Small Steps and Health Care Costs

Hey all you deficit hawks out there. Atul Gawande, the person of the year when it comes to health care, has a long article on the cost-cutting proposals in the health care reform bill (hat tip Ezra Klein). Gawande’s main point is that the long list of pilot programs and other initiatives in the bill are probably the best possible way to reduce costs in the health care system (which, if you missed the implication, is the only way to control long-term government spending–that or eliminating Medicare).

Indeed, it’s hard to see what else the bill could have done. Remember, we have a largely private-sector health care system (both insurance and delivery), which means the government cannot simply order providers to charge less. A single-payer system might be able to take such draconian steps, but Mitch McConnell, who claims, “Two thousand seventy-four pages and trillions of dollars later, this bill doesn’t even meet the basic goal that the American people had in mind and what they thought this debate was all about: to lower costs,” is the last person who would vote for single payer. And the Republicans are similarly against anything that allows the government to use the one big lever it does have–Medicare–to force lower cost levels.

So the only political option is incremental reform through small programs that experiment with different ways to change the incentives of private-sector actors at the margin. And, Gawande says, this is the only option that has a chance of working, anyway:

“Which of these programs will work? We can’t know. That’s why the Congressional Budget Office doesn’t credit any of them with substantial savings. The package relies on taxes and short-term payment cuts to providers in order to pay for subsidies. But, in the end, it contains a test of almost every approach that leading health-care experts have suggested. (The only one missing is malpractice reform. This is where the Republicans could be helpful.) None of this is as satisfying as a master plan. But there can’t be a master plan.”

More generally, Gawande’s article is about how the government can help. There’s the big story of how government pilot programs helped nudge the free market toward more efficient food production at the beginning of the twentieth century, and the little story of Rory Lewandowski, a government “agricultural extension agent” for Athens, Ohio, who helps farmers solve their problems. President Obama wants to convince Americans that government can be part of the solution. There are tens of millions of Americans who cannot be convinced by any amount of evidence or argument. But still, when it comes to long-term health care costs (and, therefore, the long-term national debt), it’s the only chance we have, since the system we have now isn’t solving the problem.

(I’m sure someone will argue that if we simply cut the government out of health care altogether the free market would solve our cost problem by itself. I don’t see that, since that just means we would all be in the ever-expanding individual market, which isn’t solving our cost problem. But even if making people individually liable for the cost of their health care could control costs, it would also have the effect of sentencing poor, sick people to death because they cannot afford health care.)

By James Kwak

83 thoughts on “Small Steps and Health Care Costs

  1. At the risk of repeating myself… Unless you explain how a proposal will increase supply or reduce demand for health care, you not only have not solved the cost problem; you have not even said anything about it.

    Gawande starts with an analogy to agriculture in 1900, and how pilot government programs were needed to convince farmers to become more “efficient”. So, by analogy, if only our hospitals knew how much more “efficient” they could be to earn more profits, they would… Am I alone in finding this analogy laughable?

    Maybe if, in 1900, everyone paid a fixed premium to their employer every month, and then the employer paid for all of their food regardless of how much or what they consumed… Then the analogy might work.

    Our health care system may be “private sector”, but it is nothing like a free market. I know, I know, we don’t want a free market. But that is not my point. My point is that if you are thinking about health care costs outside the context of market forces — ignoring the laws of supply and demand — then you are deluding yourself.

    Spending $1 trillion to provide universal coverage will drive up demand. How could it be otherwise? So, make any prediction about the course of health care costs over the next 10 years, and I will gladly take the “over”.

  2. I assume all the talk of what Republicans are against means “given the fact of a corrupt corporatist Democrat establishment and a craven progressive activist structure, we end up with Republicans being allowed to make policy” (for now, at the federal level, Republicans have zero power to be for or against anything; the Dems seem to want very much to change that next election).

    Needless to say, if we’d had a really aggressive reformer, ready to aggressively use both bully pulpit and brass knuckles, come in with that mandate under those political circumstances, we would’ve achieved single payer without much trouble.

    (And smashed Wall Street too.)

  3. “But even if making people individually liable for the cost of their health care could control costs, it would also have the effect of sentencing poor, sick people to death because they cannot afford health care.”

    Unless, of course, you subsidize health care for poor, sick people.

    That’s what we will have to do. It is hard – very hard – to see how we can control costs without using market forces such as competition and consumer choice.

    The public option, or indeed single payer, would never have had this effect. At best we would end up with government control of health care processes and allocation. We’re not good at that. Almost no country is good at that, but especially not us.

    The good ideas have been proposed. End the employment-based insurance market and transition back to an individual insurance market with variable pricing and state-collected high risk pools – states with these features have far lower individual rates than those without. Require everyone to have health insurance or else pay into the high risk pool through an uninsured tax. Subsidize those who truly can’t afford the thing, but set that threshold somewhere that reflects the importance of health insurance (it’s not a luxury good that comes somewhere after cable TV).

    That’s structural. There are a lot of challenges on the provider side too – defensive medicine and unecessary procedures, drugs we pay too much for because we’re subsidizing other countries’ nationally negotiated low rates, and more – that we can do some things about even in a completely private/non-profit system, but which are also likely to be addressed in a more competitive market than prevails now.

  4. The presumption is that technological improvement will shift out the supply curve. That, for any given level of consumption, we can spend less. If this were true, Gawande would be right – and I do believe that it is partly true.

    The problem is that when new procedures become available, it’s like creating a new mini-market. New opportunities for expenditure open up. Like taking a supply curve that is vertical and near zero (e.g. you can’t buy it for any amount of money) and making it a little less vertical – aggregate spending goes up.

    Utility – assuming people actually are getting what they hope they are buying – also goes up.

    The net result is that, yes – for any given level of spending, including our current level – life might be better with these new programs. But does the bill actually cap spending?

    In the near term, adding efficiencies in existing health care procedures/markets may lower overall spending. In the long term, extension of life (along with costs) and the creation of new markets (techologies) inside health care will increase opportunities to spend.

    Ultimately, someone will put a price on life, and govts ability to do that seems weak – no politician can absorb that kind of hate. Insurance companies serve a very useful political purpose. They absorb public hatred – Congress certainly sees value there.

  5. Mr Nemo — maybe it is Captain Nemo? — asserts
    “Unless you explain how a proposal will increase supply or reduce demand for health care, you not only have not solved the cost problem; you have not even said anything about it.”

    I beg to differ. I think he is neglecting that well-
    known trio Waste, Fraud, and Abuse. And the WFA comes
    mostly from the insurance industry.

    Consider the two well-known facts: First, all other
    developed countries have to a greater or less extent
    “single payer” systems. They don’t talk about
    insurance, they simply have the government pay for
    a person’s health care. Bismarck put this into
    the Prussian system in the 1880s, Atlee put it into
    the British system in 1945 or thereabouts.

    [ An apocryphal story had it that Atlee was asked:
    “Don’t we have to have a vast system of controls
    to make sure that only echt-British get this care?
    What about sneaky devious frogs from Calais crossing
    to get abortions, dental care, etc?” Atlee’s
    reply: “The red tape/bureaucracy necessary to set
    up the protections you advocate would cost a lot
    more than the free care for the Calaisois. Don’t
    worry about them small beans” ]

    And these other countries — Japan, Canada, England,
    France, Germany, the Scandinavian countries, etc
    pay 10% of their GDP for health care. We pay 16%.
    And the reason is obvious for anyone who has ever
    visited a hospital or a health clinic.
    is a good source of information about all this.

    Second: all the above countries have better care
    than we do, whether measured by longevity, or
    women dying in pregnancy or childbirth, infant
    birth rate, and a bunch of other metrics. One
    can read about this at the World Health Organization
    web site,

    The U.S. is in the peculiar situation: you can’t
    do anything for the people, without big business/
    wealthy people taking a hefy cut off the top.

    Best wishes,

    Alan McConnell in Silver Spring MD

  6. Small steps won’t do it. People who have gold-plated insurance just don’t get it. The country is in a freaking crisis now, and the bills in Congress are both jokes.

    The mandate will tear this country apart.

  7. Science continually produces new treatment opportunities. These cannot be delivered to everyone without spending the gross national product many times over. What is needed is an algorithm for RATIONING, but none of you political folk dare use that word, so you won’t be able to solve the problem. You are stuck. Tough.

    What would an engineer (like me) do? Start with a national questionaire to assess the moral sensibilities of the people, between the jail house and the poor house, between those of differing contributions and those of differing needs.

  8. Reducing “waste, fraud, and abuse” shifts the supply curve. (And that is why it would affect costs.)

    Suppose I lived in one of these single-payer paradises, woke up one day with blood in my urine, and was not a close friend or relative of a politician or bureaucrat. How long would I wait to see a doctor?

    Honest question.

  9. The “government cannot simply order providers to charge less.”

    Fool me twice?

    The government can mandate customers to buy, but it cannot mandate profit limits?

    Mandatory minimum Medical Loss Ratio (MLR).

    Medicare negotiated rates?

    Every insurance company I have seen orders the real “providers” to charge less, and incessantly reduces wages and benefits for them. Of course, the ideal government is full accountability combined with zero agency, while the best corporation is unfettered agency combined with zero accountability.

    If profits are the fastest growing part of the health care “cost curve”, how would you best bend it?

    Hint: Not by bending the truth.

    If a health care “system” of private regional monopoly fiefdoms causes a fixed base bureacracy overhead of what, 30 percent, how would you reduce costs best?

    Last time I looked, the insurance companies were not providers – and the personal profits of the actual providers, doctors and nurses, were not quite growing that fast, if at all.

  10. “And the Republicans are similarly against anything that allows the government to use the one big lever it does have–Medicare–to force lower cost levels.”

    This is relevant how? I thought it is the Democratic party that has 60 votes in the Senate and a clear majority in the House, which means that 50 votes + VP should be sufficient in any society not modelled after the Dysfunctocracy know as California.

  11. “But there can’t be a master plan.”

    Technocrats would have given us neither Civil Rights nor Social Security, because they see elective and elected constraints as something to be satisfied, not as something to fight and overcome.

  12. “It would also have the effect of sentencing poor, sick people to death because they cannot afford health care.”

    Good Lord, James, what do you think has been the reality for tens of thousands of people in this country for decades now?

  13. probably no longer than here. and thats according to those who live there. if it were a optional thing, much longer. and most would make you pay for that. and here it would also depend on if you have insurance too. if you don’t, you will wait till you have to go to the ER to get it addressed care to guess how much more that would cost than going when it was maybe a minor issue?

  14. The real crisis is a fear crisis. People generally are so frightened of every imaginable ailment that they run to doctors and hospitals over every temperature, ache, pain, insist upon remaining forty years old into their eighties, simultaneously abandoning diet, exercise, common sense, discipline, falling for every imaginable health scam, drug company ad, etc.

    The result of all this can only be extortion. Overcharge the people who are responsible while indulging and pampering the rest. Personally, I will not enter a hospital except at the point of a gun. One look at the pathetic creatures lining the walls of a local doctors’ office (where the perpetrators have conspired to relieve themselves from civil liability by forcing all those who dare enter to sign compulsory arbitration agreements) is quite enough to make me turn and run.

    Wake up people! Health care is another conspiracy to eliminate what little freedom you have left. Five minutes into the health care crisis debate I predicted on this blog that the only result would be extortion. If only the stock market were this easy!

    Want to end profiteering by the medical industrial complex? End tax free health insurance for the over privileged. Let people do whatever they want. The collapse of third party pay will eliminate the crisis and the profiteering too. Anyone who is more than sixty years old remembers when doctors made house calls and were glad to get $20 for the time involved!

  15. maybe you have heard of the filibuster? and Democrats unlike Republicans aren’t exactly all the same.

  16. (The only one missing is malpractice reform. This is where the Republicans could be helpful.) None of this is as satisfying as a master plan. But there can’t be a master plan.”

    not sure why any body thought this would help as it has been tried. In Texas. and guess what? it didn’t help any at all. we still have high medical costs. I seem to recall there was a study of medical costs. that showed it wasn’t this but more along the lines of what doctors proscribed for conditions. it seems there are multiple choices for almost all conditions. some cost a lot more than others. and some times doctors pick the higher cost ones. and some times and not always, doctor have some incentive to do so, as they own the provider that actually does the work. malpractice may have originally driven costs some. but doctors aren’t dumb, and some have figured out that if you own the provider of services that you may proscribe you can make more money

  17. Nemo,

    Please ask a fair sampling of Canadians and Europeans if they would trade their health care system for ours.

    The allure of the U.S. system is that the “consumer” is largely spending other people’s money with reckless abandon. Single-payer puts checks on the caregiver’s and patient’s ability to waste money. HMOs were a private-sector move in the that direction, but we hated HMOs for restricting our freedom to waste other people’s money, and thus they withered away.

    We pay dearly for the (often illusory) privilege of not “waiting”, asking for and receiving unlimited tests, and “ask your doctor” for the latest designer Rx.

    Which is to the practice of medicine as representing yourself in court is to the practice of law, per the wisdom of A. Lincoln.

  18. Jake writes: “Let people do whatever they want.”

    Some want singlepayer, others a public option, the Cato Institute promotes a Libertarian approach, Big Pharma and for-profit medicine wants to protect their interests. Is healthcare a public good or a consumer product. … and on it goes.

    So how in this vast array of differing positions does everyone get to do what they want? That is the challenge.

  19. Gawande’s article in the New Yorker cites agriculture as an example of how government efforts over a period of a century or more resulted in very high productivity gains. In 1900, 40 percent of US labor was devoted to agriculture, a century later this figure was about 2 perecent. The much larger population in 2000 hade much better nutrition than the smaller population of 1900. The point is that sustained effort over an extended period can transform an industry. Why not health care?

  20. That may work in your line of business, but there are very strict laws (Stark) that restrict “kickbacks” in healthcare. I have no incentive to ordering expensive tests or surgeries, nor do any of the many physicians I work with. What I do have are patients who googled their ailment and decided they “want an MRI” to be sure it’s not a brain tumor or some other unlikely disease. Many physicians will order an MRI because if they have something (related or not related to their symptoms) and they DIDN’T order an MRI, you can be sure that a plaintiff attorney will be the next call. There, I just defined defensive medicine for you and despite the attorney’s rhetoric, this adds a huge amount of cost to our healthcare. Every doctor I know practices defensive medicine all the time. And to say it adds a small amount to the cost of healthcare is not based upon reality. Other than the golden rule (which I try to live by), tell me where the incentive is for the doctor to NOT order an MRI?

  21. Consider a simple example: auto insurance vs life insurance. Is there a life insurance crisis? Suppose politicians decided it was unacceptable for anyone to die without making his heirs rich. How much do you think life insurance would cost? On the other hand, look at auto insurance. Is there a bigger ripoff in the entire economy? The coverage is chump change: $100/300, and the cost is over a thousand dollars a year. How many people can easily self insure? No, you can’t do that. Otherwise there would be an auto insurance crisis.

    Letting people do what they want is different than letting Big pharma and the Cato Institute get their way. Is health care a public good? My question would be is health care a racket? Highways are a public good because we use them in common. Hospitals, doctors and drug companies are toll booths which set their own tolls and use the government to force people willing to patronize alternatives to pay those tolls anyhow.

    After sixty-seven years I have a bad hip. My condition responds to acupuncture for which Medicare (and Supplement Ins) will not pay. I consult doctors who offer nothing but x rays, fruitless injections and hip replacement surgery I do not need. Medicare and Supplement are delighted to pay for these services, but I prefer to keep my original parts. Eventually, I discover exercises which may eliminate the problem, although it is too soon to tell. I also discover vitamin supplements which promise relief, although these are quite expensive.

    Why does Medicare want me to have a new hip at fifty times the cost of non invasive treatment that will help? Because health care is not about health but about organized medicine- a racket.

  22. My health insurance is with a non-profit and costs 20% to 50% less than the other carriers offered by my employer, yet it covers more, e.g. physicals, accupuncture, psychiatric…to name a few…and medical decisions are made by my own physicians, not administrators. Besides supply and demand, efficiency can definitely lower costs. My insurer offers a health care delivery system of which there are very few in this country – mostly we just have a hodge-podge of doctors, hospitals and insurers – about as inefficient as you can get, yet private insurers have not incentives to increase efficiencies.

  23. Plan the remainder of your life on health care becoming a larger percent of GDP. Either that or pray for a miracle.

  24. I’m a naturalized American. I broke a rib in an accident at home and my husband took me to the nearest place, I believe it was a MacNeal clinic. I was asked if I had an appointment and I explained that this was an emergency as I had just hurt myself and was in pain. People came, saw a doctor and left and I kept sitting there for a few hours. Eventually I had the nerve to question the staff and was allowed to see a doctor after they realized that I actually had insurance. This is how fast the system here works.

  25. You write: “My question would be is health care a racket?”


    My aunt is about your age and she was told by her doctor she needed a hip replacement. But like you she opted for less invasive treatment. I think she is trying mild yoga exercises and maybe swimming.

    Agreed. Healthcare and medicine should not be treated as a consumer good in a for-profit industry. It should be about what is best for the person seeking treatment.

  26. When will they recognize that medicine cannot be left to market rules? If we ask people to lose for us when the economy fails, and step up when times are good or a war becomes necessary to resupply below market cost raw materials, we are morally obligated to provide a healthcare floor beneath which we will let no one fall. The military gets this at least and as a result have one of the best healthcare systems in the world. Why not extend the same care to our economic-war veterans?

  27. StatsGuy hits upon one key problem. The medical system can create its own demand. There is such inequality in knowlede that it is hard for the consumer to purchase with accurate knowledge. Also, the patient is usually under stress and time constraints at the time of major decisions.

    One point the free marketers always forget, is that if you make it a free market for consumers, you also make it a free market for providers. What is the guarantee that providers will not come out ahead in negotiations?


  28. MIR scans are linked to increased risk for cancer. You say MIR scans are routine in the practice of defensive medicine. An interesting contradiction.

  29. I wonder if I have ever read a paper that summarizes the entire problem. There is no free market solution to providing funds for every person to receive health care deemed proper by the medical system without universal insurance schemes. That is even if the medical establishment could define proper medical care that would not break the universal insurer. This is the fact of existence in the United States that will not be faced.

    Even a universal state system will be unable to survive as President Obama reminded everyone yesterday under present standards of health care. Everyone who looks at the problem understands that no society could suffer the costs of keeping people alive for their last sixty days on a universal basis. The old and sick must be cut off from mass efforts at some arbitrary point and definition we will never agree about. Going all out to save a 17 year old is one aspect where we should extend all effort. I am now 73 and have not spent a day in the hospital since my life was saved at age 17. The aged that will die unless maintained in a high expense manner for the rest of their lives must be made comfortable and left to die naturally. That is the lot in life of the elderly at the end of their lives. This is actually quite forseeable in almost all cases among the very sick aged.

    I wish it were as simple as deciding to forgo massive treatment with only short term extension of life under adverse circumstances. It may even be moot for quite some time to come. The entire medical system has borrowed huge amounts of money across all aspects of medical practice. Right now, even minor cut backs in revenues will bankrupt many medical units. The money has already been largely spent to provide medical services to an aging population with a boomer bump in expenses that should frighten everone looking at the over all problem.

    Cutting costs cuts medical revenues and the medical system is by nature highly debt leveraged. Look at Harvard taking down the cranes on it’s unfinished $1Billion Science Center.

    It is in the cards that there will be a lot of bankrupted medical providing facilities. These units will disappear where they are located in poor areas and be reorganized elsewhere.

    What is the marginal decease in Medical system revenues that would reduce medical care provision under the circumstances from financial failure? I do not know the answer but current financial circumstances of major portion of the system indicate the number is not all that massive. Another issue is that the medical system is capital intensive and renewal capital would be very costly if there were very heavy financial losses to capital providers. That and high risk interest rates would increase medical costs that offset savings contemplated in the current new health arrangement.

  30. Google has a wide range of answers:

    Click to access Report-card-June2009_e.pdf

    Summary – Canada has a higher average, but much of that apparently is due to triage (events deemed true emergencies are treated faster). Waits in US are rising, now over 4 hours, with some of that driven by unemployment/uninsured. Substantial variation across hospitals/regions.

    Canada per person spend is 55% of US, and they probably should be spending more… Not sure how much of that is because US citizens are subsidizing drug companies, which sell much cheaper abroad.

    Elective/non-urgent surgery waits in Canada are much higher. Though, some of what they consider non-urgent is rather, um, urgent.

  31. Bloomberg radio had a guest (Health Care Industry Analyst) who was very happy about the legislation. ‘Everyone gets a pony’ were his words. The losers? Taxpayers who’s money will be transferred to the insurance companies. And Jerry above hits an important point with debt and the medical industry…

  32. I don’t entirely disagree with Mr. Gawande, except, at this point, I don’t believe that anyone, either Democrat or Republican, will vote against the BIGs (i.e. pharmaceuticals, insurers, mega-corporate providers, et al), because they have been bought by them. So the agony of “incrementalism” steps in, so that all may, with pride, point to minor (and, perhaps meaningless) accomplishments: “We did our best to improve things, since we couldn’t get what we wanted.”

    I can’t really see anything that will truly affect the cost curve enough to make the difference, so doing something, it turns out, is the same, basically, as doing nothing. But the something will refuel both parties, with the Pyrrhic victory on the left center, and the claims of “out of control” from the right center (one may completely discount the extremes on both sides, since they are deeply meaningless.

    The system, before it is repaired, may result in the destruction of the economy, or such warpage that the hole will preminently sentence us to non-superpower status (along with, of course, what is happening in the other major sectors not being adequately reformed).

  33. Are you serious?? “it would also have the effect of sentencing poor, sick people to death because they cannot afford health care.”

    NOBODY, not any other country takes care of its poor like the USA.

    Our country has always taken care of its poor through not for profits and donations and other private sources. Read a little smidge of Ben Franklins solution in Boston to open your closed eyes.

    The solutions are all present in our history. The problems are created by those who dont know our history.

  34. If only this was a free marketplace scenario then you would be right. The Fed Govt has bee so involved with health care for so long there is not free marketplace anymore and thus, supply and demand curves no longer apply.

  35. They pay 10% of GDP because you get what you pay for in this world. I sure as hell would not want healthcare from anywhere else except here.

    Go ahead, go wait in line in Japan, Canada, England and see if you wouldn’t pay 6% more.

    Oh, wait a minute, you probably go to the doctor here immediately but bitch about how much it cost…….just dont go.

  36. Go ahead, go to a hospital right now without your wallet and see if you get help.

    Not only are you unaware of reality, Your a moron.

  37. That would be awesome!!!! Lets make healthcare so dam profitable that everyone wants to get involved!! More providers….more real choice……..more competition.

  38. Evidently our charitable organizations miss the 40,000 US citizens who die each year because of inadequate health care. Numbers such as that may show that our system of charity for the poor has some problems.

    Adequate healthcare translates into adequate health insurance in this country. Now especially with the downturn and the loss of insurance by more people we may see these numbers rise along with bankruptcies caused by unexpected medical events.

    Perhaps you are suggesting a Swiftian “Modest Proposal”?

  39. Peer-reviewed medical research. Cancer risk increases with the number of MIR scans you take.

    I read somewhere people can pay for an MIR scan at some shopping malls in the United States. Free market medicine I guess.

  40. “But even if making people individually liable for the cost of their health care could control costs, it would also have the effect of sentencing poor, sick people to death because they cannot afford health care.”

    You are forgetting the Nancy Reagan health care solution:

    Just get well.

  41. “Suppose I lived in one of these single-payer paradises, woke up one day with blood in my urine, and was not a close friend or relative of a politician or bureaucrat. How long would I wait to see a doctor?
    Honest question.”

    Around 2 hrs., including time on public transportation.

  42. I’ve said it before and I’ll say it again: unscrupulous lawyers ruin everything they touch. Without exception.

  43. Elective/non-urgent surgery waits in Canada are much higher. Though, some of what they consider non-urgent is rather, um, urgent.

    “Much higher” even after they factored in the infinite wait of those in the US who can’t afford insurance for such care at all?

    That’s gotta be some wait…

  44. Well gosh Nemo, death panels and rationing are the only answer then. Since our population continues to increase and we keep living longer there is no cost solution short of rationing. Either its every man for himself or we could provide a basic health package to everyone. I will gladly take the basic package for all. I don’t want to live forever if it bankrupts everyone else.

  45. Yesterday there were six posts about this. Today
    there are 46. I am not sure how many of the
    responders have gone to and checked
    out the statistics on _results_. As I pointed out
    yesterday, most of the other developed countries,
    with their single payer systems, not only pay far
    less than we do(measured as a % of GDP), but their
    results are better, in almost all areas.

    Just to show that I can anecdotalize with the best:
    I have two Canadian friends, both over 60, and
    hence with a variety of experiences with the
    Canadian system behind them. They are very happy
    with their system and they are baffled by what is
    going on here. “Are Americans stupid?”, they ask.
    “No,” I reply, “We just have The Best Congress That
    (Lots of) Money Can Buy”.

    Best wishes,

    Alan McConnell, in Silver Spring MD

  46. Then Neil, you are in the minority…Statsguy is correct in that it is a political non-starter to talk about limiting care… It comes down to the oft-quoted line from Milty “no one spends someone elses money like they spend their own”… there is no “economizing’ in healthcare, except where people pay for the service… think lasik services. You are correct, however, that true market-driven healthcare reform needs to start with a catastrophic insurance plan that acts as a safety net for all, while the market provides competitive services (providers) and products (supplemental insurance)…but like all of our American financial problems, we are not willing to deal with the root problem because politically (and financially) we don’t have to… until we are too far down the road of national bankruptcy to pitchforkland where real reform gets messy.

  47. The original article leaves out two major levers that are also controlled by the federal government:

    1) taxes, whereby the cost to the insured is obscured because the employee has very limited choices as to what insurance she may carry, and never actually has possession of the money spent on insurance. This makes the cost structure opaque and reduces the incentives to save.

    2) The countries with lower health care costs, generally cover most or all the cost of training for the providers of health care, while we do not. We saddle the providers with large debt which causes them to demand higher starting (and continuing) incomes to cover the cost of that debt. These cost will propagate throughout their careers, since they will not be interested in having a lower income, once the debt is paid off.

    Furthermore, if the governments sprouts a hundred initiatives to solve the problem, it will rarely if ever stop funding the failures. They will develop powerful constituencies to continue the existence of the program long after it has been shown to be useless, or worse. That leads to a lot of deadweight loss.

  48. I start by asking friends, “If health care in this country cost only 5% of what it costs today, would we have a health care crisis?” Everybody says, “No. We wouldn’t have a crisis.”

    So, instead of talking about rationing and insurance company protection, let’s use some simple economic theory.

    Let’s increase the supply of health care providers to the point where health care prices are driven down to the 5% level.

    How do we do that?

    Start building health care provider teaching facilities (schools) at government cost. Admit any qualified student for free. If they make the grade they keep going to school.

    After a couple of years the price of nursing goes down. After about 8 years the price of GPs drop. A few years later the price of specialists goes down.

    Who will hate this?

    Those who have just invested hundreds of thousand of dollars in their medical training. Buy them off. Pay their loans.

    Supply/Demand theory is so way above the heads of Congress that they won’t get it. Congress to too busy with self interest and protectionism. I’m not optimistic.

  49. Tippy, sure MRI scans increase the chance of cancer, but the doctor will NEVER be held accountable 20 years down the road if cancer occurs. The Doctor WILL be held accountable if there is a spinal injury and he didn’t order the MRI because he was 99% sure there wasn’t one. You’ve taken a cheap shot, comparable to a glenn beck counterpoint, at a well established concept. Thankfully, this blog attracts better than the average FOX viewer -are you actually proud of your specious argument?

  50. Just a few thoughts. We don’t have to be concerned with rationing as much as we think. A lot of the out of control costs are from expensive *over-treatment* that’s not effective. Look at all the expensive patent medications that are nothing but stereo-isomers of generic medications, etc-medicines that cost pennies per pill, but we get charged dollars per pill. We see too many specialists and they charge too much with negligible differences in outcomes. In short, we are charged way too much and we get too many medicines and services that don’t work.

  51. I’m sorry to have to tell you this, but there are just way too many entrenched private interests that have an incentive to make you sick and keep you that way. They include, in no particular order: big pharma, the health insurers, fast food companies, junk food companies, physicians, hospitals. Together, they constitute a significant part of the economy, such as it is.

    If you’re healthy, they starve.

    Your changes of achieving any semblance of health care “reform” among such wide scale dysfunction is exactly zero. But, hey, it’s fun to run the numbers, so go knock yourselves out!

  52. Healthcare is a racket. And, I usually don’t impute things about the intelligence of the American public, but this is one area where a too pervasive inability to think clearly is very good for business.

    At minimum, they need to strip out that heinous mandate. This is just too much.

  53. How do you know that? Statistics don’t quite show that the US system works better, so how have you compared different systems?

  54. how is a kickback if you own a business that provides a service that might be needed? or is requested by a patient? and last time i was in to see the doctor for some thing that an MRI might help (a back problem) the doctor didn’t recommend it, guess what? we didn’t do it.
    a kickback is a separate business providing some one cash to do some thing that isn’t needed.

  55. besides that study i read had data from separate areas in Texas (where malpractice suits are basically impossible to do. that are economically not viable).
    and the things they noted from the high cost areas to the low cost areas was. doctors were all fees for service. and doctors owned business that were also medical providers. and that the doctors had a tendency to pick the high cost treatment option as opposed to an equally viable option. oh, and by the way the both had TV and radio. so they had the same potential for patients to get suggestions for treatment.

  56. References please. Magnetic resonance imaging (MRI not MIR) do not cause cancer. Perhaps you’re confusing with CT scans, which do deliver some radiation and in some estimates, increase the overall rate of cancer 2%.

  57. Russ, I’ve felt that the bully pulpit was never engaged and that is sad and frustrating. It is crystal clear that there are those elected by the people who see nothing wrong with herding the public to the insurance companies by mandating that we all get insurance. It’s even more clear that there are politicians who don’t mind the herd but are adamant that consumers use their own money and insist there be no subsidies even if the insurers refuse to make their wares affordable.

    In case I’m not convinced of the obvious, I need be mindful of most industries and even American citizens forced to compete in a global economy while observing elected officials as they coddle and protect pharmaceutical companies, who through legislation have a protected realm safe from competition.

    The American people have no real representation and our elected don’t even go through the trouble of pretending otherwise.

  58. Total spending on health care, per person, 2007:
    United States: $7290
    Switzerland: $4417
    France: $3601
    United Kingdom: $2992
    Average of OECD developed nations: $2964
    Italy: $2686
    Japan: $2581

    Click to access 38980557.pdf

    “[The British National Health Service] delivers results which are on some plausible measures actually superior. It does this while avoiding the disgrace that so shames America, of leaving around 46 million people, some 15 percent of its population, without any form of health insurance. If American politicians peddle falsehoods about what goes on in other countries, Americans are correspondingly less likely to appreciate the extent to which they are being let down.”

  59. I here this, or something similar to it, somewhat frequently: “I’d sure as heck rather be sick here than every other westernized country” {that have lower cost per citizens healthcare and better outcomes} – once again, if I didn’t HAVE insurance I would not want to get sick in America versus a lot of other places. There’s ~ 46 million people in the richest country in the history of the World that would trade a longer wait time for elective procedures for the universal healthcare that covers them in the first place… and I hope beyond hope that you, Scott Waite, never become catastrophically ill because even for those in America that do have health insurance this still means you’ve got a good shot at being driven to bankruptcy. What a way to go.

  60. It’s nothing but a simple gutter kleptocracy, and by now they’re so spoiled and psychopathic that they don’t even know how to pretend for the sake of political cosmetics. (The next post up on the banksters blowing off Obama evinces the same basically anti-political practice.)

    Meanwhile the MSM (e.g. the NYT political, business, editorial, and op-ed pages on this reactionary health racket bill) gets ever more vile in its quixotic attempt to take up the slack and do Wall St and Washington’s propaganda work for it.

  61. Thanks for posting this comment–and especially the link to the Angry Bear post, which provides some highly relevant legislative detail I have not seen brought up anywhere else.

    I am disappointed to see people I ordinarily count on for astute commentary, such as Paul Krugman and James Kwak, linking approvingly to the Gawande article. Whether or not one feels the health care reform bill in its final form is worth passing, it’s simply inaccurate to claim that it does all, or the best, that could be done to reduced costs.

    The fact that our per person costs are 1/2 to 1/3 higher than those of other advanced countries, a number of which consume more, not less, of many common health care services, tells us that vast economic rents are being extracted from the U.S. health care dollar. The key to changing this is forcing down the prices that have been inflated by these rents. Pilot programs will do nothing in this regard, precisely because they lack the scale to generate a counterveiling power sufficient to the task.

  62. An MRI costs about $10 in Japan and a private room about $100. Our system is soooo much better though.

  63. The tax exemption of healthcare benefits is the single greatest reason for spiraling healthcare costs. Because of the tax exemption, that portion of a workers income CANNOT be spent on anything else; zip zero nada. On average, that’s pushing $700 a month. Healthcare does not have to compete with anything else in the economy for that $700; not boats, bread, hookers, gas… nothing.

    Basic principles/laws of economics reveal that we all charge as much for our products and services as our customers can/will pay.

    If $700 a month is available for healthcare, how much do you think healthcare is going cost? $200?

    How about $700 plus 10% of what you’ve got for boats, bread, and hookers. The healthcare industry has no incentive to charge less than $700 a month for it’s products and services. Only an idiot would do that.

    Yet the tax exemption is not actually the cause. It is a mechanism. The cause is the set-aside nature of healthcare benefits, which in our current situation is created by the tax exemption. Healthcare savings accounts would do the same thing. They would set aside an amount of money that can ONLY be spent on healthcare, and healthcare will cost whatever that average household amount happens to be, whether $700 a month or $2000 a month.

    Healthcare costs will only come down when healthcare has to compete with everything else in the economy for the money it earns. This is always instantly verified any time someone shows up at a medical facility with no “insurance” and pays cash.


    David Williams

  64. Of course doctors want malpractice reform. I’d like to be less financially responsible for my mistakes too.

  65. The thing that puzzles me about this article is why Mr. Gawande only cites a handful of American systems. There is an entire world already conducting experiments in reducing the cost of healthcare. Why not look at successful systems beyond our borders?

  66. David, I am glad to hear someone addressing the spiraling cost of health care in the U. S. :)

    Could you please spell out the spiraling mechanism? That is, why does the $700/mo. increase faster than inflation?

    Many thanks. :)

  67. “Maybe if, in 1900, everyone paid a fixed premium to their employer every month, and then the employer paid for all of their food regardless of how much or what they consumed… Then the analogy might work.”

    Hmmm. MAYBE IF:
    1) Food were paid for in it’s components so a cob-of-corn required payment for tilling, fertilization, sewing, watering, harvesting, and a general provider fee from the supermarket for transport and front-end services.
    2) Each actor along the production line were a private contractor charging the ultimate payer indivually and directly.
    2) Food were consumed by individuals who did not pay for it directly, but rather via subscription plans that negotiated with various actors to reduce their immediate costs, but forcing prices high for individual consumers forcing them to join the pool which could only be accessed through a job, and only if you had never been hungry before….

    Clearly that was not the case.

    However, farmers acting individually to use their land to provide the speculative cash-crop of the year led to poor management of the farms. We currently have hospitals doing just that with the likes of MRI’s and CT-scans. Perhaps they, like the farmers, actually could benefit from trying alternative ways of seeking efficiency than simply relying on expensive new services. Like many other sectors, hospital boards seem quite unimaginative in this regard.

  68. The is not a “market” in health care. You go to a doctor or hospital not knowing in advance what it will cost. After the fact, they charge you whatever they want (or what the insurance company wants). If the insurance company claims there is a loophole in the fine print of your policy so you are not covered, the provider has billed you double (or more) what the insurance company would have paid, and you have no recourse.

  69. Yes the wait tiome for something like a hip replacement is higher in Canada, but what is the wait time for an uninusred American for the same operation. It depends on your age, if you are 64 it is one year, if you are 45 it is 20 years. Only those numbers are not factored into the average wait here.

  70. The cost rises because of two things.

    1. It’s a helix consisting of the healthcare payroll deduction PLUS the 10% to 15% out of pocket. Once everyone settles into given cost or plateau of a certain payroll deduction plus the 15%, it becomes apparent that “healthcare costs have risen.” This propels another round of increases in the payroll deduction to compensate, which employers are more than happy to do because of reason #2.

    2. Employers are MORE than happy to shift more of a worker’s compensation, or total pay, to healthcare benefits because it’s tax exempt. The employer escapes a huge labor cost in the form of these taxes. If employers could, they would pay everyone entirely in healthcare benefits because it’s all “tax free” to both employer and employee.

    Obviously healthcare benefits won’t buy bread, so we get some cash.

    Your question of cost exceeding inflation can be asked of income taxes as well. Why have they spiraled upward faster than inflation? In 1950 total taxes were somewhere around 3%.

    Obviously the cost of healthcare can’t rise forever. But it will get to around 50% of household income and nobody will buy anything but food, housing, transportation, utilities, and healthcare.

    Been there, lived that, in Europe.

  71. My friend was having seizures, due to some problem with her brain (I don’t remember the specific diagnosis, it’s been 2 years), but she went in, effectively without her wallet or insurance, asked for help, and IHC (the Utah based health care company that the president loves to praise so often) turned her away. It wasn’t “life threatening enough” to put her into the ER, but she didn’t have any way to pay for it, so the doctors wouldn’t see her. She ended up going to the research wing of the University of Utah’s Health care system, and paid out of pocket. They cut her bill in half and diagnosis and surgery occured.

    2 years and $10,000 later, she’s cured, but came to the brink of bankruptcy twice. If it weren’t for friends and family subsidizing her payments for a short while, she would have gone bankrupt.

    This is not better than adding a 1-2 weeks to her wait time.

  72. Dood, your simple economic theory is simply misguided, like the theory that the sun goes around the earth.

    Economies, whether communist, socialist, or republic, have the same challenge, to allocate limited resources that have alternative uses. No system has been more efficient at that task than the free market.

    Regardless of the system, whether planned or free, somebody has to allocate the resources, and some people will go without. I don’t have beach front property. It’s scarce, it’s allocated, and none of it to me.

    Well meaning government officials over the past 7 decades have set up rules and regs the make allocation of healthcare very inefficient. That was not their intention, of course.

    In closing, unfortunately supply/demand theory is way over your head as well. Government can’t create demand. When it tries, it has always made the allocation of resources more inefficient.

  73. Please cite your sources if you are going to put out numbers.

    Well, you’re using all the big liberal terms……adequate…..inadequate…..for who to decide pray tell?


    The point is that your small picture viewpoint fails to take into account the lost opportunity costs of such an expensive program. For example, all the money that will be taken away from heart and cancer research means it will take many more years for improvements. Each country has a budget. You can spend it on bureaucracy or progress. Your bureaucratic method will be responsible for far more deaths then a capitalistic system.

    Get the federal govt out of healthcare and reduce peoples taxes accordingly so they can purchase their own health insurance. It really does not cost that much when compared to its value.

  74. Alan-

    I might be a little late in commenting on your remarks, but one can make stats say whatever they want, including WHO. Check out the article below (read for content and with an open mind vs just looking at the website and being turned off by the messenger)

    The author makes the case that the value of health care cannot be made by simple stats on death rates and exlude items like life style, survival rates once diagnosed, etc.

    Looking at Table 2 and 3 from the article I would conclude that if I just wanted a check up or family practice visit then good old fashioned socialized medicine would be fine, but if I was diagnosed with something serious then I would want our current less socialized, more-expensive version in the US. But that is just me.

    Also, and I apologize for not having the link handy but believe the infant mortality rate is calculated differently between countries, which would make comparing these numbers futile.

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