“A Republican Health Care Fix” is a misleadingly titled yet still interesting article in the New York Times. (Misleading because, of course, the Republicans aren’t proposing to “fix” health care except maybe from the perspective of the health care industry, which will appreciate the continued flow of taxpayer cash, and also because the article itself doesn’t offer any proposed solution.)
One argument in favor of food stamps is that the government has a lot of programs that distort the market and drive up the cost of food. Having done this, it makes sense to provide food stamps (SNAP) to tens of millions of Americans so that their net food expenses return closer to what it would be if they could buy food at world market prices.
Health care is in kind of the same situation, J.D. Vance points out (thanks, Brian, for reminding me that I made the same point in March 2017). Government drives up the cost of health care and now tens of millions of Americans can’t afford the new distorted prices. Vance highlights things like FDA regulation keeping generic drugs costing 10-100X the world prices and the employer health care tax deduction distortion to the economy, but I think he misses parts of the bigger picture. For example, the Feds generate huge inflation by running Medicare and Medicaid on a “just send us the bill” basis. The Feds and states restrict competition with all kinds of licensing requirements for both insurance companies and doctors (e.g., a qualified doctor from New York can’t simply start practicing in Nebraska next week and a New Yorker can’t buy insurance that is offered to consumers in Nebraska).
Vance:
The “full repeal” bill is nothing of the sort — it preserves the regulatory structure of Obamacare, but withdraws its supports for the poor. The House version of replacement would transfer many from Medicaid to the private market, but it doesn’t ensure that those transferred can meaningfully purchase care in that market. … devising that vision [to fix some of the biggest disasters in U.S. health care] is impossible when we refuse to accept that the government bears some financial responsibility in solving a problem it helped create.
“… I think he misses parts of the bigger picture. For example, the Feds generate huge inflation by running Medicare and Medicaid on a ‘just send us the bill’ basis.”
Really? I thought it’s the other way around – surprisingly, private insurance companies do a worse job of controlling costs. Because the federal government pays less than private insurance companies, there’s doctors who refuse to accept Medicare and Medicaid patients.
Joseph Heath, The Efficient Society (1997):
Russil: Even if we accept that government isn’t paying as much for a particular procedure (assuming that providers can’t come up with clever ways to re-code stuff), putting more than $1 trillion per year (via Medicare and Medicaid) into an industry would raise prices under an Econ 101 model of the world, no? If not for the government paying, aren’t there are a lot of people who would either (a) decide not to get a procedure, or (b) decide to fly to a low-cost country in which to have the procedure?
I would suggest that the major and largely un-discussed problem is that the medical industry are allowed to conduct fraud and engage in anti-consumer behaviour on a breathtaking scale that is black-letter illegal.
For example, what people have taken to euphemistically calling “drive-by doctoring” (https://www.nytimes.com/2014/09/21/us/drive-by-doctoring-surprise-medical-bills.html) — i.e. charging for services that were never consented to, and arguably never performed — is simply fraud, for which we require no new laws. (I notice that the word “fraud” appears not once in that NYT article; this is part of the problem.) But do we take away their licences to practice medicine and/or throw these doctors in prison?
Of course drive-by doctoring couldn’t even happen if we enforced any kind of price transparency and consent. In what other industry are you allowed to perform the “service” first, and only discover the price after? A $1,000 car repair requires a binding estimate before work can proceed in probably all 50 states, but a $100,000 surgical procedure is a “we have to cut you open so we can find out how much it costs” situation?
Antitrust law dating back more than 100 years requires that you can’t charge customers different prices based on how they pay. The police chief’s gold-plated health insurance negotiates one rate for him/them; if you walk in off the street uninsured, they’ll soak you for 10x the price. Any hospital administrators under indictment?
Those same laws also prohibit “bundling” of the form that occurs in hospitals daily. The only reason that a hospital can charge $20 for an ordinary aspirin is by preventing you getting in-patient medication from any other source.
Speaking of drugs, Vance may or may not be onto something when it comes to the FDA’s role in keeping drugs expensive, but I think it misses the larger point. The price of many drugs, even drugs created under FDA’s strictures, often retail overseas for a small fraction of their US price. When a drug retailing for $50,000 in the US can be acquired for $1,000 in Europe, why isn’t every tourist filling their suitcase to the brim? Because Congress, in its infinite wisdom, has outlawed arbitrage.
That’s before you talk about medical school cartels that limit physician supply; Certificate of Need laws that prevent the creation of new competitive businesses; the fact that it makes no sense to either sell or buy “insurance” for routine events that are guaranteed to happen (e.g. preventative care); and on and on.
The whole industry is lawless from top to bottom. Hearing someone describe the US medical system as a failure of the free market is a helpful signal that I can stop listening.
“If not for the government paying, aren’t there are a lot of people who would either (a) decide not to get a procedure, or (b) decide to fly to a low-cost country in which to have the procedure?”
The same is true for private insurance companies. It looks like their contribution to the problem of high prices is even greater.
Why have health insurance at all? Why not just pay for health care through fee-for-service? Joseph Heath explains the problem: How much should you save for future health-care expenses?
In Canada, one of the main justifications for universal health insurance has nothing at all to do with redistribution (which I see a lot of in the US discussion, with people talking about how they wouldn’t be able to afford medical care without Obamacare). It’s the massive efficiency gains that we get from risk-pooling.
Russil: “The same is true for private insurance companies. It looks like their contribution to the problem of high prices is even greater.”
I have always found this point very confusing. How can private insurance providers possibly be efficient when they’re legally obligated to conduct and inefficient business by being forced to be essentially non discriminating in their investment. As offensive as it is to the bleeding hearts among us, the health care costs of people who exercise and eat healthy are very different from smokers/drinkers/diabetics.
I strongly suspect that insurance companies would suddenly become worlds more efficient if there was a separate health plan for people who can run a 5 minute mile and have a resting heartrate of 50 bp.
The insurance companies have a motivation to keep costs high. In most cases, the customers don’t have much choice in howto get coverage, and regulation limits the ability to make choices (for insurance), and regulators think acceptable profit is a small percentage of the revenue.
What’s better, 5% of a $1000 MRI, or 5% of a $200 Xray?
What’s better, 5% of a $600/pair epi pen, or 5% of a $0.5 syringe, plus a $1 single dose vial of epinephrine?
Dingus: “How can private insurance providers possibly be efficient when they’re legally obligated to conduct an inefficient business by being forced to be essentially non discriminating in their investment.”
The quote about private insurance companies paying an average of $885 for a colonoscopy, while the federal government pays $495 (and Canadian provincial governments pay $150), is from 1997. That’s prior to Obamacare and the community-rating requirement, which removed the ability of the insurance companies to discriminate based on pre-existing conditions.
I agree that adverse selection is a big problem – if people know they can get insurance when they get sick, why wouldn’t they just go without until they need it? This is the reason for the Obamacare individual mandate.
Is the government responsible for Baumol’s Cost Disease?
Is the government responsible for extreme concentration of wealth?
The bulk of the problem is a lot simpler than you, Vance, and most others in the public square make it out to be.
>The Feds and states restrict
>competition with all kinds of licensing
>requirements for both insurance
>companies and doctors
It is worth noting that these regulations, problematic as they may be, address potential sources of market failure understood to any Econ 101 student (e.g. asymmetry of information and non-excludability).
>putting more than $1 trillion
>per year (via Medicare and Medicaid)
>into an industry would raise prices
>under an Econ 101 model of
>the world, no?
Yes, but it also alleviates a great deal of human suffering by enabling many people to obtain needed care they otherwise could not afford.
>The insurance companies have a motivation to keep costs high.
This important point does not receive the attention it deserves in.
eas: I wrote http://philip.greenspun.com/blog/2017/07/25/baumols-cost-disease-can-explain-u-s-health-care-costs/ in response to your Baumol’s Cost Disease theory.
Neal: Putting more than $1 trillion per year into mostly unnecessary tests and procedures “alleviates a great deal of human suffering”? Why isn’t this the cause of human suffering? People have to work 5 days per week instead of 4 days per week to pay for this system that consumes nearly 20% of GDP. So they’re suffering an enormous and certain loss of leisure time with family and friends (also time that they could be spending knitting pussy hats and #ResistingTrump, which my Facebook friends inform me is more important than working at their tenured faculty jobs).
Alternatively, if people wanted to keep working the hours that they do instead of converting some of their health care waste to leisure time, they could enjoy exotic vacation trips, host family reunions at beach houses, learn to fly helicopters (I think everyone should!), etc. (See the list of stuff we could have as an alternative in http://philip.greenspun.com/politics/health-care-reform )
@philg: There is certainly a lot of waste and iatrogenic human suffering in the US healthcare system, but you will need to work harder to convince me that means individuals are better of without access to modern health care.
Neal: I think you’ve given us the perfect example of American thinking. A person who says “Maybe we shouldn’t spend 20 percent of GDP on health care” will be cutting off “access to modern health care.”
(By this reasoning, people in Singapore, for example, where less than 5 percent of GDP is spent on health care, have no modern health care. Nor does anyone in France or Switzerland.)
If we define “modern health care” as being declared disabled and then getting a lifetime supply of taxpayer-funded opiates, you are certainly correct. (see http://philip.greenspun.com/blog/2016/12/21/who-funded-americas-opiate-epidemic-you-did/ )
>I think you’ve given us the perfect example
>of American thinking. A person who says
>“Maybe we shouldn’t spend 20 percent of
>GDP on health care” will be cutting off “
>access to modern health care.”
I don’t think I said this. My point was that while it may contribute to medical inflation, existing government health care spending also enables many people to obtain care they otherwise would not be able to obtain within the existing system.
The government’s only sources of money are taxes and borrowing, right? So if the government didn’t spend this money on health care, that money would then be available to return to citizens, no? At that point, couldn’t they choose to spend it on health care? (if they were smart, maybe they would shop around both domestically and internationally!) And if they chose to spend it on something else, wouldn’t that tell us that they were buying something that had more value to them? In that case, wouldn’t the government forcing them to spend on health care rather than something that they preferred, wouldn’t that be increasing human suffering?
@philg: For many individuals, the money thus returned would not be sufficient to pay for the care they need (even with reduced medical inflation) and those individuals would be forced to do without care regardless of how much they (or society) valued said care.
>if they were smart, maybe they would
>shop around both domestically
>and internationally!
Most health care spending occurs when individuals are particularly vulnerable and stressed. Expecting cancer patients to save us by comparison shopping is not a realistic approach to reducing our ridiculous heathcare costs.
Neal: “For many individuals, the money thus returned would not be sufficient to pay for the care they need”. So the government inherently pays less for medical services? I don’t understand how a cash surplus is somehow generated by sending tax dollars to Washington and then having centrally managed bureaucrats pay health care bills. If this works, why don’t we make ourselves richer by having the government also purchase our food, housing, cars, and other necessary items?
Separately, why wouldn’t cancer patients do comparison shopping? Cancer is not an emergency. Cancer patients do not usually have impaired cognitive function. I know plenty of cancer patients who have traveled for care (because they had insurance or Medicare they were indifferent to the cost and traveled for other reasons, such as to be with an adult child during the treatment or to go to a facility that they believed to be better than one in their area). Why wouldn’t a cancer patient travel to save $200,000 and leave that money available for future spending by the patient or family members?
Here’s something fun… from the same newspaper, less than two weeks apart:
http://www.dailymail.co.uk/health/article-4695744/Do-statins-harm-good.html
Statins have ‘no consistent evidence’ of improving heart attack patients’ survival, researchers from around the world conclude. Taking a daily statin for five years after a heart attack extends your life by just four days, new research reveals.
then
http://www.dailymail.co.uk/news/article-4726926/Patients-stop-taking-statins-risking-lives.html
Patients who stop taking statins because of the side effects are risking their lives, warns a study. Around six million Britons take the drugs every day to reduce cholesterol and lower their risk of heart disease. Statins have been proven to slash the chance of repeat strokes or heart attacks and are believed to save up to 7,000 lives a year in the UK.
>So the government inherently pays less for medical services?
No. reducing an individual’s tax bill by $500 will not be of much help to them if they then need to come up with $50,000 to pay for care that the government would have otherwise paid for. For many Americans, this would force them to do without the care.
>So the government inherently pays less for medical services?
>No.
I should have said, this isn’t germane to the point I was making. According to Russil (and so far not contested in this thread), the government does inherently pay less for medical services.
So you’re worried about catastrophic medical expenses? Could we invent some kind of private financial scheme in which individuals pool their risk against such events? Each person would pay into a fund annually and then, if he or she suffered a catastrophic and rare event, the fund would pay for the consequences of that event?
If such a product existed, wouldn’t people be able to use the money they would have given to the government to invest in such funds?
[If your argument is that some people are too poor, there could be an unrelated-to-health-care scheme to hand out cash to poor people who would then no longer be poor. Also, if your argument is that this is all about catastrophic expenses, why do Medicaid and Medicare get involved in every medical care purchase, no matter how minor or predictable?]
Even if you love welfare and using the government’s power of taxation to take money from working Americans and give it to those who don’t work, why is it obvious that the “redistribution” has to be in the form of services (health care, e.g.) rather than cash that the recipient can spend in a way that maximizes his or her happiness?
Government health care spending is focussed on those parts of the US population who were (before the programs) typically ineligible for the kind of private financial schemes you refer to. If you want to somehow extend these schemes to cover most of the population, congratulations, you’ve just proposed Obamacare.
I never claimed that existing health care spending programs were the best, or even a particularly good way of going about anything. My claim was merely that in addition to contributing to health care inflation (by increasing demand), these programs are the means by which many Americans obtain care they would otherwise not be able to afford within the context of the existing system.
>why do Medicaid and Medicare
>get involved in every medical care
>purchase, no matter how minor
>or predictable
Minor and predictable services represent a small fraction of health care spending and are not a major driver of cost increases for the overall system. Plus, whoever covers the catastrophic risk has an incentive to reduce barriers to accessing minor and predictable services because they can reduce the frequency and cost of catastrophic claims.
philg above: “Could we invent some kind of private financial scheme in which individuals pool their risk against such events? Each person would pay into a fund annually and then, if he or she suffered a catastrophic and rare event, the fund would pay for the consequences of that event?” – sounds a lot like insurance. The problem I see is we have let the prices run away so that not enough “individuals” have or will commit the funds to the pool. By definition, if healthcare is 20% of top line, it is even more for people below the average income. They simply cannot afford it.
phik is onto a big part of the problem too. Healthcare has carved out its own legal and financial system that a drug cartel would envy. It appears our economy will stagger around with this parasite on its back until there is nothing left to suck out.
Health care is a middle class and upper middle class jobs program so the middle class can continue to have children after marriage rather than before and as a tolerable workfare for single mothers. See also education.
There’s tons of jobs that aren’t doctor/nurse in healthcare, nor even administrative, but which provide the kinds of incomes that have led married households with children to have median incomes around 100k/yr for quite a while, even after adjusting for inflation. There’s your cost increases.
the other Donald: “we have let the prices run away so that not enough … if healthcare is 20% of top line, it is even more for people below the average income. They simply cannot afford it.”
Can’t we say the same about Bentley automobiles? The prices on those puppies have “run away” and they are beyond the reach of the average American. If we paid more money in taxes and had the U.S. government buy us the Bentleys that we need, would they suddenly become affordable in the aggregate?
“knitting pussy hats and #ResistingTrump, which my Facebook friends inform me is more important than working at their tenured faculty jobs”
In their defense, they are probably right.
The government’s only sources of money are taxes and borrowing, right? So if the government didn’t spend this money on health care, that money would then be available to return to citizens, no? At that point, couldn’t they choose to spend it on health care?
You forgot Mitt Romney’s (two degrees from Harvard and really rich!) observation that nearly half the population doesn’t pay income tax.