I've gotten a few e-mails asking whether I'm going to weigh on on the latest Greg Mankiw - Paul Krugman feud on the public health care option. Suffice it to say that I frequently find Mankiw both disingenuous and somewhat intellectually circumspect, and occasionally even ungentlemanly. Although Mankiw's New York Times column is much better argued than George F. Will's piece was, it pulls Mankiw's typical Unfrozen Caveman Economist trick when it blithely asserts that "We don’t need government-run grocery stores or government-run gas stations to ensure that Americans can buy food and fuel at reasonable prices" when (i) the cost of premiums are not particularly reasonable for working-class families, and (ii) the level of competition is inadequate, with near-monopolies in many states. Krugman is right that Mankiw ought to know better.
With that said, and as strongly as I've argued for the public option, I do ultimately think it's a means to an end, the end being lowering health care costs relative to the quality of service provided. I think the public option would be the best way to achieve this because I don't think the insurance industry is ultimately doing anything to "earn" its profit margins and administrative costs: it's mostly just economic rent resulting from barriers to entry within the industry. But if there are plans that can remove market distortions and lower costs without a public option, those deserve a fair hearing. Namely, this would mean removing the taxpayer subsidy for health care benefits and having some mechanism to induce competition in the market. The Wyden-Bennett bill that Mankiw mentions would do the former, and would hope to accomplish the later through increased transparency and giving consumers a more direct choice of their insurance provider; indeed, it's the only plan on the table that would strive to end the illogical regime of employer-based health care, except for Pete Stark's single payer-ish alternative. (This doesn't mean you'd lose your insurance -- it just means you'd be buying it directly rather than having your employer buy it for you).
But the insurance industry, I'm guessing, doesn't think much of Wyden-Bennett; neither Wyden nor Bennett have received particularly much from health care PACs, nor have many of the bill's co-sponsors -- this is a definite positive indicator. The danger in the health care debate is ending up with something that, while it might accomplish other worthy goals like portability and univerasl(ish) coverage, ultimately entrenches the rents to the private insurance industry. The public option and Wyden-Bennett are different ways to avoid that, and either is likely to be preferable to whatever Max Baucus winds up putting on the table.
6.29.2009
Wyden Not?
@ 6:53 PM
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WYDEN-BENNETT ALL THE WAY!
The Congressional Budget Office and the Joint Committee on Taxation have judged that the HAA will be revenue neutral or even revenue-enhancing within a few years. This is more than can be said for Barack Obama’s plan, which would expand coverage, but at a hefty cost.
Read more about the Wyden Bennett Healthy Americans Act (HAA) here
http://wyden.senate.gov/issues/Legislation/Healthy_Americans_Act.cfm
"The danger in the health care debate is ending up with something that, while it might accomplish other worthy goals like portability and univerasl(ish) coverage, ultimately entrenches the rents to the private insurance industry."
i'm hearing liberals i know referring to public option as a "stepping stone to single payer", but it could be just the opposite if it takes the political pressure off the issue.
The study you linked to on the near monopoly conditions of the healthcare market was the basis for another report from Health Care for America Now: http://healthcareforamericanow.org/site/content/new_report_private_insurers_consolidate_and_control_prices
Both you and the authors of the reports imply that greater market share increases premiums, but neither run the numbers to show how much.
There seems to be a pretty good state by state dataset in the HCAN report and I'd be really curious to see the explicit relationship between market consolidation and healthcare premiums (either absolute or rate of increase). Another post perhaps?
Anyone else notices that Mankiw's "favorite textbooks" hyperlinks just takes you to a listing of his books.
http://www.economics.harvard.edu/faculty/mankiw/books_mankiw
What if I want to learn intermediate macroeconomics?
It's interesting that Krugman's article links to a summary of one of Kenneth Arrow's famous papers. I haven't tried to fish it off the web; not sure I could understand it.
But Krugman really made a very damning comment on Mankiw's intellectual dishonesty by citing that piece.
it seems we are going to get such a bad bill it will turn people off to health care reform for a long time. it wouldnt work out better for the insurance industry.
the problem with cost neutral studies etc is they dont take into account the amount individuals or corporations pay for insurance
The solution to the health insurance crisis in not adding additional layers of crap to what already exists. Whether anyone is prepared to admit it now, the only way out of the mess is a single-payer system, which would—
▪ Abolish all the waste, paper-pushing and redundancy of “managed care”
▪ Get rid of the profit motive as the driving force behind the delivery of healthcare
Enact anything short of single-payer and you are merely adding to the problem. As the president has pointed out, all the squawking from the right is about the price tag of $1.6 trillion over ten years for the modest current proposal ($160 billion per year), which is a pretty wan figure when compared to the $3 trillion spent every year in this country on health care. And the bulk of that sum is pissed away on, you guessed it, the completely unnecessary costs of managed care and profits to the insurance companies.
Simple, ain’t it?
How is this economic rent except in the most general sense? This seems like monopoly profits. Also that wikipedia article is terrible - I fixed the first couple of sentences a little bit but the overall thing is a lost cause.
"The solution to the health insurance crisis in not adding additional layers of crap to what already exists. Whether anyone is prepared to admit it now, the only way out of the mess is a single-payer system..."
This is complete BS. Although I'm not against a single payer system, there are many countries like the Netherlands, Germany, Israel, Singapore, and Switzerland that are pretty darn good at controlling health care costs without resorting to single-payer.
In fact, Singapore doesn't even have universal health care yet they get much better outcomes than the US at 1/4 of the cost or so.
npunwani…
Well, let’s just look at Germany, shall we? Germans pay a tax of about 6% (added to their employers’ 6%) of all their earnings toward funding the “public” insurance program. We have no such tax, in fact I invite you to picture shoving that kind of tax system down a Republican throat to pay for a private service. Also, what you left out of your post was that in all those countries health insurance by law is a not-for-profit enterprise.
I repeat—the biggest unnecessary expenditures of health care money in the US are “managed care” and insurance company profits.
Because we allowed the insurance companies here to make such a hash of things, the only solution is to clear all the crap away. In Germany, universal health coverage was instituted in—now, pay attention—1883, by Bismarck. There was no need to overturn the immense corporate inertia to get things moving, as we currently face in the US.
As I read Wyden Bennett Healthy Americans Act (Always be suspicious of Orwellian Language) I am not seeing many important features that would distinguish it from a worst case Obama Plan.
The most obvious is that the same plague of insurance bureaucrats stay the same or grow larger.
There would be a mandated buy-in regardless of ability to pay, and it would be mostly as a regressive tax.
If you are going to do that anyway make the tax progressive and let the Doctors be the bureaucrats who decide what your treatment aught to be.
Ultimately the only way to compete is to reduce care and pocket the cash from doing so.
To use the gas and food example it would be as if you had a fixed fee regardless of what you used (too cheap to meter?). No matter how else you played with it, the only path to profit would be to limit access.
Unfortunately Health is not something like gas that you can decide that you will not have it today and will have more on another day. You need what you need when you need it, High cost or simple low cost is not decided by you but by your body at that moment, that is why the push to normalize the costs in the first place.
If you are going to normalize the costs over the entire country and like roads, what you don't need every day somebody will, then a largely de-bureaucratized system that has infrastructure in place as you need it is the simplest and least costly way to go.
And all that demands Single Payer, as all other civilized countries have come to that same conclusion.
Nice analysis, Freedem.
Fact No. 1: Americans have better survival rates than Europeans for common cancers.
Fact No. 2: Americans have lower cancer mortality rates than Canadians. Breast cancer mortality is 9 percent higher, prostate cancer is 184 percent higher and colon cancer mortality among men is about 10 percent higher than in the United States.
Fact No. 3: Americans have better access to treatment for chronic diseases than patients in other developed countries.
Fact No. 4: Americans have better access to preventive cancer screening than Canadians. Take the proportion of the appropriate-age population groups who have received recommended tests for breast, cervical, prostate and colon cancer:
Fact No. 5: Lower income Americans are in better health than comparable Canadians. Twice as many American seniors with below-median incomes self-report "excellent" health compared to Canadian seniors (11.7 percent versus 5.8 percent). Conversely, white Canadian young adults with below-median incomes are 20 percent more likely than lower income Americans to describe their health as "fair or poor."
Fact No. 6: Americans spend less time waiting for care than patients in Canada and the U.K. Canadian and British patients wait about twice as long - sometimes more than a year - to see a specialist, to have elective surgery like hip replacements or to get radiation treatment for cancer.
Fact No. 7: People in countries with more government control of health care are highly dissatisfied and believe reform is needed. More than 70 percent of German, Canadian, Australian, New Zealand and British adults say their health system needs either "fundamental change" or "complete rebuilding.
Fact No. 8: Americans are more satisfied with the care they receive than Canadians. When asked about their own health care instead of the "health care system," more than half of Americans (51.3 percent) are very satisfied with their health care services, compared to only 41.5 percent of Canadians.
Fact No. 9: Americans have much better access to important new technologies like medical imaging than patients in Canada or the U.K. Maligned as a waste by economists and policymakers naïve to actual medical practice, an overwhelming majority of leading American physicians identified computerized tomography (CT) and magnetic resonance imaging (MRI) as the most important medical innovations for improving patient care during the previous decade. The United States has 34 CT scanners per million Americans, compared to 12 in Canada and eight in Britain. The United States has nearly 27 MRI machines per million compared to about 6 per million in Canada and Britain.
Fact No. 10: Americans are responsible for the vast majority of all health care innovations. The top five U.S. hospitals conduct more clinical trials than all the hospitals in any other single developed country. Since the mid-1970s, the Nobel Prize in medicine or physiology has gone to American residents more often than recipients from all other countries combined. In only five of the past 34 years did a scientist living in America not win or share in the prize. Most important recent medical innovations were developed in the United States.
Despite serious challenges, such as escalating costs and the uninsured, the U.S. health care system compares favorably to those in other developed countries.
As a health economist, I'd like to take issue with the claim that employer-provided health insurance is an "illogical" system. It is very useful, for the sake of fighting adverse selection, to buy insurance through groups (that were NOT formed for the purpose of buying insurance).
Individuals know more about their basic health care status than insurers do. People who are likely to need medical care are more inclined to buy insurance than people who are less likely to need medical care, and to buy more generous insurance. (Richard Zeckhauser and David Cutler have good papers on this issue.) When an individual goes to buy insurance, the insurance company has to charge based on the expected costs of insuring this individual, conditioned on this individual's coming to buy insurance.
With group health care, however, the insurer knows that the individual is looking to buy this policy right now because s/he just started working for the firm, which greatly relaxes the adverse selection issues. (This information issue is why the groups cannot be formed for the purpose of buying insurance, or else the sicker would be more likely to join such groups, defeating the point.) This is one of the main reasons that group insurance is usually much cheaper than equivalent individual insurance.
There are a couple of other advantages to employer-based insurance. Large employers have bargaining power when negotiating insurance contracts, and can have a few employees pay the fixed costs of wading through all the details.
All in all, individuals' purchasing their own health insurance would be a big step backwards.
@ ave05mwg
"All in all, individuals' purchasing their own health insurance would be a big step backwards."
There is nobody suggesting this strawman, though Insurance companies are slyly implying that ability in what they are proposing.
Unfortunately Employer provided health care has many downsides in that, particularly for smaller employers, the existence of a problematic health issue becomes extremely selective as the greater cost (plus profit)will indeed be charged to them.
So the person applying for the job is hit by a double whammy. Not only no Insurance but Also No Job! It does not matter if it is illegal to do that if it cannot be enforced.
Yes very large employers can negotiate that away but they are responsible for only a tiny percentage of new hires, and an even tinier percentage of older new hires most likely to have that issue.
Another big piece of that is indeed the lack of choice exercised by the individual.
I recently lost a friend who kept an awful job up to two months before she died of bone cancer. It was bad enough that she struggled in agony to drive to the job and get through the day doing enough to keep from being fired, but they changed Insurance Providers every year, and sometimes her doctor or medication was covered and sometimes not, and then it was a huge fight to keep any successful regimen, or bring the new doctor up to speed, or even find one who was close or gave a damn.
Questions about level playing fields between big and small businesses, and those countries who cover health issues are minor compared to those issues.
In any case Single Payer becomes the Ultimate "Group Insurance" as everybody is "in".
A lot of countries use a system that is largely single-payer, but not 100%. Npunwani mentioned a few, such as the Netherlands, which socializes insurance for catastrophic, end-of-life, and long-term care, but requires not for profit privatized insurance for short term care and small procedures.
France also has a public-private system. The government insurance (called "social security") is paid for by taxes on employers and employees. It pays 100% of major care, but for things like doctor's visits or ordinary prescriptions it only pays 2/3. The rest is up to the patient. This discourages people from going to the doctor every day, and leaves a place for private insurance. Most French people get private insurance to cover the rest.
These countries' success shows that pure single-payer is not necessary, but we would still have to shrink down the for-profit insurance companies. That is fine by me.
Ultimately, though, we will probably have to come up with a new solution, instead of just copying some other country's. None of these countries even comes close to the US in size and population, or in the presence of such a strong for-profit health industry.
Why might the AMA have been advocating for more competition on behalf of its members? If insurer competition were likely to lead to lower prices for consumers, and, thereby, reduced provider margins, the AMA's membership would suffer financially. In fact, this is as transparent as it would seem. After running the numbers, I was more-or-less able to replicate the AMA's Herfindahl-Hirschman indices. However, correlating costs in the privatized insurance market (i.e., exclusive of Medicare/Medicaid purchasing) against HHIs reveals a positive correlation between HHI (or normalized HHI or simply the number of competitors in a market) and cost. (The correlations are weak and not significant at reasonable alphas, but nevertheless are positive.)
Put simply, where there are fewer insurers, the mechanisms for pooling risks across large populations, for increasing economies of scale, and for (let's just say it) dictating prices to doctors and hospitals are better able to reduce cost to the consumer. Those who support a public option should do so as the only visible avenue to single-payer, not because it will lower prices through increased competition. Health insurance indeed does not function like other commodities.
Some facts put forth by conservatives are indeed correct, but they only tell part of the story.
Numerous polls sponsored by The Economist in recent years find that Americans do indeed rate their own care as "excellent" (58%), but of that group, almost as many (52%) are "very dissatisfied" with the health care quality in the country AS A WHOLE. Only 25% think the system works "pretty well" and 40% think "fundamental change is needed." I find it interesting that this is very similar to how polls have shown people's reactions to elected officials in Congress. The majorities are happy with THEIR reps, but hate everyone else's.
Beyond that, public opinion comparisons can be dicey. The countries cited in GROG's post might feel their systems are not ideal, but France, for example, has the highest rate of satisfaction of their health-care services in the world. The Dutch, Swiss, Austrian, and Scandinavian countries also all report very high satisfaction rates.
The majority of issues discussed, such as cancer care and technological development, are related more to specialization rather than overall GP care, which is what more people use and need. Even then, while the U.S. system does well in these and some other regards, other specializations are not good at all. For example, infant mortality rates are far higher than OECD averages, at 6.7 per 1000 births, as opposed to 4.0. Fatality rates after severe strokes is 25.5% in American hospitals, compared with 19.8% in OECD countries as a group.
It is no surprise America fares well in the specialization and technological realms because we spend a ton more on it than any other comparable nation. Largely, we have to because we have more than triple the population of most comparable European nations and have to figure out more ways to maintain decent care. That is a point for the current system, but the gap is not as wide as we like to think.
Next time you meet a European, ask them if they would want to trade passports in terms of medical care. If nothing else, you'll get a hearty laugh from them, as I've heard many times asking that very question.
@nominalize;
Indeed there are many ways to do "Single Payer". While there is a wide variety of systems, they all differ from American proposals by having some sort of Single Payer built in, and that aspect used as a socializing control on the rest of the system.
In some cases it is indeed a non profit "Insurance" that administers the program, and most of the systems have some sort of co-pay to discourage over use. In some cases it is the Doctors that are under paid compared to the US, some not so much.
The Point of the matter is that unless some sort of Single Payer is on the table ALL of the possibilities of those variants are off. Once it is on the table then the conversation can begin, but until then it will be a Colbert Zombie Horse that will just keep coming back.
Freedem, in an eloquent response to my earlier comment about individuals' buying their own insurance, wrote, "There is nobody suggesting this strawman, though Insurance companies are slyly implying that ability in what they are proposing."
Uhm, Nate discussed this "strawman" seriously in his own post, that we're commenting on. Many health care reform plans call for weakening incentives for employer-provided health insurance, such as by limiting the tax exemptions for health benefits. This is by no means a strawman.
I am quite sympathetic to the rest of your post, however, outlining some severe disadvantages to the current employer-based system, such as the problems facing smaller employers, the disadvantages of depending on your employers' choice of networks, the job-lock created by people's needing to keep their jobs to keep their health benefits, and the inequities facing people without good benefits. Employer-provided insurance can certainly be improved upon. But reforms that weaken it without providing some other mechanism for group insurance are a big step in the wrong direction.
@GROG
Interesting set of facts there. Would you mind sharing sources? Especially for #6?
@ pragmatus & nominalize,
Nope not true. In the Netherlands and Singapore, insurers are allowed to make a profit.
@GROG
I suspect that many of your facts are, in fact, bullshits.
#6: I suspect you have very old data. http://www.performance.doh.gov.uk/cancerwaits/2008/q3/can_14.html gives the numbers for hitting the government's target of a maximum of two weeks between referal and specialist.
#7: Show me any poll from the UK that tells you that people want private rather than public healthcare. You can't. People may want the NHS to be better, but even the most rightwing nuts in the Conservative party admit that you will never get a privatised health service past the British people. Why? Because they see the mess that you have in the US and are terrified for themselves and their families.
#9: Really? My access isn't limited by an insurance company stating that something is an experimental procedure. And think of all the new techniques that have been developed outside the US (heart transplants being just one...)
I could go on, and I'm only talking about the UK. I'll let the Canadians and others rebut you from their own perspectives...
@ave05mwg;
If people were assigned an insurance company based on the first letter of their last name you would have groups formed without adverse selection, but immediately the problems would be apparent and the hew and cry would be deafening, and yet that would be more fair than the current system.
The dirty fact is that those who have some level of control over their job will have Health Insurance that matches that level of control. By saying that employer health care is the system, one casts in stone that Health Care will be Class based. By allowing people to escape that mold the system is threatened.
Because of that the only "Choice" I have actually seen is that a person who is unhappy with their assigned Insurance would be able to opt for the public plan, but I have not seen anything like "I want the plan that UAW employees get" as a viable option. There is talk about some fictitious single plans, but unless these were mandated to be as good a deal as any sold, they would remain illusory.
Of course under an Obama plan that included that public option there could be only two outcomes. If there were full funding and real choices it would do to the Insurance industry what AOL accomplished when it announced they would not charge for Internet on a per minute basis, even those who followed suit a month later were left like fish flopping at the high tide line.
Unfortunately the more likely scenario is that there will be special rules or controls that cut its legs off, and the government plan will be the dumping ground for all the lower class and really sick folk, go wildly over budget with the unnatural burden, and proclaimed widely as proof that the Government can't do anything right. Especially by the very folk who made certain that was so.
@Justin,
It's in a study done by Nadeem Esmail and Michael A. Walker called "Waiting Your Turn 17th Edition: Hospital Waiting Lists In Canada 2007.”
You claim that employer-based health care is economically irrational, but that individuals negotiating on their own for health care would be rational. I don't buy it. Employers certainly have an incentive to negotiate better plans at a better price, since it makes them more attractive as employers and saves money on labor costs. They also have the institutional capacity to research plans and to negotiate prices because they buy in blocks. Individuals also have an interest, but I don't see them systematically being able to clear the same hurdles of information and negotiating power...sure, some will, but many won't. Look at the suboptimal ways in which people invest their 401(k)'s, compared to institutional investors.
@Dan Heck
Employers may (or may not) be rational, but you assume that their rational interest is the same as a rational interest of an individual. Many CFOs will say that their main priority is to drive shareholder value by reducing costs. The cost to an employer of providing good healthcare may well be more than the cost of replacing sick staff. A quick test is always to see if the senior officers of a company have the same plan as the lowest paid cleaner. If they do then things are usually good.
Wyden (one of my 2 senators from Oregon) had a great plan for a Republican admin. under Dem leadership, tho, we can do better: the public option is a more sure way to remove profits from the healtch care equation. and profits are what drive costs up more than anything: no matter what they do, the insurance companies have to maximize profit. Wyden's plan does nothing to fix that problem. only the public otion does.
Suffice it to say that I frequently find Mankiw both disingenuous and somewhat intellectually circumspect, and occasionally even ungentlemanly.
I find your social critique of Mankiw hilarious. What the hell difference does your opinion of him make. You are a nobody compared to Mankiw.
In fact, I always find you disingenuous and intellectually bankrupt, and you come across like a bratty little dick.
If you want to get into name-calling and give us your take on Mr. Mankiw, just know there are plenty of us out here who think you're a pompous twit who'd be more than happy to share.
How About A Lawsuit Policy?
I think what we need is a new government backed industry: Health Care Legal Expense insurance (HCLE).
Besides eliminating the pre-existing condition setup, I would like a cheap policy that lets me sue the ass off my insurance provider at no cost to me if they try to deny me coverage; with some kind of damages for the inconvenience if they lose.
It is simple and competitive. The insurance companies can make a profit, but they cannot do it through ripping people off. We don't need any new laws, we just need a new kind of insurance; and we can subsidize the HCLE premiums for the poor. Let lawyers bid for the premiums on some number of HCLE policies; so there is a market there as well, and if they win their suits they get some share of the damages awarded.
Pit one vicious beast (the insurance companies) against the other (the lawyers), and make sure they cannot collude and it is a zero-sum game for them. The reason people get ripped off is because they cannot afford to sue, or lawyers won't take their case because there is too little money in it. Well, HCLE can fix that.
"The Obama administration says it wants a public insurance plan that will compete on a level playing field with private plans (that is, without taxpayer subsidies). Is there any cogent economic analysis that suggests that such a policy addresses problems of adverse selection and moral hazard? None that I know. If it has to stand on its own financially, the public plan has no special advantage in addressing these issues."
I'd like to see you address this specific line without shrugging off Mankiw's entire response and without resorting to ad hominem attacks. Thanks.,
Max Baucus is SUCH a prick. There, I said it.
One issue that plagues the Chamber of Commerce is that they know that there are many individuals who work ONLY to get health insurance benefits. Given the option to purchase from the government, many of those who can afford it will simply drop out of the work force once they get their health insurance. Fewer workers will then force businesses to raise wages in order to make up the difference. This is one reason why many businesses are conflicted over the whole health care issue. They LIKE workers to be dependent upon them for insurance.
@Juris -
The original discussion of Economics that Krugman references and a mountain of other very interesting papers are at http://stevereads.com/papers_to_read By the time you understand all that is there I would think an economics PhD would be a breeze or perhaps one could just award themselves a Pdf.
@Nate: "neither Wyden nor Bennett have received particularly much from health care PACs, nor have many of the bill's co-sponsors -- this is a definite positive indicator."
The enemy of my enemy is my friend?
Grog says wait times in other countries are longer than those in the US, but that only looks at the patients who actually received the treatment. Since everyone is covered in the other countries, that does not effect the result, but in the US where millions have no insurance, there are many people who need surgery who never get it. His statistics ignores these people whose wait time is infinite. Obviously if you only give a benefit to some of the people you can do it faster.
Actually the waits are nowhere near what the conservatives say. For Canada go to http://canadaonline.about.com/od/healthcarewaittimes/Wait_Times_for_Health_Care_in_Canada.htm
Furthermore the reason the wait time are longer for these benefits has nothing to do with the fact that other countries have more efficient systems, but because they spend less than half per patient than we do. I invite the reader to try to imagine the wait times in our system if we cut health care payments by over 50%.
Finally, the bottom line is that if you look at all the basic public health statistics (life expectancy, infant mortality, etc.) or the WHO rankings, these other countries provide much better health care and they do it at much less cost.
Survival rates are a terrible statistic for comparing ciountries. Here are mortality rates for cancer.
Per 1000 people the US has 321.9, Australia 298.9, Canada 296.4, France 286.1, Austria 280, Sweden 268.2 Finland 255.4, and the UK 253.5.
Here is a question from a Washington Post - ABC poll:
"Which would you prefer: the current health insurance system in the United States, in which most people get their health insurance from private employers, but some people have no insurance, OR, a universal health insurance program, in which everyone is covered under a program like Medicare that's run by the government and financed by taxpayers?"
62% favored Medicare for All; 33% were opposed. That's pretty decisive. And this is with the facts suppressed. Other questions in the poll show that the 62% supporting the universal program mostly believe it will cost more when it will cost less. They believe they won't be able to pick their doctor when Medicare allows much more freedom than most private plans. They believe there will be long waiting times when this is a myth. And still they support a universal plan like Medicare for All by 2 to 1.
Nate nails it, yet again! Great analysis. Insurance companies aren't providing any services for all of that money that they take from us. They're just extracting monopoly rents.
Providing INSURANCE not HEALTH CARE is easy to do. You just need a big pool of money, a call center and bureaucrats to handle claims. I'm pretty sure that the government can do those things.
I don't know why people aren't more afraid of private insurers who spend all of their intellectual horsepower trying to screw consumers out of more money by denying insurance, claims or encouraging me not to visit the doctor.
@ ta:
"under Dem leadership, tho, we can do better: the public option is a more sure way to remove profits from the healtch care equation. and profits are what drive costs up more than anything."
That is patently false, a CBO report in 2008 says that half of the growth in health care spending since the 1970s is due to the rapid diffusion of new medical technologies. According to health economist Uwe Reinhardt, insurance profits are about 5-6% of revenues.
Taking out profits from health care won't really do much, maybe save a couple percentage points (1-3%) from gross health care spending.
If you really want to control costs, go after the fee for service system thats the real culprit. Unnecessary procedures constitutes 30% of health care spending.
npunwani - While you are correct, the big savings are not in insurance costs, those big savings (fee for service, etc.) will be extremely difficult to get at. There are enough savings in the elimination of private insurance to give everyone decent health care and then we will be in a better position to go after the hard problems.
Fact - Actually there's a way we can have better universal health care at no more than we are now paying (see 5. below). Here are the facts (cf. www.pnhp.org):
1. We waste $100 - $200 Billion a year on the high overhead of insurance companies.
2. We waste $200 - $300 Billion a year on doctors filling out forms for insurance companies.
3. I don't know the compliance cost of patients fighting with insurance companies, but it must also be in the 100's of Billions.
4. We pay the highest drug cost in the world to drug companies that spend twice as much on profit and three times as much on "marketing" as they spend on research. This is about another $100 Billion each year.
5. Because of the above, we could give Super Medicare (few limitations, no co-pays, no deductibles and complete drug, dental & mental coverage) to everyone at no more cost per person than we are now paying.
Other countries with single payer systems get better health care as measured by all the basic public health statistics and they do it at less than half the cost per person. If we build on our rotten system, we will get a health care system with rotten foundations.
I gues I mught as well jump in with my two cents on the public option which I oppose.
The President says we have to take incremental steps. Medicare for All IS an incremental step. Step one was Medicare for the highest risk pool, old fogies like me. Step 2 is Medicare for everybody else which is actually easier because it does not cost any more (see below). Step 3 would be more efficient medical practice.
The main reason that it is far better to extend Medicare to everyone is cost. Private insurance companies waste about $400 Billion each year in high overhead and unnecessary requirements on physicians. There is another $100 Billion wasted on high drug prices to companies that spend 3 times as much on "marketing" as on R & D. This $500 Billion each year can be used to pay for the extension of Medicare to everyone.If you simply add a public plan, you are leaving the $500 Billion on the table. You are simply adding cost. This is just stupid.
In addition, there are technical reasons just adding a public plan is foolish. If it has to take everyone while private companies can pick and choose , it will wind up with another high risk pool--the sick and the poor. While the idea of creating another pool is bad enough, if it is a high risk pool, it will be very expensive. The Republicans will seize on this and progress will halt. Also if it covers preexisting conditions, then it will greatly expand the pool of the self insured which is terrible from an efficiency point of view. After all, why pay premiums when you are well?
Finally as to the attitudes of the public, Representative Anthony Weiner recently held a telephonic town meeting with 4,700 members of the public. He asked who preferred the public plan option and who preferred Medicare for All. Two thirds preferred Medicare for All. Then the Representative said the private insurance industry would never permit that option.
Who is running this country?
@ lensch:
"We waste $100 - $200 Billion a year on the high overhead of insurance companies."
Yes thats an unnecessary cost, but thats not the same thing as profit. This can easily be addressed by having some kind of individual mandate that everyone buy insurance + community rating (insurers can cherrypick only the healthy people) or single payer.
According to McKinsey, we spend about $12-150 billion more than we have to when it comes to administration.
http://economix.blogs.nytimes.com/2008/11/21/why-does-us-health-care-cost-so-much-part-ii-indefensible-administrative-costs/
"We pay the highest drug cost in the world to drug companies"
In fact, pills account for barely a tenth of health-care spending in America and similarly small shares elsewhere. Europe does indeed spend less on new branded drugs, but also uses fewer generic drugs and pays much more for them. And Switzerland actually has higher drug prices than America. When it comes to generics, the US has the lowest prices in the world. Greedy drugmakers are not the main cause of America’s runaway costs.
"Other countries with single payer systems get better health care as measured by all the basic public health statistics and they do it at less than half the cost per person."
That is true
"Other countries with single payer systems get better health care as measured by all the basic public health statistics and they do it at less than half the cost per person."
But many countries beat us by having universal health care without resorting to single payer.
Furthermore, Singapore doesnt even have universal health care. Everyone pays for care from mandatory savings accounts, and they get one of the best outcomes in the OECD and spend only 7% of GDP on health care.
Unfortunately, GROG was not very forthcoming with his sources. The only reference is the "Waiting Your Turn" publication, put out by The Fraser Institute, a libertarian think tank based in Canada.
Here's a link to the 18th edition of this document
Now I have nothing against libertarian think tanks and their publications, but promoting their information without showing link to it (or even a source for it) seems a bit disingenuous.
Never said it was all profit. McKinsey (you must have meant $120 - 150 Billion) is only only talking about aqdministration on the insurance side. That's a little low. You can figure it out yourself by looking at the medical cost ratios (= 1- overhead). If the numbers given in Senate testimony are correct, it's about $150 - 200 Billion every year. You'll never get rid of that as long as you have private insurance. That's what they're in business for.
And it ignores the huge compliance costs. France has fee for sevice, but all treatments only require the same one page form. The recent Commonwealth Fund study show that people with private insurance have 2.5 times as many problems as people with Medicare.
On drugs, your figure is again a little low, but not bad. But 10% is $240 Billion a year and a third of that goes to "marketing" and a fifth of that goes to profit which is twice as high as the avergae of other industries. Also while generics in the US are cheap (but not as cheap as India), there are many more generics in other countries. I get all my drugs from India.
I'm not wedded to single payer, but it just seems simpler and we are already part way there. Furthermore as I said if we have a single payer system like HR676, then we can get good national data and put pressure on physicians to improve their practice.
"If the numbers given in Senate testimony are correct, it's about $150 - 200 Billion every year. You'll never get rid of that as long as you have private insurance. That's what they're in business for."
Again, This can easily be addressed by having some kind of individual mandate that everyone buy insurance + community rating (insurers cant cherrypick only the healthy people) or single payer. Cherrypicking is overwhelmingly the largest component of administrative costs, it needs to be cut out.
"Also while generics in the US are cheap (but not as cheap as India), there are many more generics in other countries. I get all my drugs from India."
Not really. A lot of our generics come from overseas (Daiichi Sankyo, Ranbaxy, Teva) so we have plenty of choices. And yes, generics are cheap in India but because compliance to safety standards and copyright and patent laws are minimal.
"Not really. A lot of our generics come from overseas (Daiichi Sankyo, Ranbaxy, Teva) so we have plenty of choices."
Sorry I didn't make myself clear. I'm 70 and take a lot of drugs. There are no generics available for any of them in the US, but I get them all (except one) in generic form from India. This is what my physician reccommends. He gave me the URL.
This can all be solved by the simple application of antitrust law. The barriers to entry here are pure network effects, but are ONLY network effects if you let monopsony power (that is, power to control the price from the buy side) go unregulated so long as the Payor has it.
Payors able to use monopsony power to extract sub competitive prices from docs (that is, when a doc can be forced to decide between closing his practice and leaving the area or accepting whatever terms the Payor offers, take it or leave it) derive strong protections against entry. Entry at less than equal market share cannot be successful. Entry at equal or better market share is impossible. At most, niche penetration occurs. System repeats.
Consumers then see inflated prices as monopsony power is leveraged into monopoly power, and/or service declines. These are indeed monopoly rents. BUT they are only there because no one bothered to apply the antitrust law to the FIRST violation – the abuse of monopsony power.
This becomes even more perceptibly self perpetuating, of course, if one prioritizes prosecuting providers for protective practices against predatory payor payment policies.
The letter “P.” Give it a hand folks.
So what do you do?
You do not nationalize anything. That’s almost always a bad idea. At least as a first try. Also you don’t force a monopoly. That’s the same thing.
You try something less drastic first. You enforce the existing law as it’s written and fully justified by precedent. Well, arguably so, anyway. But you try that, right, as en enforcement priority, and maybe back off the old prosecutorial dollars for docs? Don’t fire those enforcers, by the way. Just turn them toward the payor side for a change, and stop treating monopsony power as a good thing.
Just try the reprioritization for a few years. Give it some reasonable time to hit some reasonable bench marks. My guess is as monopsony power over docs ebbs, docs begin to see a restored incentive to provide the most efficient and attractive service at the most competitive price. As that happens, monopoly power ebbs as successful payor entry is no longer conditioned on entry at equal market share. Insurance companies are then forced to become efficient at what they should do – distribute risk in an economically rational way and handle the ancillary administrative assignments. Payors are disciplined by either actual or potential entry or niche expansion. They cannot charge more than a competitive rate. Their services must be appealing to the insured life from a broad selection.
What about just trying that commonsense less radical remedy for a while and see if it works. If we need a stopgap sure let’s deal with the chronic uninsured and underinsured through some sort of grant program with maybe some market incentive substitutes thrown in for flavor. But as for the real meat of the problem, let’s try some balanced, reasonable antitrust enforcement first.
"What about just trying that commonsense less radical remedy for a while and see if it works"
Because it has never worked before, never worked anywhere else in the world, and people die while you are waiting.
Lensch, please cite the situation where antitrust enforcement to curtail the abuse of monopsony power by payors with respect to medical services was attempted and failed to yield results.
No, you miss my point which I didn't make very clearly. Why try somthing like anti trust which is not known to work in health care when they are many other solutions (see any other industrialized country) which are known to work?
F:
Good post, except you forget one thing: There aren't enough doctors to go around. My primary doctor is in a practice with five others; they are booked solid for literally months in advance, in 15 minute increments. They are affiliated with two hospitals, but can do most of their work in their own.
My doctor charges prices beyond what insurance will pay because he can, the demand for his services is so high he can charge double what insurance will cover, and he STILL packs the waiting room and works ten hours a day.
I don't see how restricting monopsony power is going to help much. The demand for medical services, at least in the USA, is only going to grow as the baby boomers (I am one of them) age. They are 50-70 now, and entering their most medically intensive years.
One way of lowering medical costs is greater government subsidy of medical school graduates; more outright scholarships and grants so more people can become doctors. If we made that much less expensive, we'd have better competition.
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