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August 10, 2009

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Have to admit, I was prepared to like TAS a lot more until I clicked on your final link. The miasma of testosterone is overpowering in that post and I worry about someone claiming that a post about the art of the pickup would be 'now officially the most gratifying blog posts I’ve ever written'. Still, it is only written by 1/26th of the authorship of the blog, though going thru the list, there are a number of people who are just names on the sidebar. Of course, with that many writers, you get a wide spread of opinions, so you don't want to throw the baby out with the bathwater, but I think the place has so many folks that there's not enough communication between them, which has always been something that I like about here.

"I assume there's a wide consensus to ban pre-existing conditions. But the ban becomes pointless if insurers can just jack up the prices for, say, Down Syndrome."

If the point of all this is just to force insurers to subsidize people unlucky enough to have very expensive medical conditions before they go for insurance, then the failure of incremental 'reform' is a feature, not a bug.

"Community pricing" is just another way of saying, "let's screw over the healthy people".

You want to subsidize medical care, put in in the general budget, don't pass laws requiring companies to engage in irrational pricing. What's next, forcing grocery stores to cut their prices for the poor?

For my part, I want to throw the baby out with the bathwater. It's Rosemary's baby.

Brett, I think one point is that people who develop expensive medical conditions have their policies cancelled, or they change jobs and so then end up in the "pre-existing" condion conundrum.

I presume the logic is: Found your own HMO! [/sarcasm]

Sorry, the baby with the bathwater comment was a reference to giving up reading the recommended blog on the basis of a handful of posts. It had nothing to do with health care.

Mr. Bellmore clearly doesn't "get" insurance, even though he has it.... He is also NOT a conservative, as *not* throwing the baby out is THE core concept thereof.

Anyone surprised?

If health care reform is defeated, one lesson should be that it is easier to scare people in misleading ways when your legislative reform package is so ambitious, ill-defined, complicated and all-encompassing that confusion [becomes] inevitable.

A Canadian-style single payer system is simplicity itself. But it's "politically impossible." So we're going to end up with another thousand-page monstrosity that no one understands and no one can explain coherently in less than an hour. And it'll either be defeated outright or whittled down into utter toothlessness.

The parallels with 1993 aren't staring us in the face anymore--at this point they're whacking us upside the head with a baseball bat.

Brett,

You make an excellent case for mandates. Combined with mandates, there is nothing irrational about community rating. Yes, it has some redistributive effects, but that's the whole point of insurance.

You can argue that the premium paid by a healthy person far exceeds any actuarially reasonable amount. But that assumes that the policy is for a limited period of time.

In a more sensible system, with guaranteed lifetime insurance availability, this is not so strong an argument. You can think of it one of two ways. The too-high premium for the healthy twenty-five year-old includes an implicit savings component which is used, again implicitly, to reduce the premium thirty or forty years later. Or, you can think of the excess as buying an option to remain insured. In other words, the twenty-five year old's premium is part actual insurance premium and part payment for the right to keep renewing the deal.

Part of the issue is that we can't agree on the problem. Is the problem you are trying to fix that there are uninsured people in the US, or that medical care costs so much in the US?

The problem of people who don't have good access to medical care is the most morally troubling problem, and is also relatively easy to fix. I'm on board with trying to fix that.

The second problem is much more difficult. It seems like Democrats are convinced that if we could just get the government to control enough of the system, magically things would be cheaper without any serious degredation of quality. This seems A) unlikely considering past government performance in health care (Medicare spending as much as Canada does but only covering 27% of the population) B) unneccessarily ambitious, and C) enormously subject to agency capture and political interest litigation (see for example military spending where finally canceling a project that should have been canceled years ago is seen as an enormous victory).

My problem is that Democrats use the moral leverage of the uninsured problem to try to get all sorts of other things (and deal with the problem of the uninsured less directly and less quickly than other approaches).

If they showed competence in fixing the problem of the uninsured, I'd have more confidence in their ability to not completely screw up the whole rest of the system.

A few people have alluded to it, but it needs to be spelled out more explicitly, I think, because Brett clearly doesn't understand: Even today, even with purely private insurance plans, you're "screw[ing] over the healthy people." They healthy people are paying for far more than they use, so that the insurance company can pay (some of) the claims of the unhealthy people and still make a profit in the aggregate. So why do the healthy people tolerate this? Because they know there's a decent chance that one day, maybe tomorrow, maybe years down the road, they'll be the non-healthy people.

How single payer changes this equation is by broadening the risk pool, thus diluting the risk. The more (currently) healthy people you get into the pool, the less everyone has to pay to cover the non-healthy people.

Of course, Brett's preferred alternative to "let's screw over the healthy people" seems to be "let the sick people go f--k themselves."

This seems A) unlikely considering past government performance in health care (Medicare spending as much as Canada does but only covering 27% of the population)

And as has been pointed out multiple times on this very blog, private-sector performance in the US in terms of costs is even worse.

Your oft-repeated 27% figure simply isn't a compelling argument against government involvement in health care, Sebastian. You need to let it go already.

"Part of the issue is that we can't agree on the problem. Is the problem you are trying to fix that there are uninsured people in the US, or that medical care costs so much in the US?"

But the correct answer is both.

If you can't bend the cost curve you can't afford to cover the presently uninsured without raising significant revenue from somewhere.

"(Medicare spending as much as Canada does but only covering 27% of the population)"

Do you think this is because Canadians are so much healthier, or that US system has incredible administrative costs because it is maximizing profit, or what?

I second Johnny Canuck's question to Sebastian. OK, so the US spends as much as Canada but only covers a fraction of the people. Why do you suppose that is?

I pretty much agree with all of JC's comment, now that I think on it.

Here's a few possible answers:

-Canada pays doctors and other medical professionals a lot less (although much more than France, which is to Canada as Canada is to the US in medical costs).
-Canada pays drug companies a lot less.
-Canadians who want and can afford cutting-edge treatment go to the States to get it.

Anyway, Canada is in the midst of a cost explosion which no one knows what to do about.

"And as has been pointed out multiple times on this very blog, private-sector performance in the US in terms of costs is even worse."

No, it has been asserted, not pointed out. And the private sector covers much more of the population (about 60%) for about the same amount of money as the government covers its 27%. But then to be fair to the argument, the government covers many (though not all) of the older people.

But on the other hand, the government offloads many of its costs to other departments in ways that insurance companies do not—enforcement for fraud to the DOJ budgets, collection to the IRS for example. This is not captured in the comparison.

"Your oft-repeated 27% figure simply isn't a compelling argument against government involvement in health care, Sebastian. You need to let it go already."

The 27% figure couldn't be a compelling argument against government involvement in health care, because it represents what government already does with health care. It is a very strong argument that the US government is grossly inefficient when compared to the governments of other countries—all of which cover nearly 100% of their populations with the money that the US government uses on 27%. The figure was never intended to be against government involvement in health care, it was intended as a corrective to the notion that the US government was particularly efficient with health care spending. It isn't. In fact it kind of sucks.

This suggests that the US government has some deeply ingrained inefficiencies which aren’t going to magically disappear by making it an even larger behemoth. And if you have a good idea of how to fix them, we could extend Medicare to the uninsured on the basis of that money. Now of course we don’t have any good idea how to fix them, because at this point we are so deeply in denial about it that we have to argue over statistically tiny levels of difference between the US private market and US government market while the enormous difference between either of those and the rest of the world get glossed over.

Alternatively it suggests that the US health market has some deeply ingrained differences from other health markets (that is my view). Before going whole hog into enormous changes, we might want to figure out what those differences are. The 27% figure is instructive there too because it gives some strong hints about what the differences are not.

For example, insurance profits are almost certainly NOT among the main problems. If it were, it wouldn't impact the Medicare spending because Medicare doesn’t pay for insurance profits. But whatever is the problem is impacting the Medicare spending. So it probably isn’t insurance profits.

Yet for some reason we end up spending lots of time arguing about insurance company profits, even though they almost certainly can’t be the problem. That is the kind of thing I’m trying to show with my 27% statistic.

Thanks for the clarification, Sebastian. We're pretty much in agreement that the problem is the US health market, both public and private.

Unfortunately, I'm with those who think that "we need to stop and think carefully about this and not rush into anything" translates in reality to "spinning our wheels for at least another 15 years." That's another 15 years with tens of millions of Americans going without health insurance at any given time. How do you put a price tag on that?

"Yes, it has some redistributive effects, but that's the whole point of insurance."

No, the point of insurance is to convert statistically rare but extreme events into predictable expenses: You've got a one in ten thousand chance per year of a $50,000 medical bill, insurance converts it into a predictable $5 per year expense, plus the cost of administration and profits. So you can budget for it, even if you get unlucky and it happens the first year.

Insurance only redistributes between identifiable groups if you're pricing it wrong.

Now, I'll gladly agree that insurance companies should NEVER deprive somebody of coverage just because that statistically rare event actually happened. And prohibiting that is a good candidate for incremental change.

Part of the problem here is people continually moving from one insurer to another, because insurance is tied to the job, not the person. That's where a lot of the pre-existing condition problems come from.

And cutting the link between insurance and employers is another candidate for incremental change.

Johnny Canuck: "Do you think this is because Canadians are so much healthier, or that US system has incredible administrative costs because it is maximizing profit, or what?"

I'm not sure what it is. I know that is frustrating, but part of my point is that we don't know because we have been foolishly looking at the wrong things. My point in constantly raising the statistic is to reinforce that many of the pat Democratic answers don't actually answer the question.

We know it isn't insurance company profits, because Medicare doesn't pay those.

I suspect it isn't because Canadians are fantastically more healthy than Americans, but that could be a small portion of it.

We know that it isn't administrative overhead costs, or at least if it is that it isn't the kind of administrative overhead cost that Medicare avoids. Medicare already has built in the administrative efficiencies that are supposed to come with government. Yet it still does woefully when compared to other countries. So either it is grossly inefficient (in which case extending it before fixing that problem seems like a bad idea), or that isn't the issue.

It isn't drug prices. They are a small overall part of the spending. They largely did not get covered by Medicare until very recently. And the difference in price (as opposed to the absolute spending) is an even smaller portion. I think drug prices come up a lot because they are one of the only places where an insured American actually comes into contact with how much medical care costs. (If it were the drug prices, you would be positing a situation where Medicare could have covered most of the population and then suddenly was constrained to 27% of the population when it started covering most of the prescription drugs recently. That obviously isn't the case).

As I have said ">http://obsidianwings.blogs.com/obsidian_wings/2009/06/health-care-factoid.html"> before my guesses are:

My guess is that 3 things contribute to the discrepancy: doctor salaries (much higher in the US), futilely spending too much on that last month before death (anecdoteally much higher in the US, I'd love to see useful comparison statistics), and overuse of the system by the middle class which has private insurance, for trivial matters because they don't see the costs other than a copayment. But this is just a guess. I don't really know, because for whatever reason the discussion of "why don't we have universal health care, our government and private systems EACH spend enough for it compared to other countries" hasn't been raised.

Furthering that post, I have seen that our doctors' salaries are much higher than the average, and they seem to be understated even in official reports because they talk only about salaries, while many doctors have an additional equity interest in their practices which is not reflected in salaries. I have not seen a good international study on end of life procedures and I renew my bleg in that direction. (I'll read it, if you can point me to it.)

Pithlord:
-"Canadians who want and can afford cutting-edge treatment go to the States to get it."

Do you have any statistics on this? My impression is that it is a few hundred people, who then often want provincial govts to pay for their out of country treatment.

"Canada is in the midst of a cost explosion which no one knows what to do about."

Arem't we hoping that Obama is successful in getting his cost cutting measures enacted, so we can see whether they work?

Sebastian:"Yet for some reason we end up spending lots of time arguing about insurance company profits, even though they almost certainly can’t be the problem."

Isn't it that in order to maximize their profits, insurance companies have to engage in a lot of administrative work? eg to determine whether something is a pre-existing condition.

We know it isn't insurance company profits, because Medicare doesn't pay those.

Seb, the last time we discussed this, I provided a link showing that Medicare administrative costs are lower per beneficiary than the private sector. I'm not sure if you read it, but I'll provide some more.

Money quotes for this one
from Bruce Webb:

Directly measured Medicare administrative costs are 38 percent lower than private sector costs on the per-beneficiary measure...

and

As for the ironies, here are a couple. First, the "direct" Medicare administrative expenditures include a portion of the subsidies provided to private insurers under the Medicare Advantage program — a bit of Bush-era corporate welfare that subsidizes the private sector so that it can compete with traditional Medicare. Second, much of Medicare administration, for instance claims processing, is contracted out. So much of the comparison is of private sector entities operating under different incentive systems.

Here is another one
(pdf):

...the Congressional Budget Office (CBO) has found that administrative costs under the public Medicare plan are less than 2 percent of expenditures, compared with approximately 11 percent of spending by private plans under Medicare Advantage.16 This is a near perfect “apples to apples” comparison of administrative costs, because the public Medicare plan and Medicare Advantage plans are operating under similar rules and treating the same population.

(And even these numbers may unduly favor private plans: A recent General Accounting Office report found that in 2006 Medicare Advantage plans spent 83.3 percent of their revenue on medical expenses, with 10.1 percent going to non-medical expenses and
6.6 percent to profits—a 16.7 percent administrative share.)17

The CBO study suggests that even in the context of basic insurance reforms, such as guaranteed issue and renewability, private plans’ administrative costs are higher than the administrative costs of public insurance. The experience of private plans within FEHBP carries the same conclusion. Under FEHBP, the administrative costs of Preferred Provider Organizations (PPOs) average 7 percent, not counting the costs of federal agencies to administer enrollment of employees. Health Maintenance Organizations (HMOs) participating in FEHBP have administrative costs of 10 to 12 percent.18

The reason Medicare spends so much is because it covers the most expensive demographic. Also, it doesn't deny coverage for pre-existing conditions, or other exclusions. It doesn't cherry pick, in other words, which keeps costs down, but at the expense of sick Americans.

It is NOT because of inefficiencies. Quite the opposite: it is much MORE efficient than the private sector. The money it spends is on actual health care, not admin/ profits/ high salaries/ recission/ advertising/ deciding who to cover and at what rates.

I don't disagree with your cost cutting suggestions/problem areas, but I think drug prices are a piece of the puzzle. Every little bit will help.

Yet for some reason we end up spending lots of time arguing about insurance company profits, even though they almost certainly can’t be the problem

It is ONE of the problems in a few ways:

1. It creates incentives for recission/ denial of coverage.

2. It diverts large sums of money in admin costs to profit

3. Insurance premiums have skyrocketed over the past decade, yet profits have as well!!

So we have a situation where premiums are going up, coverage down, co-pays up, and profits up. Everyone loses except the insurance companies.

Arem't we hoping that Obama is successful in getting his cost cutting measures enacted, so we can see whether they work?

I realize I am in a minority among Canadians on this, but I view Obama as only infallible when pronouncing ex cathedra on a matter of faith and morals. In other cases, he's just a machine pol from Chicago.

On the main point of the post -- whether incremental or "comprehensive" reform is better -- publius says:

1. In an area of regulation I know and understand, "comprehensive" is bad for public-choice and Hayekian reasons.

2. In an area of regulation I don't know, those points aren't correct because...becaues... look over there, it's a mole!

he's just a machine pol from Chicago

In America, very few non-machine pols get elected to high office. Period.

You can count them on one hand. Wellstone (RIP), Bernie Sanders, Russ Feingold and a couple of others.

Obama is not an outlier by virtue of his machinedom, rather he is the rule. Accepting that, let's see what he can achieve as measured against other machine-generated Presidents.

Pithlord, were you among the 75% of Canadians who would have voted for him last Nov.? (for all you Americans, a poll of Canadians last fall indicated 75% would have voted for Obama, 15% for McCain with 10% undecided)

No, the point of insurance is to convert statistically rare but extreme events into predictable expenses: You've got a one in ten thousand chance per year of a $50,000 medical bill, insurance converts it into a predictable $5 per year expense, plus the cost of administration and profits. So you can budget for it, even if you get unlucky and it happens the first year.

And suppose you have a virtual certainty of having a $50,000 expense, every year? How should insurance be priced?

Insurance only redistributes between identifiable groups if you're pricing it wrong.

First of all, by your definition, virtually all employer-based insurance, or any other group policy, for that matter, is priced "wrong," because there are identifiably young and healthy people paying the same as identifiably older and less healthy ones.

Whether a policy is wrongly priced depends a lot on your definition of "wrong." It also depends on what the product is, and how frequently it is repriced. Your example supposes that the price is for a year's worth of coverage, individually underwritten.

First of all, to repeat, that's not the way most policies are priced. Second, it defines the product as a one-year policy, like car insurance, that is subject to annual renewal or price hikes. Yet you yourself concede, when you talk about pre-existing conditions and people changing jobs, and so on, that this model creates many of our problems.

Health insurance is simply not the same thing as car or homeowners' insurance. Actuarially reasonable premiums rise naturally with age, and may vary dramatically based on health history. If you're going to insist on your sort of pricing you will have lots of uninsured 55-year-olds around, a fair number of whom will go bankrupt from medical costs.

The solution is to have fair premiums over a lifetime. That can only be done by not sticking to the calculation you use, and by making sure that the insurer is able to meet its obligations over a long period.

"Isn't it that in order to maximize their profits, insurance companies have to engage in a lot of administrative work? eg to determine whether something is a pre-existing condition."

Again that can't be the answer because Medicare already doesn't have to maximize its profits.

"Seb, the last time we discussed this, I provided a link showing that Medicare administrative costs are lower per beneficiary than the private sector. I'm not sure if you read it, but I'll provide some more."

And as I already discussed, those savings already exist in Medicare (though again, they dramatically overstate the costs because Medicare doesn't have to pay for collection of money, but the cost still exists to the IRS, and Medicare doesn't have to pay for the cost of fraud reduction, but the cost still exists for the Department of Justice). But to whatever extent they exist, they already exist in Medicare. Which still only provides 27% coverage on what everyone else in the world provides 100% coverage on. And yes, there are probably factors that make the US market difficult. But each time you identify cases where the savings already exists for Medicare, *you obviously aren't identifying one of those factors*.

And again (and again, and again, and again) I'm not against extending Medicare to all of the uninsured on a true cost-of-premium basis with an EITC-like subsidy. And if it proves tremendously popular and truly cheaper, great.

But unlike you, I don't *assume* that it will. I'd rather see it demonstrated.

But I'm skeptical that administrative costs are that big of a deal. As you say, Medicare administrative costs are 1% of expenditures. If that were really such an important difference, why doesn't Medicare cover everyone (or for Pete's sake at least just the uninsured)? It doesn't. It is in fact a hugely expensive system which doesn't have the coverage reach you would expect from the expenditures. Identifying mariginal areas where it seems to be better that the private sphere definitionally can't be identifying what is really driving the enormously larger expenses.

But if it is so much more efficient, lets add the uninsured to it...

My problem is that Democrats use the moral leverage of the uninsured problem to try to get all sorts of other things...

my problem is that the GOP has decided to turn the issue into a freakshow wingnut circus, and instead of a serious discussion about something everybody agrees is a problem, we get to see the dumbest of the dumb shouting nonsense at people who are trying to get answers to serious questions.

the GOP is a menace to society right now.

Which still only provides 27% coverage on what everyone else in the world provides 100% coverage on. And yes, there are probably factors that make the US market difficult. But each time you identify cases where the savings already exists for Medicare, *you obviously aren't identifying one of those factors*.

Yes, there are two different tracks of conversation:

1. Is public insurance more efficient than private insurance

and

2. Why are health care costs higher in the US than elsewhere.

When I'm responding to #1, I'm only really addressing #1. I admit that. But it's still relevant to the discussion of #1.

But if it is so much more efficient, lets add the uninsured to it...

It can be improved upon. Ezra has some good ideas. But I'm not opposed to the idea of adding everyone to it. And I'm not the one to convince!!

Let's! Do! It!

Eric: "Yet for some reason we end up spending lots of time arguing about insurance company profits, even though they almost certainly can’t be the problem

It is ONE of the problems in a few ways:

1. It creates incentives for recission/ denial of coverage.

2. It diverts large sums of money in admin costs to profit

3. Insurance premiums have skyrocketed over the past decade, yet profits have as well!!"

ARRRRGHHHH. Medicare engages in recission? Medicare doesn't use denial of coverage for treatments? Huh? Medicare diverts large sums of money to profit? Huh? Medicare profits are up? Huh?

"The reason Medicare spends so much is because it covers the most expensive demographic."

No. That doesn't explain it. Canada covers old people too. France and Germany and Japan cover old people too. And they do it for old people *plus every other person* for the same price as the US can only do it for 27%.

"I don't disagree with your cost cutting suggestions/problem areas, but I think drug prices are a piece of the puzzle. Every little bit will help."

You are disdainful of Republicans who use the exact same response regarding earmarks and for exactly the same reason I have trouble with you focusing as much energy as you do on drug prices. Yes, every little bit counts. But focusing on earmarks or drug prices as if they will help betrays a serious lack of understanding about the respective magnitudes of both the problem and your proposed solution. You could cut earmarks to zero and you would still have a ridiculously large budget deficit. (Though you wouldn’t lose much of value). You could cut the difference in drug prices to zero and do almost nothing to the difference in cost while risking large harm to drug discoveries.

If we never dealt with drug prices, but fixed end of life care spending, we would have a chance at the problem. If we ignore end of life spending but cut drug prices to zero (not just profits, but even if you could get drug companies to provide you drugs for free) we wouldn’t have a chance at the problem. That is the difference.

Medicare engages in recission? Medicare doesn't use denial of coverage for treatments? Huh? Medicare diverts large sums of money to profit? Huh? Medicare profits are up? Huh?

ARRRGGGGHHHHH!!!

No. That's why Medicare has lower admin costs than private insurance companies.

No. That doesn't explain it. Canada covers old people too. France and Germany and Japan cover old people too. And they do it for old people *plus every other person* for the same price as the US can only do it for 27%.

Yes, health care costs are higher in the US across the board - for private insurers, government insurers, and private citizens without insurance.

I'm all for probing ways to lower health care costs. Your suggestions are a pretty good place to start.

What I explained is why Medicare spends so much money relative to private insurance companies. Not relative to the rest of the world.

[the 27% figure] was intended as a corrective to the notion that the US government was particularly efficient with health care spending. It isn't. In fact it kind of sucks.

This seems so obvious, I'm sure it's been pointed out already somewhere (more than once, no doubt):

Who are the bulk of the people in that 27%, Sebastian? They are expensive-to-insure older people, no? I would love to see what it would cost to insure everyone over 65 via our current private system. Actually, I wouldn't love to see it, because it would be a disaster.

I also think it's just not correct that neither profits nor administrative costs are substantial in the private system. Of course profits are substantial, or there wouldn't be anything to fight about! But the bottom line is that the entire system has to be reformed - globally. It's circular to say that the current public system's problems preclude reforming the total healthcare system. Medicare exists in the current context. It insures the otherwise un-insurable. The whole point of universal insurance is to broaden the risk pool.

Is this not obvious or what??

"This seems so obvious, I'm sure it's been pointed out already somewhere (more than once, no doubt):

Who are the bulk of the people in that 27%, Sebastian? They are expensive-to-insure older people, no?"

Umm that was pointed out by ME in the post where I originally talk about the figure. And again, Canada covers old people too. And the UK covers old people too. The fact that covering old people is more expensive than covering young people can't explain why the US government spends as much per capita to cover just old people (27% of the population) as Canada does to cover 100% of the population. (And in fact the median age in the US skews younger than most developed nations, so the statistic looks even worse if you frame it as old people vs. young people risk pools).

Again, there are two strains to this argument:

1. Is public insurance more efficient than private insurance?

and

2. Why are health care costs higher in the US than elsewhere?

We have all weaved in and out of these and muddied the waters. But the point is:

1. Public insurance is MORE efficient than private insurance. The numbers back this up. Comparing admin costs and dollars out.

2. Still, Medicare spends a lot more than other nations per capita.

2. The reason Medicare spends more than the rest of the world because health care costs are higher in the US - across the board. Such that private insurers spend more, and private citizens without insurance spend more.

There's nothing inherent in Medicare that accounts for the high spending. Medicare doesn't spend more because the government is inefficient. It spends more because health care costs are higher in the US.

"What I explained is why Medicare spends so much money relative to private insurance companies. Not relative to the rest of the world."

Weren't you responding to me, though? You quoted me with "Yet for some reason we end up spending lots of time arguing about insurance company profits, even though they almost certainly can’t be the problem."

From the comment you quoted:

This suggests that the US government has some deeply ingrained inefficiencies which aren’t going to magically disappear by making it an even larger behemoth. And if you have a good idea of how to fix them, we could extend Medicare to the uninsured on the basis of that money. Now of course we don’t have any good idea how to fix them, because at this point we are so deeply in denial about it that we have to argue over statistically tiny levels of difference between the US private market and US government market while the enormous difference between either of those and the rest of the world get glossed over.

Alternatively it suggests that the US health market has some deeply ingrained differences from other health markets (that is my view). Before going whole hog into enormous changes, we might want to figure out what those differences are. The 27% figure is instructive there too because it gives some strong hints about what the differences are not.

For example, insurance profits are almost certainly NOT among the main problems. If it were, it wouldn't impact the Medicare spending because Medicare doesn’t pay for insurance profits. But whatever is the problem is impacting the Medicare spending. So it probably isn’t insurance profits.

I sometimes feel as if you read just small bits of my comments and then ignore the rest.

I specifically outline that the problem I'm talking about is the enormous differences between costs in the US and other countries.

I specifically state that I'm frustrated that so much time is spent on rinkey-dink differences between the public and private systems while simultaneously waving away the fact that there are enormous differences that already exist.

So you quote this comment, which leads me to believe you've read it, and take away the idea that insurance company profits can explain it? They can't explain why Medicare is so inefficient compared to the rest of the world because Medicare doesn't have ANY of the problems you then outline.

So are you not really responding to the quoted comment? I just don't understand it.

I read your comment. This, in particular, stood out to me:

This suggests that the US government has some deeply ingrained inefficiencies which aren’t going to magically disappear by making it an even larger behemoth.

But that's not what it suggests. It suggests that health care costs are higher in the US for private insurers, public insurers and private individuals without insurance. And that needs to be addressed separately from the discussion of who should provide the insurance: the government should because it is more efficient at providing the insurance.

Again, there are two lines of argument that are being crossed back and forth: costs and efficiency of insurance delivery systems.

Incidentally, I get the feeling you're not reading my full comments either, as you seem to be ignoring this helpful delineation.

Sebastian, I'm having trouble getting my head around the implications of the 27% figure. Thank you in particular for your response to me at 12:48 PM.

I wonder what % of Canada's health care costs are spent on seniors,(would you think 75%?) and how it compares with US?

With respect to your hypothesis about higher physicians compensation: I have only two anecdotal impressions- in the mid '80s I was aware of some MDs (and nurses) leaving Canada in order to make megabucks. Have not heard of this happening in last 15 years (but maybe that is just a reflection in the age of my acquaintances). I have heard that medical practices in Toronto area have no market value for sale to recent graduates.

Sebastian, I've just read your last lament.
We all have heard about lying with statistics, but what probably happens more often is that we are fooled by statistics.

Suppose there are numberous factors accounting for US costs being so much higher than other developed countries- many of the factors might account for a small fraction of the problem, maybe there isn't one overwhelming factor. The more factors get addressed in the bill, the better. Yes?

Pithlord may be up on the rate at which the Canadian healthcare system costs are escalating. I assume improved "technology" is primarily the cause. Canada often follows the US trends with a little time lag. Maybe this is also a reason Canadian costs appear lower- Is Canada several years behind on the cost escalation curve?

Just a suggestion, you might want to start over from the beginning with a new post- assume blank slates on the part of your readers and develop the post to express the mystery- one almost thinks in terms of Rumsfeld's known unknowns, etc.

Sorry to be dense, Sebastian. I think my larger point still stands, though: you are judging government involvement in providing insurance in one context (the present one) as obtaining in another. Savings have to be captured systemically - e.g. Fee for service.

Seb, put another way and in response to this:

So you quote this comment, which leads me to believe you've read it, and take away the idea that insurance company profits can explain it? They can't explain why Medicare is so inefficient compared to the rest of the world because Medicare doesn't have ANY of the problems you then outline.

That wasn't my take away, nor was it the substance of my response. My response was specifically addressing the ways in which insurance company profits are germane: mostly in terms of explaining why they create perverse incentives that result in less than ideal outcomes both in terms of costs, and in terms of people actually getting the health care they need.

Not all of my comments respond to all aspects of each of your comments. That's pretty common, and certainly not unique to me and my responses.

It suggests that health care costs are higher in the US for private insurers, public insurers and private individuals without insurance. And that needs to be addressed separately from the discussion of who should provide the insurance

Exactly the point I was trying to make upthread. Thank you, Eric.

"It suggests that health care costs are higher in the US for private insurers, public insurers and private individuals without insurance. And that needs to be addressed separately from the discussion of who should provide the insurance: the government should because it is more efficient at providing the insurance."

Yet you seem incredibly interested in the far more trivial of the two questions: who provides the insurance. The international experience is that it doesn't much matter who provides the insurance (see Canada vs Japan or the UK vs. France). Your focus on administrative cost differences (vastly overstated by the lack of collection costs attributed to the IRS and lack of enforcement costs attributed to the DOJ) overstates the overall differences per capita and comes out to a small amount. Also you don't consider the quality question (I have no idea how it turns out, but merely assuming that Medicare is cheaper AND as good in all possible quality dimensions seems unwarranted. For example many doctors won't take Medicare, limiting your choice of doctors. Also an interesting query might be why doctors won't take Medicare...)

"That wasn't my take away, nor was it the substance of my response."

The whole of your response was:

It is ONE of the problems in a few ways:

1. It creates incentives for recission/ denial of coverage.

2. It diverts large sums of money in admin costs to profit

3. Insurance premiums have skyrocketed over the past decade, yet profits have as well!!

So we have a situation where premiums are going up, coverage down, co-pays up, and profits up. Everyone loses except the insurance companies.

What was the substance of your response that I missed? It is a list of complaints about insurance companies. Which is great I suppose, but if you meant it as a response to my comment (which you quoted) there isn't much to miss.

@cleek:

"my problem is that the GOP has decided to turn the issue into a freakshow wingnut circus, and instead of a serious discussion about something everybody agrees is a problem, we get to see the dumbest of the dumb shouting nonsense at people who are trying to get answers to serious questions.

the GOP is a menace to society right now."

It sure would be nice to have a sane and reasonable GOP leadership to work with/debate on this issue.

Instead, as they say when things get ugly in the orchestra pit, "now we see the violins inherent in the system".

And it's mighty optimistic to assume that the Taliban and AQ would split in the absence of NATO forces.

Yes, I was listing the ways that insurance company profits matter to the discussion, and identified my comment as such. I was actually, trying to separate those points from other topics. Not sure why you're so hung up on that, but there it is in all it's non-remarkable glory.

Yet you seem incredibly interested in the far more trivial of the two questions: who provides the insurance.

Well, I can think of 45 million Americans who might not find that such a trivial question. And the reason that I've discussed it is in response to your claims of "government" inefficiencies on this and the Waterloo Sunset thread. And the reason it's important is because the government is currently debating offering a public option of insurance.

I've also said - REPEATEDLY!!! - that I liked your identification of causes of higher costs. But you don't consider me as "incredibly interested" in that.

Also, re: drug prices, consider that our goal is to reduce our overall spending on health care by about 30%. 10% of our current spending is on drugs (but that's also the fastest rising cost). Say through legislation, we can reduce drug costs by 5%. That would be 1/6 of the total savings we are trying to capture.

Not bad.

"It sure would be nice to have a sane and reasonable GOP leadership to work with/debate on this issue."

See Klein's interview with Lindsey Graham

http://voices.washingtonpost.com/ezra-klein/2009/08/is_there_a_deal_to_be_made_on.html

The international experience is that it doesn't much matter who provides the insurance (see Canada vs Japan or the UK vs. France).

Not sure I follow your point here.

Your focus on administrative cost differences (vastly overstated by the lack of collection costs attributed to the IRS and lack of enforcement costs attributed to the DOJ) overstates the overall differences per capita and comes out to a small amount.

Not so. The fact that the Medicare costs include the cost of the subsidy of private insurers is a factor causing the understatement of cost differences. They are large overall per capita differences - see, ie, Bruce Webb.

I thought we knew what the biggest cost driver is in US medicine: high-cost procedures that don't actually improve health, but bring in lots of profit to the doctors. The vast difference that makes is clear from the New Yorker articles by Atul Gawande, which have been mentioned before several times (I think particularly by Gary Farber).

The sane thing to do would therefore be to have a system in which doctors do not have financial incentives to do unnecessary work. But given any changes in that direction would presumably bring about screams of "socialist government death camp coming for your granny" even more shrill than the current ones, that's not going to be attempted, so you're back to tinkering at the edges.

The vast difference that makes is clear from the New Yorker articles by Atul Gawande, which have been mentioned before several times (I think particularly by Gary Farber).

I've mentioned and linked to it as well.

"Also, re: drug prices, consider that our goal is to reduce our overall spending on health care by about 30%. 10% of our current spending is on drugs (but that's also the fastest rising cost). Say through legislation, we can reduce drug costs by 5%. That would be 1/6 of the total savings we are trying to capture."

No, that would require a 50% reduction in drug costs, which is to say an almost certainly impossible level of drug cost reduction. Reducing drug costs by 5% (of drug costs) is probably possible. But even if I give you a 10% reduction in drug costs that is still about 3% of your total goal of 30% cost reduction (which by the way would still put us at almost 140% of per capita Canadian spending).

Which is why I compare it with earmarks. It just isn't that big of deal. Compare that to the savings potential of hospital and clinical services care (the subject of the New Yorker article cited recently and about 52% of the total health care costs). McAllen costs to Rochester costs would be a savings of about 55% but represents a worst to very good case scenario. Let's posit only a 20% savings. That would represent 1/3 of the savings you’re going for.

"Yet you seem incredibly interested in the far more trivial of the two questions: who provides the insurance.

Well, I can think of 45 million Americans who might not find that such a trivial question. And the reason that I've discussed it is in response to your claims of "government" inefficiencies on this and the Waterloo Sunset thread."

I'm confused by this. You know that my proposal for the uninsured is to directly extend Medicare to them right? So I'm not dead set against the government paying for anything. I thought you were talking about the government paying for everyone (since you are talking about insurance company inefficiences, that the uninsured obviously don't have). Was I confused about that? If not, what does this comment mean?

"The fact that the Medicare costs include the cost of the subsidy of private insurers is a factor causing the understatement of cost differences."

I'm not sure what you are talking about here. What does the phrase "the cost of the subsidy of private insurers" mean. It sounds like you are talking of a subsidy to private insurers but that makes no sense.

No, that would require a 50% reduction in drug costs

That was a typo!

It sounds like you are talking of a subsidy to private insurers but that makes no sense.

If you read the Bruce Webb piece that I linked to, or the excerpt above from it, it will all make sense.

I'm confused by this. You know that my proposal for the uninsured is to directly extend Medicare to them right? So I'm not dead set against the government paying for anything.

Yes, but you ALSO continue to rail about how inefficient the "government" is as opposed to the private sector. Read the Waterloo sunset thread! Read this thread.

So, TO REPEAT AGAIN!!!!

There are two strains on this thread, I am discussing/responding to both.

1. Is public insurance more efficient than private insurance?

and

2. Why are health care costs higher in the US than elsewhere?

If you, or other commenters, don't bring up #1, neither will I. If you do in a way that I disagree with, I will respond.

That is all.

We should note that the differences in the New Yorker article are not made by government vs. non-government paying. It is a study based on Medicare payments.

The differences are systemic and independent of payer, so the solutions do not involve deciding which entities pay. Which is why I've been saying along that the solution isn't to be found in having a government takeover of payment.

Eric: "There are two strains on this thread, I am discussing/responding to both.

1. Is public insurance more efficient than private insurance?

and

2. Why are health care costs higher in the US than elsewhere?"

Sebastian: "The differences are systemic and independent of payer, so the solutions do not involve deciding which entities pay. Which is why I've been saying along that the solution isn't to be found in having a government takeover of payment."

Aren't you guys both saying that reducing the costs and deciding who pays are two separate issues? Now knock it off or you'll both get detention.

"And suppose you have a virtual certainty of having a $50,000 expense, every year? How should insurance be priced?"

You shouldn't be USING insurance for events having a near 100% probability. But, to answer your question: $50,000 a year, of course.

We do use insurance for events, (Like my semi-annual tooth cleaning.) with a near 100% probability. But that's not because it makes sense for such things to be funded through insurance. It's because health insurance is pre-tax income, and as such, paying for something through it is a cheaper way for employers to compensate their employees than their take home pay. And, to some extent, insurers cover some such expenses to reduce later costs, much like the way practically all auto insurance provides for free windshield chip fixes, to avoid replacing the whole windshield.

Ideally, insurance should be reserved for unlikely things, and the regular medical expenses should be paid through pre-tax health savings accounts.

And the people who can't pay for their regular medical expenses should be handled as charity cases, instead of being given mandated irrational insurance rates.

As I pointed out, we manage to feed the poor without passing laws requiring grocers to have artificially low prices for poor people. Why should we warp the health insurance market to force private insurers to provide for the poor in the place of government and charity? Let the insurers charge rational rates, and provide subsidies for those who can't afford them.

As medical knowledge increases, we should all understand, insurance makes less and less sense as a way of paying for health expenses. Insurance is a way of dealing with ignorance, after all.

And, I do agree, health insurance makes more sense if you're going to have a life-long relationship with the same insurance agency. That would be easier if tax laws didn't make almost everybody get their insurance through their employer.

[...]
Advocates of a public plan assert that Medicare has administrative costs of 3 percent (or 6 to 8 percent if support from other government agencies is included), compared to 14 to 22 percent for private employer-sponsored health insurance (depending on which study is cited), or even more for individually purchased insurance...

However, on a per-person basis Medicare's administrative costs are actually higher than those of private insurance--this despite the fact that private insurance companies do incur several categories of costs that do not apply to Medicare...

Medicare patients are by definition elderly, disabled, or patients with end-stage renal disease, and as such have higher average patient care costs, so expressing administrative costs as a percentage of total costs gives a misleading picture of relative efficiency. Administrative costs are incurred primarily on a fixed or per-beneficiary basis; this approach spreads Medicare's costs over a larger base of patient care cost.
[...]

Medicare Administrative Costs Are Higher, Not Lower, Than for Private Insurance

With regards to the link I posted above:

Update: A reader points me to this related study. Also, see the discussion here and here. Finally, Paul Krugman disses the study I quoted above,...

Someone mentioned Ezra Klein's interview with Lindsay Graham. An interesting quote:

[...] The negotiations in the Senate are becoming more poisonous. One of the difficulties, though, has been that people are having trouble distinguishing between those who want to strike a deal on health-care reform and those who really want to kill the bill. How do you tell the difference between a senator looking for Obama's "waterloo" and people who want their ideas more developed in the legislation?

I think that over time you'll tell them apart. You gotta flush them out. There's two ways to fix a hard problem in Washington. You make people afraid of opposing you or you get them rewarded for helping you. There's no fear for opposing Obama's public option, and the reward is for opposing it. Right now, Republicans feel no political exposure from opposing the president's health-care initiative.

Take away: there's gotta be some fear felt for opposing Obama's public option.

"You shouldn't be USING insurance for events having a near 100% probability."

I don't know about systems in other countries, but in Japan, your insurance supports your annual checkups and such. This piece by Malcolm Gladwell identifies some of the more subtler points about the lack of these sorts of things. His final paragraph is important imo

"The issue about what to do with the health-care system is sometimes presented as a technical argument about the merits of one kind of coverage over another or as an ideological argument about socialized versus private medicine. It is, instead, about a few very simple questions. Do you think that this kind of redistribution of risk is a good idea? Do you think that people whose genes predispose them to depression or cancer, or whose poverty complicates asthma or diabetes, or who get hit by a drunk driver, or who have to keep their mouths closed because their teeth are rotting ought to bear a greater share of the costs of their health care than those of us who are lucky enough to escape such misfortunes? In the rest of the industrialized world, it is assumed that the more equally and widely the burdens of illness are shared, the better off the population as a whole is likely to be. The reason the United States has forty-five million people without coverage is that its health-care policy is in the hands of people who disagree, and who regard health insurance not as the solution but as the problem."

[...]
In this new report MGI finds that the United States spends approximately $480 billion ($1,600 per capita) more on health care than other OECD countries and that additional spending is not explained by a higher disease burden; the research shows that the U.S. population is not significantly sicker than the other countries studied.

Instead, MGI found that the overriding cause of high U.S. health care costs is the failure of the intermediation system — payors, employers, and government — to provide sufficient incentives to patients and consumers to be value–conscious in their demand decisions, and to regulate the necessary incentives to promote rational use by providers and suppliers.
[...]

Accounting for the cost of health care in the United States

You shouldn't be USING insurance for events having a near 100% probability. But, to answer your question: $50,000 a year, of course.

I think you missed my point. What you should pay is a premium agreed to in the past, before it became clear that you would be incurring $50K/yr in expenses. And once it did become clear there should be no backing out by the insurance company.

And the people who can't pay for their regular medical expenses should be handled as charity cases, instead of being given mandated irrational insurance rates.

Very few people canhandle $50K in medical expenses, or insurance premiums. You're going to have a lot of charity cases on your hands. Isn't it better to design a system that dodges this problem?

A sensible system reduces the need for charity cases, precisely by avoiding presenting people with with $50K bills. Again, your definition of "irrational rates" is based on an inaccurate view of how a rational health insurance scheme would work.

You persist in seeing health insurance as a short-term contract. Expected expenses this year = 50K, so premium = $50K. It needs to be a very long-term arrangement, precisely to avoid this sort of thing.

we manage to feed the poor without passing laws requiring grocers to have artificially low prices for poor people.

It's time for this analogy to be retired from the health debate. Food costs are regular and predictable. We don't go for years without eating and suddenly get faced with the need to eat $100,000 worth of food in order to stay alive. Food is also much more affordable than health care. I'd venture to say that the bulk of the money many of the commenters here spend on food can reasonably be considered a luxury expense, in that it far exceeds what we would need to have an adequate diet, even by the standards of economically advanced countries.

"It's time for this analogy to be retired from the health debate. Food costs are regular and predictable. We don't go for years without eating and suddenly get faced with the need to eat $100,000 worth of food in order to stay alive. Food is also much more affordable than health care."

Yes, it is much more like buying a car. Lots of maintenance punctuated by occasional large purchases, with insurance to cover unexpected ones.

But anyway, I again want to mention that extending health care benefits to the uninsured (through Medicare perhaps) doesn't require the US government to become the single payer of health care insurance/benefits. There are many countries with excellent coverage for the whole population that don't have a single payer system.

There are many countries with excellent coverage for the whole population that don't have a single payer system.

Which of those countries do you think we should be modeling ourselves after?

tgirsch, the Daily Dish had an item about Holland. Apparently there system is entirely private insurance.

If US wasn't so ethnocentric, you'd think it would take advantage by commissioning a study of say 10 different developed countries with a variety of systems to help in figuring out what would work best.

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