What makes US health care so expensive? Hard numbers, no easy answer.
theincidentaleconomist.com
theincidentaleconomist.com
It's kind of depressing though in that his point boils down to neither side's solution being all that effective at solving the problem. Moreover his meta point seems to be that it's too complicated a problem for politicians to solve based on their need to boil things down to a sound bite solution.
Politicians 'solve' based on lobbying efforts. And that's why they can't fix anything. Lobbying favors the entrenched and they like things nice and wasteful and anti-competitive.
Secondly, I disagree. A small handful of would-be suitors is preferable. But a large field would only be possible if the firms were each smaller, which means they have less money for lobbying efforts in general. Which simultaneously means less graft up-front and a less-lucrative position as a lobbyist when your term is up.
We are spending money on the wrong things and it is a systematic and cultural problem.
Anecdotally, I tend to see a lot of people in the US go to the doctor "just to play it safe". X-rays for a sore knee, antibiotics used for a mild sinus infection, blood work done because they're not sleeping well at night... we spend a lot of money with the idea in our heads that the medical industry can and will cure all of our ailments.
Much of the rest of the world is piggybacking on US. That's my opinion. I am from Europe.
Incidentally, a "drug" isn't the same thing as a "molecule". A drug is a molecule, together with efficacy tests, manufacturing process, delivery system, safety tests, distribution protocols and educational ("marketing") material. A molecule is barely more than a drug idea.
[edit: just a thought, this is probably a form of price discrimination as well. According to a few uninsured people I know, doctors tend to give the free samples to people who can't afford the medicine. ]
"Gardasil took more than 20 years to develop, is complex to manufacture, and must be constantly refrigerated, but that’s not why it’s so expensive. Instead, Merck calculated the price based on the money the vaccine will save the entire health-care system—and the CDC approved the price, as it does with other vaccines."
"The problem is that our drugs, on the whole, cost about 50% more. For name brand pharmaceuticals, we pay about 77% more. Why? Some will say that it’s because we’re wealthier and need to subsidize for the rest of the world. But even if we paid more based on our relative wealth, it would come to about a 30% premium, not the 77% we do pay."
So the problem is obvious. The issue is how to fix it. We in the U.S. can either enforce our own price controls which will break the system or we can force U.S. companies to charge more to other countries and take the chance of denying medicine to sick people because foreign governments won't accept the higher prices.
Not an attractive choice no matter how you slice it.
If we placed an export tariff on these pharmaceuticals, I fail to see how that could decrease pharmaceutical prices in the US.
Japanese car companies moved production here, why couldn't big pharma do the same?
I don't see two options.
Clearly this lacks details, but the concept would work after the first few nullified patents.
> Clearly this lacks details, but the concept would work after the first few nullified patents.
Of course it will "work", but are you sure that you'll be happy with the result?
Some other countries have said exactly that, the result being that folks in those countries are paying production costs but not R&D costs. If the drug companies can't recover R&D costs in the US, how do you think that the R&D costs will be paid?
If they don't think that they'll be able to recover R&D costs, what do you think that they'll do?
If you think that they can charge less and recover their costs, why don't you do so and drive them out of biz?
Highly recommended, and I'd point out that it's highly relevant the the meme du jour, which is that if you're not paying, you don't have the privileges associated with being a customer. Employer-purchased health insurance and bureaucratic health care programs have robbed patients of their power to be customers, and it's something I was never clued into before.
The articles go into this - yes, the salaries are higher than expected, but they're a relatively small part of the problem. It's that we consume more care than any other country, and by a lot. We have to find a way to reduce demand. That's the problem.
No it's not. The salaries are in fact the only reason we have this problem, so that's the key to the solution. And no, we don't consume "more care" than any other country (Japanese do way more).
"The first [thing we need to own up to] is that most of the “extra” spending is in areas of care. So, please, let’s stop pretending that cost containment can be painless or unnoticed."
We should first figure out why it costs doctors so much to go through medical school. I know a few people in medical school right now and they will end up with around $200,000 in debt when they are finished. How can you ever expect to pay this off with an average salary?
The problem isn't the salaries. It's the insurance companies. The cost of everything is inflated because the insurance companies cover it for most people (and the hospitals can raise the price to ridiculous levels without the average person noticing)
If everyone had to pay out of pocket for most things (and had to use insurance for only emergencies), hospitals wouldn't be able to charge everyone $80 for a bottle of aspirin. The market would naturally lower the cost.
By overuse of insurance I mean people going to the doctor every time they have a cough and expecting it to be covered and having every routine visit covered. In comparison, I have insurance on my car, but I don't expect it to pay for oil changes. Many people in this country have their health insurance completely backwards. They are over covered for things they should be paying for out of pocket and severely under covered for what insurance should really be there for, a serious, expensive and long term medical issue.
When you think about a simple doctors visit and then the paperwork and manpower involved to push it through insurance it's no wonder the costs are through the roof. Many doctors have recognized this and now offer nicely discounted rates for people who simply pay cash at the time of service.
I also know lots of people with chronic low-level pain or other ailments who don't get any medical attention for a variety of reasons (too much hassle, too time consuming, can't get time off work, don't expect the doctor to actually do anything, can't afford the co-pay, etc).
Americans don't actually see their doctors more often than citizens of other countries. In fact, exactly the opposite is true. See http://blogs.ngm.com/blog_central/2009/12/the-cost-of-care.h...
Outpatient care is quite high, but part of that is because hospital visits are shorter in the US and many in-hospital procedures are actually done in clinics. A lot of people, especially the poor, go to emergency rooms for routine stuff, because they can get free treatment. But I think the US is way overbuilt in expensive diagnostic equipment. I live in a county of 250K people and there are at least 5 imaging centers that I know of.
Edit: San Luis Obispo is a rural county. The largest city is only about 50K people. This kind of over building is not limited to huge metropolitan areas.
(See the last paragraph of the conclusion.)
Which goes back to my original question: What are these "extra expenses".
Every category shown in the graph is not the total expense, it is just the expense above international standards.
By example, lets say the total drugs expense in the US is $100B (it is probably not, i am too lazy to go fetch the actual number in the article). The red slide in the graph labeled "Drugs" is not those $100B, but only the $39B of above standard drug expense.
So, in this example, there is some % in the green area of the graph that corresponds to the remaining $61B of drug expense that is expected according to the size and wealth of the US population. This has been intentionally left uncategorized in order to suggest that you cannot cut those without compromising the ability of the health care system to provide the levels of service needed by the population.
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Some reasons American medicine is very expensive:
1. Health insurance, but not treatment, is fully tax deductible. So if you buy your own penicillin, it's with after tax money, but if your insurance company buys it, it's pre-tax money. That's one of the reasons that health insurance is so widespred in America even for routine medicine like antibiotics and checkups. That's a major contributing factor in why the administrative costs are so high.
2. There's a shortage of doctors in America, and qualified doctors from other countries are not allowed to practice medicine in the United States. So there's good doctors from Canada, England, Japan, wherever that'd love to practice in the USA, but can't. This artificially inflates doctor's wages by restricting supply.
3. American doctors are typically required to get an undergraduate degree, medical degree, and do a below market, crazy hours residency in order to be able to practice medicine. That's 8-10 years of study and below market working to practice medicine. Now, medicine is very important and needs to be done right, but I don't believe for a second that a focused apprenceship couldn't teach a very specific kind of medicine - say arithscopic surgery - in just 2-4 years under a highly trained doctor, but this isn't an option.
4. The Food and Drug Administration requires new drugs to be proven not only for safety, but also efficacy. That's an incredibly high and expensive burden to meet - that means that drugs need to be proven to work to a certain standard, instead of just not harm. This adds years of development time and millions of dollars in cost to the new drug development cycle.
Those are all legislated reasons that increase the cost of medical insurance, doctors, and drugs. They'd be fairly easy to remove -
1. All medical and health expenses can be written off taxes regardless of insurance. Employees can choose to convert som of their wages to a medical or health plan tax free to both the employer and employee. (Currently, under most circumstances, only employer-provided health insurance can is tax free)
2. Allow any doctor in a country with reasonably competent medical standards to practice in the United States.
3. Require that doctors be able to demonstrate that they can practice their area of medicine capably. Be flexible in how they demonstrate that. Note: This will incur high opposition from medical schools and current doctors who are currently enjoying the wage premium and had to go through the very long, difficult, and expensive system.
4. Change the drug standard from "safety and efficacy" to only safety. Drugs will come to market much faster and cheaper. There's plenty of people and organizations that will test proven safe drugs for efficacy for free or nominal cost once drugs hit market, and efficacy will get understood with time. Put this way - a proven safe but questionably effective treatment against heart disease being held off the market for five years and costing much more to get to market is not a good thing. If it's certainly safe, then let people make the decisions with their physicians, instead of having the FDA take such a strong gatekeeping stance.
Technology has progressed such that we don't need government protection from ourselves as much any more. The current set of legislation has greatly increased the costs of doctors and medicine. Regardless of political position, and regardless of stance on other health issues, addressing these four points will make the medical system fairer, more effective, and and less expensive with relative ease.
Admittedly, there's some powerful entrenched interests that are winning in the current arrangement, and will oppose these simple improvements.
For example, the licensing exam (USMLE) has 4 parts, one of which involves travel to the US for an in-person oral exam.
Edit: It looks like Canada might be accepting USMLE as equivalent to their exam. In that case it would make since to only take the US exams, allowing you to be potentially licensed in both countries.
It would essentially create two groups of drugs. The pre-legislation guaranteed effective drugs and the post-legislation unguaranteed drugs.
As you point out, the unguaranteed drugs would kill people, through inaction. No doctor wants to risk killing their patient, so if at all possible they'll go for the safe pre-legislation alternative.
This would greatly hurt sales of new drugs, which is the last thing drug companies want to do.
It didn't catch on, largely because people are used to having relatively comprehensive health insurance from their employers. Until you break the employment/insurance bundling nothing else will budge. And no one who has a job with health insurance wants to break the bundling.
IMHO, the fact that Obamacare did not expand on HSAs shows affordability is less important than control.
I would love to have some tax-free healthcare money to spend, but I cannot guarantee that I will need penicillin, surgery, etc. this year.
I don't want to consign $5,000 to an account with a significant chance that I will simply have to forfeit the money at year's end.
And at least in my state, $5000 is a high deductible--my provider offers a $5000 deductible plan with an HSA. You do end up paying more than $5k out of pocket before hitting the deductible since there's coinsurance and copays and shit like that, but keeping $10-15k in an HSA--knowing you still have full access to that money and it doesn't expire every year (and then perhaps topping it off every so often)--is not a bad plan.
One thing to note, after this year over the counter meds (like ibuprofen) won't be eligible without a prescription, but band-aids still will be so thanks government for making the program less useful.
HSA enrollment has been rising by about 2 million people per year for the last few years, and is now at about 10 million people [1]. I'd say it's catching on.
I cannot recommend the HSA/High Deductible combination highly enough, especially for primary care. The difference between seeing an overworked doctor who is paid by insurance and an independent doctor who is paid by you? Night and day.
For anyone in Seattle, I strongly recommend http://www.qliance.com/ for primary care. Monthly fees for unlimited primary care, probably lower than your phone bill. They're cheap and indescribably excellent. (I don't work for them. I'm not associated with them in any way beyond being an extremely happy customer.)
Are you sure about this? What do international comparisons say about physicians per capita in countries around the world?
It's conventional supply-and-demand economics to suppose that if there were more doctors, each doctor would make less money overall, and thus the services of each doctor would be cheaper for patients. But actually the economist Martin Feldstein, who conducted a study of the issue in the 1960s based on data from Britain and the United States (with two rather different systems of providing medical care to citizens), found out that generally doctors refer business to other doctors. So that as the number of doctors goes up in a society, the use of doctors' services per patient goes up, and thus overall societal spending on medical care goes up, as does spending per patient. What figures do you have about what is actually happening in different countries, and which countries currently have the best supply of comparable medical personnel?
If everyone switched to very high deductible insurance, that situation would change very fast.
So if testing the efficacy of new drugs costs only a nominal amount of money, how would eliminating this requirement save us enough money to make it worthwhile? Also, if anything the market shows us that no one is willing to test the efficacy of drugs except for the drug companies. How many non-profit pharmaceutical companies are there, other than MAPS?
How do you get around that? Inventions and creative works get around it with patents and copyrights, respectively. How does an efficacy-testing company protect its results, since as matters of fact, they aren't covered by copyright.
I'm arguing that free riding isn't a problem in this case.
Drug companies have a rather unique demand for credible certification of their products' efficacy. Of course, some certifications will simply be shills for the drug companies, but doctors and health insurers will learn which certifying agencies are more honest than others and hence certification from a more honest firm will be worth more to the drug company since it will boost sales more.[1] It's no more of a "free rider" problem than Google, which has tons of free riders (search users) but whose customers (advertisers) want there to be more free riders, not less. Likewise, drug companies will want to get a certification that has tons of doctors and insurance companies and pharmacies that respect that certification, even though those are all "free riders".
So would the other countries. That's game theory for you.
Well said. Government agencies pretend to protect the individual but in fact they are bound by the strong insurance industry lobby.
What exactly is being argued for if not that prescriptions should be allowed even when efficacy is unsure?
Consider that many other first-world nations also legislate away drugs that aren't more effective than a placebo and yet still spend a significantly lower percentage of their GDP on health care.
Though if you have any evidence that cost of US healthcare is so high because it's so over-regulated, then you're free to provide it.
That's not completely true - someone else mentioned Health Savings Accounts.
There are also flex spending accounts, which are tax deductible. However, you only get to change the Flex Spending amount once a year or when you change jobs, get married, divorced, or have children (and possibly a couple of other events). That's okay for chronic problems and other things that you can plan for, but not so good for unexpected events.
Under previous law, there was no legal limit on flex spending accounts. Obama care limits them to $4k.
Maybe in that last sentence your confusing HSA with FSA? Under previous law there was/is a $5,000 limit on Flex accounts. As far as I know that limit is not changing (I'll find out for sure in December when renewal time comes around) however Obama care will no longer let you use a Flex account to buy over the counter medicine like ibuprofen without a prescription (starting Jan 1, 2011), band-aids are still OK.
Edit: Upon further research I can definitely say with certainty that I have no idea what the hell will happen next year. I've spent the last thirty min trying to trace through http://docs.house.gov/energycommerce/ppacacon.pdf and the US Code to figure out what the changes to FSA's are and am getting nowhere. wikipedia suggests that the limit will actually drop to $2,500 in 2013 rather than the $4,000 next year suggested by anamax. I'm going to have to spend a lot more time on this.
In other words, your plan can impose a $1M limit today.
I'm still trying to track down how Obamacare changes that.
My buddy, who is nearly finished with his cardiology fellowship, is nearly 300k in debt at this point. On the other hand, that dude has already saved some lives and I'd trust him w/ mine in a <dorky pun>heartbeat</dorky pun>.
I agree with number 3 on specialisation; a doctor should first "learn how to learn" then specialise. If they change their mind, they can easily relearn. Most stay with one thing, with many becoming ultra specialists ie. knee surgeons.
Those who are against tort reform often use some statistics showing that tort fees only account for a tiny percentage of health costs, but they miss a deeper relationship between the fear of being sued (most doctors get sued at some point in their career) and the defensive, expensive, care doctors give.
This is not generally true. As a physician, I don't get paid any more if I send people to get labs, XRays, MRIs, or any random expensive test.
The exceptions to this are if as a small business owner, I happen to also own the X-Ray machine, or lab. Or, if you personally perform a procedure (like a surgeon), then the procedure does get you paid more, but you generally get referred to the surgeon when you have a problem.
I agree the other incentives do exist though. "Cover your ass" and "patient demands". But those are an issue with malpractice liability and patient education perhaps.
Claims that something is 'complicated' can be used to obscure and it seems to me to that one very clear source of problems in health care is the AMA. On the other hand, the AMA represents pretty much all doctors in the US and if they're earning above market salaries you can bet that most of them would strongly defend that. "They spent so many years in med school"; "they have so much student debt"; and "health care is unimpeachably a matter of quality" - right?
Financial markets are 'complicated' and that's why we can't do anything about those either.
The malpractice lawyers will love this one.
But put another way, is there any country that claims it has a surplus of doctors? I'm skeptical of claims that there is a "shortage of doctors" in the US and other developed countries when you compare rates to third world countries. FWIW Canada has long claimed it has a shortage of doctors too. In practice that means there's a shortage of doctors in rural Manitoba and Saskatchewan which is why such a high proportion of doctors in Saskatchewan are from South Africa.
I don't think there is so much a shortage of doctors as a lack of nurse practitioners etc. who have the legal authority to treat the medically trivial ailments (e.g., coughs, colds) that most of the time is why we go see a doctor.
Since the medical profession is self governing, it is a cartel and therefore it is in the interests of doctors to control supply to keep prices high.
I dream of there being the site where I can read on different aspects of life in various countries, such as education, health care, etc. all described from a neutral point of view. But I'm afraid that such thing may not exist yet due to little demand. I mean, how many people are thinking "hmm, which of those 250+ countries should I choose for living?"
They explain in detail how our system works, explain the origins/history of it, and also explain WHY it is so expensive. It's not a mystery, really, especially for anyone who is involved.
TL;TR: it's expensive because "medical professionals" are greedy: they do unnecessary procedures, hire and keep unnecessary bloated staff and, of course, they overcharge for everything. The probability of you being diagnosed with X goes up as the number of doctors specializing in X in your area increases (listen the podcast for source), that's because the assholes just can't stomach saying "there is nothing wrong with you" and letting profits fall. Besides, you can simply look around: there is no reason for doctors to be millionaires and drug sales reps to own aircraft. The system is expensive because capitalism in healthcare is nonsense: you get greedy assholes milking "customers" who are unconscious, scared or in pain.
What's annoying is that doctors enjoy the unexplained immunity from public anger. It's always the "evil" insurance companies and "big pharma", or government regulators, who are to blame, while its not uncommon for American doctors to make million+ dollars a year delivering results that are no better of their French counterparts. I invite you to a typical cancer clinic in the US, you'll face devastated people who are dying, and who are getting ass-raped by handreds of thousands of dollars of medical bills on top of having an insurance. Those poor folks are sitting in lavish doctor's offices furnished with the most expensive hardwood flooring money can buy, surrounded by mind blowing numbers of "support staff" who have nothing to do with medicine, yet they too need to get paid. For anyone who's ever been to one, question of "why our heathcare so expensive" has an obvious, straight, screaming in your face answer.
My personal solution is radical, simple and effective: ban drug commercials, introduce fixed salaries for doctors, and if someone's unhappy - GTFO, plus open visas for Indian/French/Canadian doctors who'll be more than happy to take their place. Yes, government is grossly inefficient, I know, but NOTHING can be worse that this mess we're in. The amount of money extorted from the public by "medical professionals" is just insane. I've worked for a semi-military contractor that was selling to the government, wasn't rosy, but not nearly as outrageous that this quasi-market monster of a healthcare we have.
it's happened half-way in Iraq and all the way in Afghanistan. Contractors have 2 unbeatable advantages: 1. KIA contractors isn't a political liability like KIA soldiers and 2. contractors are outside of the law, thus can do things regular troops aren't allowed to
If someone can make a data analysis program that takes ALL of the data generated everyday and crunches it together for every conceivable variable and then uses machine learning to find common cost patterns vs. time and policy (the time and date of execution of policies and their direct impact can thus be judged). Then we might as well have magic in our hands.
This is hard data that no one can argue against (some will still manage...). If we can make something like this might as well be the first time in history that policy has been made using AI as a crutch. I hope that it won't be the last.
We choose not to use it - it gave us results we didn't like the last time we did.
Thank you.
On a tangential note - that pie chart he uses in each section is an unintentionally good example of what not to do when displaying data. I have to confess, I don't really understand it.
The idea of the government deciding who lives and dies creeps me out. If you are democrat remember power is cyclical and one day a republican may be deciding whether you or your loved ones live or die.
I don't have the perfect answer, but I know it's not either extreme.
Certainly people are deciding who lives and dies; life-saving care is denied specifically by insurers, and implicitly by the fact that many don't have any means to pay for care.
That's not an argument for or against single payer or full govt-run healthcare (though i am for that - i just don't have time to get that into the discussion)...
How is that any different than Acme Insurance deciding who lives and dies? And as far as the government is concerned, it's your fellow Americans deciding.
Don't take that as an argument that insurance is perfect, just as a response to your question about how it's different -- the reason people are more concerned when it's the government making decisions is that there's no recourse.
Living in Canada, I've never had to deal with the government making decisions, it's always been the doctors. Their is a base line, and you can still get private insurance and go to privately run facilities. You make the distinction too black and white in your original post. You can have a public and private insurance.
It's funny. My wife, a Canadian, talks with my sister-in-law, and has some family down in the US. Sometimes they bring up health insurance issues, and my wife is flabbergasted at the lack of... well... anything. The sheer number of services provided here is overwhelming, and this includes preventative services.
Anyways, I'm starting to ramble. =)
Oh really? The doctors decide whether the pharmacy has a given drug? The doctors decide how many doctors are available in a given area? The doctors decide what equipment is in a given hospital, where the hospital is, etc?
> Oh really?
No, not always. My wife and I also have a say, though we usually take the advice of the doctor. So, between us and my doctor, yes, 100%.
You and your doctor decide whether the pharmacy has a given drug? You and your doctor decide how many doctors there are in your area? You and your doctor decide what equipment your hospital has?
Maybe you could explain why I'm wrong?
I'd like to see some details.
How do you and your doctor implement your decision that there should be more doctors in your area? How do you get the money to buy specific equipment or build a new facility?
Note that "we vote" doesn't count. "We write a letter" counts only if the recipient always does as you request.
I'm somewhat skeptical given my understanding of a recent case in Canada where, as I understand it, some court found that the right to get on a waiting list for care didn't constitute care so the govt couldn't block Canadians from paying private providers. If you and your doctor could simply requisition facilities, there'd be no waiting lists.
I think you're confused a little -- I'm not the OP, so I'm not the one proposing a false dilemma between single-payer and free-market. In fact, in the US we have both, and we just got a nice new law that enshrines the worst features of each.
As for your first point, screwing over the customers: I've never known an insurance company to not screw over customers to some degree.
Anyways, this is all besides the point, because regardless of the insurance company you patronize, their is someone making a decision on your insurance claim. Whether it's the government, or some private agency, their is still someone who has to sign off.
So yeah, someone can just Beta instead of Acme, and it won't change a thing.
Edit: And the final straw, you assume insurance companies will insure you. It's not just about choosing your insurance plan. You have to be allowed to take the plan as well.
Those that want a "complete free enterprise solution" don't understand how the market works and should be ignored (Hint: Market elasticity). What should be done is looking at what is done in all other developed countries and try to create the best system from that (not all of them have "free" healthcare, but none of them are ignorant enough to try a "complete free enterprise solution").
http://www.visualeconomics.com/healthcare-costs-around-the-w...
Seems that this article matches up against the data in the infographic at least.
In a free market, quality decrease and price increase is balanced by competition. Once competition is severely limited and the minimal quality is enforced through things like FDA - the sky is the limit for the price.
* that does not look like a best fit line, more like a curve
* maybe the curve should slope up more at the end?
* if the curve slopes up more at the end, maybe as you spend more you reach an asymptote. it would make sense if being the best at something requires more than a linear energy increase than being 2nd or 3rd best at something.
* doesn't John Nash's work explain this?