The Grand Illusion
The other day several friends and I were having a discussion about a number of things, and the issue of health insurance came up. One friend said that one of the problems with the Affordable Care Act was that it made people pay for coverages they didn’t need. And he’s absolutely right… and totally wrong.
The entire point of insurance is to spread the risk among a large number of people and over time. If people were allowed to buy insurance only after they needed it, then there wouldn’t be any insurance, because the insurers would be broke. For better or worse, that was the reason why insurers refused to cover “pre-existing conditions,” or would only do so with a far higher premium, unless the insured had already been covered by the same insurer prior to the discovery of that condition [and some insurers wouldn’t even do that], which often tied people to a given job or resulted in huge problems when they were laid off or had to switch jobs because an employer went out of business. No matter what one thinks about the Affordable Care Act, it is a plan based, if less than optimally, on commercial insurance, and that means that the costs of health care have to be covered by premiums. Those premiums also cover the high salaries and profits of the insurance companies, and the trade-off between the ACA and a single-payer, government-backed system is whether the “efficiencies” [about which I have certain doubts] of the private sector outweigh the costs of a profit-making enterprise enough to make the cost to the insured lower than would be the case in a government-backed single-payer system.
The second problem of understanding is simply that the principal problem underlying the insurance costs is and will continue to be the rising cost of health care in the United States. So long as those costs rise, so will the costs to anyone who is insured, and if there are large numbers of uninsured people who need health care, those costs will be added to the costs of the insured, either through higher premiums and/or greater co-pays because, at present, the vast majority of hospitals are required to treat people who need care, whether or not those individuals can afford it or not.
The third problem is that no country in the world, even the United States, has the resources to provide the ultimate in high-tech health care to every single individual in the country. There isn’t enough funding, enough medical personnel, and enough equipment to do that. So, like it or not, health care is effectively rationed. The “traditional” way of doing that in the United States has been through the market system. If you have enough insurance and money, and enough intelligence to deploy the insurance and money effectively, you can generally get the best health care. If you don’t, you get less, and in some cases, you effectively get nothing. In countries with government-mandated systems, most people get coverage for what the system determines is “equitable” for everyone, although, in some of those countries, if you have great resources, again, you can get better care.
All the political rhetoric about health insurance boils down to how society will pay for the rising health care costs of those who either cannot afford it or choose not to afford it, and how this impacts each person. In our extended family, my wife and I have ended up paying more and more out of pocket every year as the insurance costs, deductibles, and co-pays go up, but we have relatives who work long hours who now have better coverage for less.
But there isn’t a “magic” answer. Health care costs. It’s that simple, and all the political rhetoric in the world won’t change that. That political rhetoric is merely “code” for saying who should pay more.
Bravo! This is as cogent an analysis of the U.S. healthcare issue as I’ve seen. The only other factor rising healthcare costs (which you’ve already covered in previous columns) is the litigious nature of American society which drives doctors to perform needless tests and procedures in an attempt to inoculate themselves from malpractice lawsuits.
>the litigious nature of American society which drives doctors to perform needless tests and procedures in an attempt to inoculate themselves from malpractice lawsuits
How about we source these assertions.
>The second problem of understanding is simply that the principal problem underlying the insurance costs is and will continue to be the rising cost of health care in the United States.
So this is tricky because, practically, there isn’t an objective “cost” of healthcare. What an individual or insurance company pays is completely divorced from actual costs and pricing is not transparent. Healthcare pricing is driven by, sometimes directly and explicitly, insurance companies and medicare/medicaid. Healthcare pricing isn’t static across insurance companies, individual payers, and medicare/medicaid: you won’t pay the same amount for the same procedure.
Interestingly, pricing rates are typically considered privileged or confidential information. I think I recall that insurance companies contractually require that providers keep this information confidential, but I’m not sure enough to state it as a fact.
So, coming back to the original point, are ACTUAL healthcare costs rising?
They’re rising; how much and in what areas is another question. Also, there’s the very real question of what comprises “costs”? Is the price charged for a drug the cost? It is to the insurance company or the consumer, but the cost of actual production of a generic drug to the pharmaceutical company is likely only a fraction, sometimes a tiny fraction, of the price charged to consumers, especially since the development costs of that drug are likely already paid off, but the pharmaceutical companies contend that the mark-up is necessary to cover the development of new drugs. In the end, the only measure of costs that matters in determining whether costs are rising is what is paid by end users and insurance companies, because that’s what it costs them.
>In the end, the only measure of costs that matters in determining whether costs are rising is what is paid by end users and insurance companies
This statement makes me nervous. We’ve essentially created a “black box”, an ineffable and complex system that can’t be effectively analyzed, examined, regulated, or adjusted from outside the system; and those inside the system have no reason to change it other than in furtherance of their own goals; those interests are not the interests of those outside this system.
Are these ‘costs’ rising a natural result of market forces and industry practicalities? Are they a result of industry-monopolistic business practices? Are they a foregone conclusion?
Superficial ‘understanding’ and unchallenged presumptions lead to poor policy-making, particularly if constituent-driven.
From what I’ve seen and the few available figures, the largest factors in rising costs are what amount to industry-monopolistic practices in the pharmaceutical and equipment/technology supply industries, which are enabled by failure of both public and private insurance providers to negotiate and police costs, and encouraged by the financial sector, which rewards high profit and cash flow levels.
One thing we can be certain of is that US health care costs per capita are way higher than any other country in the world – Oecd-healthexp-percapita – with arguably poorer outcomes by several measures. Only seven other countries spend even half as much per head, and everyone in that graph down to and including Israel, at just over one-quarter of the US per cap spend, have e.g. a higher life expectancy – List_of_countries_by_life_expectancy.
NB: that graph is USD purchasing power parity, so already taking out differences in e.g. pay of healthcare workers.
I will admit I was surprised by the high US costs per capita until I looked at the graph. This implies that the public offering is so dire that people need to spend more on private care.
I am told that the best public medical service in the world in terms of quality is available in Cuba! And this was not even listed. Now that the diplomatic relations have been restored and Cuba begins to operate using Western economics, I wonder how this excellence will be affected.
I also was surprised by the public/private breakdowns. The graph shows that US spending per capita on public provision is at similar or even higher level than countries that have outstanding public provision. At first blush that tends to suggest that LEM’s theory about overspending on too many tests and unnecessary procedures may be contributing to the problems.
Also, compare the private spend, for example, with Australia, where there are subsidies and tax concessions for anyone paying for private health insurance – or France, where most employers have to provide health cover for their staff and their families. In both of those countries a similar or even higher proportion of people to the US have private health cover, but the actual expenditure per head is way lower.
Several scattered thoughts:
One:
There is a venn diagram making the rounds in medical journals showing three interconnected circles. Each circle touches both of the other two, but in no place do all three circles connect. One circle is “Timely.” One circle is “High Quality.” The 3rd circle is “Economical.”
Guess what? like every other industry in the world, you can have two out of three… but the third will suffer.
Over-testing/unnecessary procedures tend to fall in the ‘High Quality’ part of the Venn because there has been no credible tort reform in the USA: if I can look at a person, tell them that I have treated their loved one to the best of my ability, and say, “This is how I would have treated my own mother/daughter/niece” then I am #1 delivering good care, #2 reassuring the patient and their family that I am doing everything I can, and #3 perhaps (but not always) avoiding a lawsuit that may/may not be frivolous.
Two;
One of the reasons that public spending in the USA is so high is that the pharma companies here pass along their expenses to the consumers…. and because most countries with single payer systems also have fixed-price medications, the USA also gets to foot the bill for the research that would normally be be spread out over several (dozen) countries, not just the USA.
Three:
There is a reason that physicians wince when people who don’t know better (and many who should) talk about algorithm-based medical practice. Humans are not cars or aircraft: they are more complex than those by an order of magnitude (or more). And every last person is different. I do not offer this up as an excuse: a well-trained MD/DO should be able to take this into consideration. I offer this up as a reason why when I say “I don’t know but I will find out or find a doctor who will help you find out” I’m not blowing smoke at your eyes.
Four:
More than 30% of MediCare healthcare dollars are spent on people in the last year of their life. 1 ICU stay for a person with Pneumonia /COPD /respiratory failure and its comcomitant complications and follow-on care costs more than vaccinating an entire school full of kids against the most common bacteria/viruses that cause meningitis that can lead to a lifetime of devastation for the affected child and their family.
No one wants to pay for preventive services or maintenance of health services. No one wants to get them, either. The “if it ain’t broke, don’t fix it” mentality only applies very imperfectly to medicine.
The people of the US are not willing to say “Uncle Tim had a good life. Let him go.” Once, pneumonia was called “Old Man’s Friend.” Should it be treated? Yes, with caveats. Finally, Quality of Life is becoming a real discussion point not only between a patient and her physician, but between family members (which is where it should be). Everyone dies. Everyone should have the chance for it to be on their own terms rather than having a bunch of grieving family members clustered around the bed with the chirps and dings of equipment asking each other “What should we do?”
>Over-testing/unnecessary procedures tend to fall in the ‘High Quality’ part of the Venn because there has been no credible tort reform in the USA
Again, let’s source these assertions. How much over-testing exists? Unnecessary procedures? What is the nature of the over-testing/unnecessary procedures? What are the trends? What tests and procedures are commonly over-used?
What shows that over-testing/unnecessary procedures is a result of a lack of tort reform? And that’s actually missing a step because WHO, assuming over-testing is a substantial issue, is issuing these tests? Why?
If we assume that, yes, over-testing exists; and, yes, doctors over-test; and we ask those doctors “why?” and they respond with a fear of lawsuits: that doesn’t prove that doctors over-test because of “a lack of credible tort reform”, it shows that doctors over-test because of *their beliefs* about lack of credible tort reform.
Here are several things to consider.
What *actually* limits physicians in terms of testing is what the insurance will or will not cover.
There is one instance in which physicians are well-known for having over-medicated (a factor which has not yet been mentioned), and that is with young children who have colds, ear infections, and other ‘minor’ maladies that don’t require antibiotics. Physicians have only relatively recently starting pushing back in terms of education and prescriptions against ‘parents who insist their child be prescribed an antibiotic’.
How indicative is this of physicians’ unwillingness, in general, to gainsay the person seeking care? This particular iteration of over-doing something which is not medically required is not driven by fear of lawsuit.