Health Care Reality Does Not Care About Partisan Delusions

 

While I can think of at least a score (or two) of salient facts regarding the current health care reform debate, there are five that suggest that the politically palatable “plans” (left or right) are delusional. Here are five reality checks for America’s partisan “reformers.”

Reality Check 1 – While in real time price-wage terms, the average earner today pays less than one quarter of what they paid in 1958 for non-medical products and services, the average earner now pays four times the time-price for the health care services. (Time price is the number of hours of work required to pay for a product or service).

Reality Check 2 – Health Economists acknowledge that massively increased health expenditures by third parties, public and private insurance, since 1945 has contributed to the historically steep rise in the costs of medical care. Between 1910 and 1945 the health care rate of inflation (3.2%) was nearly identical to the consumer rate of inflation.

Driven by the creation of tax exempt insurance plans in and since WWII, and then by massive new insurance programs created and funded by government (Medicare, Medicaid, etc.) it has been estimated that nearly half of the increase in prices since the 1940s has been due to the use of comprehensive health insurance rather than direct pay for services by choice driven consumers (who, when paying out of pocket, are more selective).

Reality Check 3 – The dramatic growth of federal spending on health care (it is now 20 to 25 times greater per person than in 1946) has resulted in half of the medical sector being directly funded by Washington. The remainder of the market is highly restricted and mandated (Obamacare) and much of it indirectly funded via “redistributionist” regulation. Health care inflation is not only driven by the form of direct payment (third-party insurance) but, as experienced in the sky rocketing inflation of higher education, it is also driven the massive increase in demand created by huge government expenditures.

Reality Check 4 – Overall longevity has not increased in proportion to new government health care expenditures. In other words, the marginal return (how long people live) on new health care expenditures has been dropping for decades. As health care expenditures, since 1950, have risen from 4 percent of the GDP to 18 percent of the GDP, it is questionable if any more government expenditures will actually improve long-term health.

Reality Check 5 – Obamacare is in a death spiral as major insurance companies are pulling out and the unsubsidized young and healthy avoid insurance. Medicare is projected by the Medicare Trustees and the CBO to be insolvent between 2026 and 2028 (if you ignore Obamacare double-counting), and medical providers are increasingly unwilling to provide service (especially to Medicaid clients). Individual mandated health plans are now so expensive that without government subsidies they are often unaffordable.

Conclusion

There is no way to halt medical inflation and drive down medical costs without reform that removes government mandates on insurance policy services and prices, transfers responsibility for insurance purchases (or direct pay) services to consumer choice, massively reduces overall government health care expenditures, removes tax deductions for employer provided insurance, removes regulations mandating care in emergency rooms, etc.

In other words, either we return to a free market with lower prices, better service, and price rationing by the market, or we become a fully socialized system with assembly line service, and health services rationed by Washington decree.

Of course, both choices are politically unpalatable…so expect the health care reform pain to continue, with reform “fixes” never “fixing” health care.

Published in Healthcare

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  1. Pilli Inactive
    Pilli
    @Pilli

    There may be one way to be effective in getting a healthcare environment that works.

    Force Congress and all government workers to be on the same plan they propose for us peons.

    • #1
  2. tigerlily Member
    tigerlily
    @tigerlily

    Good analysis. Thanks. Regarding your Reality Check #4 – I assume it’s also a fact that even if longevity has not kept pace with health care expenditures in recent decades, years left to live after diagnosis of life-threatening disease such as cancer, heart disease has increased. And, I think that’s a factor that also needs to be taken into account.

    • #2
  3. DocJay Inactive
    DocJay
    @DocJay

    Absolutely spot on !   This should be an infomercial.

    • #3
  4. DocJay Inactive
    DocJay
    @DocJay

    This should also be on the main feed.  Mostly because I agree with it and people need to see it!

    • #4
  5. Dave Sussman Member
    Dave Sussman
    @DaveSussman

    A little (big) bird told me to check this out … Agree with @DocJay. This is the nutshell.

    Neo-liberalism ultimately comes down to a belief centralized government cures all. The responsibility of its appropriate departments is to control every aspect of commerce and ultimately the economy.

    For the past 9 years this was demonstrated with QE 1-2-3 -operation twist and then 4, ZIRP, Cash for Clunkers, Stimulus, Son of Stimulus, Grandson of Stimulus and of course whatever they call that thing where everyone has been shepherded into an ever rising casino equities market. I could go on.

    My point is Newton’s law always seems to be conveniently discarded by self-serving prophets. Whatever goes up must come down. Natural law isn’t a bad thing. Preventing natural law is. Insurance, Pharma, and government have become braided together causing the inflation you show which if left to their own desires, could continue on a trajectory that would make tulip bulbs jealous.

    Or not. I’ve been wrong for 7 years.

    • #5
  6. Cato Rand Inactive
    Cato Rand
    @CatoRand

    This is quite probably the truest thing I’ve ever read.

    • #6
  7. Mark Hamilton Inactive
    Mark Hamilton
    @MarkHamilton

    tigerlily (View Comment):
    Good analysis. Thanks. Regarding your Reality Check #4 – I assume it’s also a fact that even if longevity has not kept pace with health care expenditures in recent decades, years left to live after diagnosis of life-threatening disease such as cancer, heart disease has increased. And, I think that’s a factor that also needs to be taken into account.

    For the benefit of clarity: to some degree increased expenditures on health care since WWII should have contributed to a longer life. However, for every new dollar spent, the “longevity” return has diminished to very little (especially for government expenditures).

    Studies on the different regional expenditures on Medicare show little correlation between the amount spent and improved health outcomes. And an oft quoted study on the impact of increased Medicaid spending in Oregon (from a pilot program expansion) showed NO improved health outcomes for the benefited population (albeit that the newly insured felt less depressed about their medical needs).

    Interestingly,there is also evidence that increased private spending, unlike government expenditures, is more highly correlated with improved health outcomes. Apparently, when choice is more effectively given to employers or individual purchasers, they choose (and spend) more wisely.

    Who would have thought? (wink).

     

    • #7
  8. Mendel Inactive
    Mendel
    @Mendel

    The irony is that any serious left-wing health care economist would agree with all of your points. Of course, they would then come to the opposite conclusion – that the most efficient solution would be for the government to take control of both the payment and rationing sides of the healthcare choice.

    One point that nobody seems to pay heed to is the American system of healthcare – both before and after the passage of Obamacare – is really a strange hybrid of free market and government control which gives us the worst of both worlds. If our only priorities were to get our best bang for the dollar while not letting anyone get priced out of “necessary” care, single-payer would probably be better over the medium term than our current system.

    Of course, those aren’t our only priorities: we also value our freedom to choose and not be coerced into economic decisions, and our tradition of not nationalizing huge sectors of the economy. And we all agree that over the long-term, market solutions are always more sustainable than top-down solutions.

    But from our present position, it’s hard to argue that single payer would be worse than what we currently have from a pure cost/benefit standpoint.

    • #8
  9. Kate Braestrup Member
    Kate Braestrup
    @GrannyDude

    Mark Hamilton (View Comment):
    Studies on the different regional expenditures on Medicare show little correlation between the amount spent and improved health outcomes. And an oft quoted study on the impact of increased Medicaid spending in Oregon (from a pilot program expansion) showed NO improved health outcomes for the benefited population (albeit that the newly insured felt less depressed about their medical needs).

    Interestingly,there is also evidence that increased private spending, unlike government expenditures, is more highly correlated with improved health outcomes. Apparently, when choice is more effectively given to employers or individual purchasers, they choose (and spend) more wisely.

    My state-provided insurance has paid for life-enhancing (not just life-extending) glorious modern medicine, and for extremely expensive, “Hail Mary” chemo that did nothing but make the last weeks even more painful and unpleasant. It’s a complicated problem.

    I do agree, however, that if the costs were being born by the family rather than the insurance company, different choices might have been made—by the patient and by the doctor. Yes to hip replacement, no to the “it’s never worked before, but maybe you’ll be the first!” napalm thrown at end-stage lymphoma…?

    Since patients often lack the expertise (and sometimes the willingness) to evaluate treatment options, what do you think about changing the incentives for doctors by, for example, paying-by-diagnosis (e.g. “bum hips” and “lymphoma”) rather than by procedure?

    • #9
  10. Kate Braestrup Member
    Kate Braestrup
    @GrannyDude

    Mendel (View Comment):
    And we all agree that over the long-term, market solutions are always more sustainable than top-down solutions.

    Well, and doesn’t single-payer change the incentives for coming up with new ways to treat illness? Doesn’t the U.S. market drive innovation?

    • #10
  11. Thomas Stack Member
    Thomas Stack
    @ThomasStack

    What a fantastic article! Thank-you for contributing.

    I think we’re doomed.

     

    • #11
  12. Bob Thompson Member
    Bob Thompson
    @BobThompson

    Mendel (View Comment):
    Of course, those aren’t our only priorities: we also value our freedom to choose and not be coerced into economic decisions, and our tradition of not nationalizing huge sectors of the economy. And we all agree that over the long-term, market solutions are always more sustainable than top-down solutions.

    You and I may have these other priorities and we may agree on the desirability of market approaches but we are far from a situation where all Americans agree. I mean if the above were true this Congress would have a nice bill ready by now.

    • #12
  13. Rodin Member
    Rodin
    @Rodin

    Tom Stack (View Comment):
    What a fantastic article! Thank-you for contributing.

    I think we’re doomed.

    Precisely. I have said this before, but the post reinforces: The architects of Obamacare did not really care what the content and cost of the system was so long as it injected government and made any return to a free market politically undoable. With these things accomplished, the system would fail at some point and a government run national health system would be stood up in its place. That Obamacare hasn’t failed more spectacularly and sooner was a reflection of the political calendar — Obama kept deferring some elements as to mask the consequences until after his re-election.

    • #13
  14. Stephen Bishop Inactive
    Stephen Bishop
    @StephenBishop

    There is another way. Try a model similar to that used inSingapour

    https://en.wikipedia.org/wiki/Healthcare_in_Singapour

    The exchange rate is 1.4SGD to 1 USD.

    • #14
  15. Larry3435 Inactive
    Larry3435
    @Larry3435

    Direct pay for non-catastrophic medical expenses would be a huge improvement, but it is essentially impossible because of the way that health care providers price their services.  Have you ever spent a night in a hospital?  They send you a bill that is so ridiculously inflated that you think it must be an accounting error.  $40 for a Tylenol?  Really?  The bill for the room itself is higher than the most luxurious suite at the Ritz, and that’s without the extra charges for the nurses and other staff.  I had a doctor who I didn’t even know stick her head into my room and ask “How are you doing?”  That showed up on my bill as a $500 “consultation.”

    Of course, the insurance company doesn’t pay anything like the amount on the bill.  More like 10% of that amount.  The main reason that everyone needs “medical insurance” is not to cover the expenses.  Rather, it is so that someone with some bargaining leverage can negotiate halfway reasonable rates for the services provided.

    Two solutions come to mind.  First, treat health care providers as common carriers – they would be required to charge all comers the same rate for any given service.  Second, allow consumers who would prefer direct pay to join co-ops, which would not “cover” medical expenses like insurance, but instead would negotiate rates which would then apply to their members.  Either or both of these would make direct pay a viable alternative.

    • #15
  16. Rodin Member
    Rodin
    @Rodin

    Stephen Bishop (View Comment):
    There is another way. Try a model similar to that used inSingapour

    https://en.wikipedia.org/wiki/Healthcare_in_Singapour

    The exchange rate is 1.4SGD to 1 USD.

    Quote from the linked article:

    Government spending on healthcare was planned to rise from SG$5.8 billion in 2013/4 to SG$7.1 billion in 2014/5, an increase of 22%.[4]

    There are a lot of moving parts in the Singapore plan. Median age in Singapore is comparable to but slightly less than the US. They have a mandatory health savings account that funds a lot of co-pays for routine care.

    • #16
  17. John Hanson Coolidge
    John Hanson
    @JohnHanson

    From my point of view, the fundamental problem is people’s conception of what “affordable” means.

    To most people who have had a job for a long time that meant what you paid for your employer insurance, + whatever other uncovered items you bought, and that ranged for most of us to be between 75% and 90% of the total bill, and we had zero visibility of the rest of that bill, it was being paid by a third party, and we did not know what the numbers really were.   The only time one had even a glimpse into this was if one was laid off, and decided to take COBRA and suddenly one was responsible for 100% of the cost.    So our expectation was based on thinking 20% of the total was the total, made worse by double digit price increases over the last several years.  Individual insurance was almost always unaffordable by any but really rich guys, and Obamacare just made this a lot worse.

    We need to change what our expectations are, and pay more out of pocket but for 70 years we have been trained to expect more!

    • #17
  18. Mark Hamilton Inactive
    Mark Hamilton
    @MarkHamilton

    Larry3435 (View Comment):
    Direct pay for non-catastrophic medical expenses would be a huge improvement, but it is essentially impossible because of the way that health care providers price their services. Have you ever spent a night in a hospital?

    In your example direct pay is impossible because hospital charges are an artifact of a broken system – the “markups” are necessary because there are many won’t or can’t pay for services. Because hospitals/emergency rooms are mandated to treat patients regardless of their financial means, hospital administrators charge a high markup on those who do pay.

    Think about it: in 1951 health insurance was not typically owned by most people. If a mother checked in at a hospital to have her baby, she stayed at least three days. Young parents routinely paid for such care “out of pocket”.

    Moreover, even today you can work out a cash basis for non-critical care. My senior citizen CPA has never had insurance; when he needed major knew surgery he offered to pre-pay in cash and got a 60 percent discount (after some negotiation with a couple of hospitals).

    It is our system that create extremely high prices, and the “feedback” loop that demands more government supported insurance, higher rates, and yet more demand to pay for those higher rates; i.e. demand driven inflation.

     

     

    • #18
  19. blood thirsty neocon Inactive
    blood thirsty neocon
    @bloodthirstyneocon

    Let’s give America a choice:  1) address all of the concerns you stated above with non-bastardized conservative solutions or 2) keep Obamacare as is and…

    • #19
  20. OccupantCDN Coolidge
    OccupantCDN
    @OccupantCDN

    The problem with a government program is that its spending other people’s money on other people. So the bureaucrats in charge of the program have no incentive to keep costs down, but since other people are receiving the services they’re paying for, they also have no incentive to keep quality up.

    So this is a recipe to drive down quality, quantity of services – while also driving up costs. Sounds like every socialist society in a nut shell.

    • #20
  21. blood thirsty neocon Inactive
    blood thirsty neocon
    @bloodthirstyneocon

    Paul Ryan, three words:  catastrophic care plan.

    Why is this so hard to understand? Stop screwing poor young people who have already been screwed by coming of age in the Obama wasteland economy. Just stop!

    • #21
  22. Kate Braestrup Member
    Kate Braestrup
    @GrannyDude

    I think I threw this into another debate about healthcare, but let’s see what you guys think:

    I’d like to have a healthcare credit card. Any foreseeable expense —e.g. having a baby, hip-replacement, mental-healthcare, check-ups—would still be worth shopping around for, since I’d know I would be paying back the cost over time.  And if I was hit by a bus or a bad diagnosis—e.g. Lupus, bipolar disorder—I could pay for the intially-expensive care that would allow me to stabilize and go back to work.

    I suppose, in theory, that it could be a government program, but I’m not sure it would need to be (other than providing relief for the medically indigent). I wonder if credit card companies might even find this a relatively lucrative gig, since everyone would be expected to get a card, and they could earn interest from those who don’t pay the whole amount at once (which would be most of us, probably)?

     

     

    • #22
  23. Rodin Member
    Rodin
    @Rodin

    Kate Braestrup (View Comment):
    I’d like to have a healthcare credit card.

    This is as good an idea as many that have been put forward. The basic problem is that, as a nation, we have become addicted to what is essentially a government program — whether by employee health care being a deductible expense, tax-free HSAs, etc. It has played hell with the market and all of the various approaches that do not involve removing government and restoring a free market will only incrementally affect this.

    • #23
  24. blood thirsty neocon Inactive
    blood thirsty neocon
    @bloodthirstyneocon

    Rodin (View Comment):

    Kate Braestrup (View Comment):
    I’d like to have a healthcare credit card.

    This is as good an idea as many that have been put forward. The basic problem is that, as a nation, we have become addicted to what is essentially a government program — whether by employee health care being a deductible expense, tax-free HSAs, etc. It has played hell with the market and all of the various approaches that do not involve removing government and restoring a free market will only incrementally affect this.

    Exactly, how much does procedure, medication, service XYZ cost? If I can’t know that, then nothing else really matters. Costs will go up.

    • #24
  25. Phil Turmel Inactive
    Phil Turmel
    @PhilTurmel

    Kate Braestrup (View Comment):
    I wonder if credit card companies might even find this a relatively lucrative gig, since everyone would be expected to get a card, and they could earn interest from those who don’t pay the whole amount at once (which would be most of us, probably)?

    How is this any different from what happens now to people who can’t pay?  Hospitals basically have to treat them, and then bill them.  Most will set up a payment plan if one is able, negotiate when one is not, and ruin your credit if you short them.  All of which happens if you fail to pay your credit card debt, too.

    I know it sounds great to responsible people who have no experience with this, but the problem is not financing — it’s consuming care whose cost simply cannot be paid.  Credit card companies will not voluntarily put themselves in the middle of this for people who couldn’t qualify for such a credit card anyways, unless they are subsidized to do so.  Again, trying to deal with consumption of a service without any means to pay.

    • #25
  26. Midget Faded Rattlesnake Member
    Midget Faded Rattlesnake
    @Midge

    Phil Turmel (View Comment):

    Kate Braestrup (View Comment):
    I wonder if credit card companies might even find this a relatively lucrative gig, since everyone would be expected to get a card, and they could earn interest from those who don’t pay the whole amount at once (which would be most of us, probably)?

    How is this any different from what happens now to people who can’t pay? Hospitals basically have to treat them, and then bill them. Most will set up a payment plan if one is able, negotiate when one is not, and ruin your credit if you short them.

    Once FICO Score 9 becomes more widely used, not so much, apparently. Currently, most credit card companies still use FICO Score 8, I think (while mortgage issuers and so forth are often still stuck on FICO Score 5 or something since it’s such a pain for them to switch over).

    FICO 9 will be great news for me when it’s widely adopted, since it’s medical billing issues alone that have repeatedly put my credit in jeopardy in the past. I wonder, though, what it means for those who are trying to collect on medical debt. I know lots of times, I’ve paid medical bills I don’t entirely understand or agree with out of fear my credit will be ruined, and I doubt I’m alone. How much less will they get paid if consumers no longer need be quite so fearful?

    • #26
  27. Phil Turmel Inactive
    Phil Turmel
    @PhilTurmel

    Midget Faded Rattlesnake (View Comment):

    FICO 9 will be great news for me when it’s widely adopted, since it’s medical billing issues alone that have repeatedly put my credit in jeopardy in the past. I wonder, though, what it means for those who are trying to collect on medical debt. I know lots of times, I’ve paid medical bills I don’t entirely understand or agree with out of fear my credit will be ruined, and I doubt I’m alone. How much less will they get paid if consumers no longer need be quite so fearful?

    First I’ve heard of this.  But it won’t matter in the end.  Somebody has to pay for those who don’t, or there has to be a way to decline treatment to those who won’t pay.  FICO 9 just sounds like a legal way for patients to deliberately screw medical providers.  Plus, the more hoops and red tape and bureaucrats one gets involved, the higher the total bill is gonna go.

    I know you’ve drawn a short straw medically, as has my wife, but I’m not convinced it’s the government’s job to level the unfairness of life.

    • #27
  28. Midget Faded Rattlesnake Member
    Midget Faded Rattlesnake
    @Midge

    Phil Turmel (View Comment):
    I know you’ve drawn a short straw medically, as has my wife, but I’m not convinced it’s the government’s job to level the unfairness of life.

    I agree with this. And, while, as far as I know, FICO did use some research done by federal bureaus to revise FICO 8 to FICO 9, as far as I know, FICO wasn’t strong-armed into changing how it handled medical debt. It merely observed that most people, who don’t get the short straw medically, but who do have occasional major medical episodes where a bill or two gets lost (as they so easily can) and their FICO 8 takes a hit, are actually more creditworthy than their FICO 8 score would suggest, and FICO 9 is described as an update to reflect this reality.

    I realize FICO 8 is probably accurate for me: I’ve never not been at risk of suddenly struggling to pay obligations due to having drawn the short straw medically.

    • #28
  29. Kate Braestrup Member
    Kate Braestrup
    @GrannyDude

    Phil Turmel (View Comment):

    Kate Braestrup (View Comment):
    I wonder if credit card companies might even find this a relatively lucrative gig, since everyone would be expected to get a card, and they could earn interest from those who don’t pay the whole amount at once (which would be most of us, probably)?

    How is this any different from what happens now to people who can’t pay? Hospitals basically have to treat them, and then bill them. Most will set up a payment plan if one is able, negotiate when one is not, and ruin your credit if you short them. All of which happens if you fail to pay your credit card debt, too.

    I know it sounds great to responsible people who have no experience with this, but the problem is not financing — it’s consuming care whose cost simply cannot be paid. Credit card companies will not voluntarily put themselves in the middle of this for people who couldn’t qualify for such a credit card anyways, unless they are subsidized to do so. Again, trying to deal with consumption of a service without any means to pay.

    Isn’t part of the problem,though, that people who have health insurance don’t actually see what their costs are, or experience paying for them? And that the free market doesn’t bring down costs, and there’s cost-shifting—the $40 Tylenol mentioned earlier?

    I am definitely NOT a finance person, so bear with me. I’m just trying to figure out how one could get back to a fee-for-service, free-market system.

    In theory, I could have my yearly mammogram done at any number of hospitals. Because my health insurance pays for it,  I have no incentive even to find out how much it costs, or whether it’s the same at all the area hospitals, let alone actually choose the least expensive.

    Ideally, I’d pay for it myself, right? That would give me an incentive to compare costs, and give the area hospitals an incentive to treat me as a consumer.

    But what happens if the mammogram shows something? Now we’re not talking $200; we’re talking a five thousand dollar biopsy or a ten thousand dollar lumpectomy.  Even if I find the hospital that will do it for $9,500, I won’t have that much money lying around.  On the other hand, if I can get through this health crisis, I can keep working. Just because I can’t pay for the surgery up front doesn’t mean I can’t pay it off over time. And yes, I could go negotiate a payment plan with the hospital, but remember: I’m sick. And anxious.

    So it would be good to have an agreed-upon, normal way to pay for healthcare the way there is for paying for car repair, wouldn’t it?

    • #29
  30. Phil Turmel Inactive
    Phil Turmel
    @PhilTurmel

    Kate Braestrup (View Comment):
    Ideally, I’d pay for it myself, right? That would give me an incentive to compare costs, and give the area hospitals an incentive to treat me as a consumer.

    Yes. Ideally, everything that’s routine or repeating, including maintenance meds.

    But what happens if the mammogram shows something? Now we’re not talking $200; we’re talking a five thousand dollar biopsy or a ten thousand dollar lumpectomy. Even if I find the hospital that will do it for $9,500, I won’t have that much money lying around.

    This is why high-deductible health insurance was paired with pre-tax health savings accounts.  We had even figured out that letting the balance roll over year-to-year would make it easier for people to keep at least the deductible on hand.

    On the other hand, if I can get through this health crisis, I can keep working. Just because I can’t pay for the surgery up front doesn’t mean I can’t pay it off over time. And yes, I could go negotiate a payment plan with the hospital, but remember: I’m sick. And anxious.

    The hand-wringing comes from the uncertainty — HSAs relieve that uncertainty without shifting the actual cost.  Well, it is pre-tax money, so a subsidy.  But a subsidy to those who prepare responsibly. (-:

    So it would be good to have an agreed-upon, normal way to pay for healthcare the way there is for paying for car repair, wouldn’t it?

    Yes, no reason for it be any different from paying for car repair.  Out of pocket or with already available credit.  And motivate those who haven’t set up either by making them wait long enough to set up credit with the provider.

    • #30
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