What Health Care Costs
Ezra Klein has yet another op-ed in WaPo on health care in which he outlines a state of facts that one would think is beyond dispute and then leaps to conclusions that are quite disputable. The title of the piece is “You Have No Idea What Health Costs,” which is likely true for most people, and the subhead is “If You Did, You Might Just Want Real Reform,” which is true but rather begs the question.
These are the facts of the case. And they are undisputed:
The average health-care coverage for the average family now costs $13,375, according to Kaiser. Over the past decade, premiums have increased by 138 percent. And if the trend continues, by 2019 the average family plan will cost $30,083.
[…]
About 160 million Americans receive health coverage through their employers. In general, the employer picks up 73 percent of the tab. This seems like a good deal. In reality, that money comes out of wages.
[…]
Another 80 million Americans are on public plans, mainly Medicare and Medicaid. Those costs are paid by taxpayers. And about 46 million Americans are uninsured. The costs for their care are shifted to the insured: This raises premiums for the average family by $1,100 each year, according to an analysis by Ben Furnas and Peter Harbage of the Center for American Progress.
Health care costs are out of sight and trending upwards at an unsustainable rate. And most people are, for now, largely insulated from this because the costs are largely hidden from us. We pay our portion of the insurance premiums, deductibles, and co-pays. Everything else is irrelevant in our decision process aside from services. This, combined with a fee-for-service model, incentivizes pretty much everyone to demand more tests, procedures, and pharmaceuticals since they’re “free.”‘
Ezra figures that, if we made the costs more transparent, we’d consume less. Which is likely true. Unfortunately, as he rightly points out, all the proposals on the table for doing this are rather unpopular or unlikely to actually do anything about costs. But he figures we can save tons of money with small changes: Speed up transactions, centralize and digitize record keeping, “bundling” vice fee-for-service, and so forth. Oh, and figure out what treatments offer marginal benefits and stop paying for them.
Some of this makes sense, some not so much. Most notably, going from a system where everyone feels entitled to every conceivable treatment even if the odds are long to one where the government decides that the benefits don’t merit the costs will be wildly unpopular.
Moreover, as Dave Schuler points out once again, “there isn’t anything in any either the House bill, H. R. 3200, or Max Baucus’s bill that would materially change” the current information disparity. And:
Those who argue that a public option is a necessity for reducing costs are essentially proposing that they’ll fix costs in such a way that they go down. If the set price is lower than the market clearing price, it will create a shortage. If the set price is higher than the market clearing price, it will create a glut and will be a sub-optimal use of resources, stunting economic growth.
So, we’ve got an obvious problem. And no obvious, politically workable solution.
Graphic: American Consumer News
Ezra either misunderstands what “comparative effectiveness” means or is being misleading, conflating it with evidence-based medicine. They aren’t the same thing, something that’s implied in Ezra’s post.
I’m enthusiastic about EBM but rather skeptical about comparative effectiveness. Comparative effectiveness is in its infancy and, if it ever produces good results, it will be far in the future.
Indeed. For all his valuable analysis and despite his many good ideas, Ezra seems too willing to jump on the “any reform is better than no reform” bandwagon.
I’m not sure transparency gets you anywhere for a variety of reasons, but one point should be clarified.
If you receive healthcare from your employer, your paycheck is not necessarily being reduced an average of $13k. This would only be true if every employee was receiving healthcare. In a more likely scenario some are not on the company healthcare because they are on their spouse’s policy, they have medicare, tricare or some other governmental insurance, or they simply don’t want insurance. To use an example, a company has ten employees:
5 – Covered by Company Healthcare
3 – Covered by Someone Else’s Healthcare
2 – Not insured
= $65,000 in Healthcare Costs being distributed btw/ 10 salaried employees. If you assume that the employees contribute 25% ($16,250), then that’s $48,750 in compensation. That’s almost certainly spread across all ten employees, so that even those not receiving company healthcare insurance are “paying” $4,875.
If we compel the two uninsured employees to buy healthcare insurance, then total healthcare costs will rise to $91,000 for the company, but again assuming 25% contributions ($22,750), means there will be $68,250 in compensation spread across ten employees. Each employee will be paying $6,820 for insurance, including those on their spouse’s policy.
The larger point here is that health insurance compensation is an overhead expense that increases with enrollment, but is distributed across all employees. Unless mandatory health insurance reduces premium costs across the board, the mandates are going to further reduce salaries or employment.
If you were one of the millions with no health coverage whatsoever – such that anything that happens to any member of your family more severe than a head cold could very likely spell financial doomsday – you might be too.
Just like the last time health coverage came up, the Republicans – pretty much to a one – have shown that they would be very happy if the entire issue just went away and the status quo remained. Yeah, there are incometent & ineffective Dems too (lookin’ at you, Baucus), but speaking as an unemployed taxpayer, there are a lot of ‘cons’ I’d be willing to accept in order to get the ‘pro’ of not losing my house if my son gets appendicitis or something…
I beat the drum for exposing the consumer to price every time I can because I think it would be transformational to the system. However, its usually to no avail. I get the usual rebukes: There is too great an information disparity. These buy decisions are made under duress.
I say bull. Yes, if you’ve just been informed you have colo-rectal cancer, or need a coronary bypass you are under duress. But your insurance package decision should have been in place long before this. And you don’t need any information. This is catastrophic disease and you should own an insurance policy to cover it. You should know this at age 21.
Separately, I chafe at the fee-for-service argument. The entire world runs on fee for service. And yet some of the best people on the planet are cavalierly accused of profiteering (malpractice, really). Has anyone stopped to consider that consumers who are exposed to price control the fee for service temptation of businesses everyday? “Can I interest you in desert? How about our extra 3 year maintenance protection package with your purchase?” Uh, no thanks. It happens every day.
Perhaps my medical family background biases me. I simply have not observed this behavior on any materially large scale.
A relevant anecdote: 2 years ago I had a ganglion cyst removed from the back of my wrist. Calcifying scar tissue subsequently was smashed sideways about an inch from the original joint capsule in an accident. It created a somewhat unsightly mass. (It looks like an acorn under the skin.)
I went to the hand surgeon who removed the cyst thinking he could remove this in an easy procedure. His response: “there’s really nothing to do. When the swelling of your hand goes down (think boxing glove) the range of motion in the joint will be fine, and the displaced tissue will not impinge on any nerve or tendon. Go home.”
So much for the too easily accepted notion of fee-for-service cha-ching. Its just good medicine. And not consistent with the critics assumptions.
You would think it is ok to take whatever someone else has to pay for your needs. Got it.
Drew, the issue is one of professional services. When one needs advanced education or licensing to perform a service, the customer tends to lack an information base to judge the necessity or value of the service. This isn’t merely a doctor problem, but it’s a problem for legal, accounting and architectural services. But people don’t need a trusted intermediary to know the value of a cheesecake to them.
“I beat the drum for exposing the consumer to price every time I can because I think it would be transformational to the system. However, its usually to no avail. I get the usual rebukes: There is too great an information disparity. These buy decisions are made under duress.
I say bull. Yes, if you’ve just been informed you have colo-rectal cancer, or need a coronary bypass you are under duress. But your insurance package decision should have been in place long before this. And you don’t need any information.”
So, if you need no information, you will just have any procedure recommended to you by a physician? Why not, when your insurance will cover it. How about back surgery, Cholecystectomies, TURPs? In your case as a well informed, successful professional, there is a good chance you will make the right choice. Most people are not like you. Most just defer to their physician.
Steve
“In reality, that money comes out of wages.”
The implication being that if the feds took it over, you’d get this additional amount in your paycheck?
My favorite pastime, is when the feds send money back to the states to help run a program, I wait for my taxes to go down. Funny thing, they go up again anyway.