March 26, 2006
From the desk of Jane Galt:Healthcare, Part II
I know . . . I know . . . I've been lax. I'm helping my parents get ready to (sob!) sell their house, which is taking up a remarkable amount of my free time.
Anyway, back to health care. I hate sentences that start "the basic problem is . . .", but in health care, the problem is pretty basic, which is that we all want top of the line health care, regardless of cost, but we don't actually want to pay for it. Of course, we do pay for it . . . through tax dollars, foregone salary, and so forth . . . but that's largely invisible. When we're presented with the whacking great sums that it costs to provide that insurance, we screech in pain. Just ask anyone who's left a corporate job and had to buy their own health insurance.
Thus, the two relatively purist sides in the healthcare debate today--the single payer advocates and those who want to put the responsibility for purchasing healthcare back in the hands of consumers--promise that they can make health care cost much, much less. The single-payer advocates say that they can do this through the magic of administrative costs and using government negotiating power to batter suppliers; the "markets want to be free" people promise equally wondrous things from forcing consumers to actually shop around for their health care.
Is this true? Well, one should always be wary of anyone promising that there are no tradeoffs to be made.
Let's think about where the money actually goes:
* 30% of all healthcare expenditures occur in the last six months of life * 31% of expenditures are on hospital care * 9% of spending is on nursing homes * 22% of spending is on physician and clinical services * 10% of spending is on prescription drugs * 10% of spending is on dental/other professional care * 10% of spending is on medical equipment, supplies, and construction * 7% of spending is on administrative expenses
So how likely are either Health Savings Accounts, which encourage consumers to shop around because they're spending their own money, or single payer, to reduce any of these categories significantly?
Well, both would probably cut down on administrative costs: HSAs, because consumers decide what they want without battling insurance companies, and single payer because the government has economies of scale--and because the government doesn't argue when it tells you that the expensive procedure you want isn't covered, and you can't sue. But we spend about 15% of GDP on healthcare; if we could cut administrative costs in half, that would slash our bill to--14.5% of GDP. If we also used our negotiating power--either as a government, or as motivated consumers--to batter down the cost of prescription drugs by 40% (about what single payer systems in most developed countries pay), we could get that down to 13.6% of GDP. That's not chicken feed--in a $12 trillion economy, 1.4% savings means $168,000,000,000 a year, or about $560 for every man, woman and child in the country. But it's not exactly what people are imagining when advocates from either side wax lyrical about the fantastic savings to be had by implementing their plans.
So where are the savings to come from? The remaining categories are (roughly) wages and salaries for medical workers, medical equipment, medical supplies, lab tests, surgical procedures and other non-pharmaceutical treatments, and nursing home care.
In theory, either HSAs or single payer could cut down on many of these expenses. In practice, colour me unconvinced.
* There is already a great shortage of health care workers, particularly skilled workers like nurses; it's hard to see how either the government or the consumer could force those down without substantially worsening care (which both sides say they do not want). We are the only country in the world which is not currently whinging about our doctor shortage; that's because they all come here for the higher salaries and superior work conditions. Slash their salaries, and watch them go home . . . and watch your bright young scientifically minded college graduates look for another career. We'd still get about as many doctors graduating from US medical schools as we do now, but quality would fall somewhat (although it could possibly be argued that the single metric upon which doctors are selected--academic ability--is not entirely the most important quality a doctor should have). But if we lost the foreign doctors, we'd have a net doctor shortage here too.* Who wants less medical equipment? Show of hands . . . okay, who besides the Christian Scientists? Anyone? Anyone?
* Perhaps HSAs or single-payer will cut down on the amount of medical supplies used . . . but it seems to me unlikely that there are fantastic savings on surgical gloves and gauze bandages to be had. If there are savings in this area, I would expect them to have been mostly found already by the private hospitals which can improve their bottom line by economizing on supplies.
* Nursing home care certainly won't be made cheaper by single payer, since most of it is already paid for by the government. It might be improved by HSA's . . . but not for years and years, as it would take decades for anyone to accumulate enough in an HSA to fund a lengthy stay in a nursing home.
In other words, in my opinion there are few significant, positive savings to be had from improvements in these areas. The bulk of any savings realized by either a single-payer system or HSAs will come from reducing the number of tests and treatments people have. Yes, let us say the dreaded word: rationing.
Advocates from both sides say that they have a way around this. HSA afficionadoes argue that people will just get the tests and procedures they really need. Problem: the bulk of America's healthcare dollars are spent on people who are really, really sick. And when you are really, really sick, your price elasticity of demand for something that might cure you is damn close to zero. There are very few good substitutes for chemotherapy, no matter what they say on late-night television commercials. That means that any rationing is likely to be done, not by consumers carefully analyzing costs vs. benefits, but by the limits of one's checking account. And the reason we're having all these debates about healthcare in the first place is that outside of the Cato Institute, very few Americans are comfortable with the idea that someone could die because they aren't rich enough to afford treatment.
Single payer advocates, who care more than most about getting that treatment to everyone in America, say that they will avoid having to ration needed care by the magic of preventive care. There are several problems with this. The first is that most of that preventive care hinges on active participation of the patient. Diabetics have to lose weight, excercise, carefully monitor their blood sugar by pricking their fingers multiple times a day, and eat a decidedly unappetizing diet. Heart-disease/hypertension patients have to excercise, quit smoking, lose weight, cut fat and salt out of their diets, get frequent blood tests, take pill regimens, and so forth. Asthmatics (as my health care company keeps thoughtfully remind me) need to aggressively monitor their peak flows, follow a tiresome inhaler/pill regimen that can have horrible side effects, clean their houses with the fervor of Martha Stewart on uncut crystal meth, and avoid triggers that include cigarette smoke, car exhaust, spicy food, alchohol, excercise, cold air, hot air, pollen, and dust. You can imagine what a hopping social life the conscientious young asthmatic enjoys.
Poor people, who in our society tend to be both uneducated and light on coping skills, are much less likely to follow these regimens even with good healthcare. Given how poor the track record of middle-class patients is on adopting these regimes, the marginal improvement in outcomes is unlikely to save money.
Another problem is that comprehensive health insurance is no guarantee of good care, as this study from the New England Journal of Medicine points out. The variation in level of care between those who were privately insured, those who were insured by the government (Medicare and Medicaid), and those who had no health insurance at all was trivial. That's right, having health insurance didn't seem to make any difference, as long as you visited the doctor at least once every few years. And yet America is generally the leader in treating those diseases, at least according to McKinsey.
But even if we could get people better preventative care, it's unclear that this would provide cost savings. (It might produce marvelous improvements in quality of life--but we're discussing cost here.) As I understand it, diabetes management only slows the progression of the disease; it doesn't stop it. In today's lower interest rate environment, the cost savings from delaying expensive treatments are probably not worth calculating. But even more to the point, many of the things we can treat are cheap ways to die; a single massive myocardial infarction is probably a lot less expensive than thirty years of hypertension drugs. And people who tout asthma prevention and so forth as a way to avoid expensive emergency room visits are confusing price with cost. A trip to the doctor every two months to get your breathing checked and hear him harangue you about your inhalers consumes, if anything, more medical resources than an annual visit to the emergency room. But emergency room visits are priced to subsidize expensive trauma cases and indigent patients; your monthly checkups are not.
Moreover, even if you prevent an expensive course of treatment for one disease, you thereby make it more likely that the patient will die of something even more expensive. People who don't have heart attacks or strokes get cancer, Alzheimers, or congestive heart failure. This is not an argument for not providing comprehensive health coverage to all US citizens; it is an argument that doing so will not be cheap.
What if we bite the bullet and say that we're going to ration, bully our suppliers, and trim back our expenditures on medical equipment in order to eke out enough savings to cover every American? I don't think we can do it. For why, see my next post.
Posted by Jane Galt at March 26, 2006 03:31 PM | TrackBack | Technorati inbound linksWhy not just let everyone who wants socialized health care have it and let everyone who doesn't want it opt out?
Posted by: JohnJ on March 26, 2006 09:57 PMUh, because all of the rich people necessary to subsidize the poor would opt out?
Posted by: Dylan on March 26, 2006 10:24 PMhow about attacking why we are so sick? or have we just been that ill as we age and we are just now able to take care of it? i have to believe that the rise of obesity is not a positive thing and will tax the health care system, but where is the incentive for people to not be fat?
or does the "health" industry as it stands, which is really more about treating the sick that keeping you healthy, fine with the fact that people are generally sick (with longer term degenerative diseases, like diabetes) since it guarantees that they have a source of profit?
my take is that the rising costs of health care are just a signal of other things that are wrong.. people need to eat healthier, and not live in a toxic environment. then their usage of medical services will fall.
Posted by: peter royal on March 26, 2006 11:15 PMSo some people should be allowed to take money that's not theirs from other people?
Sure, health care would be easier if people were healthier. Should there be laws that force people to live in a way that the government decides is healthy?
The cost of medical care is much higher than it needs be simply because it is a "legal monopoly" (same is true of the legal profession). Like any group enjoying monopolistic power, prices are far much higher than they would be under true free market conditions. Much as you pay far more for your cable TV service simply because the company can legally "bribe" local governments to preserve the monopoly (called a "franchise fee") and then pass the cost of the bribe on to the consumers of the service. Replacing the system of licensing of medical professionals with "certification" would solve at least part of the problem. Then getting to the hospital system, why do all hospitals have to have the latest and best equipment? Duplication of service? Doubling of cost? For many people the medical technology available in a skilled care nursing home (oxygen, IV, X-rays), what hospitals had back in 1947 when my mother was in one at $10 a day, would be quite adequate. Others might need 1979 level technology, as I had when it was my turn. Not everyone needs the latest "rocket science" level!
As for the "shortage of nurses", this is another "created" situation. In the past hospitals did just fine with many more nurses aids, LPN's, and much fewer RNs. At far lower cost! But "government" stepped into the picture (along with competition between hospitals) to "upgrade" things. (and raise the cost) So when we complain about the cost of care, remember that medicine is a monopoly enforced by the government. If it was not a monopoly, if there were no prescription laws, if medical knowledge was widespread enough, more people would be able to prescribe for themselves without needing a doctor's script. All in all, I believe we could reduce the cost of care, the percentage of GNP spent upon care, most likely from 15% on down to
levels more akin to what is spent in countries that have "single payer" medicine. And finally, if we believe in free trade, why can't Americans buy their medicine (like their cars, TV sets, etc) from the lowest bidder? Or do we have certain "industries" here in the US that are "protected" by the government from "competition"? Of course it will be said that these drug companies have to be given favorable treatment so they'll invent the latest drug (while spending more on ads than research).
If we won't grant the US auto industry "protection", why the drug industry?
That's enough rant for one night...
Posted by: Jerome Bigge on March 27, 2006 02:02 AMOther countries have lower health care costs at comparable quality. The US running up the curve of diminishing gain cannot explain everything. Life style choices are involved. Raising taxes on tobacco and alcohol combined with a federal gas tax should help somewhat. Maybe even taxes oh high calory foods.
Posted by: Oliver on March 27, 2006 02:36 AMThe real crux of the problem is hidden in this sentence:
"And the reason we're having all these debates about healthcare in the first place is that outside of the Cato Institute, very few Americans are comfortable with the idea that someone could die because they aren't rich enough to afford treatment."
It's true, but, as hard hearted as it sounds, it should not be true.
Once upon a time, it didn't matter that it was true. If someone got sick, there wasn't anything anyone could do except keep them comfortable until they died.
Now there's *always* something that can be tried. The problem is now different. As a person ages, the expense for the procedures needed goes up, while the "return" (years of life extended) goes down.
As long as someone else is paying, this cost-benefit is not being taken into account, exactly for the reason mentioned in the sentence I quoted. But that also means that, as long as someone else is paying, we'll *never* solve our healthcare cost problems. Any trimming we do anywhere else will be more than eaten up trying to climb that tradeoff (expensive procedures vs. small expected life extension) just a wee bit more.
I do not believe this problem will be solved short of a cultural shift. And shifting the cost burden onto the patient/family is, I believe, one essential component of that.
I would not wish to bankrupt my family for a few extra weeks of painful life, and I presume most reasonable people (not just those at Cato) feel the same way. Right now, no one has to make such a choice. But if that choice becomes necessary, then the same logic you used, Jane, to show that we can't save much money in other parts of the system gets turned on its head and allows us to save a lot of money.
We would all like to believe that life is absolute, and that only a cruel, heartless, vicious person would advocate withholding care for any reason at any stage of life. That attitude is the gateway to backruptcy, because it has no limits or feedback mechanism to prevent us from attempting to spend infinite amounts of money.
Posted by: Billy Hollis on March 27, 2006 01:17 PMIf there are savings in this area, I would expect them to have been mostly found already by the private hospitals which can improve their bottom line by economizing on supplies.
This may or may not be true. The second-hand stories I get from my elderly relations suggest that doctors are increasingly prescribing entire batteries of redundant tests, sometimes with multiple specialists, where a physician's diagnosis and one or two confirming tests formerly would suffice. Reason? Because sooner or later some patient (or family relation thereof) will determine that a doctor's failure to prescribe unlikely test "X" is a high-odds lotto ticket to a wealthier lifestyle.
Get the tort lawyers out of this and legally force all medical malpractice cases (save, perhaps, for the freak events like amputating the wrong limb) to capped, government-regulated binding arbitration...and let's see which direction costs in a variety of those categories go.
Posted by: anony-mouse on March 27, 2006 03:24 PMIt has occured to me recently that if I knew that a bypass 10 years down the line was going to cost me $75,000 or so, I might have an easier time losing the 50 lbs. that I need to lose.
Posted by: Eric J on March 27, 2006 04:12 PMJane,
You are making a very fundamental error. When you look at a system as zero sum and seek savings, you naturally ask questions like 'do we cut salaries, pressure suppliers, etc'. The truth though is that in most business that operate in healthy markets, that's not where you get savings. You get savings through ephimerilization, learning to produce more with less effort.
You whole point about health care rationing reaks of having completely forgotten what makes almost EVERY OTHER INDUSTRY work. It's like you are sayign we can't provide food for everyone because you just can't cut the salary of people wielding scythes below a certain point. Or saying you can only squeeze the providers of oxen so much before they stop breeding new oxen to pull the plows.
Posted by: quadrupole on March 27, 2006 08:46 PMWhere savings might be achieved is thru increased productivity. In that sense it isn't the HSO that has the real hope but the old HMO. In theory the HMO was supposed to use its powers of data collection and collective knowledge to act as a type of super-informed consumer.
Take a recent example. My gf had a minor urinary tract infection. The doctor prescribed Levaquin, a potent brand name anti-biotic. Well it didn't work very well and the pharmacist told her that Levaquin does not really work very well for urinary tract infections.
Why did he prescribe it? Probably because some drug rep showered him with gifts and marketing material. The drug costs nearly $100 per bottle yet a $10 generic antibiotic would have been perfect.
Now in the HSA world MAYBE the consumer would have done their own independent research on the drug and asked the doctor to opt for the better and cheaper version. Of course in conducting this research the consumer is just as likely to encounter marketing materials as the doctor is.
In the HMO model, when things go the way they are supposed to go, the HMO notices that the expensive drug does not treat that type of infection very well. They respond by educating and pushing their doctors to use the more effective treatment. Instead of two visits and a wasted prescription the infection is resolved in a single visit. At least a doubling in productivity. The HMO, of course, increases its profits by not having to pay for a wasted visit and the unnecessary (but expensive) prescription.
Whenever this topic comes up a lot of HSA minded people seem to think the root of the problem is $10-co-pays that HMOs and other insurance companies charge consumers for doctors visits.
Posted by: Boonton on March 28, 2006 10:23 AM As the mechanic's shop sign says, "I can do it fast, cheap, well, or any two of those three". As a physician of 30+ years experience, I read the above posts and acknowledge the (partial) truths of many of them.
There are indeed efficiencies of scale--e.g., negotiated drug prices by larger payors. Manpower efficiencies can and do occur by using the lowest-cost qualified person (CNA, MA, nurse-practitioner).
Some of the above posts seem off-the-mark: opening up the state regulatory power to allow self-prescribing makes little sense, when one considers the emerging antibiotic resistance patterns just from physician over-prescribing; the ever-growing availability of former legend drugs (Prilosec, Claritin, Ibuprofen)does allow for more self-treatment than a generation ago; when one considers the complexity of human biology, human disease, and human variation, and then looks at the error rate of educated and sincere physicians, it seems unlikely that the average web-surfer's self-diagnosis and self-treatment of all but the simpler diseases would be more effective---tried working on your own car lately?
And lastly, my experience has been that even the hardest-nosed "consumer", when faced with the serious illness of a family member, always implores the physician to spare no expense in the care of HIS loved-one.
Jane is right--in the provision of kind and humane care, within a system of great complexity, there are no easy answers for one who wants it done fast (no rationing), cheap (price controls never work), and well (only the best for Grandma).
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