The Too-Long-Deferred Topic of Controlling Healthcare Spending

In an op-ed in the New York Times, Elisabeth Rosenthal turns to a topic I suspect we’ll be hearing a lot more about in the coming weeks, months, and years—how to reduce the cost of healthcare:

But the nation is fundamentally handicapped in its quest for cheaper health care: All other developed countries rely on a large degree of direct government intervention, negotiation or rate-setting to achieve lower-priced medical treatment for all citizens. That is not politically acceptable here. “A lot of the complexity of the Affordable Care Act arises from the political need in the U.S. to rely on the private market to provide health care access,” said Dr. David Blumenthal, a former adviser to President Obama and president of the Commonwealth Fund, a New York-based foundation that focuses on health care.

With that political backdrop, Obamacare deals only indirectly with high prices. By regulating and mandating insurance plans, it seeks to create a better, more competitive market that will make care from doctors and hospitals cheaper. But it primarily relies on a trickle-down theory of cost containment. The Princeton health economist Uwe E. Reinhardt has called it “a somewhat ugly patch” on “a somewhat ugly system.”

The cost control aspects of the PPACA rely on assumptions I find questionable. For example, it assumes that insurers will pursue cost control when all of their incentives point them in the opposite direction. And, given the increases in deductibles and copayments being required for the new plans available in the healthcare exchanges, it appears to assume that economizations by patients will reduce the cost of care, something for which I see little evidence. Patients don’t routinely order echocardiograms for themselves—those are ordered by physicians. Patients also don’t order CAT scans, MRI scans, or PET scans for themselves or distinguish among which of those is the most important for diagnosing their particular complaint. It’s just barely possible that patients can shop around for the cheapest sources for those tests. Of that I’m skeptical as well. It will require a real sea change among physicians who continue to consider shopping around as unethical and are reluctant to rely on sources for tests with which they are unfamiliar.

I also think that pointing to Britain, France, or Canada as models for cost reduction, concluding that healthcare costs less there than here because they have systems of universal insurance, is more than likely an instance of reverse causality, post hoc propter hoc. That’s not necessarily an argument against universal insurance, it’s just pointing out that in the absence of a commitment to cost reduction there’s much evidence that universal insurance per se will produce those reductions.

I’ll conclude with the following observations:

  • The majority of healthcare spending is government spending.
  • Healthcare spending is already blowing a hole in state and local government budgets.
  • We have not seen a decline in healthcare costs in the last year.
  • We have seen a decline in the rate of growth in healthcare costs in the last year.
  • The reading of that decrease that’s most favorable to the PPACA attributes 8% of the reduction to the PPACA.
  • That’s 8% of the decrease not 8% of the costs.

Finally, “politically impossible” means “unpalatable to the party leadership”. As long as those most likely to demand heroic measures in end-of-life care and no limits placed on federal spending on healthcare constitute important Democratic constituencies, I see little prospect of the Democratic Congressional leadership accepting anything that will actually control costs.

15 comments… add one
  • TastyBits Link

    When the tests are being for out-of-pocket, you begin to question the necessity of those tests. Many doctors cannot imagine a world where they are limited by the patients ability to pay. When somebody else is picking up the tab, nobody questions anything.

    You have to find a doctor who understands people without insurance or high deductible insurance. They will have a good idea of the cheapest places to get the testing.

    I realize that most people in the US cannot fathom this, but a lot of people are in for a shock. When the doctor orders $3,000 of blood tests, you question him/her. When the doctor prescribes top of the line, name brand medication, you question him/her. When the doctor refuses to work with you, you look for another doctor.

  • steve Link

    There is not much evidence that higher deductibles will lower overall health care spending, but there is not zero evidence. I think it worth a try. It has been the core idea behind plans pushed by GOP pundits. What we dont know is if people will skimp on care that will lead to higher costs in the long run. There is evidence for that unfortunately. The problem is that concentrating on deductibles concentrates on a small minority of health care spending. Most health spending is done by very few people. Chronic disease and big ticket items like cancer and heart surgery. Deductibles dont matter much for that kind of care. Also, since insurance companies are lowering costs by narrowing networks, shopping around for lower prices is going to be hard.

    I dont think we have to emulate other countries, but I do think we can learn from them. No one has market based health care. No one knows how to make it work. Even if you drive costs down to the kind so flows seen in the UK, health care will still be out of reach for millions. If we decide to just ignore those people, then we can keep going the way we are, accepting that fewer and fewer people will be able to afford care.

    Last of all, is this a misprint?

    ” demand heroic measures in end-of-life care and no limits placed on federal spending on healthcare constitute important Democratic constituencies”

    Have we forgotten how things lined up with Schiavo? Who was making accusations about death panels? Also, I think you forget that it was the Romney campaign hitting Obama for cutting Medicare. The problem is not so much that Dems oppose Medicare cuts, some do though most acknowledge it needs cut, but that both parties are willing to use cuts against the other party.


  • Also, I think you forget that it was the Romney campaign hitting Obama for cutting Medicare. The problem is not so much that Dems oppose Medicare cuts, some do though most acknowledge it needs cut, but that both parties are willing to use cuts against the other party.

    I agree, Steve, and I didn’t intend to suggest that Democrats alone are culpable on this issue. The only possible strategy in such an environment is the one that has accompanied tough reforms in the past: the two parties join hands and jump together. Has the Senate Democrats’ and the president’s strategy for the last five years encouraged such a leap? Despite what the most extreme Republicans might want? I don’t see it.

    The Democrats hold the majority in the Senate as well as holding the White House. They aren’t just innocent bystanders. The only political party of any significance whatever where I am is the Democratic Party. That’s why I’m more concerned about what they do.

  • Here’s four words that have a great deal to do with the cost of healthcare that are curiously not being mentioned: “Illegal aliens” and “tort reform”.

    Deal with those two issues and you’ll see costs go down considerably.

    You cannot have a large, continuous flow of illegal migrants and a welfare state. Nor can you ignore the huge costs incurred by an illegal migration of the size we’ve experienced here in America that get passed on to everyone else by ignoring the problem on the basis of political correctness.

    And without reigning in predatory lawyers, costs simply aren’t going to go down significantly.

    In Israel, there is one of the most successful examples of universal government mandated healthcare I know of, far superior to the UK’s dysfunctional National Health.

    Here’s why it works, and why costs stay down:

    A) Israel’s ratio of lawyers to doctors per capita is the reverse of our own, and then some. Plus, it’s not nearly as litigious a society as ours. An added plus is that medical education is far cheaper and so is malpractice insurance, so doctors can enter the workforce with those burdens. And unlike our congress, the majority of MK’s are not members of the legal profession.

    B) No ‘single payer’ nonsense. There are four separate government approved health carriers, but all of them offer different plans that can be crafted to your own personal needs and are competitive to a decent degree. The idea, you see, was not a transfer of wealth from the middle class or government control over one sixth of the economy but to create an actual working health plan that would ensure that everyone was covered at moderate cost.

    C) Israel has considerable experience taking in refugees and new olim ( immigrants) But they have no problem with illegal aliens on the scale that we do, have deported a number of those they have and built secure border fences due to Arab terrorism that also serve to be a barrier to illegal migration.

  • Sorry, that phrase in paragraph 6 should have read “so doctors can enter the workforcewithout those burdens.

  • I agree with you with respect to illegal immigration and disagree with respect to tort reform. The PPACA pointedly demurred from making the same provision WRT illegals as others, presumably so the law would pass. However, since we have such a large percentage of illegals and illegals comprise such a large percentage of the uninsured, their omission limited how effective the law could be in actually producing universal coverage. One of the assumptions of the law, that universal coverage will itself lead to cost control, will not therefore be tested.

    While I recognize that tort reform is a shibboleth among Republicans for healthcare reform, I think they’re overestimating what could actually be accomplished by it. When questioned most physicians reject the notion of “defensive medicine”, the putative mechanism by which liability increases the cost of healthcare. They deny they’re practicing it and I’m willing to take their word for it. The actual mechanism pushing costs higher is “how medicine is practiced”, offensive, defensive, or neutral. The standard of care practically assures that costs will increase.

    Would tort reform produce no effect on costs? No. Would it produce substantial and persistent downward pressure? I don’t believe so.

    My general view is that incentives should be aligned with objectives and that can’t be done in the context of a “fee for services” system.

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