Category Archives: General Cynicism

Most people believe we spend too much on health care. From the April 7 Annals of Internal Medicine:

“The United States spends more than any other country on medical care. In 2006, U.S. health care spending was $2.1 trillion, or 16% of our gross domestic product. At the same time, more than 45 million Americans lack health insurance and our health outcomes (life expectancy, infant mortality, and mortality amenable to health care) are mediocre compared with other rich democracies. We spend too much for what we get.”

The Obama administration’s approach to control costs focus’s on “improving medical practice and health outcomes and changing the structure of the health insurance marketplace.”

In the category of improving medical practice Obama appears want to improve prevention services, promote health information technology (HIT), better manage chronic diseases, offer payment reforms that would pay providers on the basis of outcomes, and compare effectiveness different approaches. Yet as the article notes none of these interventions offer significant savings though they may improve outcomes and the process of health care.

Some savings are achievable through insurance reform:

“Insurance regulation can reduce costs (in principle) by limiting the resources that private insurers put into avoiding sales to less healthy customers and charging them much higher premiums. By prohibiting such medical underwriting and by requiring insurers to accept applicants regardless of health status, President Obama’s health reform approach could produce some administrative savings. An effective insurance exchange (a new agency that would offer Americans a choice of health insurance plans while also regulating insurers) can lower the high administrative costs that are typical in the current individual and small group insurance markets. In addition, the Obama platform proposed more direct limits on insurance overhead. It promised to “force insurers to pay out a reasonable share of their premiums for patient care instead of keeping exorbitant amounts for profits and administration.”

Medicynical note: This reform saves money by encouraging increased efficiency while ensuring equitable coverage.

The Annals then goes on to explore what works in other settings and concludes:

“If the United States is to control health care costs, it will have to follow the lead of other industrialized nations and embrace price restraint, spending targets, and insurance regulation. Such credible cost controls are, in the language of politics, a tough sell because they threaten the medical industry’s income. The illusion of painless savings, however, confuses our national debate on health reform and makes the acceptance of cost control’s realities all the more difficult.”

Medicynical note: We have a medical industrial complex as well organized and resistant to change as the military industrial complex that Eisenhower warned about. To achieve cost savings will require altering our cost structure and profit assumptions that have been increasingly entrenched over the past 50 years.

This article points out some false assumptions and the difficulties ahead.

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Employer based insurance is failing. It doesn’t work for employers, many of whom can’t afford to provide coverage, particularly those with lower income employees. And it doesn’t work for the employee who either has no insurance or has to spend a significant proportion of income to buy coverage.

McKinsey Quarterly notes that :

“In 2005, employer-paid health benefits covered 22 percent of households in the bottom-income group, contrasted with 56 percent of the lower-middle, 81 percent of the upper-middle, and 89 percent of the top income group”

To understand the magnitude of costs relative to income:

You will note for those earning under $27,000 dollars/year, health insurance costs are in the range of 20% of income, while for those earning over 130,000/year it’s just 3.3%.

Meanwhile Ramesh Ponnunu (of the National Review) in an OP-ED, advocated a move away from employer provided health insurance. Medicynical note: Can’t argue with that as I believe the employer based insurance system has failed.

His approach, however, would allow employers to drop health insurance and provide a tax credit to the employee to buy insurance on the private, individual market. He argued that this will bring market forces to bear on health care costs.

His plan discounts the high cost of insuring those with illness, that of course is the whole point of health insurance saying vaguely that they would be provided subsidies to buy coverage. He also neglects the issue of below average income people (after all that is 50% of the population) and the high cost of health insurance, relative to income.

His tax credits, as I understand it, will provide a decrease in the amount of taxes paid. But it won’t provide relief for a significant part of our population. For example, families and individuals with $27,000 or less income have no tax liability (see here).

We can do better than this.

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