Real Health Care Reform

I’ve been asked to give my ideas on what real health care reform would look like and I’m a bit nonplussed. Here are a few facts about our present health care system:

  • We spend more on health care per capita than any other OECD country by a substantial margin.
  • Other OECD countries adopted their own systems when health care was much, much less expensive than it is now.
  • Health care presently comprises about 17% of the U. S. economy, more than any other OECD country, and prices in health care are growing at a multiple of the prices in most other sectors with the exception of education which has much the same problems as the health care system.
  • Government at one level or another provides between 50% and 70% of all of the funds spent on health care.
  • The incentives for government to increase health care spending have outweighed its incentives to restrain spending to date.
  • Prices in other sectors of the economy have been kept low through mass production.
  • In health care we have mass consumption and artisanal production—an obvious mismatch.
  • Physicians produce much of the demand for health care.
  • We haven’t had a free market in health care for more than a century. I don’t believe we want one.
  • Health care insurance prices are proportion to health care prices.
  • The evidence that increasing health care insurance coverage in the absence of a commitment to control costs will reduce costs is weak.
  • At present prices and the present rate of increase a single-payer system will solve nothing.

Somewhere in all of that there may be a solution but I’m damned if I see it. At least not a solution that we want.

11 comments… add one
  • Andy Link

    I’ve long been ambivalent about all the various popular reform proposals. I’m not ideologically predisposed to any solution. The issue I have is that advocates oversell their preferred solutions and the numbers don’t add up or they all rely on the underpants gnome to achieve the desired outcome.

  • steve Link

    It is doable, but it takes the political will to do it. It will mean a lot of people making less many than they do now, and changing the way we deliver care. (For example, rather than hiring more doctors and nurses, we are exploring the idea of hiring sociologists and social workers to help with the core of chronically ill who have frequent readmissions.) Not paying for care we know doesn’t work will help, as will not paying for more expensive options when e know the cheaper one works as well. Of course, some of this will be called rationing, and it kind of is, so we need to overcome that. Also, I think we should largely give up on the chimera of markets in health care. Markets are just used to maximize incomes. There are a few areas where it might work, but not many.

    Only slightly OT, this was big news. Suppose, improbable though it might be, that some magical market mechanism worked to cut prices. It looks like most hospitals would go out of business.


  • Not paying for care we know doesn’t work will help, as will not paying for more expensive options when we know the cheaper one works as well.

    That’s right. Another issue: not paying for care that we don’t know whether it works or not. Built into the present system is the assumption that more care is always of benefit to the patient. Not only is that questionable it’s impossible.

    If it can be done at all, I don’t believe it can be done quickly. I believe it will require a generational change which is a lot of attention to devote to something that’s unpleasant to do.

    Abandoning illusions will probably be the hardest part of reform.

  • Andy Link

    If I remember correctly the HMO movement (for lack of a better term) in the 1990’s did those things and managed to control costs much better than anything previously or since. Unfortunately, everyone hated it.

  • Gustopher Link

    Can you expand on this: “prices in health care are growing at a multiple of the prices in most other sectors with the exception of education which has much the same problems as the health care system”?

    It’s a statement that everyone can look at and agree with, while all meaning different things.

    Is it just that we have stopped leaving a segment of the population behind, by adding requirements for special education and not letting people die in emergency rooms if they cannot afford care?

    Or is it the administrative costs?

    Or something else? Or all of it?

  • I’ll try. First let’s separate it into pieces.

    1. Health care spending has been increasing at from 4-6% per year.
    2. The overall rate of inflation has varied from 1% to 2.5%.
    3. Health care is roughly a sixth of the economy.
    4. Mathematically, that means that healthcare spending is increasing at between 2.5 and 4 times the rest of the economy.

    Health care is not adding lots more practitioners. It’s not doing a lot more capital spending or spending on consumables. It is spending more on wages. It is adding administrators.

    Why are costs going up? I think that if you asked ten people you’d get ten different answers. I think costs are going up because they can.

    The favorite bugaboo to explain increases, administrative costs of the insurance companies, doesn’t hold water IMO. Some years back NEJM published a comparison between administrative costs in Canada and those here. We were higher, as should surprise nobody. But we weren’t that much higher. IIRC Canada’s were about 15% and ours were around 25%.

    That could explain why we spend 10 or even 15% more per capita than Canada but it doesn’t explain why we spend almost twice per capita what the Canadians do.

  • Ben Wolf Link

    I suggest reading Reid’s “The Healing of America” for an overview of what makes foreign health systems work and of their problems,.

  • Ben Wolf Link

    1) Outrageously high drug costs.

    2) Profits

    3) Incentives for expensive high-tech procedures of dubious value over cost-effective treatments.

    4) Restricting treatments and prescriptions to doctors that can easily be performed by PA’s nurse practitioners and pharmacists.

    5) Opaque pricing

    6) Lousy private administrative efficiency

    7) Expensive record-keeping and billing due to schizophrenic payments and network systems.

    8) Commercial monopoly

    9) Too much political influcence by the AMA, insurance and pharmaceutical industries.

    10) Washington’s endless revolving door.

    11) Obscene patent laws.

  • All of your points are true, Ben, and each contributes to the problem. The total contribution of pharmaceuticals to health care spending is about 10%. How much of that is superfluous? Half? A third? Let’s say half.

    If you add excessive insurance administration (15%) and the waste in pharmaceuticals (5%), they amount at the outside to about 20% of the total. That could get us down to Switzerland’s level of per capita spending (the second highest spender) but not to Singapore’s. It doesn’t even get us to Canada’s.

  • Jimbino Link

    Saying healthcare insurance is “proportonal to healthcare prices” is a big cop-out. It needs to be emphasized that a person who gets his healthcare through insurance pays a premium of some 25% over cash value and even more when you consider that Obamacare is worthless overseas where cash brings you good, cheap healthcare in an infinite network that includes all healthcare providers in India, Thailand, Mexico, Cuba, Costa Rica, Brazil and Argentina.

    It’s also a sin not to mention the option of gummint’s forcing all domestic healthcare providers to publish their prices on the web, as do providers in the aforementoned countries.

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