How I’d Reduce Healthcare Costs

August 23rd, 2011 at 4:49 pm David Frum | 101 Comments |

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“Easy for Me to Say” is a FrumForum feature series in which David Frum answers reader questions about political issues. Readers are invited to pose questions that take the form of: “OK – so what would you do instead of this or that politician you’ve criticized?”

Questions should be e-mailed to editor [at] with “Easy for Me to Say” in the subject line.

Carl Asks: “OK…what would you do to reduce the share of the GDP taken by health care costs, to bring it closer to the 13% that Switzerland spends?”

I think the best, most effective, most responsive way to control health costs is to place greater power in the hands of health insurers.

That will strike many as completely counter-intuitive, but I think it’s the best option, certainly much better than the other two leading candidates: direct government management of the health system or else asking patients to function as consumers.

As Uwe Reinhardt points out, the reason Americans spend more than any other nation on healthcare is not that Americans use more healthcare than people in other nations (they don’t) – but that they spend more for the healthcare they buy.

The basic grammar of the American healthcare system is: sellers have market power, buyers don’t. Insurers, the middlemen, are stronger than buyers but weaker than sellers. So they respond to seller demands by squeezing the buyers: feeding costs through, raising premiums and copays, seizing upon opportunities to withdraw coverage altogether from patients who get sick.

But what if we could build a different marketplace, where the middlemen had more power. Could we induce them to squeeze the sellers instead, forcing costs down through the system? I think we could, for example by:

1) Shifting the regulation of insurance from the states to the federal government. Right now, hospital corporations operate in a single unified national marketplace, while insurers operate under 50 different sets of rules. But it was a simple act of Congress that carved up the insurance market back in the 1940s, and that act of Congress can be reversed. If we had 5 or 6 big insurers operating in a single united marketplace, we’d tilt the balance of market power away from providers.

2) Instituting a more vigorous approach to regulation at the federal level. Once insurers get bigger and stronger, we need to break them of their current habit of relying on adverse selection to maximize profit. They have to be reoriented to a new mission: haggling with providers over prices. We need to unleash healthcare Sam Waltons on the health providers, armed with the power and infused with the mission of forcing prices down while holding the line on quality and service.

3) Generating and publicizing health outcomes quality data. The point is often made: we call it “healthcare” but what we pay for is “illness cures.” Health insurers should be competing for the right to claim that their customers at every age enjoy the best health outcomes at the lowest price. Consumers need to see and know the truth of these claims: “75 year olds who sign up with ACME report greater satisfaction with their sex lives than people who sign with any other insurer.” And we need a bonfire of all regulations and antitrust restrictions that impede insurers from discovering innovative ways to promote health. Health insurers might want to offer members free gym participation. They might want to offer frequent flyer points for members who lose weight. Their job should be to keep us alive and well as long as possible – by any innovative means they can discover.

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101 Comments so far ↓

  • Frumplestiltskin

    “Shifting the regulation of insurance from the states to the federal government.”
    Wow, sounds just like Obamacare. Oh right, that is because it is Obamacare.
    “Instituting a more vigorous approach to regulation at the federal level.” Great idea, oh right, Obamacare does that as well.
    “Generating and publicizing health outcomes quality data.” Um, they can do that now. And many do publicize such things as wellness programs, etc.
    “Health insurers might want to offer members free gym participation.” I have a friend whose job it was to develop wellness programs (this was 20 years ago) so I really don’t know how David has been so out of the loop to not know these things exist already.
    The ACA was health insurance reform, it was not healthcare reform (though it has a few elements of that via those “death panels”)

    I wish Republicans would actually read the PPACA and know what is in it instead of screaming “oh my God, it is so long so I have not read it so I must vote no” as their main reasoning point.

    • balconesfault


      • TAZ

        Obamacare was originally a Republican idea back in the Day of “HillaryCare”, lest we forget.

        I would be happy if I could get back in the military health-care system.

  • Graychin

    Frumplestiltskin is right.

    That said – is there anyplace in the world where a plan like Mr. Frum’s actually works? Instead of trying to re-invent a wheel that will fit into the various dogmas of “conservatives” (“let market forces rain down,” or “government spoils everything it touches”), why not do what has already succeeded somewhere else? Something that already provides better outcomes and doesn’t cost as much?

    Not invented here? Too “French”? Too “European”?

    • Primrose

      Exactly, Graychin. I don’t know why we don’t look at the plans that work and use those. I also am a little hesitent to put too much unregulated power in the hands of these companies. I’d want more details on how to keep the denial of services they are so fond of smaller.

  • haterinos

    Also whats your solution for stopping insurers refusing insurance for people with pre-existing condition?

    • Banty

      Presumably that would be part of the federal regulation.

      One of the things that got me to stand up and notice David Frum was his interview with David Moyers, in which he proposed a national set of regulations for health care, to break up the insurance company monopolies, especially in certain states. Republicans had been fond of saying “let buyers purchase across state lines”, being either purposely abstruse or seemingly unaware of the race to the bottom that would occur in the current system where insurance regulations are at the state level. Insurers would simply issue policies from the most unregulated states, similarly to how in the ’80s credit card issuers transported themselves to Delaware and North Dakota to get around other states’ usury laws.

      David Frum broke through both ideological blockades on this issue, proposing more competition, but with a mechanism to prevent the race to the bottom.

      And it’s worth a national discussion. Maybe Mississippi will need to cover kidney transplants; maybe Massachusetts is overly generous in covering fertility treatments.

  • Oldskool

    I bet the average person in the US would be happy to pay more for gasoline and other goods if they didn’t have to deal with health insurance companies.

  • Leo

    How would this proposal provide health care to the poor or the unemployed?
    In Canada (where I live), everyone is covered, and the costs are spread over the entire tax-paying population. The insurance contribution is scaled to your tax rate. You don’t pay more if you are unhealthy or elderly, only if you are richer. Because everyone is insured, the average health of Canadians is superior to the average health of Americans (eg. expected lifespan).
    It seems in Mr. Frum’s proposal, coverage would still be voluntary, so only those likely to need health care would purchase insurance. If the health outcome is the objective, and if insurers are free to accept or reject an application, why would they want to insure the sick or elderly without regulations forcing them to. But Mr. Frum eschews regulation???

    • Frumplestiltskin

      I think Federal regulations would ensure no more rescission or denial of care due to pre-existing condition. Of course this does not address free riders (which the mandate does)

    • Houndentenor

      In addition, how would you provide health insurance for people who make close to minimum wage working for someone who doesn’t provide health insurance but who can’t afford insurance on their own? Why doesn’t anyone talk about those people in this discussion. You’d think the uninsured were $100k+/year independent contractors and not people who make $8 an hour 30 hours a week at Walmart (sorry to pick on Walmart, they aren’t the worst, just an example).

  • Nanotek

    “Carl Asks: ‘OK…what would you do to reduce the share of the GDP taken by health care costs, to bring it closer to the 13% that Switzerland spends?’

    if market forces are to be maximized, unleash science and stem cell research

    (I appreciate this “ok what would you do” segment of FF)

  • baw1064

    [The insurers] have to be reoriented to a new mission: haggling with providers over prices. We need to unleash healthcare Sam Waltons on the health providers, armed with the power and infused with the mission of forcing prices down while holding the line on quality and service.

    How will empowering insurance companies accomplish this? It seems like what you really want to do is to remove barriers to entry.

  • Frumplestiltskin

    As to myself, I would prefer the Taiwanese model, which has the lowest administrative costs in the world and which was modelled after (cough cough) our own Medicare.
    the difference in Taiwan is that healthy young people who do not use much care subsidize the elderly through taxes, Americans subsidize insurance company profits and advertising.

    • valkayec

      +1^ Taiwan has one of the best and most cost transparent systems in the world. The government, recognizing the need for universal lower cost coverage, sent a specialized team around the world to study other systems. After returning home, the Taiwanese government took the best ideas to create their own system. It’s consumer friendly, efficient, cost effective, and cost transparent – unlike our own system. In other words, it meets the needs of the people while being low in cost.

    • JimBob

      The youg subsidize the old. Another Ponzi scheme. They always work

      • Another Matt

        The young subsidize the old with 401(k) “schemes” too. Any plan to save for retirement that relies on economic growth also relies on population growth, i.e. “the young” entering the workforce.

      • chephren

        Get off the ideological hobby horse. In ANY insurance scheme, those who make fewer claims subsidize those with more claims. With car insurance (required of all drivers by law), safe drivers subsidize accident-prone ones. In pension plans, the young subsidize the old.

    • torourke

      So who is paying the Medicare portion of the payroll taxes that fund current retirees then? It’s obviously not the retirees, since they are, um, retired. And according to you, it’s not younger workers. So who then?

  • Smargalicious

    How Smarg Would Reduce Healthcare Costs:

    Cut un-insured fatherless welfare citizens, illegals and their anchor babies from Medicare/Medicaid rolls.


  • SpartacusIsNotDead

    This article by Frum only shows how truly uninformed the GOP is about the health care market.

    Frum wrote: “(1) Shifting the regulation of insurance from the states to the federal government. Right now, hospital corporations operate in a single unified national marketplace, while insurers operate under 50 different sets of rules.”

    False. Hospitals and other health care providers absolutely are subject to state regulations. Moreover, Frum never explains why he thinks the absence of state regulations would result in lower health care costs. Comparisons of costs in D.C. to the states does not at all support Frum’s argument.

    “(2) . . . Once insurers get bigger and stronger, we need to break them of their current habit of relying on adverse selection to maximize profit. They have to be reoriented to a new mission: haggling with providers over prices.”

    Insurers already have every incentive to haggle with providers over prices and, indeed, they’ve been doing this for years. Only those who are the most ignorant about the healthcare market don’t know this.

    “(3) Generating and publicizing health outcomes quality data.”

    HEDIS – Google it. Moreover, most insurance companies already offer some form of wellness program that incentives people to lose weight or join a gym.

    It’s truly amazing that Frum has been very critical of the ACA, yet after much thought and preparation, this is the crap he comes up with.

    • baw1064

      Once insurance companies get bigger and stronger, they’ll have so much money to devote to lobbying that you’ll never break them of any habit.

    • Emma

      Why hasn’t Frum done his homework on health care? Two reasons, I would guess: (1) he doesn’t have any close relatives who are doctors, hospital or clinic administrators, billing clerks, or the like, so he hasn’t picked-up the operating details of the industry by close proxy or direct observation; and (2) he hasn’t been required or curious enough to really dig in and figure out what’s going on from each of the competing perspectives (i.e., the various categories of providers, insurers, patients). In that regard, there is a large, well-developed health economics research literature that Frum seems to be unfamiliar with (see, e.g., latest issue of the AEA’s Journal of Economic Perspectives). All in all, not his best effort.

  • seeker656

    Anyone seriously interested in reforming our expensive and less than satisfactory health care non-system could begin by reading:

    “The Healing of America: A Global Quest for Better, Cheaper, and Fairer Health Care” by T. R. Reid.

    There is no better example of the inability of our politics to find effective reforms than in our approach to health care reform. There are no perfect systems in the world and all have stresses and problems, but our non-system is the most inefficient and costly with outcomes for most that rank well below those of other developed nations.

    The complexity of the problem and the unwillingness of the media to inform the public leaves too many opportunities for easy demagoguery. “Death panels”, “killing grandma”, “killing Medicare” and other simplistic labels control the narrative and distract from the needed adult conversation and debate.

    Reid surveyed a number of health care systems around the world reporting on their successes and inadequacies. The bottom line is that, contrary to the assertions of politicians who have access to the best of our health care, there are too many in this country who are denied access to reasonable health care, there are to many in this country who are forced into bankruptcy by excessive health care costs, there are too many in this country who die prematurely because of inadequate health care, and more.

    The Affordable Care Act is the first serious attempt in decades to reform our system. Contrary to Mr. Frum’s recommendations there are no easy solutions, but there are solutions if only we could talk to each other respectfully.

    The Republicans are now arguing for repeal of that law having given up on “replace” as too difficult. They are content to return to the status quo leaving tens of millions uninsured with no serious proposal (the free market system doesn’t work in health care) to address this complex social problem.

  • jollyroger

    It’s way simple Sell access to VA coverage to all comers @the acturial cost+10%. Free market competition, no mandates. Stand back & hear CIGNA squeal.

    • think4yourself

      That would be a public option. That is against GOP principles because it would harm health insurance company’s ability to rape you – I mean compete.

      • jollyroger

        Hey, they create big value: You give them a dollar, they give your doctor 80 cents, and keep three workers in his office busy deciphering a multitude of forms and negotiating to get that eighty cent payment….which creates value because…umm…because…Well, they do keep three workers busy.

    • Rabiner

      you still need a mandate or you’ll just have free riders. No way around free riders without a mandate unless insurance companies can deny coverage to people.

      • jollyroger

        Actually, since the VA has an infrastructure in place, and provides top notch care at rock bottom prices, you could almost tolerate the free rider problem if you maybe pushed medicare down ten years and made the VA option a preferred medicare provider.

  • Diomedes

    How do you reduce health care costs?

    1) Foster an environment where a healthy lifestyle is something to be sought after. Instead of demonizing those who eat healthy and exercise as ‘liberal pansies’ while placating to the fast food lobby.

    2) Go with single payer. It is far less complex and would reduce the overhead incurred through the need to utilize medical insurance companies. Once again, that requires not placating to the lobbyists.

    3) Stop allowing religious nutjobs to stifle research into stem cells or other new treatment options that could outright cure certain afflictions (spinal damage, Alzheimers) instead of needing to spend substantially more on treating the disease over a longer timeframe. Of course, this would mean we would have to accept science in this country, instead of assuming its some giant left wing conspiracy.

    4) A constitutional amendment that prohibits inbreeding. Solves two problems:
    a) Reduces the likelihood of genetic abnomalities due to cross breeding of similar genetic stock.
    b) Will, over time, reduce the number of registered Republicans.

    • torourke

      2) Ah yes, single-payer would save money. You mean like our current single-payer system of Medicare? Because that is doing such a bang-up job of controlling costs…

      –Medicare fraud costs American taxpayers $60 billion a year, a number which dwarfs the combined profits of the largest private health insurance companies in the U.S.

      3) Maybe treatments derived from embryonic stem-cells can treat spinal-cord injuries. We’ll see. Alzheimer’s? Probably not:

      Although recent research using adult stem cells has shown some promise with treating Alzheimer’s.

      • ottovbvs

        “Because that is doing such a bang-up job of controlling costs…”

        Where do you get the strange idea that fraud is unique to Medicare?

        • torourke

          I didn’t write that fraud is unique to Medicare, so you’re knocking down a strawman. But the staggering amount of fraud within Medicare (which people like Krugman ignore when they tout Medicare’s alleged superiority over private insurance) should give anyone who thinks the Medicare-model is the way to go something to think about.

      • tommybones

        Medicare 3% overhead, private insurers 32% overhead. If you think that won’t make a big difference, you’e a fool.

        • torourke

          This stat is misleading in a number of ways. Let me count them:

          1. Medicare has a number of other government agencies that handle the sort of work that would show up in their administrative costs if it was a private insurer. The IRS collects taxes for them. The Social Security Administration collects premiums for them. The Department of Health and Human Services does a lot of marketing for them and handles fraud claims. And there’s more. These people all do administrative work for Medicare and are not working for free, and yet these costs do not show up on Medicare’s books. If private companies could write off most of their administrative expenses the way Medicare does, their overhead would look a lot better too. Medicare’s administrative costs are real, and they must be paid for, but they don’t appear on Medicare’s books, giving the false impression that it is more cost-effective than private insurance.

          2. Medicare’s administration is tax-exempt whereas private insurers must pay state excise taxes on any premiums they collect which must then be counted as administration costs.

          3. Most importantly, Medicare’s overhead costs are a small fraction of their total spending, because they spend tons of money on sicker patients, making the money spent on overhead look tiny by comparison. Private insurers actually spent less money on overhead per patient than Medicare does according to a 2005 study (this is with all of the advantages Medicare has that I outlined above). But since private insurers deal with healthier patients, the administration costs account for a higher percentage of the total spending.

  • sinz54

    Here’s how I would save money on health care costs:

    The same way that life insurers do it. They charge a higher life insurance premium for smokers. The same way that auto insurers do it. If you’re a reckless driver, you pay more in premiums on your auto insurance.

    Except that we have to do it through co-pays as well, because many American workers don’t pay any premiums, their employers do.

    The more obese you are, the higher your premiums paid by your employer, AND the higher your co-pays paid by you. Employers will have a good reason to not hire obese people because the employer will have to pay higher premiums, a reason that cannot cause them to be sued for discrimination because it’s a purely financial decision. (The discrimination will have come already if Congress passes legislation using my approach.)

    The more cigarettes you smoke, the higher your premiums and co-pays.

    And so on.

    The more risk you take with your life, the more money you’re going to have to pay for that risk out of pocket.

    That, to me, is the only rational approach.

    BTW: It’s been estimated that if no Americans were overweight, we could save a trillion dollars in health care costs.

    • baw1064

      So long as you limit this to controllable risk factors, I don’t have a major problem. But that’s not what currently happens; the insurance company doesn’t care whether you got Type 2 diabetes due to a poor lifestyle, or Type 1 diabetes, which has no known risk factors. If you’re a bad risk, they don’t care why.

      • Primrose

        Yes, Sinz how would that have gotten me health insurance with epilepsy. How would it get my husband insurance with his PKD or my friend with Crohn’s disease? Or her friend with lupus? Or my son’s classmate with leukemia?

        You can’t blame this problem away.

        • Primrose

          And if you think those who smoke or obese are such a heavy percentage of the cost, why don’t we charge the companies who sell these products? Tax them, the companies who make money creating addictions.

    • Banty

      Reckless drivers have the record to show it; it’s not like “smoker” gets stamped on the back of your social security card. Obesity may be a different case, but to boost insurance prices for smoking just invites fibbing on the application. Else are you going to recommend medical insurance prices by blood test?

  • thescarletpimpernel

    Why the insisitence on middle men ? Why the insitence on Insurance companies ? all they do is gather the money and spread the risk take their cut then distribute as little of the remainder they can. They and the providers have a good scam going. Should just allow folks to join non profit pools that negotiate diretly with providers. If that is to hard let folks join pools that contract with a management company that negotiate fees with providers…kinda simple if you ask me.

    • drdredel

      The existence of insurance companies in the health care “mix” is entirely an accident of history and is in no way unavoidable. In fact, while people will always be sick and medical professionals will always be needed to treat them, everyone else in the equation is entirely interchangeable and should only exist if their existence offers some measurable use.

  • kuri3460

    I work in the insurance industry, and I’m pretty pessimistic about the likelihood of reforming the health insurance industry while it remains primarily a private-market enterprise. You can cite other insurance products that work – life, auto, home, workers comp – but health is in a league of its own for a number of different reasons.

    First, you’ve got certainty of use. The average 70 year old probably has a few auto and homeowners claims in his or her lifetimes. The frequency of those claims is relatively low, and when they do occur, insurers have cost certainty; they know they won’t pay more than book value for a totaled car, won’t pay more than the policy limit for a house fire, and can set rates appropriately. Compare that to health insurance, where the frequency of claims turns into a certainty beyond a certain age and carries no cost certainty whatsoever. You could require a one-time knee operation, or a one-time liver transplant. You could require relatively inexpensive cholesterol meds for the rest of your life, or you could require dialysis for a decade.

    The second problem is the impracticality of individually underwriting people based on the issues in my first point. Even if you have a couple of auto accidents or homeowners claims, there are factors at play that are going to prevent those premiums from ever climbing much higher than 7-10% of your total income (even that’s pushing it). If auto insurers increase your premium after you have an accident, how should health insurers respond after you have a liver transplant, or open heart surgery? The sound actuarial answer to that question may require premiums so high that taking a second mortgage or selling one’s firstborn wouldn’t be sufficient to cover them.

    Third, if you need to reduce your auto or homeowners premiums, there are ways to accomplish this, taking a higher deductible or lower your liability limit, for example. But how does this correspond to health insurance – it wouldn’t make any sense to drop your hospitalization coverage to lower your premium.

    • Oldskool

      There seems to be a large number of people who work in the health care system who think health insurance companies are the main culprit. And plenty of customers agree.

      • kuri3460

        I just think the actuarial model that works for auto, life, workers comp, etc. simply doesn’t for health. Someone said it above – the free market doesn’t have a solution for healthcare.

  • buddyglass

    First point: I don’t think it’s true to say that Americans don’t use more health care than those in other countries. Look at the money spent on psych meds in the U.S. vs. Europe or Japan. It’s nuts.

    Here are my general suggestions:

    1. Get employers out of the business of shopping for health insurance and limiting the choice of their employees. One way to do this would be to eliminate the corporate tax break for subsidizing employee health insurance. Another would be to require employers to only offer vouchers instead of actual plans. This forces white-collar Americans to experience the real cost of their so-called “free” health insurance. It also creates a greater degree of competition among insurers.

    2. Foster competition among care providers. To that end, pass regulation to prevent them favoring certain insurers. Pass regulation to prevent insurers from restricting their policy holders only to certain care providers. The former will require prohibiting them from negotiating special rates with certain doctors and hospitals. Whether or not Doctor X is “available” with Insurer Y should not be a concern when evaluating whether to purchase a policy from Insurer Y.

    3. Reduce overhead for insurance companies by consolidating regulation at the federal level. This also fosters competition across state lines.

    4. Tort reform. I don’t think this is as big of a deal as most conservatives do, but I can see the wisdom of changing the way we “punish” negligent doctors. Perhaps we should be more willing to revoke medical licenses in place of monetary damages (which can be insured against). Though, I suppose this might just create a market for “medical license revocation insurance”.

    5. Prohibit certain policy structures that are particularly bad about distorting the cost of health care goods and services. Imagine, if you will, a policy that has a drug co-pay of $20 for all medications. Where’s the disincentive to filling a prescription for a drug that costs $1000 per pill? There isn’t any. What do I care, it’s only costing me $20 regardless. I imagine that high-deductible plans (with correspondingly lower premiums and a yearly max out-of-pocket) would result in a lower overall level of spending. People would be forced to consider whether they *really* need each procedure or prescription. There would be a financial advantage to being “frugal” with regard to one’s health care consumption. Currently frugality is not very advantageous.

    • Banty

      Yes, I don’t think tort reform is the panacea that conservatives insist (I think this is just one of many cases of using an issue or situation being exploited to fry the fish they’ve always wanted to fry), but on the other side those who minimize it only count direct costs. There *is* defensive medicine, not only in tests being ordered, but also in the very conversation between doctors and patients, which can be defensive. The latter is impossible to quantify as to cost, the former is difficult to quantify but should not be ignored.

      I’d favor some kind of panel to deal with malpractice cases. Actually, when it comes to legal areas like auto accident liability and divorce, I favor no-fault approaches. I don’t think that would apply to medicine, but likewise it should be streamlined and not a matter of who’s got the most expensive counsel.

  • think4yourself

    David, I want to thank you for at least offering a GOP solution – even if it’s one that no one in the GOP would be interested in.

    I disagree that making the insurance companies more powerful would result in them squeezing the health care providers to lower costs, you’d simply end up with an even more oligarchical situation than we currently have.

    I don’t have any problems with your suggestions 1,2 &3, but as noted by previous posters that is what ACA does and/or those things are already being done – and they are not effective at controlling costs.

    So here are my suggestions.

    1. Public Option. Someone above said VA plus 10%. Sounds good to me. Is not single payer, still keeps insurance companies and healthcare companies in business – but they’ll have to compete for it.

    2. Requirements for coverage of all, with subsidies for low income (but not as generous as ACA). I want everyone to have access to good quality care – but they should share in the expense. Those subsidy costs should be borne by all parties (healthcare providers, insurance companies and taxpayers) as evenly as possible. If you live or visit this country you need to provide proof of health care coverage or a bond to show you can pay for any healthcare costs out of pocket.

    3. Focus on prevention. Address causitive factors of Western diseases, especially diet and exercise. Create carrot and stick approach to better behaviour and outcomes. This is not particularly Libertarian, but we all pay the price for eating fast food, processed food, junk food and no exercise.

    4. Create incentives for the medical and pharmacutical community to work on basic health issues instead of high-profit, esoteric treatments. An MRI machine costs upwards of a million dollars. Walking for 30 min a day cost nothing and will do more for the individual than the MRI in most cases. But the manufacturer of the MRI doesn’t make any money if you walk (neither btw does the heart surgeon. The heart surgeon makes money when you don’t walk).

    No one will follow my suggestions (least of GOP politicians), but it beats anything that the GOP is offering.

  • mikewaz

    The solution is pretty simple.

    1) Blindfold yourself.
    2) Stand in front of a map of the world while holding a dart.
    3) Throw the dart at the map and identify the country that the dart hit.
    4) Duplicate the health care and insurance system of that country.

    Seriously, every other farking country on the planet has figured out how to insure everyone has access to affordable, quality health care. The only reason we haven’t yet is because we’re dumbasses.

  • How I'd Reduce Healthcare Costs | FrumForum | health blogs

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  • debby

    Insurance companies have done a despicable job of keeping Americans insured. How can handing everything over to them be any possible solution? They are only interested in healthy young men – anyone else is dropped, denied, or refused treatments.

  • jjack

    How is the answer not tax cuts and more wars (funded by tax cuts)????

  • Dazedandconfused

    They do haggle over prices, that’s a large part of the enormous, wasteful paperwork load that is generated in our current system. They play the “gotcha” game on technicalities because they can almost never tell their customer to refuse treatment and go somewhere else in the most expensive cases.

    The problem of adverse selection can only be cured by an individual mandate .

    There is no reason to re-invent the wheel on private companies handling the paperwork in healthcare. Germany has it down cold.

  • Demosthenes

    the free market doesn’t have a solution for healthcare.

    Precisely. There are many reasons for this, but I would highlight the fact that (Google’s success aside) there is generally very little money to be made in “First, do no harm.” Until or unless we take the profit motive out of health care, the system will continue to be obscenely wasteful and perversely organized so that more and more money is spent on “defensive” medicine and the middlemen in the insurance industry.

    The other major issue, which kuri also pointed out, is that health insurance is fundamentally different from home or auto insurance, as good health is something that you “need” every minute of every day. Furthermore, as someone said above, we don’t pay for health care, we pay for illness cures. And our definition of “illness” doesn’t usually extend past catastrophic physical trauma. We are great at pumping people full of pharmaceuticals to manage their cholesterol, not so great at actually dealing with the root causes of why and how people get such high cholesterol in their bodies in the first place. A more sane, sober, and rational system would look at quality of life and preventive medicine as crucial factors in the health care system.

    Also, at some point, we as a society are going to have to start having a serious talk about death.

    • Banty

      “Also, at some point, we as a society are going to have to start having a serious talk about death.”


      This is where people scream “death panel”, and the propagandists know they can tap that, because they know that the whole nation knows in its gut, that we can’t go on the way we are right now, enabling breath after breath, at the end of life, far beyond reason. I’m watching it happen within my own family, and its a huge waste.

      • kuri3460


        The medical profession is built around the idea of “fixing things”, and on a personal level, nobody wants to go down without a fight, but on a deeper spiritual (or whatever you want to call it) level, I think we need to recognize that death is a part of life, and there is no shame in finding serenity and peace in it when the time comes.

  • ottovbvs

    “That will strike many as completely counter-intuitive, but I think it’s the best option, certainly much better than the other two leading candidates: direct government management of the health system or else asking patients to function as consumers.”

    It certainly IS counter intuitive not to mention being mathematically illiterate. Basically US insurance companies have a vested interest in increasing the amount of cashflow moving through the US healthcare system. It may come as an immense surprise to Frum but companies actually LIKE being in businesses where 10% annual increases are the norm because even if the amount they are paying providers is increasing, the residue which they retain to cover operations and profits is increasing in absolute terms. Do the math. They may try to minimise their stop loss ratio (that’s the amount they pay out to providers) but that can be seen a tactical activity. Frum’s desire to increase the market power of profit seeking middlemen is totally bizarre. In economic terms middlemen are classic rent seekers. They may be performing a economically useful role but their basic aim is to increase the tolls on traffic between users and producers. At the end of the day the only body with the power to restrain the healthcare industry’s quasi monopoly power, and the one with the major incentive to do so (unlike insurance companies), is govt.

  • tommybones

    Single payer, still ignored.

    Imagine the following:

    You awaken in the middle of the night to the sound of an intruder somewhere in your house. You quietly pick up your bedside phone and call one of the newly privatized police departments in your area.

    Police Dispatcher: 911, what’s your emergency?
    You (whispering into the phone): There’s an intruder in my house.
    Police Dispatcher: Do you have an account with us?
    You: What? No.
    Police Dispatcher: You need to open an account in order for us to send someone.
    You: What? Okay, can we do this fast?
    Police Dispatcher: We have several plans to offer you. The Gold Shield Plan gives you full protection 24/7 365 days a year and it costs $4,999.00 per year. The Silver Shield Plan covers…
    You: Wait, just… listen, can you just send someone fast? Now?
    Police Dispatcher: The “emergency” plan is a one time payment which covers a single occurrence.
    You: Great, I’ll take that.
    Police Dispatcher: Is the intruder armed?
    You: I have no idea.
    Police Dispatcher: Well, we need to know if he’s armed, as it costs more. The basic charge, for an unarmed intruder, is $199.00, but if that intruder is armed, the price is higher, depending on what type and calibre of weapon. The charges range from $250.00 for an intruder with a knife or blunt object, to $999.00 for an intruder with a semi-automatic weapon. Now, an unknown chemical or biological substance would be a special circumst…
    You: Can’t we figure this out after you… afterwards??? He’s coming closer to my room!
    Police Dispatcher: Sure, we need your credit card information.
    You: What? Okay, one second…. do you take Discover?
    Police Dispatcher: No.

    This absurd scenario comes straight out of the twilight zone, yet the reasons we would scoff at a privatized police department can all be equally applied to our health care system. Simply put, a free market system relies on competition to control the quality of goods and services as well as the prices paid by consumers. In health care, the “seller” has all the control. When someone has cancer, they can’t simply “shop around” or decide against treatment, as they would if they were buying a car. In the latter scenario, the consumer has the power. They don’t NEED to buy a car. It’s not a life threatening situation to live without a car. They can choose a very cheap car, or a very expensive car. Or they can choose to take the bus, train, or even walk! They can take the time to shop around and compare prices and services. The seller needs to compete with other sellers to entice the consumer to buy a car. Does anyone need to be enticed to “purchase” open-heart surgery? Or chemo-therapy treatment? If there is ONE procedure which will save your life, how much choice does the consumer have? None. Unless one considers pay up or die a “choice.” And the concept that we could “shop around” is absurd on its face. Imagine being told you had a rare cancer, which needs immediate treatment. Do you shop around for the best price? Do you negotiate? Do you play hardball with the surgeon?

    The fact that the “consumer” has no real choice at all means they have little to no power. And the Insurance companies can continually chip away at the “services” they provide, with virtual impunity. This is not Capitalism.

    But back to the concept of a “free-market” police force for a moment. How would that work, exactly? Would police officers refuse to help those who couldn’t afford coverage, like in our health care system? Would police officers determine what crimes you were covered for and investigate only those crimes, based on the plan you could afford? Would they deny you protection based on a discovery that you were robbed prior to signing the contract with them? Like a “pre-existing condition”? What if you were late on a payment? Would that mean they don’t have to come to your aid? And the contracts, would they become more complex and full of caveats and loopholes? Would police department bureaucrats, who get bonuses for finding ways to avoid providing police services to clients, find new and interesting ways to interpret coverage? Would they realize that it’s worth taking the chance on being sued, even if they know they would lose in court? Surely the average client wouldn’t go through the long and drawn out litigation process, right? So maybe it’s worth it to deny this rightful claim? Like the insurance companies do as a matter of course?

    A government-run health care system has been proven to be the best available system in the world at PROVIDING HEALTH CARE. Too often, the free-market ideologues forget that the mark of a good health care system is the level of HEALTH CARE it provides, and not simply the level of profitability it provides to the service providers. Imagine if the mark of a good police force was based on how much profit they made and not how much crime they prevented? Ridiculous. Yet this is the bizarre world we live in with regard to health care.

    What’s truly remarkable is the fact that government run programs have been proven throughout the western world and beyond to not only provide MUCH better health care, but at half the price per capita! But when we look at the “profits” being made, our system is suddenly deemed the “best,” regardless of the avalanche of empirical evidence from numerous nations over many decades, which shows our HEALTH CARE system to be sub-par at providing HEALTH CARE.

    A final word about bureaucrats. We often hear the lament decrying the “government bureaucrat getting between you and your doctor.” This is rarely the case in government run health care systems. As explained in a recent Denver Post article about Canadian health care:

    While HMOs and other private medical insurers in the U.S. do indeed make such decisions, the only people in Canada to do so are physicians. In Canada, the government has absolutely no say in who gets care or how they get it. Medical decisions are left entirely up to doctors, as they should be. There are no requirements for pre-authorization whatsoever. If your family doctor says you need an MRI, you get one. In the U.S., if an insurance administrator says you are not getting an MRI, you don’t get one no matter what your doctor thinks – unless, of course, you have the money to cover the cost.

    The bulk of the employees in the insurance industry are bureaucrats, whose job it is to maximize profits, NOT provide quality health care services. How do they maximize profits? By denying claims. If a bureaucracy has to be involved, and there’s always a bureaucracy, would you rather have a government bureaucrat? Or an insurance company bureaucrat, who PERSONALLY PROFITS BY FINDING WAYS TO AVOID PAYING CLAIMS? The answer should be simple.

    Two recent personal stories:

    A few weeks ago, I ran into a former co-worker in the street. He’s obviously had a drink or two and he asks me if there’s any work around for him. I tell him I don’t know of any. He then practically starts to cry, as he tells me about his wife’s illness and how his insurance company refuses to pay for her treatment. He had to fly her to Brazil for treatment, on his own dime. Not only is he dealing with his wife’s illness and sudden need to fly to Brazil, but he’s now having to deal with a lawsuit against the insurance company at the same time. He literally gave me the feeling that he could become suicidal at any moment. This guy was a hard-working, professional and all-around nice guy. Now, he’s a shell and on the verge of bankruptcy, largely due to his wife’s health problems.

    And this:

    A friend of mine, who has an allegedly good insurance plan has had to take medicine for a chronic condition every day for years. Recently, some bureaucrat at the insurance company notified her doctor that they would no longer cover that particular drug, but would only cover a cheaper alternative. The medicine WORKS. It has worked. It is what the doctor wanted to prescribe. So, the choice was given; either pay the full price for the doctor’s choice out of pocket, or “try” the other, cheaper drug, and hope it works.

    • ottovbvs

      No one can really dispute that single payer is the route to go. Even in those European systems that are hybrid (in that the adminstration is handled by insurance companies) the tab is ultimately picked up by the govt who exercise rigorous control over the entire system imposing price ceilings and so forth. The problem in this country is that those with most at stake financially (namely the providers and insurers) along with their allies in the Republicn party have been enormously successful in muddying the waters in order to protect the very profitable patchwork quilt that is the US healthare system. At bottom many of the players have no interest in bringing order to the system because ultimately it’s their ox that is going to get gored.

    • think4yourself

      Tommy, I cannot see any scenario that the US would ever move to a single payer system. Other than someone like Bernie Sanders, there is no political support for such an idea.

      That is why I’m in favor of a public option. Where people can participate in an already existing program like the VA or the same healthcare that Federal Employees have.

      Where the free market does work well is identifying ineffeciencies and creating profitable markets out of them, where there is incentive to do so. If a public option could set the standard of care (low cost, good outcomes, decent delivery), then let the insurance companies and health providers try and improve upon that. If so, they’ll win some business. If not, they will become like vinyl records.

      • tommybones

        I like the public option too, if done right. It will open the door to a single payer or medicare-for-all type system.

  • fzriely

    It’s just not true that the sellers have the market power. The middlemen/insurers have all the power in U.S. healthcare. How would a concentration of power among insurers lead to lower costs?!

    You make a single-payer system seem reasonable.

    • ottovbvs

      “It’s just not true that the sellers have the market power.”

      I’m sorry but you’re completely wrong. The fundamental reason that healthcare costs in the US are around twice what they are elsewhere and have increased at 8-10% a year forever is the cost of delivery and this is a function of the power of the seller. As I observed above the insurance companies may be comfortable with this situation but their role is secondary. However, the idea of putting the foxes in charge of the henhouse as you say makes no sense whatever.

  • Unsympathetic

    Healthcare INSURANCE companies do not perform healthcare. They are simply Wall Street finance companies.

    It should shock nobody that Frum trumpets a Wall-Street friendly deal at the expense of middle- and lower-class America.

  • Stan

    I read the article by Reinhardt and colleagues a few years ago. It’s very convincing, and it convinced me. As a result, I agree completely with this post, provided that the insurance companies are regulated at the federal level in a way that keeps them from gaining excess profits. If this were done our system would resemble the Dutch and German systems, both of which provide adequate health insurance at lower costs than ours.

    Regarding single payer, yes, it would be nice, but let’s be realistic. Ted Kennedy screwed up badly when he rejected a proposal by the Nixon administration to enact something very close to the Affordable Care Act. He realized eventually that he’d made a terrible blunder.
    Can’t we learn from history?

    • akindependent

      “…provided that the insurance companies are regulated at the federal level in a way that keeps them from gaining excess profits.”
      So first we rid the system of K St. and restrict campaign contributions; then this is a totally workable idea. Let’s try it out with Wall St. first.

  • Mitch Evans

    Other than shifting the regulatory environment for insurance from state to national, I don’t think the Frum Plan offers much.

    How would health insurance companies operating under vigorously enforced federal regulations generate a market-based downward pressure on healthcare costs? I suppose that federal regulation that stripped out state-by-state regulation would scrub out all the small ponds and force some competitive interaction, but national level consolidation would offset that. In other words, the 50 different Blue Cross entities would coalesce into a massive Blue Cross, etc.

    Industries that consolidate into a handful of juggernauts (e.g., airlines, wireless communications, cable/media), don’t tend to compete in ways that favor their customers. So I would not jettison those anti-trust laws so casually — to the extent the Sherman Act still lives. I guess the “vigorous regulation” will account for the lenient anti-trust concept.

    Rather than use a bunch of rules and regulations to prod and shape competition (provoking the GOP mantra about strangling business, killing jobs, warghlarghl), why can’t the gov’t lead by example? Just have a national insurance market that includes a public option.

    Let the insurance companies operate nationally, as Frum suggests. But instead of dictating their business through vigorous federal regulations, just keep them honest with a competitor – the feds. A federal health insurance company (or quasi public-private like the Federal Reserve Bank) could exercise its buying power to pressure Big Pharma to lower drug costs, and set baselines for procedures and wellness. These standards would not be imposed by government through regulations (e.g., insurance SHALL cover XYZ procedure or prescription). Health insurers could pursue whatever policies and coverages they like. But they would do so in a world where they had better offer coverage that is competitive in price and quality to the Feds.

    The insurance lobby will bellyache about “unfair market balance” AND “government services suck like the Post Office.” They can DIAF. Either the feds will be as good and cheaper than nationally operating private insurers (in which case, their profit margins are strangling consumers) OR federal health care will be terrible in quality, and the private insurers will crush them into irrelevance (see, e.g., FedEx/UPS vs. Post Office). Either way, a nationally competitive insurance market is more likely to produce market results if the gov’t participates as a player, rather than a referee.

  • elizajane

    Terrible column, great comment thread. Some excellent ideas here.

    I have only a personal, anecdotal perspective to offer. First, as the mother of a child with a “pre-existing condition” that will never go away (infancy-acquired HBV), I live in dread of the possibility that the Republicans might repeal the ACA. Before that was passed, I thought she would never be able to get insurance and would, frankly, need to emigrate. I wondered if I’d done her a terrible disfavor by adopting her to a country, the only one in the world, where she could not get health insurance. And how crazy is that? Americans congratulate themselves for their good hearts and charity, adopting all these children from around the world with medical problems, but we adopt them into a system that would throw them out once they reach adulthood.

    Second, a century ago my grandfather started an insurance company, and my father served as its treasurer for most of his working life. Even they had an extremely low opinion of the structural ethics of insurance companies. Asking insurers to take responsibility for the costs of our healthcare would truly be asking the fox to guard the hen house; no amount of regulation (which I thought the Republicans were against, anyway) would be enough.

    • Banty

      My son also has a pre-exisiting condition, a connective tissue disorder, thankfully mild in manifestation but still there. He may have major thoracic surgeries in his future; thus far his care and surgeries have been with regards to an issue in his eyes.

      I have one of them corporate jobs with health care; under the old health care system pretty much his only path would be to get one of them corporate jobs with health care, too. If he can. But either of us striking out to start our own business, working for a non-profit, etc., has been out. And still is, because, even though he’s due to graduate college in 2014 just in time for the ACA to really kick in, we need to behave as if the Republicans might succeed in scuttling that, leaving him either uninsured or getting insurance through corporate benefits packages which are also possibly going to erode. (I think they call that sort of situation, where you sit tight in a non-ideal situation because you don’t know what is going to happen … now what do they call that? Oh, yeah, now I remember – *uncertainty*.)

      I explained this situation to one of my tea party acquaintances, and his response was that my son should work really hard to be as nearly instantaneously very successful in a business enterprise as he can. As long as he works hard enough, hey, what could go wrong?


  • Solo4114

    Or perhaps a rather large part of the problem is the payment model itself used in both private and public health care — namely one based entirely on utilization without regard to the quality of the services provided.

    Move away from a utilization-driven payment model to a quality-driven payment model, and you might actually start bringing down costs AND making people healthier in the process.

  • beowulf

    Its OK David, they won’t revoke your citizenship and send you back to Canada if you tell the truth. With a Medicare bureaucracy already in place, private health insurers provide no value added once you accept the premise that underwriting the chronically ill out of the healthcare system is against public policy.
    Health insurers are as like storefront travel agents in the internet age.

  • drcme

    I read this article during lunch and almost choked on my food when David asserted that the sellers have the power in our healthcare system. As a doctor, I can tell you, I have ZERO control over what the middlemen pay me. None. Zilch. It is a myth that doctors can negotiate their fees with insurance companies. Larger entities such as hospital systems have that power, but doctors? No.

    Single payer. Please.

    • ottovbvs

      “when David asserted that the sellers have the power in our healthcare system….Larger entities such as hospital systems have that power, but doctors? No. ”

      Aren’t hospital systems sellers of healthcare? Since you are a doctor I assume you are aware that large numbers of doctors at all levels from primary care physicians to the most celebrated specialists are employed by hospital systems. I live in CT and every primary care and specialist practice in my town and the surrounding area is owned by or affiliated with a hospital system. Most of these were private practices where the doctors concerned decided to cash out. Are you aware of doctors median income comparables between the US, Europe and Japan? I’m painting with a broad brush but doctors median incomes in the US are 2-4 times those in these places. How exactly did this happen if as you say doctors have no power?

  • Solo4114

    As drcme points out, individual physicians have no leverage at all when it comes to bargaining. Larger medical groups or IPAs might, but otherwise, the rates are the rates and you take ‘em or leave ‘em. Hell, even hospitals don’t get paid their “asking price” for services when dealing with an insured patient. Take a look at an EOB from a hospital visit if you have insurance. The hospital might list a price of $30,000 but only end up being paid $8,000 for the service and figure that it has to make up the shortfall on volume or other high-compensation services.

    All of which leads to a constant game of whack-a-mole as health care providers try to perform more services that are high value, which leads regulators and insurors to cut back on the rates for those services because they inevitably end up being performed more often, and round and round we go. Meanwhile, factor in constant increasing hurdles for physicians with changes to the Stark laws and other Part-B reimbursement rules, tougher scrutiny for Medicare enrollment (as a physician), and a host of other anti-fraud mechanisms, and you get a VERY hostile environment for people who just want to make a decent living helping other folks stay healthy.

    And all of this is based around an idiotic payment model that treats health care like widgets. Fee-for-service and capitation are just two sides of a volume-oriented coin and they reward the WRONG incentives. You get paid more for doing more services, or you get to keep more for doing fewer services. Neither is the right approach. A better approach would be getting paid more for doing the RIGHT services according to medical science and delivering the care people need to stay healthy, rather than focusing purely on volume.

    • ottovbvs

      “and delivering the care people need to stay healthy, rather than focusing purely on volume.”

      With all due respect you’re contradicting yourself. Firstly you say doctors have no means of affecting their remuneration then you say they can make more money by creating large volume. I think you’re struggling towards the right answer that we have a healthcare which at the delivery point is incentivised to increase costs but one of the by products of this is that doctors as a class are exceptionally well renumerated in the US. And before anyone says they need to be to pay back their education loans, is this the determinant of one of the cost areas in the US healthcare system…the need to provide doctors with the means to pay back their student loans.

      • Solo4114

        With all due respect you’re contradicting yourself. Firstly you say doctors have no means of affecting their remuneration then you say they can make more money by creating large volume. I think you’re struggling towards the right answer that we have a healthcare which at the delivery point is incentivised to increase costs but one of the by products of this is that doctors as a class are exceptionally well renumerated in the US. And before anyone says they need to be to pay back their education loans, is this the determinant of one of the cost areas in the US healthcare system…the need to provide doctors with the means to pay back their student loans.

        You misunderstand my point on doctors and remuneration. Doctors lack the ability to bargain for rates that the insurance companies will pay for their services. If you’re operating a small physician practice, your patient base is not big enough for the insurance company to do anything other than say “These are the rates we pay. Take it or leave it.” At that point, the only option you have to affect your cash flow is to choose to perform more services and/or more expensive services (this, of course, assumes a fee-for-service payment model).

        Saying “doctors are well remunerated” is…rather a broad statement. It really depends heavily on the specialty of the physician practice. Interventional cardiologists were doing pretty well for a while (although they’re hurting with Medicare cutbacks and increasingly problematic fraud and abuse rules), but primary care has been in the dumps for a while. It’s not quite as cut-and-dried as “doctors make a lot of money.”

        When I say that doctors could make more by focusing on quality, I’m saying that the system could afford to pay them more money to focus on quality while saving money in the long run because of the overall improvement in the health of the population. Basically, you could pay physicians more to do the right things because you’d be saving money on the back end as people stay healthier and therefore need to access the system less often. They would, in effect, cost the system less money to treat, and those savings could be plowed back into physicians’ (and other providers’) pockets so as to incentivize the delivery of quality care.

  • Stan

    The arguments directed at David Frum are really aimed at Uwe Reinhardt and his colleagues. If you google “It’s the prices, stupid”, you’ll find the scholarly basis for Frum’s post, an article that appeared in the journal Health Affairs in 2004. In this article Reinhardt et al say that the big suppliers of medical care and supplies, not individual doctors but rather hospitals and pharmaceutical companies, have less power relative to the insurance industry (or the state, in single payer countries) in Europe and Canada than they do here, hence the insurers (or the state) are able to negotiate comparatively low prices for medical services in Europe and Canada. This is the main reason given by Reinhardt et al for our ever increasing medical costs. If people think Reinhardt et al are wrong, they need to prove their case using data rather than political ideals and anecdotes.

    • ottovbvs

      “In this article Reinhardt et al say that the big suppliers of medical care and supplies, not individual doctors”

      I don’t dispute the fact that we’re paying way too much for our drugs relative to the rest of the world but you’re a) ignoring the fact that vast numbers of doctors work in the very systems that have the power and b) the effect of incentives on the medical profession generally to drive up costs. It isn’t entirely fortuitous that median doctors incomes in the US are more than twice those elsewhere.

  • MelonTarge

    When I read rebuttals to his idea I’m seeing a lot of people drawing comparisons to police or fire departments but what you need to remember are that we aren’t talking about the hospitals we are talking about the insurance companies. I certainly think there are arguments to be had for forcing hospitals to treat critical patients before trying to figure out how they are going to get paid but that isn’t material to this discussion.

    Frum is talking about making health insurance like car insurance; a bunch of national brands fighting for your money, touting the benefits of their plan and offering special deals for people who work out.

    I’m not sure his plan is the best one out there and I’d certainly wait to hear more details before going along with it, but the outline of it doesn’t sound crazy and worth listening too.

    The most painful things I see in national political debates are when people are stuck in a debate between two plans which are good and neither can agree to the others plan because they think theirs is marginally better.

    • kuri3460

      As I said on the first page, the successful models that work for car, home, life insurance crash and burn when applied to health insurance for a variety of reasons. Comparing them isn’t even comparing apples to oranges – in that instance, you’re at least comparing fruit to fruit.

  • chephren

    Giving greater power to health insurers in order to fix the inefficiency, high cost and poor outcomes in health care is absurd.

    How does the current health insurance industry lack power or influence in the marketplace?

    Here is the basic fact about health insurers that too many Americans refuse to understand: they add NO VALUE to the health of their clients. None. Private health insurers constitute a massive, private bureaucracy, at least as wasteful and uncaring as the worst government bureaucracies. They impose a punitive overhead cost on health care that is immune to market competition. They routinely deny desperately needed services to the people who need it most, sometimes retroactively.

    Let’s be clear – there is health care, and there is health insurance. People must have the former – the latter, not so much.

    Single-payer public health insurance has been proven to provide access to care with the greatest efficience and a minimum of overhead cost. The best solution to overpriced, conditional health insurance is to create a public insurance monopoly that covers basic care for everyone. Allow individuals and businesses to buy supplemental insurance on top of this if they wish. This is how most industrialized countries run their health systems, and it works.

  • Lonewolf

    You’d be on a race to disaster, David. American doctors earn, on average, $82,000 per year for filling out paperwork, mostly for the benefit of the insurance companies.
    Canadian doctors, because of the intrinsic efficiency of having but 12 systems nationwide, are paid only $19,500 for the same paper-shuffling. Not only are our physicians’ admin requirements lower, requiring fewer expensive office staff, but also consequently, Canadian physicians spend more time actually treating people – 8.5 hours a week more, on average, or about 450 hours a year.
    Then there’s the cost of the obverse side of that paperwork, the insurers’ admin costs, which is again, roughly four times the Canadian.
    You forget that in the US, all of these costs are eventually borne by the patient – either as higher self-paid premiums, or as artificially low take-home pay, caused by employers diverting cash flow to employee health plans.

  • BernieO

    This approach may have worked before corporate money gained so much control over our political system but now I cannot believe it would. Insurance companies would be constantly lobbying for deregulation – assuming we could ever get the regulations in place to start – and they would be using their considerable funding ability to elect candidates favorable to their demands.

  • zic

    Insurance does have years of information about the results of the health care we already receive; likely a broader picture of outcomes then any other group related to health care. Much of the data we need to look at to do efficacy research may reside in the files of insurance companies; making them crucial at the table when we discuss controlling costs.

    But I don’t trust them to put my health or your health above their profit motive, either. And I’m always concerned about the behind-the-scenes determinations that say they’ll pay for this service, not that, this drug but not that, this illness but not that.

    I don’t think it wise to give insurance companies control over the health care system, and before considering it, I’d want to make certain that how insurers determine what to cover and how much to pay for it is an open process, something you and I can review. Right now, those debates that result in a change of what they’ll cover (a change of our contract) go on behind closed doors. That’s not right.

  • Jetsfan24

    Didn’t realize how long this got the paragraph below is a spoiler for those that don’t want to read everything:
    SPOILER ALERT – (I want to fix the problem with two straight forward actions. First we need to increase the supply of doctors which means more Medical schools, and stronger biology curriculums in secondary schools and universities. Second we need to improve the processes for getting approvals for medical devices to ensure that unnecessary time and money are not wasted. This will drive down the costs associated with the services and the tools used in the industry thus allowing insurance companies to pay less which in turn equals cost saving for the customer.)SPOILER ALERT

    I want to start by discussing the Health Insurance Business Model. They collect money from us in order to distribute risk across large numbers of people. A knee replacement costs over 200,000 dollars yet with insurance that cost is spread across the entire “Pool” of the insured’s premiums from a given insurer. Within premiums there are additional costs which comprise the companies anticipated operating costs (the costs associated with processing claims for services). Here are some quick stats; BCBS spends roughly 82% of premiums on medical benefits. They insure roughly 1/3 of Americans. While they are collecting 18%, they also have to pay operating expenses. Here are a couple other insurers you may have heard of:
    United Health Group spends roughly 82% of premiums on medical benefits.
    Aetna spends roughly 81% of premiums on medical benefits.
    Humana spends roughly 84% of premiums on medical benefits.

    United Healthcare’s Net Profit Margin in 2010 was 4.9%
    Aetna’s Net Profit Margin in 2010 was 7.3%
    ****Because many BCBS Companies are NOT FOR PROFIT I could not get good data here for BCBS****

    Ok so now that we have a few facts in the open lets digest them. I want to run a few scenarios: first no insurance then insurance without profit. First Scenario: I save between 16-19% on Average. What is important is the on average piece, if I break my leg this year I will likely pay double what I would have paid to be fully covered for the year for just the broken leg (that pooling of risk thingy). Second Scenario is that we force Insurance companies to operate at a zero net profit. I will save between 5-7% on average, which to be honest does add up. The only issue I have with that is if my boss told me to come to work for 40 hours a week and they would decide my salary based on my expenses as they see it, I probably wouldn’t come into work tomorrow.
    Everyone is allowed an opinion on the above information. To me in the first scenario I might be paying medical bills for the rest of my life because of one bad year, and in scenario two I have the equivalent of Government run Healthcare(since they have done so well managing the economy lately not exactly what I am jumping at). Neither of those actually solves the PROBLEM. Now let’s get dirty and dig a bit shall we.

    It is not the Consumers (customer is always right!), and it is not the Insurers (They aren’t turning a big enough profit to be blamed). We have a clear candidate for the blame the Doctors. Hmmmmm. Before I start blaming people for spending 8 years in school and then 4 yours as a Resident making minimum wage to save my life let me take another angle. Let’s look at the Supply of Doctors. Last year over 40,000 college grads applied to Med School, Med schools accepted fewer than 20,000. Over the last twenty years in fact the number of accepted med students has ranged from approx 16,000 to approx 18,000, while the number of applicants has ranged from approx 27,000 to 47,000. The highest acceptance rate in the last twenty years was 64%. In the business world we call this restricting supply (That is what OPEC does to raise the price of Oil!!!). Luckily for me it’s not the doctors, so hopefully they will save my life when I need them to. By restricting supply the costs to go to Med School are higher and the costs for doctors that have degrees are higher. In order to solve the problem we have to create more opening in Med Schools this would make the costs of attending lower and increase the number of doctors available to the public. However one culprit for this problem is not enough to solve it, we have to keep digging.

    In the medical world services (performed by doctors) are almost always linked to tools (Medicine and Medical Equipment). Medication and Equipment are extremely expensive. I will be avoiding the medicine debate because while it is costly, producing large savings by cutting regulations will likely lead to another China incident (really cheap medicine with lead in it). I will happily pay a premium to avoid that that. The next step is to blame the companies investing millions in R&D to create something that may one day save my life…well you know how I feel about burning those bridges, so they get a pass. I want to talk about costs incurred by these companies due to disorganized costly reviews to ensure the products are safe to use. I am not saying reviews of this equipment should be discontinued but there are instances of companies applying more that once in the US and getting denied that have been approved in Europe. I want to take a look at the system for getting these devices approved, here is a quote from an article about this debate which is hitting the Senate as we read, “In a detailed 35-page report reviewed exclusively by VentureWire, these investors allege that FDA regulators are inconsistent and unpredictable, keeping promising treatments in limbo for months or years. As a result, the report says, a number of companies are teetering on the edge of shutting down, closed their doors altogether, or are making a permanent move to Europe, where the regulatory landscape is easier to navigate…In [that] report done by FDA approvals of medical devices have dropped steadily in the last decade. According to the report, citing FDA data, 510(k) approvals have fallen more than 20% in that span, while PMAs have declined nearly 70%. At the same time, the length of approval time continues to grow, according to the report.”

    I want to fix the problem with two straight forward actions. First we need to increase the supply of doctors which means more Medical schools, and stronger biology curricula in secondary schools and universities. Second we need to improve the processes for getting approvals for medical devices to ensure that unnecessary time and money are not wasted. This will drive down the costs associated with the services and the tools used in the industry thus allowing insurance companies to pay less which in turn equals cost saving for the customer. Although this will take time there is no quick fix so I think it is the right approach.

    • baw1064

      I will be avoiding the medicine debate because while it is costly, producing large savings by cutting regulations will likely lead to another China incident (really cheap medicine with lead in it). I will happily pay a premium to avoid that that.

      The economics question is always “how much of a premium are you willing to pay for how much safety?”

      In any event, I’m not sure that drugs approved in the U.S. are any safer, overall, than those approved in any other OECD country. But they do cost a lot more here. What exactly do we get for that money?

    • ottovbvs

      “I want to fix the problem with two straight forward actions.”

      While both desirable these aren’t going to even start to fix the problem which is much larger than the supply of doctors (which does need to be increased) or easier regs for the approval of medical devices (which is easier said than done, the approvals process has to be rigorous because it needs to be given the nature of the product and most of the criticism of the process comes from manufacturers).

      Insurers generally claim they retain about 20% of their revenue and pay out 80% to settle claims (their so called stop loss ratio). However, it needs to be said there is some scepticism about these numbers which come only from the companies who are notoriously secretive about their finances. Some put it nearer 30%. But even if you accept the 20% one needs to ask if net income of around 7% is appropriate for what is a low risk business and of course this income would be reported after deducting inflated management salaries/bonuses, commissions to brokers, etc etc. At the end of the day the insurers are middlemen as Frum says engaged in rent seeking. I don’t blame them, but it hardly makes them a suitable vehicle for restraining the rise in overall healthcare costs. Essentially Medicare does the same job with a stop loss ratio of over 95%.

  • akindependent

    Actually, since we have existing models of working, efficient government-controlled healthcare both here and abroad, why do you think this idea is preferable, David? What’s the extra benefit of your proposal?

  • jorae

    Still leave a ‘middle man’ and that is where ‘for profit’ has taken its toll.

    1. Government run health care, using pay structure from current MediCare system. This eliminates Medicaid

    2. All providers who are under ‘contract’ as MediCare providers are the base offered to the country.

    If I had a stroke, owned a home and had no insurance…the Hospital can and does put a lean on my property, sends it to court and get a judgement to have the property sold for the amount owed. This is why most bankruptcies are medically inspired. By doing bankruptcy first, you avoid having to sell you home.

    If I had a stroke and did not own a home and did not have insurance, had no real assets, my bill would fall under ‘MediCaid. Federal/State paid taxes…but payment is now structured under the MediCaid contracts.

    The only bills the tax payers is not paying directly right now, is the person with assets, but the bankruptcy system does cause an indirect reduction in taxes received. Most people think this is the best reason for a government run health plan.

    I have been turned down for a plan that was for hospitalization only…because I take BP medicine. I own a home….So, I played the game…I got my wage down enough to qualify for MediCaid and now I hope to get to 65 before this becomes a problem.

    I would rather be a higher paid employee, but the math tells me, I could never bring in more for the next 5 years, than it would cost me, if I lost the house.

    BTW…The only Insurance company I know of that actually gave money back to it’s subscribers was BC/BS of North Carolina, who is a ‘non-profit’ branch of BC/BS.

    1. Across the board insurance sales? Still the middle man, still not as affordable as non profit government and still, not everyone can afford it.

    2. Adjust the allowable to MediCare so more providers will be under contract.

    And…instead of you writing a check each month to BC/BS for $400 per person in your family…you pay $200 per member of your family in taxes.