http://www.nybooks.com/articles/17771

America's Senior Moment
By Paul Krugman - New York Review of Books

Medicare, Medicaid, and the Health Care Challenge

If demography is only a medium-sized problem, why do long-run federal budget projections look so scary? The answer is that they assume that the long-term historical tendency of health care spending to rise faster than gross domestic product will continue. That trend has not reflected runaway government spending: private spending on health care has risen almost as fast as government spending. (In 1980, private health spending was 5 percent of GDP, and government health spending was 3.8 percent. By 2003 the numbers were 8.3 and 7.0, respectively.) Nor is it a case of runaway inflation: rising medical costs have not historically been driven by rising prices for existing medical procedures. There is plenty of gouging and waste in the US health care system, but there always has been, so that's not a big factor in the trend. The main reason health care is continuing to absorb a larger share of the economy is innovation: that the range of things that medicine can do keeps increasing.

A good example of what drives rising health care spending is the recent decision by Medicare to pay for implanted cardiac devices in many patients with heart trouble, now that research has shown them to be highly effective. Should this be considered a cost increase? Only if we're careful about what we mean by 'cost.' It doesn't increase the cost of providing the same care as before; Medicare is spending more to take advantage of a new opportunity to save lives....

ROBERT Samuelson

An important article on a related aspect of medical costs:

http://www.nytimes.com/2005/02/22/business/22insure.html?ei=5070&en=436b5da09a135eba&ex=1109307600&pagewanted=all&position=

Behind Those Medical Malpractice Rates
By JOSEPH B. TREASTER and JOEL BRINKLEY

Speaking before hundreds of doctors and medical workers in a St. Louis suburb last month, President Bush called attention to a neurosurgeon on stage with him in the small auditorium. The doctor, the president said, was paying $265,000 a year in premiums for insurance against malpractice claims.

Such high prices, 'don't start in an examining room or an operating room,' the president declared. 'They start in a courtroom.'

Indeed, at many recent appearances, Mr. Bush has complained about the 'skyrocketing' costs of 'junk lawsuits' against doctors and hospitals.

But for all the worry over higher medical expenses, legal costs do not seem to be at the root of the recent increase in malpractice insurance premiums. Government and industry data show only a modest rise in malpractice claims over the last decade. And last year, the trend in payments for malpractice claims against doctors and other medical professionals turned sharply downward, falling 8.9 percent, to a nationwide total of $4.6 billion, according to data compiled by the Health and Human Services Department....

I was about to leap in here and cite the Treaster/Brinkley article which makes an important point -- which leads to another important point -- which tends to demolish theories about the rise in medical costs and mouthings-off by Bush and other wingnuts about that disgusting underclass, lawyers.

This "discovery" about malpractice insurance is important. It tips us off to the fact that discussions of healthcare costs are riddled with lies and misapprehensions. I'd like to add some more from personal experience (more vivid to me, perhaps, because I returned to the US after a two-decade-long residence in Europe and find healthcare here quite appalling).

Problem areas: 1) Illness is treated elaborately and expensively and the outrageously padded bill paid for by insurance = me = all of us; 2) Preventing illness is not covered -- including even the most obvious stuff like flu and pneumonia vaccines. 3) Having just looked through my 2004 medical expenses while doing taxes, I was reminded once again of the capricious rise in drug prices: same drugs can go up as much as 30% in six months. 4) Doctors are allotted only so many minutes per patient, never enough minutes to get a full picture of the patient. Thus, even though a patient may have a chemical allergy noted in chart, doctor doesn't have time to check that and will prescribe a drug containing that substance. Just happened to me. Expensive mistake -- I suffered, I paid, we all paid through our insurance. 5) Insurance companies delay their payments to healthcare providers, pushing their liabilities ahead for months, or for as long a period as the state regulatory agency in question will allow them. Hospitals, labs, therefore, may not be reimbursed for up to eight months. This pushes up their costs, their prices -- I pay, you pay, we pay.

The biggest spanner in the works is, of course, America's insurance industry. Outta control. Unforgiveably unregulated and without a conscience. Mix together insurance scams, Pharma's power, a corrupted FDA, a citizenry overly dependent on quick fixes, and doctors under pressure, and you have one of the worst healthcare systems of all "developed" nations.

Yes, the crazy increases in the price of drugs is just ridiculous. I'm all for encouraging innovation, but drug companies seem to earn actual economic profits. (Their margin seems to be something like 15% when most other industries get about 10.)

What PW just said.....me too.
And another thing the idea of "choosing to spend X percent of their income on health care" sound too much like you're making a consumer purchase (plasma or LCD?). Healthcare is not a free market and it should not be. Most comparisons to the healthcare market (and their conclusions) are deeply flawed..

A few thoughts.

1. Isn't a big part of the reason for the high cost of health care the catastrophic cases, like cancer, diabetes, and heart disease? That's the impression that I get from reading stats like 1-2% of cases make up 20-30% of costs.

2. Health Savings Accounts are a great idea in theory, but as Uwe Reinhardt said, whether they work depends on what sort of assumptions you plug into them. Still, I could see them being a good thing as an add-on to private, employer-based health insurance.

3. What about vouchers replacing the current system of Medicare and Medicaid? Laurence Kotlikoff suggests that trillions (in future liabilities, that is) could be saved from implementing such a system. I'm not against school vouchers entirely, but I am tired of the notion that they are going to be some sort of magic bandaid to the school system, since their primary functions seems to be holding down costs. Here, however, I like the idea much more, since the problem is directly the cost.

I think it's important for people to realize that, whether it's nationalized medicine or vouchers, we are going to have to pay more so that everyone is covered. That's why I take the idea of those who align themselves with people like Grover Norquist and Stephen Moore claiming to be very interested in expanding health coverage with a grain of salt.

"Most comparisons to" to...of...involving....
whatever, you know what I mean.
Oh, my Beefeater & tonic needs a refresh!

The most valuable change we could make to our health-care industry would be to give care-givers a financial incentive to keep their patients well.

Currently, doctors and hospitals are paid to give treatments, not to keep us well. This means all sorts of investments don't get made, because they will just save money for somebody else, not the investor.

There was a piece in the Washington Monthly about reform in the VA system that undertook serious investment in keeping their patients well, and how well it's working.

This could work under a system where health-care providers entered into long-term contracts with individuals to provide them with care, contracts with a serious financial penalty for switching. But such providers would also have to be large enough that you could stay with them when you moved, and stable enough that individuals would trust them with the up front money.

But I don't know how we get there from here.

http://www.washingtonmonthly.com/features/2005/0501.longman.html

The Best Care Anywhere

Ten years ago, veterans hospitals were dangerous, dirty, and scandal-ridden. Today, they're producing the highest quality care in the country. Their turnaround points the way toward solving America's health-care crisis.

By Phillip Longman

Quick. When you read “veterans hospital,” what comes to mind? Maybe you recall the headlines from a dozen years ago about the three decomposed bodies found near a veterans medical center in Salem, Va. Two turned out to be the remains of patients who had wandered months before. The other body had been resting in place for more than 15 years. The Veterans Health Administration (VHA) admitted that its search for the missing patients had been “cursory.”
Or maybe you recall images from movies like Born on the Fourth of July, in which Tom Cruise plays a wounded Vietnam vet who becomes radicalized by his shabby treatment in a crumbling, rat-infested veterans hospital in the Bronx. Sample dialogue: “This place is a fuckin' slum!”

By the mid-1990s, the reputation of veterans hospitals had sunk so low that conservatives routinely used their example as a kind of reductio ad absurdum critique of any move toward “socialized medicine.” Here, for instance, is Jarret B. Wollstein, a right-wing activist/author, railing against the Clinton health-care plan in 1994: “To see the future of health care in America for you and your children under Clinton's plan,” Wollstein warned, “just visit any Veterans Administration hospital. You'll find filthy conditions, shortages of everything, and treatment bordering on barbarism.”

And so it goes today. If the debate is over health-care reform, it won't be long before some free-market conservative will jump up and say that the sorry shape of the nation's veterans hospitals just proves what happens when government gets into the health-care business. And if he's a true believer, he'll then probably go on to suggest, quoting William Safire and other free marketers, that the government should just shut down the whole miserable system and provide veterans with health-care vouchers.

Yet here's a curious fact that few conservatives or liberals know. Who do you think receives higher-quality health care. Medicare patients who are free to pick their own doctors and specialists? Or aging veterans stuck in those presumably filthy VA hospitals with their antiquated equipment, uncaring administrators, and incompetent staff? An answer came in 2003, when the prestigious New England Journal of Medicine published a study that compared veterans health facilities on 11 measures of quality with fee-for-service Medicare. On all 11 measures, the quality of care in veterans facilities proved to be “significantly better.”

Here's another curious fact. The Annals of Internal Medicine recently published a study that compared veterans health facilities with commercial managed-care systems in their treatment of diabetes patients. In seven out of seven measures of quality, the VA provided better care. It gets stranger. Pushed by large employers who are eager to know what they are buying when they purchase health care for their employees, an outfit called the National Committee for Quality Assurance today ranks health-care plans on 17 different performance measures. These include how well the plans manage high blood pressure or how precisely they adhere to standard protocols of evidence-based medicine such as prescribing beta blockers for patients recovering from a heart attack. Winning NCQA's seal of approval is the gold standard in the health-care industry. And who do you suppose this year's winner is: Johns Hopkins? Mayo Clinic? Massachusetts General? Nope. In every single category, the VHA system outperforms the highest rated non-VHA hospitals.

Not convinced? ...

On the one hand, this is right. Costs are going up in large part becuase healthcare is better. So that's a nice problem to have. And he's my hero for pointing out healthcare spending isn't really "voluntary" spending. Arguably, it's less voluntary than taxes. With taxes, the government says, "give me this money or you will go to jail." With healthcare, the doctor says, "give me this money or you will die!"

On the other hand, there's a big problem here. The inefficiencies in our healthcare system that were tolerable when it represented a small part of our economy are now becoming a drag on it (health insurance costs displacing wage gains, benefits as disincentives to hiring, retiree health costs, etc). It's insane how colosally bad we are at delivering care. It's beyond inefficient. Which leads to a glaring moral issue: is it right to allow care to be priced out of people's reach because we're unwilling to address the major dysfunctions in the system?

The good news is that we're wasting a lot of money. This means we can do a LOT of things to improve the system so that more people get more care and better care cheaper. The bad news is that this "crisis/opportunity" has been around for at least the past 10 years (I'd argue longer), and we STILL haven't done anything, instead getting involved in increasingly inane debates about how socialism is bad and the free market is good and for-profits are evil and this specific proposal is sooo complicated and...we do nothing.

I feel like a frog in a pot going, "no, seriously guys, I think it just got one degree hotter in here..." I'm just wondering if we'll address the dysfunction or if in the year 2040 the only change in the US healthcare system will be that the prices have gone up 1000% and the treatments have become 10% more effective.

Why is health care so expensive? I have several hypotheses:

1) chronic diseases. More and more diseases have become chronic instead of terminal, like diabetes, heart disease, AIDS, cancer. We live longer, healthier lives, but many people are taking many medications for many years.

2) not enough preventive medicine. We focus on treatment instead of prevention. I believe this is because of our insurance system.

3) perscription drugs "a pill for every ill." Pharmaceutical companies tell us it is expensive to make drugs, but they spend much more on advertising than research. They also have a blockbuster mentality instead of making drugs that treat fewer people.

4) uninsured. Hospitals can't turn away greviously injured or sick people, even if they can't pay. That means insured people are charged more. This also ties into the the preventitive medicine problems, since people don't go until they are sick, when it is much more expensive.

A crisis and an opportunity, you say? You mean a crisitunity.

Healthcare is so expensive because the government subsidises the creation of ever more expensive technological improvements and the government then guarantees to pay for their availability to a large number of people and sets a regulatory arrangement which makes it difficult for insurance companies to restrict access to the best technology.

"the coming funding crisis in Medicare and Medicaid is not a crisis, but an opportunity"

The real opportunity available is to use the medical funding crisis as a battering ram to raise taxes on America's wealthy.

No, Ginger, an opporisis

And then there are people who think healthcare means "I can do anything I want and 'they' will fix it for almost free." I forgot to add personal responsibility to my diatribe, above. And this is a way-to-the-left-economically-anti-authoritarian talking, not some rightie!

I read a headline, no time for the article and now I can't find it (didn't look too hard yet):

"Someone?" considering using eminent domain to purchase certain drug patents. Interesting.

PW: "And then there are people who think healthcare means 'I can do anything I want and "they" will fix it for almost free.' I forgot to add personal responsibility to my diatribe, above. And this is a way-to-the-left-economically-anti-authoritarian talking, not some rightie!"

Arnold Kling has been pushing "event-based" rather than "provider-based" health care payments -- that is, the government pays the patient himself a fixed sum (determined, as always, by political consensus) to treat a disorder he's acquired, rather than paying doctors and hospitals directly. This system, if properly designed, could provide people with an incentive to engage in a lot more medically preventive behavior than they currently have -- if you know in advance that you are only going to receive X amount of money to treat a disorder, you're obviously going to take more care to make sure you don't do anything to get the disorder in the first place -- and it could do so WITHOUT unfairly penalizing lower-income people for disorders that really are not, in any conceivable way, their own fault.

Government funds research-drug companies profit unevenly across international markets.
Insurance companies don't want to insure you-they want you to pay them money so they can try and fiddle it into more money.
Doctors need off-road porsches, on road porsches, a mercedes gelande for the first wife, a 450 sl coupe for the trophy wife, and all those goodies for the mistress. not all, not most, but more than you would think, and most of the doctors I ever went to quit after 15 years and became golf bums and "financial advisors."
It's time for insurance company regulation, investigations into how care is allocated, more aggressive ROI for taxpayer funded medical and drug research, and aggressive regulation of doctors associations. They are colluding to keep rates high, despite the high number of medical doctors of a variety of specialties.

Healthcare delivery is terribly inefficient because the incentives are all wrong. The key parts of the article cited by other posters above, "The Best Care Anywhere," by Phillip Longman (Washington Monthly, Jan/Feb 2005, URL
http://www.washingtonmonthly.com/features/2005/0501.longman.html) are below. The clear conclusion is that not only should health care *insurance* be socialized (a la Canada's single payer system), but health care *delivery* should also be socialized:

----------------begin excerpt----------------
Why care about quality?

Here's one big reason. As Lawrence P. Casalino, a professor of public health at the University of Chicago, puts it, “The U.S. medical market as presently constituted simply does not provide a strong business case for quality.”

Casalino writes from his own experience as a solo practitioner, and on the basis of over 800 interviews he has since conducted with health-care leaders and corporate health care purchasers. While practicing medicine on his own in Half Moon Bay, Calif, Casalino had an idealistic commitment to following emerging best practices in medicine. That meant spending lots of time teaching patients about their diseases, arranging for careful monitoring and follow-up care, and trying to keep track of what prescriptions and procedures various specialists might be ordering.

Yet Casalino quickly found out that he couldn't sustain this commitment to quality, given the rules under which he was operating. Nobody paid him for the extra time he spent with his patients. He might have eased his burden by hiring a nurse to help with all the routine patient education and follow-up care that was keeping him at the office too late. Or he might have teamed up with other providers in the area to invest in computer technology that would allow them to offer the same coordinated care available in veterans hospitals and clinics today. Either step would have improved patient safety and added to the quality of care he was providing. But even had he managed to pull them off, he stood virtually no chance of seeing any financial return on his investment. As a private practice physician, he got paid for treating patients, not for keeping them well or helping them recover faster.

The same problem exists across all health-care markets, and its one main reason in explaining why the VHA has a quality performance record that exceeds that of private-sector providers. Suppose a private managed-care plan follows the VHA example and invests in a computer program to identify diabetics and keep track of whether they are getting appropriate follow-up care. The costs are all upfront, but the benefits may take 20 years to materialize. And by then, unlike in the VHA system, the patient will likely have moved on to some new health-care plan. As the chief financial officer of one health plan told Casalino: “Why should I spend our money to save money for our competitors?”

Or suppose an HMO decides to invest in improving the quality of its diabetic care anyway. Then not only will it risk seeing the return on that investment go to a competitor, but it will also face another danger as well. What happens if word gets out that this HMO is the best place to go if you have diabetes? Then more and more costly diabetic patients will enroll there, requiring more premium increases, while its competitors enjoy a comparatively large supply of low-cost, healthier patients. That's why, Casalino says, you never see a billboard with an HMO advertising how good it is at treating one disease or another. Instead, HMO advertisements generally show only healthy families.

In many realms of health care, no investment in quality goes unpunished. A telling example comes from semi-rural Whatcom County, Wash. There, idealistic health-care providers banded together and worked to bring down rates of heart disease and diabetes in the country. Following best practices from around the country, they organized multi-disciplinary care teams to provide patients with counseling, education, and navigation through the health-care system. The providers developed disease protocols derived from evidence-based medicine. They used information technology to allow specialists to share medical records and to support disease management.

But a problem has emerged. Who will pay for the initiative? It is already greatly improving public health and promises to bring much more business to local pharmacies, as more people are prescribed medications to manage their chronic conditions and will also save Medicare lots of money. But projections show that, between 2001 and 2008, the initiative will cost the local hospital $7.7 million in lost revenue, and reduce the income of the county's medical specialists by $1.6 million. An idealistic commitment to best practices in medicine doesn't pay the bills. Today, the initiative survives only by attracting philanthropic support, and, more recently, a $500,000 grant from Congress.

For health-care providers outside the VHA system, improving quality rarely makes financial sense. Yes, a hospital may have a business case for purchasing the latest, most expensive imaging devices. The machines will help attract lots of highly-credentialed doctors to the hospital who will bring lots of patients with them. The machines will also induce lots of new demand for hospital services by picking up all sorts of so-called “pseudo-diseases.” These are obscure, symptomless conditions, like tiny, slow-growing cancers, that patients would never have otherwise become aware of because they would have long since died of something else. If you're a fee-for-service health-care provider, investing in technology that leads to more treatment of pseudo-disease is a financial no-brainer.

But investing in any technology that ultimately serves to reduce hospital admissions, like an electronic medical record system that enables more effective disease management and reduces medical errors, is likely to take money straight from the bottom line. “The business case for safety…remains inadequate…[for] the task,” concludes Robert Wachter, M.D., in a recent study for Health Affairs in which he surveyed quality control efforts across the U.S. health-care system.

If health care was like a more pure market, in which customers know the value of what they are buying, a business case for quality might exist more often. But purchasers of health care usually don't know, and often don't care about its quality, and so private health-care providers can't increase their incomes by offering it. To begin with, most people don't buy their own health care; their employers do. Consortiums of large employers may have the staff and the market power necessary to evaluate the quality of health-care plans and to bargain for greater commitments to patient safety and evidence-based medicine. And a few actually do so. But most employers are not equipped for this. Moreover, in these days of rapid turnover and vanishing post-retirement health-care benefits, few employers have any significant financial interest in their workers' long-term health.

That's why you don't see many employers buying insurance that covers smoking cessation programs or the various expensive drugs that can help people to quit the habit. If they did, they'd be being buying more years of healthy life per dollar than just about any other way they could use their money. But most of the savings resulting from reduced lung cancer, stroke, and heart attacks would go to future employers of their workers, and so such a move makes little financial sense.

Meanwhile, what employees value most in health care is maximum choice at minimal cost. They don't want the boss man telling them they must use this hospital or that one because it has the best demonstrated quality of care. They'll be their own judge of quality, thank-you, and they'll usually base their choice on criteria like: “My best friend recommended this hospital,” or “This doctor agrees with my diagnosis and refills the prescriptions I want,” or “I like this doctor's bedside manner.” If more people knew how dangerous it can be to work with even a good doctor in a poorly run hospital or uncoordinated provider network, the premium on doctor choice would be much less decisive, but for now it still is.

And so we get results like what happened in Cleveland during the 1990s. There, a well-publicized initiative sponsored by local businesses, hospitals and physicians identified several hospitals as having significantly higher than expected mortality rates, longer than expected hospital stays, and worse patient satisfaction. Yet, not one of these hospitals ever lost a contract because of their poor performance. To the employers buying health care in the community, and presumably their employees as well, cost and choice counted for more than quality. Developing more and better quality measures in health care is a noble cause, but it's not clear that putting more information into health-care markets will change these hard truths.
------------------end excerpt----------------

As bigfoot alludes, a big part of the problem is the absurd degree of rent-seeking by physicians.

Consider how most physicians are unsalaried and organized as either single proprietors or small partnerships. There's no reason to think that medicine admits of fewer economies of scale than other modern industries, and yet medicine is still stuck in a medieval guild style of organization. Not to mention other grossly inefficient practices, like underutilization of nurses. Many procedures could be done by a staff of nurses overseen by many fewer physicians, but of course that doesn't comport with rent-seeking.

Because the market can't get price signals right for delivering quality *long term* health care (contrary to free market fetishists like Arnold Kling---see Bruce Moomaw's comment above), the choices are either (a) exploding medical costs, with little to show for it, or (b) socialized and evidence-based medicine with physician autonomy restricted and more emphasis placed on public health measures (such as decreasing the amount of high-glycemic foods consumed and increasing exercise).

Kling's belief in event-based health care payments is separable from his belief in a largely market-based system -- note that I said that the GOVERNMENT would set the appropriate sizes for such payments to patients for a specific disorder. He is certainly talking about "restricting physician autonomy". The important thing is that we slap a limit, at some point, on doctors' and hospitals' bottomless appetite for more money (as well as providing a proper incentive to citizens themselves to eliminate unhealthy personal habits).

As for Liberal's comment that "Many procedures could be done by a staff of nurses overseen by many fewer physicians": Kling is also pushing a proposed reform to encourage that, by relying less on government regulation of doctors and medicines, and more on an "informed consumer" approach in which the patient himself is mostly free to decided what doctors, medicines and treatments he's willing to risk. In short, caveat emptor.

The problem here is that -- given the extremely technical nature of most health care -- most people will have trouble getting enough information to properly caveat with. (Especially given that the elderly become mentally feeble at the same time that they become physically feeble.) To enable this, we'd have to have the government itself do a great deal of testing and appraisal of the worth of various doctors and treatments -- a sort of gigantic government-funded version of Consumer Reports. Kling actually cites that magazine as a model of his desired approach, but he doesn't talk much about the obvious need to have the government itself provide such an information service to patients.

As he says, though, this philosophy -- if it could be made to work -- would allow far greater flexibility for patients to choose cheaper non-M.D. health care providers (such as Liberal's "staff of nurses") in appropriate circumstances. Put me on the fence regarding this particular proposal of Kling's.

What Arnold Kling proposes is absurd: "if you know in advance that you are only going to receive X amount of money to treat a disorder, you're obviously going to take more care to make sure you don't do anything to get the disorder in the first place." Think about this absurd proposal a moment. A dear friend has breat cancer. She has always been in fine health before. What should she have done differently? Is she quilty of being ill? Another friend has asthma. Guilty of what? Still another friend fell when walking down steps. A broken wrist. Guilty of falling? The wealthiest will have health care, the rest will have lectures telling them they are guilty of being ill. No health care for those who are found so guilty.

Just want to say: on the first-order point, Brad is absolutely right.

Liberal - Spot on. WOEFULLY inefficient system with no inherent competition to keep payor costs under control. When was the last time anyone went price/service comparison shopping when they were sick/injured?

Are the two Brads really right on health care costs? Only if you say that all the new advanced treatment is being subsidized by traditional, cheaper but far-overpriced treatments. When the cost for traditional stitches can be in the high hundreds of dollars, when visit to a dirty, overstuffed and understaffed emergency room (Alta Bates, Berkeley!) for a couple very old-tech tests draws a bill of $4,000 (6 hours in the place for 15 minutes of doctor time, 80 minutes to fill a prescription . .) and when high-deductible and never-used insurance costs rise (in regulated California!) 58% in three years, c'mon, is that simply because I am being charged for the high-tech treatments of an 85 year old who needs joint replacements?
Everyone has these stories. Even if it is simply the result of transferring burdens -- and Bradford and others really haven't made that convincing a case that it is -- what solution does this point to? Would Kerry's subsidy of over-$65,000 (?) cases have really brought a child's innoculation from $120 down to the $5 it can really be done for (excluding Dr. costs)?
There have been equally compelling arguments that the high costs are,
a) malpractice insurance;
b) excessive bureaucratic requirements for insurance companies;
c) excessive bureaucracy in insurance companies; d) lack of competition in the medical industry, because of consolidation among hospitals, insurance cos, and drug cos;
e) excessive profiteering in insurance companies and hospital groups, driven by Wall Street demands and executive overcompensation non-ethics
f) the convoluted tax structure on the hospital business

And so on. So I am not sure it is that useful anytime someone makes a simplistic explanation of why health care costs are high.

In the stampede toward libertarianism, it seems that the victories in public health have been forgotten or severely undervalued. A commitment and rededication to public health would redistribute health costs in a way that would be more cost effective. The problem with not socializing the costs of medical care is that the costs of diseases are already socialized. With potential epidemics like avian flu looming, it would make sense to improve the baseline.

A good start would be to make medical and dental care available to children at schools. This would be a convenience for parents and would facilitate vaccinations and transfer of information on healthy lifestyles, exercise, the epidemic of obesity, smoking STDs, etc. By not addressing these problems as a public health problem, we are magnifying the problems and accepting the higher costs of procrastination.

I won't argue that all increase in health care costs are due to inflation, but I am betting that a good chunk of them are. From the research on prices of the most 200 most popular drugs (by AARP: Many of the msot popular drugs are prescribed to older people). See the full document at: http://research.aarp.org/health/2004_06_drugprices.pdf .

The first finding says:

For the four-year period 2000 through 2003, the average annual growth rate in
manufacturers’ brand name drug prices was 6.0 percent. Only four of the 197 drugs
had an average annual increase that did not exceed the four-year average annual general
inflation rate of 2.5 percent.

So same brand drug prices are growing significantly higher than inflation...and it is across the board. This is not a few isolated cases driving prices up, but 193 of 197 drugs had price increases higher than inflation. Sure, newer drugs are treatments are more expensive...but it seems older ones are as well!

You've got it exactly right -- stratification. I know people in biotech and have some idea what they're doing. In their optimistic moments, they are prone to say things like "Our children will be the last generation to grow up expecting to die."

The scariest element of wealth stratification to me (not that there aren't others) is the potential for extremely effective and extremely expensive life extension technology.

The difference between earning $1M/yr (in today's dollars) could be a hundred years of healthy life. We could reach this point this century.

So what do we do then?

Er, I mean "the difference between earning less than $100K and earning more than $1M". HTML ate my greater-than/less-than.

Trouble is, not all ailments can be attributed, even in part, to bad behaviors. Having read Paul Krugman's latest in the NYRB this morning, I'm going to relate some experiences of a friend with a chronic genetic disease over at my site later on today if I get around to it.

Of course, when you're talking about heart and pulmonary disease, diabetes, certain cancers,etc. behaviors certainly contribute to the problem and part of healthcare really must be given over to "developing healthy lifestyles."

And even that becomes laughable if you talk to someone with lung disease who's never smoked but who has lived downwind from Houston or northern Indiana or parts of Jersey. In other words, we'd have to require (and I'd love to) a different way of looking at air pollution. Who pays for an illness which is directly related to bad behavior by someone else?!

At the root of the healthcare problem is the American fixation with simple, quick solutions. Ain't gonna happen, not with illness, not with treating illness, not with developing a viable national healthcare standard. Everyone wants to be a winner; everyone is suspicious of anyone else who wants to be a winner!

"No, health care costs are rising primarily because new and new treatments are coming to the market, and people are choosing to spend a lot of money on them."

I've seen this statement many times, even from respectable, liberal economists. Could someone cite a peer-reviewed, scientific study that proves this? Until then, I have to assume this is a myth that has gained acceptance by being repeated ad nauseaum, or corporate disinformation designed to disguise profit-driven cost inflation

A study in Arizona found that hospitals there were charging patients up to 1100% (ie 11 times) the actual costs of their treatments. An honest study of medical costs should explicitly call out the proportion due to the "growing" of profits for Wall Street.

Both my parents had gall bladder operations in the 50s and spent a week in the hospital. My sister had laproscopic surgery for the same condition in the 90s and went home the same day. I'll bet that hers cost far more, though it was a far simpler and less time-consuming procedure.

[Adjusting for inflation, you would be wrong.]

Sure, some advances produce more expensive opportunities for some; however, technology has enabled more non-invasive diagnostics (eg MRIs) which allow earlier detection and treatment of disease, perhaps lowering actual costs significantly.

I think that a careful study of costs vs. benefits of new devices/procedures might find a net reduction in true costs of medical treatment to society as a whole.

It isn't a question of paying X% of income on healthcare or X% in taxes to pay for health care. Canadian-style Single Payer health insurance, i.e. socialised insurance, not socialised health care, gives you what Americans pay 16% of GDP for -- at a cost of about 9.6% of GDP. The difference is in cutting out the insurance companies which run americans' health care.

A lot of smart comments here, I don't have much too add other than to ask about something that's been bothering me for awhile. What in the world does the term "pre-funding" mean as opposed to "funding?" For instance, look at this sentence: Then the appropriate thing to do is start pre-funding a health care system for our retirement.
Now imagine that sentence without the prefix "pre." It means exactly the same thing. I cannot recall having ever seen the phrase pre-funding used where funding wouldn't have worked just as well.

Red Baron wrote, "Sure, some advances produce more expensive opportunities for some; however, technology has enabled more non-invasive diagnostics (eg MRIs) which allow earlier detection and treatment of disease, perhaps lowering actual costs significantly."

Not necessarily so. You have to look at (a) false positive rates, and (b) the fact that in many cases, early detection doesn't get you anything.

paulo wrote, "And so on. So I am not sure it is that useful anytime someone makes a simplistic explanation of why health care costs are high."

But in your list, you don't mention anything related to rent-seeking by physicians.

See my post at February 24, 2005 10:03 PM for reasons why price signals alone will never get long-term health care quality right.

Bruce Moomaw wrote, "Kling's belief in event-based health care payments is separable from his belief in a largely market-based system -- note that I said that the GOVERNMENT would set the appropriate sizes for such payments to patients for a specific disorder."

I respectfully disagree. Kling's proposed system exhibits the sine qua non of all market fetishists---an insistance on bottom up organization predicated on consumer choice and some kind of price signal.

"The problem here is that -- given the extremely technical nature of most health care -- most people will have trouble getting enough information to properly caveat with."

But this is precisely the problem. Read the _Washington Monthly_ article I posted. There's no evidence consumers of health care choose rationally if the quantity to maximize is long-term outcomes. (Not that I think MDs are cognitively equipped for this either.)

Lise completely misses the point: I said that the government would determine the likely cost of the treatment necessary for a specific disorder, and then pay the patient himself the sum necessary to cover that treatment from whatever doctors he himself chooses -- possibly with some downward adjustment in the payment ONLY in those cases where the patient's own volunatary behavior had contributed to his acquiring the disorder. Not one of the cases she mentions fall into that latter category at all.

And I'll repeat that Kling's proposal for event-based, rather than provider-based, payments is completely separable from the idea that private corporations should pay for health care. If we DON'T set up something of the sort, and if we do keep paying doctors and hospitals whatever they ask for without question, of course health care costs really are going to mushroom absurdly.

Regarding Kling's second proposal, note Liberal's comment: "There's no evidence that consumers of health care choose rationally if the quantity to maximize is long-term outcomes. (Not that I think MDs are cognitively equipped for this either.)" Which returns us to Square One: given both the advantages and disadvantages in Kling's "Caveat Emptor" proposal -- or some variant of it where the government serves as an major info source on the value of different doctors and treatments -- would it, on balance, inmprove the current situation or not? As far as I'm concerned, that question is still wide open, and local experimentation by individual states may be necessary to decide it.

Arnold Kling wishes to do away with Social Security and Medicare and Medicaid. This is what such conservative are about.

Conservatives thus wish only to do away with all New Deal and Great Society programs. The medical insurance plan that would replace Medicare and Medicaid would allow us to be covered for illnesses if we were all good girls and boys and took the best of care of ourselves in the best of all conservative world's. Of course, if a person were to be heavier than conservative rules permitted than the heck with diabetes coverage.

What event based medical insurance provides for is rationing health care for middle and lower income households. Such class based rationing is thoroughly immoral. Event based insurance is class based rationing.

Bruce Moomaw wrote, "And I'll repeat that Kling's proposal for event-based, rather than provider-based, payments is completely separable from the idea that private corporations should pay for health care. If we DON'T set up something of the sort, and if we do keep paying doctors and hospitals whatever they ask for without question, of course health care costs really are going to mushroom absurdly."

First, there's no reason to think that many information problems present in the current system wouldn't be present with Kling's system.

Second, why would you support such an iffy proposition when the article from the _Washington Monthly_ discussed a model with a proven track record? You act like Kling's model is the only alternative to the present system.

Interesting. Note that Longman's article:

(1) Emphasizes that a unified, nationwide electronic network to store information on the medical history of patients, and provide it to any doctor who starts treating them, is a necessity, and that no individual private health provider has a financial incentive to provide it -- which means it must be funded by the government. No kidding. That's exactly what I said.

(2) Says that the VHA is great in large part because its doctors "could make more money doing something else, so their commitment to the profession most often derives from a higher-than-usual dose of idealism." Splendid! Now all we have to do is make sure that most of America's doctors have a "higher-than-usual [for doctors]dose of idealism." Any ideas? Maybe the town fathers of Lake Wobegone could help us out. Alternatively, maybe we can improve the quality of doctors in general by reducing their pay. That's always worked so well in other areas.

(3) For the same reason, notes that any VHA-type system will always be limited in the number of patients it can accept, what with that inconvenient shortage of unusually idealistic doctors -- so the most he can propose is that we should expand the VHA system to treat anyone who "agrees to do 2 years of community service". Presumably everyone who won't -- or can't -- do such service will be Up That Creek.

(4) Decries allowing individual citizens to shop for their own doctors or hospitals, because the fools insist on being "their own judge of quality, thank you" and valuing "cost and choice... more than quality". May I suggest that -- once we've given individual citizens adequate information to make reasonably informed judgments about quality -- they should be allowed to consider cost as well, and then to choose who the hell they want to treat them with the amount of money the government has given them for such care?

Examining the success of the Veterans Administration health care program, let alone programs in Sweden and France, there are many ways in which cost increases can be restrained while not rationing health care by class. There is a real long term problem here, and we must decide whether we are committed to general health care coverage private or public. Proposals that begin with rationing should be highly suspect at least.

It's not the whole story, but a crticial part of why health care costs so much is the underlying fragmentation of the system, which makes it particularly difficult to organize care (a la the VA) for people with chronic diseases who have multiple physicians and multiple 'scrips. That, plus perverse incentives in the system (alluded to above) that lead the system to provide people with chronic diseases with episodic, reactive care instead of proactive, preventive care (which thus leads to an excessive number of ER visits and hospitalizations). A lot of people with chronic illness (who make up the preponderance of the 15 percent who account for 75 percent of health care costs) are in public programs such as Medicare and Medicaid, which then clamp down on their reimbursements, leading to cost-shifting to private payors. Net, one way to start undoing this vicious cycle -- as Longman is saying -- is organizing systems of care a la the VA and Kaiser. Electronic medical records can start to accomplish a virtual integration -- at least that heart failure patient's seven doctors will be singing off the same song sheet, so to speak, and we can eliminate some duplication of services and 'scrips, which coincidentally mostly isn't good for patients. The main obstacle are some physician groups, which view solo practice in much the same way as the agriculture sector glorifies the family farm. But there's also some indication that some other MD groups are beginning to see the writing on the wall. And for what it's worth, outside of the VA, from what I hear, the happiest MDs in America are at Kaiser, where they have decent salaries, reasonable working hours (team-based care), and a career path.

A few thoughts from a practicing family physician: The main causes of health care inflation are an aging population in combination with advancing technology. More funding for preventive care might not significantly decrease the rate of increase of health care costs because the easy stuff like immunizations and cancer screening has already been done. We'll have to wait for further technical advances in prevention. Also, (and I'm not sure about this), does prevention that keeps the elderly healthy well after their productive years save or cost the society money? Lifestyle modification counselling makes people healthier and is a very good thing, but is notoriously ineffective and in any case can be mostly left to counsellors and the media, not physicians. Direct control of physician incomes and autonomy by the government could decrease the rate of health care inflation and would probably not significantly change the country's life expectancy. It could, however, result in the sorts of waiting for non-emergency treatment that we see in Canada and the UK. In the near term, access to care for the young and poor would probably improve in a government controlled system--access for the old might worsen--very politically touchy. In the medium to long-term a shortage of doctors and nurses might result if incomes and working conditions deteriorated.

http://www.nytimes.com/2005/02/19/business/19health.html?ex=1110085200&en=41726f3e75434f62&ei=5070

Health Industry Under Pressure to Computerize
By STEVE LOHR

DALLAS - Dr. David J. Brailer, the federal official who is trying to prod the nation's health care system into the computer age, has delivered a warning to the health care industry: take steps soon to make it happen or the government will probably impose a solution.

Across the ideological spectrum, health care experts and politicians agree that the nation's hodgepodge of paper medical files needs to move into the digital era, so that eventually each person has an electronic health record that can travel across networks and be read by doctors, hospitals, insurers and the patients themselves. Doing so, the thinking goes, would reduce medical errors, improve health care and save money.

Congress has been doing its own prodding on the matter, with another bill introduced this week. Trying to pick up the pace, Dr. Brailer, in meetings with health care and technology executives here at their industry's big annual convention, has told them to come up with a single set of technical standards for electronic health records.

The approach, he said, must include a method to certify that the records can be opened and read by doctors and specialists, as authorized by the patient, even when different clinics and hospitals have different computer systems....

JRossi and Suneel

Interesting comments. Please do continue. We can do well by looking to France and Sweden and Japan, beyond Canada and England. The models we have to draw on are always going to be of partial value, but there is much to be gained looking more broadly.

Brad-
Have you seen Tabarrok's response to this post at Marginal Revolution? Also, is the answer to my question about the term "pre-funding" in an earlier comment just that it's a term of art in discussing pension systems and other similar ones? I still have trouble understanding what work it does that "funding" doesn't do.

re canadian health care costs...

there may be less % on health care (not sure, as there are lots of stuff that isn't included in the basic accounts) but there's also less health care...

to constrain costs, there is a great deal of rationing, with very very very long waiting periods for surgery if you don't have connections. provinicial governments (which own the health care file) also control the number of doctors licensed, and have been strictly limiting the number of spots in med school for a number of years to control costs. Now, they are facing severe problems as large numbers of docs are in prime retirement years, and have a very low pipeline of new docs.

demand for healthcare is essentially infinite, while ability to pay is strictly limited. You can price ration, or supply ration. So either you get high quality care available to all with cash, and experience an adoption curve as things are paid for and scale economies kick in, or you get lower quality care at lower prices, with access limited by waiting lists and personal connecitons.

but i'm a rightwing shill and obviously have no informative value to the all knowledgeable readers of this blog...