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A very good article on health care economics
By David Goldhill, here is one bit:
How am I supposed to be able to afford health care in this system? Well, what if I gave you $1.77 million? Recall, that’s how much an insured 22-year-old at my company could expect to pay—and to have paid on his and his family’s behalf—over his lifetime, assuming health-care costs are tamed. Sure, most of that money doesn’t pass through your hands now. It’s hidden in company payments for premiums, or in Medicare taxes and premiums. But think about it: If you had access to those funds over your lifetime, wouldn’t you be able to afford your own care? And wouldn’t you consume health care differently if you and your family didn’t have to spend that money only on care?
Here is another:
From 2000 to 2005, per capita health-care spending in Canada grew by 33 percent, in France by 37 percent, in the U.K. by 47 percent—all comparable to the 40 percent growth experienced by the U.S. in that period. Cost control by way of bureaucratic price controls has its limits.
His preferred reform reminds me of Brad DeLong's plan, namely universal catastrophic care combined with required HSAs at lower levels of expenditure.
Posted by Tyler Cowen on August 15, 2009 at 04:10 PM in Medicine | Permalink
Comments
Milton Friedman was a fan of Universal Catastrophic Health Insurance as well.
"A more radical reform would, first, end both Medicare and Medicaid, at least for new entrants, and replace them by providing every family in the United States with catastrophic insurance (i.e., a major medical policy with a high deductible). Second, it would end tax exemption of employer-provided medical care. And, third, it would remove the restrictive regulations that are now imposed on medical insurance—hard to justify with universal catastrophic insurance."
http://www.hoover.org/publications/digest/3459466.html
Posted by: Robert at Aug 15, 2009 4:18:39 PM
For an overview, including interesting comparisons with other counties, I recommend the David Cutler/Patricia Keenan chapter on health care in the book Understanding America, ed. by Peter H. Schuck & James Q. Wilson
Posted by: Bill Harshaw at Aug 15, 2009 4:41:22 PM
This argument is similar to suggesting we could improve our national defense if we just disbanded the armed forces gave each American $2.1 billion dollars to buy their individual choice of weaponry.
Posted by: zota at Aug 15, 2009 4:49:05 PM
It surprises me that you should chopose the paragraphs you do as illustrations of why this`article is good. The second one tells us nothing unless - at the very least we also consider:
1. The historical and current proportions of GDP spent on health care in those countries as compared with the US:
2. How the increases look when corrected for changing demographic trends in the countries being compared; and
3. Outcome measures.
In my view paragraphs like that are simply another example of the hysterical misinformation that is currently informing debate on health care in your country -only it is worse because it dresses itself up as respectable debate by using spurious statistics in a sloppy manner.
Posted by: Phillip Capper at Aug 15, 2009 5:09:47 PM
"His preferred reform reminds me of Brad DeLong's plan, namely universal catastrophic care combined with required HSAs at lower levels of expenditure."
Anyone know what share of all health expenditures are in the catastrophic category (e.g. more than 25% of the median family income)?
It also probably makes sense to add coverage for standard preventative care (vaccines, routine checkups, periodic diagnostic tests, etc) since it would be foolish to encourage people to wait for ailments to become catastrophic.
Anyone know how much of health care falls into those two categories (catastrophic, or preventative)?
Posted by: a student of economics at Aug 15, 2009 5:17:18 PM
This argument is similar to suggesting we could improve our national defense if we just disbanded the armed forces gave each American $2.1 billion dollars to buy their individual choice of weaponry.
If you completely ignore the free-rider issue I'd almost agree with you.
Posted by: Let them eat Thomas Paine at Aug 15, 2009 5:18:27 PM
"From 2000 to 2005, per capita health-care spending in Canada grew by 33 percent..."
Interesting. So not only are the expenditures dramatically lower in other countries, but they aren't growing any faster either. Apparently, the lower cost structure is sustainable over time.
Despite the lower costs, people in other nations all seem to like their health system better than we do. We come in last out of 10 countries surveyed in satisfaction, e.g. An 82% to 8% majority of Canadians believe their system is superior to the U.S. system.) See
http://www.thefreelibrary.com/Is+the+U.S.+Health+Care+System+the+%22Envy+of+the+World%22%3F+Not+in+Canada.-a0205609832
Posted by: a student of economics at Aug 15, 2009 5:21:39 PM
"Ten days after my father’s death, the hospital sent my mother a copy of the bill for his five-week stay: $636,687.75...."
"Do you really believe that the hospital—forced to face the victim of its poor-quality service, forced to collect the bill from the real customer—wouldn’t have figured out how to make its doctors wash their hands?"
His father died of infections contracted in the hospital.
It's a very good article. I particularly liked the discussion of the opaque pricing.
There may not be much hope for solving the health care conundrum, but getting rid of the model where all medical care is paid by others might just be a good start.
Posted by: lxm at Aug 15, 2009 5:23:06 PM
1.7 million is pretty misleading.. what happened to discounting?
Posted by: andrew at Aug 15, 2009 5:46:51 PM
Health care costs in Canada (and I suspect in France and the UK, as well) grew quite a bit between 2000 and 2005 (a strangely limited sample period, don't you think?) because these were prosperous years and public money was available for spending on health care. This followed a decade or so during which health care costs were nearly stagnant and, over some time samples, reduced.
Posted by: Geoff NoNick at Aug 15, 2009 6:01:45 PM
If you completely ignore the free-rider issue I'd almost agree with you.
The article references "how much an insured 22-year-old at my company could expect to pay—and to have paid on his and his family’s behalf—over his lifetime".
If I take the $2100 (annually) spent per capita on American military expenditures and discount that at 4% over 50 years (so ages 22-71 or ages 0-49 for someone born today), then I get a lump sum of about $47,000 in present value. How about we give that to every American man woman and child and then eliminate public defense? I could probably get a few assault weapons, an anti-tank weapon, and munitions for less than that. Plenty to defend my own little patch of homeland.
Sound reasonable?
...
...
...
...
Didn't think so.
For people claiming to be emphasizing small positive changes and conservative values, there is really a lot of magical thinking from the libertarian wing of the health care debate.
Posted by: dan k at Aug 15, 2009 6:21:05 PM
These cost figures don't take into account quality and availability of treatment. For example, Canada's lower cost figure is cold comfort for a Canadian who has to travel to the US (or elsewhere) for treatment, because he's either on a waiting list or can't get the treatment he needs at any price.
Once the cost of medical tourism, to name one example, is factored in, what are the adjusted figures?
Posted by: AADL at Aug 15, 2009 6:38:45 PM
The debate is if the US should move in the direction of European style healhcare, and how much. Not that they should completely adopt the UK or, say, French system wholesale.
Posted by: Business Consultant at Aug 15, 2009 6:47:57 PM
I think that defense does plausibly have a public goods aspect to it, but I would actually endorse disbanding the standing army and having a militia like Switzerland or the early U.S. We've got two giant oceans on either side of us, so it works a lot like the Swiss alps. In 1812 militia refused to invade Canada, and from my perspective that's a feature, not a bug. That would admittedly be more radical than scrapping our WW2 rationing era health system.
Posted by: TGGP at Aug 15, 2009 7:06:59 PM
where does 1.77M come from? if i take $1500/month * 43 years i get only $773K.
Posted by: babar at Aug 15, 2009 7:28:11 PM
Those commenters comparing health care to defense are awarded an F Internet Econ 101.
National Defense is:
- non-rivalrous
- non-excludable
...and is therefore a public good.
Health Care is:
- rivalrous
- excludable
...and is therefore NOT a public good.
And if you don't even know what that means, and what the consequences are, don't expect to be taken seriously.
Posted by: Noah Yetter at Aug 15, 2009 7:32:36 PM
Yes. Bad example. Not only could the U.S. defend itself with nothing but ARs and Stinger missiles (and a handful of nukes), we'd be better off because we couldn't "project our strength" everywhere which would require a humble foreign policy. Thus, being a threat to noone, we wouldn't have to spend more on defense than almost every other country combined. I'm not proposing it, but it's true.
And, aside from a nominal amount of vaccinations to prevent outbreaks (which would not even require universal vaccination), what exactly is the free-rider problem with medical spending. We have a free-rider problem with it now, that Obama wants to make worse, but other than that...
Posted by: Andrew at Aug 15, 2009 8:01:21 PM
"This argument is similar to suggesting we could improve our national defense if we just disbanded the armed forces gave each American $2.1 billion dollars to buy their individual choice of weaponry." -zota
I'm sure you meant this as a joke, but be prepared for the libertarians to come out and defend your proposal.
Posted by: Jayson Virissimo at Aug 15, 2009 8:37:02 PM
The problem with the Health Care system as it exists is that we are not insuring, we are budgeting. People should be able to hedge catastrophe with a policy but pay for their other health care needs as they occur. This puts the burden of expense on the consumer as needed yet shields them from devastation. Isn't that the point of insurance? And if we didn't have medicare payments the Government would still get that percentage of our income for some other program. Anyone seeing taxes going down?
Posted by: Internet Marketing IQ at Aug 15, 2009 9:22:49 PM
Prior to 1940 the US stayed in its own hemisphere. Result: two world wars.
Since 1940, the US has involved itself in world affairs much more actively. Result: longest period of peace between the Great Powers ever. The US is essentially a "private" provider of a global public good (freedom of the seas, etc). Moving to no effective provider would not be an improvement.
Still, I am puzzled by the apparent argument underpinning current health care reforms of "the US as a society spends far more than anyone else on healthcare as a share of GDP so the US should fix this by the federal government spending lots more". The good thing about the article linked to is that it goes back to how the current disfunctions occur rather than just wanting new layers on top.
Posted by: Lorenzo (from Downunder) at Aug 15, 2009 9:48:45 PM
These few comments are some of the most bizarre I have ever read on this blog. I'm not sure which takes the cake: the health care versus defense expenditure commentary, or the revelation that people (in this case Canadians) who think Americans are all bankrupt from medical bills (for which they received inferior care and outcomes) believe their system is superior. (Although having been heavily involved in cancer support groups for much of this decade now I can't say I've run across many Canadians coming to the U.S. for cancer treatment who seem to agree.)
It's as though the more widely disseminated becomes data and commentary countering the idea of America as a complete health care failure - even in the slightest manner, and despite the large volume of data putting the lie to common memes about that health care - the more the true believers (often non-Americans) fall back on sticking their fingers in their ears and repeating their memes, but with increasing volume.
Posted by: MPO at Aug 15, 2009 10:13:07 PM
Following Robert:
Let me ask everyone a question: Do you consider price and discount when buying Tylenol and Pepcid? I answer in the affirmative.
Here's another question: Do you consider price when considering brain surgery? I answer in the negative.
Therefore, I suggest splitting health care costs into two categories:
1) Medical goods that a consumer could price and shop accordingly on.
2) Medical goods that a consumer cannot price and shop accordingly on.
Once you do this, you can split up medical costs into:
1) Costs subject to a deductible.
2) Catastrophic Costs.
And, further, you can say the following:
For 1) You don't want third party payers, since you want the consumers to shop for the best price.
For 2) You can have a third party payer. In fact, you can have one: the Federal Government.
Now, here's Milton Friedman's plan:
"A more radical reform would, first, end both Medicare and Medicaid, at least for new entrants, and replace them by providing every family in the United States with catastrophic insurance (i.e., a major medical policy with a high deductible). Second, it would end tax exemption of employer-provided medical care. And, third, it would remove the restrictive regulations that are now imposed on medical insurance—hard to justify with universal catastrophic insurance.
This reform would solve the problem of the currently medically uninsured, eliminate most of the bureaucratic structure, free medical practitioners from an increasingly heavy burden of paperwork and regulation, and lead many employers and employees to convert employer-provided medical care into a higher cash wage. The taxpayer would save money because total government costs would plummet. The family would be relieved of one of its major concerns—the possibility of being impoverished by a major medical catastrophe—and most could readily finance the remaining medical costs. Families would once again have an incentive to monitor the providers of medical care and to establish the kind of personal relations with them that were once customary. The demonstrated efficiency of private enterprise would have a chance to improve the quality and lower the cost of medical care. The first question asked of a patient entering a hospital might once again become "What’s wrong?" not "What’s your insurance?"
I would add a Democratic Party addition to this plan: You could relate the deductible to income.
That's my plan. Everyone covered.
I would add the following: I've no idea what the correct amount of money that we should spend on health care should be. That's why I would like some portion of our medical bills to be subject to our own choice.
Posted by: Don the libertarian Democrat at Aug 15, 2009 10:40:38 PM
83 y/o with pneumonia has a highish probability of death, regardless of treatment. Also, the article is riddled with errors. He should have had it proof read by someone who works in medicine.
Steve
Posted by: steve at Aug 15, 2009 10:54:43 PM
AADL says: "These cost figures don't take into account quality and availability of treatment. For example, Canada's lower cost figure is cold comfort for a Canadian who has to travel to the US (or elsewhere) for treatment, because he's either on a waiting list or can't get the treatment he needs at any price.
Once the cost of medical tourism, to name one example, is factored in, what are the adjusted figures?"
the waiting list argument against reform is a pathetic red herring.
in 1995 i had a three night hospitalization for a possible brain aneurysm. had a bunch of diagnostics that all turned up negative and was released. after care orders included a referal for a neuorologic appointment.
my parents are both teachers. all prescription drugs (generic or name brand) were 100% covered. there were absolutely no copays of any kind. there were absolutely no deductibles of any kind. as a dependent, i had the rolls royce of employer provided healthcare.
guess what? IT STILL TOOK ME 3 MONTHS TO SEE A NEUROLOGIST.
Posted by: sam at Aug 15, 2009 11:03:49 PM
AADL asks "Once the cost of medical tourism, to name one example, is factored in, what are the adjusted figures?"
Good question. Apparently, relatively few Canadians actually come to the U.S for treatments (anecdotes notwithstanding). See http://content.healthaffairs.org/cgi/content/full/21/3/19
However, a lot of Americans travel to Mexico and elsewhere for health care: http://www.eurekalert.org/pub_releases/2009-05/uoc--n1m052609.php
Posted by: a student of economics at Aug 15, 2009 11:04:01 PM
