"Healthcare, Part II
I know . . . I know . . . I've been lax. I'm helping my parents get ready to (sob!) sell their house, which is taking up a remarkable amount of my free time.
Anyway, back to health care. I hate sentences that start "the basic problem is . . .", but in health care, the problem is pretty basic, which is that we all want top of the line health care, regardless of cost, but we don't actually want to pay for it. Of course, we do pay for it . . . through tax dollars, foregone salary, and so forth . . . but that's largely invisible. When we're presented with the whacking great sums that it costs to provide that insurance, we screech in pain. Just ask anyone who's left a corporate job and had to buy their own health insurance.
Thus, the two relatively purist sides in the healthcare debate today--the single payer advocates and those who want to put the responsibility for purchasing healthcare back in the hands of consumers--promise that they can make health care cost much, much less. The single-payer advocates say that they can do this through the magic of administrative costs and using government negotiating power to batter suppliers; the "markets want to be free" people promise equally wondrous things from forcing consumers to actually shop around for their health care.
Is this true? Well, one should always be wary of anyone promising that there are no tradeoffs to be made.
Let's think about where the money actually goes:
* 30% of all healthcare expenditures occur in the last six months of life * 31% of expenditures are on hospital care * 9% of spending is on nursing homes * 22% of spending is on physician and clinical services * 10% of spending is on prescription drugs * 10% of spending is on dental/other professional care * 10% of spending is on medical equipment, supplies, and construction * 7% of spending is on administrative expenses
So how likely are either Health Savings Accounts, which encourage consumers to shop around because they're spending their own money, or single payer, to reduce any of these categories significantly?
Well, both would probably cut down on administrative costs: HSAs, because consumers decide what they want without battling insurance companies, and single payer because the government has economies of scale--and because the government doesn't argue when it tells you that the expensive procedure you want isn't covered, and you can't sue. But we spend about 15% of GDP on healthcare; if we could cut administrative costs in half, that would slash our bill to--14.5% of GDP. If we also used our negotiating power--either as a government, or as motivated consumers--to batter down the cost of prescription drugs by 40% (about what single payer systems in most developed countries pay), we could get that down to 13.6% of GDP. That's not chicken feed--in a $12 trillion economy, 1.4% savings means $168,000,000,000 a year, or about $560 for every man, woman and child in the country. But it's not exactly what people are imagining when advocates from either side wax lyrical about the fantastic savings to be had by implementing their plans.
So where are the savings to come from? The remaining categories are (roughly) wages and salaries for medical workers, medical equipment, medical supplies, lab tests, surgical procedures and other non-pharmaceutical treatments, and nursing home care.
In theory, either HSAs or single payer could cut down on many of these expenses. In practice, colour me unconvinced.
* There is already a great shortage of health care workers, particularly skilled workers like nurses; it's hard to see how either the government or the consumer could force those down without substantially worsening care (which both sides say they do not want). We are the only country in the world which is not currently whinging about our doctor shortage; that's because they all come here for the higher salaries and superior work conditions. Slash their salaries, and watch them go home . . . and watch your bright young scientifically minded college graduates look for another career. We'd still get about as many doctors graduating from US medical schools as we do now, but quality would fall somewhat (although it could possibly be argued that the single metric upon which doctors are selected--academic ability--is not entirely the most important quality a doctor should have). But if we lost the foreign doctors, we'd have a net doctor shortage here too.
* Who wants less medical equipment? Show of hands . . . okay, who besides the Christian Scientists? Anyone? Anyone?
* Perhaps HSAs or single-payer will cut down on the amount of medical supplies used . . . but it seems to me unlikely that there are fantastic savings on surgical gloves and gauze bandages to be had. If there are savings in this area, I would expect them to have been mostly found already by the private hospitals which can improve their bottom line by economizing on supplies.
* Nursing home care certainly won't be made cheaper by single payer, since most of it is already paid for by the government. It might be improved by HSA's . . . but not for years and years, as it would take decades for anyone to accumulate enough in an HSA to fund a lengthy stay in a nursing home.
In other words, in my opinion there are few significant, positive savings to be had from improvements in these areas. The bulk of any savings realized by either a single-payer system or HSAs will come from reducing the number of tests and treatments people have. Yes, let us say the dreaded word: rationing.
Advocates from both sides say that they have a way around this. HSA afficionadoes argue that people will just get the tests and procedures they really need. Problem: the bulk of America's healthcare dollars are spent on people who are really, really sick. And when you are really, really sick, your price elasticity of demand for something that might cure you is damn close to zero. There are very few good substitutes for chemotherapy, no matter what they say on late-night television commercials. That means that any rationing is likely to be done, not by consumers carefully analyzing costs vs. benefits, but by the limits of one's checking account. And the reason we're having all these debates about healthcare in the first place is that outside of the Cato Institute, very few Americans are comfortable with the idea that someone could die because they aren't rich enough to afford treatment.
Single payer advocates, who care more than most about getting that treatment to everyone in America, say that they will avoid having to ration needed care by the magic of preventive care. There are several problems with this. The first is that most of that preventive care hinges on active participation of the patient. Diabetics have to lose weight, excercise, carefully monitor their blood sugar by pricking their fingers multiple times a day, and eat a decidedly unappetizing diet. Heart-disease/hypertension patients have to excercise, quit smoking, lose weight, cut fat and salt out of their diets, get frequent blood tests, take pill regimens, and so forth. Asthmatics (as my health care company keeps thoughtfully remind me) need to aggressively monitor their peak flows, follow a tiresome inhaler/pill regimen that can have horrible side effects, clean their houses with the fervor of Martha Stewart on uncut crystal meth, and avoid triggers that include cigarette smoke, car exhaust, spicy food, alchohol, excercise, cold air, hot air, pollen, and dust. You can imagine what a hopping social life the conscientious young asthmatic enjoys.
Poor people, who in our society tend to be both uneducated and light on coping skills, are much less likely to follow these regimens even with good healthcare. Given how poor the track record of middle-class patients is on adopting these regimes, the marginal improvement in outcomes is unlikely to save money.
Another problem is that comprehensive health insurance is no guarantee of good care, as this study from the New England Journal of Medicine points out. The variation in level of care between those who were privately insured, those who were insured by the government (Medicare and Medicaid), and those who had no health insurance at all was trivial. That's right, having health insurance didn't seem to make any difference, as long as you visited the doctor at least once every few years. And yet America is generally the leader in treating those diseases, at least according to McKinsey.
But even if we could get people better preventative care, it's unclear that this would provide cost savings. (It might produce marvelous improvements in quality of life--but we're discussing cost here.) As I understand it, diabetes management only slows the progression of the disease; it doesn't stop it. In today's lower interest rate environment, the cost savings from delaying expensive treatments are probably not worth calculating. But even more to the point, many of the things we can treat are cheap ways to die; a single massive myocardial infarction is probably a lot less expensive than thirty years of hypertension drugs. And people who tout asthma prevention and so forth as a way to avoid expensive emergency room visits are confusing price with cost. A trip to the doctor every two months to get your breathing checked and hear him harangue you about your inhalers consumes, if anything, more medical resources than an annual visit to the emergency room. But emergency room visits are priced to subsidize expensive trauma cases and indigent patients; your monthly checkups are not.
Moreover, even if you prevent an expensive course of treatment for one disease, you thereby make it more likely that the patient will die of something even more expensive. People who don't have heart attacks or strokes get cancer, Alzheimers, or congestive heart failure. This is not an argument for not providing comprehensive health coverage to all US citizens; it is an argument that doing so will not be cheap.
What if we bite the bullet and say that we're going to ration, bully our suppliers, and trim back our expenditures on medical equipment in order to eke out enough savings to cover every American? I don't think we can do it. For why, see my next post.
Posted by Jane Galt "
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