The Good Fight

Over at Outside the Beltway Doug Mataconis has begun what he promises will be a series of posts on the debate over healthcare:

Initially, the inspiration for what follows here started in a discussion in the comment thread on a friend’s Facebook wall but it quickly became far too detailed for social media, so I decided to put everything into a blog post. I quickly found, though, that one post was far too insufficient to address the issues I wanted to touch on. As it stands now addressing all of the points I wanted to make would result in an unreasonably long post. As a result, what follows is the first part of what will be a multi-part series addressing just a few points I think are important in this debate.

Honestly, I have reservations about all three of his bullet points:

  1. The health insurance system became unwieldy and unsustainable when it went from being something that people expected would only cover “major medical” expenses to one that covered everything.

    I think the health insurance system became unwieldy and unsustainable long before that and that the handwriting was on the wall when Medicare was enacted back in 1965.

  2. Health care costs expanded rapidly due to new technology and new drugs.

    The evidence for that is weak. It just doesn’t show up on hospitals’ balance sheets. What does show up are enormous payrolls that are rising rapidly.

  3. People are living longer and surviving things that used to kill people like cancer, heart attacks, and strokes.

    I’d be interesting in seeing that quantified. How big a factor is the effectiveness of care in the increasing cost of care? I don’t believe it’s quite as large a factor as Doug apparently does.

I commend Doug for reopening old wounds and entering into the discussion again.

My bullet points would be different:

• No country can afford a healthcare system that’s 17% of the economy, in which prices are increasing three times as fast as in the rest of the economy, and in which 50-75% of costs are paid for out of tax dollars in one form or another.

Not Germany (11%), not France (11%), not the United Kingdom (9%), not Switzerland (12%)—the country with the second highest rate of health care spending per capita to the United States. That’s not a matter of politics. It’s a matter of mathematics.

• We reached the point of diminishing returns to scale in healthcare a long time ago.

Year Life expectancy at birth % increase Real per capita spending (2010 dollars) % increase
1940 62.9      
1950 68.2 8.4%    
1960 69.7 2.2% $490.58  
1970 70.8 1.6% 1,995.10 306.9%
1980 73.7 4.0% 2,932.11 47.0%
1990 75.4 2.3% 4,743.18 61.8%
2000 77.0 2.1% 6,150.39 29.7%
2010 78.7 2.2% 8,404.00 36.6%

sources: Center for Disease Control, Centers for Medicare and Medicaid Services

Antibiotics, obviously, gave us the biggest bang for the buck. I’m a bit surprised that the adoption of Medicare and Medicaid didn’t have a more pronounced effect on life expectancy at birth. How should we interpret that?

• A lot of the demand for care is physician-generated.

I don’t prescribe my tests or my course of treatments. Physicians do.

• How much healthcare spending should be socialized?

I think it makes reasonable sense to socialize some healthcare spending but not 100% of it. We can’t afford to give everybody all of the care that he or she might want. How do we decide what we’ll pay for?

Here are some resources you might be interested in reading:

Growth in Health Care Costs, Congressional Budget Office, 2008

This report makes a number of valuable points. For example, according to its findings the most important factors in increasing healthcare costs are prices (11-22%), growth of personal income, i.e. what the market will bear (11-18%), and changes in third party payment excluding administrative costs (10%).

History of Health Spending in the United States 1960-2013, Centers for Medicare and Medicaid Services, 2015

This paper divides the history of health spending since 1960 into the following “eras”:

  • Pre-Medicare and Medicaid 1961-1965
  • Coverage Expansion and Rapid Price Growth 1966-1982
  • Payment Change and Moderate Price Growth 1983-1992
  • Cost Containment and Backlash 1993-2002
  • Recent Slower Growth 2003-2013

which may look familiar since I’ve posted to the same effect myself. In other words I’m not making it up. There really was a sharp run-up in the prices of care in the 1970s.

I’ve posted a lot on healthcare over the years. Here are a curated selection of some of my more notable posts:

A short history of medical education in the United States
Making plans, health care costs, and bureaucracies
How to create a health care cartel
Baffled about health care policy
10 Points on Health Care Reform
Issues 2008: Health Care
Reforming Health Care: Okay, What Then?

21 comments… add one
  • michael reynolds

    According to the World Bank US healthcare spending as a percentage of GDP rose from 13% in 1995 to 17% in 2014. That’s what, about a 30% increase over the course of 20 years? In the same time period the percentage of people over 65 went from 12ish to 14ish percent, about a 16% increase. Given that it’s the elderly who drive health care costs, isn’t this largely just a function of an aging population? And given that the percentage at even higher ages, 75, 85 has also grown, and that those folks are still more costly to support, and require more specialized care, (pay for pediatricians is the lowest, orthopedists the highest) and that those older people also contribute less to GDP, isn’t this in large part just demographics? Isn’t most of this just that we are aging as a population, with fewer earners and more elderly? So once the baby boom starts to die off, shouldn’t we see costs start to flatline?

  • You’re arguing the “true price” theory of value. It doesn’t work that way. That it doesn’t work that way is obvious from my table.

    Taking another tack the elderly as a proportion of the population will continue to grow for the foreseeable future, see here.

  • Ben Wolf

    I think we should be looking to the Japanese and Taiwanese health care systems for ideas rather than those of Europe. Medical fees and costs are very strictly regulated with no room for the grifters as we like to make here in the West, and all prices are standardized so the patient knows the exact cost of what they’re buying. Japan, notably, did not allow costs to rise rapidly in the 1970s and 1980s as we did.

  • I don’t know anything about the Taiwanese health care system but the expectations of both patients and physicians in Japan are pretty different from what they are here. Just to cite one example a salaried physician in Japan earns about $35,000 per year.

  • sam

    A data point. When I had my ankle fused, the surgeon charged us $2000, the anesthesiologist, $1800. There was a nurse in the OR and a nurse in my recovery room. I went to the hospital at 9 A.M.; the surgery was at 11 A.M. I was discharged at 5 P.M. The total hospital bill exclusive of the doctors’ charges came to $24,900. I don’t think it’s the doctors driving costs.

  • walt moffett

    Lets also keep in mind in the military single payer medical system where everyone is on salary has seen a steady rise in costs as per the CBO.

  • Ben Wolf


    Military-related health costs have risen because Congress has near-continuously expanded benefits through Tri-care (to incentitive a steady stream of cannon-fodder) and because we like to fight lots of wars that leave Americans in need of intensive medical care.

  • Guarneri

    I’d like to see Steve’s comment on Sams point. There is something seriously out of whack there. A hospital is nothing more than a manufacturing plant where the real performance or product is housed and made. Bricks and mortar, utilities, machines, maintenance staff, a crappy kitchen and administrators. Oh, wait………

  • walt moffett

    Ben Wolf, while benefits were expanded, remember these clinicians are on generally on salary so its just not professional fees. However, if it perturbs your model of regulating fees, please disregard.

  • Andy


    Not everyone is on salary. The military doesn’t have enough providers so they contract some stuff out and use standard referrals for the rest. In my area, for example, about the 1/3 of doctors at our base clinic are contractors. There are no specialists of any kind, so anything beyond routine care is referred to a local doctor that takes tricare.

    For anyone interested in hard numbers, here you go:

  • I don’t think it’s the doctors driving costs.

    You’re right. It’s not just the doctors. It’s the payroll. The hospital bundles wages for all hospital staff into the bill received not just doctors.

    But have no doubt that most of what the bill is paying for is somebody’s compensation. Just look at a hospital’s balance sheet.

  • Andy

    And here’s the conclusion from a formal military study:

    “To enhance our understanding of the costs of delivering the TRICARE benefit as it is now constituted, IDA compared the costs of direct and purchased care for the same level and types of services. In the previous chapter, we compared the actual costs of producing MTF workload with an estimate of what it would have cost if priced at private sector rates. We examined MTF efficiency in delivering inpatient and outpatient services, confining the comparisons to a 50-mile-radius around each MTF. In addition, we analyzed the MTF cost advantage in dispensing prescription drugs. ”

    “Only one [Military Treatment Facility] (673rd Medical Group – Elmendorf Air Force Base, Alaska) has an overall efficiency score above 1.00, meaning it produced its inpatient and outpatient workload at a cost lower than could have been purchased in the private sector. The other DoD hospital in Alaska (Bassett Army Community Hospital – Ft. Wainwright) has an overall efficiency score just under 1.00 and an inpatient efficiency score of 1.27, the second highest of any DoD hospital. Because Alaska has one of the highest per capita costs for healthcare of any state in the nation,38 it is difficult to determine whether the high efficiency scores for the two Alaska hospitals are due to low MTF workload costs or high private sector costs in the surrounding areas. The remaining MTFs are producing inpatient and/or outpatient workload at costs about 50 percent higher (on average) than what it would have cost if purchased in the private sector. ”

    Tricare is expensive. It’s about $50 billion a year for about 9.5 million beneficiaries.

  • Tricare is expensive. It’s about $50 billion a year for about 9.5 million beneficiaries.

    Health care is expensive. I’m surprised that it’s that little. That’s only about $5,400 per beneficiary. As you can see from my table in this post, that’s quite low.

  • Gustopher

    Ben Wolf: “we like to fight lots of wars that leave Americans in need of intensive medical care.”

    We’ve also gotten better at keeping our soldiers from dying when they are injured. “Die quickly” is a very cheap health care plan. And we are providing a lot more mental health benefits, so we have fewer homeless veterans.

    War (and military training in general) puts our soldiers through a lot of physical and mental stresses. I’m ok with spending a premium to take care of them afterwards. Care for our veterans and our military is just about the last spot I would be looking for cost savings.

  • steve

    Some things to remember. The rate of rise in health care costs has actually been fairly steady, with smallish or short term variations, since the 30s when we started keeping data. Next, Michael is partially correct. The baby boomers are starting to retire. That will give us a bulge of people needing more expensive care. Doesn’t entirely explain the increase in per capita spending in the past. Last, remember that Medicare rates are about what other countries pay. It is our private insurance reimbursement rates which are much higher.

    As to Drew’s question I think you need to remember that while by international standards US docs are elevated, it is mostly what docs order that drives costs.

    I don’t think that mortality rates are the only measure of value. Functionality is probably at least as good a measure, and maybe better. Lots of ways to measure that, but just take gallbladder surgery and cataracts. When the were done as open procedures people could not come back to work for 6-8 weeks. Now they come back in a few days. Cataract surgery and you go back to work the next day or two. 40 years ago you stayed in the hospital with your head immobilized for a week before going home.

    Taiwan has a planned health system. They hired an American to help them set it up. Don’t remember all of the details.


  • Andy


    “I’m surprised that it’s that little. That’s only about $5,400 per beneficiary. As you can see from my table in this post, that’s quite low.”

    Tricare is a system with various plans that provide a wide variety of coverage levels depending on the beneficiary and not all beneficiaries actually enroll and receive benefits. Only about 1/2 the 9.5 million receive comprehensive coverage under an HMO-style program called Tricare Prime. Active Duty personnel and their spouses and children receive this for free and the cost for that is closer to $5000 per enrollee. But the vast majority of them are under 40 and military personnel are much healthier than the average for their cohort, so it’s probably not a representative example.

  • The rate of rise in health care costs has actually been fairly steady, with smallish or short term variations, since the 30s when we started keeping data.

    I’ve produced evidence; you’ve produced none. The evidence says there was a sharp spike in the price of health care in the 1970s. And something that’s hard to deny is that prices in health care are increasing at a multiple of the non-health care rate of inflation.

    I think you’re exaggerating a bit, Steve. They’ve been doing phacoemulsification surgery for 50 years. But I take your point.

    Okay, give me a quantifiable metric other than mortality. I doubt that there is one that shows improvement proportional to the increase in spending.

  • Scott O

    “I’m a bit surprised that the adoption of Medicare and Medicaid didn’t have a more pronounced effect on life expectancy at birth.”

    Life expectancy at birth will be most impacted by reducing deaths in young people. So things like vaccines, safe food and water, seat belts, etc. Here’s a table that has life expectancy by age. It shows that for a long time a white male aged 60 could expect to live about another 15 years. Somewhere around the 1950’s the figure started rising to it’s present 21.5 years.

  • Individuals who were born in 1965 are 52 now. You don’t believe that the availability of Medicare has increased their life expectancy?

  • Scott O

    I do believe that Medicare has increased their life expectancy. I just think life expectancy at birth may not be the best figure to be looking at. I also think we’re probably near the limits on lifespan barring some new technological breakthrough.

  • On that we are in agreement.

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