The Cure Is Worse Than the Disease

I only have one thing to say in response to Simon Johnson’s full-throated defense of Elizabeth Warren’s “Medicare For All” plan from the Wall Street Journal:

A millstone hangs around the neck of every company in America, and this dead weight gets heavier each year. Americans currently spend nearly 18% of gross domestic product on health care, with some projections suggesting this will reach 21% by 2027 before continuing to rise. Since the 1970s the U.S. has failed to control the cost of care, and a great deal of this burden falls directly on companies and new entrepreneurs. These costs undermine competitiveness and make it harder to create jobs and pay decent wages.

The health-care burden hurts American business in three main ways. First, there is the onerous contribution most companies are required to make through employer-sponsored insurance. Every business owner wants employees and their families to have health insurance, but the cost rises inexorably. Mandatory employer coverage is like a tax on businesses, with a major difference that private insurance companies take a cut of the revenue. Under current law, firms with more than 50 employees must either offer employer-sponsored coverage or pay a fine—so in effect the government forces employers to pay private insurers.

Second, companies cannot by themselves easily constrain health-insurance premiums. They need healthy workers who are not ruined financially when a family member is rushed to the emergency room. In most competitive markets across the U.S., if an employer cuts back on health benefits (or raises deductibles, copays or out-of-pocket expenses), it raises the burden on employees and increases the risk that the best will leave.

Third, the unpredictable nature of health-care costs makes it significantly harder to start and run a company. Every year, entrepreneurs and managers hold their breath while insurance companies decide what to charge them. The Affordable Care Act slowed the growth of medical costs—for a while. But under the Trump administration, health-care sector mergers (such as Cigna-Express Scripts, CVS-Aetna and Optum-DaVita) have effectively reduced competition and increased pricing power.

To address this triple threat, Republicans have tried to make the health-care system more “competitive.” But the competition they seek has failed to constrain costs. Rather, it has created an incredibly opaque price system with powerful players grabbing excess profits at every opportunity—the main reason medical care in America costs so much more (relative to income) than it does in any comparable country. The Republican approach is a recipe for human and economic disaster.

Some Democrats propose to restrain the price of health-care to consumers by adjusting the Affordable Care Act in a modest fashion, such as by adding a public option. This has short-term appeal but would not address the deeper long-term problem: the rising underlying cost of care, which private insurance companies have consistently failed to bring under control. None of the proposals for partial reforms—such as those proposed by presidential candidates Joe Biden and Pete Buttigieg—would be likely to lower costs relative to the current law’s baseline.

By contrast, Sen. Elizabeth Warren’s Medicare for All plan would cut costs by reducing inefficiency, eliminating predatory pricing (for example, for prescription drugs) and using the purchasing power of a single-payer system. Her plan would also constrain the growth rate of underlying medical costs. This is exactly what America’s peer countries do to keep costs under control. U.S. companies consequently struggle to stay competitive in international markets. If health-care costs continue to grow unchecked, America’s businesses will be ruined.

Most medium and large companies self-insure. His entire argument founders when you understand that.

10 comments… add one
  • TarsTarkas Link

    To oppose Warren’s plan is to hate sick people, children, and the needy, as well as being a bigot who loves the rich and the greedy. Have I left anything out?

  • steve Link

    Tars- Oddly enough, I am not seeing anyone make that argument among those who cover or write about health care. NOW, if I go to the hard core right wing sites, I can still see people saying gays are evil and should be stoned, but I know most conservatives dont really believe that. What I do see when it comes to criticizing the GOP is that health care is not a priority and that there has been little to no effort put towards health care in policy.

    Steve

  • jan Link

    Ah Steve, why do you frequently go to the extreme in order to articulate your POV.

    Healthcare, like immigration reform, has long been a political football kicked back and forth by the two parties. The Democrats have put forth more solid plans based on less solid ways to fund them, or rein in costs once they are funded OTOH, the Republicans, are constrained by conflicted goals of wanting to be fiscally conservative and yet emotionally empathetic and humane in their ideas about healthcare reform. Ironically they end up following an old AA rule of thumb: “if you don’t know what to do, it’s better to do nothing.”

  • the Republicans, are constrained by conflicted goals of wanting to be fiscally conservative and yet emotionally empathetic and humane in their ideas about healthcare reform

    That is a lot harder to say with a straight face than it used to be.

  • steve Link

    “wanting to be fiscally conservative”

    You do realize our debt, as a percentage of GDP, always goes up, like it is right now, when the GOP is in charge. Unless by fiscally conservative you mean cutting taxes, there is zero evidence of conservatives being fiscally responsible.

    “Ah Steve, why do you frequently go to the extreme in order to articulate your POV.”

    What I usually do is probably a bit too nuanced so maybe I should give it up. I usually counter an absurd argument with an equally absurd argument, partially just because it is fun. I then go on to a more serious comparison. So myriad point above was that the GOP does not prioritize health care as an issue, and you seem to think that is extreme. Feel free to prove me wrong with all of the repeated attempts to pass health care reform of any sort. (And no, voting to repeal the ACA a hundred times does not count.)

    Steve

  • Andy Link

    By contrast, Sen. Elizabeth Warren’s Medicare for All plan would cut costs by reducing inefficiency, eliminating predatory pricing (for example, for prescription drugs) and using the purchasing power of a single-payer system. Her plan would also constrain the growth rate of underlying medical costs. This is exactly what America’s peer countries do to keep costs under control.

    Whole lotta wishful thinking there, plus the reality that America’s peer countries have nothing resembling the Warren plan.

  • Grey Shambler Link

    Time to raise the Social Security death benefit up from $255., So ill seniors have an option other than hospital. Make it $25,000. Those who don’t have long might feel better about foregoing treatment.

  • Guarneri Link

    1. Health care spending as a percent of GDP is a silly statistic, valid only to the extent that health care expenditures increase with wealth of a nation. Show me demographics. A relatively aged population, one susceptible in their life cycle to the expensive and chronic, or high cost, terminal diseases has high health care spend to GDP? Who knew??

    2. From the statistics I’ve seen the high US growth rate health care expenditures vis a vis similarly advanced economy nations was really an 80’s phenomenon. The growth rates in the 90’s through 2017 for US vs relevant others are essentially indistinguishable. And that’s with ObamaCare, Obamaphiles.

    3. Any numbers I’ve seen show a dominant variable in the US: hospital health care expenditures. Not the politically convenient prescription drugs; not the politically convenient doc salaries. Those no good dirty bastards, probably just a cut above bankers, don’t seem to be the big issue. Talk to me about hospital care economics.

    4. In a blinding flash of the obvious I realized that perhaps my calls for “market” exposure to price of consumers has been poorly articulated. Imagine if your deductibles increased if you engaged in unhealthy lifestyles. Taxing Slurpy’s is stupid. Setting a deductible based upon your A1C is rational. Setting your deductible based upon smoking or evidence of excessive alcohol consumption (its EZ and scientific) is rational. etc etc They do it for people who have houses in flood zones, poor driving record motorists and so on.

    We just don’t have the will. So I’m with Jan, if we won’t engage in rational discussion in risk – reward, fuck’m. My words, not hers. But I bet people would get real, real fast. Right now they are freeloading on their neighbor.

  • steve Link

    1) Spending as a percentage of GDP is very useful, but you need other numbers also. Using only that metric is silly.

    2) Link goes to chart showing growth, which indeed go up most notably in the 80s. No one knows why for sure, but one of the best I have seen is from Donna Kinney, also at the link. She claims that before 1980 people commonly paid for health care out of pocket then got reimbursed baby their insurance company. Starting in 1980 insurance companies, especially early managed care paid providers directly, thus giving patients the feeling they were spending less. Of note, we did have a big slowdown in spending under Obamacare, initially, but that was not clearly related to the effects of Obamacare.

    3) Aaron Carroll did a nice series on this. Our care costs more because it is more expensive in almost every facet of care. Outpatient care is an especially big factor. Old series but still applies. I would note that since there has been so much consolidation the distinction between hospital based care and outpatient care is now kind of blurry. What is outpatient care may be owned and managed by a hospital.

    https://theincidentaleconomist.com/wordpress/what-makes-the-us-health-care-system-so-expensive-conclusion/

    4) People have made some pretty good efforts at trying to figure out how much of our excess spending, compared with other lower cost countries, comes from poor lifestyle choices. It is not a large percentage. We may be fatter but other countries smoke more, so it mostly evens out. This is kind of borne out by the general failure of wellness programs to cut costs. There has been some success with value based insurance where you pay less, or nothing, for health care which works and reduces costs in the future, say blood pressure meds, and pay more for care which has little or no effect, like some back surgeries and arthroscopies. Finally, it is not clear if smoking and obesity increase or decrease total health care spending. There is an awful lot of literature that suggests that since smokers and the obese die earlier they incur lower total costs. If costs are your only concern you might want to subsidize smoking.

    https://www.thehastingscenter.org/charging-smokers-higher-health-insurance-rates-is-it-ethical/

    Steve

  • A couple of observations about the two preceding comments. First, whether in physicians’ offices or hospitals the most important cost component is payroll.

    Second, Uwe Reinhardt divided the history of health care spending into three periods: 1965 to early 70s, early 70s to early 80s, and after the early 80s. During the first period spending grew rapidly because of increased access to care. During the second period spending grew rapidly because prices increased rapidly. During the third period spending has increased as a multiple of the non-health care inflation rate.

    I also should mention that insurance companies made a brief, half-hearted attempt at cost control in the 1980s for which they got an enormous amount of flak. After that they decided that controlling costs was just not in their interest. The transition to self-insurance may have had something to do with that.

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