Long-Run Health Care Cost Drivers

Long-Run Health Care Cost Drivers: One of our best graduate students here at Berkeley--Marit Rehavi--just came by with a truly depressing thought. No matter which subtribe of economists you think is correct in the intellectual health-care wars, the world is moving in directions that make the favored policies of both factions less likely to work in the future.

On health care issues, you see, economists divide into two subtribes depending on whether they think the big problem with America's health system today is adverse selection or moral hazard--two terms from the insurance industry.

Those economists on the left tend to think that the real big problem with American health care is adverse selection: Those who know they are healthy and likely to stay that way skimp on purchasing insurance. Insurance companies work like dogs to avoid selling insurance to people who are expensively sick or likely to get expensively sick. As a result, a huge amount of people's work-time and information technology processing power are wasted on the negative-sum game of trying to pass the hot potato of paying for the care of the sick to somebody else. The more people separate themselves or are separated into smaller and smaller pools with calculably different exposures to risk, the worse this problem gets. The way to solve it is to shove people into pools as big as possible. Ultimately, this line of thought goes, single-payer national health insurance is the best option, for the administrative and bureaucratic inefficiencies introduced are vastly outweighed by the reduction in the gaming the system that goes on under our current plan where profits are made by those insurance companies that are best able to avoid covering the sick.

Those economists on the right tend to think that the real big problem with American health care is moral hazard: that patients soak up scarce and valuable doctor and nurse time even when there is no benefit to the visit, and that doctors use up vast resources conducting tests and procedures that do patients very little good. And, this side argues, patients do this because their copays don't penalize them enough for wasting health professionals' time and doctors do this because their bottom lines don't suffer when they carry out barely effective, expensive, and inappropriate procedures. Sometimes economists on this side say these market failures are all the government's fault: the subsidy the government provides for low-deductible and first-dollar insurance. Sometimes economists on this side say that these market failures arise because of human irrationality: we half-intelligent jumped-up East African Plains Apes have a psychological propensity to overvalue certainty and thus to pay much more for first-dollar and low-deductible health insurance than we should.

The prescription of the right-wing subtribe of economists is to create hard incentives: regulate the insurance market so that the only policies allowable are high-deductible and fixed-reimbursement polices that make doctors feel in their purses the costs of the procedures they recommend, and that make patients feel in their purses the costs of the health professionals' time that they pointlessly soak up. Let insurance companies segment their market so that patients who make unhealthy lifestyle choices--who smoke, who get fat, who drink enough to pickle their livers, who give themselves diabetes by drinking Pepsi--feel the costs of those lifestyle choices in their insurance premiums. If the right-wing diagnosis is correct, this prescription would do a lot of good, because the gains from curbing moral hazard would be much bigger than the side-effects: dry mouth and additional adverse selection. But if the right-wing economists are wrong, this prescription is destructive. It means that those who have already drawn the big black X in life's lottery--those likely to die early and painfully of some dread disease--find their bad luck amplified by the workings of the health insurance market: not only do they die early and painfully, they die poor leaving their children poor as well.

The prescription of the left-wing subtribe of economists is nearly the opposite: it is to soften incentives as a side effect of eliminating opportunities for moral hazard by recognizing that the market for health care financing simply does not work very well, and cannot be made to work very well. If the left-wing diagnosis is correct, the prescription would do a lot of good. Nobody likes going to the doctor or undergoing invasive and usually painful costly medical procedures. The gain by eliminating adverse selection would be much bigger than the side-effects: frequent urination and a small amount of additional moral hazard. But if the left-wing economists are wrong, this prescription is destructive. Health care spending growth will accelerate as the few curbs on doing-everything-for-everybody drop away, and eventually a single-payer government with a budget constraint steps in to ration health care and to ration it badly and destructively, providing the wrong care to the wrong people.

Given these sharp disagreements between very smart, public-spirited, and hard-working economist like Uwe Reinhardt and Jon Gruber on the left hand and Kate Baicker and Mark McClellan on the other, one might despair. One would be further tempted to despair when one remembers that these issues will not be settled by locking Uwe, John, Kate, and Mark in a room until they reach agreement but by 535 legislators who are best described as a ping-pong ball, with the pharmaceutical and the doctor lobbies as the paddles.

And now Marit Rehavi comes by with an additional reason to despair. For according to her reading, as America ages and as American society changes an increasing share of the increase in health care costs is going to be driven not by increases in adverse selection by insurers or by moral hazard driven by doctors ordering inappropriate and barely effective care, but by expensive chronic diseases and risk factors driven by long-term lifestyle choices. Nationalizing the health insurance sector won't diminish the costs in 2050 of treating the lung cancer that the twenty year-old staring smoking today will develop. Increasing copays won't reduce the costs of treating the diabetes that the five year-old today with a two-coke and three-twinkie-a-day habit will develop in 2045.

Neither prescription will be very effective as a remedy to cost drivers like these. Our irresistible force is our belief that health care should not be rationed by price. Our immovable object is the unwillingness of American taxpayers to be turned into an IV drip bag for the health sector that the health sector itself controls. What happens when these meet is a crisis, which cannot be averted no matter whether we adopt the right-wing prescription, adopt the left-wing prescription, or muddle through.

Is there a magic bullet to reduce these chronic-diseases-of-aging-life-style-driven sources of secularly rising health care costs? I can see only one chance: the nanny state. Lectures every half hour, on every TV channel, by the surgeon general and the assembled celebrities of America, telling us to: lose weight, exercise more, don't smoke, don't drink to excess, watch your fats, watch your sugars, eat your vegetables, et cetera--remember that you are an East African Plains Ape that did not evolve to live in a world where fats and carbohydrates were abundant and smoke damaging to your lungs was laced with nicotine.

Comments

[jimBOB]

Lectures are hardly the only way to encourage better lifestyle choices. Eliminating the remaining tobacco advertising, for example, would help stop the hundreds of thousands of new smokers that start each year (and which tobacco profitability depends on). On a micro scale, not putting vending machines full of unhealthy food and beverage choices in schools could reduce the likelihood that the five year old student will lunch on Twinkies and Coke. On a larger level, we can look at the way we subsidize less healthy packaged food products, and at the way they are advertised.

[ken melvin]

With single payer everyone plays, all are insured.

[anne]

Oh, for goodness sake, cheer up. When there are babies, the problem is we cannot afford to care for babies; when babies grow to become old the problem is we cannot afford to let babies grow old. No babies, no one allowed to grow old; and happiness will be everywhere, everywhere I insist. Please.

[Anon]

Errmm, Brad, you missed one.

It's quite possible to solve both problems, actually.

If the government becomes the sole health care provider, the adverse selection problem is solved, totally. And now it remains quite possible to work on the moral hazard problem, to the extent that it exists: lets doctors serve as the gatekeepers for the most expensive care. In the U.S., you can have an MRI if you can pay for it, period. In Canada, you need to convince a health care professional to order it done for you. This health care professional's salary is not dependent on how many MRIs they order, so they are free to apply medical criteria to their decisions rather than fiscal criteria.

Result: subtle care rationing, that is by-and-large the correct care rationing: the people who need the care get it, and the frivolous ones don't. Both problems solved.

Presenting it as an either-or choice is just wrong. Single-payer health care actually takes a lot of the fiscal stress out of the system and makes it easier, not harder, to solve any moral hazard problem. (Remember, the root of the moral hazard problem is patients BRIBING health care people with their money/their insurer's money in order to get too much care. Health care people, being human, are susceptible to this. But if there's one health care payer, it's a lot harder to pay bribes. And if the fiscal motive is eliminated for doctors, there's no reason to believe that they'll aid patients in obtaining too much care.)

[jimi]

There is no Soviet Union anymore, but everybody remember those great victories and defeats. We trusted in idea and we made our history through great losses...
www.backinussr.com

[anne]

The Irish are being run over by babies, yes, running bouncing babies; the Swedes are busily fattening or being fattened; I am not worried in the least by either and neither are they. The problem with affording health care insurance for 47 million Americans who beyond conscience have no such insurance is simply solved. Stop spending what is now $14 billion a month on the insane tragic occupation of Iraq and start caring for our needs here. And, the $14 billion a month is only the direct cost of the insane occupation. Babies are no problem, aging is no problem (I will not age), the insanity of a needless war and occupation is a problem.

[anne]

Yes; we have a health care problem, already more than 100,000 American soldiers have been variously granted disability status after serving in Iraq or Afghanistan. There is a problem much beyond my understanding of tragedy. Leave Iraq immediately, and attend to peace and to our needs and the true needs of others.

[TomH]

Brad has worked very hard on his construct, and it's basically right - although there's nothing keeping a government single-payer system from adding high deductibles and co-pays to avoid moral hazard. There, everybody's happy!

Single payer does prevent adverse selection, and that doesn't get at the root causes of chronic disease. True. But that kind of misses the point. Adverse selection is a problem that happens in the absence of universal health coverage. The main point of universal health coverage is not to do away with adverse selection (although it does, unless you're providing coverage thru private insurance plans), but to cover everyone without regard to ability to pay. UHC will constrain the cost curve by paying for primary and preventive care.

With UHC, we're still not stopping a kid from becoming obese and getting diabetes - that's a different set of reforms - but we're keeping that kid's hemoglobin a1c level below 7, so he doesn't drop out of school, get glaucoma and lose a foot. Saving money, saving a kid's future. Not bad for a day's work.

[anne]

Funny, in a terrible way, conservatives go about whining over moral hazards here and moral hazards there and have no sense at all of the moral hazard that has been consuming lives and minds and souls. Funny.

[Mark]

"Is there a magic bullet to reduce these chronic-diseases-of-aging-life-style-driven sources of secularly rising health care costs?"

In his excellent book Powerful Medicines, Jerry Avorn notes that currently, insurers have no real incentive to promote the kind of lifestyle choices and long-term preventive measures that would minimize such problems. When you're probably only insuring someone for a few years until they change employers, and insurance plans, there's no return to doing so.

A single payer system, by contrast, insures people for their entire lifespans. As a consequence, a single payer system has the incentives that private insurers lack under our current system. That's one reason I support single-payer.

[ilsm]

Anne,

The $14B a month is Iraq is virtually pure waste.

The $43B a month the rest of the military industrial complex spends is nearly 70% welfare for the fat cats and jobs in districts.

$42B a month taken from the military welfare state and what opportunity costs will be fixed!!

Ike said every dollar spent in the military welfare state is food from a man's table and clothes off his kids' back.

This country can stop waste in miltarism and start looking after the kids here.

[david]

"One would be further tempted to despair when one remembers that these issues will not be settled by locking Uwe, John, Kate, and Mark in a room until they reach agreement"

Can we get some non-economists in the room?

[NO!!!!]

[Cranky Observer]

Interesting that the right (and I will take your word for it that this is an example of that very rare thing, the sane right) believes that moral hazard applies only to individual citizens (and those with less than $500k/year income to boot). Most of the examples of actual moral hazard in operation I am aware of apply to corporations and their officers, and of those the majority to insurance corporations to boot.

Cranky

[Darren]

Another factor that may drive costs upward is the constant introduction of new treatments and medicines. Back in the old days a doctor could do little; death was quick and cheap. Of course, there is nothing to say that new treatments will not be cheaper than those they supplant.... but I'm not sure that's the way to bet.

[Darren]

I have two problems with the moral hazard argument. The first is that not all medical conditions are caused by poor lifestyle choices (I know an 8 year old who has had a kidney transplant, and a man who has had Krohn's since he was 22, and he was quite healthy up to that point - if those people were from underinsured American families they would have ruined their families - happily they are Canadians who received first rate care and do not know what "medical bills" are).

The second is that price signals don't really strike me as very effective at deterring lifestyle choices if the threat of sickness itself is not doing the job. "Smoking gives me cancer? Who cares. Smoking gives me cancer AND medical bills? Uh oh, better quit."

[JonF]

Re: Nationalizing the health insurance sector won't diminish the costs in 2050 of treating the lung cancer that the twenty year-old staring smoking today will develop.

No, but finding a cure (or vaccine-like preventative) to lung cancer would, because then it would cease being a long-term disease racking up huge costs over time. This is what has happened with many of the major crippling diseases of the past. How many people (in the developed world) go blind because of measles? How many spend life in an iron lung becasuse of polio? Do we still have TB sanitoria and leprosoria to house and treat victims of those illnesses for the rest of their lives? You are assuming that medical technology will stop dead in its tracks in its current state. But I suspect that genetic technology and nanotechnology will starting yield big medical payoffs in the next generation or two and the people of 2106 will look back on the killers and cripplers of today much as do on those which afflicted our ancestors in 1906.

[Jonathan Goldberg]

Concerning:
"But if the right-wing economists are wrong, this prescription is destructive. It means that those who have already drawn the big black X in life's lottery--those likely to die early and painfully of some dread disease--find their bad luck amplified by the workings of the health insurance market: not only do they die early and painfully, they die poor leaving their children poor as well."

In the first place, the moral hazard prescription, let insurance companies segregate by risk, dooms those who have drawn X whether the right-wing economists are right or wrong. Even if the finances of the overall system improve, the Xers are toast.

And just because there isn't time in a lifetime to research everything, is there any actual evidence about moral hazard? Where is Steven Levitt when we need him.

About:
"eventually a single-payer government with a budget constraint steps in to ration health care and to ration it badly and destructively, providing the wrong care to the wrong people."

Here we seen at work the facile standard assumption that anything government does is done badly. How do countries that do have government-paid systems do this? On the evidence of overall health outcomes they are successful. I tend to believe that if something exists then it's probably possible.

Also, what Mark, TomH, and anon said. Or, to put it another way, it seems that continuity of care is too significant a factor to ignore in cost calculations; but, it is not present in the left vs. right case made in the original post.

[will]

I want to second the first comment. Right now kids (and adults) are being constantly "lectured" to drink soda and eat crap by advertising. If we brought some sanity to the way we treat food then I'm sure we could decrease diabetes etc.

[John Booke]

Let the government form the large pool. Drain the private insurance pool to much lower levels. Leave the abusers (providers and patients)in the private pool. Make it illegal for the government to use AMA procedure codes to determine fee structures. Make the new government health plan a contract between each citizen and not with individual providers.

[save_the_rustbelt]

Both sides are patially right, both sides are partially wrong, and your grad student is quite perceptive.

I have never found an eocnomist who understands how healthcare decisions are made, and the ludicrously complex decision tree facing physicians.

The options just for a patient presenting with non-emergent low back pain boogle me, and that is just one of 7000 or so CPT codes.

Economists are going to have to become more open minded to really understand the full dimensions of American healthcare.

[ken melvin]

The greatest moral hazard facing CEO typea is a succession of younger wives.

[Slocum]

"But if the right-wing economists are wrong, this prescription is destructive. It means that those who have already drawn the big black X in life's lottery--those likely to die early and painfully of some dread disease--find their bad luck amplified by the workings of the health insurance market: not only do they die early and painfully, they die poor leaving their children poor as well."

But that's really not accurate. The market-oriented vision typically proposes that everyone be covered by a catastrophic policy with substantial deductibles/copays. Everybody spends out of pocket for routine care, but nobody goes broke because they come down with an expensive, life-threatening illness. That's the idea, anyway.

And, of course, as others have mentioned, this is quite compatible with single-payer insurance.

[Jake]

Nationalizing the health care can reduce the cost of treating chronic diseases, by the straightforward means of saying "this treatment costs too much for the benefit it gives you, so we aren't going to pay for it." This is what happens in most other countries, I feel, and is clearly what will have to happen here. This will make many people profoundly angry, and will require some pretty smooth politicking, but it's the only way to really go.

[dale]

Reducing socio-economic inequalities should increase the health and well being of any population of human beings. Maybe we should bar economists from this discussion- at least until social epidemioligsts and sociologists hammer out the outlines of theory of social dominance and status hierarchies. Much of this is broader in scope that economists are trained to deal with.

[Lewis Carroll]

"Ultimately, this line of thought goes, single-payer national health insurance is the best option, for the administrative and bureaucratic inefficiencies introduced are vastly outweighed by the reduction in the gaming the system that goes on under our current plan where profits are made by those insurance companies that are best able to avoid covering the sick."

Brad,

I'm having a hard time understanding what increased 'administrative and bureaucratic inefficiencies' would actually be introduced with a single-payer plan. Am I wrong that those types of inefficiencies typically constitute about 3% of overhead for Medicare, while constituting 10-20% of private insurance overhead?

Also, while reimbursement rates for providers might decline somewhat (or fail to maintain past rates of increase), wouldn't said providers save immensely on overhead? Most doctors that I know have entire staffs, staffs which they are paying decent salaries and benefits for, dedicated to getting pre-autorization for procedures, processing insurance paperwork and chasing down payment from insurance companies. Surely those costs would decline under a single-payer system.

[dale]

Im with Lewis Carroll,
'administrative and bureaucratic inefficiencies' describes our current health insurance system. If we model our coming socialized health insurance system after Social Security, for example, we could expect to see significant rationalization and efficiencies.

Not to mention the benefits of creating a more rational and efficient and productive society in terms of increased levels of equality, social solidarity and lessening the dissonace between the religious, moral and political values we proclaim and the way we actually live our lives in this country.

[Rebecca]

I think an under discussed point about health care costs is the role of information and its interaction with incentives. The whole idea of "consumer-driven" healthcare is ludicrous from this perspective because regardless of how much information is provided to the consumers - most people are not going to have the time or skills to interpret it in a way that leads them to the most efficient provider or make the most effective medical decision. On the margins maybe but providers have no incentive to be transparent and will fight every effort to make comparative info available. So either the consumers will make the decision on straight prices without realising the myriad ways that doctors can get more reimbursement by coding or inducing demand in a FFS payment scheme. As I see it the most effective way to align information and incentives are integrated delivery systems i.e. Kaiser/Intermountain Health Care/VA. The failure of HMOs to thrive to me was a step backward in introducing some alignment of incentives for appropriate and cost-effective care.

[DeanOR]

Reading your description of the Right wing view, I finally understand. Some of us commenting in the blogosphere have wondered what universe these conservatives are in when they talk about people having extravagant health coverage and getting lavish, unnecessary care. Now it's obvious, they're talking about THEMSELVES. They and their friends have a lot of money, go to specialists they have heard are the best and the most expensive, have unnecessary procedures, the latest drugs they've seen advertised, etc. Then they project their own attitudes and behavior onto lesser beings like union members and professionals who have adequate coverage, which the conservatives assume is wasteful (and unwarranted when it's extended to the plebes).

[PaulGBrown]

I note in passing that this kind of 'nanny-state' is more or less what several nationalized health care systems in other advanced nations have evolved into.

The Australian version, for example, batters citizens with "public service" ads to stop smoking, avoid excessive sun, no unprotected sex, get more exercise, don't drink and drive, gamble less, and so on. They've apparently proved fairly effective - smoking down, AIDs under control, and a national weight problem which is turning around slowly (as the weighty are want to do).

The argument is that a profit maximizing insurance monopoly could choose either to increase premiums or spend on marketing to improve long term health outcomes. And it costs less money to increase premiums.

[rev]

Universal health care with a single-payer solves the adverse selection problem. It also solves the problem of churn, which a poster on an earlier health care thread raised. I believe s/he cited two to three years as the expected time someone stayed in a health plan, which gave the insurer no incentive to pay for measures - preventive measures - that don't pay off within that two to three year horizon.
In article in the NYT yesterday, David Leonhardt writes that the South Beach diet doctor, Arthur Agatston, a cardiologist by training who still maintains a cardiology practice with 2800 patients, claims that "Heart attacks are essentially disappearing from my practice". The point is that we know a good deal about how to reduce the risk of heart attacks: diet, exercise, smoking cessation, and powerful drugs like statins.
So I think single-payer universal health care can be a solution to the lifestyle diseases like diabetes that your graduate student is depressed about:
the single payer can actually measure long-term results for everybody and pay for health rather than for sickness.

[KY Choong]

Another "nanny state" issue has arisen in Australia recently - calls for the government to regulate advertisements promoting junk food, etc (e.g., banning TV advertisements). The Health Minister has rebutted the calls, but I sense even he is rethinking his position on this. (Anyone care to comment if this is right?)

Do we be pragmatic about these matters, or do we hang on to our liberal values no matter what? At least when it comes to drugs, almost all countries opt for the nanny approach.

Brad - thank you for explaining the two opposing policy views and prescriptions so clearly.

[jasper emmering]

What's wrong with rationing?

I work at a university hospital in the Netherlands at a PET-facility. PET-scans are dreadfully expensive, as are PET-scanners.

So we ration.

Requests for PET-scans are only honored if the indication is EVIDENCE BASED. Staging lung cancer, yes, staging breast cancer, no. It's that simple.

At least three hospitals in the Amsterdam region are building new/extra PET-scanners, so by the time the evidence comes in for new indications we hope there'll be enough capacity to cope.

In the meantime we won't waste a single scan on unproven (let alone frivolous) indications.

Yes, our capacity undoubtedly lags that of some urban areas in the USA, but as long as we manage to scan all patients with proven indications, I don't see how that's a problem. It's just economically more efficient, it forces doctors to practice evidence-based medicine, and, considering the fast pace of progress in PET-technology, it has kept us from buying PET-scanners that would have been obsolete by now.

[RT]

As Jasper indirectly reminds us, there are a few dozen advanced democracies with universal health care programs of various sorts. If moral hazard is a problem under universal health care, we ought to be able to find evidence of it in some of those systems.

Even better, if we find evidence of it under some universal health care programs but not in others, that gives us clues as to how to avoid it here.

Finally, as others have pointed out, a single-payer system gives the single payer - the government - reason to subsidize healthy behaviors and discourage unhealthy behaviors in various ways.

I doubt that we could consider banning junk-food advertising here, but we could make the junk-food advertisers pay heavy taxes on the ads, to subsidize paying for obesity-related diseases.

One of my longtime fantasies is for the government to buy up the American tobacco industry, lock, stock, and barrel. And to continue running it exactly as is, except for one little thing: dropping ads altogether. (OK, a second thing: no artificial raising of nicotine levels in tobacco products.) This would probably be a break-even proposition economically, on the side of paying for the purchase and receiving the revenues. ut it would be incredibly beneficial on the health side of the equation.

And the government would have a powerful incentive to do this, under single-payer.

[eriks]

Wow. Brad, thanks. Depressing, but I think you're right.

[vtcodger]

The cost of health care (as a share of GDP) in other industrial countries is between half and two thirds that of the US. The life expectancies in those countries are not vastly different than the US. Many are longer in fact. I believe that all of those countries have largely solved the adverse selection problem one way or another as they all provide (near) universal coverage for health care.

If moral hazard were a significant issue (I think its unmitigated nonsense personally) would not those countries have higher healthcare costs than the US?

My conclusion: Moral Hazard is either an imaginary problem, or is -- at worst -- a tractable problem. The US therefore should tackle the Adverse Selection problem if it desires to reduce healthcare costs.

[Slocum]

"Yes, our capacity undoubtedly lags that of some urban areas in the USA, but as long as we manage to scan all patients with proven indications, I don't see how that's a problem.

In the meantime we won't waste a single scan on unproven (let alone frivolous) indications."

But there are patients who have not-yet-proven indications. In a year or two, once the studies are completed and published, such patients will be approved, but that does nothing for the patients now who are denied because the benefits have not yet been conclusively proven.

And there's always a judgment call involved. How *much* incremental benefit does a procedure have to provide? If there's some evidence of a benefit over the alternative but the new procedure is considerably more expensive, would that be a 'frivolous' use?

In the U.S. my wife frequently deals with our state Medicare system trying to get approval for treatments for patients, and it is a maddening process. The bureaucrats have only so much money to spend in a given period, and they manage that, in part, by a mixture of caprice and delay. They routinely find they have 'lost' the paperwork and need to have it re-faxed. They ask for 'more information' before giving approval without specifying what additional kind of information they want. What is sufficient for one patient is not for the next, and so on. And, of course, this sort of thing is not limited to the U.S.:

http://www.timesonline.co.uk/article/0,,2-2530550,00.html

[RS]

It is no more "the nanny state" to teach that smoking, to our certain knowledge, causes lung disease and early death than it is to teach that F=MA. California, btw has cut smoking rates from 26% to 14% (2nd lowest in the US)merely by a little education, and patience.

If the best way to reduce the economic costs of long-term health habits is education then that is a cause of celebration, not despair, since we have shown that it is easily done.

Yours,
RS

[bakho]

Obviously, whatever health care plan emerges cannot send everyone to the Mayo Clinic. The government is already in the business of providing low cost clinics to low income non-insured, especially in areas where private practice is not lucrative.

One way to manage costs is to institute a triage system of neighborhood clinics that will treat minor problems and provide routine care cheaply and refer major problems to specialists. A high paid, highly trained doctor is a more expensive way to deliver lifestyle information that could be delivered as well or better by a qualified professional with less expensive training.

The first step is to put in place a comprehensive health care system. The second step is to make changes that improve patient outcomes and service.

As more people require some services, don't we get a volume discount?

[Barry]

Slocum, you make some good point, except for one liiittle thing - all are also features of private insurance companies. Delays, loss of paperwork (deliberately or accidentally - it's no skin off of their noses), striving to put the costs onto a spouse's insurance, while the spouse's coverage pushes back.

The biggest difference is that private plans usually have the option of refusing coverage for 'pre-existing' conditions, which, obviously lets them off of the hook for a growing proportion of the health care costs of most people, as time goes by. Which means that switching jobs (voluntarily or in-) chops most people's coverage at the will of their new insurer. Or even if they don't change jobs, if their employer changes insurers.

So the big question is not 'single payer vs perfection', but 'single payer vs a visibly degrading system'.

[Meh]

The issue has been well covered by the commenters overall, but it falls to someone to be blunt. Thus, I say to Mr Delong and his student:

"There are more things in heaven and earth, Horatio,
Than are dreamt of in your philosophy."

Economics is an attractive way to organise the distribution of scarce goods. But it's not the only way. As the examples raised indicate, democratic oversight of a unviersal system can produce something of a middle road. In the US, the market is a mess of adverse selection. In France, the government system is largely suffering under particular issues connected to moral hazard.

But, Denmark and the Netherlands and even Canada and the UK show that there is an alternative _political_ model for the process. It's not distribution to those with the greatest wealth, but distribution according to priorities democractically decided. Is it perfect? No. Is it very problematic? Yes. Does it have better health outcomes than the US? Largely. Does it provide better cost control than the US system? Generally.

It's very easy to posit health demand as infinite, or about to suffer infinite growth. Under those circumstances however, the market will have to ration just as much as a state system. It's merely a question of who loses out. In the market, you lose out if you don't have the money. In a democratic system, there are always imperfections, but largely the "losing out" is spread amongst the population quite equally. And this is the notion of a society, indeed of a nation.

[jamzo]

the word healthcare is similar to the word fruit

both words describe a class of things

fruit encompasses many different fruits: apples, oranges, bananas, blueberries, kiwi fruit, figs and more

healhtcare encompasses many different healthcares: medical, dental and mental health emergencies, chronic physical illness, chronic mental illness, hurricanes and other natural disasters, public health and last but not least, care for the ordinary variations in wellness - common cold, aches and sprains, health promotion,

as long as we debate the global issue we are powerless to accomplish much on specifics

example - the much vaunted employer health insurance for the most part finances routne and emergency care for relatively healthy people while society/government for the most part finances chronic care

in economic terms we might say the healthcare economy encompasses several markets and to understand the state of the economy we need to look at what is going on in the markets that make up the economy

personally, i think adverse selection describes the private insurance companies practice of obfuscating healthcare costs by providing routine care for healthy people while shifing cost of chronic care to individuals and to society/government

[Cranky Observer]

> In the U.S. my wife frequently deals with our state Medicare
> system trying to get approval for treatments for patients,
> and it is a maddening process. The bureaucrats have only so
> much money to spend in a given period, and they manage that,
> in part, by a mixture of caprice and delay. They routinely
> find they have 'lost' the paperwork and need to have it re-faxed.

Which is exactly how my not-too-bad, provider-to-midsized-corporations private health care plan works as well. They delay approvals for drugs until the time period when the drug would be effective has passed, they keep my doctor on the phone until he can't afford any more time and has to give up, they "lose" paperwork for pre-approvals and invoices on expensive procedures, and at random times during the year they send out "coordination of benefits" information requests printed in tiny type (5 pt type if I am any judge) at the bottom of 17 pages statements, then refuse all invoices due to "lack of information provided". There is no way, nohow that these actions are NOT /deliberate/ costcutting policy. My French and (espeically) German coworkers just shake their heads in disgust at this stuff[1].

So tell me again about the drivers' license bureau?

Cranky

[1] Several of my German coworkers have dragged themselves to the airport and flown home when seriously ill rather than subject themselves to the US heath care system. To be fair, my UK coworkers are usually happy to be treated in the US - as long as they can get a "temporary employee" voucher from HR.

[Cranky Observer]

By the way, given that we don't manufacture very much in the US any more (except for war material), and our natural resources are starting to run out, and that international students are increasingly going elsewhere to get advanced degrees - isn't all this "worrisome increase in health care spending" really just another name for something that our economy /can do/ over the next 30 years? All those nurses, PAs, PCPs, and even the hated specialists are getting paid for doing some fairly valuable work. Not to mention the construction workers who build the hospitals and nursing homes, etc. What is wrong with that, exactly?

Except perhaps that funding increased amounts of heath care might require draining some of the loot from the NYC money machine. Hmmm.....

Cranky

[ideogenetic]

Here's what we do (in addition to public education and the other stuff):

Put the actuaries from the health-insurance industry to work for the new National Single Payer Plan calculating the risks and costs of doughnuts, cigarettes, etc in the U.S. population to the plan. They will use the latest scientific evidence of the effects of doughnuts, cigarettes, etc on health with the help of supercomputers and the sales figures for these products. Then calculate a reasonable sin tax to offset these costs. Periodic adjustments would be needed based on new medical research, changes in demand, etc.

[Robert Waldmann]

I think single payer would help this problem. The reason is that a good lecturer is your doctor and doctors can also help in ways that are not just nagging (early diabetes, high blood pressure and high blood cholesterol can be controlled with pills). Currently health plans do not reward doctors for controlling patients' blood sugar, pressure and cholesterol. This might have something to do with the fact that the huge huge savings go to the medicare administration not the plan that pays to get them.

This is a moral hazard problem. Patients should, among other things, take their pills. They would but doctors should prescribe monitor and lecture (on something much easier than changing diet and exercise) finally insurance companies and HMOs should uhm maintain health by paying doctors to find and treat such problems while they are cheap to treat.

No one is perfect, but the last group is aweful. They don't pay for as much as they should for preventive medicine (should include incentives for the docs as proven by Cutler et al). They don't pay as much as they would if there wasn't the medicare administration to pay for the huge costs of neglect.

The strong evidence is the usual. Other countries with integrated health care financing spend less and are healthier. The veterans admin with integrated financing is outstanding.

Moral hazard is not just excessive use of health care. Another problem is insufficient preventive health care. This has a huge cost in terms of cost and health outcome. It is easy to line up the incentives right.

The question isn't just Adverse selection vs moral hazard. within moral hazard it is also are we doing too much or too little.

I'd say we are taking way too few pills.

Of course mentioning "moral" reminds me that people disapprove of an approach to obesity etc which is too easy and therefore disapprove of pill popping. They claim pills all have bad side effects. This is mystical. The side effects are now well known. In many many cases they are minor.

How many pills do you take a day Brad ? I would guess no where near enough.

[Ken Houghton]

It falls to me to ask the obvious: when did Marit Rehavi have the time to read Bruce Sterling's HOLY FIRE?

[bncthor]

Brad, this is certainly one, if not, the best post and discussion I have had the privilege of reading on your blog. Health care is surely a superior good. Reducing spending for health care will be unlikely in the United States as we are constantly reminded by advertisements on that "vast wasteland" known as television, we must all remember to..."ask or talk to our Doctor."

[Lewis Carroll]

"But, Denmark and the Netherlands and even Canada and the UK show that there is an alternative _political_ model for the process. It's not distribution to those with the greatest wealth, but distribution according to priorities democractically decided. Is it perfect? No. Is it very problematic? Yes. Does it have better health outcomes than the US? Largely. Does it provide better cost control than the US system? Generally."

Meh,

I think your analysis is good, and probably points to an *original position* heuristic for designing a fair system. Not that it's really feasible anyway, though...

[jwogdn]

Wrong, wrong, wrong people who smoke have lower lifetime medical cost. Although there is a correlation of diabetes with over weight no one yet has been able to find a correlation between drinking Pepsi/the intake of sugar throughout life and development of diabetes. The problem if you want to call it a problem is long life and survivability of certain diseases. Growth in diabetes due to higher weight is an additional problem but it is getting cheaper to treat and even extra weight is getting more treatable. So strangely enough the problem is due to a good thing. Even over weight is due to food and entertainment becoming more affordable.

Cheer up!

[Skeptical Indian]

Based on personal experience I'm skeptical of the moral hazard argument. I'm a 'guest worker' here in the U.S. but I still find it difficult to believe that people would opt to visit doctors more than they absolutely need to. I certainly don't. Besides, visiting a doctor in the U.S. is ridiculously difficult compared to India - you have to make appointments, take time out during work hours, fill out forms... I can't imagine anyone doing this for fun. In India - at least in the cities - you simply walk into your GP's clinic take a number and wait , rarely more than an hour and walk out with a prescription. All for less than $10 a visit - no insurance required. Now that's a hypochondriac's playground.

[Sonia]

The economists debate in this case is really not very much about economic theory or application but about values. To what extent should society bare the financial burden of care for chronic conditions; to what extent should younger workers pay for older workers health care; men for women and so forth. Economists generally agree that cost sharing reduces both effective and ineffective care. It is a value judgement whether the cost of some persons foregoing care that might ultimately lenghthen a healthy life is worth the benefit of reducing overconsumption of health. Ultimately reducing the rate of growth of health care expenditures will require explicit or implicit rationing of high cost care. How much should society spend to achieve an addional expected month of life? Economists can help to frame the debate. The decisions ultimately must be made by society through there elected representatives. This is not a job for economists.

[shander]

Nice points yet somehow Market freedoms that allow end runs around situational beurocratic snags need to be in place. Crankiy's pointa about quota allocation need to be able to be end run by a consumer (perhaps taxing a group of friends) to pay out of pocket. A "single payer" system that didn't allow paying more for additional services ...that didn't allow a touch higher cost for a facilty with fresh paints and tasteful appointments, or perhaps more polite and less harried appointment staff not only unesssisarily limits quality affordable to those that can pay but also, in the absence of competition, precludes a better example for the base services (and some items like paint and carpet are probably a tiny tiny percentage of health care costs with large incremental pleasures, but one easily forgone or delayed in times of tight budgets despite their huge return on morale).

A MIXED system of a diferent type is possible.

A voucher, a single payer voucher, that covered 100% of what you'd want a single payer system to cover. The voucher, (a similar system I believe works for medicaid in California) could be bound to various HMOs that provide the serivices with the 100% guarantee.

For those that "opted out" however, the voucher would not provide a flat sum, but a piece work renumeration for services provided...no health care used, no reimbursement and the reimbursement would go to the health care providor, not the insurance company.

The amount for any procedure, would need to be vetted as it is today. The single payer must be committed to paying enough to attract sufficient providors without overage compensation.

Even as the government would pay for health care of a 90% of par level, i might still opt for private insurance. The private insurance, for a fee of hundreds of dollars a year (and up depending on plus items) might provide extra advice and advocacy, cocienerge service in schedualling, customer saftisfaction rating to approved providers (and pay spiff fee's to those providors who met stadards of office appearance, honored clients appointment times etc).

There may alos be add on services truly insured for from dollar one, and yes, in those items issues of adverse selection and cherry picking might have influence as they do today despite the rules about pools and must offer etc.

Incrementally though, the problems can be reduced. A system could be derived that paid for 85% percent of health costs allowing flexiblity of consumers to upgrade services by paying a bit more on top of what whas covered in the 85% and also secure un-sociialized benefits via private groups, for other procedures (deemed either elective, experimental, or perhaps beneficial but unaffordable for society if broadly offered at present prices (which might fall after the procedure had been in place for 15 years or something)

[dr.steveb@verizon.net]

Single-payer works as fiscally sound and conservative starting point: Easy to remember 69% vs. 96%.

That is the % of dollar that actually goes to care (correction to upthread note, it is 4% and 31%; not 3 & 11).

96% for Medicare compared to 69% for the private for profit insurers (rest to "overhead" including admin and profit).

Those savings are part of what make single payer the answer... you can have your cake and eat it too in this case because the private sector is so bad.

Once single payer in place, then can incentivize as needed by fee schedule, for example pay docs more for same procedure/visit/work if they do it in inner city ghetto or rural areas where docs. otherwise don't want to practice. Reimburse better for services that are underserved and less for ones that are overdone.

And as some have noted, only with single payer covering individual for liftetime is the insurer incetivized to work on prevention seriously.

[JonF]

Re: Most doctors that I know have entire staffs, staffs which they are paying decent salaries and benefits for, dedicated to getting pre-autorization for procedures, processing insurance paperwork and chasing down payment from insurance companies.

These things still have to be with Medicare and Medicaid. Though to be sure if there were only one set of polices and proceduires and byzantine reimbursement rules and schedules to figure out it would be easier than trying to figure out two dozen or more.

Re: Which means that switching jobs (voluntarily or in-) chops most people's coverage at the will of their new insurer.

Insurers are banned from doing this when people when people change jobs (or companies change insurers), provided the employee has not had a gap in coverage greater than 62 days. (1996's HIPAA law). Changing from one employer's group plan to another is generally trouble free (exceptions exist, as always). Where the trouble comes in is if someone needs to purchase an individual policy with a pre-existing condition. While HIPAA and its 62 day grace period still applies, nothing prevents the insurer from charging a premium so astronomical as to render the policy unaffordable.

Re: Several of my German coworkers have dragged themselves to the airport and flown home when seriously ill rather than subject themselves to the US heath care system.

I assume the issues were financial not technical. American healthcare is excellent-- if you can afford it.

[Alex Tolley]

1. Is healthcare a cost or spending choice? No one seems to bemoan spending more on other goods and services. If the economy was 100% devoted to healthcare would that be a problem?

2. Why are the incentives geared away from introducing better or lower cost treatments? (fee for service may be the answer). It used to be that drugs really were more cost effective than other treatments like surgery, that has changed. New techniques like previously mentioned PET scans are very expensive today, with little hope of being cheap - why is this the case when every other industry moves in the opposite direction?

3. One of the huge benefits of single payer is the freedom from the shackles of being tied to a good employer benefit plan - this, like portable pensions (401Ks) would allow people to choose jobs, employment patterns they want, rather than by health plan - a ridiculous situation. That benefit to a flexible economy is rarely factored into these discussions.

[Catch22]

In this debate or proverbial ping pong game, is it intentional that there is absolutely no mention of the fact that over a dozen other countries have their own debate/ping pong over this issue?

While every country is different isnt it fair to say we can learn something from the experience of others?

Is it really not obvious which direction this experience of others points? We have by far the most expensive healthcare system in the industrialized world. The second place contender is far behind with roughly 70% of the per capita expenditure. We spend several times what our closest neighbor spends on administrative costs.

For all of these we get little demonstrable benefit. Perhaps the best acute surgery in the world with average to mediocre results by most other measures?

The Institute of Medicine has weighed in on this issue - our system is broken and will not be significantly improved by incremental fixes.

So on one side we have theory and the other our own experience compared with others. Isnt the rational approach pretty obvious even if we do not seem to have the political will to go after it?

[al-Anon]

Anyone else here remember this nanny state blast from the past? I sure do:

CHICKEN FAT "THE YOUTH FITNESS SONG" - by Meredith Wilson
(as sung by Robert Preston)

Touch down
Every morning
Ten times!
Not just
Now and then.
Give that chicken fat
Back to the chicken,
And don't be chicken again.
No, don't be chicken again.

[Roger Albin]

I think a prior post has referred to this already but Ms. Rehavi's point is far from novel. This chronic disease problem has been giving physicians who deal with chronic diseases and public health people nightmares for years. To add to the concern, all her points about lifestyle oriented diseases apply equally to a number of important disorders not easily attributable to lifestyle changes. The prevalence of Alzheimer disease and Parkinson disease are going to increase enormously in the coming decades. A lot of this has simply to do with an aging population.

In theory, and to some extent in practice, a single payer system will deal with this problem better. As prior posters point out, in our present fragmented system, there are no incentives and indeed actual disincentives to cost-effective preventative care. The type of system that "right" wing economists envision will probably not produce incentives for good preventative care. For example, colleagues of mine have estimated that giving diabetics free anti-hypertensives and cholesterol lowering agents will rapidly pay for itself by lowering the incidence of expensive complications like renal failure and cardiovascular disease. If you believe in "moral hazard" this strategy doesn't make sense. Single payer systems with global budgets, think of a giant HMO (essentially what the VA system has become) have strong incentives to reduce costs by looking for the most effective preventative interventions. To date, all 'market' systems in this country have failed miserably to move in this direction.

Now for a really scary thought. It might not matter. Good prevention usually means longer life span. Annual health care costs may well be lower but this since the beneficiaries of good preventive care live longer, the total lifetime costs are similar. There is actually some data to suggest this depressing view is correct.

[Reg]

East African Plains Ape? Caw! Plains Ape of East Africa! The only apes I hate more than the orangutans are the East African Plains Apes. And the African East Plains Apes.

[SteveE]

Most health policy discussions focus on the near-to-short-middle term; say, the next 20 years or so. But if you push thehorizon out to 2045 or 2050 (as done here), something strange and wonderful happens:

Ray Kurzweil:
"As the computational power to emulate the human brain becomes available--we're not there yet, but we will be there within a couple of decades--projects already under way to scan the human brain will be accelerated, with a view both to understand the human brain in general, as well as providing a detailed description of the contents and design of specific brains. By the third decade of the twenty-first century, we will be in a position to create highly detailed and complete maps of all relevant features of all neurons, neural connections and synapses in the human brain, all of the neural details that play a role in the behavior and functionality of the brain, and to recreate these designs in suitably advanced neural computers."
http://www.kurzweilai.net/articles/art0134.html?printable=1

Sure, maybe Ray's crazy, but just imagine...!

[HL]

MEDICARE FOR ALL, ONE YEAR AT A TIME

The U.S. already has a single-payer, universal healthcare system - if you are over 65 . I presume that the elderly are happy with Medicare because they have the political power to get what they want if they weren't. Medicare has no adverse-selection problem and I presume they've somehow coped with the moral-hazard problem.

One very simple way to provide single-payer, universal healthcare in this country is to reduce the eligibilty age for Medicare by one year, every year. It would thus take 65 years to accomplish and each year it would generally get less expensive, on a per-covered-person basis, because the new enrollees would be getting younger, and thus healthier. It would be trivial to write the legislation; all you do is subtract "1" from the age of eligibility each year.

[Sam Taylor]

As one in his 72nd year who was an insurance company CEO and principal of a consulting firm dealing with insurance companies, I can attest that the 69%-96% ratio of benefits per premium dollar between private insurance and Medicare is about right in the aggregate.

I can also attest that living longer is not so bad and hesitate to view this as a problem rather than an opportunity even as it costs more.

There is not much (how about nothing) new and startling in this post.

The social and economic advantages of a single payer plan that covers everyone have been so obvious for so long, only ideologues drinking the social darwinist kool aide and worshipping (sincerely and with great faith of course) at the feet of some non-existent market god and those with special personal financial interests in continuing the present insanity oppose it. There simply are not any rational social or economic arguments against the concept nor any magic market driven bullet that is going to change this reality. Both the logic reflected in some posts here and the actual experience of other nation states (also reflected) seems irrefutable.

If I seem a little curmudgeonly, it is because the same discussion has been going on so long...and perhaps I am becoming a little curmudgeonly.

With a smile.

[anon]

What is the deal with this nanny state thing? I think your fear of a nanny state is ridiculous. The government allows cigarette makers to get away with killing hundreds of thousands of people for decades, subsidizes very cheap corn syrup that goes into everything, since the 1980s, and active hostility to providing recreational activities of any kind for school children. There has been a lot of social engineering going on for the profit, yet you fear a nanny state. We have had a crazy old coot state for quite awhile, but an economist does not notice that as long as some rich jerks use it stuff their pocketst with cash.

[lolyd667]

The trouble with the health-care debate (one trouble, anyway) is the "high-priest" jargon that complicates a simple and familiar (to economists, anyway) issue.

Health "insurance", whether single payer, multiple payer, public payer, whatever, involves pricing health care at well below cost. In Canada, for covered stuff, the price is zero. Even in the US, for the insured the price is still typically less than 10 percent of the cost.

Well, when you subsidize (at the margin! the average is irrelevant here) to that extent, you can expect a lot of demand. It's that simple. If we offered, say, cars at a 90 percent discount, people would have a lot of cars--nice ones, too!

The right is correct that reducing the subsidy will reduce demand. What they mean, but are too chicken to say, is that lots of people won't get much health care, because they can't afford it (or, would rather feed, clothe and house their children--it's their choice!).

But, all civilized societies, even our own, have decided that people should have (financial) access to decent health care. So, the issue is: how best to manage the high demand when prices can't do it for you?

In every other industrial country, this has been done by some combination of quantity rationing and price controls. Not here, though. Here, apostles of the "market" have largely prevailed, even though widespread subsidization--necessary, remember, to provide decent health care--has ruined the market (by intent, so to speak).

Does the approach of other countries work? It is, in many respects, not ideal of course. But we are in a distinctly second best world here, at least so long as we do not abandon the social goal of decent health care.

Two factoids of interest. Americans are not particularly healthy, compared to others in industrialized countries. Americans, on average, pay about twice as much as anyone else for health care.

I leave it to you to decide.

[JonF]

Re: The U.S. already has a single-payer, universal healthcare system - if you are over 65 .

Universal, yes. Single-payor, no. You're forgetting about Medi-gap insurance and the fact that the more fortunate retired are still covered by their erstwhile employer's healthplan too.

Re: Well, when you subsidize (at the margin! the average is irrelevant here) to that extent, you can expect a lot of demand.

This is true is you are providing something for people where their wants exceed their needs-- almost anything except healthcare qualifies. Healthcare however is all but unique* in being upside down. With housing, food, etc. and etc. we all want more than we need (and hence can get by with a good deal less than we want provided we have what we need). With healthcare all but a tiny minority of us (true hypochondriacs) want to consume no healthcare at all (we want to be perfectly healthy, without illness and injury), but like as not we will need to consume some. But because we don't want to do it (again, excepting hypochrondiacs) we are unlikely to voluntarily consume more than we need to. To be sure, we may be influenced into consuming more than we need by providers who take advantage of our ignorance (or are simply unsure themselves and operate by "better safe than sorry"), but we do not go out looking for healthcare for fun and pleasure as we do most other goods.

* The only other good/service I can think of where this applies is funerals, where of course the problem of irrational decision making also enters in.

Re: In every other industrial country, this has been done by some combination of quantity rationing and price controls. Not here, though.

Um, yes, here too. What do you think HMOs are all about?

[Barry]

(re: German friends going back home for medical care) "I assume the issues were financial not technical. American healthcare is excellent-- if you can afford it."

Posted by: JonF

Obviously. I've never heard anybody say that American healthcare is not great, if you have excellent coverage, or the ability to pay large out-of-pocket costs.

[AW]

I read Bruce Sterling's _Holy Fire_ a while back and the only interesting part of it was the concept of old-age health care being paid for by buying shares in a health care company and hoping they panned out. If your health care company went under, then too bad. While the book deals with the stratification and gentrification of wealth resulting from this, it may be possible to alter the concept slightly and come up with something better. Perhaps we should be buying shares in our own health care all our lives. Annual checkups can set the cost of next year's premiums, and the idea is that you've paid up enough to cover your costs by the time you're old. Therefore you get an incentive to a) go to a doctor to see what you can do to lower your premiums, and b)go to a doctor for whatever preventive maintenance you need.

I suppose some difficulties will be making sure this is not overly regressive or we turn into a DNA-state like the one depicted in Gattaca. Also, the nanny state could arise, by tracking cigarette consumption and tagging that as part of your profile.

[wml]

As others have noted, I don't really see why single payer is positioned against solving Moral Hazard.Just have single-payer with high deductables.

What moral hazard is positioned against is making sure poor have access to health care.

[Sonia]

Single payer isn't quite single payer with cost sharing by the client as in wmls suggestion. However if one means by single payer a nearly single pool then traditional Medicare is single payer and extension to the general population is a plausible option. However, the concept of single payer in Medicare is currently being erroded by "so called" private plans.

One can imagine a national system functioning like a PPO in which individuals could buy out of the preferred or participating provider network. Another option would be similar to the public school system. Most children attend the public school system but a family can buy out while continuing to pay taxes for the public system. A single payer plan on the Candian model in which purchasing services provided by the national (really Provincial system in country is not generally possible) is not likely in the foreseeable future here.

[soullite]

Moral Hazards don't exist. They are myths that are meant to excuse the fact that the powerful don't want to help those without power. Even in the most charitable interpretation of their existance, they are mere value judgements, something can't be hazardous unless you term that it's harmful. Most of that which is deemed "hazardous" isn't harmful to society as a whole. It's harmful for the bottom line of wealthy individuals. Just as economists claim the term does have a value judgement, and yet use two terms ONLY USEABLE in this language when making a value judgement; they are also guilty of refusing to admit that they created the notion as a way to indicate that they deem a policy "bad" without ever having a debate over whether the outcome is a desireable one to voters. It's no different than supply side economics and social darwinism. all are frauds perpetrated by people who claim to be interested in what's best for everyone, but in reality are only concerned with what's best for themselves.

[save_the_rustbelt]

When we tried to put some management controls on health care, aka "managed care" the political left had an absolute fit about this.

When we started to put limits on hospital stays the political left went psycho, UNTIL someone pointed out that hospitals are great places to get infections, then the furor quieted down.

I'm off to have my weekly donut - with maple icing. Yummm.

[Larry]

Professor Delong's encouragingly balanced presentation of the two sides in the debate left out an important claim of the side he opposes.

In the single payer systems we know of today, there is far less of the innovation in service delivery, technology, measurement (and payment structures!) than in our system. There is far less in our system than there would be if we complete the transition foreshadowed by experiments such as HSAs and Bush's (flawed) proposal to encourage the shift from employer-based insurance to individual choice. What drives innovation (just about always and just about everywhere) is competition, enabled by consumer choice.

Delong cites diabetes and other chronic problems as real issues for our system, and they are. However, the solution is to cure the problems, not to systematize today's poor excuse for treatment. That means support for research, but it also means encouragement for experimentation, not just within health care, but by individuals who do respond to incentives (and nannying) - witness the ongoing decline in smoking.

Health care is in the midst of its transition from the ineffectual hand-waving of the 19th century to a 21st century in which we will cure most of the remaining diseases (heart/circulatory disease is starting to fade, cancer deaths are starting to decline, etc.)

This is not the time to further bureaucratize a system already hamstrung by existing governmental and tortious obstacles. To argue otherwise is to claim that consumer choice in health care won't have the kinds of catalytic effects that it has had in every other market characterized by rapid technological/structural change.

[Bernard Yomtov]

Could we take a closer look at the moral hazard vs. adverse selection debate?

Moral hazard ==> there is some wasteful spending on health care: unnecesary treatments, etc.

Adverse selection ==> many people do not receive necessary care, or receive it at much higher cost than needed.

Doesn't look like a tough call to me.

[William Bennett]

Neither moral hazard nor adverse selections is "driving" the rise in health care costs. They are sources of inefficiency in delivery systems, and eliminating them would lower national health care expenditures (as a one-time effect, essentially), but it would not affect the underlying curve of demand for health care, which is driven by several factors, including

1 aging of the population
2. rising labor costs
3. availability of diagnostic methods and treatmens that have real value, are less risky than earlier approaches, thus can be used on more people, but are also expensive.

Most costs are incurred at the end of life.

Prevention won't solve the problem because all it will do is to postpone the age at which these costs are incurred. Only if prevention leads to an increase in the proportion of sudden deaths or short, utterly untreatable terminal illnesses, will it do much to reduce the national expenditure on health care.

Prevention may increase the national expenditure of end-of-life care if it keeps a lot of people going until they develop dementia, at which point the overall costs, including the lost productivity of their immediate families, may well increase substnatially.

Saving administrative costs would be a Good Thing, but not a simple one, and it won't deal with the reality that lives end in expensive ways and will continue to do so, unless our culture changes in significant ways so as to permit withholding of health care that would have value to the patient but is regarded as excessive for the available return. (This may be a form of "moral hazard," but it's actually that our prevailing ethics lead us to the position that health care with value should be given, even if it is expensive for the probable yield in improved quality of life or delayed death.)

[trotsky]

Regarding administrative costs and the 69-96 debate:

My company self-insures for actual medical costs but contracts with Blue Cross of Texas (I believe) for claims administration.

For the past several years, the split has run around 40 percent for provider payments and prescriptions vs. 60 percent to Blue Cross.

I find that simply unbelievable -- especially given that my employer takes cost-control seriously, and would happily jump to a rival insurer who could get us a better deal.

Does anyone have experience with this sort of set-up? And am I misunderstanding something?

[Cranky Observer]

> In the single payer systems we know of today,
> there is far less of the innovation in service
> delivery, technology, measurement (and payment
> structures!) than in our system.

I would like to see some serious references to solid studies that show there is no medical innovation in Germany (whose system would probably work best in the US) or France. Or the UK for that matter: the CAT scanner was invented in the UK in 1970, the height of National Heath. The AIDS test was co-developed in France, where there are many biotech firms (startups even!). French baby-birthing protocols (both standard and high-risk) are universally acknowledged as superior to those in the US by every /pregnant woman/ who has experienced both - and they are _less expensive_ to boot.

I just have a hard time imagining that the Germans, who historically have been a very innovative society, have just stopped dead on all medical research.

[Cranky Observer]

> Does anyone have experience with this sort
> of set-up? And am I misunderstanding something?

About 6 months ago the Wall Street Journal had an article about mid-sized companies that are bringing medical care in-house. They followed the case of one 5000 employee company in Wisconsin that built a clinic in the parking lot and staffed it with nurses, PAs, and a few doctors (primary care and one OB/GYN IIRC). Their total medical costs dropped drastically, even after they paid for the outside auditor to audit the operation and send a letter to all employees assuring them that privacy was being protected.

The problem this company ran into was that none of the local health plans, specialist practice, or hospitals would provide them any services. Again IIRC they had to get the Justice Dept involved to stop the freeze-out.

Cranky

[zinc]

Parkland Memorial Hospital in Dallas, Texas is a fairly famous institution and for a variety of reasons:

1. John F.Kennedy died there in 1963
2. Lee Harvey Oswald died there shortly after
3. Jack Ruby-who killed Lee Harvey Oswald, died there a few years later by coincidence

On the flip side, Parkland is also home to the second busiest maternity ward in the country with almost 16,000 new babies arriving each year.
(That's almost 44 per day---every day)

A recent patient survey indicated that 70 percent of the women who gave birth at Parkland in the first three months of 2006 were illegal immigrants! Crikey, that's 11,200 anchor babies born every year just in Dallas. According to the article, the hospital spent $70.7 million delivering 15,938 babies in 2004 but managed to end up with almost $8 million dollars in surplus funding. Medicaid kicked in $34.5 million, Dallas County taxpayers kicked in $31.3 million and the feds tossed in another $9.5 million.

The average patient in Parkland's maternity wards is 25 years old, married and giving birth to her second child. She is also an illegal immigrant. By law, pregnant women cannot be denied medical care based on their immigration status or ability to pay. OK, fine. That doesn't mean they should receive better care than everyday, middle-class American citizens. But at Parkland Hospital, they do.

Parkland Memorial Hospital has nine prenatal clinics. NINE. The Dallas Morning News article followed a Hispanic woman who was a patient at one of the clinics and pregnant with her third child---her previous two were also born at Parkland. Her first two deliveries were free and the Mexican native was grateful because it would have cost $200 to have them in Mexico. This time, the hospital wants her to pay $10 per visit and $100 for the delivery but she was unsure if she could come up with the money. Not that it matters, the hospital won't turn her away. (I wonder why they even bother asking at this point.)

How long has this been going on? What are the long-term effects? Well, another subject of the article was born at Parkland in 1986 shortly after her mother entered the U.S. illegally---now she is having her own child there as well. (That's right, she's technically a U.S. citizen.) These women receive free prenatal care including medication, nutrition, birthing classes and child care classes. They also get freebies such as car seats, bottles, diapers and formula. Most of these things are available to American citizens as well but only for low-income applicants and even then, the red tape involved is almost insurmountable.

Because these women are illegal immigrants they do not have to provide any sort of legitimate identification---no proof of income. An American citizen would have to provide a social security number which would reveal their annual income---an illegal immigrant need only claim to be poor and the hospital must take them at their word.

My husband is a pilot for the United States Navy (yes, he fought in Iraq) and while the health care is good, we Navy wives don't get any of these perks! Car seats? Diapers? Not so much. So my question is this: Does our public medical care system treat illegal immigrants better than American citizens? Yes it does! As I mentioned, the care I have received is perfectly adequate but it's bare bones, meat and potato medical care---not top of the line.

Their (the illegals) medical care is free---simply because they are illegal immigrants? Once again, there is no way to verify their income. Parkland Hospital offers indigent care to Dallas County residents who earn less than $40,000 per year. (They also have to prove that they did not refuse health coverage at their current job. Yeah, the 'free' care is not so easy for Americans.)

There are about 140 patients who received roughly $4 million dollars for un-reimbursed medical care. As it turns out, they did not qualify for free treatment because they resided outside of Dallas County. So the hospital is going to sue them! Illegals get it all free! But U.S. citizens who live outside of Dallas County get sued! How stupid is this?

As if that isn't annoying enough, the illegal immigrant patients are actually complaining about hospital staff not speaking Spanish. In this AP story, the author speaks with a woman who is upset that she had to translate comments from the hospital staff into Spanish for her husband. The doctor was trying to explain the situation to the family and the mother was forced to translate for her husband who only spoke Spanish.
This was apparently a great injustice to her.

"In an attempt to create a Spanish-speaking staff, Parkland Hospital is now providing incentives in the form of extra pay for applicants who speak Spanish. Additionally, medical students at the University of Texas Southwestern for which Parkland Hospital is the training facility will now have a Spanish language requirement added to their already jammed-packed curriculum. No other school in the country boasts such a ridiculous
multi-semester (multicultural) requirement.

In the meantime, I have to end my column here. I have to go buy a car seat.

(Ed: Sorry for the length, but this needs wide circulation----particularly to our "employees" in the Congress.)

Quote of the Day

"Once the coffers of the federal government are opened to the public*, there will be no shutting them again." -Grover Cleveland

POST SCRIPt FROM A U.S. CITIZEN.--- Many of us are now in the so called, "Donut hole" with our prescriptions. We paid our money to protect us in our later years, but our people in Washington have elected to give it to the illegal immigrants, How fair can that be.

[Dean Baker]

How expensive would medical care be if we didn't have to pay patent protected prices for drugs and medical devices? In addition, suppose that economists were as whiny about protection that sustains high salaries for doctors as they about protection that supports high wages for auto workers. We would encourage massive immigration of highly trained doctors from the developing world, and also encourage people in the United States to get their health care from a country that provides it a lower cost (which is everywhere at present)[http://www.cepr.net/index.php?option=com_content&task=view&id=132].

Frankly, I am afraid that Brad's grad student doesn't have the foggiest idea about what lifestyles will be like in 2050 (although I'm sure that he's quite bright). Let's focus on the real issues at hand and try not to be too scared about vague projections that we can try to address down the road, if it looks like they will come true.

[Roger Albin]

"In the single payer systems we know of today, there is far less of the innovation in service delivery, technology, measurement (and payment structures!)...What drives innovation (just about always and just about everywhere) is competition, enabled by consumer choice."

This is the voice of dogma, not data. The most innovative systems in the USA in terms of changing care delivery and measurement are large, single payer systems like the VA, which supports probably the most important health services and outcome research effort in the USA. In health care and biomedical research, what drives innovation ultimately is large scale state investment in research. Its relatively simple, we invest more than anyone else in biomedical research, either directly through Federal grant support or indirectly through state support of public universities, and we get more product. Indeed, by some measures, such as number of peer-reviewed publications per capita or per grant dollar spent, several European nations do a little better than we do (reference available on request).
Dogmatic application of free market panaceas is mainly a way to avoid thinking hard about a difficult problem.

[neutrino]

Dean Baker wrote:

How expensive would medical care be if we didn't have to pay patent protected prices for drugs and medical devices? In addition, suppose that economists were as whiny about protection that sustains high salaries for doctors as they about protection that supports high wages for auto workers. We would encourage massive immigration of highly trained doctors from the developing world, and also encourage people in the United States to get their health care from a country that provides it a lower cost (which is everywhere at present)

***

Hear! Hear! How about also the US and/ or States pay for Medical school
tuition expenses thereby not saddling young docs with large debts?
Sweden does this and my experience with the Swedish public health system
and its doctors was favorable.

neutrino

[hari]

This bolg is a great service to find ways and means of solving US healthcare/policy issues.
[I'm writing from Holland: 70yrs old & penisoned after +30yrs in globalization (trade policy), as a political economist from Sweden.

1. Brad you've actually identified the policy problem.

2. How to proceed? From my experience (with US govt)I'd suggest try to keep bean counters out of this policy framework. They're not the right people.

3.What you'd need to est. is a congressional committee with substantial authority to compare what(Scandinavians, Holland,Germany and France) have achieved with their concept of universal health insurance (mandatory here in NL!).

4. Right people to consult will be DGs of policy depts. Focus not on moral hazard or anything else. Rather seek to understand
policy framework as it actually functions. (Subsidy, in NL, is regulated by tax authority on monthly premiums we pay). Law requires universal coverage!

5. EU/DG/policy wonks must appear before US Committe and answer their q's on substantive policy issues.

6. As you know from your previous job, laws will then be easier to legislate with proper appendix and scales, etc.

PS. All the foreign comments (above)were to the point and may've resulted in blunting the moral hazard issue. Because in EU (my considered judgement)we shall eventually legislate universal coverage across entire region for new members.

[Doctor G.]

Dean asks: "Suppose that economists were as whiny about protection that sustains high salaries for doctors as they about protection that supports high wages for auto workers."

Then I suppose that most of our doctors, like most of my fellow engineers, would come from India. The last time I was hospitalized, in Kansas City, two of three MDs who treated me were Indian. And one of those wasted half his time arguing with my insurance company over whether I belonged there. And it still cost me a lot of money.

So I'm all for raising the wages for auto workers, and all for making health care more effective, but don't see that putting downward pressure on professional salaries is going to help.

[Doctor G.]

Reno, the point is that people born at Parkland, or anywhere in the U.S., are not just "technically" citizens. According to our Constitution they are citizens, period.

[Robert]

I am a self employed person: 52, overweight, high blood pressure for 20 years (high BP goes back to when I was fresh out of the Army and, immodestly, was a stud). Had to find new individual insurance bacause my old guarantee issue group policy was adversely selected into oblivion. Could not and I am now in a state sponsored high risk pool. Not bad in Nebraska, but not good. My immediate pain could be alleviated if I could buy into the state or federal government insurance plans.

[Bruce Wilder]

Adverse selection and moral hazard, at base, are the same thing, and both, or either, denote a tendency, which tends to erode the effectiveness and efficiency of a whole system.

The Right, in their policy proposals, are far better Whigs than the Left. The Right never have any difficulty coming up with policy proposals, which purport to address moral hazard problems, but which have the effect of intensifying adverse selection problems and, not incidentally, transferring wealth and income from the poor and life's losers to the very rich and very lucky.

The Left, by contrast, seem preoccupied in waiting for a Crisis to usher in Single Payer/NHS, as a deus-ex-machina cum Godot.

The Left could focus their efforts on policy proposals, which would undermine and erode the current system, "crisis" or no. That would be the Whiggish thing to do. Not waiting for George Bush (aka Herbert Hoover) to prepare the way for the second coming of FDR, by destroying everything.

Reinsurance by the Federal government could be introduced, to relieve the insurance companies of their chronic, high-cost patients, for example. Over time, Federal medical reinsurance could be incrementally expanded to eliminate the insurance industry in favor of single payer. Very whiggish!

Standardization of medical records, and the keeping of medical records by specially chartered organizations, looks like a technical and technological reform, which addresses an acute problem in the present, which also introduces an element tending very whiggishly toward a national health care system.

Expanding the allocation of money to medical education, and the number of new doctors graduated, would be a great benefit. Medical education slots have been controlled legislatively by Congress for over 40 years; and the AMA, for 40 years, has claimed to be for expansion while secretly lobbying for restriction for over 40 years; it is just a matter of liberals focusing a spotlight on the issue long enough to get a much higher number of MDs in the pipeline. (Of course, the neo-liberals would have to give up their process-obessive analytic focus long enough to recognize that a lot of what is wrong with medical practice in the U.S. is attributable to a shortage of doctors, but that's another problem.) Again, increasing the number of medical doctors in practice in the U.S. would have whiggish effects.

I am sure better informed people could come up with other proposals, which would have similar "whiggish" effects in driving the evolution of the medical care "system". I am equally sure that staring like a deer caught in the headlights at the reality that people get old and sick and die will not be helpful.

[John T. Kennedy]

"Our irresistible force is our belief that health care should not be rationed by price."

Let me get this straight, you thing a market amounts to rationing by price? That's what's going on down at WalMart, rationing?

[fatguy]

On a positive note: Just think how much worse things would be if fat smokers were attractive. Maybe the solution is to appeal to vanity.

[jwogdn]

If the question is how to reduce costs, much can be done short of single payer. Excessive licensing drives up cost. The gauntlet that doctors have to run to get licensed is an anachronism in this day and age. In some countries you go to the pharmacists to get prescription meds without a doctors input, call it self care. We should facilitate self care rather than discourage it.

BUT… if you must have single payer I have proposed a system where the government would provide insurance with a yearly deductible for a family of 4 of the family’s taxable income minus – $20,000 + $300. so if you make less than $20,000/year your deductible would be $300/year. If your family income is say $100,000/year your deductible would be $80,300/year. So the needy are provided for and the middle class and rich can by insurance for the gap.

[JonF]

Re: For the past several years, the split has run around 40 percent for provider payments and prescriptions vs. 60 percent to Blue Cross.

Are you sure your company is not also using Blue Cross for reinsurance? That is, for protection against claims that go over a pre-determined dollar amount per individual? I have never heard of a self-insurance plan that did not include reinsurance (else a single catastrophic illness or injury could bankrupt the company overnight), but the cost of the coverage is fairly high, and your 60% figure sounds like it includes this feature.

[Les Spero]

Best post on health care i've seen in a long time. The analysis in the post is spot on.
Why don't we segregate health care into two segments(the way it occurs in real life)--- the day to day healthcare check-ups, colds, flus, routine care segment and the catastrophic incident segment(heart attacks, cancer and pregnancies).
A single payer provides coverage for the catastrophic market. There is no adverse selection as everyone is covered. Administrative costs are low, doctors practice their profession and if we remove lawyers from the equation, the right processes and procedures are performed.
The routine care segment remains as it is, with the exception that healthcare is taxed the same way as groceries. I doubt that many employers would provide insurance for the routine care market in this circumstance but why should they. They don't provide food insurance, clothing insurance. Routine health care becomes like any other good. But catastrophes are covered by the single payer.

[John T. Kennedy]

"Our irresistible force is our belief that health care should not be rationed by price."

Should food be rationed by price?

[enfant terrible]

"Nanny state"?

Why don't you call it "patriotism"?

Or, to put it differently, why do we approve of the state indoctrinating its citizens that they should be willing to die (and kill others) for their country, and call that "patriotism", and at the same time disapprove of the state indoctrinating its citizens that they should take care of themselves - as they are more useful to the country if they are alive and healthy - and call this "paternalism" or "nanny state"?

Those are two faces of the same thing, and should be treated equally. If anything, in a modern, developed, democratic country, one is more likely to contribute to the society's welfare by living healthy than by dying heroically.

So please start calling the "nanny state" by its real name - "patriotism". Or vice versa.

[JonF]

Re: Should food be rationed by price?

Actually, food is. But the difference is that there is very low cost food which is perfectly adequete to human nutritional needs. One does not need to buy filet mignon and cavier to survive. With healthcare this is not the case. There is no low-price but effective healthcare. There is only filet-mignon or nothing.

[enfant terrible]

Barry: "I've never heard anybody say that American healthcare is not great, if you have excellent coverage, or the ability to pay large out-of-pocket costs."

That's hard to believe, because many people, including me, will say that American healthcare is very far from great. It is great only if you have a life-threatening condition or injury; I believe that no other country's healthcare system is better at saving lives. But for most conditions that are less than life threatening, American healthcare is not very good at all.