Ezra Klein posts an interesting graph showing that cost increases, not demographics, will the biggest factor in pushing up Medicare spending to unsustainable levels.
This is why we need a government funded system, modeled along France's, that can control these costs. If we don't get a comprehensive government program to provide healthcare for the elderly, their medical care could well bankrupt the nation.
Is that second paragraph supposed to be ironic? Are you advocating a French-style universal health care system for the U.S.?
The French system is also headed for bankruptcy. Its public insurance fund is chronically in deficit.
Mixner, the US has a system to cover the elderly, which is structured much like the French system. We call it "Medicare".
Megan, yes I know. So are you advocating something like the French universal system for the U.S. ("Medicare For All")? That's what you seem to be advocating in your second paragraph. Or were you being sarcastic?
That whooshing sound is the sarcasm going over your heads.
Yawn. It's very simple. Unless we have strict outcome-based rationing, with a massively reduced emphasis on end-of-life care, there is no way out of the healthcare mess.
Um...actually, I am entirely unsure whether Megan is being sarcastic here. I think not, because I think Megan also believes that the elderly are entitled to health insurance even if they are poor. Perhaps she is implying that she thinks the best way to control US health costs for the elderly would be to means-test Medicare, not to have a universal system. But she may also, in fact, be implying that she actually does think the French system works better to control costs -- which it apparently does, since French health care costs are so much lower than American ones. So it's really not clear to me what Megan is saying. If she would advance her argument, it might be possible to respond; but to my knowledge, Megan has never made a clear argument for a particular solution to the problem of rising Medicare costs. She has confined herself to arguing against single-payer health insurance, while still arguing that the poor ought to be insured by the government -- which is exactly what the universal health insurance plans proposed by Edwards, Obama and Clinton all propose to do.
Rising medical costs are not a problem I'm interested in solving. Medical costs will rise. They will do so because we're getting more and better health care. Seems like a good deal to me.
What I am interested in is preserving freedom and innovation. I think any government program which imposes price controls will destroy innovation, or produce only small amounts of politically driven innovation at enormous cost. As long as people are willing to pay for medical innovation, as they clearly are, I want us to be the buyer of last resort. After all, we could have health care costs lower than France's if everyone was content with the treatments available in 1990.
brooksfoe,
As Megan suggests, there is a rather simple way of controlling costs. Just freeze health care benefits and investment at the current level. No more new medical-biotech R&D. No more new miracle drugs. No more innovative new surgical procedures to reduce physical trauma to the patient, or fix previously untreatable conditions. No more new scanning and diagnostic technologies to detect diseases earlier and less invasively. Just freeze things the way they are now. The only cost increase will be ordinary inflation, and costs may even come down over time with efficiencies of scale and manufacturing advances.
Do you think people will go for that?
Rising medical costs are not a problem I'm interested in solving. Medical costs will rise. They will do so because we're getting more and better health care. Seems like a good deal to me.
This is probably a question that has been answered many times, but why is this so? I get more and better food, clothes, computers, internet, and almost everything else than I did a decade ago, and most of these things are also cheaper. What makes healthcare an exception? Also, why is it not getting better as fast as most other r&d-driven things?
Okay, well, that's clear. So you're for universal health insurance; you want the government to just spend as much as it takes to cover everyone who can't afford health insurance themselves, and you don't want it to try and control costs.
Am I misunderstanding something here?
This is probably a question that has been answered many times, but why is this so? I get more and better food, clothes, computers, internet, and almost everything else than I did a decade ago, and most of these things are also cheaper. What makes healthcare an exception?
Food and clothes are not substantially cheaper than they were a decade ago, and their quality has not improved anything like as much as the quality of health care. As Megan said, health care is skilled-labor-intensive, and costs will tend to rise faster than inflation for that reason. R&D costs of new pharmaceutical drugs, especially clinical trials to prove safety and effectiveness, are also enormously expensive, risky and time-consuming. Those are some of the reasons.
Oh, and vadim, what Megan is arguing is that health care is mostly like education, in that it's a labor-intensive service where it's hard to achieve technology-driven reductions of labor time, and therefore prices tend to rise relative to goods which can be produced with less and less labor, like cars. Doctors and nurses can't be replaced by robots. However, this fails to explain why health care costs are rising so much faster than, say, the price of a haircut. Might it involve the inelastic labor plus barriers to entry? It also fails to explain why the cost of pharmaceuticals keeps rising so fast, when pharmaceuticals are exactly the kind of goods one would expect to see fall dramatically in price over time.
"Control" the costs? And how will that happen? How will the government "control" costs in ways that a free market does not? We know the usual methods: price controls will dry up supply, creating queues waiting for help--how will the government then "control" the allocation of medical care? Like Canada, where there are waiting lists for admittance to hospitals for premature babies? The last thing any nation needs is government control of costs of anything.
brooksfoe,
However, this fails to explain why health care costs are rising so much faster than, say, the price of a haircut.
No, it doesn't. Doctors, nurses, pharmacists, and other medical personnel are highly educated and skilled professionals. Hair cutters are not. The cost of highly-skilled labor is likely to rise much faster than the cost of low-skilled labor, especially given the downward pressure on low-skilled wages from immigrants.
It also fails to explain why the cost of pharmaceuticals keeps rising so fast, when pharmaceuticals are exactly the kind of goods one would expect to see fall dramatically in price over time.
The prices of pharmaceuticals generally do fall when their patents expire. New pharmaceuticals are expensive because they are so risky, time-consuming and expensive to create and bring to market.
Uh, y'all, the point of Megan's sarcasm is that we already have government health care for the elderly and it's not preventing costs from exploding ... so we have no good reason to expect that putting everybody on a government system is going to contain costs.
If it was true that Medicare spending was under control but non-government health care spending wasn't, we might conclude -- hey, a government system is just the ticket. But that's not the case.
The cost of highly-skilled labor is likely to rise much faster than the cost of low-skilled labor, especially given the downward pressure on low-skilled wages from immigrants.
Yes, THAT would help explain why health care costs are rising faster than inflation while haircuts are not. But that is not simply the fact of being a labor-intensive industry, it is a supplemental point. That is why I mentioned "barriers to entry" -- viz., medical educations. Incidentally, one way to lower health care costs would be to allow more foreign doctors to immigrate, and to streamline certification.
The prices of pharmaceuticals generally do fall when their patents expire. New pharmaceuticals are expensive
Obviously. But why is the percentage of new pharmaceuticals being prescribed so large that it overwhelms the price reductions of older medications going off-brand? Studies have shown that doctors' preferences for prescribing new, expensive drugs are not justified by results, and are instead influenced by pharmaceutical-industry marketing. These high prices have been exacerbated by the industry-protecting clauses written into the new Medicare Part D program, forbidding the government from negotiating providers down.
As Thomas Sowell pointed out, nothing the goverment is planning to do will lower "costs". They will not be increasing the number of MD graduates or hospital beds. They are intending to control prices, probably by rationing. Sloppy thinking such as sliding over the difference between costs and prices will get you in a bad place.
We know the usual methods: price controls will dry up supply, creating queues waiting for help--how will the government then "control" the allocation of medical care?
And because of your perfect knowledge of the simplistic model of the theory, the conclusion is inescapable: France does not exist.
Where does a free market for health care exist? Show me one. The US certainly doesn't have one. What we have is a situation where the cream of the crop is served by private insurers charging premiums to the wealthier customers, who can afford them, and all the riskier prospects and poorer customers are shunted onto government care. The model is highly similar to the "privatization" of electricity generation in California. It drives prices through the roof and leaves taxpayers holding the bill. It is hardly surprising that such a model, which combines many of the worst features of socialized care with few of the benefits, has very high costs.
"Also, why is it not getting better as fast as most other r&d-driven things?"
With a new computer design, they invent and build it, they it them for a few days, and then they start production and sales. With medical innovations, the testing phase takes years and millions of dollars - and 90% of new drugs don't make it through testing. Then, if they have been able to prove it's effective and relatively safe, they have to get FDA approval. It's possible that the FDA is still taking more time than is really necessary to ensure it's safe and works - but the big problem is that the human metabolism is so complex that finding the unexpected interactions of a new drug in the human body requires trying it in large groups of people over several years. So, unless you would be happy with drug and medical device companies just throwing things on the market [1] and then finding the hazards (and would give them immunity from lawsuits), drug development is just inherently much slower than most R&D.
Another factor is that most drugs are still discovered rather than designed. That is, labs generate thousands of variations on a compound and then test them for effectiveness against a target bio-system or condition, generally in a test tube or in small animals. That's slower than drawing up a circuit design. But mainly this makes drug development expensive; most of the time comes after they find compounds that "work" in the test tube or in mice, in refining it down, trying to assess whether it's safe enough to even try on humans, then testing it carefully, starting with safety testing by small doses in healthy people, and then if no one gets sick, gradually working their way up to effective doses and large enough groups to get statistically valid results.
And remember, the drug companies have to make enough profit on one drug that gets to market to pay for human trials of ten that didn't make it, and for making and preliminary testing of a hundred thousand compounds that failed to do anything interesting at all. That's why new drugs are expensive. In most of the world, government price-setting has already ensured
[1] What can go wrong if you release a drug without testing? Back in the 1930's, before the FDA acquired the authority to require pre-approvals, the sulfa drugs finally provided doctors with an effective weapon against many kinds of bacteria, but the low solubility of sulfa posed a problem for children and for adults with such a sore throat they couldn't swallow pills. Finally, one small American company discovered a liquid that would dissolve the sulfa, and released a "children's" liquid sulfa drug. This magical solvent was ethylene glycol, now used mainly as antifreeze. No one knew it was poisonous until children started dying all over the country...
So testing is utterly necessary, but I'm not sure whether the FDA is still required to enforce it. That 1930's drug maker wasn't concerned about lawsuits. Nowadays, lawsuits are always a concern, and I wouldn't be surprised if they are a much bigger deterrent to recklessness than the FDA.
What we have is a situation where the cream of the crop is served by private insurers charging premiums to the wealthier customers
That's an interesting definition of the "cream of the crop". On the planet I live on, to get insured via your employer you need to put a check in the box. The employer-provided insurance is not, of course, universal, but it appears to be quite widely available at first sight -- why, even Starbucks offers it to every employee who works enough hours! And with COBRA coverage it is not at all impossible to maintain continuity, and thus escape the pre-existing condition clauses. Therefore "cream of the crop" and "wealthier" must mean "anyone employed at somewhat above minimum wage".
Now, I'd be the first to point out that linking health insurance coverage with employment is far from ideal. But certainly your statement I quoted above misrepresents the current situation.
I think Megan also believes that the elderly are entitled to health insurance even if they are poor.
There were some blog entries a few months ago where she said that the elderly were to blame for their own poor health because of bad decisions they made when they were younger, so they have no claim on the revenues of young people to subsidize their health care.
I doubt she'd disagree that they're entitled to purchase health insurance on the open market, but of course that would be a tough market to play in in a hypothetical Medicare-less world. Not many insurers would be rushing out to take that bet.
Brittain, go back and reread what I said. I said that as long as one elderly person was even slightly responsible for their poor health . . . and surely you can admit that at least a few older or sicker people with cirrhosis and lung cancer played a role in their own disease . . . then they are more responsible as a class for their disease than the younger and healthier, and that therefore responsibility could not be the reason for inter-class transfers. I did not say that all old and sick people, or even most old and sick people, are responsible for their fate, or that any of them deserved it.
Brooksfoe, you're wrong about prescription drug prices; costs are going up because of higher usage. Prices aren't increasing faster than inflation; indeed, I believe they went down slightly last year (in real terms) because of generic conversion.
What I think about health care is lengthy and complicated, and will be explained at another time. But what Slocum said nails it: we already have government health care for Medicare. It doesn't control costs. People saying that UHC will control costs need to explain why their system will be different . . . and no, you can't magically wave your wand and make the AMA, the health care unions, and the hospital lobbyists go away.
Perhaps we should socialize health care for the young and privatize it for the old. (fat chance)
Megan’s quite correct, back in 2004 when Kerry and Edwards were demonizing pharmaceutical manufacturers because the cost of prescription drugs had increased by 36%, the volume of drugs purchased had increased by 40% during the same time period. On the aggregate, consumers were paying less for each prescription drug but were spending more because they bought more of them.
brooksfoe,
Where does a free market for health care exist? Show me one. The US certainly doesn't have one. What we have is a situation where the cream of the crop is served by private insurers charging premiums to the wealthier customers, who can afford them, and all the riskier prospects and poorer customers are shunted onto government care.
Huh? How is this not a free market? Yes, insurers charge different premiums to different customers based on their risk of making a claim. That's why the auto insurance premium for a young male driver with a sports car is a lot higher than the premium for a middle-aged woman driving a Hyundai. The same principle applies to health insurance. You may assert that it is unfair for people to have to pay different premiums for health insurance, but that's a different issue. It doesn't mean the health insurance market is not free.
Freer than most, I suppose, but certainly not close to the 'ideal' of a free market. Most consumers of healthcare bear the costs of their medical treatment only very indirectly; the price mechanism is distorted by a massive government monopsony in elder care; certain providers are obligated to provide treatment regardless of the customers willingness or ability to pay; the entire system is heavily regulated.
Not that these problems are easily solved or necessarily should all be reformed (given the ethical issues and inelasticity of demand), but they are certainly a departure of our own system from a theoretical free market in health care. They distort the market in insurance as well.
But that wasn't his argument. His argument was that the health insurance market isn't free because it charges different premiums to different people, based on risk, and some people can afford those premiums while others cannot. But that's how all insurance works. It doesn't mean the insurance market isn't free.
I would like to see a health insurance system where the provider can adjust premiums according to risk, BUT the premium MUST be divided 50/50 between the actual insurance policy and an HSA account. The actual insurance policy can cover the administrative costs and the benefits, which would primarily be catastrophic; the HSA contribution is automatically set aside for lesser and routine payouts, and the purchaser of the policy would have the option of increasing contributions to the HSA if so desired.
This might actually divorce people from the idea that a routine physical is an "insurable" proposition with a small copay; instead, they would actually see the $130 deducted from their account balance. The funding would still be managed, much like a 401(k), and a sudden job loss doesn't automatically leave you in the lurch if you're the type that doesn't plan well; BUT it would not appear as though there was an unlimited well of money to tap for any reason at all.
In 2003, the U.S. spent $5,711 per person on health care. That same year, Canada spent $2,998 and the United Kingdom spent $2,317. And according to the Alliance for Health Reform, $.45 out of every dollar in health care spending comes from the government (primarily the federal government). That works out to $2,570 per person. I propose we appoint Ezra National Health Care Commissar and grant him full discretion over those health care dollars spent by the government. He can remake the system however he likes. For that kind of money (according to Ezra's logic), we might not be up to Canadian standards, but we should at least be able to bring NHS quality and excellence state side. No need for additional spending (like those pesky Democrats in Congress would like). Remember, we'll get the full benefit of those fabulous cost savings Ezra promised.
No, Mixner, you misunderstand. The point isn't simply that people are charged differently based on risk; the point is that the insurance industry is allowed to insure only the healthier, wealthier people and shunt both the higher-risk and poorer people onto the government. And, furthermore, they are allowed to find ways to decline to pay out for procedures that have already been performed (by ruling them to have been unnecessary), or, when people they have insured become sick, to hunt for excuses to deny coverage, e.g. alleging clients lied about pre-existing conditions. Then, because insurance is tied to employment, there are choke points every time people move from one job to another and exhaust their COBRA coverage, at which point insurers can cut sick clients. All of this rewards insurers for paying administrative staff to pick out high-risk people or disallowable procedures and shunt the costs onto the government -- or onto the service providers, who eventually pass it on either as higher prices for the procedures, or to the government.
The overall cost of health care is not being reduced. Someone still has to pay for the emergency rooms, the hospitals, etc. That someone is in large measure the taxpayer. Meanwhile, health service providers, to cope with the uncertainty of payment entailed in 1. not knowing whether insurers will come through with the money if procedures are ruled unnecessary and 2. the mandate to provide emergency care to those who aren't insured and can't pay for it, jack up prices. The system is riddled with risk of non-payment; in risky environments, providers raise prices.
What we have now is a situation where the government allows insurers to operate in the profitable segment of the market, while the government picks up the costs for the unprofitable segment. The rational business responds by trying to unload as many costs as possible onto the government segment of the market -- i.e., disallow coverage for sick people, so the government has to pick them up. Figuring out how to shunt those costs onto government is hard work and requires lots of administrative staff, including doctors hired solely to disallow procedures. We're now at the point where 20% or more of the entire health budget is being spent on administrative staff to engage in gaming the system.
We'll probably never get out of the circle we're in, in this argument, but it keeps coming back to this: for many reasons, health care is different from other goods, and markets in health care and health insurance are different from markets in other goods. In this case, the salient point is that the government ultimately mandates that everyone has to get basic and emergency care. Imagine that the government guaranteed to pick up the tab for car insurance for anyone who became uninsurable; what would happen? Repairs would become more expensive as bad drivers stayed on the roads and government insurance money flooded the market; rates for everyone else would climb to cover the rising cost of repairs; the rising cost of repairs would make it cost-effective for insurers to hire more claims adjusters to reject claims; etc.
The problem with health insurance is that, unlike with car insurance, we can't get around having government be the insurer of last resort, because we don't want poor people to go without health care. So we have to find ways to cope with these perverse effects. Such measures can include buyer mandates, community rating, single payment authorities, using the government's bargaining power to hold down prices, and so on.
There are two other options. One is Megan's: let's just insure everyone, and forget about costs; we're rich. The second is to start letting poor people go without health care.