RSS Feed MenuTo listen to President Obama discuss health care as he did last week in Virginia is to receive a well informed lesson on the problems of any health care system in the world and some unique American issues: It is all very expensive, some people do not receive needed care, there are administrative burdens in the system, quality could be improved, and costs are rising faster than growth in supporting revenue. There is no health care system in the world where the aforementioned five issues are not a problem. But making a diagnosis is not the same as coming up with the right therapy. He has identified problems but he has done so in an extremely superficial manner and this has led to proposed therapies that have virtually no chance of curing the patient.
The proposals put forward are only designed to fix one of the five problems- that some people do not receive needed care. The question of who these people are and why they have limited access to care is one that does not lend itself to quick or easy analysis.
They are not the poor and they are not the elderly. Those groups are cared for under current government programs of Medicare and Medicaid.
They are not the very young (<18 years) for they are now eligible to be covered under a government program, SCHIP.
They are those with moderate incomes (around $45,000/year) who do not receive employer funded care and who have decided that they cannot afford to pay for care themselves. This represents some 10% of the American people. Of these 30 million, some 25 to 50% are between jobs so the number is quite fluid. Some are young people who simply are unwilling to pay for any health insurance, even the kind that would guarantee payment for some catastrophic illness or accident. So the issue is about some 5- 10 million people who lack health insurance and really have a serious problem affording health insurance.
There are some 290 million or so Americans for whom the health care insurance system would have to change to accommodate the other 10-20 million according to proposed plans. Wouldn’t it be easier just to design a plan for the 10-20 million? The President is proposing changes for everyone. Why is that?
He says the reason to change the whole system is to control costs but in fact the only solid plans put forth are to guarantee health insurance for most of the uninsured, not to do anything at all to control costs.
The growth in health care costs in virtually every industrialized country is about at the same growth rate as in the U.S., so every country is grappling with the problem no matter how it finances health care. But our system is much more expensive than all other systems, for example about 50% more per capita than Canada so it looks like his diagnosis of excess costs is valid. But it is necessary to understand why our system is expensive to identify the right therapy. It really has to do mostly with the availability of technology in this country. Every time a patient needs an MRI done for back or knee pain, the actual cost of the image produced is the cost of the electricity that runs the machine- a few pennies. The reason the test is expensive is that the machine itself can cost millions of dollars and a crew of people need to run it and maintain it. These are called fixed costs and they are present whether the machine is used to take any images at all on a given day. But we have excellent access to MRI machines in virtually every hospital in the United States. There is little or no waiting for access to an MRI.
“Reducing unnecessary tests”, one of President Obama’s therapies for our health care “ills”, will only reduce costs if we get rid of the MRI machine and the people that run it. Shutting off the machine for a week or a month or a year will not save those fixed costs unless the people go and the payments to the bank that financed the machine go away too. That is how Canada does it. Less technology so less costs. That is why it takes 18 months to get a hip replacement in Canada. Less access is the real face of rationing.
Whether the population is content with these limits is a function of whom you ask. Individuals with greater health literacy will likely seek greater access to technology and care. In fact, even in countries like Great Britain, the more affluent utilize more services in the National Health Service than do the poor. But make no mistake, a key mechanism to reduce costs is to reduce access to care and to technology. Perhaps not to all care like emergencies, but to plenty of care like hip replacements, elective cardiac bypass surgeries, and screening tests like mammographies.
How about his other cost saving plans? Electronic medical records? Good idea but they are expensive to create, expensive to maintain, and have the potential to reduce errors and to save money but this has never been proven to occur in places where the electronic records are installed. They are probably a good thing to have but will not necessarily save money.
What about preventive care? Another good thing but also not necessarily a cost saver. Certainly some vaccines save huge amounts of money but other screening tests lead to increased costs because one has to screen everyone to prevent disease. Take the PSA test. Something like 80% of men develop prostate cancer but it is the cause of death in about 4-6% of men. So just finding a positive test and performing surgery on everyone with a positive test will be enormously costly to prevent the few from dying of prostate cancer. Again, depending on your point of view, a good thing, but not a cheap thing. There are many effective screening tests and avoiding terrible disease is a wonderful outcome, but not a major cost savings approach.
So where are the savings to be gained? Cut payments to hospitals and physicians? OK but that is not likely to help in the access problem, is it? Less revenue to hospitals means fewer people to staff the clinics, the equipment, the pharmacies, etc.
What about cutting payments to the insurance companies that provide health insurance? Commercial insurance companies, if they are efficient, typically pay 80 to 85% of their revenue to medical claims. So we have about 15% of their revenue that does not pay for health care and could be savings to the system. However, since about 50% of health care spending is in Medicare and Medicaid, and since those programs have a 3% overhead, that leaves about 4.5% of health care spending that would go away if all the insurance companies disappeared tomorrow and if Medicare or some other government program were the only payer. That could happen but the President promised us that we could keep our health insurance if we liked it and since polls show that most Americans are content with their health insurance, it is hard to see how we would save more than 1% or so on administrative costs with the current proposals unless the actual cost of health care goes down. The latter must mean less access to physicians or to technology.
And make no mistake, despite the President’s statement that “more health care is not better health care”, less spending on health care does indeed mean lower quality of care. Based on the recent research of Dr. Richard Cooper of the Wharton School of the University of Pennsylvania, “based on broad measures of health system quality and performance, states with more total health spending per capita have better-quality care. This fact contrasts with a previous finding that states with higher Medicare spending per enrollee have poorer-quality care. However, quality results from the total funds available and not from Medicare or any single payer. Moreover, Medicare payments are disproportionately high in states that have a disproportionately large social burden and low health care spending overall. These and other vagaries of Medicare spending pose critical challenges to research that depends on Medicare spending to define regional variation in health care.” President Obama’s quoting a New Yorker article as justification for decrying regional variations in health care and Medicare costs is amateurish.
Dr. President Obama’s makes the point that health care spending will bankrupt the nation as a 37 trillion dollar deficit is looming by the end of the century. But that deficit is in the Medicare and Medicaid programs!! That is the single payer plan that is his real endgame, as he stated in the campaign. So a single payer, government run health insurance plan as Medicare is constituted cannot be our salvation.
We do need a new system given the long term cost projections and there are models like Kaiser Permanente, Geisinger Health Care, and others that provide high quality and somewhat lower cost. They are still pretty expensive but if their approaches were instituted widely, we could probably control costs a bit better and over the very long run maintain our system without drastic limitation of access. But it will take many years and much local experimentation to achieve this goal. The Commonwealth Fund polled individuals in several industrialized countries to find out how they felt about their health care system. The results were the same across the countries polled. They mostly felt that the health care system was in trouble and needed to be fixed. But what bothers people in each country is quite different. Here our problem is cost although availability of primary care physicians is an ongoing source of frustration. In other nations, it is mostly access to technology and specialty care but rising costs are seen everywhere (mostly to accommodate new technology if it becomes available in other countries).
There is no panacea for health care. The President has diagnosed several problems with our health care system but his cures are off the mark. If our national goal is to assure all Americans have health insurance, and we focus on the 10 -20 million people who have fallen through holes in the safety net, then we need about 200 billion dollars to pay for their insurance. That is a 2 trillion dollar 10 year plan. If we want to lower health care costs by that amount, let’s get started. But to do it right does not mean a bill before the August recess. It means a long term plan that must include some means testing of entitlements, some hope that research produces therapies that really do lower costs of chronic illness, and some tackling of our current system of piecemeal reimbursements for most medical care.
And by the way, the province of Quebec has recently allowed some private health care insurance to exist. Leave it to the French(-Canadians)! They do not like to wait either.
ottovbvs // Jul 11, 2009 at 9:44 am
midcon // Jul 11, 2009 at 9:09 am
“P.S. My parents are on Medicare…..It might be confusing for you”
……..Not really since I’m on medicare too….actually I’m on a Medicare funded advantage plan which is an exceptionally good deal where I pay a small supplement to the inflated premium Medicare pays the carrier….A Bush boondogle for the insurance industry that is unfortunately not going to last….However, I have to buy insurance for my wife who is somewhat younger than me, and healthy, at a cost of around $1,300 a month which fortunately we can handle but isn’t chump change and I can see would be an enormous burden for many…….I also not confused because I have a fairly good grasp of how it all works as before I retired I managed a fairly large business and have listened to literally scores of presentations by insurance companies and others on aspects of this…..while we wrestled with how we were going to keep paying the endlessly rising bills and not dump too much on our employees.
barker13 // Jul 11, 2009 at 9:55 am
Re: Mike K // Jul 10, 2009 at 10:31 pm –
Hmm. Interesting about indemnity health insurance. Thanks for sharing that, I hadn’t been aware.
“What we need, and the French have, is a system which pays for catastrophic illness but not for routine care. Now, the French system does pay for routine doctor visits but only AFTER the patient has paid the doctor at the time of the visit and only 80% or less of the national fee schedule.”
I agree with the first part – that we need a system that pays for catastrophic illness but not routine care, but if I’m following your description of the French system, the French don’t really stick to that logic; instead, they reimburse their citizens for 80% (or less) of the physician’s routine fee schedule for routine visits.
I don’t see why Americans (or the French for that matter) should expect routine medical care to be reimbursed at all, subsidized to any extent. I mean, sure, I see the surface logic of the “carrot” approach as regards encouraging routine physicals and other routine preventive care, but I believe the “stick” approach would be a more rational economic bet. For example:
Just as we charge smokers more for insurance (and we should charge the obese more – and I’m sure others could come up with other examples) it seems to me that if government requires everyone to have catastrophic insurance which kicks in at a certain threshold of yearly expenditure, you employ the “stick” of increasing the threshold for folks who don’t complete a “checklist” of routine care or else you simply fine them (perhaps the better option – indeed, upon further thought definitely the better option) for not “living up to their part of the social contract.”
“The fatal mistake we made 50 years ago was to convince insurance, and Medicare, to pay for routine care and to make that payment “payment-in-full.” It is illegal for me to bill above the Medicare allowance. As a result, an increasing number of internists are refusing new Medicare patients and many are dropping out of Medicare altogether. It is even happening with orthopedic surgeons.”
Agreed (re: the fatal mistake.) And, yes, the Medicare/Medicaid model is deeply flawed and indeed for all intents and purposes puts doctors into a sort of “indentured servitude” to the system – all the while the government winks and nods when doctors pass on the cost of loses from Medicare/Medicaid treatment they provide onto the backs of the insurance companies via the privately insured and out of pocket payee patients they see. It’s a sick, smoke and mirrors, dysfunctional system and because it is… it’s falling apart.
“Obama will attempt to continue the regulatory model of Medicare with private, and public, insurance. It will not work. Either doctors and patients begin to arrange private care outside the system, sort of like private schools where the parent pays twice, once for the public school and once for the private school, or the entire system will crash.”
Yep. But beyond further squeezing doctors and the middle class, I fear your average liberal isn’t so far removed from the belief that if “need be” our society should simply “draft” medical professionals into “governmental service” – if not as formal employees, then by controlling their “private” incomes via regulation.
“…we have to get rid of the Obama political agenda and that may be impossible.”
And there lies the rub. No matter how much sense Mike makes… no matter how little sense Obama (or McCain or Bush or name your favorite boogieman) makes… the Dems control both Houses of Congress and the Presidency (and arguably the Courts). As with energy… as with economic policy… as with environmental policy… the politicians are going to continue to lead the country in the wrong direction – full speed ahead.
GOD HELP US!
BILL
barker13 // Jul 11, 2009 at 10:09 am
Re: Midcon // Jul 11, 2009 at 9:05 am –
(*SIGH*)
“They” don’t care, Mid.
(*SHRUG*)
By “they” I of course mean Obama, Pelosi, Reid… and, yeah, RINO Republicans as well.
Yes, OBVIOUSLY Ayn Rand’s “Atlas Shrugged” was a work of fiction, a philosophical tome in the guise of a novel, yet the extreme portrayal of “the destroyer class” is indeed based upon the reality of human nature – the reality that “the haves” (and I’m talking the movers and shakers, the politicians, the wealthy, the top ten percent of the professional class, et al) will still by and large be getting the best still existing medical care and power and food and both the luxuries and necessities of life in far greater abundance than the “common folk” as the system is driven to the brink.
Hey… you’re still toughing it out, Midcon. Your parents are too. Hey… so am I. Mike’s gonna be fine. But I’m talking the coming decades of decline. I’m talking right now the situation our kids who have just graduated college find themselves in. I’m talking the stagflation I expect down the road, next year. I’m talking national brownouts in five years, seven years. I’m talking following the numbers as we know them to their logical conclusions.
(*SIGH*)
After “they” break America… (*SHRUG*)
BILL
midcon // Jul 11, 2009 at 10:50 am
Regardless of the cause of the funding problem – it is a real problem. If the government reduces payments, to decrease cost, it is likely (but not certain) that many practitioners will opt out. I will not pretend that I could craft an acceptable solution to the funding problem, but I do recognize that Medicare has problems that will continue to escalate over time. Just because you are currently riding the train and all is hunky dory, does not mean mean the track is not broken down the line. The unfunded liability of all entitlement programs is a serious issue – with a future train wreck for all of them. This is the same problem that GM faced with its pensions. The total unfunded liability of the U.S. Government at the end of 2008 is $65.5 trillion. For those who do not know, the defintion of an unfunded liability is a liability that is not covered by an asset of equal or greater value. That means the nice little social security check, Medicare insurance, and other entitlements that many of you currently enjoy (I bet its nice to be one of that demographic, which I am paying for because I work and pay taxes) is not funded except by current and future revenues. As unemployment increases, those revenues decrease, increasing the unfunding liability. Well, you can see where this leads – down the line the tracks are missing, the train derails. At present the only solution significant economic and population growth (jobs and people in those jobs to pay the unfunded liabilities). Start making babies cause you are going to need them.
ottovbvs // Jul 11, 2009 at 11:47 am
midcon // Jul 11, 2009 at 10:50 am
“Regardless of the cause of the funding problem – it is a real problem”
……….Midcon: you can’t disregard the CAUSE of the funding problem because the CAUSE of the funding problem IS the problem! That’s what this is all about because we’re spending twice as much on it as anyone else…..why is that? And there’s the certain probability that the cost of providing healthcare is going to increase from the currrent $2.4 trillion (about 16.5% of GDP) to around $4.4 trillion (well over 20% of GDP) over the next 8 years…….And can you spare me all the rather nasty personal stuff since I’ve probably paid more taxes than you’ve ever paid some of which are funding your parents Medicare and SS as well as mine. I could live quite easily without my SS checks, in fact I lose some of it because of tax, could your parents?…….Sorry but you need to get beyond the simplistic bumper sticker logic.
midcon // Jul 11, 2009 at 1:39 pm
I did not “disregard” (pay no attentionto; ignore) the funding problem. I said “regardless” (in spite of everything). Meaning it is a problem “regardless” of the funding problem.
And you may have paid more taxes than I, since you have a few years on me but, then I have spent most of my time in the states. So, who knows. But really, who cares. You have probably paid your fair share as I have and as I continue to do so. Nonetheless, because of the increasing unfunded liabilty, you enjoy benefits that are not available to me and may not be available to my children. No offense meant. That’s just the way the entitlement system works.
ottovbvs // Jul 11, 2009 at 2:09 pm
midcon // Jul 11, 2009 at 1:39 pm
…..Your words were:”Regardless of the cause of the funding problem ” in the context of saying Medicare was broken…..It’s not broken……It’s got a funding problem because of the escalating cost of providing care
” But really, who cares. You have probably paid your fair share as I have and as I continue to do so. ”
…………Well I do when you say you’re paying for my Medicare which is what you said originally……You clearly don’t understand I’m still paying taxes…..quite a lot actually but I don’t whine about it……and it isn’t an entitlement system…….it’s a system of national insurance…….that’s intended to give the elderly access to medical care and save them from having to live under bridges…..ask your parents if they want to give up SS and Medicare…….If I’m around I’ll ask you in about 30 years
neobasher // Jul 12, 2009 at 6:37 am
Welcome to neocon medicine. 1. There is no problem with uninsureds; and if there is, to hell with them. (Thank you Rush.) 2. There is no problem with rising costs, and if there is, there’s really nothing we can do about it. (Just say “no.”) 3. The fact the we’re the only country in the industrialized free world that has trusted its health care system to the free market shows how great we are and how weak everyone else is. (Sounds a lot like the Bush foreign policy). Let the free market rule; after all, Kaiser Permanente has given us “somewhat lower costs.” (That must be the way to go. After all, it’s gotton us this far. And all those Kaiser customers just love their health care. Probably about as much as the Canadians, the Brits, the French and the Aussies. Maybe not.)
I don’t pretend to know how to fix this problem. But I do believe there is a problem. And I’d sooner trust the solution to the crowd in there now, rather than to the crowd we, thankfully, threw out.
brate // Jul 16, 2009 at 11:08 pm
Quite an impressive observation Carla. Sometimes it happens that we waste a large sum of money on insurance and other medical preventions, and on one day we think, that it would have been better to spend on its cure than its prevention. But sometimes, prevention results into a better decision for someone like me. Because of having many heart problems, I was enrolled in a concierge Healthcare program from elite health. I was attacked by a severe heart attack in a party, luckily surrounded by many people. Some of the sudden changes in my body was recognized by me and anticipated immediately. I got a very severe chest pain which was almost unbearable for more than a minute. I got the suspicion that I might be having heart attack, and immediately called my physician on the phone, and explained my condition and its severity. Because of the immediate guidance, I was directed immediately to have an aspirin which I used to carry with me as prescribed by my physician. It was quite a frightening experience for me to face such a heart attack, but somehow I managed to be calm until 911 arrived. I was immediately taken to the nearest hospital, where already my physician were present and have got everything setup according to my medical history. And it was in some matter of seconds that everything was in control. A doctor, who already have the complete knowledge of the medical history and fitness of the person, extra ordinarily ameliorate your recovery process. Hence such a concierge level program from Elite health, helped me a save my life, like many others.
Jim Pier // Jul 22, 2009 at 2:55 am
I know I am late to the party, but here goes anyway:
According to Otto:
“Broadly speaking the net losers are going to be the healthcare industry who are basically going to have to become more efficient and will inevitably become less profitable. Insurance companies for example are not going to be “forced out” of the insurance business but it’s going to be a lower margin business with all that that implies. Sorry to mix metaphors but we’ve been can kicking for years, it’s time to fish or cut bait.”
Otto seems to think everybody knows what needs to be done. Then he obliquely refers to measures that will injure providers and insurance companies. This is so asinine it is sickening. Why should this “crisis” be solved on the backs of doctors and nurses and insurance agents and stockholders? That is patently unjust. How many times does it have to be demonstrated in real life that these theoretical fixes – interventionism, and especially price controls – do not work. They do not work. They never have. Communism was able to survive as long as it did only because it had free markets to exchange with, and to steal pricing from. Eventually, it caved in, and so will socialized medicine. Collectivism destroys the price mechanism, and that destroys an economy. Medicare, according to Otto, basically works well. If high costs are the no 1 issue, then Medicare does not work well. When a product or service has very little cost to the consumer, the demand for that product is very nearly infinite. Medicare/Medicaid is the primary reason for high medical care costs in the US. Interventionists (going back to Marx, up to and including Otto) love to call out the bogeyman of profits — profits come out of the workers’ earnings, profits are what jack up costs. That is hogwash. The incentive to make a profit is what drives competition and spurs improvements in productivity and efficiency. Profits are the heart and soul of every market, and it is markets that create wealth and provide better and cheaper goods and services. Those who cannot make a profit at the market price do not survive. They go do something else. That is, of course, in virtually every market except medical care and medical insurance.
It is not the case that markets have failed so we need government intervention, but rather that intervention has so distorted the market that it is no longer recognizable as a market. So we call it a “system,” which of course implies some type of control, and that naturally is to be provided by the all-knowing state. There is infinitely more information exchanged in a free market by way of the price mechanism than the entire government can master. That market information is what ought to drive resource allocation, not the dictates of some committee of Obama’s. Why don’t we need government food and drink? Shoes, clothing, automobiles, housing? Because these are provided by willing sellers and purchased by willing buyers. Nobody has to cap the “reimbursement” for dry cleaning services or gasoline – because they are capped by competition.
The other socialized medicine plans that are referred to admiringly by Otto and his fellow interventionists (logically leading inexorably to socialism), because they supposedly provide the same care for less money, are relatively new to the scene. Canadian Medicare started up in the 1970s. It is clearly unsustainable, and it sucks. Our Medicare is also clearly unsustainable, and it sucks if you are a doctor, receiving compensation for a procedure at the same rate as you did 20 years ago. More of that will get us fewer doctors, and they won’t be as good. The talent will follow the money. Just ask the Canadians. If the money in American sports was in soccer, then the best athletes would play soccer. But as it stands, they play basketball, football and baseball, because that is where the money is. When my wife had surgery ten years ago, it was wonderful to know that she was being treated by one of the best surgeons in the US, and therefore the world. Nobody has better doctors than the US. The average French doctor earns less than a big-city cop does in the US – do you suppose the best talent is attracted to medicine? Can you see American doctors going on strike like French doctors do? Those measures that put the US 37th in the world are a joke. Sure our life expectancy is lower than Canada’s – entirely because of murder and accident rates more than twice theirs. Compare apples to apples and we come out on top. And we spend a lot of money on health care for three reasons: 1. We want a lot of health care; 2. We can afford it; and 3. The government and employers shield consumers from the true cost of their consumption, so they naturally overconsume, and they don’t shop prices.
Obama’s solution is to have the government gradually take over the entire “system.” The real solution is to get the government 100% out of the medical care and medical insurance markets. The market will develop competition, it will improve medical care and medical facilities, it will vastly improve the information available to consumers because consumers will demand it, it will much more efficiently allocate all types of resources so that productivity improves and prices come down. Repeal the tax deduction for employee health insurance benefits. Acknowledge that Medicare is just welfare, and phase it out, leaving Medicaid to address the needs of the truly needy. There is no reason a middle class, even lower middle class, family should not be able to purchase the health insurance they need. Insurance companies need to be free to innovate with packages. Mandates need to be eliminated, and restrictions on who can buy from whom eliminated as well. Sure, there will be discrepancies in the level of care, but we don’t all get the same housing, food and transportation. We can choose equality, or we can choose freedom and prosperity. Not both. If people can afford housing and transportation without assistance, they can afford medical insurance. A whole lot more medical care needs to be paid out of pocket; insurance should be for catastrophe, as it is everywhere else. This will be sorted out by the market. We need to abolish the mentality that every person is entitled to the best care no matter the cost, or that he is entitled to care equal to his rich boss. The former idea is a fantasy, and the latter is Marxist, and they don’t fly in a free society that respects the sanctity of private property.
The solution is laissez-faire, but I’d settle for incremental steps in that direction.
Jim Pier // Jul 22, 2009 at 3:26 am
Otto again:
“What this means is that the system is facing a funding problem principally because of the “rising per capita costs” of the PROVISION of healthcare. It doesn’t mean the Medicare insurance program itself is broken just that the product they are paying for is becoming much more expensive so that they might not be able to afford it. Like most people you fall into the trap of confusing the paying side (Medicare, Medicaid, private insurance) and the providing side (doctors, hospitals, drugs).”
It is you, Otto, who is confused. The cost of provision cannot be divorced from the means of funding. This is an economic problem, as well as a political one. You cannot separate the paying side from the providing side if you want to address the problem. There is also the consuming side. Because the paying side is between the consuming side and the providing side, the consumer has little incentive to price shop or to economize, and the provider has little incentive to compete on price. So we get the feds setting reimbursement rates based on a byzantine schedule of codes, and insurance companies largely basing their rates on those of the feds, and some providers either working the system for honest but wasteful extra revenues, or defrauding the system, which is easier to do because of Medicare’s famously low admin costs, and all the while some consumers call 911 to get a ride to the hospital because they have no car, or go to the ER for a cold or to the doctor’s office just to socialize. (If an insurance company allowed as much abuse as Medicare, it would not be in business long.)
Bottom line: the Medicare of which you are so enamored is in fact an entitlement program (one is entitled to benefits by virtue of age, correct?), it is tremendously expensive and wasteful, it is gradually destroying incentives for providers which can only lead to shortages and lesser quality, and it is rapidly threatening the nation’s fisc. How many recipients really cannot afford their own medical care? I don’t know the answer, but we ought to call it what it is – a transfer program from the young to the old. What is just about that? A voluntary program of course would not be objectionable, but a coercive one is flat wrong.