The fourth of my five health care issues was:
As currently structured, all insurance - private or government, cheap or expensive, HMO or traditional, catastrophic or first-dollar - masks the true costs of treatment from those who purchase that treatment. This is bad for patients and bad for health care providers and bad for any hope of reining in health care spending through individual decision making.
Enter Investor’s Business Daily (via Greg Mankiw). Looking at Department of Health and Human Services’ data, their editorial features a chart that graphically (heh, heh) demonstrates the extent to which Americans do not pay for their own health care with what they can easily identify as their own money. In 1960, Americans paid for almost 50% of their health care out of their own pockets, in 2008 they paid for only about 12% of that spending out of their own pockets.
Enter also Dan Mitchell of Big Government (via The Gormogons) who used the same data to produce the same chart.
Enter finally Mark Perry of The Enterprise Blog (via The Corner) who took the same data and created two charts. Clearly an over-achiever.
Perry attributes the decreasing share coming from consumer out of pocket spending solely to increased government spending on health care; in fact, he entitles his piece “Government Funding Increases Health Care Costs”. Mitchell is somewhat agnostic on the question of who is picking up the spending consumers are no longer doing out of pocket. The third-party payers he mentions are government entities but he doesn’t specifically attribute the entire change in who is paying to the government’s role. IBD assigns a role to both the government and insurance companies:
Patients have little direct connection in paying for their care. Their role has fallen significantly. Meanwhile, the government's involvement has grown, as has that of the insurance industry.
IBD is correct. One of the charts Perry produces shows us that health care spending breaks down this way:
In 1960:
- consumers’ out of pocket payments accounted for 46.9% of health care spending
- public funds accounted for 24.5%
In 2008:
- consumers’ out of pocket payments accounted for47.32%11.88% of health care spending
- public funds accounted for11.88%47.32%
According to Perry:
But the chart above (data here) shows what might be the two most important reasons for rising healthcare costs over the last 50 years: a) declining out-of-pocket payments for medical expenses, which have fallen from 47 percent of total health spending in 1960 to a record low of only 11.9 percent in 2008, and b) expanding public funding of healthcare, which reached a record high of 47.3 percent in 2008. There’s now been a complete reversal—whereas consumers paid 47 percent of total medical costs in 1960, it’s now the government paying 47 percent of health spending, while consumers pay less than 12 percent out of pocket for healthcare. That reversal is a guaranteed prescription for rising healthcare expenditures.
Although Perry mentions consumers’ increased reliance on employer-provided health care in the next paragraph, he never shows us the numbers. We can, however, back into them by figuring out what his figures leave unaccounted for:
In 1960, third party payments from other than public funds accounted for 28.6% of health care spending.
In 2008, third party payments from other than public funds accounted for 40.80% of health care spending.
So, yes, public third-party funding of health care has increased from 24.5% to 47.32% of total spending. But private third-party funding of health has also increased, from 28.6% to 40.80% of the total. It’s not just government spending on health care that keeps us from realizing how much it actually costs us:
As currently structured, all insurance - private or government, cheap or expensive, HMO or traditional, catastrophic or first-dollar - masks the true costs of treatment from those who purchase that treatment. This is bad for patients and bad for health care providers and bad for any hope of reining in health care spending through individual decision making.
*****
Reading:
Fact Check: Health insurer profits not so fat - . I increasingly tend to believe that insurance companies do not have a role to play in health care going forward. However, that doesn’t mean they’re the spawn of Satan making windfall profits off the death and suffering of their hapless victims. They are simply an industry that may have outlived its usefulness due to changing technology, economic issues, and government regulation.
Markets, Not Mandates (via The Corner) - Presents an interesting look at a possible free market health care landscape that includes insurance companies. I’m unimpressed - as long as health insurance companies exist they will be interfering with market pricing mechanisms - but the author is correct in his description of how the market can reduce costs. And it’s worth reading just for the quote from Uwe Reinhardt:
when you’re down on your luck, you’re unemployed, you lose your insurance.…Only the devil could ever have invented such a system.
I’m doing my part to hold down health care costs - From Reclusive Leftist, the other side of the story. What happens to people who don’t have money if we implement systems that make people pay more of their own money for health care?
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7 comments:
"What happens to people who don’t have money if we implement systems that make people pay more of their own money for health care?"
And here is where I must (gently) take serious issue with your post.
For a large part of my young adulthood, I was part of the "working poor." No health insurance and taking in roughly $800 per month to live on.
I lost one tooth and part of another because I couldn't afford to go to the dentist. I developed a serious disease from a combination of malnutrition and no money for a doctor.
The cost of healthcare was never "masked" to me. It was open, right out there, and it consistently lost out to other, more frivolous interests such as such as food and rent.
I seldom discuss this aspect of my past online because there's always some jerk who airily says "I never took a job without health insurance- it's your own fault!"
Um, yeah. Let me eat cake.
My second example is my parents. My father has an extremely rare cancer, diagnosed two years ago. A new miracle drug, Gleevec, has put him into complete remission. In fact, his onco says that so long as he stays on Gleevec, he has a good chance of dying of just plain old age. (Dad's 83.)
My parents are working class people who sacrificed and carefully arranged for good health insurance in their retirement. That private plan gets Dad his Gleevec for $100 a month. They know full well the real price of this drug- when the onco prescribed it he warned them that the market price was $5,000 per month. When they left the office, Dad said flatly that he'd "lived long enough already" and would just forego the meds rather than bankrupt the family. They decided to contact their insurer just to see- and literally got the "deal of a lifetime."
Now my Dad goes up and down the street with his snowblower and shovel in bad weather to help the local 'infirm' clear snow from their walks and porch roofs.
Most of them don't even realize he's ever been sick.
Long story short- the "masking" argument only masks the ugly reality of health care costs for those below the upper middle class. And really, I believe that a lot of that cost has come from advances in meds, care and diagnostic tools.
Dad wouldn't have cost any health insurance system a cent 20 years ago. He would simply have died quietly in a matter of months, because there was no treatment for his cancer.
I didn't cost anyone very much, either- until I finally got health insurance later in life and literally spent thousands of insurance dollars repairing the damage done when I was unable to afford any medical care. "Unmasking" medical costs for the poor is the Karma Treatment Plan: buy now, pay *forvever.*
I don't have any argument with any of this, Lynne. It's always the sticking point for health care/insurance reform. We want people to have to weigh their own health care needs against their other needs but we don't want people to go without health care just because they can't afford it.
The reason I favor people seeing the cost of their own health care is less because I worry they overuse it and more because without market pressures there's no rational pricing mechanism and no pressure on health care providers to compete to provide better health care at a lower price. Which puts us right back at the sticking point.
What you're describing is the big hole in DeLong's approach. Someone in your young adulthood situation would see 20% of her income gone for health care but would refuse to spend the part of it that went into a Health Savings Account because she would desperately need that money to come back to her the following year. That means the portion of her income that went to pay for catastrophic coverage would be useless to her because she would never be willing to spend the HSA portion and thus hit the catastrophic limit. DeLong wants to handle that problem by providing free maintenance-type health care that would get dental care and basic medical care to people without making them dip into their HSAs.
I truly don't know what the answer is here, I'm just talking through what seems workable to me and seeing where I end up. And I very much appreciate comments like yours that make me think things through more carefully. I'm going to look at Goldhill's plan eventually and see how that would play out and I'm going to look at the holes in DeLong and Goldhill.
I think your point that a lot of increased cost comes from advances in meds, care and diagnostic tools is an excellent one and is what I was saying in an earlier post about my uncle and my father: years ago they died cheaply; today they'd cost a fortune. This actually flitted across my mind as I was posting this yesterday but my brain was too fried to grasp it. I think I'll see how hard it would be to go back, look at the variation in health care costs between 1960 and 2008 and see if I can derive anything meaningful from that combined with the shifting of the burden.
Oh, and the jerk who says, "I never took a job without health insurance- it's your own fault!"? If I hadn't sworn off bad language in this blog, I could tell you what I think about him.
Almost every solution proposed makes the assumption that doctors and patients will act responsibly. It only works if patients only utilize services when they are necessary and Doctors say "no" to their patients. As I mentioned in previous posts, when we hide the costs for services by having people pay a trivial amount for a service, the value of that service diminishes. If a cab and a bus were priced identically, who would ride the bus?
For example, my 100 yr old Grandma goes to have her blood pressure checked every week. We tell her that we can take it, but her Doctor says that individuals don't perform it right. She doesn't pay anything for it and the Dr. collects his fee. We in turn ignore this wasted visit to keep Grandma happy. Her Doctor tried to arrange a colonscopy, but when confronted with reality of her health condition by us he agreed that even if he found cancer, she was not a candidate for any surgical treatment due to heart conditions. Grandma was upset with us for disagreeing with her Doctor but finally relented when the Doctor explained that surgical intervention was impossible and even the scoping anesthesia could kill her. In this set of cases, the Dr. is being unscrupulous/greed driven and my Grandma doesn't pay anything anyway, so she doesn't care about cost.
However, when her electric bill arrives, she complains violently, starts turning off the lights and cranks down the thermostat to uncomfortable levels. There is an incentive for her.
This same rationale applies to health care. When the cost is hidden, we indulge ourselves because we don't see any impact on our own pocketbook. That is a problem I see with all solutions with a disbursement entity between us and the Doctor. Most of us are not skilled enough to know what is required care versus what is a nice feature of our care. I liken it to the extended warranty on my Plasma TV, nice but not really necessary. This event happens daily with visits to a doctor for colds or flu or semi versus private rooms at hospitals and increases costs. We always seem to chose the highest level of care, because someone else covers the cost.
So what will happen if we add millions to the low or no cost heath care rolls and simultaneously decrease reimbursements to the folks providing the service? I don't think it will be fun for either patients or care givers but we will muddle though anyway.
If it evolves like in Germany (my company is based there), those on the public roll get care, but those with good private plans get put towards the front of the line, partly because the Doctor often gets paid more by the private insurer. If that happened here in the USA we would hear the discrimination argument and additional governmental rules would occur. And so the wheel keeps turning...
*Sigh*. I don't know the answers, either.
I will say that if those Walmart-type clinics had existed back when I was poor, I'd have used them with joy.
My brother-in-law is an actuary and he brought up a pretty good point while visiting as Christmas:
attacking the problem exclusively from the insurance angle is the wrong way to go.
He wants experts to look into how new techniques and meds are produced and see what can be done about costs there. And I think incentives to increase the number of general practitioners might also bring costs down over time.
I have to agree that a multi-pronged effort is the key. Just focusing on payment is not enough.
And good on you for insisting on nice language on your blog. That's one reason why I like it here.
Sorry if I sounded a bit curt before. My former self just *winces* at most of what has been proposed.
F&R, you and Lynne between you have defined the problem. We want people to feel enough pain from health care spending so they become savvy shoppers, only buying what they really need and pushing providers to compete on price and quality. But we don't want people to feel so much pain from health care spending that they must forego care they really need to buy food and put a roof over their head.
Calibrating that is incredibly tricky. At one extreme is the idea that no one should ever have to make decisions about what care they need and what care they forego. So the government will make the decision about what care is really necessary and/or the best use of their money. At the other extreme is the idea that everyone should make those decisions for themselves even if that means some people won't get the health care they desperately need.
An ideal system would be one in which the working poor can get their teeth seen to and get necessary medical care without having to give up food and shelter to do it. At the same time, Grandma's blood pressure taking should cost her enough to make her wonder if she really needs to do it while not costing her so much she skips it if it really is necessary.
Sheesh.
You weren't at all curt, Lynne. And I know just what you mean about your former self wincing at so many of the proposals. Every time someone waves their hand and says, "Well, of course, if you're terribly sick you should pay more for health insurance" I cringe. I see the logic but... Sick, probably not able to work? Oh, goody! Let's charge her more for something she's been paying into for 30 years. I wince.
I would love to see more general practitioners. I would also love to see more gerontologists - we desperately needed one for my aunt but I gather Medicare isn't set up to reimburse them appropriately. Sigh.
He wants experts to look into how new techniques and meds are produced and see what can be done about costs there.
I don't know how you can do this. Product development seems like such an unstructured thing, so full of blind alleys and sudden revelations. It would be interesting to see what suggestions there are for making it less costly.
My guess is that if Obamacare passes we'll eventually move to a situation where new techniques and meds are developed in a more wide-open system - China, maybe. They'll pour the money into development and charge the earth for whatever they come up with. That is, I suspect that whereas the United States has carried the burden of having its citizens pay more for drugs than people in other parts of the world - essentially subsidizing meds in Europe, Canada, etc. via the high prices we pay here - China will not be so generous.
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