Category Archives: Health Care Finance

Kay Bailey’s health care finance confusion

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Kay Bailey What exactly is Texas Senator Kay Bailey Hutchison’s political appeal?

She has never seemed to me to have a particularly good grasp of even basic issues. But I never dreamed that she actually supported universal health insurance even while mimicking the GOP party line against such a mandate all these years.

Uwe Reinhardt provides the Senate subcommittee context for Hutchinson’s revelation:

[Hutchison] was proposing that women should not have to decide between spending $250 of their own money to get a mammogram or go without it, and that the key here is to get someone else — either public or private health insurance — to pay for it.

I cannot recall a clearer statement of unreserved support for universal and comprehensive health insurance for America and a more straightforward definition of rationing health care.

I am sure that she would extend her remarkable dictum on rationing to cover routine screening for other cancers as well — e.g., to colonoscopies for colon cancer, to P.S.A. tests and biopsies for prostate cancer or to regular examinations for thyroid cancer.

Furthermore, I would assume that her concern for timely medical attention extends even beyond cancer to the prevention of all serious illnesses — e.g., the control of blood pressure for Americans with hypertension through drug therapy or the prevention of diabetes.

In a nutshell, whether she realized it or not, hers is a clear clarion call for comprehensive, universal health insurance in America.

I don’t agree with Senator Hutchison’s viewpoint regarding universal coverage. However, I understand it and acknowledge that it’s not an unreasonable position. I just don’t think it’s the best way to control the cost of health care services and products.

But why isn’t she honest about her true position?

The headline says it all

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health care reform The fundamental problem with the American health care finance system is that reliance on tax-deductible, employer-based health insurance and government subsidized insurance (such as Medicaid, Medicare) created a culture since WWII in which consumers of health care at the point of delivery expect to pay none (or only a small fraction) of the cost of that health care.

That culture has led to highly inefficient consumption of health care services and product. Some folks consume too much because they have no financial incentive to be prudent about their purchases, while many others who really need services and products go without.

So, reforming the system should start with changing the culture, right?

So much for that:

US wealthy should pay for health care overhaul, poll finds

Data could boost House plan to tax top-tier earners

WASHINGTON – Americans don’t want to shoulder the cost of President Obama’s health care overhaul themselves. They think the rich should pay for it.

That’s the finding from a new Associated Press poll, and it could be a boost for House Democrats, whose plan approved this month proposed taxing upper-income people to fund their sweeping remake of the medical system.  .  .  .

Thus, rather than true reform, Congress simply debates transferring payments from one group to another. Reminds me of the observation that the late Milton Friedman used to make about spending money:

There are four ways in which you can spend money. You can spend your own money on yourself. When you do that, why then you really watch out what you’re doing, and you try to get the most for your money.

Then you can spend your own money on somebody else. For example, I buy a birthday present for someone. Well, then I’m not so careful about the content of the present, but I’m very careful about the cost.

Then, I can spend somebody else’s money on myself. And if I spend somebody else’s money on myself, then I’m sure going to have a good lunch!

Finally, I can spend somebody else’s money on somebody else. And if I spend somebody else’s money on somebody else, I’m not concerned about how much it is, and I’m not concerned about what I get.

And that’s government.   .   .

Fat chance

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obesity A couple of interesting health care-related items caught my eye today.

First, I went by my internist’s office for my annual physical and noticed that another group of doctors had leased a much larger office across the hall from my doctor’s office.

I peaked inside the new doctors’ office window and noticed that the reception area was nicely furnished with plush leather sofas and chairs, flat screen TV’s, handsome hardwood flooring and tasteful Persian rugs.

The opulence of the office prompted me to find out what kind of doctors were apparently doing so well, so I grabbed one of the doctor’s cards from the reception area. It read (not the real name):

"John Smith, M.D., Laparoscopic Obesity Surgery"

Meanwhile, this NY Times article reveals the utterly unsurprising fact that New York City regulations requiring fast food restaurants to post the caloric content of their food did not induce obese consumers from eating less:

A study of New York City’s pioneering law on posting calories in restaurant chains suggests that when it comes to deciding what to order, people’s stomachs are more powerful than their brains.

The study, by several professors at New York University and Yale, tracked customers at four fast-food chains — McDonald’s, Wendy’s, Burger King and Kentucky Fried Chicken — in poor neighborhoods of New York City where there are high rates of obesity.

It found that about half the customers noticed the calorie counts, which were prominently posted on menu boards. About 28 percent of those who noticed them said the information had influenced their ordering, and 9 out of 10 of those said they had made healthier choices as a result.

But when the researchers checked receipts afterward, they found that people had, in fact, ordered slightly more calories than the typical customer had before the labeling law went into effect, in July 2008.

The findings, to be published Tuesday in the online version of the journal Health Affairs come amid the spreading popularity of calorie-counting proposals as a way to improve public health across the country.

“I think it does show us that labels are not enough,” Brian Elbel, an assistant professor at the New York University School of Medicine and the lead author of the study, said in an interview.

"Labels are not enough?" Makes one wonder what regulation Professor Elbel will suggest next — maybe governmental rationing of fast food?

The argument in favor of these types of absurd governmental intrusions into our lives is that government subsidizes medical insurance, so government should attempt through regulation to decrease obesity, which unfairly heaps a portion of health-care costs relating to obesity on tax-paying citizens who are not obese.

But putting aside for a moment the debatable notion of whether obesity really increases health-care costs all that much, the far more effective regulation to decrease obesity would be to provide a financial incentive for citizens to lose weight. Namely, reduce the governmental subsidy of medical insurance for those who choose to remain obese.

Fat chance of that happening.

The health care finance wedge

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health_costs Writing in the Wall Street Journal, Arthur Laffer lucidly identifies one of the key obstructions to controlling costs in America’s health care finance system:

Consumers are receiving quality medical care at little direct cost to themselves. This creates runaway costs that have to be addressed. But ill-advised reforms can make things much worse.

An effective cure begins with an accurate diagnosis, which is sorely lacking in most policy circles. The proposals currently on offer fail to address the fundamental driver of health-care costs: the health-care wedge.

The health-care wedge is an economic term that reflects the difference between what health-care costs the specific provider and what the patient actually pays. When health care is subsidized, no one should be surprised that people demand more of it and that the costs to produce it increase. Mr. Obama’s health-care plan does nothing to address the gap between the price paid and the price received. Instead, it’s like a negative tax: Costs rise and people demand more than they need. [.  .  .]

The bottom line is that when the government spends money on health care, the patient does not. The patient is then separated from the transaction in the sense that costs are no longer his concern. And when the patient doesn’t care about costs, only those who want higher costs—like doctors and drug companies—care.

I have an interesting perspective on the health-care wedge. For 20 years from 1980-2000, I was involved in negotiating group health care insurance policies for my law firm.

Over the past decade in my solo practice, I have essentially self-insured by paying health-care costs out of pocket while taking out a family health-care policy with a large deductible to protect against catastrophic injury or illness.

During the earlier period when I was negotiating group policies for my firm, I had a good understanding of the cost of premiums for those policies, but I had no clue about the true cost of medical services and products.

However, since becoming self-insured, I have a very good understanding of the cost of most medical services and products.

Funny how that works, isn’t it?

Rationing and health care finance reform

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Friedman The video below (H/T Professor Bainbridge) of a Milton Friedman lecture on the health care finance system is as timely now as it was in 1978 when he gave it at the Mayo Clinic. I was reminded of the Friedman lecture when a doctor friend of mine passed along the following front-line observations triggered by this article reporting on the recentt death of a young British man who died while waiting on a liver transplant:

Unless we, as a society, decide that we are going to pay for everything for everybody, there will have to be some form of rationing of health care services. And, into the 21st century, we now can do so much (with some having questionable efficacy) that we can no longer afford to do everything for everybody.

We can ration by age — this is what Obama was suggesting when he said that "maybe you’re better off not having the surgery, but taking the painkiller". No more knee or hip replacements if you’re over a certain age. Perhaps the first step toward a "Soylent Green" society?

Or we can ration by disease, which is what happened in the UK to the fellow who died awaiting a liver transplant and here we get into morals and away from science. It’s kind of like the game we played in psychology courses in high school or college — you’re stuck on a desert island with a bunch of folks who represent a cross culture of society, so who do you choose to get on the life raft? Medical care actually was easier when we did not have the technology to do things like liver transplants. Folks such as this guy just died. 

Now, as a society, with the finite resources we are willing to spend on health care, we have to decide if we want to spend $250K to give this guy a new liver (which he may or may not trash through further drinking), to which is added the $25K per year for his follow up care and (very expensive) anti-rejection drugs. Or, do we decide that it would be better to treat 1,000 people who have hypertension by giving them cheap generic meds for $250 per year each?  Who is more deserving of a "second chance", as the referenced patient’s mother asks — the one or the thousand?  There are no right or wrong answers, but remember, it’s now a zero-sum game. When you spend money on one group of patients, there will be less to spend on others.

The tough choices of health care finance reform

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choices Following on a point made in this recent post, this Avery Johnson/WSJ article addresses one of the tough issues that must be addressed if there is going to be any meaningful reform of the U.S. health care finance system:

The widespread use of expensive cancer drugs to prolong patients’ lives by just weeks or months was called into question by an article published Monday in the Journal of the National Cancer Institute.

Crunching data from published studies, the authors found that treating a lung-cancer patient with Erbitux, a drug that costs $80,000 for an 18-week regimen, prolongs survival by only 1.2 months.

Based on that estimate, extending the lives of the 550,000 Americans who die of cancer annually by one year would then cost $440 billion, they extrapolated.

How to control escalating spending on end-of-life care is one of the thorniest questions facing lawmakers working on the overhaul of the U.S. health-care system. [.  .  .]

“Many Americans would not regard a 1.2-month survival advantage as ‘significant’ progress,” the authors wrote. “But would an individual patient disagree? Although we lack the answer to that question, we would suggest that the death of a mother of four at age 37 years would be no less painful were it to occur at age 37 years and 1 month, nor would the passing of a 67-year-old who planned to travel after retiring be any less difficult for the spouse were it to have occurred one month later.”

While some policy experts consider the rationing of health-care resources inevitable in the quest to control medical spending, many Americans have long resisted putting the collective fiscal good over their individual health.  .   .   .

Read the entire article. I have many reservations about the direction of the Obama Administration’s proposed reforms of the U.S. health care finance system. But that the proposed reforms are triggering discussion of key issues such as the one set forth above is not one of them.

Will Obama address this key health care finance issue?

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Medical MoneyMarginal Revolution‘s Tyler Cowen penned this insightful NY times op-ed over the weekend that addresses the problem of the elephant in the parlor in regard to Obama’s proposed reform of America’s dysfunctional health care finance system:

MEDICARE expenditures threaten to crush the federal budget, yet the Obama administration is proposing that we start by spending more now so we can spend less later.

This runs the risk of becoming the new voodoo economics. If we can’t realize significant savings in health care costs now, don’t expect savings in the future, either.

It’s not the profits of the drug companies or the overhead of the insurance companies that make American health care so expensive, but the financial incentives for doctors and medical institutions to recommend more procedures, whether or not they are effective. So far, the American people have been unwilling to say no.

Drawing upon the ideas of the Harvard economist David Cutler, the Obama administration talks of empowering an independent board of experts to judge the comparative effectiveness of health care expenditures; the goal is to limit or withdraw Medicare support for ineffective ones. This idea is long overdue, and the critics who contend that it amounts to “rationing” or “the government telling you which medical treatments you can have” are missing the point. The motivating idea is the old conservative chestnut that not every private-sector expenditure deserves a government subsidy.

Nonetheless, this principle is radical in its implications and has met with resistance. In particular, Congress has not been willing to give up its power over what is perhaps the government’s single most important program, nor should we expect such a surrender of power in the future. There is already a Medicare Advisory Payment Commission, but it isn’t allowed to actually cut costs. [. . .]

Those cuts alone will not solve the fiscal problem, but if we aren’t willing to take even limited steps to conserve resources, we shouldn’t be spending any more money elsewhere. [.  .  .]

The demand for universal coverage sounds like a moral imperative to “take care of everybody,” but in reality it would make only a marginal difference when it comes to the overall health of the American population. The sober reality is that universal coverage is another way to spend money, which may or may not be a good idea.

The most likely possibility is that the government will spend more on health care today, promise to realize savings tomorrow and never succeed in lowering costs. It is rare that governments successfully cut costs by first spending more money.

Mr. Obama has pledged to be a fiscally responsible president. This is the biggest chance so far to see whether he means it.

Read the entire op-ed. Any reform of the U.S. health care finance system will not be successful in controlling costs unless or until a consensus is reached on a fundamental issue that most Americans do not even want to discuss — that is, what is the basic level of health care that every individual in the U.S. is entitled to receive regardless of cost? For example, what level of care is an insolvent, uninsured, illegal immigrant entitled to receive? How much care should we be willing to subsidize to extend the life of a seriously-ill 90 year-old?  A terminally-ill 50 year-old? These are thorny issues, but they must be addressed if we are ever going to achieve a coherently-financed health care system.

As Arnold Kling has been saying for years, many of us live under the delusion that we cannot possibly afford health care if we pay for it individually, but of course we can afford it if we pay for it collectively. For those of you who think that the government can magically make health care more affordable, just remember what happened after the government directed Fannie Mae and Freddie Mac to make home ownership more affordable.

Update:Charles Kenny makes a good point that better health care is not necessarily expensive.

Update II: Steve Chapman chimes in with a timely observation:

There are only three ways to pay for this expansion of health insurance coverage: increased taxes, reduced benefits, or shiny gold ingots falling out of the sky. Voters emphatically prefer the latter option, so that is the one most likely to be embraced by Congress and the administration.

Update III: Arnold Kling notes the problems with Obama’s “dessert now, spinach later” approach.

A big risk of health care finance reform

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stethoscopeIn addressing issues relating to health care and health care finance reform over the years, I’ve tried to be careful to differentiate America’s Byzantine and inefficient health care finance system from the quality of America’s health care, which remains very good overall.

But strains in the quality of care are definitely beginning to show as America’s existing health care finance system crumbles under the weight of, among other things, excess government regulation on medical insurance markets, unrealistic expectations regarding the supply and allocation of medical resources, over-reliance on third-party payors and the failure of American society to confront the issues pertaining to the limits of care.

The following is an email from a friend of mine, who is a first-rate internist who has been working as a hospitalist for the past several years. He is preparing to leave a hospital for which he has worked for the past couple of years because of the failure of the hospital’s administration to address worsening working conditions for the hospital’s primary care physicians:

I’m down to ten days left there, and those days can’t go by fast enough for me.

The average number of admissions in a weekday day shift (7 a.m. to 7 p.m.) is 12.

We had 23 yesterday.

When you take the standard estimate of an average of 75 minutes necessary to complete a new patient admission to the hospital — with the attendant patient interview and data collection, physical exam, review of lab and x-ray results, formulation of treatment plan, preparation of admission orders, and dictation of the official patient history & physical for the medical record — the amount of work requested from our hospitalist group yesterday was 13+ hours over average. This is more than another full-time equivalent doctor, yet we can’t persuade the national hospitalist company managing the hospital to provide any more help for us.

As a consequence of the barrage of admissions, I did not complete my "morning" rounds on existing hospital patients until 6 p.m.  There were a couple of patients who could have been discharged from the hospital yesterday, but by the time we got to them, it was too late in the day to discharge them (area nursing homes won’t take transfers after 2 p.m.).

As you can imagine, this type of delay causes longer length-of-stay and more expense for the system.  And this does not even begin to address the mistakes in care that may have been (or more likely WERE) made due to all of us rushing around as if we were in a 12-hour long fire drill.

It’s a bad way to practice medicine.

Contrast this to my new situation, which is a hospital-administered program. They believe in and adhere to the notion that the risk is high that patient care is likely to suffer once a doctor is required to see more than 15 hospitalized patients per day. Inasmuch as they don’t have the heavy administrative overhead that national hospitalist companies are required to service, my new hospital can allow their docs to work at a more controlled pace and still make ends meet.

Ten more shifts and I’m gone.

Thanks for letting me vent.

Believe me, my friend is the type of doctor that you want to have taking care of you if you find yourself in the hospital. That a hospital administration is willing to let him get away is a sure warning sign that the problems in the health care finance sector are adversely affecting the quality of care.

Clear Thinking to begin the week

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The Thinker Former Cardinals and Pirates outfielder Andy Van Slyke from this recent interview ($) in Baseball Prospectus:

"Well, [former Astros pitcher] Mike Scott, to me, is the best pitcher to ever pitch in the big leagues. I went 1-for-38 against him.  .  .  . Mike Scott, when he was at the apex of his career, was actually cheating very well. When he threw that forkball, and he scuffed it all up… he threw 97-98 mph, and then he’d throw a forkball that was in the 90s and I just couldn’t hit him."

Q: Were there a lot of guys "cheating very well" in your era?

"I think there was more of it going on back then than there is today. You don’t really see guys scuffing balls—you don’t see guys with sandpaper—but it was very prevalent when I came to the big leagues. The guys… everybody knew who was doing it. It was just hard to catch them."

Arnold Kling on an upcoming debate that he will be having with Robert Kuttner regarding health care finance:

The debate should be about how the cost-benefit trade-offs and rationing will take place. I will argue that most health care spending should be paid for out of pocket, with insurance reimbursement only for very large expenses over a multi-year period. With consumers paying out of pocket, they will take price into account in making their choices, and they will self-ration. The alternative is to have government officials make the choices about what treatments people are to obtain. I do not think that this is a one-sided debate, in which one position is clearly better than the other. But I hope that Kuttner and I can have this debate, rather than go off into red herrings like drug company profits.

The Financial Times’ Clive Cook chimes in on America’s intractable but nonsensical drug prohibition policy ($) (other posts on drug prohibition are here):

How much misery can a policy cause before it is acknowledged as a failure and reversed?

The US “war on drugs” suggests there is no upper limit. The country’s implacable blend of prohibition and punitive criminal justice is wrong-headed in every way: immoral in principle, since it prosecutes victimless crimes, and in practice a disaster of remarkable proportions. Yet for a US politician to suggest wholesale reform of this brainless regime is still seen as an act of reckless self-harm. [.  .  .]

Strict enforcement,  .   .   .  has reduced drug use only modestly – supposing for the moment that this is even a legitimate objective. The collateral damage is of a different order altogether. Violence related to drug crimes has surged in Mexico and in US cities close to the border, giving rise to renewed interest in the topic.  .  .  . [.  .  .]

Few policies manage to fail so comprehensively, and what makes it all the odder is that the US has seen it all before. Everybody understands that alcohol prohibition in the 1920s suffered from many of the same pathologies – albeit on a smaller scale – and was eventually abandoned. [.  .  .]

Is an outbreak of common sense on this subject likely? Unfortunately, no. Only the most daring politicians seem willing to think about it seriously.  .  .   . [.  .  .]

Somebody in the White House should take a look. This national calamity is no laughing matter.

And finally, Mark Steyn notes the insidious nature of encroaching government regulation over citizens:

The proper response of free men to the trivial but degrading impositions of the state is to answer as [gun owner] Pierre Lemieux did. But it requires a kind of 24/7 tenacity few can muster – and the machinery of bureaucracy barely pauses to scoff: In an age of mass communication and computer records, the screen blips for the merest nano-second, and your gun rights disappear. The remorseless, incremental annexation of "individual existence" by technologically all-pervasive micro-regulation is a profound threat to free peoples. But do we have the will to resist it?