the revolution of single payer might eventually be possible.)
Transparency
Agreed that when coverage is universal, we will "see" what it really costs and get serious. Today costs are diffused between Medicare, Medicaid, VA, IHS, Tricare, employer plans, individual plans and those that have nothing.
Ideally, if we had single payer, we would have a big spotlight shining on these costs and we would then get serious.
Or we can just let it continue the way it is for awhile........when it approaches 20% of GDP the wheels fall off and then we will knee jerk something into place.
Another way to make the cost
Another way to make the cost of health care more visible would be to make the employer's health insurance cost a payroll deduction. Let the employers add this cost to the employee's salary and then deduct it. Some laws would have to be changed for this, but it could happen. Otherwise -- out of sight, out of mind. When people who are insured through their employer hear of growing health costs, they don't focus -- they don't think it affects them directly.
Cost containment is hard
I think Megan McArdle is probably right that controlling health care costs is a lot harder than just creating a national healthcare system. And she deserves kudos for a very sensible recounting of how the Laffer curve has been used and abused. But I think you can easily derive a totally different lesson from the 30 years history she cites, as follows.
If we've tried to control costs for 30 years within the current semi-private system and every attempt has failed, you can reasonably conclude that it's not possible to contain costs within the current system. Since I don't share her worldview that government will make the matter worse, but rather rely on a worldview that government might make things better and can certainly shake things up, I favor the latter interpretation.
What she needs to come up with to substantiate the critique is something beyond an empirical association between some government involvement in healthcare and no progress on cost control. She needs to explain in detail HOW government involvement will make things less amenable to cost control. Frankly I believe there are good arguments there to be made, but she's neither making them nor quoting them. And the OBAMA=SOCIALISM!!11!!!1 caterwauling does not count (and, to be fair, Megan doesn't really engage in this) .
My own version of why government intervention will improve things is pretty simple. There is no real cost control function in the current system. Since, as Kevin points out, costs are largely invisible to most consumers, payors don't derive any benefit from controlling costs, so they work as Value Added Resellers of services, take a percentage cut, and hand the rest of the money to the providers, who range from physicians and hospitals to drug and device companies to all the middlemen and support people in all those transactions. So they key question about cost control is: who will actually do it. I don't know whether I think government will do it effectively: apparently in some places it does OK. Americans certainly love technology and we love technological healthcare. Would we trade that for more pedestrian alternatives that cost less and gave us most of the benefit? Probably that a case-by-case and person-by-person question. But I just don't see how the semi-government system even admits the possibility of cost control, and I can at least see the possibility of government doing genuine cost control. Moving from impossible to possible counts as an improvement in my book.
Healthcare costs
One glaring item that is always left out of most discussions of health care costs
is the insurers. They take out an enormous amount of the health care dollar
both through profits and obstruction.
As a chiropractor, I have had to deal with severe cuts to my fees. Medical doctors I know have also had to deal with reduced fee schedules.
Insurance companies commonly reimburse at rates that are less than the cost
of fixed items like vaccines. How is this workable? It's not. And the vaccines
are often those used by the most vulnerable in our system, children and the elderly.
In addition to lower reimbursements, collecting for services provided has
become more and more difficult and therefore more expensive. It appears to
me that insurers spend as much denying claims as they do paying them in a straightforward manner.
So...the solution? The big players are not going to relinquish their vested
interests for the greater good of society as a whole. That is the stumbling block.
Agree that making costs
Agree that making costs visible is essential. But also essential is making charges visible. Right now, a very large number of providers essentially are arguing that they need higher rates over here because someone over there isn't paying enough. You can't work this one out until everyone is paying and that's no longer a valid argument.
The other thing is, we really need to move primary care providers to the front and center of care and pay them enough to do their job, which will likely automatically cut down on the number of specialty referrals and services.
Finally, you have to start changing the mindset: more isn't better, more is often worse. I've seen this with my parents and my in-laws both. In many ways, those who can afford care are victims of a parasitic medical establishment that sees them as cash cows not patients.
OK, where's the perpetual motion machine Megan?
Actually, some of the answers to these questions aren't that hard to find. Cost containment measures haven't happened because the health care industry has a lot of money to work with and a highly efficient lobbying machine. In addition, health care lobbyists are very good at recruiting support from among both parties. It's just that the Republicans are more blatant in their kowtowing to the industry. To the point that they write things like no-negotiation-rights for public institutions in the health care laws they pass.
What make cost containment more and more conceivable, and what will at some point make it 'feasible' despite all resistance to it, is the sheer economic pressure that develops when health care costs reach higher and higher levels in terms of GDP. Employer-provided health insurance then becomes more and more of a competitive burden, as premiums have to go up all the time. So, employers start to reduce coverage (a sort of rationing) and and more and more people have to start and scramble whether it is health care or other priorities they spend their money for. When societal pressure has become high enough, the need to act becomes a political imperative, simply because voters have upgraded health care on their list of concerns. Like say we saw in the last presidential election campaign.
I'm not necessarily optimistic that health care reform will succeed this year, but if people like Megan McArdle think that a failure to do it will remove the pressure for cost containment, she is delusional.
And as an aside: Megan McArdle recently had a bloggingheads exchange with Mark Schmitt that covered health care reform. In that exchange she comes across as a person who is way more smug than her level of knowledge warrants. For example, she claimed that the US was the only country with a profitable market for pharmaceuticals, as in all other countries pharmaceutical companies were forced to sell 'at cost plus a small profit'. I would invite her to try and make that argument to health insurance companies and health care politicians in Europe and Japan.
I think even with universal
I think even with universal healthcare, the actual bills themselves need to go directly to the consumer to be passed on to the final payer, AND the actual consumer needs to pay some percentage, even if very small, of the actual cost of each line item.
And then, there should be local, state, and federal panels that utilize civilian participation to talk about health care costs.... Like a PTA, but for healthcare.
One MD's Take
I have been discussing this with my MD brother, a fiscal conservative. Here is his take:
“The fundamental change that MUST take place is a lowering of expectations by the people served. We cannot keep trying to keep people alive at such great cost. In England they do not treat metastatic breast cancer beyond age 70. Is America ready? They did not even treat curable testicular cancer in the mid 1980's. Prostate cancer? Forget it. Refractory heart failure...so long, etc., etc., etc.”
Typical contra view it seems. Here is his sign off:
“You want to serve the poor? Let their cost of care be written off of taxes...that problem would disappear overnight.”
I am formulating my response. Any suggestions?
Why Can't We Afford It?
Bob Somerby (http://www.dailyhowler.com) makes the very good point that little to none of the public discourse on this topic asks the simple question: why are other (peer-type) countries able to provide universal health care to their citizens today at half what we pay per capita?
Why are we being told that we can't afford to have what they have - even if we pay a trillion more for it?
This simple fact is not being widely discussed - it didn't even appear in the NYT article today. We will have pay double or triple what the rest of the developed world pays - and even then won't have 'universal' coverage??
This is ludicrous and outrageous.
I like Barbara's suggest
"The other thing is, we really need to move primary care providers to the front and center of care and pay them enough to do their job, which will likely automatically cut down on the number of specialty referrals and services. "
And if we get serious about preventative care and regular check ups, things won't get left until after they have reached the emergency stage and cost even more to fix.
****The fundamental change
****The fundamental change that MUST take place is a lowering of expectations by the people served. We cannot keep trying to keep people alive at such great cost. In England they do not treat metastatic breast cancer beyond age 70.****
It may well be that Americans will soon be getting less than "everything they want" as the country moves to a system of universal health insurance. But I don't know why your brother chooses the UK as the model (actually, I've got a pretty good idea: he chooses the model that best works as a scare tactic ). It seems far more likely that the US system will end up resembling one of the various models on offer that is both universal AND expensive, such as Canada, Switzerland, Germany or France. It's true that prioritization will have to play a bigger role. But the notion that we can't cover everybody AND maintain a healthcare system of very high quality is false.
Thanks Anon
Thanks. False choice is the regular currency of this debate. Funny how he and others seem to like to focus on how a new system will screw the older (voters), meanwhile a big issue now is that the young and post adolescent are not being well served.
No to ObamaCare
Any doctor that supports Obama’s plan deserves worse than what the public is going to get; which is an authoritarian government rationing of health care based on political favoritism and one's "worth" to society. So according to President Obama's idea of universal health care the heartless and greedy will get their free coverage at the expense of the poor and elderly.
The doctors have been FIGHTING to have MRI’s, CT’s and ultrasound tests covered as preventative as well as diagnostic medicine for years yet President Obama wants to cut that while at the same time saying he wants to provide superior care for 47 million MORE people when droves of doctors will be leaving their field precisely because they will have "no skin in the game" aka profit to induce them to remain in the game.
What a mess. Anyone who supports this crazyness is well plain crazy.
Anonymous?
"...an authoritarian government rationing of health care based on political favoritism and one's "worth" to society. So according to President Obama's idea of universal health care the heartless and greedy will get their free coverage at the expense of the poor and elderly. "
Where do you get this from? I would like to take you seriously, but this sounds like baseless, unhinged silliness. Prove me wrong.
Health care costs
The previous edition of the New Yorker had a long article about how the relative numbers of doctors, particularly ones who own the other services they send patients to, create a local culture of over doctoring which results in higher costs. Some little crap town in Texas runs twice the medical costs of some urban areas. The Mayo Clinic is half the price of other similar institutions. You have to look at the STRUCTURAL issues behind stuff like this and fix things at that level. Fortunately (I hope) there's some big cheese in the Obama administration who specializes in this exact stuff. I haven't however heard proposals from Obama to correct these kinds of situations.
When I lived in SF I was on Kaiser Permanente nonprofit HMO, (HMO does not equal Evil necessarily) which structuraly - Docs on salary, they don't own anything so no incentive to overuse treatments, Kaiser owns its own pharmacy, etc. - does a lot of the right stuff, but their charges seem to go up like everyone else's. (I know, I should have researched a bit instead of going off the top of my head, but you get the picuture. Find the article yerself!)
Democracy in Action
This only works if the set of net beneficiaries is smaller than the set of net payers. I don't see how that could happen with the current plan.
In very dimensions of our
In very dimensions of our life, it seems to always make a cutback, yes cutbacks is best use during hard times. Even the health care cost should undergo for cos cutting, but it doesn't mean to sacrifice the quality service. Just avoid unnecessary expenses and focus on the most important ones. In today's economy, there is a severe recession and financial shortfall – even the credit card companies are less willing to lend you money at ridiculous rates. The Federal Reserve has pumped billions into finance companies to reverse the trend, but it hasn't worked as well as intended, so naturally people turn to short term loans for debt relief.
For more info visit: http://personalmoneystore.com/moneyblog/2009/05/14/consumers-short-term-...
Health Care Reform - Show me the Money
We've learned somehting this week from non-partisan government economists. We can't afford the Obama health plan which won't cover all of the uninsured. These facts will become more stark as the cost estimates for health care reform continue to be 'revised upward'. Taxing soda and beverages won't get us past the financial goal line. Once the administration has to go beyond saccharine slogans, the situation gets quite sticky. See related physician postings on health care at www.MDWhistleblower.blogspot.com
Simplistic?
Maybe my thinking on this is too simplistic but my guess is that if insurance company profits were taken out of the mix, the actual cost problems in healthcare could be addressed more successfully. Googling health insurance profits last night I found that over the past five years health insurance companies have made 1000% profits. That's a lot of money. Also, the mindset about providing healthcare in all areas, including pharmaceuticals, needs to change from being about profit to providing a public service. There has to be a limit on extreme capitalism when millions of people's lives are on the line.
A story from my youth... When I think about the 'old days' it blows my mind to see how things have changed. When I was ten years old in 1957 I got a progressively worsening pain in my abdomen over the course of, say, 10 hours. My parents called my doctor at 10 PM and he came to our house for a quick exam. It turned out to be appendicitis and I was taken to the hospital that night. I laugh when I think of anyone expecting that sort of service today. Yep, kids, they actually carried black satchels with their basic equipment in them. I've had similar situations as an adult when I can't even see my doctor the next day and am told that if I think it's serious enough that I should go to the emergency room. So now I'm the doctor? Crazy.
I guess my point is that although the cost of medicine has risen dramatically, the service, speed of service and personal concern, has dramatically fallen. A friend's father died a few years ago from a ruptured appendix. He had gone to the emergency room, was diagnosed, and then kept waiting for 10 hours before surgery.
Insurance Companies Love Costs
The insurance companies will never rein in the costs. Costs are the insurance company's friends. People buy insurance because they are afraid of the costs. States allow insurance companies to raise rates because of their costs.
And the insurance companies are making money. While grocery stores struggle along with 1% profit on gross sales, health insurance companies make 5-10% profits.
The insurance companies will never make a real effort to contain costs or prices. If you could pay a reasonable price for your baseline health care, you would never buy insurance- at least, not while you're young and healthy. In spite of their ritual weeping and rending of garments, the insurance companies love the costs.
I think we miss the point
tagged as:- solution
For a moment lets just get technical.
In a free market system (which we sorta have) cost controls usage and the consumer rations, this further causes companies to try and build a better mouse trap to attract more consumers. This cycle creates the holy trinity of economics, price, consumption and efficiency are all controlled by market forces.
this equation is sadly missing from health care.
If I decide to drive like crazy person, my insurances go up or worse I am dropped by my carrier - no one advocates my rights to car insurance when I behave this way. And rightly so.
But if I eat poorly, refuse to exercise, and then need expensive drugs to maintain by body - this is seen as a right.
If that behavior further drives up health costs for my employer and co workers any attempt to address it is discriminatory.
Now I am not suggesting we get cold and forget we are dealing with our fellow human beings but if we have a universal system how then do we control costs when so many of us think we can eat what we want, and then demand expensive treatments for self created health problems?
There is no country with Universal health care that is not frantically attempting to control run away costs.
We cannot solve this problem with the same level of thinking that created it.