Category Archives: Health Economics

Does anyone need more proof of the total dysfunction of our non-system of care.  Consider that we have over 50 million people without health insurance, and it appears that  a decreasing number of employers offer health coverage. 

One might ask where all the money paid by insurers for coverage went?    Certainly not in the pockets of the employees. 

It is a fact that proportion of our population covered by insurance from employers declined from about 70% in 2001 to 53% in 2010. (see the above link)

Medicynical Note:  Employer based coverage was a convenient modus but it has become obsolete. 

Our conservative friends like the idea of “free” markets that allow choice.  But they neglect to point out that “choice” goes both ways.  Insurers in their “system” are free to choose who they cover and how much they charge.  If you are sick and/or elderly forget it. 

Their approach undoubtedly will decrease spending on health care…………

Fine article in the NEJM by Victor Fuchs reviewing the relentless increase in health care costs since 1950. 

The most important explanation for the increase in real per capita health expenditures is the availability of new medical technology2 and the increased specialization that accompanies it. Between 1974 and 2010 alone, the number of U.S. patents for pharmaceutical and surgical innovations increased by a factor of six. Second in importance is the spread of public and private health insurance, which diminishes the effect of health care prices on demand.3 There is a positive-feedback loop between new technology and the spread of health insurance: new technology stimulates the demand for insurance, and the spread of insurance stimulates the demand for new technology.4 Finally, a small portion of the increase, typically 0.1 or 0.2 percentage points per year, is attributable to the aging of the population. It’s not possible to estimate how much of the increase in expenditures reflects higher health care prices and how much reflects greater quantities of care, because the content of a day in the hospital or a visit to a physician keeps changing. No doubt some of the increase in expenditures reflects an increase in the quantity of medical care, if quantity is adjusted for improvements in the quality of care.

Read the article. It’s complete text is available at the above link. 

Medicynical Note:  Of interest, since 1950 the largest proportion of  costs was and is for hospital care.  Shorter stays over the time period were balanced by higher charges and increase use.  Physician and drug costs also increased exponentially.  A catch-all category of including “public administration and the net cost (premiums minus benefits paid) of private health insurance, nursing homes, and dental services” also followed the trend

The tone of the article is not optimistic with reference to the current grid lock of political philosophies that interferes with an honest careful discussion and resolution of the issue.  There may be still some hope, as the author notes quoting de Tocqueville on America “events can move from the impossible to the inevitable without ever stopping at the probable”  

Disconcerting disclosure by one of those suing the government about the health insurance mandate: 

Mary Brown, whose case against the 2010 healthcare reform law is pending before the Supreme Court, argues that the government shouldn’t be able to force her to carry health insurance.

But:

The couple have filed for bankruptcy protection, asking a federal court to wipe out close to $60,000 in consumer debts. Significantly, their unpaid bills include $2,750 owed to a local hospital and physicians group and $1,735 to out-of-state medical specialists.

Medicynical Note:  The Brown’s are not unique, something like 60% of those filing for bankruptcy in the U.S. have medical debts as part of their problem. 

We lead the world in this cause of bankruptcy which is essentially unknown in industrialized countries with health insurance mandates.

Nothing new with this revelation.  It has been previously postulated. 

Computerized patient records are unlikely to cut health care costs and may actually encourage doctors to order expensive tests more often, a study published on Monday concludes.

Medicynical Note:  The cost of implementing a nationwide record system is considerable.  Having such a system, however, will facilitate easier and more comprehensive analysis of health care and if we allow such use,  perhaps some cost savings by directing care to the most effective economical modalities.  That however is a big if. 

This is self explanatory.  We have the most expensive, most inefficient non-system of care in the world.

Good review of the failure of cost containment in our non-system of health care with suggestions for fixes. 

In case you haven’t noticed there are problems with our “free market” pricing:  (from his paper in Health Affairs)

1. On average, the prices for health care goods and services negotiated by private health insurers in the United States tend to higher — about double or more (medicynical emphasis)— than prices for identical services and goods in other countries of the Organization of Economic Cooperation and Development.

2. It is in good part so because insurers do not seem to have sufficient market power, especially vis à vis hospitals, to resist very rapid price increases.

3. The varying degrees of market power among private insurers in the United States have led to pervasive price discrimination among payers, with prices for identical goods or services varying among payers by factors as high as 10

Reinhardt concludes:

I am persuaded, however, that the opaque, price-discriminatory and administratively unwieldy – and hence very expensive – payment system of individual negotiations over fees has not served Americans well during in the last few decades.

Medicynical Note:  Yet some still maintain our non-system is the “best in the world.”  The question is for whom?

Health Care costs increasing at twice the rate of inflation:

The average per capita cost of healthcare services covered by Medicare programs and commercial insurance grew by 5.28 % in 2011, nearly double the rate of inflation in the larger economy, Standard & Poor’s Healthcare Economic Indices show.
A further breakdown of S&P data shows that healthcare costs covered by commercial insurance plans grew by 7.11% in 2011, while Medicare claim costs rose by 2.51%, despite the government plans’ older and sicker population.

And:

Robert Zirkelbach, a spokesman for America’s Health Insurance Plans, told HealthLeaders Media that commercial plans must contend with cost-shifting and other market forces that do not affect Medicare. He says the cost growth acceleration also could be link to the recovering economy.

Medicynical Note:  What’s not noted by Mr. Zirkelbach is that Medicare’s population is sicker, older and has greater need for care than the commercial plan population.  Think he wants responsibility for this high risk group? Think private insurers will provide adequate coverage at reasonable cost to an elderly population with pre-existing illness?  Think again.

Our non-system is not driven by concerns about care; not driven by worries about outcomes; not driven by the needs of patients.  Rather it is the mandatory profit goals of providers, insurers and technology developers that drive our costs. 

FYI last year the poor suffering private insurers had record profits.  Guess who paid?

In olden days practitioners of alchemy claimed they had “the capability of turning base metals into the noble metals gold or silver“.”  In the modern day drug manufacturers have actually achieved this goal.  They have become one of the most profitable industries with margins that even Apple would envy.  Imagine charging over $100,000 for a few milligrams of a product that works for just  a few months—if at all.  (With a few exceptions but that’s another story)

I’m not criticizing the fact that pharmaceutical manufacturers want to help with such problems but rather that they expect unrealistic, unsustainable profits from the endeavor.  They claim that their wildly inflated cost structure is the reason.  But one can counterclaim that they have long gamed the costs by over-paying each step of the way in the drug’s development and marketing based on high profit hopes.  They are inefficient.

It’s a flaw in the “not so free” health market that once a drug is developed manufacturers have a monopoly for a generation and can hype  and overcharge for the drug as much as they want.  They take advantage of the sickest most desperate of our patients by heavily marketing marginally effective product.

It’s not surprising then that other people want in and that counterfeit very expensive drugs are showing up.