Category Archives: Health Economics

In a political year appeasing public opinion becomes increasingly important. Politicians are risk averse and their motivation to innovate is inversely proportional to the time to voting. They will undoubtedly take note of this Kaiser Foundation data:

However, changing health care is an inevitable task. Our non-system is unsustainable and far too expensive.  Why is government involved? Because the private sector’s primary interest is making money not care.  For example private insurers  don’t have an overwhelming desire to provide coverage for those needing it most, the sick and elderly.

This from Alain Enthoven:

Since Medicare is a major reason for the large and rapidly growing national debt, growth in Medicare spending must be brought into line with growth in the gross domestic product (GDP). The most effective strategy for reducing health care expenditures is fundamental reform of the incentives provided to both patients and health care professionals. Medicare’s open-ended fee-for-service payment system is a major contributor to the high level and rapid growth of spending. In 2009, the Massachusetts Special Commission on the Health Care Payment System said that fee for service “rewards overuse of services, does not encourage consideration of resource use, and thus cannot build in limitations on cost growth.” The commission concluded that “risk-adjusted prospective global payment models that provide appropriate incentives for efficiency . . . should serve as the direction for payment reform.”1

There are good reasons to expect such incentives reform to bring a substantial cost reduction in Medicare. Prominent experts have estimated that at least 30% of U.S. health care spending represents waste or pays for poor-quality care that doesn’t benefit patients.5 In the RAND Health Insurance Experiment, the Group Health Cooperative, a prepaid group practice with global payment, provided high-quality care at a cost 28% lower than that of the fee-for-service approach. In addition to reducing the direct cost of care, global prospective payment would eliminate large paperwork burdens. Physicians and hospital managers frequently say that they could reduce costs without harming patients and would do so if the fee-for-service system didn’t punish them with reduced revenue. In Madison, Wisconsin, where many cost-conscious state employees choose plans featuring global payment, prices are significantly lower, and premium growth significantly slower, than elsewhere in Wisconsin, where fee for service is more prevalent.

And some principles to achieve cost control and coverage:

PRINCIPLES OF MANAGED COMPETITION
• Guaranteed right to enroll in the plan of the consumer’s choice
• Same price to all consumers for same coverage
• Periodic open enrollment for covered beneficiaries, managed through an exchange • Consumers fully responsible for premium differences
• Risk-adjusted payments by government or employer (adjusted for age, sex, health conditions, and geographic area) that are high enough to keep the least costly plan affordable
• One or a few standard coverage contracts to make comparisons easy and simplify provider billing
• Reliable and unbiased accessible information on prices, quality, and consumer satisfaction • Insurance transactions through an exchange to facilitate consumer choice and achieve economies in marketing

WAYS TO CUT COSTS WITHOUT REDUCING THE QUALITY OF CARE
• Implement best practices for prevention of infections • Strengthen primary care for prevention, early detection, and treatment
• Align incentives of providers with needs of members for affordable care
• Use active management of chronic diseases to reduce need for inpatient care
• Match resources used to the needs of population served
• Share comprehensive longitudinal medical records to improve physicians’ knowledge of patients’ history and eliminate duplication of tests
• Outcomes management: track patient outcomes and feed results back into decision making
• Implement effective evaluation, selection, and purchasing of drugs and devices
• Substitute less costly personnel where equally or more effective
• Continuously improve quality and redesign processes
• Rely on evidence-based guidelines to eliminate unwanted variation and accelerate application of the latest science
• Use information technology for caregiver support tools such as reminders, alerts, and secure messaging between doctors and patients

From: Medical Billing And Coding

Medicynical Note: Our amazing costly inefficient health care non-system.

From the Washington Post:

The biggest culprit, by far, has been an erosion of tax revenue triggered largely by two recessions and multiple rounds of tax cuts. Together, the economy and the tax bills enacted under former president George W. Bush, and to a lesser extent by President Obama, wiped out $6.3 trillion in anticipated revenue. That’s nearly half of the $12.7 trillion swing from projected surpluses to real debt. Federal tax collections now stand at their lowest level as a percentage of the economy in 60 years.

Big-ticket spending initiated by the Bush administration accounts for 12 percent of the shift. The Iraq and Afghanistan wars have added $1.3 trillion in new borrowing. A new prescription drug benefit for Medicare recipients contributed another $272 billion. The Troubled Assets Relief Program bank bailout, which infuriated voters and led to the defeat of several legislators in 2010, added just $16 billion — and TARP may eventually cost nothing as financial institutions repay the Treasury.

Medicynical Note: As noted our deficits originated in the Bush administration’s two recessions, two expensive wars and the multiple huge huge cuts given our wealthiest citizens.

Proposing to fix the problem by cutting services to the middle class and poor while cutting taxes on the wealthy even more doesn’t add up and is intellectually flawed.

That said, cutting health care costs remains a priority as spending on health is increasing at an unsustainable rate. Ryan’s proposal to ration care by wealth is flawed and jeopardizes lives. We need to make health reform work.

Fascinating analysis of health care costs in the U.S. by Deloitte:

Medicynical Note; Read the summaries of the study at the link provided. Amazing that health care cost/capita has increased by 26% in the last 6 years while while median family income has declined 5% since 1999. Truly a lost decade.

Ewe Reinhardt on rationing of care:

For reasons that escape me, many Americans do not regard rationing scarce resources through the marketplace, by price and ability to pay, as rationing at all, reserving that term for government withholding of marginally beneficial procedures, based on formal cost-effectiveness analysis.

I do beg to differ. In their well-known textbook “Microeconomics,” Michael L. Katz of Harvard and Harvey S. Rosen of Princeton, put it thus:

“Prices ration scarce resources. If bread were free, a huge quantity of it would be demanded. Because the resources used to produce bread are scarce, the actual amount of bread has to be rationed among its potential users. Not everyone can have all the bread that they could possibly want. The bread must be rationed somehow; the price system accomplishes this in the following way: Everyone who is willing to pay the equilibrium price gets the good, and everyone who does not, does not.”

Medicynical Note:  Rationing is a false argument in health care.  We ration all the time now.  The question is how to assure access and quality while controlling costs.  The U.S. arguably has quality available but neither of the others. 

The unreported soft underbelly of the American non-system of care is the increasing medicaid population which when added to the uninsured is about 120,000,000 people. (50,000,000 uninsured, 68,000,000 on medicaid with some overlap)  Astounding numbers when you consider the budgetary difficulties facing state governments and consequently Medicaid.

Approximately 68 million Americans were enrolled in Medicaid at some point during 2010, when the program spent $406 billion on acute and long-term care services for its beneficiaries.1 Another 16 million people are slated to gain Medicaid eligibility through the Patient Protection and Affordable Care Act (ACA), which would make the federal–state program responsible for financing services for more than one in four Americans. Enacted in 1965 as an afterthought to Medicare, Medicaid has become a vast public enterprise that underscores the limits of the private insurance market even as it squeezes state budgets already stretched by the recession. These realities, along with the fact that an increasingly conservative electorate has given Republicans control of the U.S. House of Representatives, raise a fundamental question for policymakers: What level of support should government provide to people who can’t afford private insurance and are not offered employer-sponsored coverage?

Medicaid serves the nation’s neediest and sickest patients: low-income children and mothers, the elderly, people with permanent disabilities and the poorest of adults. Despite periodic calls to privatize Medicaid, in reality it serves a population that private health insurance was not designed to serve and probably does not want to cover. What private insurance system is willing to pay for long-term care for low-income elderly or disabled people, whether through home- and community-based care or in nursing homes? What private firm is eager to cover families and children who are typically too poor to afford insurance premiums?

And:

On one hand, House Republicans are supporting a budget proposal from Budget Committee Chairman Paul Ryan to cut Medicaid expenditures by $1.4 trillion (yes, trillion with a “t”) over the next decade and to block grant the program. (It is not clear, but it looks like the plan would also terminate the Children’s Health Insurance Program.) His overall budget plan would cut about $6 trillion in budget expenditures, although most of those savings would be used to extend tax cuts for wealthy Americans and cut taxes for many other groups.

Medicynical Note: It’s hard to accept our current budget/health care situation and not look at other industrialized nations where nearly all citizens have health care coverage,  at , much lower cost.

American exceptionalism, not so good:

Health spending is rising faster than incomes in most developed countries, which raises questions about how countries will pay for their future health care needs. The issue is particularly acute in the United States, which not only spends much more per capita on health care, but also has had one of the highest spending growth rates. Both public and private health expenditures are growing at rates which outpace comparable countries. Despite this higher level of spending, the United States does not achieve better outcomes on many important health measures. This paper uses information from the Organisation for Economic Co-operation and Development (OECD)[1] to compare the level and growth rate of health care spending in the United States to those of other OECD countries. (Medicynical emphasis)

Medicynical Note:  Spending more, no better outcomes.  Inefficient, poor value for the dollar, average quality, 50,000,000 plus uninsured.

Best in the world, or just the most expensive?