We Don’t Have a Medicare Problem

by Dave Schuler on January 7, 2013

The editors of the Washington Post come out in favor of a number of reforms intended to reduce Medicare costs. After noting that the structural reforms that might actually be effective are presently politically impossible, the reforms they endorse include raising the premiums paid by beneficiaries to cover 35% of costs, introducing a copay for home health care, reducing reimbursements to providers for patients’ unpaid deductibles, reducing the overcompensation of teaching hospitals for treating Medicare patients, and replacing administered pricing for durable medical equipemnt and, perhaps, testing with competitive bidding. The total savings: $460 billion over ten years, quite a bit less than 10% of Medicare’s total budget. Is that all there is? (remembering Patti Page) The editors conclude:

We’re loath to let Washington off the hook for a more permanent, fundamental Medicare fix. But given the uncertainties, political and economic, of that endeavor, pursuing specific incremental reforms is a plausible second-best solution. It won’t be painless, but neither is inaction.

One of the things perennially omitted from the discussion of saving money on Medicare is that one man’s spending is another man’s revenue. When you propose incremental non-structural approaches to healthcare reform, as the WP editors do or as are embodied in the PPACA, you must believe one of two things (or some combination): a) that providers will willingly take a pay cut or b) that they won’t make the billing up in some other way, either negating the savings you’ve projected or pushing them into some other component of the healthcare system, e.g. Medicaid or private insurance.

Rising Medicare expenses may be a disaster looming for the federal government but Medicaid is bankrupting the states and rising healthcare insurance costs is wreaking havoc with the budgets of businesses, individuals, and local governments alike. As I’ve published here before, absent healthcare spending costs Cook County doesn’t have a budget problem at all. With healthcare spending, it’s approaching insolvency with no clear way to solve its problems.

There is no incremental non-structural solution to the problems with our healthcare system. We don’t just have a Medicare problem. We have a healthcare system problem. Every solution that anybody proposes, whether it be a single payer system, a full-on national health system along the lines of BNH, or a more market-based system presupposes reducing providers’ incomes, either their height or their breadth or both.

That will require basic, structural changes.

For those of you who believe that over-utilization is the sole source of healthcare cost increases, let me propose a straightforward five-year pilot program. Change Medicare from a first-dollar program as it is now. Make seniors pay the first $5,000 of their healthcare spending each year. Over the $5,000 leave the system as it is now. Create a new category, seniors with incomes of less than $50,000 per year. For them reimburse a portion of the five grand on a sliding scale, i.e. 100% for those in the lowest income brackets, less for those higher up. I predict that such a program will incentivize seniors to reduce utilization, i.e. defer treatment, and that over the five year period it will, if anything, increase Medicare spending.

{ 44 comments… read them below or add one }

Steve Verdon January 7, 2013 at 1:51 pm

Rising Medicare expenses may be a disaster looming for the federal government but Medicaid is bankrupting the states and rising healthcare insurance costs is wreaking havoc with the budgets of businesses, individuals, and local governments alike.

This is only true if the rising health care costs are driving up total compensation costs to a point where it is no longer feasible to higher workers or keep them employed. Is that the case? I know health care costs are going up, but if health care is 20% of total compensation and it goes up 16%, then the overall impact on total compensation is 4%.

Change Medicare from a first-dollar program as it is now. Make seniors pay the first $5,000 of their healthcare spending each year. Over the $5,000 leave the system as it is now. Create a new category, seniors with incomes of less than $50,000 per year. For them reimburse a portion of the five grand on a sliding scale, i.e. 100% for those in the lowest income brackets, less for those higher up. I predict that such a program will incentivize seniors to reduce utilization, i.e. defer treatment, and that over the five year period it will, if anything, increase Medicare spending.

You just want to kill grandma!

Dave Schuler January 7, 2013 at 2:24 pm

A couple of things. First, even in businesses with highly compensated employees, high healthcare costs cut into the bottom line. Second, high healthcare costs are particularly troublesome in low margin businesses.

I think that one of the effects of rising healthcare costs is to slow the rate of new business formation. That’s certainly been observed over the last couple of decades. Rising healthcare costs are only part of the picture but a disincentive here and a disincentive there and you’re starting to talk about real stagnation.

Dave Schuler January 7, 2013 at 2:31 pm

You just want to kill grandma!

Just to be clear on this, I think that patient-driven over-utilization is a small component of our high healthcare costs. Physician-driven over-utilization, on the other hand…

My point in mentioning that plan is to counter those who think that reducing patient-driven over-utilization will cure our healthcare system’s woes. It’s usually couched as “introducing market forces into the healthcare system”. I just don’t believe it.

I had dinner with my nephew last weekend (starts his residency in neurology next year). He cited an example of over-utilization he’d encountered personally. Guy comes into the hospital, trying to coax a prescription for morphine out of the docs. He’s turned away. He comes back seven times that same day. Does anyone seriously think that introducing market forces are going to reduce that kind of over-utilization?

PD Shaw January 7, 2013 at 3:03 pm

Cutting healthcare costs means cutting providers’ incomes was the point I was making with the site’s resident physician over the weekend. Wages are sticky, they are reduced rarely and under great pressure. And I don’t see the government being able to create that pressure through a single-payer system. Doc-fix?

Dave Schuler January 7, 2013 at 3:08 pm

Doc-fix?

I think it needs to be emphasized that when I talk about wages I’m not just talking about physicians’ wages. I mean hospital administrators, healthcare insurance executives, technicians. I mean not just the height but the area under the curve. I’m not picking on physicians.

PD Shaw January 7, 2013 at 3:28 pm

Me too. I usually think of my sister, a nurse practitioner — she would probably quit in the face of a pay cut of more than ten percent. She’s already working a three-day week to spend more time wither her twins, and her husband appears to do fine.

But the argument is made that cutting private insurance will be more efficient, but why not also cut what I think Mayo calls the “extraction experts” on hospital staff, the people whose job it is to figure out how to maximize revenue? If it’s not going to healthcare, is it by definition waste?

Dave Schuler January 7, 2013 at 3:33 pm

In essence, that’s why my thinking on healthcare reform has evolved as it has. 47 years ago I thought the way to reform healthcare was healthcare subsidies for poor elders. By the mid-70s it was pretty clear that idea would no longer work so I favored a single payer system.

By the mid-90s it became equally clear to me that the system was so messed up that radical reform was necessary. That’s where I am now.

The obvious place to look for efficiencies is in administration. But that’s inherent to the entire rest of the system. You can’t lower the administrative costs and leave the rest of the system intact.

PD Shaw January 7, 2013 at 3:53 pm

I tend to think that our system of government works best with some form of mixed-economy arrangement; its better if the private sector is maintained for cost-control and price discovery; and the government serves as a watchdog for abusive insurance practices and assist insurance companies in establishing standardized practices that can be used to control costs.

The government cannot take over healthcare in this country without healthcare becoming far more subject to popular pressure through the democratic process than other countries tend to accept and far more subject to judicial interference based upon Constitutional notions of limited government, which again other countries do not tend to accept.

Drew January 7, 2013 at 4:45 pm

“When you propose incremental non-structural approaches to healthcare reform, as the WP editors do or as are embodied in the PPACA, you must believe one of two things (or some combination): a) that providers will willingly take a pay cut or b) that they won’t make the billing up in some other way, either negating the savings you’ve projected or pushing them into some other component of the healthcare system, e.g. Medicaid or private insurance.”

Well, well, well. Perhaps this is a fundamental point of departure, but I believe – as anyone here should know by now – that introducing price to the consumer will retard useage. It seems to in every other environment. steve once noted in an Obamacare debate that his practice would just invent billing to make up for ObamaCare price restrictions. I called him out on that as fraudulent. (to be clear, I don’t think he really meant they would charge for invented tests etc – I think it was the heat of the debate) But Dave is presupposing this would happen. I have two issues with that: 1) it is, well, malpractice, and I think more of the profession, and 2) if its that easy, and health care professionals are that venal, why aren’t costs even higher yet right now??

Any move to price cognition is in my opinion a positive step. Right now too many people believe in a free lunch.

Steve Verdon January 7, 2013 at 5:24 pm

First, even in businesses with highly compensated employees, high healthcare costs cut into the bottom line. Second, high healthcare costs are particularly troublesome in low margin businesses.

Let me try it this way….

Without health care benefits employers would be paying the same wage in a competitive labor market as with health care benefits. As such, I don’t see why health care benefits occupy a “special place” in a businesses budget other than that they are rising fast…that is, and rapidly rising portion of employee compensation would just as special.

Andy January 7, 2013 at 7:42 pm

Without health care benefits employers would be paying the same wage in a competitive labor market as with health care benefits.

When employers drop health care coverage, do they increase wages? Serious question. With the few examples I know of the answer is no.

steve January 7, 2013 at 7:45 pm

” if its that easy, and health care professionals are that venal, why aren’t costs even higher yet right now??”

Think of it as a variation on the income effect. Most people really are not income maximizers. They look to make a certain, usually expected, income. Many docs leave a lot of income on the table. We certainly do. If we lost a lot of income, we could pick some of that up. There are a number of papers on supplier induced demand. It is real, and most of it is not malpractice or unethical. There is a lot of discretion in how medicine is practiced.

An interesting corollary to this is the fact that rural hospitals tend to charge less for care. Given a monopoly, they should be able to set prices much higher, but they do not.

“I predict that such a program will incentivize seniors to reduce utilization,”

Not that many seniors do anything other than what is suggested to them by their physician. Might make them less likely to seek care to begin with, but at least for those who had a real problem, that just increases costs.

Steve

Jimbino January 8, 2013 at 5:29 am

Half the healthcare problem could be solved by forcing all healthcare providers to publish prices and outcomes on the web. The other half would be solved by getting employers out of the healthcare insurance business or taxing those benefits.

Healthcare utilization and pricing would go down and value would go up, as it has in the Walmart model. Walmart provides great value and employment for thousands, advertises all prices, and treats every customer, who pays with after-tax dollars, the same. Everybody is happy, except for those marginal producers (mom & pop) who’ve been driven out of the market. This is how a free market should work.

Healthcare in Amerika will continue to satisfy nobody as long as licensing, certification and limiting market entry are maintained, healthcare providers continue to hide all pricing information, and patients receive pre-tax financed care with other peoples money.

One sure way to return to the happy healthcare days of the 50s would be to outlaw all health insurance!

Janis Gore January 8, 2013 at 6:12 am

My nurse SIL earned a master’s in hospital admin. She couldn’t afford the cut in pay from being a cardiac nurse supervisor.

TastyBits January 8, 2013 at 9:05 am

@Dave Schuler

The physician-driven over-utilization would still be paid for by the patient. If the $5,000 threshold is met, everything will be done that year.

@Drew

I am without health insurance, and we treat healthcare no different than any other purchase. You have also stated health insurance is not insurance. I agree with this. I cannot get a preventive brake job with my auto insurance.

@steve

Presently, you are assured you will be paid for most of your work. If the patient paid out of their pocket, that would no longer be the case. You would need to evaluate each patient’s ability and/or willingness to pay for your service. Any tests, medications, and everything else would be the same.

Most people will quickly learn not to wait until a problem has gotten too bad before seeking treatment. When I was growing up, my family was comfortably middle income, and my parents had health insurance. We did not go to the doctor for every sniffle. A prescription for one was a prescription for all.

@Jimbino

I agree with getting employers out of health insurance. I also agree with publishing prices, but presently, there is no incentive for the individual to limit costs.

steve January 8, 2013 at 10:10 am

” You would need to evaluate each patient’s ability and/or willingness to pay for your service. Any tests, medications, and everything else would be the same.”

Driving up admin costs. The US already leads the world in admin costs. Not sure why we would want to increase it even more.

“Most people will quickly learn not to wait until a problem has gotten too bad before seeking treatment.”

Decidedly optimistic. Dealing with real life people, I am not so sure. At any rate, it might be true for people with no insurance. For those with a $5000 deductible they are going to chew that up anyway if it requires any kind of procedure or admission. You really need to remember how health care dollars are spent. Most of the money is spent by relatively few people. IOW, those spending, are mostly spending a lot.

Steve

Steve Verdon January 8, 2013 at 10:36 am

When employers drop health care coverage, do they increase wages? Serious question. With the few examples I know of the answer is no.

Eventually, yes. If the employee is “worth” $40,000/year in terms of total compensation to a firm, then it is most likely worth that much to another firm as well. So, without health care benefits a competing firm could scalp employees. Minimal training and with an abundance of human capital, and possibly even some valuable insight into how a competitor works…yeah, the wage rate would rise. Maybe not instantly, but over time it would….if that labor market is competitive. If the employer is a monopsonist then it may not rise…but then again, employees are probably paid less than they are “worth” to begin with.

PD Shaw January 8, 2013 at 11:01 am

I learned that one of the requirement of Obamacare will be to require employers to report the value of healthcare benefits on the W-2. I’ve heard that is supposed to set the table for taxing healthcare, but its also possible that from a policy or planning perspective, knowledge of how much compensation is in the form of healthcare might be useful.

PD Shaw January 8, 2013 at 11:13 am

Drew, it seems to me that steve is making an argument little different than that made by advocates of malpractice reform: The costs of malpractice give incentives for additional procedures that pose an additional cost on the system. It presupposes a range of treatments that are acceptable, and at the margins, discretion will be exercised towards overuse.

TastyBits January 8, 2013 at 1:15 pm

@steve

Presently, you are reimbursed for time and materials, but when you cannot count on that reimbursement, you will need to ensure you get paid. Your easiest option would be 50% up front and 50% upon completion.

Today, many seniors are tapping into the principle of their retirement funds, and they do not have $5,000 for the initial deduction. Unless you are willing to forego the $5,000, there will be no additional costs.

You keep saying that 80 to 90% of the costs are from 20 to 10% of the patients. I am guessing our definition of “optional” is vastly different. At one time, doctors relied upon training, experience, consultation, and testing. When today’s routine tests were new, they were not done routinely. Knee, hip, and back surgery was rarely done. A cane, walker, or traction were the treatment. Adding two years to an old person’s life was unheard of.

When I was young, tonsillectomies and hysterectomies were the only elective surgery done. A hospital trip was for a serious injury. Since that time, healthcare costs have increased substantially, and from my experience, utilization has increased substantially. If you are correct about a small number of people accounting for costs, the current debates are a lot of nonsense. Costs for that small number should be capped, and the problem will be solved.

PD Shaw January 8, 2013 at 1:49 pm

@Tastybits, I think if you look around you’ll see claims that btw/ 30 and 50 percent of medical expenses are incurred within the last months or year of life. Obama mentioned this, which was part of the source of the death panels notion. I don’t see this as surprising that we would spend the most when it was a matter of life and death, but it seems like people tend to believe that if the effort was unsuccessful then it was misplaced from the beginning. For purposes of this discussion, we appear to be spending a lot on healthcare in response to car accidents, strokes, heart-attacks, etc. — situations in which people may not be competent to make healthcare decisions, but presumably want to live.

TastyBits January 8, 2013 at 2:36 pm

@PD Shaw
… car accidents, strokes, heart-attacks, etc. …

Traditional insurance would be able to address these.

The healthcare cost problem cannot be solved by any of the solutions put forth. The “free-market” based solutions are not free-market. Implementing caps for individual items and/or a total is the only solution. “Death panels” would be one of several panels needed.

The present situation would be similar to issuing an all-you-can-eat card to everybody, and there would be no limits for where you could eat or how much. If I can eat at McDonalds or Morton’s Steak House, I am going to Morton’s. Morton’s will be reimbursed for anything eat, and they will expand to accommodate the increased customers. The ranchers will raise prime beef to accommodate Morton’s. China, tablecloth, utensils, staff, and everything will be reimbursed as well.

There is no incentive to limit costs. The incentive will increase costs. Healthcare is no different. The UK, Canada, and France have models the US can use. We have a two tier system for education, and healthcare will be the same.

Dave Schuler January 8, 2013 at 4:27 pm

The UK, Canada, and France have models the US can use.

None of those systems are lowering costs. They’re only slowing the growth of costs. According to the OECD every year the U. S. pays about twice per capita what Canada, France, the U. K., or Germany do. As long as a) costs are increasing monotonically and b) the rest of the economy is growing sluggishly if at all, that’s still too fast.

I don’t believe the prevailing story about international healthcare systems. Here’s the story I believe.

Once upon a time (say, 70 years ago) per capita annual spending among the developed countries was roughly the same. Some time shortly thereafter most of them implemented some kind of national healthcare system. Germany had implemented theirs significantly earlier. We didn’t implement one at all. We did, however, allow the compensation that employees received in the form of employer-paid healthcare insurance to go untaxed, providing an incentive to employers to implement such plans and employees to take some of their compensation in that form.

The systems that were implemented gave the countries that implemented such system bargaining power to restrain costs but didn’t make them go down.

45 years ago we implemented a system of insurance for the poor and a different one for the elderly. These systems went largely without oversight for nearly 15 years. During that period the number of beneficiaries, the spending per beneficiary, and real per capita annual healthcare spending soared along with physician incomes. When Congress saw the price tag, they panicked and made some belated reforms. Those reforms have restrained the growth of healthcare spending a bit.

The virtue of my story is that it fits the timeline and the scope and rate of spending increases. It also does not suggest that we’re can can reduce costs by emulating the U. K. , Canada, or France. The best we can hope for that way is to slow their growth and our spending is so high that’s not good enough.

steve January 8, 2013 at 8:59 pm

“It also does not suggest that we’re can can reduce costs by emulating the U. K. , Canada, or France. The best we can hope for that way is to slow their growth and our spending is so high that’s not good enough.”

I would still note that these other systems are very aware of cost issues. They are already trying to lower costs. Compare that with our system. Also, germane to prior discussion.

“We find a price elasticity of supply in the range of 0.27 to 0.34 for orthopedists and 0.57 to 1.26 for cardiologists. While in most markets an upward sloping supply curve would be unsurprising, in the health service market, this means that physicians treat patients according to service price levels. In other words, a physician with a higher price-cost margin will perform more services. On the demand side, we find a service price elasticity of demand in the range of -0.32 to -0.43 for orthopedics and -0.05 to -0.28 for cardiology patients. This finding supports prior research which suggest that patients are price sensitive, but relatively inelastic (Manning et al. [1987] and Keeler and Rolph [1988]).”

Steve

Dave Schuler January 8, 2013 at 9:23 pm

Note distinction between “reduce costs” and “reduce the rate of increase of costs”.

jan January 8, 2013 at 11:00 pm

There is no incentive to limit costs. The incentive will increase costs. Healthcare is no different. The UK, Canada, and France have models the US can use. We have a two tier system for education, and healthcare will be the same.

Sadly, I think you are right.

TastyBits January 9, 2013 at 8:52 am

@Dave Schuler

My point was that if the US wants universal healthcare with no limits go socialist. I was trying to stay away from using “socialist” to describe the system.

Once you have a single payer, caps can be put in place, or the number of doctors is reduced. This would increase wait times, and everything downstream would be reduced. Some people would switch to private healthcare, and to keep them from switching back to public healthcare for more serious problems, everybody would be required to start in the public system. Some would drop off due to the wait times, and others would be cured before their appointment.

If the vast majority of money is consumed by a small number of people, preventive measures are a waste of money. It would be cheaper to amputate a few legs rather than try to prevent anybody from getting diabetes.

Malpractice insurance and defensive medicine could be eliminated because the government can only be sued with its permission, and any additional laws could be passed if needed.

What is now in place is a “ManBearPig” system – half man, half bear, half pig.

PD Shaw January 9, 2013 at 9:24 am

I would be curious about elasticity across many areas of healthcare. I really don’t see any reason that a customer cannot purchase the ordinary costs of healthcare associated with a normal check-up. I should be able to get a flat quote or a flat quote, plus costs. Little different from dentists.

I don’t think this is where the major healthcare cost problems occur, but why make it a federal problem? Doing so increases administration costs and reduces the information available to the government/insurance companies on price. That is, if a physician can make a comfortable living and find qualified staff, the information is transferable to far more difficult healthcare problems.

Steve Verdon January 9, 2013 at 11:31 am

The UK, Canada, and France have models the US can use.

Dave has responded to this nicely, but I’m not sure the point has really been grasped. Lets use some simple numbers and basic arithmetic to highlight the problem.

Economy: $100
Growth Rate: 2%.
Health Care Spending: $15
Health Care Spending Growth Rate: 7%

How long until health care spending is basically our entire economy? 41 years in this example. Suppose we cut spending in half then how long? 131 years. So yeah, an improvement…a significant improvement, but the 100% mark is too high, right now 15% of the economy is health care and given the health care outcomes that is way, way too high. In the high growth scenario, health care becomes 30% of the economy in 15 years, in the low cost scenario 48.

Bottom line is the health care industry is ripping us off.

TastyBits January 9, 2013 at 2:34 pm

@Steve Verdon

My solution would be health insurance as insurance – auto, home, etc. Employer provided insurance would be taxed as income, and it would be priced as a comparable private policy. All other healthcare would be no different than automobile care. The problem is that I am in a group of one.

In healthcare, increased supply creates increased demand, and the increased demand is equal or greater than the increased supply. The demand is paid for by another entity, and it will tend towards infinity.

In the existing system, the healthcare providers and users are acting rationally, and if everybody is entitled to any and all healthcare, the healthcare payers are also acting rationally.

Dave Schuler January 9, 2013 at 3:55 pm

Steve’s example is actually somewhat more dire than he may realize. Let’s look at it again:

Economy: $100
Growth Rate: 2%.
Health Care Spending: $15
Health Care Spending Growth Rate: 7%

In that example half of all of the growth in the economy is from healthcare. The growth in the non-healthcare portion of the economy is 1%. Since 60-70% of healthcare is paid for by government at one level or another, the money to support it must come from taxes, be borrowed, or be created in one fashion or another. Assume it comes from taxes. That means that the portion of growth that’s left in the non-healthcare portion of the economy is between .3 and .4%. That’s $3 or $4 billion per trillion. Not enough for future growth.

What we’ve got to do is limit the growth in healthcare to the general growth rate or the growth rate in the non-healthcare economy. Nobody’s system is doing that.

Steve Verdon January 9, 2013 at 6:53 pm

Dave,

What we’ve got to do is limit the growth in healthcare to the general growth rate or the growth rate in the non-healthcare economy. Nobody’s system is doing that.

I have made this point and again, but most people don’t comprehend this…or they do and just simply chose to ignore it.

Tasty,

My solution would be health insurance as insurance – auto, home, etc. Employer provided insurance would be taxed as income, and it would be priced as a comparable private policy.

This idea is, politically speaking, such a dead horse there aren’t even any bones left at this point. Such policies would not include plethora of medical treatments that are currently covered. For example, no more coverage for child birth. After all, that is something people actually work towards generally speaking. Insurance like auto insurance covers things you usually seek to avoid, are rare and are costly. Which would lead to the next batch of procedures that would simply not be covered such as:

Pap smears,
Flu shots,
Annual check ups,
Pretty much anything that is routine/somewhat predictable.

To use the car analogy it would be like having car insurance that covers:

Oil changes,
Break changes,
Tire purchases,
Tire rotation and so froth.

Nobody wants health care like that.

Steve Verdon January 9, 2013 at 6:55 pm

Regarding this,

What we’ve got to do is limit the growth in healthcare to the general growth rate or the growth rate in the non-healthcare economy. Nobody’s system is doing that.

The upside is that this will eventually happen. I’ve also said, repeatedly, that such a process cannot be sustained indefinitely despite what some know-nothings think. I’ve also said, that the better approach is to fix it now vs. letting it fix itself. You think fixing it now would be bad for some people…wait till it fixes itself.

Steve Verdon January 9, 2013 at 6:59 pm

Oh, and Tasty, another problem are people who have pre-existing conditions and also those who are high risk. The first group wont be able to get insurance (they are already sick, just as you can’t buy car insurance once you’ve already been in an accident), and the second group will have higher premiums. The current methods like with employer provided health care where everyone pays the same premium (pooling) is not feasible. That kind of inequality of outcomes would also make turning health care insurance into insurance also unpopular. The political attack ads practically write themselves. Politically speaking you’d probably fare better if you actually advocated killing babies and puppies.

steve January 9, 2013 at 10:10 pm

The amount we spend on routine care is very small. Again, if you want to talk about this, make sure you know how the money is being spent. 15% of people account for 75% of our spending. 50% of people account for 3% of our spending. Our health insurance mostly acts like insurance. We can save a bit of money on check ups and stuff (we would probably get hurt by not paying for flu shots), and it is the area where I think market mechanisms would most likely work, but not enough to make a large difference.

Steve

Dave Schuler January 10, 2013 at 7:27 am

The amount we spend on routine care is very small.

That’s supported by the overall statistics. Previously, I’ve posted a graph here of healthcare spending in various age cohorts in the U. S., France, the U. K., etc. U. S. spending for people under age 55 on a per capita basis is actually lower than in those countries. It’s only on behalf of patients who are over 65 that our spending is significantly higher.

There are many possible reasons for this and we could palaver about them but the one thing that I think is pretty clear from that fact is that over-utilization (at least by people under age 55) is probably not the principle factor behind our significantly higher spending for individuals over age 55. That in turn suggests that strategies intended to introduce market discipline, at least for younger individuals, won’t be as effective in reducing costs as its proponents believe.

This is a political sword that cuts both ways. IMO Republicans are wrong in their emphasis on HSAs. However, Democrats are wrong, too, in believing that if we’re just smarter about spending it will reduce our costs. Our problems are structural. As long as we’re willing to spend a lot of money on healthcare for older individuals, no nibbling around the edges will change much.

TastyBits January 10, 2013 at 9:24 am

@Dave Schuler

.. It’s only on behalf of patients who are over 65 that our spending is significantly higher.

For the government, Medicare is the problem. Cut the actual budget 1% each year for 10 years. This would apply to all goods and services reimbursed by Medicare. To keep the providers from increasing services, the amount over the projected budget would be included as an increased reduction.

2012 budget = X(0) dollars
2013 budget = X(1) = 0.99X(0) dollars
2013 usage = 1.2X(1) dollars
2014 budget = 0.99X(1) – 0.2X(1) dollars

If they do not like it, imaging companies, hospitals, etc. can pack their equipment and set up shop in Venezuela, Cuba, Nigeria, Canada, or France. There will be no reduction in supply. Somebody will always take any money supplied by the government. The problem with this solution has been summed up by a wise man:

The political attack ads practically write themselves. Politically speaking you’d probably fare better if you actually advocated killing babies and puppies.
– Steve Verdon 2013

Dave Schuler January 10, 2013 at 9:27 am

Cut the actual budget 1% each year for 10 years.

Or the Congress could stop voting “doc fixes” every year or so. Said another way, the Congress doesn’t even need to act affirmatively, i.e. by intervening to cut costs. They could merely stop intervening to increase costs.

But that’s the essence of the problem: the Congress isn’t willing to cut spending. And people keep re-electing them.

TastyBits January 10, 2013 at 10:21 am

It looks like I proposed the “doc fix”, but I think my solution may be simpler. Either way, you are correct; it is a political problem not a monetary problem. I do think the present economy is distorting all projections.

The US is a singular entity. Immigrants have always been an important part, and they may be part of the solution. They would increase the workforce, but more importantly, they would increase the “entrepreneurial spirit” of the country.

Steve Verdon January 10, 2013 at 11:01 am

The amount we spend on routine care is very small. Again, if you want to talk about this, make sure you know how the money is being spent.

I didn’t say it was otherwise. Really, learn to read (seriously steve, work on that reading comprehension thing, you’ve done this many times in the past, you assume I’m talking about one thing then make an idiotic snide comment). My point was that things that were previously covered that people only paid their co-pay for will no longer be covered. They wont like it. They will bitch and whine about it. It will make good political ad fodder.

And, you ignored the child birth aspect of what I mentioned. Anything else that people actively seek will likely no longer be covered. That is fairly expensive to most people and they will whine and bitch about that the most.

Now, in the future, when responding to my posts, engage brain and respond to what I’ve written not what you think/wish I had written. My post was about why the idea of making health insurance like other insurance is a politically dead horse…so dead you’d probably have trouble finding it even with an expert forensics team.

Our problems are structural. As long as we’re willing to spend a lot of money on healthcare for older individuals, no nibbling around the edges will change much.

Pretty much. Our problems are those 65 and older and look they are very heavily subsidized in their consumption of health care. What a shock…they use alot and they are heavily subsidized.

Now, say it with me (should be easy, you’ve said it before for other things) subsidize something you get more of it. Subsidize health care consumption by the elderly….you get more health care consumption by the elderly.

The US is a singular entity. Immigrants have always been an important part, and they may be part of the solution. They would increase the workforce, but more importantly, they would increase the “entrepreneurial spirit” of the country.

You wold need alot of immigrants. Probably tens of millions, maybe even a hundred million. Another political dead horse.

Steve Verdon January 10, 2013 at 11:09 am

By the way Tasty, not trying to be a dick here. Just pointing out problems with various strategies to dealing with our health care problems. I agree that in theory some of your ideas would work, but there just isn’t the political will power to implement any of them. This is one reason I stopped writing over at OTB. I just became depressed about it. Every solution that one comes up with is politically infeasible. I’ve said before that the solution set of politically feasible solutions to our health care problem is the empty set. So the situation will continue along until it fixes itself. And boy will that be uuuuuugly.

Steve Verdon January 10, 2013 at 11:25 am

Or the Congress could stop voting “doc fixes” every year or so. Said another way, the Congress doesn’t even need to act affirmatively, i.e. by intervening to cut costs. They could merely stop intervening to increase costs.

IIRC back when PPACA became law Krugman wrote a blog post or opinion piece about what a stellar job Obama did in reducing the future cost increases with regards to Medicare. Again, going by memory, Krugman assumed that Congress and Obama would not implement any more “Doc Fixes” going forward as well. And look…Krugman was totally wrong. Utterly wrong.

Chances are we will always get the “Dox fix”. You don’t have to be an expert in Bayesian probability analysis and decision theory to see this either. Every year for the last 10-12 years there has been a “Doc fix”. Now suddenly Congress and Obama have a back bone? GMAFB. People who thought this were delusional, mendacious, or fools.

I wrote about this almost two years ago, as did Dave.

TastyBits January 10, 2013 at 12:51 pm

@Steve Verdon

Immigrants would provide a different viewpoint, and they may have different solutions. The legal and illegal aliens are hard working folks, and if they could vote, they may surprise a lot of people. (I do not want to get into the amnesty issue.)

I got over being depressed a long, long time ago. I now look at politics as entertainment. Both sides spout their slogans with little understanding of reality. The foot soldiers of both parties actually think their leaders have the same agenda as they do.

The partisan commenters on @Dave’s blog are not as dogmatic as the OTB crowd. Most of the regular commenters have a limited set of responses. The amusing part is the high regard they have for themselves.

Steve Verdon January 10, 2013 at 4:31 pm

Tasty,

I’m not disagreeing with you about the benefits of more immigration…I’m just saying it wont happen given the current political situation.

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