Are Profits Responsible for the High Costs of Health Care?

I remember reading a study showing that even if all profits were stripped out of health care, the United States would still spend more on health care than the OCED average. Actually, we don't need a study to see this, using OCED figures, we would have to cut spending per person by more than 2/3rds to get to the OCED average.

July 1, 2009

Organisation for Economic Co-operation and Development (OECD) Health Data

Total health care spending per person, 2007 *

United States ( 7290)
OCED average ( 2964)

Australia ( 3137)
Austria ( 3763)
Belgium ( 3595)
Canada ( 3895)
Czech Republic ( 1626)
Denmark ( 3512)
Finland ( 2840)
France ( 3601)
Germany ( 3588)
Greece ( 2727)
Hungary ( 1388)
Iceland ( 3319)
Ireland ( 3424)
Italy ( 2686)
Japan ( 2581)
Korea ( 1688)
Luxembourg ( 4162)
Mexico ( 823)
Netherlands ( 3837)
New Zealand ( 2510)
Norway ( 4763)
Poland ( 1035)
Portugal ( 2150)
Slovak Republic ( 1555)
Spain ( 2671)
Sweden ( 3323)
Switzerland ( 4417)
Turkey ( 615)
United Kingdom ( 2992)

I find it hard to believe that profits make up 2/3rds of the cost of health care. This flies in the face of all the financial statements filed by health care providers. Profits are not the main component of health care costs.

It's also untrue that "The American system relies more on individual consumer decisions and market forces than any other health care system in place" as stated by Devin. The individual consumer makes very few decisions, the decisions are made by the insurance company or HMO, AND doctors.

In our health system, the doctors are the ones who decide the appropriate treatment and course of action. Insurers can only deny coverage if the treatment is not deemed medically necessary for health (like cosmetic) or if there are pre-existing conditions. Insurers don't have a choice if the procedure is recommended by a doctor and it's to treat a medical condition.

Doctors do not consider costs as they are not the ones paying, in fact, they usually receive payments from whatever treatment they order. There is no method currently that tries to distribute health care based on value, that is getting the most bang for the buck.

A treatment that is only 90% as effective as the most effective treatment but only costs 50% as much will not be used. The patient and doctor will demand the most effective means of treatment, regardless of cost. To lower costs, we will have to insert value somehow as one of the components to calculate the appropriate treatment. But patients and doctors are opposed to this as that would mean the odds for survival would be reduced, if only marginally.

In other countries, the government decides on the value component. More effective, yet much more costly procedures are denied or not covered by the government health insurance. There was a ruckus a year or two ago about Britain's NIH denying an Alzheimer drug that was shown to delay the onset of Alzheimers by an average of 6 months. The government decided that it wasn't worth the cost of the drug and denied the treatment. Only after massive protests did the government reconsider. Most decisions aren't challenged though, so many treatments Americans get aren't available to patients in other countries, unless they pay 100% out of pocket that is. Some countries prevent even that, forcing patients to go out of country.

I believe it's the lack of a cost/benefit component to treatment decisions that is responsible for most of the high health care costs. People receive the best treatment the doctor is aware of regardless of cost. We see this with the use of drugs under patent instead of generics even if the patented drug is only 5%-10% more effective yet triple or more the cost. Yet should insurance companies, the only goalkeeper to costs, tries to deny that drug in favor of the generic, patients get upset and accuse the insurance company of greed and killing patients for profit.

Americans have to be willing to accept rationing, which is what cost/benefit analysis does. There is no way around it. They must accept a lower chance of survival, even if only slightly, so that the most cost effective treatment can be mandated. Until Americans, including the people on this board who hysterically deny the need for rationing, accept this, costs will remain high.

Health Care Bill Giveaways

Wow, just got through reading the summaries and skimming over the bill. I don't see how this bill will not cost us a LOT more to provide health care. It drastically expands the subsidies to "low-income" people and also expands Medicaid to cover more people. It also removes lifetime caps from all policies! Just some of the benefits that are being added from the government webpage:

* It will end increases in premiums or denials of care based on pre-existing conditions, race, or gender, and strictly limit age rating.
* The proposal will also eliminate co-pays for preventive care, and cap out-of-pocket expensesto protects every American from bankruptcy.

Improving quality of care for every American. The legislation will ensure that Americans of all ages, from young children to retirees have access to greater quality of care by focusing on prevention, wellness, and strengthening programs that work.

* Guarantees that every child in America will have health care coverage that includes dental, hearing and vision benefits.
* Provides better preventive and wellness care. Every health care plan offered through the exchange and by employers after a grace period will cover preventive care at no cost to the patient.
* Increases the health care workforce to ensure that more doctors and nurses are available to provide quality care as more Americans get coverage.
* Strengthens Medicare and Medicaid and closes the Medicare Part D ‘donut hole’ so that seniors and low-income Americans receive better quality of care and see lower prescription drug costs and out-of-pocket expenses.

Even more found elsewhere:

INCREASE DEPENDENT AGE FOR POLICIES THROUGH AGE 26: Allows those through age 26 not otherwise
covered to remain on their parents’ policies at their parents’ discretion.

COBRA EXTENSION: Allows individuals to keep their COBRA coverage until the Exchange is up and running.
[NOTE: This is separate from the Recovery Act provisions that provide premium assistance for selected groups.]

ENSURING RECONSTRUCTIVE SURGERY FOR CHILDREN: Requires plans to pay for reconstructive surgery for
children with deformities.

Even more:

IIMMPPRROOVVEEDD BBEENNEEFFIITTSS
CREATES REINSURANCE FOR EARLY RETIREES: Creates a new temporary reinsurance program to help offset
the cost of coverage for companies that provide early retiree health benefits for those ages 55-64.

IMMEDIATE HELP FOR THE UNINSURED (INTERIM HIGH-RISK POOL): Creates a $5 billion fund, modeled after
the President’s plan, to finance an immediate, temporary insurance program for those who are uninsurable
because of pre-existing conditions.

NEW LONG-TERM CARE PROGRAM (CLASS ACT): Creates a new, voluntary, public long-term care insurance
program to help purchase services and supports for people who have functional limitations. Benefits are a
daily or weekly cash benefit to help people with functional limitations purchase the services and supports
needed to maintain personal and financial independence. CLASS would supplement, not supplant, traditional
payers of long-term care (e.g. Medicaid and/or private long term care insurance).

PPUUBBLLIICC HHEEAALLTTHH IIMMPPRROOVVEEMMEENNTTSS
INCREASES FUNDING FOR COMMUNITY HEALTH CENTERS: Provides increased funding for community health
centers that will allow them to double the number of patients served over the next five years.

IMPLEMENTS NEW PREVENTIVE HEALTH SERVICES PROGRAM IN COMMUNITIES: Provides immediate
funding for preventive services at the community and local level to address public health problems such as
obesity, tobacco use, and diabetes.

EXPANDS PRIMARY CARE, NURSING AND PUBLIC HEALTH WORKFORCE: Increases access to primary care by
sustaining the current efforts to increase the size of the National Health Service Corps. Primary care and nurse
training programs are also immediately expanded to increase the size of the primary care and nursing
workforce. Ensures that public health challenges are adequately addressed.

EMPLOYER WELLNESS PROGRAMS: Establishes a grant program for employers to promote healthy behaviors
among their employees.

And even more!!!!

BEGINS TO FILL IN THE MEDICARE PART D DRUG DONUT HOLE: Provides for a 50% discount on brand-name
drugs in the Part D donut hole, and immediately shrinks the size of the donut hole by $500 in 2010. The donut
hole continues to be narrowed over the coming years until it is fully eliminated by 2019.

ALLOWS STATES TO COVER LOW-INCOME INDIVIDUALS WITH HIV: Gives States the option of extending
Medicaid coverage to HIV-positive individuals and provides enhanced federal matching payments for the costs
of care.

INCREASES REIMBURSEMENT FOR PRIMARY CARE IN MEDICAID: Brings reimbursement for primary care
services in Medicaid up to Medicare levels with 100% federal funding (phased in over several years).

PROVIDES FOR 12-MONTH CONTINUOUS ELIGIBILITY IN CHIP: Provides continuity of care for children by
requiring that states provide 12-month continuous eligibility for children in the CHIP program

ELIMINATES BARRIERS TO ENROLLMENT IN MEDICARE LOW-INCOME SUBSIDY FOR PART D DRUG
PROGRAM: Eases burdens on enrollment so more low-income beneficiaries can get the financial help they
need to make health care affordable.

NEW PROTECTIONS IN MEDICARE ADVANTAGE: Limits cost-sharing for services in Medicare Advantage plans
to no more than cost-sharing in traditional Medicare, and provides for bonus payments to high-quality plans.

ESSENTIAL BENEFITS: In preparation for reform, the Health Benefits Advisory Committee reports their
recommended essential benefits package to the Secretary of HHS for adoption.

Additional federal funds to states with high unemployment. Assists States in maintaining access to
Medicaid services during the recession by extending the current Recovery Act increase in federal Medicaid
payments to states with high unemployment rates.

IMPROVES LOW-INCOME PROTECTIONS IN MEDICARE: Increases the assets test limits in the Part D drug
program and Medicare Savings Programs to ensure that more low-income beneficiaries get the financial help
they need to make their health care affordable.

EXTENDS MONTHS OF COVERAGE OF IMMUNOSUPPRESSIVE DRUGS FOR KIDNEY TRANSPLANT PATIENTS:
Lifts the current 36-month limitation on Medicare coverage of immunosuppressive drugs for kidney transplant
patients who would otherwise lose this coverage on or after 2012.

I didn't bother to go on because this post is already getting too long. How much will this all cost? The site says zero for the first 10 years, actually a positive $100 to the deficit in the first 10 years, but I'm waiting to see the total cost, I bet most of the costs are delayed in order to game the 10 year projection the CBO issues, the numbers breakdown is not yet available. Wow, a whole bunch of giveaways and expanded services, I just don't see where the cost savings would come from and how we're going to pay for the real costs once the plan is implemented and real numbers come in instead of these projections. More posts later

Observations on Bubbles

Bubbles are only obvious after the fact. I thought there was a housing bubble, but I also thought we had a bond bubble too when 30-year Treasury bonds were near 5%. It could be that the bond bubble is still ongoing and will pop soon, or next year, or not at all. Gold is another case. I don't think there is a bubble in gold, the heightened attention paid to it reflects the unease people feel towards the ballooning balance sheets of central banks and the unsupportable budget deficits of certain nations. Yet there are others who think gold is pretty much worthless outside its value for industrial purposes. Is gold in a bubble right now? Too hard to say. Should gold drop to $450 then it becomes obvious and we can look back at the gold bubble and blast the idiots who couldn't see something so obvious. Stock market P/E has been higher than average and in bubble mode since the early 90's, yet even after this meltdown we're way higher.

What I think we need to focus on are the types of events or bubbles that can bring down the financial system. This has to do with leverage and allowable risks to our banks. The dot com bubble hurt, but wasn't as damaging as this crisis because banks didn't stand a chance of going under, they were not exposed enough to the bubble to cause a financial system meltdown. However banks are tied to real estate in a much great fashion, here is where a bubble can do great harm.

In the future, we have to make sure leveraged firms don't have their eggs in one basket and that not all firms that are leveraged are exposed to the same risks. Should all banks start lending out cheap money for margin accounts tied to gold, then the price of gold would have a great impact and could cause a crisis like this one. It's the banks and the leverage that is the problem. If we can eliminate the risk of many banks going under at the same time, then we've solved the problem, crises will no longer be as severe as this one.

Large banks should have higher capital requirements, and lower leverage allowances. Smaller banks will have looser requirements, but the regulator needs to see if they are all betting on the same thing and if that poses a danger to the entire system should the bet turn out badly.

Almost forgot, bubbles are almost always the result of easy credit. Bubbles can't form without credit, in every case I can think of, credit was the hidden accomplice, perhaps even the mastermind that causes bubbles. No credit, not enough "fuel" for a bubble to develop. I think we're seeing a lot more bubbles recently because the FED just will not allow credit to contract, they keep on trying to reinflate the bubble, even now there are calls for more loans and credit to be made available. I think the FED's monetary policy is severely flawed, the default rate in normal times is too low and they refuse to tighten until its too late due to pressure to allow good economic times to continue (the economy is always referred to as bad, no matter what, even when we had below 5% unemployment in order to create pressure for more rate cuts). The FED has to break the cycle or we'll have another bubble shortly, the aftermath of reflating the housing bubble.

Creating Government Jobs Through Stimulus

The problem with government job creation is that most are hired on a permanent basis. Union rules either prevent layoffs or make it extremely costly due to buyout provisions and similar measures. Since government jobs are not downwardly elastic, over-hiring beyond the optimal level required to provide services would represent a persistent burden long after the stimulative effects are no longer needed. That would hamper recovery and stifle economic growth.

Why? Because these jobs have to be paid for and so eventually higher taxes will have to be levied to pay for the extra government employees. Most state governments must run a balanced budget and can't run long term deficits, and the federal government which can, must eventually pay back the debt with interest. Even assuming some debt never has to be paid back, the federal government still has a market imposed debt ceiling beyond which it becomes increasingly more difficult and costly to finance.

It's the stickiness of government jobs that has to be taken into consideration. An increase in taxes has a negative effect on the economy, and because the outlook for the budget looks so bad already with total debt increasing faster than GDP (thus an increasing debt/GDP ratio) for the foreseeable future, there simply isn't any room for more.

As with any spending, the issue of value is important. Excess government jobs provide very little value, some of the worst bang for the buck available. Mish, I think, has a very credible analysis on the issue of "wasteful" stimulus, though the quote below is from HB.

http://globaleconomicanalysis.blogspot.com/2009/10/us-faces-second-lost-decade-because-of.html

"In reality, the entire inflationary mini-boomlet-within-the-depression was simply an illusion. 'GDP growth' that is bought with monetary pumping and feckless fiscal spending only misdirects and ultimately consumes even more scarce capital.

Fiscal stimulus may temporarily give the impression of a recovery, but it is not a genuine recovery. It makes things worse. The moment the pumping is abandoned, the true state of affairs is simply unmasked. That is what happened in 37/38 - a slight tightening of monetary policy revealed the fact that the mini-boomlet was as unsound as its predecessor boom in the years prior to the '29 crash."

In theory, these recessions and depressions happen because of mis-allocated resources. Mis-allocating more resources will only prolong the recession, not make it better. We need to allocate resources to productive uses, in other words, hiring people to dig holes and fill them up again just to create jobs isn't going to get us out of recession. As soon as the spending stops and the workers are laid off, we end up back where we started, but on even worse terms because of the added debt required to pay for those workers in the first place. Value seems to be the most important aspect missing from the discussion.

Why are conservatives seemingly anti-government?

It's not that the government is always the bad guy. It's that the government is run by people, just like corporations are, and people can be good or bad. What matters is the checks and balances to make sure power isn't abused and that people are working towards the right goal in an efficient manner.

Businesses are checked by the necessity of making a profit, and a profit in economic terms means they are providing a good or service society wants and generating gains for society in aggregate. Should they abuse or scam customers beyond the good they provide to those customers, they simply will not get enough business and they'll go bankrupt. Plus there are government agencies and laws to watch over the conduct of corporations. Yes definitely government is needed as a check to businesses beyond "market forces".

But who checks government power? Conservatives believe that government is the greater danger because it has more power and fewer checks. Government also isn't subject to being checked by market forces, government agencies don't have to offer good service or generate surplus to society. I think the tea parties and the huge march on Washington we saw was concern over the powers government is reserving for itself and the lack of enough checks to that power. Government can make laws and send people to jail, it can tax and take wealth away, it can affect people's lives a lot more than corporations can. No corporation can take away more wealth than I'm willing to give away, I can always end service, but I can't opt out of taxes or end the services government provides without moving out of country and renouncing my citizenship and utterly giving up my live as I know it.

The Biggest Difference Between Liberals and Conservatives

I think the biggest difference between conservatives and liberals are that liberals always assume their intentions will work and without any other negative consequences. They ignore or don't pay attention to the details of implementation and execution, but rather focus on the overall intent and focus.

This consumer protection agency is a good example. Liberals want someone to protect ordinary people from the abuses of corporations and others who might want to take advantage. I don't think anyone is against that goal, but HOW EXACTLY is this consumer protection agency going to function, what are its powers, and how are they going to implement their goals? Who will run it and who will have oversight?

I find that liberals don't concern themselves with those details, furthermore they trust and assume that the agency will be infallible and run as it was intended to. Conservatives are much more skeptical, focus on the unintended consequences, and point out that any agency is staffed by people and people are fallible. Depending on the system and the checks and balances, people can be darn right incompetent or a number of things so it can't be assumed this agency will do what it was intended to do.