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2012 April 28 Saturday
Financial Return Of Medical Degree Negative For Women?

At least for primary care physicians women work so fewer hours than men that they fail to recoup the costs incurred by going thru medical school.

We find that the median female (but not male) primary-care physician would have been financially better off becoming a physician assistant. This result is partially due to a gender-wage gap in medicine. However, it is mostly driven by the fact that the median female physician simply doesn’t work enough hours to amortize her upfront investment in medical school. In contrast, the median male physician work many more hours, easily enough to amortize his up-front investment.

There's another consequence of more female doctors: the average slot in medical school taken by a woman generates much fewer hours of patient care services delivered as compared to the case where the same slot was given to a man instead. So the effective supply of doctors has gone down as a result of higher percentages of female doctors in many countries. This is a well recognized problem.

With many women seeking part-time work, new organizational challenges are emerging, including the possibility that some countries will need more doctors. France and Germany, for instance, have warned about future shortages, as older male doctors retire and are replaced by women working part-time. The German Medical Association has called it an urgent threat, particularly in rural areas. In France, some doctors are trying to set up a pilot project for a “maison médicale,” or House of Medicine, where part-time doctors can parachute in to offer different disciplines.

If all physicians were women the result would be like taking away a quarter of the doctors.

This looming shortage is forcing into the open a controversy that has been cautiously debated in hospitals and medical practices for some time: Are women doctors part of the problem? It's not the abilities of female doctors that are in question. It's that study after study has found women doctors tend to work 20% to 25% fewer hours than their male counterparts.

We need to automate much of the diagnostic work of medicine. Expert systems could do a better job in many cases. We could give blood, urine, and other samples at a pharmacy to have them sent off for lab tests. The test results could be uploaded to diagnostic systems running on servers. Visits to physicians could happen only when expert systems flagged a problem, suggested follow-up tests and produced a preliminary diagnosis.

The return on investment to the individual physician is even worse if we consider the subsidies that go into training doctors. Medical doctor Karen Sibert argues we can't afford to subsidize training of people who are only going to work part time.

Medical education is supported by federal and state tax money both at the university level — student tuition doesn’t come close to covering the schools’ costs — and at the teaching hospitals where residents are trained. So if doctors aren’t making full use of their training, taxpayers are losing their investment. With a growing shortage of doctors in America, we can no longer afford to continue training doctors who don’t spend their careers in the full-time practice of medicine.

I figure we'll continue to be unrealistic about this topic because Western nations have decided to waste a lot of resources maintaining various fictions about human nature.

By Randall Parker    2012 April 28 08:52 PM Entry Permalink | Comments (27)
2012 April 14 Saturday
US Federal Health Care Costs To Rise Faster

It was never going to happen that more people would get more health care for less total money. So Obama's supposed reform to cut total health care costs was a fraud as a cost cutter and its main aim was to shift money away from net taxpayers toward poor people. A nation which is already on a reckless fiscal course will go even deeper into debt due to Obama's health care program.

President Obama’s landmark health-care initiative, long touted as a means to control costs, will actually add more than $340 billion to the nation’s budget woes over the next decade, according to a new study by a Republican member of the board that oversees Medicare financing.

The study is set to be released Tuesday by Charles Blahous, a conservative policy analyst whom Obama approved in 2010 as the GOP trustee for Medicare and Social Security. His analysis challenges the conventional wisdom that the health-care law, which calls for an expensive expansion of coverage for the uninsured beginning in 2014, will nonetheless reduce deficits by raising taxes and cutting payments to Medicare providers.

I am pessimistic about US economic growth and innovation over the next 10 years. A number of fundamentals have shifted against a fast rate of innovation. Plus, demographic changes due to aging and immigration are making for a less skilled labor force as well as a declining ratio of net taxpayer workers to everyone else. So I think official projections of future deficits are excessively optimistic. We need to collectively act like we are poorer than we've thought ourselves to be. But our elites remain in denial about our limits to growth.

Debt accumulation can be managed as long as strong economic growth is the norm. But debt servicing becomes a big problem if economic growth remains weak and becomes a huge problem under conditions of sustained economic contraction. We are most at risk of an extended period of economic contraction once Peak Oil hits. That's probably later in this decade.

By Randall Parker    2012 April 14 10:10 PM Entry Permalink | Comments (8)
2011 December 13 Tuesday
Why Did US Medical Costs Surge In 1980s?

Reihan Salam says during the 1980s the US pulled away from other developed countries in terms of medical costs. So what caused this trend? He points to a hypothesis that a change in the Medicare formula for setting treatment costs incentivized physicians to choose treatments that cost more. Reihan makes a number of other interesting observations worth reading.

This raises the question of what exactly changed in the 1980s. Daeho Kim, a graduate student at Brown University, offers a provocative hypothesis in a new working paper. As Kim explains, a 1983 Medicare reform created the prospective payment system, or PPS, which offered fixed reimbursements for the use of a medical technology. If a physician decides to use bypass surgery as a cardiac treatment, she won’t be paid on the basis of what it cost her to perform the surgery. Instead, she’ll be paid the national average cost. This way, there is a strong incentive to beat the national average cost of performing bypass surgeries, thus lowering, in theory, systemwide costs.

Kim argues that physicians responded to this new pricing environment by focusing on treatments where they could provide services where they could get their costs well below the national Medicare price. These preferred treatments tended to have high average national costs. PPS backfired.

If this is true then government distortions of the market created the high prices which today are used to justify even bigger government interventions in the market.

We need to get more market incentives back into health care. It is far too expensive and medical care costs are lowering living standards. We need people to want to shop around and more visible market prices. Incentives need to work on patients and not just on medical service providers.

By Randall Parker    2011 December 13 08:47 PM Entry Permalink | Comments (14)
2011 November 20 Sunday
2003-2010: Employer Medical Insurance Costs Up 50% In USA

An exponential that is nearing the end of its run:

New York, NY, November 17, 2011—Premiums for employer-sponsored family health insurance increased by 50 percent from 2003 to 2010, and the annual amount that employees pay toward their insurance increased by 63 percent as businesses required employees to contribute a greater share, according to a new Commonwealth Fund report that examines state trends in health insurance costs. The report finds that health insurance costs are outpacing income growth in every state in the country. At the same time, premiums are buying less protective coverage: per-person deductibles doubled for employees working for large as well as small firms over the same time period.

Obviously, the fast ramp in medical spending is not sustainable. Medical costs have become too large a fraction of US GDP.

According to the report, State Trends in Premiums and Deductibles, 2003-2010: The Need for Action to Address Rising Costs, by 2010, 62 percent of the U.S. population lived in a state where health insurance premiums equaled 20 percent or more of earnings for a middle-income individual under age 65. Today there are virtually no states where premiums are relatively low compared to income. In 2003, there were 13 states where annual premiums constituted less than 14 percent of the median (middle) income; by 2010, there were none.

With stagnant and declining wages the increasing cost of co-pays means an even sharper rate of decline in living standards.

"Whether you live in California, Montana, or West Virginia, health insurance is expensive. Out-of-pocket costs for premiums and care are consuming a larger share of people's incomes at a time when incomes are down in a majority of states," said Commonwealth Fund Senior Vice President Cathy Schoen, lead author of the report. "Workers are paying more for less financial protection. The steady rise in costs from 2003 through 2010, before enactment of the Affordable Care Act, points to the urgent need for health insurance market and health care system reforms."

We need to cut costs by automation of health care: Web-based diagnostic expert systems; Medical testing done by going to a drug store to provide samples; Wearable sensors tied to web-based diagnostics; Surgical robots; Cheaper imaging systems with built-in image analysis. Boosting productivity of the medical sector would raise living standards.

Peter Orszag, formerly Obama's director of OMB (Office of Management and Budget), says the growth rate in Medicare spending is already slowing.

Even adjusting for these shifts, though, Medicare spending is still up less than 4 percent so far this year. The 2011 numbers come on the heels of relatively slow growth in 2010 as well. Last year, Medicare spending rose just a little more than 4 percent. Compare this with an almost 12 percent average annual growth rate in Medicare spending since the early 1970s.

On the other hand, the average cost of employer-provided health plans is still going up faster than the rate of inflation.

Employers' spending on health coverage for workers spiked abruptly this year, with the average cost of a family plan rising by 9 percent, triple the growth seen in 2010.

Family plan premiums hit $15,073 on average, while coverage for single employees grew 8 percent to $5,429, according to a survey released Tuesday by the Kaiser Family Foundation and the Health Research & Educational Trust. (KHN is an editorially-independent program of the foundation.)

Workers paid an average of $921 toward the premium of single coverage and $4,129 for family plans.

The results mark a sharp departure from 2010, when the same survey found average family premiums up only 3 percent.

Health care is now over 17% of the US economy and still rising. Your buying power for other goods and services is lower because health care costs are so high. Americans can expect higher co-pays, a continued shrink in the fraction of jobs that include health insurance, higher taxes to subsidize the health care of older and poorer and government employees, and lower cash compensation due to higher employer insurance premiums.

The high cost of health care cries out for automation. Measures to make health care delivery more efficient and more automated could reverse the rise in health care costs and at least slow the decline in American living standards. Other limits will still pull down American living standards. But the decline could at least be made less steep.

By Randall Parker    2011 November 20 09:07 AM Entry Permalink | Comments (6)
2011 September 12 Monday
Rising Health Care Costs Causing Stagnant Living Standards

The rising costs of medical care have eaten up almost all income gains in the last decade.

Fast-rising health costs have eaten nearly all the income gains made by a median-income American family of four over the past decade, leaving them with just $95 per month in extra income, after accounting for taxes and price increases, according to a new RAND Corporation study.

Had health care costs risen only as fast as the cost of other goods and services in the United States from 1999 to 2009, the same family would have an additional $545 per month to spend in 2009, according to findings published in the September edition of the journal Health Affairs.

"Accelerating health care costs are a primary reason that the so many American families feel like they are just treading water financially," said David Auerbach, the study's lead author and an economist at the RAND Corporation, a nonprofit research organization. "Unless we reverse the trend, Americans increasingly will notice that health costs compromise their other spending options."

Between 1999 and 2009, total spending on health care in the United States nearly doubled, from $1.3 trillion to $2.5 trillion. During the same period, the percentage of the nation's gross domestic product devoted to health care climbed from 13.8 percent to 17.6 percent. Per person health care spending grew from $4,600 to just over $8,000 annually.

The automation of health care has the greatest potential to raise living standards. The growing size of medicine in the US economy (over 17% and rising) means it is pulling in more skilled workers and other resources. Imagine going to a drug store to provide blood, urine, and other samples for testing. Then the result would get sent to a web server that has assorted expert systems for diagnosis. The server would also have your genetic sequence which it would use to inform drug choice and dosage level (e.g. use liver enzyme genetic variants to predict drug break-down rates). Hospitals will use robots to do surgery, clean, deliver food to rooms, and deliver drugs.

What incentives need fixing to bring about a long term trend of rising health care industry productivity?

By Randall Parker    2011 September 12 07:26 AM Entry Permalink | Comments (8)
2011 August 05 Friday
58% Rise In US Medical Costs By 2020?

Gov’t report: US health care tab to hit $4.6 trillion in 2020, averaging $13,710 per person. Currently it is $8,650 per capita. If the trend continues health care will cost over a fifth of the US economy.

Think about that. If the US Medicare Actuary is correct you are going to lose, on average, another $5k per year to medical costs in less than 10 years. I am reminded of Herbert Stein's Law: "If something cannot go on forever, it will stop". Will the US political system, economy, and populace go along with transferring another $5k per capita of output to medical care? I'm thinking no. We are getting close to the end of the trend just because the economy isn't going to grow enough to leave people with enough to spend on food, clothes, housing, et cetera after they spend another $5k each on health care.

A political fight over health care versus everything else in the US federal budget is going to gradually build up. Also, the private sector will shift more of the costs of health care onto employees and the employees will look for ways to economize out of necessity. Already the rate of growth of health care costs has dropped to 4% in 2009 and 3.9% in 2010. The 3.9% growth rate represents a record low spanning over decades of government tracking of health care cost growth. A double dip recession could easily knock it down even further.

The long term trend in college costs is similarly not sustainable.

Since I expect the US economy in the 2010s to dramatically under-perform as compared to the post-WWII era I expect the unsustainable trends of rising health care and educational costs to end during this decade.

By Randall Parker    2011 August 05 11:39 AM Entry Permalink | Comments (3)
2011 May 31 Tuesday
Clinton: Democrats Need To Cut Medicare Costs

When the Democrats tried to rein in Medicare costs the Republicans accused them of trying to create Death Panels. Now the parties have traded roles. The Democrats are playing for partisan advantage by attacking Paul Ryan's plan to cut Medicare costs. But Bill Clinton sees the health care cost problem as so huge we can't avoid cutting medical costs.

Hours before the Senate vote Wednesday, former president Bill Clinton urged Congress, including his fellow Democrats, not to “tippy-toe around” Medicare, saying the program “is part of a whole health-care system that has a toxic effect on inflation.” Speaking at a conference about fiscal challenges, Clinton warned Democrats to be wary of weighing the issue solely for political gain, adding: “We’ve got to deal with these things.”

This amounts to stating the obvious. But the American people don't want to accept that we can't all afford all the health care that we could possibly want. Yes, we are hitting limits. No, Americans don't want to accept it. So we continue on course toward a sovereign debt crisis.

The editorial board of the Washington Post says the Democrats are using their familiar Medicare scare tactic.

Democrats have effectively scared seniors as a political tactic for many years. Republicans turned the tables in 2010, using the Medicare scare tactic against Democrats. Now Rep. Paul Ryan (R-Wis.) has given President Obama and his party a chance to reclaim the low ground, and they haven’t hesitated.

The problem is that as the population ages and medical costs per person continue to go up faster than the rate of inflation we can't afford the costs of catering to scare tactics. America is going to get poorer in part because we continue to live beyond our means. We live in the era of the Great Stagnation and we can't help to grow out of our fiscal problems.

By Randall Parker    2011 May 31 01:23 PM Entry Permalink | Comments (8)
2011 March 31 Thursday
Health Reform Law Makes Many Kids Uninsurable

The New York Times reports how the Obamacare health insurance legislation (the Patient Protection and Affordable Care Act or PPACA) has the perverse effect of making large numbers of children medically uninsurable.

Insurers in Texas and across the nation — protesting a provision of the 2010 federal health care overhaul that prohibits pre-existing condition limitations for children under 19, have simply stopped offering new child-only policies. For children being raised by their grandparents, who are not poor enough to qualify for Medicaid and have no employer-offered insurance or family plans to cover them, there are few options.

The (obvious) problem is that if you can get medical insurance at any time why not save money and just wait to buy it once you develop a serious ilness? But the impractical idealists who voted for Obamacare wanted to make everyone equal. So they've made uninsurable any child whose parents do not get dependent medical insurance thru their jobs.

One of the results: decreased labor mobility. Parents won't be able to quit jobs to start their own businesses or to do more highly paid contract work when doing so will leave their kids uninsured. Congress is such a wrecking crew.

A few state legislatures are making a bad situation even worse by requiring any insurance company that offers medical insurance policies to adults to also offer policies for children. Of course this is an incentive for more insurance companies to drop out of the individual health insurance market altogether.

By Randall Parker    2011 March 31 11:03 PM Entry Permalink | Comments (6)
2011 January 31 Monday
Big Spending Hospitals Better For Emergency Care

While much of medical spending is just waste big bucks make for better outcomes when you come in near death.

Studies have shown that regions spending more on medical care, such as Miami, do not have better health outcomes than regions that spend relatively less, such as Minneapolis. However, less is known about how medical spending affects health at certain critical times, such as in the immediate period after a patient is admitted to the hospital with a life-threatening condition.

When hospitalized for a major acute medical condition — including heart attack, stroke and pneumonia — patients were less likely to die in high-spending hospitals, according to a new study appearing in the Feb. 1 issue of the Annals of Internal Medicine.

The findings inform the ongoing discussion on how to curb health care spending.

"Our findings suggest that while regions spending more on health care generally produce no better care, specific types of medical spending, such as acute-care hospital spending, may save lives," said John Romley, an author of the study and an economist with the Schaeffer Center for Health Policy and Economics at USC, which is supported by the USC School of Policy, Planning, and Development and the USC School of Pharmacy.

If you must have a heart attack do it near a hospital that generates high costs per patient.

For example, from 2004 to 2008, patients admitted for heart attack to the top-spending hospitals were 19 percent less likely to die than patients admitted to the lowest-spending hospitals. From 1999 to 2003, patients admitted for heart attack were 9 percent less likely to die at the highest-spending hospitals than at the lowest-spending hospitals.

"Adjusted inpatient mortality was negatively associated with hospital spending for all six diagnoses, meaning those admitted to hospitals that spent the most were less likely to die in the hospital than were patients admitted to hospitals that spent the least," said Goldman, Norman Topping Chair in Medicine and Public Policy at USC and director of the Schaeffer Center at USC.

What I wonder: Are technological advances increasing the power of the most intense forms of treatment in response to acute crises?

Another way to avoid dying in a hospital: Go to a hospital that follows checklists of best practices. Yes, it is necessary for top-down rules to enforce best practices on doctors and nurses. In absence of a checklist hospital workers make many more mistakes and do not follow best practices and lots of people die as a result.

By Randall Parker    2011 January 31 11:44 PM Entry Permalink | Comments (0)
2011 January 10 Monday
Military Medical Costs

Soaring for the US military.

Proposals to increase Tricare fees will pit Mr. Gates against those in Congress — and veterans’ groups — who say retired military personnel already have paid up front with service in uniform. Ten years ago, health care cost the Pentagon $19 billion; today, it tops $50 billion; five years from now it is projected to cost $65 billion.

The Veterans Administration spends over double that providing medical to military veterans:

www.va.gov
  • 2010 Budget:  $112.8 billion (total including collections) – $55.9 billion in discretionary funding (including collections) and $56.9 billion in mandatory funding
  • Enacted 2009:  $97.7 billion (total including collections)  -- $50.4 billion in discretionary funding (including collections, not including ARRA funds) and $47.3 billion in mandatory funding

To honor America’s veterans and expand the services they receive, the Fiscal Year 2010 budget increases funding for the Department of Veterans Affairs by $25 billion over the next five years.  The budget includes an 11 percent increase in resources for a discretionary funding level of $55.9 billion.  The budget increases health care funding for veterans, enabling the VA to provide timely, high-quality care to 5.5 million veterans, develop Centers of Excellence, and enhance access to mental health and cognitive care.  It also restores health care eligibility for modest-income veterans, steps up investment in technology for the delivery of services and benefits to veterans, and provides improved benefits for veterans who are medically retired from active duty.  The budget provides for a collaborative pilot program with non-profit organizations to help veterans avoid homelessness, and for the timely implementation of the Post-9/11 GI Bill to Americans who have served the country though military duty.

In fact, the VA's budget alone is bigger than the military budget for any other nation in the world except for China. Combined with the DOD's budget they together spend more on medical care than any other country spends on their military.

The US military should lead the way in automating health care. Use expert systems and robots. Embrace microfluidics to cut testing costs.

By Randall Parker    2011 January 10 10:10 PM Entry Permalink | Comments (1)
2010 October 27 Wednesday
Physician Income Levels

Curious about how much doctors make? Wondering how much of rising health care costs are due to high incomes of doctors? These numbers do not strike me as radically high.

Using data from a representative sample of 6,381 physicians providing patient care in 2004 to 2005, J. Paul Leigh, Ph.D., and colleagues at the University of California Davis School of Medicine, Davis, compared wages across four broad specialty categories: primary care, surgery, internal medicine and pediatric subspecialties, and other. They also assessed wages among 41 specific specialties along with differences based on demographic, geographic and market variables.

Overall, clinicians earned an average annual income of $187,857 and worked an average of 53.1 hours per week. When compared with those of primary care specialists, wages were 48 percent higher among surgeons, 36 percent higher among internal medicine and pediatric subspecialists and 45 percent higher among clinicians in other specialties.

In the analysis of 41 specific specialties, neurologic surgeons ($132 per hour) and radiation oncologists ($126 per hour) earned the highest wages. The specialists who earned the least per hour were those in internal medicine and pediatrics ($50) and other pediatric subspecialists ($52).

Though I wonder: How much of a physician's income gets caught by a study like this one? Do hourly rates only capture fees paid for visits and consultations? Or are profit margins on tests also captured?

Substantial differences exist by specialty.

When compared with the reference group of general surgeons, whose hourly earnings were close to the median or midpoint at $86, wages were significantly lower for internal medicine and pediatrics combined ($24 less), internal medicine ($24 less), family medicine ($24 less) and other pediatric subspecialties ($23 less). Physicians in neurologic surgery, radiation and medical oncology, dermatology, orthopedic surgery and ophthalmology all earned $17 to $50 more per hour than general surgeons.

I'd like to know how much of total health care costs go to physicians. I've read that drugs are about 10% of total costs. Okay, where does the other 90% go? Anyone got a good source? Also, what are the trends? Which slices are rising or falling?

Also see my post Physician Income Up In Recession.

By Randall Parker    2010 October 27 12:34 AM Entry Permalink | Comments (10)
2010 September 14 Tuesday
Medical Malpractice Costs Only 2.4% Of Health Costs?

If this report is correct then medical malpractice costs are not a major source of increase in overall health care costs.

How much does malpractice cost the medical system? About $55.6 billion a year, or 2.4 percent of annual health care spending, according to a study on medical liability published today in Health Affairs.

As I've stated here in the past: The medical malpractice lawsuit threat probably isn't a major driver of increased health care spending. More technology to enable the diagnosis and treatment of more diseases is one of the biggest causes of rising health care costs. An aging population and government subsidies are other major cost drivers.

Extra tests account for 4/5ths of the cost.

More than 8 of every 10 of those dollars — $45.6 billion — was attributed to defensive medicine by physicians who order unnecessary tests and procedures to protect themselves from malpractice claims.

A reduction in malpractice insurance premiums would likely not cut total health care costs by much.

National tort reform and a resulting decline in malpractice insurance premiums would probably have little impact on costs in terms of reductions in defensive medicine, according to J. William Thomas, visiting professor at the Muskie School of Public Service, University of Southern Maine, and his colleagues.  Their analysis shows that estimated savings from a 10 percent decline in malpractice premiums would translate into reductions in defensive medicine equal to less than 1 percent of total medical care costs in every specialty.

Misdiagnosis of diseases are a substantial fraction of all medical errors. I fully agree with the need for more computerized decision support.

Misdiagnoses account for nearly 20 percent of all medical errors, but the patient safety field has all but ignored this problem, writes Robert M. Wachter, professor and associate chair of the Department of Medicine, University of California, San Francisco. The relative inattention, he argues, is driven by the “human nature” of these mistakes—failures of cognition are less amenable to “systems solutions” such as checklists and standardization.  He recommends a number of ways to improve diagnostic accuracy, including increasing use of computerized decision support and better training of young doctors in the science of diagnostic reasoning. 

More computerization of medical test results fed into expert systems would reduce error rates.

By Randall Parker    2010 September 14 10:43 PM Entry Permalink | Comments (5)
2010 September 02 Thursday
Companies Stopped Absorbing Rising Health Costs

All rising health care costs are now being passed thru to employees. This means rising health care costs are becoming much more transparent and far more likely to curtail demand.

In contrast to past practices of absorbing higher prices, some companies chose this year to keep their costs the same by passing the entire increase in premiums for family coverage onto their workers, according to a new survey released on Thursday by the Kaiser Family Foundation, a nonprofit research group.

Workers’ share of the cost of a family policy jumped an average of 14 percent, an increase of about $500 a year. The cost of a policy rose just 3 percent, to an average of $13,770.

A 3% rise to $13,770 means it rose from $13,368.93. Okay, so then the total cost rose by about $400. That's less than the $500 increase experienced by employees. So then did employers actually pay less?

This is a first.

"It's the first time I can remember when employers have coped with costs by shifting it all to workers," said Drew Altman, the Kaiser Family Foundation's president and chief executive.

Rising deductibles are one of the ways that employers are shifting costs onto employees. The result of this shift toward making employees directly pay more health care costs is unsurprising: A pause in demand growth. See my post Medical Spending Finally Stalls.

I think we've entered a new era in America where health care spending will rise much more slowly for those under age 65.

By Randall Parker    2010 September 02 09:07 PM Entry Permalink | Comments (3)
2010 September 01 Wednesday
Medical Spending Finally Stalls

The many decade faster-than-inflation increases in medical spending has at least taken a pause.

Spending on doctors, hospitals, drugs and other medical care climbed at a 2.7% annual rate per person in the first half of 2010, the smallest increase since the Bureau of Economic Analysis began tracking medical care in 1959.

The article goes on to say that adjusted for inflation demand actually declined slightly in the first half of 2010. That's a really big deal. Health care demand has grown thru previous recessions due to an aging population, the growth in new expensive treatments, and rising taxpayer subsidy for health care.

US medical spending hit 17.3% of GDP in 2009. It has been forecasted to hit 20% by 2020. But I do not expect the rate of medical spending to grow as much in the next 10 years as it did in the last few decades, Obama's health care plan notwithstanding. Reason: the American people and companies are going to push back against higher costs and against higher taxes.

It is possible that medical spending as a percentage of GDP could grow if GDP shrinks (as I expect it will due to Peak Oil). Certainly the aging of the US population is increasing the demand for medical care. But if medical spending in inflation-adjusted terms has stopped growing then adjusted for age then medical care per person in each age bracket is declining. That's a huge shift. Also, the US population is growing. Medical spending has to grow 1% each year in inflation-adjusted terms just to stay the same per capita.

In response to a recent FuturePundit post on future demand for anesthesiologists many doctors posted in the comments and disparaged the idea that automation was going to cut demand for them. Well, either automation and other advances have to cut costs or the age-adjusted amount of health care delivered will have to start declining.

By Randall Parker    2010 September 01 09:11 PM Entry Permalink | Comments (0)
2010 July 29 Thursday
Physician Income Up In Recession

Medical doctors are keeping ahead of inflation - unlike most of the population.

According to findings in the American Medical Group Association's 2010 Medical Group Compensation and Financial Survey, most specialties saw modest increases in compensation in 2009, but many provider organizations continue to operate at a significant loss.

The survey found that 76% of the specialties experienced increases in compensation in 2009, with the overall average increase around 3.8% (in 2008, when 81% experienced an average increase around 3.5%). The primary care specialties (excluding hospitalists) saw about a 3.8% increase in 2009 (same in 2008), while other medical specialties averaged an increase of 2.4% and surgical specialties averaged around 3.8%. (The primary care specialties saw about a 3.8% increase in 2008, while other medical and surgical specialties averaged 6%). The survey reports that during 2009, the specialties experiencing the largest increases in compensation were pulmonary disease (10.37%), dermatology (7%), and urology (6.36%).

Their income appears to be going up at twice the rate of inflation.

Heavy and growing government spending on health care buffers the income of medical doctors vicissitudes in the economy. I'll believe we've finally reached the limits of government and voter willingness to put up with medical cost increases when recessions become bad for the medical service providers.

Health cost increases are not sustainable.

The annual premium for a family health plan sponsored by an employer cost about 54 percent more in 2009 than it did in 2000, $13,027 and $8,437 (adjusted for inflation), respectively, according to the latest News and Numbers from the Agency for Healthcare Research and Quality.

During the same period, the average cost of an annual premium for a single coverage plan rose by 41 percent, from $3,308 (adjusted for inflation) to $4,669.

By Randall Parker    2010 July 29 11:03 PM Entry Permalink | Comments (0)
2010 July 25 Sunday
UK National Health Care Spending Cuts

The new Conservative/Liberal government of Great Britain, faced with large budget deficits as far as the eye can see, is planning cuts in the National Health Service. The government says spending will still go up faster than inflation. But with an aging population and more costly treatments available health care spending has to go up much faster than inflation to prevent cuts per person. No longer possible to do that in Britain.

An investigation by The Sunday Telegraph has uncovered widespread cuts planned across the NHS, many of which have already been agreed by senior health service officials. They include:

* Restrictions on some of the most basic and common operations, including hip and knee replacements, cataract surgery and orthodontic procedures.

You might see this as an argument against more widespread government funding of medical care in the US. If the private sector funds it then government budget cuts won't cut care. But in the United States medical care for the 65 and older is already funded by the (ever more deeply in debt) US government and the pressure for cost cuts on medical care for old folks surely is going to build.

The US government will not be able to avoid cuts in quantity and quality of health care for old folks. If you want to get medical care as good as what your parents or grandparents are currently getting then substantially cut your living standard now and start saving more.

The British government plans to steer terminally ill patients toward dying at home rather than in hospital. I see that as a positive development. Taking a terminally ill cancer patient whose body is shot thru with cancer and whose whole body is in pain and keeping that person alive in an ICU war with intravenous drip and a ventilator is cruel. Hospice care is more humane.

The ability to pay out-of-pocket could make a big difference if you ever need to get surgery for obesity or a fast diagnosis of possible cancer.

* A reduction in acute hospital beds, including those for the mentally ill, with targets to discourage GPs from sending patients to hospitals and reduce the number of people using accident and emergency departments.

* Tighter rationing of NHS funding for IVF treatment, and for surgery for obesity.

* Thousands of job losses at NHS hospitals, including 500 staff to go at a trust where cancer patients recently suffered delays in diagnosis and treatment because of staff shortages.

With over 17% of US GDP now going for medical care and the trend line headed much higher something has to give. The current system of incentives causes doctors to generate too much revenue for themselves with excessive numbers of tests, office visits, and procedures. But it is a difficult problem to solve because patients aren't in a position to judge what treatments are necessary.

My advice: expect less from government. Make more money, spend less money, and prepare to become more self-sufficient.

Update: Donald Berwick, Barack Obama's Administrator of the Centers for Medicare & Medicaid Services (CMS), sees the UK National Health Service as the ideal.

Cynics beware, I am romantic about the National Health Service; I love it. All I need to do to rediscover the romance is to look at health care in my own country.

The NHS is one of the astounding human endeavours of modern times. Because you use a nation as the scale and taxation as the funding, the NHS is highly political. It is a stage for the polarising debates of modern social theory: debates between market theorists and social planning; enlightenment science and post-modern sceptics of science; utilitarianism and individualism; the premise that we are all responsible for each other and the premise that we are each responsible for ourselves; those for whom government is a source of hope and those for whom government is hopeless. But, even in these debates, you are unified by your nation’s promise to make health care a human right.

Accumulate cash. Be prepared to spend your way around an increasingly government-controlled health care system. Your life may depend on it at some point.

By Randall Parker    2010 July 25 08:54 AM Entry Permalink | Comments (3)
2010 June 29 Tuesday
Defensive Medicine Minor Cost Overall

Much is made of the costs of defensive medicine where doctors order extra tests in order to protect themselves against medical malpractice lawsuits.

"About $60 billion is spent annually on defensive medicine and many physicians feel they are vulnerable to malpractice lawsuits even when they practice competently within the standard of care," said Tara Bishop, MD, Associate, General Internal Medicine at Mount Sinai School of Medicine, and co-author of the study. "The study shows that an overwhelming majority of physicians support tort reform to decrease malpractice lawsuits and that unnecessary testing, a contributor to rising health care costs, will not decrease without it"

But how about some perspective?

US health care costs grew by $134 billion in 2009 over 2008. So one year's cost growth is more than twice as great as the cost of defensive medicine. Yet defensive medicine is frequently cited in some quarters as a major source of high health care costs. Next time you hear that claim ask yourself whether the person making it is ignorant or deceptive.

Over a longer period of time the growth in US health care costs has been enormous.

Expenditures in the United States on health care surpassed $2.3 trillion in 2008, more than three times the $714 billion spent in 1990, and over eight times the $253 billion spent in 1980.

...

In 2008, U.S. health care spending was about $7,681 per resident and accounted for 16.2% of the nation’s Gross Domestic Product (GDP); this is among the highest of all industrialized countries. Total health care expenditures grew at an annual rate of 4.4 percent in 2008, a slower rate than recent years, yet still outpacing inflation and the growth in national income.

US health care costs were 17.3% of GDP in 2009. The costs of defensive medicine add up to less than half a percent of GDP. That's much less than the rhetoric about defensive medicine would lead you to expect.

It might be possible to cut defensive medicine costs via tort reform. However, a different approach focused on quality improvements seems a better bet. It is certainly possible to cut medical costs by a much larger amount by reducing medical mistakes and improving the quality of performance of medical providers. That'd cut the lawsuits and lower medical malpractice insurance costs while simultaneously improving quality of care and health outcomes.

By Randall Parker    2010 June 29 09:28 PM Entry Permalink | Comments (24)
2010 June 17 Thursday
Medicare Drives Oncologists To Push More Chemo

Unintended consequences can take many forms. Faced with lower US federal government payments for their time oncologists restored some of that lost income by selling more expensive chemotherapy treatments. Keep this in mind if you or a loved one comes down with cancer. Objective expertise is hard to buy.

Boston, MA (June 17, 2010) — In healthcare, less money doesn't always mean less service.

The 2005 Medicare Modernization Act, which substantially reduced Medicare payments to physicians for administering outpatient chemotherapy drugs, has had a somewhat paradoxical effect. Rather than resulting in fewer treatments, as one might expect, a new study finds that the Act has actually increased chemotherapy treatment rates among Medicare recipients.

"This sort of dynamic runs contrary to what most people would expect, but economists often encounter this sort of thing," says Joseph Newhouse, the John D. MacArthur Professor of Health Policy and Management at Harvard University and faculty member at Harvard Medical School, Harvard Kennedy School, Harvard School of Public Health, and the Faculty of Arts and Sciences, who carried out the study with colleagues Mireille Jacobson, now at RAND, Craig Earle, now at Sunnyside Medical Center, and Mary Price.

Chemo was prescribed at higher rates and more expensive forms of chemo were used.

In the first-ever study to test this critique, Newhouse and his team looked at Medicare claims for 222,478 beneficiaries who between 2003 and 2005 were diagnosed with lung cancer. The researchers found that on average, within one month of diagnosis, chemotherapy treatment increased 2.4 percent after the Medicare Modernization Act, from 16.5 percent to 18.9 percent. What's more, use of more costly chemotherapy drugs increased, while use of less expensive drugs declined.

"Physicians don't always respond to incentives the way most people expect," says Mireille Jacobson of RAND, the study's first author, "but in this case they do respond in a way that makes sense to economists. It seems logical on the one hand that when you pay less you get less. However, in this case, since a high proportion of an oncologist's income depends on prescribing, paying less per drug results in more drugs."

My advice: When faced with a serious illness use your own cash to pay the best medical expert you can afford to analyze what other doctors are trying to sell you.

By Randall Parker    2010 June 17 10:05 PM Entry Permalink | Comments (0)
2010 June 13 Sunday
Hospitals Lose Immunity To Recessions

The depth of the recession and the huge portion that health care takes in the economy have finally made health care spending susceptible to recessions.

During past recessions, the financial stability of hospitals seemed to be nearly indestructible. But researchers at the University of Michigan Health System and St. Joseph Mercy Health System say the current national economic crisis may be an exception.

Hospitals are reporting declining profits, likely as a result of Americans losing health insurance as they lose jobs. As a result, hospital plans for renovation and new construction are being scrapped, and hospitals are being forced to reduce hospital staff, according to an analysis in the just-released May/June issue of the Journal of Hospital Medicine.

The researchers speculate hospital cutbacks may risk the quality and safety of health care delivery, and urge the federal government to improve public awareness of overcrowding emergency services, nurse-to-patient ratios and use of information technology.

The medical industry used to cruise thru recessions little affected. But with medicine now over 17% of GDP and rising it is just too large a pie slice to remain immune to downturns. Governments can't afford to fully compensate for declines in private sector spending.

We aren't many years away from the point where medical spending will actually drop from one year to the next. An approaching shock to the economy will cause a large enough economic contraction that per capita medical spending will fall in spite of an aging population and in spite of more government intervention in health care.

By Randall Parker    2010 June 13 11:19 PM Entry Permalink | Comments (4)
2010 April 29 Thursday
Doctor Anger With Insurance Companies

In a New York Times article medical doctor Pauline Chen describes the frustration and anger of doctors with the current health care system. A lesson I take from reports like this one: avoid health insurance for routine care.

For nearly three decades, editorials, online posts and surveys have noted this rising frustration and anger among practicing physicians. But over the last two years, the pot of emotions seems to have boiled over. In all the recent discussions about health care reform, what had heretofore played out only beyond earshot of the exam room suddenly was very public: the tangled, uneasy and often antagonistic relationship between practicing doctors and the insurance companies who pay for the services they deliver.

As a primary care doctor posted recently on Sermo, the nation’s largest online community of physicians: “We are our own worst enemies, as we have allowed insurance companies and Medicare to set the value of our services. Clearly those values they impose have nothing to do with our contribution to the health of our patients or the cost savings we bring about.”

Is this just doctors complaining? Nope. Think about when a doctor calls up an insurance company or submits a form to get approval for some treatment. Do you think the insurance company staffer reading the form or listening to a doctor on the phone understands as much as the doctor? Unlikely. Yet that insurance company staffer can just say no. What if your doctor is right? What about your health?

My advice is to save up for serious medical problems. When the stakes are high pay cash for the best advice. Find out who is great at their specialty that pertains to your problem. Go and see them and pay cash for tests and diagnosis.

I've got a Health Savings Account and a high deductible medical policy because I'd rather directly pay and get services from someone who only has to cater to my needs and desires, not to the demands of insurance companies or government agencies.

I do not see the point of getting a medical insurance policy that co-pays visits to a doctor. You are better off just saving up in advance for future medical problems. Sure, you could get a serious illness that costs hundreds of thousands of dollars. An insurance policy can help you there. But even in the middle of having a very expensive illness you'll be better off if one of the doctors you are seeing is getting paid directly by you to manage your overall care and to evaluate treatments proposed by other doctors. You need an objective viewpoint from a first class medical mind. Your own cash can help you get that when it really matters.

On the New York Times site a discussion related to the article about includes a medical office worker who describes some of the insurance company overhead associated with long term medical treatments.

I work in an internist’s office, and all too often patients who are on a specific medication that best treats their particular chronic condition, one that is Never Going To Change (e.g., Chronic Renal Failure) are required to obtain Prior Authorization for the same medication every six months (sometimes even more often!) This is the height of absurdity. If the medical review by the insurer indicates this patient is best served by a specific medication, that should be the end of it. One “Prior Authorization” and Done should be the goal.

While not always the case, many times a single Prior Authorization call to an insurer can easily eat up 30 minutes of one staffer’s time; fighting through the long-winded automated greetings, voice-response unit selections, more recordings, on-hold time, finally speaking to a breathing human being can make what ought to be a simple transaction an obstacle course. The result over a year? Endless staff time is wasted in jumping through the insurer’s hoops, to the frustration of the patient, and cost to the doctor.

“Step Therapy” requirements, whereby a patient must try and fail two other drug therapies before being permitted to take the medication originally prescribed and denied by insurer, places the insurer’s medical judgment ahead of the primary care physician, and some states are wisely prohibiting this practice.

If you can afford to avoid the insurance companies and government you will be better off.

By Randall Parker    2010 April 29 10:59 PM Entry Permalink | Comments (6)
2010 April 21 Wednesday
New Disincentive For Buying Medical Insurance

Insurance broker Tim Tracy of Fairfield Connecticut points out that the new health reform measure in the United States passed by the Democrats provides incentives for some people to actually drop their medical insurance coverage.

I currently pay about $700 per month for health insurance for me and my wife, for an annual cost of $8,400. Under the new law, if I choose not to carry health insurance I would a penalty of 2.5% of my income -- that's only $3,750. It will save me $4,650 a year to go without health insurance.

It doesn't take a math wizard to figure this stuff out; it's really a no-brainer. If I get sick I can just purchase a policy when I need it because pre-existing conditions won't matter. As it's written now, the mandate is unworkable. I think this bill will actually make more people drop their coverage because that's the cheaper option.

A lot of people aren't going to be smart enough to figure this out. But some will. Pay the 2.5% until you get sick. Save your money until then. Once you get some serious illness buy medical insurance. The law (amazingly) forces medical insurers to sell you a policy even if you've just gotten diagnosed with kidney failure, cancer, or multiple sclerosis.

In a nutshell: This new "reform" provides new incentives for irresponsibility.

Update: On the other hand, medical care has very little influence on life expectancy for most people. Still, whether people buy medical insurance or not, they'll end up getting lots of expensive services done on them when they get diseases of old age.

By Randall Parker    2010 April 21 07:30 PM Entry Permalink | Comments (10)
2010 April 17 Saturday
VA Patients Get Fewer Treatments Than Medicare Patients

Are VA patients undertreated or Medicare patients overtreated?

INDIANAPOLIS – Patients seen at private facilities reimbursed by Medicare were more than 550 percent more likely to have routine cataract surgery than those who received their care from the Department of Veterans Affairs, a strong indication that the frequency of cataract surgery may be responsive to financial incentives to either or both the medical facility and the physicians who perform the procedure.

These findings from a large eight-year study are reported in the March 2010 issue of the American Journal of Medical Quality.

The authors are uncertain of the cause of the disparity in cataract surgery given that the vast majority of older veterans are enrolled in both Medicare and the VA health system, both government-funded systems.

The VA system is more like the UK National Health System with lots of doctors hired by the government. If people on the political Left who prefer a UK NHS style of medical system got their way the frequency of many treatments would drop. How much would health suffer as a result? The answer would depend on what illness you got, where you happened to live (some government-funded medical centers are more overburdened), and whether you had cash to pay for your own treatments.

Since I expect the US government to hit a severe funding crisis I expect enormous pressures to cut Medicare, Medicaid, VA, and other programs for funding health care. My advice is to save for your own medical treatments in case the need arises to pay for your own treatments in your old age.

By Randall Parker    2010 April 17 06:02 PM Entry Permalink | Comments (2)
2010 April 08 Thursday
Less Employer Health Coverage Under ObamaCare

Eugene Steuerle of the Urban Institute and Tax Policy Center says Obama's big health care change will cause a huge reduction in employer-provided health care to government-created insurance exchanges as the major sources of health care insurance for most workers.

We’ve updated earlier estimates of how the various subsidies in the health reform law affect the insurance market for both employers and workers. And the results remain quite dramatic: It appears that the new law will make it beneficial for many employers to drop their insurance coverage. In 2014 and beyond, once federal money is available through the insurance exchanges, switching from employer coverage to the exchanges may benefit both employers and workers in a wide range of income levels.

Of course Barack Obama said the new system wouldn't affect people who get health insurance thru their employer. And of course Barack Obama, who is not telling people what they need to know about health care, lied about how his new system would affect those with employer-provided medical insurance.

Employers and employees will have a financial incentive to end employer-provided health care. That's a revolutionary change.

How will the new law work? A worker whose household cash income is $60,000 in 2016 and who gets no health benefits from her employer would receive a subsidy equal to approximately $9,000. Because the firm provides no health insurance, it must pay a $2,200 penalty, leaving a net gain of about $6,800. By contrast, a worker earning equal compensation who receives employer-provided insurance would receive a subsidy around $3,500 from the exclusion of health benefits from his taxable wages, leaving him more than $3,000 worse off than his counterpart whose employer offers no insurance. This pattern holds until compensation reaches about $84,000, at which point the two subsidies are about the same. Workers earning more than $84,000 do better under the current employer-provided system than they will under the new system.

Many workers earning more than $84k will still lose employer-provided health care since employers will consider the wages of all their employees. An employer with mostly workers earning less than $84k will have strong incentives to drop their current coverage.

What I want to know: If we have to buy medical insurance thru the new system what happens to us under various illness scenarios? Also, will individual policies still be available outside of the exchanges? If so, how will those policies differ aside, perhaps, by price? Anyone know how the rules for those policies differ from various state-level rules for medical policies?

I am increasingly thinking that one should save up for medical problems whose ideal treatments might not be available in the future unless one can pay cash outside of the regulated system. Worsening fiscal conditions for the US government combined with a push for more equal availability of treatments and regulatory restrictions on treatments aimed at cost cutting could combine to make ideal treatments only available in another country and for cash.

By Randall Parker    2010 April 08 08:52 PM Entry Permalink | Comments (11)
2010 April 06 Tuesday
Electronic Medical Records Provide Few Benefits?

A favorite among politicians for controlling medical costs does not substantially reduce costs or improve outcomes?

The implementation of electronic health record systems may not be enough to significantly improve health quality and reduce costs. In the April 2010 issue of Health Affairs, researchers from the Mongan Institute for Health Policy at Massachusetts General Hospital (MGH) report finding that currently implemented systems have little effect on measures such as patient mortality, surgical complications, length of stay and costs. The authors note that greater attention may need to be paid to how systems are being implemented and used, with the goal of identifying best practices.

"We are still in the early days of electronic health record adoption, and there's little evidence for how best to implement the technology to make the greatest gains," says Catherine DesRoches, DrPh, of the Mongan Institute, who led the study. "Hospitals may not see the benefit of these systems until they are fully implemented, or it may take many years for benefits to become apparent."

Yet a nation living beyond its means is throwing money at the idea anyway?

In recent years several initiatives have been taken to encourage adoption of electronic health records. The 2009 American Recovery and Reinvestment Act authorized approximately $30 billion in grants and incentives to support electronic health record implementation. But while several earlier studies suggested that specific aspects of an electronic health record – particular computerized physician order entry – could improve the quality and efficiency of care, those studies analyzed data from hospitals with customized systems and dedicated quality improvement staff. The current study is the first to examine the effects of electronic systems in a nationally representative group of hospitals.

I bet computers would make a more positive impact if medical expert systems were used more extensively for diagnosis and in choosing ideal courses of treatment.

By Randall Parker    2010 April 06 11:44 PM Entry Permalink | Comments (3)
Doctor Surgical Center Ownership Increases Surgeries?

Are doctors humans or are they uninfluenced by financial incentives to practice more medicine?

ANN ARBOR, Mich. — When doctors become invested in an outpatient surgery center, they perform on average twice as many surgeries as doctors with no such financial stake, according to a new study from the University of Michigan Health System.

“Our data suggest that physician behavior changes after investment in an outpatient facility. Through what some have labeled the ‘triple dip,’ physician owners of surgery centers not only collect a professional fee for the services provided, but also share in their facility’s profits and the increased value of their investment. This creates a potential conflict of interest,” says study author John Hollingsworth, M.D., M.S., a Robert Wood Johnson Clinical Scholar at the U-M Medical School.

“To the extent that owners are motivated by profit, one potential explanation for our findings is that these physicians may be lowering their thresholds for treating patients with these common outpatient procedures,” Hollingsworth adds.

Oops, we could have had a lower cost health care system.

With the percentage of US GDP going toward medical costs headed for 20% and above something has got to be done. Business as usual (or business as usual plus another government expansion of medical entitlements spending) isn't sustainable.

By Randall Parker    2010 April 06 11:37 PM Entry Permalink | Comments (0)
2010 March 28 Sunday
Medical Costs Solution: Insure Catastrophes Only

Lesley Alderman of the New York Times interviewed a number of doctors and asked them how to control medical costs. My favorite response comes from Jacques Moritz MD: Insure Catastrophes Only.

“The idea of paying a certain monthly fee for insurance that allows you to have most of your routine care covered doesn’t make sense. When you buy auto insurance, you don’t insure yourself for every dent and nick — you insure yourself for serious accidents. This is the way the health insurance system should work. Our current insurance model does not encourage patients to take care of themselves. It doesn’t reward patients for being healthy, it rewards them for being sick. This isn’t good for patients or insurers.”

Jacques Moritz, M.D., director of gynecology, St Luke’s-Roosevelt Hospital Center, New York

Think about all the complaints you hear from the political Left about the administrative overhead and profits of insurance companies. Well, if people paid expenses for minor illnesses out of pocket then all that money wouldn't flow thru insurance companies. It also wouldn't flow thru governments. Even better yet, the payer of the service and the receiver of the service would be the same person. That big change would align interests and cut out interference from third parties. The relationship between doctor and patient would be the primary undiluted relationship when a patient gets treatment.

Another advantage: hypochondriacs and those obsessed with every imaginable treatment would have to fund their own treatments rather than get all insurance payers to fund their desire for overtreatment. Faced with having to spend their own money people would need to ask themselves if they really need medical help.

My ideal: health savings accounts combined with very high deductible medical insurance. When something really serious happens (e.g. accident, cancer, need for a transplant) you'll have the HSA to pay up to the deductible and the insurance to pay beyond the deductible. But this is the opposite of what the Left wants: Single payer where the single payer is government.

Update: Some research shows that high deductible health plans tied to HSAs produce good results

By Randall Parker    2010 March 28 12:33 PM Entry Permalink | Comments (8)
2010 March 22 Monday
How Expensive The Latest Medical Entitlement?

Ezra Klein makes light of the size of the latest medical entitlement expansion.

To get a more accurate annual figure, look at a year in which the bill is fully operational. In, say, 2016, the bill's spending will be about $160 billion (you can find these numbers on page 22 of the CBO report). According to the Center for Medicare and Medicaid Services, total health-care spending that year will be about $3.7 trillion. In other words, the bill's spending is equivalent to about 4 percent of what we'll spend in health care in a year, and it will be covering 30 million people.

But this bill will expand the US deficit by $562 in the next 10 years and the deficit expansion will be larger later in the decade.

The camel's back is already full and the camel is visibly sagging. The latest piling on weighs a lot more than a single straw.

Klein argues that the problem with health care is the 7% annual growth rate. True enough. But where's the will to address that? This latest bill just increases the number of people who are not cost sensitive to how much health care services they consume. So the bill makes the problem worse. Expanding insurance is the exact wrong direction to go. Rather than low deductible insurance we need high deductible catastrophic insurance and health savings accounts so that people feel like they are spending their own money when they for treatment. But Klein's fellow Democrats see high deductibles to their desired ultimate goal of single payer government funded health care.

America has reached a stage of imperial overreach. Too costly military interventions abroad, a massive exporting of debt in exchange for imported goods, a pile of unfunded entitlements liabilities, and now this. Our demographic condition is deteriorating due to both an aging population and importation of tens of millions of poor unskilled peasants whose children do poorly in school and in the work place. America's energy balance has been deteriorating since US peak oil production in 1970. World peak oil is coming in this next decade.

The pull back from our overextension will come in a sovereign debt crisis and economic downturn that be much more severe and harsh than what the current recession has done so far.

By Randall Parker    2010 March 22 10:01 PM Entry Permalink | Comments (3)
2010 February 11 Thursday
Incentives On Doctors For Expensive Treatments

An article in the Wall Street Journal points to examples where scientific research finds more expensive treatments are no more effective but get used anyway.

The study, known as "Courage" and published in the New England Journal of Medicine in 2007, shook the world of cardiology. It found that the most common heart surgery—a $15,000 procedure that unclogs arteries using a small scaffold or stent—usually yields no additional benefit when used with a cocktail of generic drugs in patients suffering from chronic chest pain.

The article also points to examples of drugs that cost more, work less effectively than cheap generics, but get used more than cheap generics. This demonstrates the influence of pharmaceutical company marketing operations.

Stents are overused given their relative benefits.

Steven Nissen, then chairman of the American College of Cardiology, called the study a "blockbuster." Shares of leading stent maker Boston Scientific Corp. fell on the day the news broke, as many doctors and investors expected stent usage to fall off.

For a brief while, they were right. U.S. stent implants declined 13% in the month after the study's release. But as the headlines about Courage faded, stentings soon began to rise again, and are now back at peak levels of about one million a year, according to hospital surveyor Millennium Research Group.

"Most [cardiologists] haven't voluntarily incorporated the Courage criteria into their practice," says Dr. Boden. "What's going to continue to drive practice is reimbursement."

We can ill afford such waste. In the United States medical spending has now reached 17.3% of GDP.

Reporting from Washington - In a stark reminder of growing costs, the government has released a new estimate that healthcare spending grew to a record 17.3% of the U.S. economy last year, marking the largest one-year jump in its share of the economy since the government started keeping such records half a century ago.

The almost $2.5 trillion spent in 2009 was $134 billion more than the previous year, when healthcare consumed 16.2% of the gross domestic product, according to an annual report by independent actuaries at the federal Centers for Medicare and Medicaid Services, or CMS, scheduled for release Thursday.

Medical spending is projected to hit 20% of US GDP by 2020. It could hit 25% eventually. Though I expect by then the pressures to cut costs will grow too great. The US economy will probably be contracting due to Peak Oil and a US sovereign debt crisis will cause big cuts in many types of spending.

Next year the US government will pay more than half of total medical costs. The US government is on the road to a sovereign debt crisis and medical costs are one of the reasons why.

For the first time, government programs next year will account for more than half of all U.S. health-care spending, federal actuaries predict, as the weak economy sends more people into Medicaid and slows growth of private insurance.

In California one big medical insurance company just raised individual medical policy costs by as high as 39%. Astounding. People will start moving to states that have lower medical insurance costs. Anyone know a good ranking for individual medical insurance policy costs by state?

Anthem Blue Cross customers got a shock this week when the health insurer informed thousands of individual policyholders that their premium rates will jump as much as 39 percent on March 1.

I'd like to know how much of these rate increases are due to people aging into higher risk categories. The news stories on big rate hikes quote lots of people in their 50s and 60s who are also at much higher risk of getting sick.

John McClave of San Francisco opened his mail this week to learn Health Net had jacked up his monthly premium from $345 to $462 on March 1 - a nearly 34 percent increase. This was on top of an 18 percent increase he received last year.

"I do intend to shop around, but with others raising their rates at the same time I am not too optimistic," said McClave, 57, a freelance marketing and communications consultant.

The Democrats are demonizing the medical insurance companies. But when total medical costs are $2.5 trillion the $12.2 billion in profits for the top 5 insurance companies is chump change by comparison.

The report released Thursday said the five biggest insurance companies had an average profit last year of 5.2 percent — for a combined total of $12.2 billion.

Demonizing insurance companies avoids the real problems. One of the biggest problems is the total amount of medicine getting practiced and the lack of incentive to lower costs.

By Randall Parker    2010 February 11 09:53 PM Entry Permalink | Comments (4)
2010 January 26 Tuesday
Obama Medical Plan To Raise Costs

If Obama manages to get his health care plan approved medical costs will probably rise even faster.

If you're thinking the legislation will tamp down overall health care spending, reconsider. Policy analysts ranging from the neutral Congressional Budget Office to the HMO lobby see no abatement in the growth rate of health care spending. That sector of the economy is growing at a 7.4% annual rate, says actuarial firm Milliman. Medicare's chief actuary, Richard Foster, thinks that the Senate bill would expand health spending by $234 billion above current projections.

The amount of cost shifting onto private plans will rise.

The premium hikes will result from cost shifting, better known as passing the buck. The House and Senate insurance bills aim to cover their costs in part by cutting annual Medicare reimbursements to hospitals, doctors and drug companies by $45 billion. Those providers will likely try to offset the cuts by negotiating higher rates with private HMOs--which then get passed along through higher premiums. That's exactly what occurred after past Medicare and Medicaid cuts, according to the CBO analysis. Families USA, a nonprofit group advocating expanded federal involvement in health care, says insured families are already absorbing $1,000 a year in costs shifted away from uninsured patients.

People who buy medical insurance on their own will be hardest hit because the individual insurance market won't be able to deny coverage due to pre-existing conditions. So some will wait to buy insurance until they get seriously ill and those people will get paid for by those who pay all along. Read the full article for estimates of how much premiums will rise. Individuals buying their own insurance might pay as much as 53% more. Employers won't be hit as hard as individuals. The more powerful and more organized manage to shift costs toward the less powerful and less organized.

People who make less money will be even more subsidized by the most productive. That's a more general trend that makes me worried for the future.

By Randall Parker    2010 January 26 10:47 PM Entry Permalink | Comments (1)
2010 January 19 Tuesday
Tired Doctors Order More Drugs And Tests

See a happy and well-rested doctor.

Prof. Kushnir surveyed 188 primary physicians in Israel to determine whether doctors changed their professional behavior on good mood days, as well as days when they felt stressed, tired or anxious. Physicians' burnout levels were also assessed. The study asked doctors to rank how their mood affected the extent they talked to patients, prescribed medications, sent them to lab or diagnostic tests and referred patients to a specialist.

Her findings show that a good or bad mood affected all five physician behaviors. On days the doctors felt positive moods, they spoke more to patients, wrote fewer prescriptions, ordered fewer tests and issued fewer referrals. However, when doctors were in a bad mood, they did the opposite. Additionally, if the physicians' burnout level was higher, their moods more strongly impacted their behaviors.

"The finding that on bad mood days physicians tend to talk less, and may needlessly prescribe and refer more than on good mood days, implies that negative moods may be detrimental to quality and costly to healthcare systems," says Prof. Kushnir. Conversely, positive moods that have the opposite effects may help contain costs."

To make this actionable information we need to know when doctors are most likely to be in good or bad moods. Among the considerations:

  • Time of day. Do their moods worsen as the day drags on?
  • Day of week. Happier on Mondays or Fridays? You'd think people would be more tired on Fridays but looking forward to the weekend. How does that balance out?
  • Time of year. Summer seems like the happiest time.
  • Age. Are older doctors in better or worse moods?

When to get the best treatment?

By Randall Parker    2010 January 19 09:56 PM Entry Permalink | Comments (6)
2010 January 02 Saturday
Mayo Clinic Cutting Back On Medicare Patients

Most Americans who aren't old aren't aware of this but not all doctors accept Medicare patients due to low rates paid by Medicare for assorted medical services. Even the Mayo Clinic, touted as a low cost model for future health care, is going to stop accepting Medicare at one of its primary care clinics in order to cut losses.

Dec. 31 (Bloomberg) -- The Mayo Clinic, praised by President Barack Obama as a national model for efficient health care, will stop accepting Medicare patients as of tomorrow at one of its primary-care clinics in Arizona, saying the U.S. government pays too little.

Mayo claims in the last year it lost $840 million treating Medicare patients. Obama has praised the Mayo Clinic for high quality medical care with low costs. Obama wants to reduce Medicare pay-outs to doctors and hospitals to help finance health care for the younger poor. Of course this will increase the Mayo Clinic's losses from treating Medicare patients.

If you are an American who is counting on Medicare to pay your medical bills in retirement my advice is to question that assumption. The financial pressures on the US government to cut costs of medical care are going to become immense. Future generations of retirees aren't going to get the blank check for medical care that current and last generation retirees got.

I intend to save up a lot of money to pay medical bills in my old age. Already many doctors do not accept Medicare patients. Given the US government's deteriorating finances and the demographic and health care cost trends pressure to cut Medicare pay-outs will only grow. The ability to pay cash can help you get in to see top specialists who otherwise will be unwilling to see you once you turn 65.

By Randall Parker    2010 January 02 11:19 PM Entry Permalink | Comments (6)
2009 December 13 Sunday
US Health Care Reform Bill Will Up Costs

A month ago Jeffrey S. Flier, dean of Harvard Medical School, said the big health care spending bill in Congress will accelerate the already unsustainable rise in health care costs.

In discussions with dozens of health-care leaders and economists, I find near unanimity of opinion that, whatever its shape, the final legislation that will emerge from Congress will markedly accelerate national health-care spending rather than restrain it. Likewise, nearly all agree that the legislation would do little or nothing to improve quality or change health-care's dysfunctional delivery system. The system we have now promotes fragmented care and makes it more difficult than it should be to assess outcomes and patient satisfaction. The true costs of health care are disguised, competition based on price and quality are almost impossible, and patients lose their ability to be the ultimate judges of value.

Worse, currently proposed federal legislation would undermine any potential for real innovation in insurance and the provision of care. It would do so by overregulating the health-care system in the service of special interests such as insurance companies, hospitals, professional organizations and pharmaceutical companies, rather than the patients who should be our primary concern.

Accelerated crisis. That pretty much sums up US federal fiscal policy at this point. Make it go wrong faster.

In effect, while the legislation would enhance access to insurance, the trade-off would be an accelerated crisis of health-care costs and perpetuation of the current dysfunctional system—now with many more participants. This will make an eventual solution even more difficult. Ultimately, our capacity to innovate and develop new therapies would suffer most of all.

By 2019, the number of uninsured could be reduced from an estimated 57 million to 24 million under the current Senate healthcare reform bill. However, the accompanying additional demand for services that would accompany this expansion would be difficult to meet initially with existing health provider resources—leading to "price increases, cost-shifting and/or changes in providers' willingness to treat patients with low-reimbursement health coverage," according to a Dec. 10 memo compiled by Richard Foster, the Centers for Medicare and Medicaid Services (CMS) chief actuary.

Foster does not expect some of the proposed Medicare savings to really save money and expects some of them to be repealed by Congress - as they have been repeatedly in the past. Lower pay-out rates to doctors result in fewer doctors agreeing to see Medicare patients. So then old folks complain to their Congressional representatives.

Higher costs are coming. I expect at best stagnation of living standards.

The report, compiled by the chief actuary at the Centers for Medicare and Medicaid Services, estimated that total health costs in the U.S. would be $234 billion higher than if the bill weren't passed.

Parenthetically, if you want to watch for reports on the health reform bill coming out of the Medicare Office of the Actuary then watch this page for new PDFs that analyze Congressional bills.

Meanwhile a bunch of liberal Democrat Senators oppose putting people into Medicare starting at age 55 since that would make Medicare supplier shortages even worse.

“We appreciate the rationale underlying the proposed Medicare expansion,” the lawmakers wrote in the Dec. 11 letter, “but fear that provider shortages in states with low reimbursement rates such as ours will make such a program ineffective, or even worsen the problems these states are experiencing.”

If you are an American citizen expecting Medicare to pay for your medical care upon retirement think again. Since Medicare pays doctors less than private insurers many doctors only accept patients paid for by private insurers.

David Gratzer, a physician and author of Why Obama’s Government Takeover of Health-Care Will Be a Disaster, points out that while a larger percentage of GDP goes to health care in the United States other Western countries are experiencing similar percentage rates of growth in health care costs.

Countries like Canada and Britain spend a fraction of GDP compared with the U.S. But, in recent years, government-run health care has lost control of costs. Between 2000 and 2006, the average real annual growth rate for health expenditures for OECD member countries was 4.9%; American health inflation over the same period was 4.95%.

Take Britain. Even with top-down management, the annual budget of the National Health Service rose between 5% and 10% faster than inflation through most of the decade.

Aging populations combined with more expensive newer treatments translate into much higher costs. Unless individual patients have incentives to demand less care the costs will keep going up until living standards go down.

By Randall Parker    2009 December 13 11:05 AM Entry Permalink | Comments (3)
2009 December 07 Monday
Texas Beats National Average In Health Uninsurance

Texas is on the cutting edge of America's decline.

Nearly a third of people in Texas who are of working age do not have health insurance, Baylor University researchers found as they analyzed U.S. Census Bureau data.

Texas is the fastest-growing state, but 31percent of those ages 18 to 64 are uninsured.

The national average is 20.2 percent for that age group, said senior research analysts Debbie McMahon and Wes Hinze of Baylor’s Center for Community Research and Development.

Texas belongs with a cluster of states with lower medical insurance rates. Of course Texas represents America's bleak demographic future, the evidence for which can be found at very young ages. Texas and California show where we are going as a nation.

We are going to have to adjust our expectations downward. Delusion funded by taxes and subsidies for the lower performers is another option which Barack Obama and the Democrats in Congress are promoting.

By Randall Parker    2009 December 07 11:22 PM Entry Permalink | Comments (1)
2009 December 02 Wednesday
Costs Of The Proposed US Health Care Plan

A Wall Street Journal article points to a Congressional Budget Office study which finds Harry Reid's health care bill will boost premiums for individual buyers.

We have now reached the stage of the health-care debate when all that matters is getting a bill passed, so all news is good news, more subsidies mean lower deficits, and more expensive insurance is really cheaper insurance. The nonpolitical mind reels.

Consider how Washington received the Congressional Budget Office's study Monday of how Harry Reid's Senate bill will affect insurance costs, which by any rational measure ought to have been a disaster for the bill. CBO found that premiums in the individual market will rise by 10% to 13% more than if Congress did nothing. Family policies under the status quo are projected to cost $13,100 on average, but under ObamaCare will jump to $15,200.

Fabulous news!

"No Big Cost Rise in U.S. Premiums Is Seen in Study," said the New York Times, while the Washington Post declared, "Senate Health Bill Gets a Boost." The White House crowed that the CBO report was "more good news about what reform will mean for families struggling to keep up with skyrocketing premiums under the broken status quo."

The Wall Street Journal didn't provide a link to the article but it was easy enough to find. Curiously, in spite of the title "No Big Cost Rise in U.S. Premiums Is Seen in Study" the New York Times piece does admit that the bill in Congress will raise the costs of individual buyer premiums. But Congress and the Gray Lady pretend that since taxpayers will fund the higher costs that individual purchasers won't really pay higher prices. Um, at least some individual health insurance purchasers do pay substantial amounts of taxes, right?

Before taking account of federal subsidies to help people buy insurance on their own, the budget office said the bill would tend to drive up premiums. But as a result of the subsidies, it said, most people in the individual insurance market would see their costs decline, compared with the costs expected under current law. The subsidies, a main feature of the bill, would cost the government nearly $450 billion in the next 10 years and would cover nearly two-thirds of premiums for people who receive them.

So if you are self-employed, buying your own health insurance, and you are not going to qualify for the subsidy then your health insurance premiums are going to go up even faster.

The Gray Lady also has an article comparing claims by Republicans and Democrats in Congress about what this bill will do.

Senate Republicans say that it is unlikely that Congress would follow through on many of the cost-saving measures included in the bill and that the projections are therefore misleading. Democrats say the budget office does not give them any credit for many provisions, like new prevention and wellness programs that they believe will potentially save billions of dollars but that cannot be attributed directly to the budget.

Savings from prevention and wellness programs are pretty bogus. Most people are pretty immune to dietary and exercise advice. Most of what gets labeled as preventive medicine amounts to early diagnosis. That can cut costs. But I doubt the savings will be large. Electronic medical records aren't saving money where they are used.

One of the proposed savings for this bill is a reduction of Medicare pay-outs to doctors. This same proposed savings was used to pay some of the costs of the Medicare drug benefit which George W. Bush signed into law. Congress claims the pretend saving and at the same time does not pass legislation to achieve that saving. Why? Because too many doctors would stop seeing Medicare patients if the payment for seeing them goes down too far.

What I continue to find most amazing about this new health care bill: The United States is alreadly deeply in debt and going deeper. We are on an unsustainable path before adding yet another spending program to the pile. Yet the people in Congress are like train operators throwing coal on a steam engine as the train approaches a bridge that is out. Congress is going to spend us into another financial crisis. I think it is unavoidable.

Here's a list of talking points about the Senate plan from the Senate Republicans:

  • Page 324 includes an $8 billion tax on individuals that have non-government "approved" health plans.
  • Page 348 levies a $28 billion tax on businesses that cannot afford to offer insurance to their employees.
  • Page 1979 raises an almost $150 billion tax on many middle-class workers using so-called "Cadillac" health insurance plans.
  • Page 1997 will cost families and individuals an additional $5 billion by prohibiting the use of savings set aside for health care expenses through health savings accounts, flexible spending accounts or health reimbursement accounts for the purchase of non-prescription or over the counter medicines.
  • Page 2010 will make the cost of lifesaving medicine more expensive by taxing pharmaceutical research firms an additional $22.2 billion.
  • Page 2020 will ultimately lead to increases in the cost of advanced medical devices like pacemakers by raising taxes on medical device manufacturers an additional $19.3 billion.
  • Page 2026 will increase the health care premiums paid by millions of Americans through a new $60.4 billion tax on health insurance companies
  • Page 2040 increases the Medicare payroll tax on those earning more than $250,000. This new tax would cost $53.8 billion.
  • Page 2044 will eliminate a tax break in current law on Blue Cross / Blue Shield Providers and Beneficiaries, which equals about half a billion dollars annually, if at least 85 percent of revenues are not spent on clinical services. This new tax will result in higher premiums.
  • Page 2045 will create a $5.8 billion tax for patients receiving elective cosmetic surgery.

You can read the whole plan yourself or just look up the page numbers mentioned above. Judge for yourself.

By Randall Parker    2009 December 02 08:33 PM Entry Permalink | Comments (5)
2009 November 20 Friday
Electronic Medical Records Do Not Help Cut Costs?

A study comparing performance of hospitals at different levels of electronic record implementation findsthat I could file for divorce delivers at best a very small quality of care benefit or a reduction in hospital stay time.

The nation is set to begin an ambitious program, backed by $19 billion in government incentives, to accelerate the adoption of computerized patient records in doctors’ offices and hospitals, replacing ink and paper. There is wide agreement that the conversion will bring better care and lower costs, saving the American health care system up to $100 billion a year by some estimates.

But a new study comparing 3,000 hospitals at various stages in the adoption of computerized health records has found little difference in the cost and quality of care.

I've become suspicious of silver bullets advocated by politicians trying to avoid contentious trade-offs between competing demands of interest groups. Computers are not (at least in the foreseeable future) going to radically improve the quality of care so much that they appreciably cut costs. Until computers either replace health care workers or make incurable diseases curable they aren't going to do much to cut costs.

What are the big drivers of higher health care costs?

  • An aging population, pointless defensive medicine caused by the tort lawyers (and you need to talk to a smart nurse to find out how much this costs us).
  • More government subsidies increasing demand.
  • Regulatory obstacles in the way of introducing newer and cheaper therapies (basically only expensive drugs can generate the revenue to afford the approval costs),.
  • Expensive new technologies that make more diseases treatable - albeit often with only small benefits.
  • Patient demands for all possible treatments whatever the cost and how little the benefit.

To address the economic forces that drive up medical costs requires that Democrats take on their key interest group the trial lawyers, that both parties tell the populace that aggressive treatment of late stage terminally ill patients is a big waste (which the Repubs just demagogued with their "death panels" talk), and that the Democrats admit that the US Food and Drug Administration causes harm as well as good. Our growing portion of the populace that is stupid isn't going to push for needed changes. Will enough parts of our elites promote reforms to restore some common sense? I'm betting against it. The declining empire will continue to decline for this and other reasons. Things will get worse.

Update: While on the subject of great false hopes of medical care: Testing for early detection of cancer has been oversold. Early detection is often marketed under the label of preventative medicine. Well, it leads to unnecessary and harmful treatments and lots of money spent on tests.

Two new recommendations, calling for delaying the start and reducing the frequency of screening for breast and cervical cancer, have been met with anger and confusion from some corners, not to mention a measure of political posturing. The backers of science-driven medicine, with its dual focus on risks and benefits, have cheered the elevation of data in the setting of standards. But many patients — and organizations of doctors and disease specialists — find themselves unready to accept the counterintuitive notion that more testing can be bad for your health.

By Randall Parker    2009 November 20 08:40 PM Entry Permalink | Comments (25)
2009 November 16 Monday
The Mysteries Of Drug Price Economics

The Gray Lady misses the elephant in the hospital operating room. An article in the New York Times looks at how the drug makers are hiking prices right before the US Congress passes legislation to subsidize health insurance for more people.

Even as drug makers promise to support Washington’s health care overhaul by shaving $8 billion a year off the nation’s drug costs after the legislation takes effect, the industry has been raising its prices at the fastest rate in years.

The article suggests drug companies are doing this in order to negotiate from higher existing price positions. But they entirely miss an obvious really unpolitical explanation for the higher prices.

In the last year, the industry has raised the wholesale prices of brand-name prescription drugs by about 9 percent, according to industry analysts. That will add more than $10 billion to the nation’s drug bill, which is on track to exceed $300 billion this year. By at least one analysis, it is the highest annual rate of inflation for drug prices since 1992.

The article reports that a Harvard economist observed the same pattern of bigger price increases when Congress passed a bill to fund a Medicare drug benefit for old folks. Well, of course. If you increase demand you'll increase prices. But the article fails to mention this obvious lesson from basic economics.

The article continues in this oblivious vein. Look how they mention that the new health care legislation in Congress will increase demand. But they do not say "increase demand". In fact, "demand" doesn't show up in the whole article. How about some economic literacy?

The industry stands to gain about 30 million customers with drug insurance from the legislation pending in Congress. But the industry also faces the prospect of tougher negotiations from both public and private buyers as the government tries to squeeze savings out of the health system.

An aging, growing population combined with more subsidies for drug purchases will drive up prices. Higher demand raises prices.

By Randall Parker    2009 November 16 11:37 PM Entry Permalink | Comments (7)
2009 October 21 Wednesday
Smaller Supply Of US Medical Doctors Expected

Will the number of doctors in America fall short of needs by 200,000 physicians in the year 2020?

Compared with a source of data often used regarding physician workforce supply and projected changes, data from the U.S. Census Bureau suggests that the future physician workforce may be younger but fewer in number than previously projected, according to a study in the October 21 issue of JAMA.

Recent projections have indicated that the supply of physicians may soon decrease below recommended requirements, with some projecting a shortfall as high as 200,000 by 2020. "Although debate over potential shortages has focused largely on the number and type of physicians needed in the future, concerns have also been raised about data used in physician supply estimates and projections," the authors write.

The American Medical Association Physician Masterfile (Masterfile) data, although frequently used by workforce analysts, are believed to overestimate the number of active physicians at older ages, attributed to delays in updating the Masterfile data when a physician retires or experiences a change in status, according to background information in the article.

I am skeptical because a lot of visits to a doctor's office are optional. Do you really need to see a doctor about a sprain? Odds are it will heal. Or an allergy? There are over-the-counter meds that work as well as prescription meds for most people. How about a flu? No, it is not a bacterial infection and, no, an antibiotic won't help.

In 10 years time diagnosis will be far more automated. Cheap microfluidic devices will check blood, stool, urine, saliva for orders of magnitude more indicators (e.g. gene expression levels, many pathogens, and cancer cells) and expert systems will analyze the results. We ought to embrace such a future in order to slow spiraling medical costs that are holding down living standards improvements.

You can read a lot of political rhetoric about cutting medical costs. Well, we realistically have two choices for how that'll get done: automation or rationing. If we don't automate we'll ration.

By Randall Parker    2009 October 21 10:39 PM Entry Permalink | Comments (31)
2009 September 14 Monday
US Not Fastest Growth Rate For Health Care Costs

While the United States has high absolute spending on health care at least a dozen industrialized countries had faster percentage growth rates in health care costs from 1990 to 2007. South Korea at 9.6%, Ireland at 9.0%, Poland at 7.8%, Norway at 7.6%, and Greece at 7.1% are among the countries that surpass the US at 5.8%.

Rapidly developing countries like South Korea, Poland, and Ireland have rapidly growing buying power. People are spending more of each marginal dollar on health care as more basic needs are already satisfying. Plus, some of these countries have more rapidly aging populations. So these results are not surprising.

What would be more useful: a chart plotting percentage of GDP spent on health care versus absolute per capita GDP. Though such a chart would still not capture the effect of different age distributions or health habits of different populaces. Some countries are more sick because more smoke or more are obese.

By Randall Parker    2009 September 14 11:09 PM Entry Permalink | Comments (1)
2009 September 08 Tuesday
Support For Obama Healthcare Plan Declines With Age

The youngest have the lowest levels of medical coverage and the greatest support for more taxpayer-funded health care for the uninsured.

Overall, the nation split almost right down the middle, with 48 percent favoring Obama’s plan and 51 percent opposed.

But here’s the breakdown on generational lines:

• Americans age 65 and up: 38 percent support the president on this issue.

• Age 50 to 64: 46 percent support.

• Age 35 to 49: 41 percent support

• Age 18 to 34: 60 percent support.

Americans above age 65 know that allocation of tax revenue (or, rather, borrowed money) for Medicare competes with allocation of that same money for medical spenidng for younger cohorts. They do not want competitors because they do not want benefits cuts for themselves.

I think the emphasis on expanded coverage as a first step in health care reform is a mistake. Once government is on the hook to fund more medical spending the prospects for market reforms go down, not up. My fear is that we'll evolve toward a single payer system as more employers shift toward lower cost government-provided medical insurance. A single payer system will reduce the incentives for innovations and improved productivity.

What I'd like to see as incremental improvements on the existing private medical insurance market:

  • Let the self-employed deduct medical insurance premiums from taxable income just as employers do with medical insurance for employees.
  • Let employees opt out of corporate medical plans to instead by portable medical insurance. One shouldn't have to lose coverage if one develops a condition and then gets laid off. Another variation: let employees optionally pay more for a portable version of the employer's medical plan.
  • While they have jobs let employees save pre-tax money in an account to use to buy medical insurance when between jobs.
  • Make medical policy benefits more transparent. One shouldn't have to get seriously sick in order to find out what one's medical plan covers or does not cover. Insurance companies should be required to post detailed descriptions of what they cover and do not cover.
  • Allow medical policies to be written to cross state boundaries. I can understand an insurance company may want to price based on residence address. But they should be allowed to compete across state boundaries so that one can move without running the risk of becoming uninsured. Perhaps insurance companies would provide policies that have price formulas for people who move. Or a policy could cover a group of states. Some states have cost-boosting regulations (e.g. with clauses that fund psychotherapy and other things put in by assorted special interests). But some groups of states could come up with common policy rules that would enable larger insurance markets.

We need more experimentation before making large national changes because we do not know what the real costs will be for a policy first rolled out at the national level. The US government has a number of ways to experiment. For example, it has the US military health system, the Veterans Administration, Medicare, Medicaid, the federal employees medical insurance program, and still other medical programs it runs. The federal government should use these programs to try methods to cut costs and improve quality and convenience. Lead by example rather than by dictates on the rest of us.

By Randall Parker    2009 September 08 10:56 PM Entry Permalink | Comments (7)
2009 August 23 Sunday
US Health Insurance Cost Trend Not Sustainable

Here's a trend that can't continue.

August 20, 2009, New York, NY— Nationally, family premiums for employer-sponsored health insurance increased 119 percent between 1999 and 2008, and could increase another 94 percent to an average $23,842 per family by 2020 if cost growth continues on its current course, according to a new Commonwealth Fund report.

The report, Paying the Price: How Health Insurance Premiums Are Eating Up Middle Class Incomes, State Health Insurance Premium Trends And The Potential Of National Reforms, finds that national reforms that slow health care cost increases by 1 to 1.5 percent per year would yield substantial savings for families and businesses across the country. By 2020, slowing the annual rate of growth by 1 percent would yield more than $2,500 in reduced premiums for family coverage, and slowing growth by 1.5 percent would yield more than $3,700 in premium savings compared to projected trends.

This is, parenthetically, an argument against letting in low skilled immigrants. Our basic standard of medical care is so incredibly expensive that any immigrant incapable of earning $100k per year is probably going to be a tax burden on the rest of us.

Obviously companies, families, and individuals are going to increasingly be unable to afford these rising costs. What will they do? The overwhelming majority will demand more medical spending by government. If Obamacare is defeated this year that does not mean the battle over a bigger government role is over.

The problem is that newer high tech treatments are incredibly expensive but patients expect them.

A recent study by Evergreen Re was completed in conjunction with Ingenix/Reden & Anders, Minneapolis. The study found that the frequency of members with paid claims greater than $1 million per 100,000 commercial members rose from 0.07 in the year 2000 to 1.1 in 2005, and will increase to 2.4 (low trend) and possibly 3.6 (high trend) by 2010.

...

The four largest sources of $1 million plus claims are premature babies/infants, organ transplants, cardiovascular disease, specialty drug therapies and cancer treatment.

For example, the number of organ transplants has doubled in the past 10 years. There are more than 100,000 Americans on the organ transplant list and approximately 25,000 solid organ transplants are performed every year. The average billed charges for a multiple organ transplant now approaches $775,000. In addition, bone marrow transplants, now used to treat some 70 different diseases, increasingly cost more than $500,000.

Who is going to tell people they can't have extremely expensive treatments?

What I'd like to know: What is the rate of treatment with organ transplants per million people per year in the US versus Canada, Britain, France, Germany? Similarly, how hard do other countries try to keep premature babies alive? I suspect a lot of the differences in health care costs between the US and other Western countries has to do with the costs-be-damned extremes we go to.

By Randall Parker    2009 August 23 10:46 AM Entry Permalink | Comments (2)
2009 August 10 Monday
Food Stamp Subsidies Making Americans Fat

Government subsidies for poor folks to buy food are making them fat.

COLUMBUS, Ohio – The U.S. Food Stamp Program may help contribute to obesity among its users, according to a new nationwide study that followed participants for 14 years.

Researchers found that the average user of food stamps had a Body Mass Index (BMI) 1.15 points higher than non-users.  The link between food stamps and higher weight was almost entirely based on women users, who averaged 1.24 points higher BMI than those not in the program, the study found.  For an average American woman, this would mean an increase in weight of 5.8 pounds.

Modest proposal: Make eligibility for the food stamps weight-tested.

The welfare state is making people fatty and unhealthy.

The study also found that people’s BMI increased faster when they were on food stamps than when they were not, and increased more the longer they were in the program.

Former Democratic Party Presidential candidate George McGovern, a big welfare state supporter, might have contributed to the obesity epidemic in another way. See Dennis Mangan's post for the details: The Government's War Against Dietary Fat Caused the Obesity Epidemic. The goverrnment's encouragement of higher carbo consumption and lower fat consumption might be to blame. So then is Gary Taubes right in his book Good Calories, Bad Calories: Fats, Carbs, and the Controversial Science of Diet and Health?

By Randall Parker    2009 August 10 11:33 PM Entry Permalink | Comments (11)
2009 August 09 Sunday
Congressional Health Plan Cost Estimates $1 Tril Too Low

Stephen T. Parente, a biz prof at U Minn and a member of a consulting firm that works with large medical cost databases, says Congressional estimates for costs of current health care legislation are low by over $1 trillion dollars.

The CBO is actually being kind to the would-be reformers. Its analysis likely understates—by at least $1 trillion—the true costs of expanding health coverage as current Democratic legislation contemplates. Over the last few months, my colleagues and I at the consulting firm Health Systems Innovations have provided cost estimates of health-care reform to both Republican and Democratic members of Congress, and we’ve posted these estimates on our website as well. We believe that the Democratic bills currently under consideration in the House and Senate would cost $2.1 trillion and $2.4 trillion, respectively—much higher than CBO’s figures.

The discrepancies between our estimates and CBO’s stem from our different assumptions about a key issue. The Democratic plans envision a government-run insurance program, modeled after Medicare, that will compete with private insurers. How many people would opt for coverage under this public insurance? We believe that both large and small employers would have powerful incentives to shift their employees out of private coverage and into the public plan. Like the Urban Institute, we estimate that roughly 40 million people would make the shift. CBO seems to assume, however, that large employers would use the public plan only sparingly and that only 11 million people would move from private to public insurance—which would, of course, result in lower costs.

To the extent that the US government subsidizes its own health insurance plan it will be able to offer premiums at below market rates. So it seems inevitable that it will take away market share from private plans. How can one expect otherwise?

Parente says he has a bigger dataset of commercial insurance data to work with that the Congressional Budget Office does not have.

Why the difference in these estimates? We believe that we have better data on this issue than the CBO, which uses simulation models of health-insurance plans based on much older health-plan data—typically from 2001 or even 2000. Our estimates are grounded in 2006 commercial-insurance data to which the CBO doesn’t have access (the data are not publicly available and the CBO didn’t make provisions to purchase them). These data reflect the advent of much cheaper, high-deductible health plans and limited-provider network plans. If the government modeled its public option on these inexpensive plans, the result would be cheap enough to lure far more people away from private health insurance than the CBO estimates.

We already have government entitlements programs that we can not afford. The aging population is going to cause the costs of those programs to skyrocket in the 2010s and 2020s. On top of that Peak Oil is rapidly approaching and will cause an extended economic contraction. Existing entitlements programs will have to shrink and suffer big benefits cuts as the economy contracts.

By Randall Parker    2009 August 09 02:09 PM Entry Permalink | Comments (3)
2009 July 28 Tuesday
Martin Feldstein Down On Obama Health Care Plan

Harvard econ prof Martin Feldstein argues that the Obama health plan is a bad idea.

For the 85 percent of Americans who already have health insurance, the Obama health plan is bad news. It means higher taxes, less health care and no protection if they lose their current insurance because of unemployment or early retirement.

I think Obama's biggest problem is his attempt to tie reductions in Medicare outlays to funding of medical insurance for the poor. The oldsters vote more reliably and and with clearer idea of their self interest than do the (less intelligent and less tuned in) poor.

Feldstein thinks there are less costly ways to extend health insurance to the poor.

President Obama's primary goal is to extend formal health insurance to those low-income individuals who are currently uninsured despite the nearly $300-billion-a-year Medicaid program. Doing so the Obama way would cost more than $1 trillion over the next 10 years. There surely must be better and less costly ways to improve the health and health care of that low-income group.

Feldstein makes some good points in the full article.

I have a great proposal for how to cut the number of medically uninsured: Non-citizens make up 43% of the uninsured. Some have citizen children who are similarly uninsured. Deport them before they create more citizens who are a net cost to the rest of us.

We pay for the uninsured in at least two ways. The most obvious way is thru taxes. Obama wants to increase that. But we also pay in another way: medical institutions charge the insured substantially more in order to subsidize care for the uninsured. We are therefore already paying a lot for the uninsured before Obamacare.

What I most do not want from Obamacare: lowered quality of care for the insured or the retirees. I fear Obama's attempt to create a government insurance company will undermine private insurance and reduce one's ability to avoid government meddling in health care. So I hope resistance to Obama's plan continues to build.

By Randall Parker    2009 July 28 12:02 AM Entry Permalink | Comments (1)
2009 July 23 Thursday
Obama Medical Plan Adds To Unsustainable Medical Costs

Barack Obama and his Congressional allies in the Democratic Party want to enact a big new entitlements program for medical benefits for the non-retired. Cost is a huge problem since the US deficit is already quite large and existing entitlements programs (which are mostly medical) are already on course to soar in costs. Douglas Elmendorf, director of the Congressional Budget Office, outlines just how much Medicaid and Medicare will grow as a percentage of GDP.

Measured relative to GDP, almost all of the projected growth in federal spending other than interest payments on the debt stems from the three largest entitlement programs—Medicare, Medicaid, and Social Security. For decades, spending on Medicare and Medicaid has been growing faster than the economy. CBO projects that if current laws do not change, federal spending on Medicare and Medicaid combined will grow from roughly 5 percent of GDP today to almost 10 percent by 2035. By 2080, the government would be spending almost as much, as a share of the economy, on just its two major health care programs as it has spent on all of its programs and services in recent years.

In CBO’s estimates, the increase in spending for Medicare and Medicaid will account for 80 percent of spending increases for the three entitlement programs between now and 2035 and 90 percent of spending growth between now and 2080. Thus, reducing overall government spending relative to what would occur under current fiscal policy would require fundamental changes in the trajectory of federal health spending. Slowing the growth rate of outlays for Medicare and Medicaid is the central long-term challenge for fiscal policy.

I think those figures are optimistic because I believe the conventional wisdom about future economic growth rates in the US economy are unrealistic. We have demographic and geological (oil and other resources) problems that will hold down economic growth in the next couple of decades and beyond. So these entitlements programs will need to take larger slices of the US economy in order to fund growing portions of the population of retirees and of lower performing and lower earning workers.

Higher taxes will lower earning power. You will need to increase your before-tax income much faster than the rate of inflation in order to increase your after-tax income.

Medicare is a big obstacle for Obama's ambitions because Obama wants to fund medical spending for poor people in part by cutting spending growth in Medicare. The old folks (and those near retirement) are starting to push back against that idea. The existence of Medicare basically puts old folks in an opposing faction against the poor younger medically uninsured.

Everything else is going to get squeezed by medical spending and old age benefits.

Under current law, spending on Social Security is also projected to rise over time as a share of GDP, but much less sharply. CBO projects that Social Security spending will increase from less than 5 percent of GDP today to about 6 percent in 2035 and then roughly stabilize at that level. Meanwhile, as depicted below, government spending on all activities other than Medicare, Medicaid, Social Security, and interest on federal debt—a broad category that includes national defense and a wide variety of domestic programs—is projected to decline or stay roughly stable as a share of GDP in future decades.

I think we should make a much more concerted effort to automate the provision of medical care and to reduce the need to see doctors. Software expert systems and lab tests done from samples collected at pharmacies should be elements of lower cost future of medical care. Rather than spend huge amounts of money on delivering medical care with current cost structures we should spend smaller amounts on automating the jobs of highly expensive medical care providers.

Leave aside for the moment whether you favor or oppose government spending on medical care. If the government is going to create a new and extremely expensive entitlements program it should be careful in the design of such a program and should know what will work and what will fail or be more expensive. The history of government medical programs has been far greater costs and problems than originally projected. Mitt Romney, who as governor of Massachusetts has experience extending health insurance to poor people, argues that the Obama administration is proceeding without proper analysis or understanding of how their medical plan will work in practice and that design of such a hugely expensive undertaking requires a lot more time and effort.

The legislation has almost nothing to do with cost reduction. Nothing I have seen in the bills that are being discussed by the Democratic leadership suggests that there will be a significant change in health inflation. This is an extraordinarily important topic and one for which there is a great deal of information around the world. Normally, if this were private enterprise, you would spend a great deal of time with brilliant analysts, looking at alternatives, evaluating lessons from foreign places, and perhaps even experimenting with some alternatives before unleashing them on the entire U.S. economy. Health-care reform is a matter that should be focused on allowing our citizens to have better health at more reasonable cost, as opposed to being thought of as a political success or failure. We really can't afford a lot of trillion-dollar mistakes.

The Massachusetts plan to raise the rate of medical insurance has not put a lid on costs.

Three years after mandating that residents get health insurance and requiring employers, insurers and taxpayers to chip in, Massachusetts has yet to control soaring costs that are eating up half its budget.

...

Dealing with cost and quality has proved trickier. Higher health care costs fueled a combined $9 billion gap in the state's 2009 and 2010 budgets that had to be closed last month, leaving less for education, public safety, the environment and other services.

Want less spending on education or the environment or public safety? Want fewer police and fewer prisons? Support expanded medical care spending. Better start lowering your living standard now. Get ready for the New Austerity.

Bush made a couple trillion dollar mistake in Iraq. Clinton, Bush, and Congress made an even bigger mistake with financial regulation. Now Obama and his allies are trying to make a far larger health care spending mistake. I'm opposed.

By Randall Parker    2009 July 23 06:43 AM Entry Permalink | Comments (2)
2009 July 19 Sunday
Obama Health Care Financing Problem Looking Bigger

The Obama administration claims their universal medical insurance proposal won't bankrupt the country because assorted cuts will come later.

President Obama's budget director on Sunday described a House bill on health care reform as "deficit neutral" even though it includes Medicare payments to doctors that would put the bill $240 billion in the hole over a decade.

Office of Management and Budget Director Peter Orszag insisted that Obama won't sign any health care reform that isn't paid for, but also said the legislation doesn't take into account savings that will be achieved in other bills to come.

But the pattern of medical spending programs from the US government is that they end up costing far more than originally projected. You've got to start out with a break-even original proposal because going forward reality will only be worse. The recent Massachusetts expansion of health care coverage provides yet another example of a program that costs more than originally projected.

It will not save money. In fact, according to CBO director Douglas Elmendorf, it will "significantly expand the federal responsibility for health-care costs," exacerbating rather curing the dire, health-care driven budget problems we already face. As Ron Bailey pointed out earlier today, this is the result when you use official government cost estimates. And as the Massachusetts experiment with universal coverage taught us, the true cost of any universal-coverage oriented health-care overhaul is likely to be far higher than projected.

It will likely shift people away from their current health-insurance plans. Depending on the final details surrounding the proposed public plan, some people will almost certainly end up moved
away from their current plans. At a bare minimum, Obama's promise that individuals will be able to keep their current health-insurance is misleading.

It will raise taxes.

Governors of both political parties oppose Obamacare because it will foist still more unfunded medical spending mandates on them.

The role of the states in a restructured health care system dominated the summer meeting of the National Governors Association here this weekend — with bipartisan animosity voiced against the plan during a closed-door luncheon on Saturday and in a private meeting on Sunday with the health and human services secretary, Kathleen Sebelius.

Read that full article. The states have huge deficits and they can't afford a huge expansion in Medicaid that the bills in Congress would force upon them.

Why the numbers will be even worse than projected: The US economy is going to grow slowly for the next 10 years if it even grows at all. The US government assumes rising tax revenues based on excessively optimistic economic growth projections. But the recent financial crisis, demographic trends, and Peak Oil will lower long term growth if long term growth even happens at all.

By Randall Parker    2009 July 19 10:20 PM Entry Permalink | Comments (6)
2009 July 15 Wednesday
National Health Insurance Battle Continues In Congress

Employers must medically insure employees or else.

The Senate bill would require most Americans to obtain health insurance and require employers of more than 25 workers to provide coverage or face a $750-per-worker penalty. Insurers could no longer bar people with pre-existing conditions. But, no one with insurance would be required to change insurers.

At the risk of stating the obvious: Some companies will lay off employees in order to get below the 25 worker requirement for paying health care. Also, once people with existing conditions can get medical insurance those without existing conditions will pay more.

On the bright side: This will shift more of the cost of illegal aliens onto the shoulderes of the employers who hire them.

What's another $100 billion per year in a declining empire?

The Senate majority leader, Harry Reid of Nevada, has said he hopes to have a health care bill on the floor by July 27. That goal appears unrealistic, even though members of the Finance Committee said they were making progress in talks on how to pay for their bill, expected to cost at least $1 trillion over 10 years.

What I most worry about the health care debate: The changes will reduce the incentives for developing newer and better treatments. Which medical treatments do you most need: Those treatments that do not exist yet.

You (or your employer) will pay more in health insurance premiums to provide the US federal government with money to pay for health insurance of poor uninsured people.

Insurance companies should use their profits to help fund as much as $100 billion of a landmark overhaul of the U.S. health-care system, senators including Democrat Charles Schumer of New York said.

That $100 billion cost for national healthcare comes on top of the massive budget deficits already in place.

Millionaires will pay for wider health insurance too.

July 15 (Bloomberg) -- House Democrats plan to fund the broadest U.S. health-care expansion in four decades by increasing taxes on the wealthiest Americans, imposing a surtax of 5.4 percent on couples with more than $1 million in income.

Robin Hood is in charge in the US House of Representatives. Beware Sherwood Forest.

By Randall Parker    2009 July 15 11:09 PM Entry Permalink | Comments (5)
2009 July 12 Sunday
United States Top Income Tax Rates Increasingly Over 50%

Remember when the United States had very high marginal tax rates? Then starting with Carter and Reagan the top rates were lowered to the point where taxes weren't severely confiscatory. Well, those confiscatory days are coming back. If Obama succeeds in sticking it to higher earners in order to fund medical spending for poor people then in lots more states the top income tax rate will go above 50%.

Washington, DC, July 10, 2009 - As Congress considers a surtax on the nation's top earners to fund an expansion in federal health care, a new Tax Foundation analysis shows that 33 states would see top tax rates exceed 50%.

One new funding proposal being floated by the House Ways and Means Committee is a 4% surtax levied on couples with adjusted gross incomes (AGI) over $250,000 and individuals earning more than $200,000.

"Combining top federal and state rates, and factoring in all deductions, the government would be taking over half of every additional dollar from high-income taxpayers in two-thirds of the states under this latest funding scheme," Tax Foundation President Scott Hodge said. "In fact, even in the seven states with no income tax, the lowest top tax rate would be about 46%."

Tax Foundation Fiscal Fact No. 176, "Top Effective Marginal Rates Under a 4 Percent Health Care Surtax by State," may be found online at http://www.taxfoundation.org/publications/show/24848.html.

The hardest-hit states would be Hawaii (55.8%), Oregon (55.8%), New Jersey (55.6%), California (55.4%), Rhode Island (54.8%), Vermont (54.4%), New York (54.00%), Maine (53.6%), Minnesota (53.0%), and Idaho (52.9%). Washington, DC, and New York City would see their top effective marginal rates rise to 53.6% and 57.3%, respectively. The effective marginal tax rate takes into consideration deductions and adjustments in order to present a truer measure of an individual's rate.

To me there's something morally outrageous for the government to take half of what you earned. Whatever did the government do to deserve taking more than half? This 4% surtax will kick in above $200k for single filers.

9 states still have no income tax. So the top federal rate of 45.9% will be the top total rate for them.

Only 17 states would see their top tax rates remain under 50%, with 45.9% being the lowest in Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.

High earners who do not want to pay over half of their marginal dollar in taxes should think about moving to places where you will still be able to keep half of what you earn. Also, write to your elected representatives and strongly suggest that the Leviathan should be cut down rather than expanded.

Obama aims to increase redistribution.

Washington, DC, June 25, 2009 - New analysis of President Obama's Budget finds that he is targeting the nation's highest earners for greater income redistributions. By 2012, the federal government is scheduled to be redistributing an extra $79 billion from the top-earning 5 percent of American families, and $71 billion of that will be paid by the top-earning 1 percent of families.

"That's an additional $64,000 per family redistributed from the top-earning 1 percent," said the Tax Foundation's president Scott Hodge, "on top of the already substantial $368,000 that would have been redistributed from each family even without President Obama's new policies."

"Part of that change is higher taxes, and part is lower spending on items that benefit high-income people," said the study's lead author, Tax Foundation Senior Economist Gerald Prante.

The new study is No. 168 in the Tax Foundation Special Report series, titled, "How Much Does President Obama's Budget Redistribute Income?" by Prante and his co-author, Chief Economist Patrick Fleenor, and is available online at www.taxfoundation.org/publications/show/24783.html.

Consider the longer run context of a 4% income surtax added just for medical spending for non-retired. The US federal government is running a huge deficit that looks set to continue for years to come. That deficit creates pressure for additional tax increases to balance the budget. But if medical spending is already going to raise the top marginal tax rate above 50% in most states what will happen to that rate once taxes are increased to balance the budget? The marginal return on tax increases will go negative. As a consequence, beware of value-added tax as a way to get even more revenue once income taxes run out of steam.

By Randall Parker    2009 July 12 12:41 AM Entry Permalink | Comments (9)
2009 June 18 Thursday
Medical Costs In United States Continue Rapid Ascent

The continued big increases in US health care costs are not sustainable.

Even after the US economy recorded its worst contraction in a quarter-century in late 2008 and early 2009, medical costs continued to grow. The perplexing contrast of health spending growing amid a deflated general economy will present employers with unique challenges for their 2010 healthcare benefits strategies.

Key findings from the report include:

  • Growth in medical costs for 2010 is expected to be 9 percent, slightly lower than in previous years
  • The recession and the prospect of health reform will help temper medical costs, impacting the pricing
  • As the recession pounded corporate profits in early 2009, employers surveyed said they were ready to push more of the costs of health insurance to their workers in 2010 while expecting more responsibility from workers for managing their personal health
  • Although health reform will have a major impact on the industry, its effect on medical costs likely will not be felt until 2011 or later

These rapidly rising costs are providing the political impetus to do something about health care policy. Unfortunately, I do not have faith in our political class to do something constructive about those costs.

By Randall Parker    2009 June 18 10:43 PM Entry Permalink | Comments (1)
2009 June 17 Wednesday
Hearings On Health Insurance Policy Cancelations

If you get seriously sick your health insurance company might investigate your medical history.

An investigation by the House Subcommittee on Oversight and Investigations showed that health insurers WellPoint Inc., UnitedHealth Group and Assurant Inc. canceled the coverage of more than 20,000 people, allowing the companies to avoid paying more than $300 million in medical claims over a five-year period.

It also found that policyholders with breast cancer, lymphoma and more than 1,000 other conditions were targeted for rescission and that employees were praised in performance reviews for terminating the policies of customers with expensive illnesses.

In some cases they are targeted over items in their medical records unrelated to the expensive conditions that cause insurance companies to focus on them in the first place.

I happened to watch the testimony for this subcommittee on C-SPAN. I saw these people testify:

A Texas nurse said she lost her coverage, after she was diagnosed with aggressive breast cancer, for failing to disclose a visit to a dermatologist for acne.

The sister of an Illinois man who died of lymphoma said his policy was rescinded for the failure to report a possible aneurysm and gallstones that his physician noted in his chart but did not discuss with him.

What really floored me: the policyholders did not get their policies revoked for hiding the disease that racked up the big costs. For those testifying they lost their coverage over medical issues that nothing to do with their expensive diseases that came later. I sat watching thinking that if one has an individual policy one is basically not safe. You can't count on remaining insured if your insurance company decides to dump you.

It seems to be the case that you can lose your coverage even though you didn't fraudulently represent yourself to a medical insurance company. If one can't make a good faith effort to reveal one's medical history and be assured continued medical insurance as long as you pay your premiums then anyone who has to buy their own medical insurance directly is at risk of losing medical insurance.

Leave aside the public policy issue of health insurance coverage for the moment. What should the self-employed do to ensure they will have medical coverage should the need arise? If you have plenty of money, are healthy, and want to get medical insurance then how to go about it in a way that won't leave an opening for your insurance company to drop coverage a few years later should you suddenly get an expensive disease?

What I also wonder: Are there companies that only try to do rescission on policyholders for previous medical records on the disease that becomes expensive? In other words, do any of the health insurance companies use ethical standards for deciding when to revoke a policy?

The LA Times has been covering the health insurance rescission phenomenon for years and has a lot of articles on their web site about it.

Suppose you don't get your policy revoked. How expensive might it become? Blue Shielf of California hit one 44 year old policy holder with a 54% rate hike to $484 per month. What's it going to cost her at age 50? 55? 60?

The medical insurance providers say they have to contend with fraud. I buy that argument. But the fraud charge is hard to justify when the reason for revoking the policy is for a condition for which the policyholder hasn't even sought treatment (as was the case for some of the people who testified to Congress).

Wellpoint executive Brian A. Sassi told the panel recission policies helped insurance companies combat fraud by ferreting out policyholders who did not reveal pre-existing condition before they signed up for coverage. Sassi pointed to statistics suggesting health-care fraud in the U.S exceeds $100 billion each year.

Since in the United States most people get their medical insurance through their employer they are at risk of losing the ability to get coverage if they develop a condition while employed and then lose their job. An individual can become uninsurable via individual policies. Then it becomes necessary to get a job that comes with medical insurance. Well, what if you are too sick to work?

Even those with employer-provided health insurance are getting hit by rapidly rising costs.

Among adults with employer-sponsored health coverage, out-of-pocket (OOP) spending—including premium shares, deductibles, copayments, and coinsurance—increased by 34 percent between 2004 and 2007, from $545 to $729. Out-of-pocket spending rose 42 percent for the 1 percent of adults with the greatest medical expenses.

By Randall Parker    2009 June 17 11:57 PM Entry Permalink | Comments (15)
2009 June 09 Tuesday
Medical Care Costs And Nationalized Health Care

Medical care costs vary greatly from city to city.

Nationally, according to the Dartmouth Atlas of Health Care, Medicare spent an average of $8,304 per beneficiary in 2006. Among states, New York was tops, at $9,564, and Hawaii was lowest, at $5,311.

Researchers at Dartmouth Medical School have also found wide variations within states and among cities. Medicare spent $16,351 per beneficiary in Miami in 2006, almost twice the average of $8,331 in San Francisco, they said.

The Senate Finance Committee recently suggested that one way to pay for health care overhaul would be to reduce geographic variations by cutting or capping Medicare payments in “areas where per-beneficiary spending is above a certain threshold, compared with the national average.”

Local differences in how medicine is practiced accounts for a large chunk of these differences. Some doctors and hospitals provide a lot of care that yields little benefit. I've seen this up close and personal with a close relative whose oncologist wanted to continue treatment for months beyond the point where the treatment was providing any benefit. But that treatment was doing a serious ka-ching on the doctor's bank account. In some areas are doctors just more ethical? Or are patients less realistic about potential treatment benefits?

The US government has done a poor job of reining in growth of Medicare spending - see Miami above. It has cut pay-outs for various treatments and the result has been fewer doctors willing to treat Medicare patients. Given the poor record of the US government with Medicare it seems kinda cheeky for the Obama Administration to propose a bigger government role for funding health care for those not yet retired as a way to cut costs and make health care more affordable.

But Obama's not looking at cost cutting so much as he's looking at tax the rich to pay for the poorer folks.

“He made a very strong case for the proposal that he put on the table, which was to cap deductions for high-income Americans, and he urged them to go back and look at that,” Axelrod said on the CNN’s “State of the Union.” Goolsbee, appearing on “Fox News Sunday,” said Obama is “mindful” about how “ordinary Americans are able to foot the bills” and never proposed taxing employee benefits.

Taxes aside, what disturbs me is that people wanting individual health insurance policies will have to go thru some some of federal exchange. What is the exchange? How does it affect what sorts of medical insurance policies we will be able to choose?

The outline suggests consumers who have individual health insurance policies that they like could keep them. Still, it says that “by and large” the nation’s market for individually purchased health insurance policies would move to a new federally operated exchange. It would permit both individuals and employees of small firms to buy policies at less expensive group rates.

I do not want a government getting near to messing with my own ability to make choices about medical care.

By Randall Parker    2009 June 09 03:09 AM Entry Permalink | Comments (6)
2009 May 18 Monday
Taxes Coming On Medical Insurance Benefits?

Congress is busy thinking about how to tax from the haves to give to the have-nots.

A bipartisan outline released Monday by the Senate Finance Committee suggests peeling back a number of tax exemptions to pay for expanding health insurance to the nation's 46 million uninsured. They are just options at this point, but they signal where lawmakers are headed as they try to pass a health-care package by August.

The government gave up $194.2 billion in revenue due to health tax breaks in 2008, more than any other single group of abatements, according to the Senate report. The majority of that comes from the tax exemption for employer-provided health-care benefits. The Senate proposals would chip away at that exemption by limiting the amount that would remain tax-deductible based on employees' incomes or the value of their plans, or both.

I've watched recent televised Senate Finance Committee hearings about health care and some of the panelists chosen to testify to the Senators supported limits on tax avoidance employer-provided health insurance. Workers will pay more in taxes to fund medical care for the uninsured. The taxes will either set limits on the amounts employers can pay for insurance per employee or limit it by employee income.

This means that someone in their 50s or 60s will likely pay more in taxes as the cost of their medical insurance rises with age.

Already the insured pay for medical care for the uninsured via cost shifting that occurs in hospitals and other treatment centers. More productive people pay for less productive people. This burden is going to become heavier as the fraction of the population with low skills and low earning power increases due to demographic changes wrought mostly by immigration.

By Randall Parker    2009 May 18 05:46 PM Entry Permalink | Comments (2)
2009 May 14 Thursday
Insurance Costs For Medical Practices Measured

Medical costs as a percentage of the total US economy are approaching unsustainable levels. Medical cost cutting has become an important political issue.

Bethesda, MD—As policymakers consider ways to cut health costs as a part of health reform, a new national survey of physician practices finds that physicians on average are spending the equivalent of three work weeks annually on administrative tasks required by health plans. According to the study by Lawrence P. Casalino, M.D., Ph.D., of Weill Cornell Medical College and colleagues, physician practices report that overall the costs of interacting with insurance plans is $31 billion annually and 6.9 percent of all U.S. expenditures for physician and clinical services. The study, published in today’s online issue of Health Affairs, was co-funded by The Commonwealth Fund and the Robert Wood Johnson Foundation’s Changes in Health Care Financing and Organization (HCFO) Initiative.

The costs are higher for smaller practices with fewer physicians. One can imagine that larger practices have administrative specialists who do some of the work and better information systems for automating the work.

Another study finds a large group practice spends 10% on billing and insurance.

A separate study, also published in today’s online issue of Health Affairs and co-funded by The Commonwealth Fund and the HCFO, provides an in-depth look at the billing and insurance-related activities performed at a large multi-site, multi-specialty group practice in California to get paid for clinical services. The study found that clinicians spent more than 35 minutes per day performing billing and insurance-related tasks and that these activities also required the equivalent of 0.67 non-clinical full time staff per full-time physician at an annual cost of $85,276 per physician, representing 10 percent of operating revenue.

Then there are additional costs in the insurance companies. Plus, patients and their families have to spend some time dealing with insurance companies and bills.

To be fair to the insurance companies the biggest problem with medical payments is that the money doesn't flow in ways that maximize incentives for efficiency. That's mostly due to the fee-for-service model by which medical services are provided. Doctors and hospitals make more money by providing more services. They are not incentivized to manage care in ways that minimize costs. Insurance companies try to reduce the resulting waste by making treatment funding approvals harder to get. But this response by insurance companies does not address the underlying problem with incentives.

Political responses to the problem of high medical costs are in the offing. Will these responses make the problem of bad incentives better or worse? I fear the latter. America's elected leaders are an unimpressive lot. I do not expect wise decisions from them.

By Randall Parker    2009 May 14 11:54 PM Entry Permalink | Comments (2)
2009 April 02 Thursday
Doctor Availability Declining For Old Americans

From where I sit medical care rationing in the United States looks inevitable. Rising costs motivate governments to look for ways to cut back care while pretending not to. One way to do this: offer so little money with so much hassle for treating patients that doctors start rejecting large categories of patients. This is already happening with Medicare. Lots of doctors are deciding to not enroll as Medicare care providers.

The solution to this problem is to find doctors who accept Medicare insurance — and to do it well before reaching age 65. But that is not always easy, especially if you are looking for an internist, a primary care doctor who deals with adults. Of the 93 internists affiliated with New York-Presbyterian Hospital, for example, only 37 accept Medicare, according to the hospital’s Web site.

Two trends are converging: there is a shortage of internists nationally — the American College of Physicians, the organization for internists, estimates that by 2025 there will be 35,000 to 45,000 fewer than the population needs — and internists are increasingly unwilling to accept new Medicare patients.

In a June 2008 report, the Medicare Payment Advisory Commission, an independent federal panel that advises Congress on Medicare, said that 28 percent of the Medicare beneficiaries it surveyed who were looking for a primary care doctor had a problem finding one to treat them, up from 24 percent the year before. And a 2008 survey by the Texas Medical Association found that while 58 percent of the state’s doctors took new Medicare patients, only 38 percent of primary care doctors did.

This argues for getting rich (or at least as affluent as possible) before you retire. Put money into a Health Savings Account and accumulate it for years and decades. You'll need it in your old age. Retiree health care costs are rapidly rising.

Rationing (while mostly pretending not to) in Canada, Britain, and other countries shows that rationing can occur on a large scale in otherwise moderately free market countries. You need a big bank account to buy your way around its effects. Plan and act accordingly.

By Randall Parker    2009 April 02 11:32 PM Entry Permalink | Comments (9)
2009 March 29 Sunday
Fidelity Sees Rapidly Rising Retiree Health Care Costs

Think you have enough money to support you in good style in retirement? Health care costs are the Achilles Heel of many retirement plans.

A 65-year-old couple retiring in 2009 will need approximately $240,0001 to cover medical expenses in retirement2 even with Medicare insurance coverage, according to Fidelity Investments’ latest health care cost estimate. This figure is a 6.7 percent increase over the 2008 estimate of $225,000.

That is a $15,000 increase of total costs in just one year. Imagine someone at age 64 deciding "Hey, I've gotta save an additional $15k before I can retire next year". Suppose this $15k increase happens year after year. Someone retiring 10 years from now will need another $150k.

Getting sick is expensive, even if a government is footing most of the bill. Avoid sickness. You can't afford it.

Fidelity Investments has calculated an annual retiree health care cost estimate since 2002. For many Americans, health care is likely to be their largest expense in retirement. Over the past seven years, the amount needed for retiree health care costs has jumped $80,000 or 50 percent from $160,000 in 2002.

I'm forecasting de facto rationing of health care just like in Britain, Canada, and other countries with socialized medicine. How will the US government implement waiting queues?

Plan on working to age 75. If you are young enough plan on never retiring since rejuvenation therapies will make retirement obsolete and unaffordable. But before we reach that point I'm expecting much higher costs and rationing.

“American households, already under strain from the difficult economy, are facing another challenge to their financial security in retirement as medical costs continue to rise steadily,” said Brad Kimler, executive vice president of Fidelity’s Consulting Services business, which calculated the retiree health care cost estimate. “With employee-sponsored retiree health care coverage on the decline nationwide, it is imperative that today’s workers begin to set aside money themselves for medical expenses in retirement as part of their overall retirement strategy.”

As in years past, the Fidelity 2009 retiree health care cost estimate assumes individuals do not have employer-provided retiree health care coverage, but do qualify for the federal government’s insurance program Medicare. The Fidelity estimate takes into account cost sharing provisions (such as deductibles and coinsurance) associated with Medicare Part A and Part B (inpatient and outpatient medical insurance). It also considers Medicare Part D (prescription drug coverage) premiums and out-of-pocket costs, as well as certain services excluded by Medicare.

The estimate does not include other health-related expenses, such as over-the-counter medications, most dental services and long-term care.

The jump in the retiree health care cost estimate from 2008 to 2009 can be attributed to a number of factors including higher costs (e.g. for doctor’s visits, diagnostic tests); increased expenses associated with new technology; and general price inflation.

What I want to know: What real tangible benefits are we getting in exchange for the higher costs?

By Randall Parker    2009 March 29 03:47 PM Entry Permalink | Comments (3)
Some Plastic Surgery Costs Dropping

For medical costs all you ever hear about are increases. We spend more every year. But at least in plastic surgery some costs are dropping. Laser resurfacing costs have dropped.

New trends reveal that laser technology is steering the future of the cosmetic surgery industry. The American Academy of Cosmetic Surgery (AACS), a leader in the cosmetic surgery industry, conducted its annual Procedural Survey and the most notable finding is the shift towards non-invasive laser treatments.

Over the past three years, cosmetic surgeons have seen a significant increase in both males (456%) and females (215%) electing to have laser resurfacing. Laser resurfacing is performed with a "super-pulsed" carbon dioxide (CO2) laser to minimize wrinkles and lines on the face. In addition, laser hair removal has jumped to the overall number two most performed non-invasive cosmetic procedure.

"Cosmetic surgery technology is advancing at the speed of light," states AACS President Patrick McMenamin, MD. "As we learn more about the cosmetic uses for lasers, the more patients benefit from effective results and quicker recovery time. It is an exciting time for both cosmetic surgery patients and physicians."

Although the economy is struggling, these laser procedures are looking to be recession proof. For instance, laser resurfacing has seen an approximate $450 decline in price since 2002. "As long these procedures are effective and affordable, I don't see their demand dropping."

Have any procedure costs dropped lately for non-plastic surgery treatments and surgeries? Has laparoscopic surgery cut the costs charged to patients and insurance companies?

By Randall Parker    2009 March 29 03:28 PM Entry Permalink | Comments (1)
2009 March 08 Sunday
Health Care Employment Still Expanding

An aging population, rising costs of medical care, and government funding of old age and poor folks medical care combine so that even during a time when the number of jobs is rapidly shrinking the health care sector is still hiring.

Employment figures for February are out today, and the numbers are a horror show: The economy lost some 651,000 jobs during the month. But health care added some 27,000 jobs.

Great news if you are in health care. Bad news for net taxpayers, employers, and those who need to pay for medical care.

This really is amazing and speaks to the need to fix the causes of rising health care costs. For example, do we really need to spend big money on the final few months of life? Also, we really need Total Quality Management philosophy brought to medical care to cut down on the errors and duplication and the huge amount of time waste.

Ever tried to help an elderly family member navigate thru getting appointments and running back and forth between specialists in their separate offices at different locations? You show up and they can't find the records or the records of tests from another specialist or hospital haven't arrived yet. Or your appointment got canceled and they didn't tell you. Or my favorite: you go to some clinic, pay for what you think are all the services they provided, and then you get a bill a few weeks later from some lab company you never heard of for a test you got while at the clinic. It boggles my mind that medical care providers can handle such huge sums of money without consolidating their billing. Imagine you went to get your car fixed, paid the bill, and then got a bill a month later for the alternator. You'd think that was totally retarded. But the medical profession does this as a normal business practice. How stupid and inconsiderate.

Update: Among the ways we could make substantial cuts in medical costs: use cheaper labor. I keep coming across studies like this one that shows nurses can diagnose and treat sleep apnea for lower cost and just as well as doctors.

They assessed the patients' sleepiness on the validated Epworth Sleepiness Scale (ESS) and set the minimal clinically significant change at +/- 2 points. They also assessed other outcomes of sleep, including quality of life measures, executive neurocognitive function on maze tasks and maintenance of wakefulness tests and CPAP adherence. In all, the study assessed almost 200 patients with moderate to severe OSA who were randomly assigned to the simplified or traditional model.

The patients in the nurse-led group spent about 50 minutes longer with the nurse than the patients in the physician-led groups, but were seen by physicians 12 percent of the time. Patients in the physician-led group, meanwhile, had an average of 2.36 consultations with physicians, as opposed to 0.18 for patients in the nurse-led group.

Despite these obvious differences, none of the secondary outcomes measured showed significant differences between the groups, and differences in ESS scores between groups were lower than the pre-determined minimum for clinical significance.

Notably, the patients in the nurse-led group were diagnosed and treated for $722 U.S. dollars less per patient than those in the physician-led group, but did not suffer from inferior care or outcomes.

Automate and let people use lower priced service providers. I would like to see more lab tests in drug stores. A friend tells me he can get a blood lipid test for cholesterol and triglycerides done at a drug store near him for $20. I would like to see a lot more of that. This would let people monitor the results of dietary and exercise changes.

By Randall Parker    2009 March 08 02:08 PM Entry Permalink | Comments (10)
2009 January 23 Friday
Few Unemployed Can Afford Medical Insurance In US

In the United States those who received employer-provided medical insurance while employed and who lose their jobs can pay to continue their medical insurance for 18 months. But people who have lost their jobs lack the income needed to pay for that medical insurance. Turns out only 9% of newly laid-off workers opt to pay for continued medical insurance under COBRA.

New York, NY—As unemployment rates reach the highest levels in 16 years, a new analysis from The Commonwealth Fund finds that few laid-off workers—only 9 percent—took up coverage under the Consolidated Omnibus Budget Reconciliation Act (COBRA) in 2006. Unemployed workers who also lose their health insurance would need substantial financial assistance, covering 75 to 85 percent of their health insurance premiums, for their premium contributions to remain at the levels they paid while they were working, according to the report, Maintaining Health Insurance During a Recession: Likely COBRA Eligibility, by Michelle M. Doty, director of survey research at The Commonwealth Fund and colleagues.

The ability of employers to buy medical insurance in pre-tax dollars while individuals have to buy it with after-tax income puts people in the position of depending on employer-provided health care. They can't save up pre-tax dollars while working to pay for medical insurance when they lose their jobs.

The inability of unemployed people to afford medical insurance creates political pressures for a larger government role in providing health care.

The report also finds that low-wage workers are at a particular disadvantage—with only 38 percent eligible to receive COBRA benefits—because they don't receive health insurance through their jobs, work for small firms that aren't required to offer COBRA, or are uninsured to begin with. Coverage options for low-income workers remain limited especially for childless adults because most lack a public coverage option. The authors say that policymakers should consider temporarily expanding Medicaid and SCHIP eligibility to unemployed adults with low incomes, with assistance for premium shares, to provide critical support to families.

Sixty-six percent of all current workers, if laid off, would be eligible to extend their health insurance under COBRA But for most people, COBRA payments are unaffordable, about four to six times higher than the amount of money they contributed to their health insurance when they were employed. According to the report, millions of the eligible could keep their coverage if they could get assistance with their premiums, which average $4,704 per year for an individual and $12,680 a year for a family.

The connection between a job and medical insurance also ties people to jobs and therefore makes the labor market less efficient. While some commentators call for an end to the tax advantages for employer-provided health care I think that would just make the pressures for government provision of health care even greater. We are better off with businesses funding health insurance than governments doing it.

What we need are medical accounts where while working one can accumulate money pre-tax that can be spent on insurance premiums and health costs when unemployed. The Health Savings Accounts are a step in that direction. But most people have other medical plans where they work and therefore can't accumulate pre-tax money while employed.

Here is the report referred to above.

Update: The ability to put aside money while working for future COBRA payments would also increase the rate of new company formation because it would reduce the risk and difficulty of starting new businesses. Our current medical insurance system is an obstacle to small company formation and therefore it lowers the rate of innovation.

By Randall Parker    2009 January 23 11:44 PM Entry Permalink | Comments (10)
2008 November 10 Monday
US Health Care Cost Rise Not Sustainable

Princeton U economist Uwe E. Reinhardt argues that if family medical costs continue their over 8% per year increase of recent years their total medical costs will become unsustainable.

To return to our family with an assumed gross wage base of $60,000: If that gross wage base grew by, say, 3 percent per year over the next decade, to $80,600 by 2017, while total family health spending grew by, say, 8 percent per year over the same time frame, to $33,700 by 2017, then about 41 percent of the family’s gross wage base would be taken up by health care alone, before any deductions for taxes or fringe benefits. If the wage base grew by 4 percent, health spending still would absorb about a third of the family gross wage base.

The assumed gross wage base includes all costs paid by an employer for an employee including medical insurance, taxes, and assorted benefits. He's assuming a lower middle class family with two wage earners. Obviously this upward trend in medical costs is not sustainable.

In the short run the Democrats are going to vote in more medical benefits for poor people, starting with more government funding for medical insurance for children. But we also have the problem of retiree health care the costs of which will soar due to more retirees and more medical treatments. The political fight for maintaining the promised benefits for the old folks already will push taxes up so high that living standards for those still working will take a big hit.

Obama's planned tax increase won't even erase the current huge deficit, let alone provide the money for his plans for higher spending on health, education, and other areas.

Financial limits will usher in health care rationing. Long lines and eligibility rules will become more common. The biggest question: how much of the population will be allowed to pay for quick and highly advanced care?

My biggest worry: price controls on new treatments. Price controls would greatly slow the development of new treatments.

By Randall Parker    2008 November 10 08:48 PM Entry Permalink | Comments (28)
2008 November 02 Sunday
How To Buy Health Care Insurance?

Had John McCain won the presidency he would have pushed a health care reform that probably would have reduced employer-provided medical insurance. That seems like a bad idea at this point.

The concept of letting people shop for insurance across state lines applies to the individual health insurance market, which now serves about 17 million people. The market consists largely of those without access to insurance through their employers, but it's a market McCain is trying to strengthen through changes in the tax code. Under his plan, people would get the same tax break — a $2,500 credit for individuals or a $5,000 credit for families — regardless of whether they got insurance coverage through work or purchased it directly.

Now, tax breaks primarily help those with employer-sponsored coverage. Employer and employee payments toward health insurance are excluded from income and payroll taxes. McCain would treat those payments as taxable wages and an income tax would be applied to them for the first time.

Polling conducted by the Kaiser Family Foundation suggests people feel a good deal of attachment to getting their insurance through employers. About 61 percent of those surveyed felt that shopping on their own would make it harder to find a plan that meets their needs; only 15 percent said it would be easier. In addition, 81 percent of respondents thought it would be harder to get a good price for their health insurance if they were to buy health insurance on their own.

Certainly it is unfair in the United States that employees can get health insurance in pre-tax dollars while the self-employed must pay for health insurance in post-tax dollars. But group purchasing of medical insurance by employers is more efficient and I do not think it should be discouraged. McCain's proposal would probably reduce the number of employers who provide medical insurance by making the benefit taxable. So this seems like a step in the wrong direction. Better to just make medical insurance costs tax-deductible for the self-employed.

Some see that tax deductibility as an interference in the free market. After all, why should a particular type of spending be favored by tax law? Well, I can think of a few reasons. Most obviously, if people do not buy medical insurance and they get seriously ill a large part of the electorate will favor taxing us to pay for the medical costs of the uninsured. That already happens today. Also, sick people are not productive people and so they earn less and pay less in taxes. This creates burdens for the rest of us. We are better off with a healthier population.

But even a change in the law to allow deductibility of health insurance would not cause most of the uninsured to become insured. There are a few reasons for that. First off, some people who can afford health insurance would rather spend their money on more immediately gratifying purchases. Second, some make so little money that they can't afford health insurance. This is, parenthetically, a really strong argument against letting in millions of low skilled Mexican and Central American immigrants. They just make our growing huge medical cost problem even bigger.

Third, one of the biggest problems with employer-provided health insurance is also a problem with self-purchased health insurance: Unemployed people can't afford it. Seems to me we need a way to pre-buy medical insurance. Either that or have a way to accumulate cash pre-tax to use to buy health insurance when not employed. Tax-advantaged Health Savings Accounts are a big step in that direction. But most people are getting whatever their employer provides and even HSAs still have a monthly premium for each current month's health insurance. The HSA cash is mostly for the costs not covered by the insurance.

The problem of unaffordable health care keeps getting bigger.

Oct. 23, 2008 -- Workers' health insurance premiums have shot up more than five times faster than their wages since 2000, adding to an increasingly tight squeeze on family budgets, according to a report released Thursday by a health care consumer group.

The report shows that the average cost of family coverage in the workplace went from $6,672 in 2000 to $12,078 in 2007. That's more than a 78% rise. But at the same time, average wages rose about 15%, according to Families USA, a left-leaning advocacy group.

"People who used to take health care coverage for granted no longer can do so, and they are at growing risk of joining the ranks of the uninsured or underinsured," says Ron Pollack, the group's president.

We need automation of health care delivery. What funding model would most accelerate that automation?

By Randall Parker    2008 November 02 09:34 AM Entry Permalink | Comments (12)
2008 July 05 Saturday
Knee And Hip Replacement Rationing In Canada

Socialist rationing of medical care in Canada:

Los Angeles, London, New Delhi, Singapore (June 19, 2008) ¯ Health-care system constraints combined with a lack of a uniform referral process are leaving Ontario physicians brokering which patients are in greatest need of hip and knee replacement, a study led by a St. Michael's Hospital researcher funded by the Canadian Institutes of Health Research has revealed. The variability in this process means not everyone who needs this surgery will actually get surgery.

Rather than rationing by price Canada effectively rations based on all sorts of factors. The advantage? American socialists can ignore this rationing and point at the Canadian system as morally superior.

"Findings from our study suggest several system factors are shifting the onus to physicians and surgeons to prioritize which candidates will receive hip and knee replacement," said lead author Pamela Hudak, a researcher in the Keenan Research Centre in the Li Ka Shing Knowledge Institute of St. Michael's Hospital. "Physicians appear to adjust their criteria, often on a case-by-case basis, to identify which patients will be referred for or, in the case of surgeons, offered surgery. Ultimately this results in a varied approach in determining the best candidates, leaving many eligible and suitable candidates on waiting lists or to manage their problems as best they can with conservative approaches like medications."

The study, conducted by a team of researchers from across the University of Toronto and published last week in the journal Medical Decision Making, published by SAGE, examined the impact of patient characteristics, including age, weight/obesity, comorbidity and perioperative risk, and gender and caretaker roles in the decision-making process of 18 family physicians, 15 rheumatologists and 17 orthopedic surgeons from across Ontario.

"Although we expected these characteristics to affect candidates chosen for surgery, we did not expect the significant impact system constraints, such as lack of home care and postoperative support, waiting lists and access to operating rooms, would have on the decision-making process," Hudak explained. "Waiting lists prompted some physicians to refer patients earlier than normal while the lack of available home care and postoperative support, crucial for hip and knee replacement patients, prevented other physicians from referring patients. Beyond these limitations, surgeons also said they would take on more cases if more operating room time was available. These limiting factors can then affect how surgeons and physicians prioritize their patients, especially without common guidelines."

You can see why more affluent Canadians drive south over the border to pay for treatment in the United States.

Update: Ned brings my attention to this video on how the Canadian health care system makes people with deadly diseases wait when their lives are at great risk:

By Randall Parker    2008 July 05 10:50 AM Entry Permalink | Comments (7)
2008 May 04 Sunday
Costs For Medically Insured Going Up Fast

Even those with medical insurance are feeling pinched by rising medical costs (unless you just don't get sick).

Since the recession of 2001, the employee’s average cost of an annual health care premium for family coverage has nearly doubled — to $3,300, up from $1,800 — while incomes have come nowhere close to keeping up. Factor in other out-of-pocket medical costs, and the portion of the average American household’s income that goes toward health care has risen about 12 percent, according to the consulting and accounting firm Deloitte, and is now approaching one-fifth of the average household’s spending.

In a recent survey by Deloitte’s health research center, only 7 percent of people said they felt financially prepared for their future health care needs.

My own take on it is that you have to get rich in order to be able to handle a severe future health problem. The more you can save up the better.

An interesting graph of consumer spending on food, housing, medical care, and clothing from 1929 till today shows that medical care now surpasses each of those other 3 categories in percentage of consumer income spent on it. Clothing and shoes have declined from over 10% to 3.6%. Food has declined from 30% in the 1950s to 13.1%. Housing is now at 14.4%. But medical care has risen from a few percent to 16.6%, surpassing the other 3 categories.

Part of this change is due to more treatments becoming available. The article relays the anecdote of a guy spending $400 per month on drugs for congestive heart failure. Well, those drugs didn't exist 40-50-60 years ago. You just got various maladies, suffered without treatment, and died.

Another change: declining costs for food and clothing freed up money to spend on other things even as incomes rose. People spend more on medical care because they have the money to spend.

The desire on the part of everyone to get the best health care possible is probably the strongest force pushing for a bigger welfare state today. Demographic trends in the US seem likely to intensify that push as a growing lower class of lower IQ people can't earn enough to pay for the time of much higher IQ medical services providers. Taxes end up as the tool by which the lower IQ folks get the buying power to get time from higher IQ people.

One of the reasons I expect US economic growth to slow stems from a growing use of taxes to shift more higher IQ people into service provider jobs for lower IQ people. People who provide services are not available to do research, product design, factory design, product development, and other work that creates new sources of wealth. This is probably one of the reasons why Smart Fraction Theory (and its refinement) seems to work.

We need to automate the provision of medical services so that higher IQ people spend less time delivering services and more time developing new products and services.

Update: The amount American consumers spend on energy is now about half what they spend on food. Consumers are going to have to trade off. Eat meat or drive a big car and go on long trips?

In the past three months, average consumer spending on energy came to $663 billion, or 6.5 percent of total consumer spending, according to Moody's Economy.com. A year ago, it represented 5.8 percent and in 2002, it was 4.1 percent of their spending. "If gasoline breaks through $4 a gallon by Memorial Day, that would mean spending on gasoline would have risen by $100 billion since the beginning of the year, or roughly the size of the tax rebate checks going out," says Mr. Zandi. "The rebate checks are going to pay for filling up our tank."

How will people weigh medical spending versus gasoline? Gasoline seems easier to cut back on. Get a smaller car. Take fewer optional driving trips

As bad as medical costs have gotten my guess is that energy costs will grow more rapidly.

With the price shock of 2007-08, spending on energy as a share of wage income has shot up above 6%, topping the 1974-75 and 1990-91 shocks to be the worst since the 1980-81 runup. Comparing the additional cost of energy to income growth (especially sluggish in recent years), the current shock is far worse than any of the three prior ones, Mr. Carson says.

By Randall Parker    2008 May 04 04:57 PM Entry Permalink | Comments (6)
2008 February 26 Tuesday
US Government Medical Spending To Double In 10 Years

Another $750 billion per year is like fighting 5 Iraq wars at once. Big money. Will younger folks agree to the taxes to fund it?

The federal government will spend twice as much on health care in 2017 as it did in 2007, as costs keep going up and as Boomers enroll in Medicare. The toll: federal outlays for Medicare and Medicaid will hit $1.5 trillion, up from $750 billion last year, according to an estimate published today in Health Affairs.

Somehow this huge increase in tax-funded spending just isn't enough for the Democrats.

The estimates don’t take into account the expanded role the feds would play under the Democratic presidential candidates health care proposals, which would cost about $100 billion a year, the WSJ notes. But once you’re at $1.5 trillion, the leap to $1.6 trillion doesn’t seem so vast.

Once you are at $1.5 trillion politicians will lose the ability to increase spending without increasing taxes.

The medical portion of the US economy will reach nearly 1 out of 5 dollars spent.

The outlook for national health spending calls for continued steady growth. Spending growth is projected to be 6.7 percent in 2007, similar to its rate in 2006. Average annual growth over the projection period is expected to be 6.7 percent. Slower growth in private spending toward the end of the period is expected to be offset by stronger growth in public spending. The health share of gross domestic product (GDP) is expected to increase to 16.3 percent in 2007 and then rise throughout the projection period, reaching 19.5 percent of GDP by 2017.

Taxpayers will pay more in taxes to fund all this. You looking forward to a decline in your living standard?

This projection is based on a US economic growth rate in the next 10 years that seems overly optimistic.

"At the same time, we are expecting economic growth to slow to an average annual rate of 4.7 percent. As a result, the combination of steady health spending growth and slowing economic growth will lead to the health care part of gross domestic product rising to nearly 20 percent by 2017, nearly one-fifth of the economy, Sisko said.

A slower growth rate in the total economy would cause a same dollar amount of increased medical care spending to take up a far larger percentage of the economy.

You can view side-by-side medical spending proposals of Hillary Clinton, Barack Obama, and other candidates.

By Randall Parker    2008 February 26 10:13 PM Entry Permalink | Comments (1)
2007 October 14 Sunday
Dental Care Costs Rising

Dental costs are rising more rapidly than inflation and the percentage of people getting dental care is dropping.

A federal survey shows that 27 percent of adults without insurance saw a dentist in 2004, down from 29 percent in 1996, when dental fees were significantly lower, even after adjusting for inflation. For adults with private insurance, the rate was virtually unchanged, at 57 percent, up from 56 percent. Since 1990, the number of dentists in the United States has been roughly flat, about 150,000 to 160,000, while the population has risen about 22 percent. In addition, more dentists are working part time.

Notice the point above about more dentists working part time. That's probably at least in part due to a rising number of women working as dentists. Women work fewer hours than men on average. So when the number of training slots remains the same but more slots are given to women the effect is to decrease the supply of workers available.

Curiously, for those men who still manage to win a slot in dental school the effect is to raise their income. So the men who don't make it into dentistry make less money than they would have but the men who still manage to win a spot in a dental school make more. Yet another reason why inequality is rising. It really pays to be a winner. Try to avoid losing.

The inflation-adjusted cost of dentistry is rising.

Partly as a result, dental fees have risen much faster than inflation. In real dollars, the cost of the average dental procedure rose 25 percent from 1996 to 2004. The average American adult patient now spends roughly $600 annually on dental care, with insurance picking up about half the tab.

Dentists’ incomes have grown faster than that of the typical American and the incomes of medical doctors. Formerly poor relations to physicians, American dentists in general practice made an average salary of $185,000 in 2004, the most recent data available. That figure is similar to what non-specialist doctors make, but dentists work far fewer hours.

Since fewer dentists are getting trained now than in the early 1980s (a decline of over 20%) the number of dentists will actually decrease in coming years as many practicing dentists retire. So if you are thinking about getting dental work done best to get it done sooner. It will probably cost less now than in a few years from now. Another alternative is to get dental work done in another country if you have any plans for travel to countries with lower dental costs.

The article reports that pediatricians are applying flouride varnish to baby teeth so that poor parents can avoid the need to see dentists. Great idea. Avoiding cavities is the best outcome. Also, we could make much more use of cheaper dental technicians like other countries do.

Outside the United States, more than 50 countries, including some western European nations, now allow technicians called dental therapists to drill and fill cavities, usually in children.

One does not need all the knowledge of a dentist to do the drilling and filling of cavities. A dental caries vaccine would be a great way to cut the need for dentistry as well.

By Randall Parker    2007 October 14 06:46 PM Entry Permalink | Comments (1)
2007 September 16 Sunday
HillaryCare Round 2: Mandatory Medical Insurance

This is like Jason and Friday the 13th. Last time around Hillary Rodham Clinton and Ira Magaziner had secret meetings and cooked up a monstrous unwise proposal to restructure American health care on a massive scale. Well, she's back.

WASHINGTON, Sept. 15 — Senator Hillary Rodham Clinton on Monday will lay out a plan to secure health insurance for all Americans while severely limiting the ability of insurers to deny coverage or charge higher premiums to people with chronic illnesses and other medical problems, her aides and advisers say.

If government subsidizes health insurance purchases by poor people then fewer small companies will offer medical insurance and will instead expect government will provide coverage.

My guess is she will require everyone to buy medical insurance but subsidize the purchase of medical insurance by poor people.

A big difference from last time: She's proposing to build on the existing system of insuring Americans -- a mix of private coverage and government-subsidized care -- not remake it altogether.

Still, Mrs. Clinton's plan, described by people familiar with it, would involve sweeping change. It would create new federal subsidies to aid those who couldn't afford the required health coverage. And it would impose new mandates on large employers to provide health coverage or help pay for it.

But look at it on the bright side. Hillary's proposal might cost less than the Iraq war.

The price tag for the Clinton plan will be closer to Obama's $50 billion to $65 billion estimate than Edwards' $90 billion to $125 billion plan, sources said.

It's not clear if Clinton will finance her proposal by repealing the Bush administration's tax cuts for the wealthy, as Edwards and Obama have proposed. On the campaign trail, Clinton has hinted that she would save money by fostering efficiencies and squeezing savings from .insurers and drug companies.

If insurers are prevented from denying coverage to those with existing conditions then we'll enter a new era in which insurers try to avoid getting applications for medical insurance from people who are sick. Oops, we disconnected our phone number. Oops our web site is down. Oops we moved out of areas that have lots of sick people. Ooops, we don't advertise in areas which have lots of sick people.

But maybe Red Hillary isn't as dangerous now as she used to be. We can hope that perhaps pharma companies which have been trying to buy her influence have at least partially succeeded.

One former insurance company executive recalled Clinton summoning top drug company executives to the White House for a dressing-down. "She storms into the meeting and 'The days of profiteering in the pharmaceutical industry are over!'" the lobbyist recalled. "There were no handshakes, no 'How was your flight' ... It was ugly, nasty. From that point on I knew her plan was dead."

Clinton, who says she still bears "the scars" from the experience, is a less fearsome figure these days. Since being elected to the Senate, she's enjoyed a good relationship with in-state drug companies such as Pfizer and has delivered federal funding to the hospitals she once demonized. Her rhetoric, particularly against Big Pharma, can still be fierce, but her pariahs are now patrons: The industry .contributed more than $850,000 to her re-election campaign, the second highest level of .contributions to any senator.

Has the comrade reformed? Has she embraced Perestroika? Somehow I doubt it. She still seems angry deep down. She might take out her frustrations with Bill on us. If only the woman could get laid regularly maybe she could lighten up.

She sounds like she has her long knives out for the insurance companies.

"Nobody is going to be surprised when I unroll my coverage plan that I intend to dramatically rein in the influence of the insurance companies because, frankly, I think they have worked to the detriment of our economy and our health care system," Clinton told interviewer Charlie Rose during an Internet forum co-sponsored by Slate and The Huffington Post earlier this week.

Those evil insurance companies. Well okay, they are not saints. But keep in mind some of the other reasons why we have problems with health care finance:

  • Employer provided health insurance is not portable between jobs. Getting laid off is a big problem because paychecks stop coming in at the same time when you need to start paying health insurance premiums yourself. If you develop a condition on one job then you can't go out and become self employed because you can't get personal insurance.
  • Medical care is so expensive and lower skilled people are worth so little in the job market that poorly paid people can't afford medical insurance.
  • A lot of people who can afford medical insurance would rather not spend money on medical insurance to have more money to spend on fun stuff. They count on government funding to pay for their medical costs.
  • Technological advances make more kinds of treatments for more maladies possible and therefore costs rise.
  • Insurance, by reducing the cost to patients for treatments, actually increases demand for medical care. If government mandates forms of insurance with low deductibles then medical spending will go up a lot.

What I worry: If the US government requires some minimal mandatory level of medical insurance then whatever they define as a minimum becomes something that everyone must have, not just the poor uninsured of today. That could result in more unnecessary and even harmful treatments. Economist Robin Hanson argues that we could cut the total amount of health care in half with little harm to health.

Regions that paid more to have patients stay in intensive care rooms for one more day during their last six months of life were estimated, at a 2% significance level, to make patients live roughly forty fewer days, even after controlling for: individual age, gender, and race; zipcode urbanity, education, poverty, income, disability, and marital and employment status; and hospital-area illness rates. This same study, using the same controls, also estimated that a region spending $1,000 more overall in the last six months of life gave local patients somewhere between a gain of five days of life and a loss of twenty days of life (95% confidence interval). (I’m using a fifty days lost per 1% added mortality rule of thumb.)

Read Hanson's full article for information about health care spending efficacy.

Update: Arnold Kling argues that insurance should only cover higher cost and more rare treatments.

Real insurance would pay for treatments that are unavoidable, prohibitively expensive, or for illnesses that occur relatively rarely. Instead, insulation reimburses even relatively low-cost services, such as a test for strep throat or a new pair of eyeglasses. Insulation pays for treatment even if it is commonplace or discretionary.

...

The problem with insulation is that it is not a sustainable form of health care finance. Individuals, employers, and government are all under stress.

By Randall Parker    2007 September 16 09:53 PM Entry Permalink | Comments (6)
2007 September 11 Tuesday
Employers Medical Premium Growth Slows

Employer paid medical insurance premiums are still rising faster than inflation and wages but not as fast as in recent years.

Washington, D.C. – Premiums for employer-sponsored health insurance rose an average of 6.1 percent in 2007, less than the 7.7 percent increase reported last year but still higher than the increase in workers’ wages (3.7 percent) or the overall inflation rate (2.6 percent), according to the 2007 Employer Health Benefits Survey released today by the Kaiser Family Foundation and Health Research and Educational Trust.  Key findings from the survey were also published today in the journal Health Affairs.

The 6.1 percent average increase this year was the slowest rate of premium growth since 1999, when premiums rose 5.3 percent.  Since 2001, premiums for family coverage have increased 78 percent, while wages have gone up 19 percent and inflation has gone up 17 percent.  
    
The average premium for family coverage in 2007 is $12,106, and workers on average now pay $3,281 out of their paychecks to cover their share of the cost of a family policy.  

“We’re seeing some moderation in health-cost increases, but premiums for family coverage now top $12,000 annually,” Kaiser President and CEO Drew E. Altman, Ph.D. said.  “Every year health insurance becomes less affordable for families and businesses.  Over the past six years, the amount families pay out of pocket for their share of premiums has increased by about $1,500.”

On page 97 of the full report a table shows that deductibles are rising. See page 101 as well. Also see page 112 for a table which shows that copays for doctor visits are rising as well. In a nutshell, employers are reducing premium price rises by shifting more costs onto employees.

The shifting of costs onto employees will reduce the demand for medical services and drugs. The medical cost growth at a rate more rapid than general economic growth has got to stop sooner or later. But when?

By Randall Parker    2007 September 11 10:39 PM Entry Permalink | Comments (1)
2007 August 09 Thursday
Experience Improves Prostate Surgeon Performance

Medicine is deficient in how practitioners are incentivized to improve quality. Buyers lack information. There aren't just a few providers with consumers guides to quality ratings as is the case with cars for example. If you get prostate cancer find a surgeon who has done 250+ prostate cancer operations.

Andrew Vickers, Ph.D., of Memorial Sloan-Kettering Cancer Center in New York and colleagues analyzed data from 72 surgeons at four institutions and 7,765 of their prostate cancer patients treated with radical prostatectomies between 1987 and 2003. They measured surgeons’ experience by the number of times they had performed the procedure before each operation.

More surgical experience was associated with a greater likelihood that the patient’s cancer would not return after their operation. The learning curve for this procedure was very steep—there was dramatic improvement in patient outcomes as surgeons’ experience increased up to 250 operations, after which increasing experience had little influence on cancer recurrence. Patients treated by inexperienced surgeons (for example, those with 10 prior operations) were nearly 70% more likely to have evidence of recurrence of their prostate cancer within five years than those whose surgeons had performed 250 operations (17.9% vs. 10.7%).

Our medical industry ought to measure outcomes for all surgeons and other medical practitioners and publish track records. We ought to be able to pay more to get treated by doctors who score higher success rates.

An industry with big incentives to improve quality will find ways to produce better outcomes. Overall quality will rise.

By Randall Parker    2007 August 09 08:56 PM Entry Permalink | Comments (4)
2007 July 22 Sunday
Partial Subsidy Won't Reduce Ranks Of Uninsured Much

If the US government offered to pay half the cost of medical insurance premiums only a very small fraction of the uninsured would sign up.

Government subsidies that cut health insurance premium prices in half for people without insurance would reduce the number of uninsured Americans by just 3 percent, according to a RAND Corporation study issued today.

The study by the nonprofit research organization contradicts suggestions by some that large numbers of people without health insurance would sign up for coverage if government provided subsidies or tax credits to reduce the cost of health insurance.

An estimated 45 million Americans don't have health insurance. Most of these people are in low- and moderate-income families where no one gets the insurance from his or her job, but family income is too high to qualify for Medicaid, the health insurance program for the poor.

"Insurance policy prices aren't going to be the tool that solves the problem of the uninsured," said M. Susan Marquis, senior economist with RAND and one of the study's authors. "Price is not the only barrier people face in deciding whether to purchase insurance. A lot of people who don't have insurance are young and healthy and would rather spend their money on something else."

People would rather spend their money on other things and they figure if they get really sick the government will step in and help. This illustrates one moral hazard of the welfare state.

People surveyed for the RAND Health study cited numerous other factors that influenced whether they purchased individual health insurance policies, including personal attitudes toward risk, whether they believe they can get good health care without insurance, perceived difficulty in selecting a health care plan, and even a concern that insurance companies require too much personal information for individual plans compared with group insurance plans.

"One implication of our findings is that if you really do want to get to universal health insurance coverage, voluntary solutions that rely on financial incentives aren't going to get you there," Marquis said. "Government is probably going to have to mandate it."

We could reduce the ranks of the medically uninsured by deporting all the illegal aliens. Most of them are uninsured. Plus, the deportation of those illegals would reduce the cost of medical insurance for everyone else by reducing the cost shifting where medical institutions charge paying customers more to make up for the non-payers. Also, a reduction in the supply of unskilled labor would cause many employers to offer more benefits - including medical insurance - in order to attract employees.

By Randall Parker    2007 July 22 10:31 PM Entry Permalink | Comments (2)
2007 July 15 Sunday
People Expect Better Medical Care In Big Buildings

People judge medical facilities by what the outsides look like.

Curb appeal counts in real estate. But what about in medical care facilities? Do individuals judge the quality of care and their expected comfort level by how a building looks? They do, and medical practitioners should take note.

Connecticut College Professor of Psychology Ann Devlin asked 188 individuals to view 34 slides of the exteriors of medical buildings in Connecticut, Rhode Island and Michigan and judge the quality of care they would expect to receive and the comfort level they would expect to experience in these facilities. The buildings ranged from small outpatient office buildings to large medical centers.

The appearance of medical building exteriors is indeed related to these care and expected comfort judgments.

Findings clearly showed that while respondents made both positive and negative comments for every facility, the highest quality of care ratings were for large medical facilities - such as modern hospitals.

However, while respondents rated modern, large hospitals highly, they also expressed concern that the facilities could be intimidating, cold and impersonal.

"Large medical facilities should emphasize a stepped-down quality as much as possible, so what greets the patient is on a more human scale and of a familiar architecture," Devlin said.

The lowest ratings were given for small brick buildings. In between were the ratings for traditional, converted house-style facilities. But certain aspects of these small facilities can improve the impression they make. Respondents are likely to judge small facilities, such as small brick buildings or converted houses, more positively if the facilities are landscaped and well-maintained.

To be fair to the viewers of the photos, they had no other basis on which to judge the facilities. A larger facility must attract a larger number of customers. Why would so many people use it if was not better than the smaller ones?

The problem we have is that as users of medical care we don't have much in the way of useful information for judging medical care quality of doctors and hospitals.

By Randall Parker    2007 July 15 02:42 PM Entry Permalink | Comments (3)
2007 May 13 Sunday
Government Funds Displace Private Funds For Medical Care

Some parents cease paying for private medical insurance once their kids become eligible for cheaper publically funded medical insurance.

The Congressional Budget Office report said that for every 100 children who enroll in SCHIP, there is a corresponding reduction in private coverage of between 25 and 50 children. That's a point the Bush administration has emphasized in recent weeks as it fights Democratic efforts to triple funding for the program over the next five years.

``The uninsured are swimming around in the same pool as the insured. It's very hard to sort of reach a little net into that pool and just pick out the uninsured,'' said Peter Orszag, director of the CBO. ``You're almost inevitably going to pick up part of each.''

The bigger the public subsidies for child medical insurance become the more parents will use the government money even though they can afford to buy medical insurance out of their own pockets. This increases the tax burden on middle and upper income workers. Also, it increases government involvement in the provision of medical care and makes the medical industry more regulated in ways that likely decrease the quality of care.

The growth in the Hispanic population due to immigration will further fuel the growth of publically funded medical care. The Hispanics earn less than whites not just with the first generation of immigrants but with later generations as well. These lower income Hispanics get medical insurance at much lower rates than whites and want more medical funding from governments. So immigration feeds the growth of the welfare state.

By Randall Parker    2007 May 13 09:35 PM Entry Permalink | Comments (1)
2007 April 06 Friday
Some Companies Want Government Health Care Funding

Some big businesses see employee health care costs as such a large and growing problem that they want the US government to step in and pay for it.

Since Hillary Rodham Clinton’s effort to overhaul the nation’s medical system was rejected in 1994, most big employers have stayed out of the debate on health care reform.

But with their medical costs ballooning, top executives of large companies are starting to speak up again — and many are calling for a national approach to fixing health care. Few advocate a wholesale shift to government-directed medicine, but most are seeking broad changes in the employer-subsidized health system, which they regard as unsustainable in its current form.

Some of the car companies are more blunt in their calls for government funding of worker health care. They want to get out of obligations they've been forced into by the United Auto Workers (UAW) union.

Since health care costs are rising a few times faster than the rate of inflation the cost increases aren't sustainable.

In general, employers “are more interested in reform today than at any time since the Clinton effort” in the early 1990s, said Robert S. Galvin, global health care and policy director at General Electric, which provides health benefits for 460,000 employees and dependents and 240,000 retirees and dependents.

The surge of interest, Mr. Galvin said, “is driven by compounding health cost increases at three times the general inflation rate, plus the entrance of Wal-Mart and other retailers” that are beginning to feel the pain of out-of-control increases in costs.

Employers which want government help are asking at a time when rising health care costs are hitting the government just as hard. The US government is about to get hit by the perfect storm of baby boomer retirements, a dumber younger generation due to immigration, and costs for medical care per person that are rising faster than the rate of inflation.

Employers of low skilled low wage workers expect the government to subsidize their employment of low skilled workers.

“The way it’s going, there will be 75 million uninsured in another 10 years,” said James D. Sinegal, chief executive of Costco Wholesale, which subsidizes health care for 81,000 of its 100,000 workers in the United States. “The federal government has to lend some assistance.”

Most commentary on problem of unaffordable health care focus on the rising cost of health care. But they are missing something obvious: a large and growing number of people have economic value in the labor market that is so low that they can't afford modern health care. Costco Wholesale employs tens of thousands of workers who are not worth that much in the labor market. They are not skilled enough and productive enough to make their health care costs a small percentage of their income. Think about that.

The problem of a large low skilled work force is going to get worse. Over on the Audacious Epigone blog pseudonymous blogger crush41 reports on a recent study by Robert Rector of the Heritage Foundation which found that low skilled households get more from the government in benefits than they earn in total income. They don't just get more in benefits than they pay in taxes. No, it is much worse than that. Their benefits from government (that would be you, higher income taxpayer) far exceed what they earn.

Strikingly, as Chart 4 shows, low-skill households in FY 2004 had average earnings of $20,564 per household; thus, the average cost of government benefits and services received by these households not only exceeded the taxes paid by these households, but substan­tially exceeded the average earned income of these households.

They get $32,138 per household in benefits. But they only earn $20,564 in wages. We pay for their medical care, food stamps, education for their children (which in some jurisdictions ranges as high as $14,000 per child or more per year btw), police, fire department, etc. They can not afford the costs of the modern society all around them.

I have a few practical suggestions on immigration: First, make immigration qualifications dependent on earning power. If would be immigrants can't make at least, say, $70,000 per year (or an even higher figure) then they should be kept out. Second, deport all the illegal aliens and those legal aliens who aren't earning much money. Third, make employers of all non-citizen workers to pay medical insurance or for the foreign workers to prove they have medical insurance.

Update: From the original article above, Pitney Bowes chairman Michael J. Critelli says that wellness programs have paid off by cutting health care cost increases.

By providing clinics, exercise and other wellness programs as well as low-cost or free drugs for certain types of patients, he said, annual cost increases for Pitney Bowes employees have fallen into the low single digits over the last 15 years. That is well below the double-digit percentage increases that many companies have experienced.

But competing big companies are already free to do this. I think government could help by funding wellness program research. Get more of the results of wellness programs into the public domain so that smaller companies, government programs such as Medicare, and individuals can find out what works.

We also need much more automation of health care. Medicine is too labor intensive. Higher levels of automation could both cut costs and reduce mistakes.

By Randall Parker    2007 April 06 05:55 PM Entry Permalink | Comments (15)
2007 March 20 Tuesday
Aggressive Employers Slowing Health Costs Rise

Some employers are finding better ways to reduce the rate of increase in health care spending.

Employers that have done the best job of managing annual increases in health care costs are pulling out ahead of their peers, according to the findings of the 12th annual National Business Group on Health/Watson Wyatt Survey.

I wonder how much of this huge difference is due to bigger deductibles at some companies.

"If you look at the spread between the poor performers and the best performers, the gap is increasing," said Ted Nussbaum, practicing director of health care consulting North America at Watson Wyatt Worldwide in Stamford, Conn.

The two-year average trend for the best performers in this year’s survey was just 2.5%, compared with 11% for poor performers, while in last year’s survey the differential was 3% for best performers vs. 11% for poor performers and in 2005 it was 5% for best performers vs. 15% for poor performers, Mr. Nussbaum pointed out.

Employers are offering money to do "wellness" things. I've personally seen an employer offer cash for getting screened for blood pressure, cholesterol, and some other indicators. Go to a wellness day appointment and get paid for it.

For example, best performers are 17% more likely to offer compelling financial incentives to encourage employee education and participation and 11% more likely to effectively deliver health care information, according to the survey of 573 large employers.

The aggressive companies are identifying lower cost providers. Sounds like competitive pressures at work in the medical marketplace. Imagine that.

In last year’s survey, best performers found that they could lower health care costs by encouraging employees to seek care from "high-performance networks," defined as a subset of doctors and hospitals in a particular provider network that have proved they provide consistently high quality care on a cost-effective basis.

However, this year, the best performing employers are finding not all providers in a "high-performance network" can produce the same results for all types of procedures. In other words, "quality is procedure-specific," Mr. Nussbaum explained. As a result, many best performing employers are using high-quality, cost-effective providers similar to the way they use Centers of Excellence for transplants, only to treat other conditions, he said.

The average annual cost increase for surveyed companies was 8%.

Annual cost increases for all employers remained at 8 percent for the second year in a row and are expected to stay at this level through 2008.

That's more than double the rate of inflation.

Something has got to give on rising medical costs. Medical spending has surpassed 16% of of US GDP and will consume 20% of the US GDP by 2015 if one projection by Medicare actuaries is to be believed (and it seems plausible). The pressure for cost cutting and automation is going to rise dramatically.

By Randall Parker    2007 March 20 09:38 PM Entry Permalink | Comments (0)
2007 March 06 Tuesday
Do Specialty Hospitals Do Excess Treatments?

Specialty cardiac hospitals seem to increase the amount of cardiac treatments done in an area.

The opening of a specialty cardiac hospital is associated with an increase in the rate of coronary revascularization in a region, compared to new cardiac programs opened at general hospitals, according to a study in the March 7 issue of JAMA.

Specialty hospitals, which provide care limited to specific medical conditions or procedures, are opening at a rapid pace across the United States, according to background information in the article. Proponents argue that specialty hospitals provide higher quality health care and greater cost-efficiency by concentrating physician skills and hospital resources needed for managing complex diseases. Critics claim that specialty hospitals focus primarily on low-risk patients and provide less uncompensated care, which places competing general hospitals at significant financial risk.

"However, specialty hospitals raise an additional concern beyond their potential to simply redistribute cases within a health care market. Specialty hospitals are typically smaller than general hospitals and have high rates of physician ownership. Physician owners may have stronger financial incentives for providing services that fuel greater utilization," the authors write.

Of course physician owners have greater financial incentives. One really big problem with medicine is that patients lack the knowledge, expertise, and intellectual ability to evaluate the efficacy of treatment choices. Doctors can create work for themselves. Usually governments or insurance companies are footing the bill. So patients do not have financial incentives to take a critical look at physician recommendations for expensive procedures.

In what are called Hospital Referral Regions (HRRs) new specialty cardiac hospitals seem to raise use of the coronary revascularization procedure more than is seen when general hospitals open cardiac programs.

The researchers found that overall, rates of change for total revascularization were higher in HRRs after cardiac hospitals opened when compared with HRRs where new cardiac programs opened at general hospitals and HRRs with no new programs. "Four years after their opening, the relative increase in adjusted rates was more than 2-fold higher in HRRs where cardiac hospitals opened (19.2 percent) when compared with HRRs where new cardiac programs opened at general hospitals (6.5 percent) and HRRs with no new programs (7.4 percent)."

"Although we are unable to comment directly on the appropriateness of these procedures, these findings raise the concern that the opening of cardiac hospitals may lead to greater procedural utilization beyond the simple addition of capacity to a market. This is particularly worrisome since cardiac hospitals may not substantially improve clinical outcomes when compared with general hospitals with similar procedural volumes," the researchers write.

Within the United States the rate of use of medical care varies greatly

Medicare spending per patient varies greatly in the United States.

In some regions of the United States Medicare pays more than twice as much per person for health care as it pays in other regions. For example, age-, sex-, and race-adjusted spending for traditional, fee-for-service (FFS) Medicare in the Miami hospital referral region in 1996 was $8,414–nearly two and a half times the $3,431 spent that year in the Minneapolis region.1

Even after differences in price levels across regions are adjusted for, there are no obvious patterns that suggest why some areas spend more than others. Spending in urban areas in the Northeast tends to be higher than average, but spending in rural regions in the South and urban areas in Southern California is as high or even higher. And the dollar transfers involved are enormous. The difference in lifetime Medicare spending between a typical sixty-five-year-old in Miami and one in Minneapolis is more than $50,000, equivalent to a new Lexus GS 400 with all the trimmings.2

Lots more doctors want to live in south Florida than in Minnesota. So less unnecessary medical treatment gets done in Minnesota.

By Randall Parker    2007 March 06 11:12 PM Entry Permalink | Comments (15)
2007 February 20 Tuesday
Medicare Drug Benefit Slows Drug Spending

Federal number crunchers said yesterday that the new Medicare drug benefit appears to be slowing the growth in national spending on prescription medicines because the drug plans are negotiating lower prices with drug companies.

But the analysts also forecasted that overall health-care spending would continue to rise and would account for nearly 20 percent of the economy -- or more than $4 trillion a year -- by 2016. In contrast, health-care spending was about $2.1 trillion in 2006, accounting for about 16 percent of the economy. In 1985, it was just over 10 percent.

Drug spending is that part of total health spending which has the largest impact on commercial research and development funding for new treatments. I'd rather see drugs cost more than physician services or nurses cost more.

What I'd like to see: a tax on medical services, the proceeds of which would go to fund biomedical research.

The medical industry is the industry in greatest need of automation. It is going to become the largest industry if it isn't already. We have less to spend on other things because so much goes to medical care. Expert systems, robots, and other technology to cut costs and raise quality can save us huge amounts of money and raise living standards.

Anyone have any suggestions for how and what in medicine should get automated?

By Randall Parker    2007 February 20 10:37 PM Entry Permalink | Comments (3)
2007 January 21 Sunday
Bush Wants Tax Deduction On Personally Bought Medical Insurance

George W. Bush wants to give those who buy their own medical insurance the same sort of tax avoidance that employees get on employer provided medical insurance.

WASHINGTON, Jan. 20 — President Bush intends to use his State of the Union address Tuesday to tackle the rising cost of health care with a one-two punch: tax breaks to help low-income people buy health insurance and tax increases for some workers whose health plans cost significantly more than the national average.

While tax deductibility would be lowered for employees who get medical benefits from their employers it would come into existence for those who pay for their own medical insurance.

The basic concept is that employer-provided health insurance, now treated as a fringe benefit exempt from taxation, would no longer be entirely tax-free. Workers could be taxed if their coverage exceeded limits set by the government. But the government would also offer a new tax deduction for people buying health insurance on their own.

I see political problems with this proposal. On the one hand, I've worked for multi-year stretches paying my own medical insurance using after tax dollars while people in jobs with medical benefits got their medical insurance paid in pre-tax dollars. So the status quo on tax deductibility of medical insurance has always struck me as an unfairness in the labor market that works to the advantage of established companies and against individual entrepreneurs and contract workers.

Yet cutting back on the tax deductibility of existing employee medical benefits is likely to be unpopular among smarter and better paid workers who work in companies that provide better health plans. Also, on average it'll effectively be a tax on relatively higher income workers to pay for benefits for lower income workers. Since higher income workers already pay more in taxes and at higher tax rates they aren't likely to see this as fair.

But the tax deductions under the soon-to-be-proposed plan are so high that most people currently covered by medical insurance through their employer will not pay higher taxes as a result.

President Bush will propose a tax deduction of $7,500 for individuals and $15,000 for families regardless of whether they buy their own health insurance or receive medical coverage at work.

....

Because of this, about 80 percent of people with employer-based plans will actually see their tax liability fall because their insurance policies cost less than the deduction, he said.

But those who have very high monthly premiums (say $1000 per month - and this does occur) are at higher risk due to a pre-existing condition would pay more taxes under this scheme.

Of course the medical expenses of the lower income workers are already being borne by higher income workers . Currently higher income workers pay taxes to fund Medicaid and other programs that pay the medical expenses of less skilled, less intelligent, and lower income workers. Also, hospitals and other medical providers raise rates on services charged to insured patients in order to get the money to pay for those who do not pay their medical bills. If you have medical insurance for a family it probably costs nearly $1000 a year more in order to pay for the medical expenses of poor people.

The medical costs problem is a result of a few trends. One is the aging of the population. More people are old and with assorted illnesses. Another is technological advance. Diseases with no treatment are cheap to treat. But we have many more treatments and so more expenses. A third is growth of the population of lower intelligence and lower skilled workers who aren't worth enough on the labor market to cause employers to offer them medical insurance.

All these problems make each other worse in a serious negative synergy that keeps building in a vicious cycle. As more people lose medical insurance the health care providers shift more of their costs onto those who are still covered and that drives up medical insurance premiums. The higher insurance premiums cause more employers to drop medical insurance as a benefit for their employees. Also, as the population ages and Medicare costs for the old rise the federal government cuts back on payments to hospitals and doctors for services provided. Again, the providers raise prices with the privately insured but in this case they do so to make up for lower payments from treating old folks. So up go private medical insurance premiums even higher.

As well paid workers shrink as a percentage of the total population and low skilled immigrant groups and old folks rise as percentages of the total population the medical costs problem will keep getting bigger and bigger. Part of this worsening problem shows up as growth in the cost of Medicare. Part shows up as higher costs for Medicaid. But rising health insurance premiums also are partially a result of both the aging and dumbing of the US population.

In a way Bush's proposal amounts to moving the chairs around on the deck of the Titanic. We need more radical changes in policy to address the medical costs problem. First off, we can't prevent the aging of the population yet. But we can stop letting in immigrants who aren't going to become high wage earners and deport the illegal aliens who are already here. We need a First World population to support First World levels of medical care and other services.

Second, we might gain advantages of greater market forces in health care if tax advantages that now flow toward paying health insurance premiums instead flowed to a combination of health savings accounts and higher deductible insurance premiums. Higher deductibles would give buyers a bigger incentive to be frugal in their use of health services and drugs. Under current tax law the structure of tax advantaged medical spending accounts only works for highly predictable medical expenses because the money has to get spent by the nd of the year. Unless one is a non-employee with a Health Savings Account there's no way to put away money pre-tax to save for unpredictable illnesses.

Third, the US government should offer prizes for innovations that allow medical cost reductions. For example, how about multi-million dollar prizes for robots that can do various types of surgeries?

Fourth, the US National Institutes of Health or Medicare should fund a lot more clinical trials that compare existing standard treatments against less expensive and less frequently used treatments. Find out where medical practitioners are choosing more expensive treatments because specialists want more revenue.

Fifth, at some point we are going to have to address the practice of providing unlimited medical care for those who have incurable diseases. The huge costs racked up in the final few months of life are paid for by taxpayers. Lots of treatments tried at that stage provide little or no benefit at enormous cost. Those treatments are hard to justify. We are going to reach a point with a swelling populaton of retirees makes the current practice unsustainable.

Sixth, while technology currently drives up costs that will not always be the case. Eventually stem cell therapies, gene therapies, and other rejuvenation therapies will so reduce the incidence of diseases that medical costs will drop. If we push biotechnology ahead faster we will sooner reach the point when medical costs drop.

By Randall Parker    2007 January 21 12:07 AM Entry Permalink | Comments (4)
2006 December 13 Wednesday
Non-Profit Hospitals Provide Better Care

The profit motive is not entirely compatible with optimal delivery of medical care.

BOSTON-December 11, 2006 - Patients are more likely to receive high quality of care in not-for-profit hospitals and in hospitals with more registered nurses and advanced technology, reports a comprehensive Harvard Medical School (HMS) analysis published in the Dec. 11 Archives of Internal Medicine.

Anyone surprised? I'm not. Quality of care is hard for patients to measure. So the market is not very good at rewarding those who deliver higher quality care. The profit motive is not sufficiently well disciplined by the market in the medical marketplace.

Bruce Landon, MD, MBA, associate professor of health care policy at HMS, and colleagues found that overall, not-for-profit hospitals consistently performed better than for-profit hospitals when it came to delivering high-quality care for three common medical conditions: congestive heart failure (CHF); heart attack (acute myocardial infarction, AMI); and pneumonia. Hospitals with higher registered nurse staffing levels, more advanced technology, and federal or military designation all had high performance.

"Our study is the first to comprehensively examine the characteristics of hospitals that are associated with higher quality of care for these three important medical conditions," said Landon, who is also an associate professor of medicine at HMS and Beth Israel Deaconess Medical Center.

This study assessed the quality of care for CHF, AMI, and pneumonia in more than 4,000 hospitals in the U.S. that reported data to the Joint Commission on Accreditation of Healthcare Organizations or the Center for Medicare and Medicaid Services. Since the Medicare Modernization Act of 2003, hospitals have been required to report their performance on 10 measures in the areas of CHF, AMI, and pneumonia in order to receive their full Medicare payment update. The study also examined what hospital characteristics (such as ownership, size, location, teaching status, and proportion of Medicare or Medicaid admissions) were associated with high-quality performance.

Non-profits and military hospitals scored highest.

Overall, 76 percent of patients hospitalized with CHF, AMI, or pneumonia received recommended care. To assess this, Landon and colleagues evaluated how many patients received appropriate care across all of the measures for the three medical conditions.

Not-for-profit hospitals consistently performed better than for-profit hospitals for each condition, and federal and military hospitals had the highest performance.

A Congressional alliance called "The Promise Keepers" have caused a huge surge in spending for the Veterans Administration in the last several years. I suspect the huge piles of dollars spent on the VA have caused some of the high performance reported here.

I suspect that VA doctors might be more amenable than more independent private practice doctors to attempts by administrators to encourage the following of best practices. A lot of best practices (e.g. give aspirin to heart attack patients) are not difficult to understand. But they require discipline and a willingness to follow checklists.

"Because a large portion of federal and military hospitals are part of the Veterans Health Administration, this suggests that lessons learned from their decade-long experience in quality improvement deserves further study," said Landon. "It seems likely that the information technology and computerized reporting systems at the VA contributed to their high performance."

Hospitals with lots of poor patients deliver lousier care. It pays to live in affluent areas so that your hospitals have lots of paying customers.

Hospitals that served greater proportions of Medicaid patients had low quality of care across all conditions studied. Hospitals in the Midwest and Northeast, not in rural areas, had better performance, as did hospitals with more advanced technology available.

We'll get better care when computers track care and provide more guidance on what are best practices and when they are being followed.

By Randall Parker    2006 December 13 11:14 PM Entry Permalink | Comments (3)
2006 October 28 Saturday
Tax Revenues Outpace Medicaid Costs First Time Since 1998

US state tax revenues managed to grow faster than the Medicaid program costs for the poor medically uninsured for the first time since 1998.

WASHINGTON, DC – State revenues increased faster than Medicaid spending for the first time since 1998, according to a new 50-state survey released today by the Kaiser Family Foundation’s Commission on Medicaid and the Uninsured (KCMU). The survey finds that an improved economy combined with the implementation of the new Medicare prescription drug benefit has contributed to a 2.8 percent growth rate in Medicaid spending for state fiscal year (FY) 2006 – the lowest rate of growth in a decade and the fourth consecutive year in which Medicaid spending growth has slowed. (See Figure 1 below.)

There's an interesting graph at the URL showing that in 2002 Medicaid costs grew 12.4% while state revenues declined 7.8%. State revenues also declined in 2003. Hard years for the states.

Medicaid is one of the government programs that subsidize employers who use low skilled imimgrants - both illegal and legal - as well as the children and grandchildren of those immigrants. The market price of labor understates the real cost of low priced labor for this and other reasons (e.g. schools, prisons, police).

Growth in employment helped reduce the growth in demand for Medicaid.

Positive economic conditions also contributed to a slowdown in Medicaid enrollment growth, which in turn helped reduce spending growth. The 1.6 percent enrollment growth for FY 2006 is the lowest rate since 1999 – nearly half the 3 percent growth predicted by Medicaid officials for the year. “When the economy improves, it is natural for Medicaid spending and enrollment growth to subside because fewer people turn to the program for assistance,” said Diane Rowland, executive vice president of the Kaiser Family Foundation and executive director of KCMU. “But with the continued growth in the uninsured population, Medicaid remains on the frontlines for coverage for low-income children and adults.” Looking forward to FY 2007, the survey finds a handful of states (5) plan to restrict eligibility while over half (26) plan to restore cuts from previous years, expand to new populations, or make positive changes to Medicaid’s application and enrollment process. Additionally, states are contemplating new options and implementing new requirements created by the passage of the Deficit Reduction Act (DRA) this year, although few have used the flexibility to change benefits and cost sharing requirements for FY 2007.

Medicaid is one of the unfunded entitlements that the US federal government forces on the states. Part of the Medicare drug benefit cost was also foisted on the states. I'm amazed I've never read this before.

The budget survey of state officials, conducted by KCMU and Health Management Associates for the sixth consecutive year, found that the spending growth of 2.8 percent would have been even lower (1.7 percent) had states not been required to finance a portion of the new Medicare prescription drug benefit via what is known as a clawback payment.

In 2007 Medicaid costs will grow more rapidly and likely once again outpace state tax revenue growth.

Despite the slowed growth, state Medicaid officials indicate that growing health care costs and the erosion of employer-sponsored health coverage are two reasons that overall pressure to constrain Medicaid spending has not subsided. In fact, based on budgets states adopted for FY 2007, Medicaid spending growth is projected to increase to 5 percent next year.

When the US goes into its next recession the gap between Medicaid cost growth and revenue growth will probably match the 2002 pattern. A downturn will lead employers both to lay off and also to cut medical benefits for those employees they keep. The trend of medical costs rising faster than inflation is going to end up hollowing out other functions of government while also driving up taxes.

The rise in the number of medically uninsured does not just increase the cost of government programs for the poor. Medical uninsurance also causes rising cost shifts onto the medically insured. This is one reason why raises haven't kept up with inflation for many workers. Employers are instead spending more on medical insurance. Immigrants have especially high rates of medical uninsurance. The lower skill level of illegal immigrants especially drives up the number of medically uninsured. We pay for this while a small fraction of the business owners derive big benefits at our expense.

By Randall Parker    2006 October 28 08:14 PM Entry Permalink | Comments (1)
Medical Cost Of Dying Varies Regionally

Dying is expensive but how expensive depends on where you live.

If you are dying in Miami, the last six months of your life might well look like this: You'll see doctors, mostly specialists, 46 times; spend more than six days in an intensive care unit and stand a 27% chance of dying in a hospital ICU. The tab for your doctor and hospital care will run just over $23,000.

But spend those last six months in Portland, Ore., and you'll go to the doctor 18 times, half of those visits with your primary care doctor, spend one day in intensive care and stand a 13% chance of dying in an ICU. You'll likely die at home, with the support of a hospice program. Total tab: slightly more than $14,000.

Why do some people spend a lot of time in an ICU dying? I had an example of how this happens explained to me by a hospice nurse (and my meeting with her was not the least bit casual or accidental either): If you have relative who has, say, metastatic bone cancer and they have a heart attack you might think to call for paramedics. Mistake. What will the paramedics do? Cardiopulmonary resuscitation. That'll break some rib bones (brittle from the cancer) and then they'll rush your elderly injured dying relative to the hospital to be treated for heart and bone breaks. But recovery is not possible. Once on life support they'll last maybe days or even weeks or months longer. Tens of thousands of dollars will flow from the US Treasury into coffers of the hospital and various consulting physicians of an assortment of specialties. Your relative will end life with lots of inserted tubes and a respirator and surrounded by strangers.

People worry about the cost of health care. Well, is the three and a half times higher cost of final days in New York City buying anything over the costs of Wichita Falls?

Portland and Miami reflect that tremendous variation among regions. The most expensive city out of 309 hospital referral regions is Manhattan, at a cost of $35,838 for the last six months; the least expensive is Wichita Falls, Texas, at $10,913.

Estimates show that about 27% of Medicare's annual $327 billion budget goes to care for patients in their final year of life.

That $88 billion spent in the final year of life is about three times what the US National Institutes of Health spend on research to find real effective cures that will some day prevent those killer diseases from making those final years into final years. Effective cures will be far cheaper than ineffective treatments too. Stem cell therapy will be cheaper than open heart surgery and nursing care for stroke victims. Gene therapy and immunotherapy that cure cancer will be cheaper than radiation, chemo, and surgery for cancer.

By Randall Parker    2006 October 28 02:16 PM Entry Permalink | Comments (1)
2006 October 01 Sunday
United Steel Workers Oppose Foreign Travel For Health Care

Are you a business operator in shock over rising medical insurance quotes? Some companies are looking at sending employees to India to cost costs on expensive operations. The United Steel Workers union blocked Carl Garrett's trip from North Carolina to India to receive shoulder surgery.

Garrett's trip was intended to be a test case for Blue Ridge Paper's plan to offer its employees and their dependents the option of seeking medical care overseas beginning in 2007. For several years, the company failed in its attempt to obtain discounts from healthcare providers for its 5,000 covered workers.

The self-insured company decided to contract with IndUShealth, a Raleigh, N.C., firm that sends patients to Indian hospitals for major savings compared with American hospital care.

Garrett quickly volunteered, mostly for the financial incentive. The operations he was scheduled to have would have cost $20,000 in India compared with about $100,000 in the US. The trip was expected to save the company $50,000, and he was being given a share of the company's total savings. Aside from not retiring in medical debt, Garrett was eager for the opportunity to see the Taj Mahal as part of a two-day tour before his procedure.

But the plan alarmed the USW. "We made it clear that if healthcare was going to be resolved, it would be resolved by modifying the system in the US, not by offshoring or exporting our own people [to receive medical care]," says union representative Stan Johnson, who stepped in to stop Garrett's trip. The USW has more than 850,000 members.

The USW fears that trips abroad to receive medical treatments will become mandatory. This fear seems plausible for some procedures. The article quotes a TowersPerrin study that found American corporations are cutting annual raises by 1% in order to pay increased health care costs.

A trip all the way to India can be a grueling ordeal. Depending on where you are going in India the trip could involve as many as 4 flights over 24 hours or longer. For some types of illness that'd be hard, even hazardous to one's health. For example, the time sitting in an airplane would put one at risk of blood clots and for people with circulatory problems the risk would be much greater. But for other problems the trip could be fun. Mr. Garrett was looking forward to sightseeing while there.

A recent Kaiser Family Foundation study found that medical insurance premiums paid by companies rose 7.7% this year and while that is down from previous years it is still about twice the rate of inflation.

Washington, D.C. – Premiums for employer-sponsored health coverage rose an average 7.7 percent in 2006, less than the 9.2 percent increase recorded in 2005 and the recent peak of 13.9 percent in 2003, according to the 2006 Employer Health Benefits Survey released today by the Kaiser Family Foundation and the Health Research and Educational Trust (HRET). Key findings from the survey were also published today as a Health Affairs Web Exclusive.

This year’s survey recorded the slowest rate of premium growth since 2000, though premiums still increased more than twice as fast as workers’ wages (3.8 percent) and overall inflation (3.5 percent). Premiums have increased 87 percent over the past six years. Family health coverage now costs an average $11,480 annually, with workers paying an average of $2,973 toward those premiums, about $1,354 more than in 2000.

“While premiums didn’t rise as fast as they have in recent years, working people don’t feel like they are getting any relief at all because their premiums have been rising so much faster than their paychecks,” said Foundation President and CEO Drew E. Altman, Ph.D.” To working people and business owners a reduction in an already very high rate of increase just means you’re still paying more.”

The bigger health care costs get the greater the lengths companies will go to control them. Send people abroad to save $50,000 on expensive procedures? From the perspective of business owners, sure, why not?

I am surprised to learn that employer use of high deductible Health Savings Accounts (HSAs) has not grown much.

While there is substantial debate about consumer-driven health care, the survey finds modest enrollment in consumer-driven plans, with 2.7 million workers in high-deductible plans with a savings option, including those that qualify for Health Savings Accounts (HSAs). About 4 percent of covered workers are enrolled in such plans, a rate statistically no different from last year. Relatively few firms that offer other types of health insurance say that they are “very likely” to adopt high-deductible plans that qualify for an HSA (4 percent) or that are associated with a Health Reimbursement Arrangement (6 percent) in the next year.

My guess is that as costs continue to rise and employers get higher and higher quotes from insurance providers employers will eventually take a much more serious look at high deductible HSAs.

How have employers slowed their own premium payments growth? By shifting costs onto employees.

Workers’ contributions toward premiums. On average, workers are paying $259 more this year than they did last year toward the cost of family health coverage.Workers at small firms (with three to 199 employees) on average contribute significantly more to their premiums ($3,550 for family coverage) than workers at larger companies ($2,658 for family coverage). On average, workers this year are paying about 16 percent of premiums for single coverage and 27 percent of premiums for family coverage, with their employers paying the rest. That share is essentially unchanged in recent years.

The employees are paying a lot of those costs in after-tax dollars. So every dollar saved by employers costs more than a dollar to employees. Given the lower raises and the higher cost of out-of-pocket medical expenses what is the end result for the average American worker's buying power for non-medical purposes? Is the average worker experiencing a decline in money available to spend on non-medical purposes? Or at least is that happening to older age brackets?

By Randall Parker    2006 October 01 10:14 AM Entry Permalink | Comments (0)
2006 September 24 Sunday
Wal-Mart Offers $4 Prescriptions On 300 Generic Drugs

Wal-Mart's new price for a one month supply of a few hundred generics is less than for some over-the-counter drugs.

Retailing giant Wal-Mart Stores Inc., known for forcing prices down to dominate nearly every market it enters, said yesterday that it would sell nearly 300 generic drugs for $4 per prescription, whether or not a customer has insurance.

Using its might as the nation's largest retailer and its legendary ability to force suppliers to cut prices to the bone, the company will begin the $4 price program in its 65 stores in the Tampa area today, in all of Florida in January, and in as many other states as possible by the end of 2007. The $4 is for a typical monthly supply of medicine, and included on the Wal-Mart list are generic versions of many popular prescription drugs, including the antibiotic amoxicillin and the heart and blood-pressure treatment lisinopril, sold under the brand names Prinivil and Zestril.

Wal-Mart might be doing this as a loss leader They aren't going to discount most generics or drugs that are still under patent. People who get all their prescriptions filled at once will pay for non-discount drugs as well. Plus, Wal-Mart gets people to walk all the way to the back of their stores to get the prescriptions. So they can sell people as they pass through other departments.

If you want to see the list of drugs go to the Wal-Mart press release and then page down to the bottom where you'll see a "List of available $4 generic drugs" which is a pop-up to select a PDF file to view or download. You'll need Adobe Acrobat Reader (a free download) to view the list.

Shares of generic drug makers took hits in the stock market.

Shares of generic-drugmaker stocks also sank on Sept. 21. Barr Pharmaceuticals (BRL) lost 1.1%, to trade at $51.95 per share, Watson Pharmaceuticals (WPI) fell 1.4%, to $26.22, and Mylan Laboratories (MYL) declined by 2%, to $20.15. Dr. Reddy's Laboratories (RDY) edged slightly lower, to $16.24 per share.

"Although this program, if spread nationwide, would exert pressure on generic pricing trends, we think its overall impact would likely be limited, since it would probably affect less than 20% of all generic drugs sold, and impact mostly older, already deeply discounted products," says S&P equity analyst Herman Saftlas.

Wal-Mart gets absolutely great publicity from this move.

Target quickly said "me too".

Quickest on the draw after Wal-Mart's bombshell was Target Inc., which announced early Friday that it would match Wal-Mart's dramatic price cuts at all its pharmacies in the Tampa Bay area, including Sarasota and Manatee counties.

That is the precise battleground that Wal-Mart established this week for its rollout.

If you use prescription drugs do not assume just because Wal-Mart is cheap on these 300 that it will be cheapest on other drugs. Shop around. Use the internet to compare prices.

Expect more uniform drug pricing as a result.

"I think you're going to see very simplified pricing for generics in most places now," said Richard D. Hastings, an analyst with New York-based Bernard Sands. "You're not going to be seeing $10 here and $16 there and $20 over there" for the same generic drug -- a pricing spread that frequently occurs now.

Although the pilot program, involving mostly heart, diabetes and asthma medications, will be limited initially to the Tampa, Fla. area, Wal-Mart officials say they plan to expand to "as many states as possible" next year.

These are older generics and so do not include some of the better newer generic drugs.

"It is not as significant as it first seems, in our opinion," Joseph Agnese, an analyst at Standard & Poors, told the Times.

Most of the drugs on Wal-Mart's list are older generics that are relatively inexpensive already, Stephen Schondelmeyer, professor of pharmaceutical economics at the University of Minnesota, told the Chicago Tribune.

But this will exert pricing pressure on some of the generics which are not on Wal-Mart's list.

Every year more drug patents expire and the drugs go generic. The size of the super cheap list will probably expand beyond this initial 300. At such low prices a lot of health plans are going to push the cheapest drugs on their patients.

By Randall Parker    2006 September 24 06:43 PM Entry Permalink | Comments (0)
2006 June 25 Sunday
Physician Incomes Declining While People Use Them More

Physician incomes are falling.

WASHINGTON, DC—In sharp contrast to other professionals, physicians' net income from the practice of medicine declined about 7 percent between 1995 and 2003 after adjusting for inflation, according to a national study released today by the Center for Studying Health System Change (HSC).

"The downward trend in real incomes since the mid-1990s likely is an important driver of growing physician unwillingness to provide such pro bono work as charity care and serving on hospital committees," said Paul B. Ginsburg, Ph.D., coauthor of the study and president of HSC, a nonpartisan policy research organization funded principally by The Robert Wood Johnson Foundation.

The decline in physicians' real income stands in sharp contrast to the wage trends for other professionals who saw about a 7 percent increase between 1995 and 2003 after adjusting for inflation, the study found.

Among different types of physicians, primary care physicians fared the worst with a 10.2 percent decline in real income between 1995 and 2003, while surgeons' real income declined by 8.2 percent. But medical specialists' real income essentially remained unchanged.

Actually, the specialists saw a decline of 2.1% according the full report linked below.

Despite the downward trend in real incomes, medicine overall remains one of the most well-paid professions in the United States: At least half of all patient care physicians earned more than $170,000 in 2003, and physician average net income was about $203,000, the study found. Although surgical specialists have lost ground to inflation since the mid-1990s, they remain the highest earning of all physicians, with average incomes of $272,000 in 2003—29 percent higher than medical specialists and 86 percent higher than primary care physicians.

Physicians work long hours. But how many weeks do they take off per year? Or how many hours do they work totally per year? I want to calculate their hourly income. Hard to do without that information.

  • The average number of hours worked by physicians for all medically related activities fell slightly from 55.5 hours a week in 1995 to 53.2 hours in 2003. Medically related activities are defined as time spent on administrative tasks, professional activities and direct patient care but not time spent on call when not actually caring for patients.
  • Physicians spent more time on direct patient care, which is defined as face-to-face contact with patients, patient record keeping and office work, travel time connected with seeing patients, and communication with other physicians, hospitals, pharmacies and others on a patient's behalf. With patient care hours increasing while total medically related work hours fell, physicians are now spending a significantly larger proportion of their work time caring for patients than they did in the mid-1990s-86 percent vs. 81 percent.
  • Flat or declining fees from both public and private payers appear to be a factor underlying declining or stagnating real incomes for physicians. Medicare payment rate increases for physician services amounted to 13 percent from 1995 to 2003, according to the Medicare Payment Advisory Commission (MedPAC), while inflation increased 21 percent. Private payment rates have lagged even more. In 1995, commercial fees were 1.43 times Medicare fees on average; by 2003 this fee ratio had fallen to 1.23, according to MedPAC.
  • The volume of physician services increased substantially between 1999 and 2003, largely because of growth in the number of tests and procedures. Among Medicare beneficiaries, minor procedures grew 6 percent a year on average between 1999 and 2003, according to MedPAC, while office visits grew 4 percent and major procedures 3 percent.

This result is inconvenient for socialists. Doctors aren't the big beneficiaries of increases in medical spending.

From the body of the report (which, btw, has some neat graphs and tables worth looking at):

Flat or declining fees from both public and private payers appear to be a major factor underlying declining or stagnating real incomes for physicians. Medicare payment rate increases for physician services amounted to 13 percent from 1995 to 2003,4 lagging substantially behind inflation, which totaled 21 percent during this eight-year period.

While Medicare fees have declined in real terms since the mid-1990s, the trend for private insurer payments to physicians has lagged even more: In 1995, commercial fees were 1.43 times Medicare fees on average; by 2003 this fee ratio had fallen to 1.23.5 And Medicaid fees have always been much lower than Medicare fees, so despite the fact that Medicaid payment rates rose relative to Medicare and grew faster than inflation from 1998 to 2003, increased Medicaid fees would not have been enough to produce substantial income gains for most physicians.6 One likely exception would be primary care physicians with substantial Medicaid patient panels, especially those practicing in states—such as New York and South Carolina—that started with low Medicaid fee levels and increased them the most aggressively.

In the report's figure 1 they show "Professional/Technical Workers" gaining 6.9% in income from 1995 to 2003. So the decline in income for physicians is even more dramatic when compared to incomes of other knowledge workers.

Total medical spending in inflation-adjusted dollars is growing quite rapidly. But that money is not going toward higher physician incomes. At the same time, US federal, state, and local governments are shifting the costs of the uninsured onto the backs of the insured. Physicians are less inclined to treat people for free because they have to do more paying treatments to make up for lower payments per treatment.

The medically uninsured portion of the population is rising. The biggest cause of this trend is the importation of large numbers of low skilled Hispanics. Hispanics are medically uninsured at two and a half times the rate of whites. You pay for this in two ways: more in taxes to fund government health care programs and more for medical insuranance to pay for the cost-shifiting that governments force on hospitals.

The New York Times reports that many doctors are trying to make their services more customer friendly - it is a about time!

Professional societies for family doctors and internists are urging their members to break with tradition by making it easier to schedule appointments — or even making appointments unnecessary in the case of walk-in patients who need immediate attention.

"It's a big trend," said Amanda Denning, a spokeswoman for the American Academy of Family Physicians, which has about 94,000 members.

The academy is spending $8 million on consultants who visit doctors nationwide to suggest improvements in patient care. The advice is meant to "keep them from going to an in-store clinic," Ms. Denning said, while also benefiting doctors by making office procedures more efficient.

The rise in co-pay requirements in medical plans has people looking harder for cheap physicians.

According to various polls, cost is a high priority for most patients. "People will change physicians for differentials of $10 or $15 in a co-pay," said Dr. Anne B. Francis, a pediatrician in Rochester and spokeswoman for the American Academy of Pediatrics.

But convenience also ranks high. That is one reason about 20,000 of the 59,000 actively practicing members of the American Academy of Family Physicians now use electronic health records. Being highly computerized can let doctors offer Web-based scheduling that enables patients to book their own appointments.

The decline in physician income does not appear to be due to a drop in demand. A new report by the CDC National Center for Health Statistics finds that in a 10 year period ending in 2004 the frequency of visits to physicians increased by 19% per person.

Americans made more than 1.1 billion visits a year to doctors' offices and hospital emergency and outpatient departments in 2004, up by 31% in the last 10 years. A portion of this increase is due to an 11% rise in population during that period. This was accompanied by a 19% increase in utilization per person. The increase in the visit rate per person among persons 65 years and over (26%) was higher than among persons under age 65 years (16%).

That averages out to 3.8 visits per person.

This article has some neat charts at the bottom. Suggest you click thru and give them a look. Note that visits for diabetes are the biggest increase with 117% more visits. This could be due to more treatment options and an aging population increasing the incidence of type II age-associated insulin resistant diabetes. Also, visits for spinal cord problems are up 94%. How come?

People wait over three quarters of an hour on average in emergency rooms. This is the result of the uninsured going to emergency rooms for care. The wait times amount to rationing by queue line length.

There was no change in the average time a patient spent face-to-face with a physician in office settings (Figure 4). The amount of time a patient waited before seeing a physician in the emergency department increased from 38.0 minutes in 1997 (first year collected) to 47.4 minutes in 2004.

How much of the increase in visits to doctor's offices is due to an aging population? How much is due to rising affluence? How much due to increased numbers of treatments available? Oh, and how much due to more plastic surgery and other treatments that enhance appearances?

By Randall Parker    2006 June 25 11:44 AM Entry Permalink | Comments (1)
2006 June 03 Saturday
Medical Cost Shifting Onto Privately Insured Rises

In Washington State a substantial fraction of private medical insurance costs are due to cost shifting from the uninsured and from underfunded government paid care.

Mountlake Terrace, WA. (May 31, 2006) – On top of their own employees' growing healthcare costs, Washington employers paid more than $1 billion in 2004 to cover shortfalls incurred by hospitals and physicians serving Medicare and Medicaid patients, according to an analysis released today by Premera Blue Cross.

“Some call it Medicare and Medicaid cost-shifting; others call it a hidden tax,” said Gubby Barlow, Premera CEO. “By any name, it’s a billion-dollar burden for Washington employers and policyholders, and that burden is growing every year. It threatens to undermine efforts by employers, employees and health care providers to moderate the growing costs of medical care.”

In 2004, this hidden tax cost Washington employers an average of $902 per family health insurance contract -- 13 percent of all commercial hospital and physician costs.

Nearly a third of medical insurance price increases comes from cost shifting.

Premera estimates that Medicare and Medicaid cost-shifting, not employees’ medical care, accounted for 29.9 percent of the increase in employee hospital costs paid by Washington employers in 2004.

“This growing trend has serious implications for the affordability of private insurance, and employee wages,” said Steve Leahy, president of the Greater Seattle Chamber of Commerce, which employs about 32 people and represents 2500 businesses in the Puget Sound area. “We simply cannot sustain this cost-shift without serious long-term repercussions.”

If you are an employee who gets medical insurance from your employer you see some of this cost shifting in the form of rising deductibles and a reduced set of covered conditions. But some of the costs come in the form of smaller salary increases. These are all forms of hidden taxes. Governments require hospitals and other health care providers to provide care and then make you pay for it.

This trend is being driven by a few factors:

  • An aging population.
  • A rising fraction of lower IQ and lower income workers and their dependents driven mostly by immigration but also by reproduction patterns.
  • Advances in medical technologies that make more treatments possible.
  • International trade's driving down wages and benefits for lower skilled workers.
  • A corrupt political class willing to pretend to cut costs while it really just shifts them.

The cost shifting feeds on itself. As medical insurance costs rise in reaction to cost shifting more people go without medical insurance. Therefore their medical care ends up showing up as costs for those still insured, raising rates still higher, and driving still more off of paid private medical insurance. Could this trend progress so far that purchase of medical insurance becomes rare? Health care costs have already reached 16% of GDP and continue to rise much faster than overall inflation. Medical costs are projected to reach 18.7% of the US economy by 2014.

The analysis was done by an actuarial firm.

Premera commissioned the May 2006 report, titled Payment Level Comparison between Public Programs and Commercial Health Plans for Washington State Hospitals and Physicians, from Milliman Inc., an internationally recognized consulting and actuarial firm.

The analysis shows that employers have faced increasing impact from government program hospital losses since 1997 when hospital profit margins on Medicare business began declining.

Washington patient related hospital margins on Medicare business fell from a 2.9 percent gain in 1997 to a 15.4 percent loss in 2004. During the same period, Washington hospitals increased their profit margins on the commercial (employer-provided) segment of their business from just over 5 percent to 16.4 percent.

Economic analyses of the long term viability of Medicare and Medicaid paint an overly rosy picture. Costs of these programs have been reduced by cost shfiting in recent years. But while governments can manage to do some cost shifting they will reach a point where the shifting does not work any more. Too many people will abandon private insurance. Some will travel abroad to receive medical care from facilities that do not have to accept underpaying patients.

In 2004, Washington hospitals lost $622 million for care delivered to patients with Medicare and Medicaid coverage. In contrast, the same hospitals earned $845 million for care delivered to patients with employer-provided health care coverage. The overall patient-related gain for Washington hospitals was $222 million, or about 2.4 percent.

Washington physicians experience a significant payment gap between Medicare/Medicaid and private sector patient care as well.

According to the Milliman study, Medicare pays physicians 20 to 26 percent less than commercial insurers in King County, and 25 to 31 percent less elsewhere in the state. Medicaid pays 31 to 36 percent less than commercial insurers for children's office visits; 50 to 54 percent less for adult office visits; 11 to 18 percent less for maternity services; and 55 to 58 percent less for other medical services.

In all, Premera estimates nearly $1.4 billion in medical care costs -- $738 million in hospital costs and $620 million in physician costs -- were shifted to Washington employers and other commercial customers in 2004 as physicians and hospitals charged higher commercial rates to offset payment shortfalls from Medicaid and Medicare.

What is scary about this situation is that it is a trend and the trend looks set to continue for decades to come. The aging and dumbing down of the population will both continue. The aged and lower classes will vote for making the productive pay more.

You can read the full report: Payment Level Comparison Between Public Programs and Commercial Health Plans for Washington State Hospitals and Physicians" (PDF).

A previous study I linked to reported that costs of the medically uninsured per insured family will rise to about $1500 per year by 2010. It will get even worse further out. Immigration of the low IQ, low skilled, and low income will make the rate of uninsurance and underinsurance cost shifting rise even as governments spend more on health care. Hispanics are medically uninsured at two and a half times the rate of whites (Open Borders libertarians are promoting the growth of big government and inefficient markets - ideology trumps empirical evidence). A few years ago one year of illegal alien health care costs would pay for a border barrier. Since the medical costs continue to rise we could build a barrier and fund extensive efforts to deport the illegals for less than what we spend on their medical care.

About one third of all immigrants are uninsured. Why not require all employers of immigrants on H1-B visas and other permits to provide medical insurance for all immigrants and their families? Why not require immigrants who want to bring in their relatives to pay for medical insurance for the relatives? How about upping the fines on employers of illegal immigrants so that the fines can pay for some of the costs generated by illegals? Shift the costs onto the people who generate the costs.

America is well on the road toward becoming a declining superpower. In the face of rising problems our political class is willing to make the problems even worse. Witness the US Senate passage of the absolutely terrible CIRA legislation to greatly boost immigration. Our Iraq Debacle may come to be seen as the point of overreach where the US political class became totally unhinged and irresponsible.

By Randall Parker    2006 June 03 12:44 PM Entry Permalink | Comments (3)
2006 May 14 Sunday
Surgeon Total Costs Vary Greatly At Same Hospital

Costs generated by different surgeons for similar cases vary greatly.

Two surgeons at the same hospital perform the same operations on patients with similar medical histories. Their costs to the hospital are similar, right? Not necessarily. The difference in cost could be as much as 45 percent. New research from Washington University in St. Louis finds that even when controlling for complexity of the operation and patient risk, surgeons incurred a wide range of hospital costs.

The findings come out of the first study to analyze individual surgeon's costs within the same hospital. According to the authors, the results have broad implications for rising health care costs.

"If it's truly the case that one doctor generates lower costs for the same outcomes as another doctor, then it's fair to say there is room for cost reductions," says Bart Hamilton, professor of management, economy and entrepreneurship in the Olin School of Business. "The big problem we all face now is high rates of medical cost inflation. So this research could at least flag areas for potential improvement."

If I understand this correctly, they aren't just saying that some surgeons charge higher fees. Some use more resources of other people to accomplish similar outcomes. This isn't surprising. Medical care isn't a highly standardized single large transparent market.

Some people might be choosing more expensive surgeons on the theory that more expensive is better. Or maybe some surgeons manage their cases more cost effectively.

The researchers say they hope hospitals can use their findings to improve quality and reduce costs. Some places, however, may have a tougher time leveling costs than others. In one case, a surgeon generated costs that were 45 percent lower than the standard, or "reference," surgeon. Other surgeons' costs were 39 percent lower.

"People may feel that a higher cost surgeon gets better results," says Hall. "This study is standardized by surgical procedure and patient. So the question is not, does a more expensive surgeon have better results? We're asking whether surgeons differ in their costs even when they are performing the same kinds of procedure on the same kinds of patients."

If we had a lot more publically available summary information about costs and outcomes comparing hospitals and surgeons people could make better decisions. If I ever have to go into a hospital I'd much rather go to one that has lower rates of nosocomial infections (basically, infections you got while in the hospital) for example. But where you can get that sort of information?

Electronic medical records will help create the potential to extract more information about comparative outcomes. But one thing that holds back quality improvements is the fear of lawsuits. Doctors do not want to be rigorously compared to each other with detailed recording and analysis of every step they make because that invites lawsuits. The sorts of process analyses that can get done in, say, a semiconductor or car manufacturing plant face much bigger legal disincentives in hospitals and doctors' offices.

By Randall Parker    2006 May 14 03:21 PM Entry Permalink | Comments (0)
2006 May 07 Sunday
Patients Overestimate Quality Of Medical Care

Why does the medical marketplace work so poorly? Many patients have no idea how good or bad the quality of care is that they are receiving.

Patients' ratings of their medical care do not substitute for evaluations of the technical quality of that care, according to a study issued today by researchers from the RAND Corporation, UCLA and the U.S. Department of Veterans Affairs Healthcare System.

The study is the first to compare patients' own reports about the quality of their medical care with a comprehensive evaluation of their medical records.

Researchers studying vulnerable older patients found that while patients on average rated the quality of their medical care a 9 on a 10-point scale, comprehensive reviews of their medical records found they received recommended care just 55 percent of the time.

“Patients' ratings of health care are easy to obtain and report, but our findings suggest they do not accurately measure the technical quality of medical care,” said Dr. John T. Chang, a UCLA physician and lead author of the study. “If we want to understand the technical quality of health care, then we need to look at medical records.”

The findings provide additional insights into developing measurements of quality care at the health plan level. The study found that patients' views about the quality of their medical care was closely related to the quality of communications provided by their health providers, which is one dimension of the quality medical care.

The study was led by researchers from RAND Health, the David Geffen School of Medicine at UCLA and the Greater Los Angeles Veterans Affairs Healthcare System and is published in the May 2 edition of the Annals of Internal Medicine.

We need to find ways to achieve a few things to imrpove the quality of medical care using market forces:

  • Have more medical care bought directly by patients. Dental care and plastic surgery are examples of areas where much more services are bought out-of-pocket with good results. Health savings accounts would help on this one.
  • Find better ways for patients to know about the quality of medical care received. How to achieve this? Could automated medical records review software be developed that would partially do this task?
  • Make greater incentives for health care providers to prevent illness. This was supposed to be one of the selling points of Health Maintenance Organizations. But HMOs are not exactly popular. Perhaps Kaiser has partially achieved this goal. I doubt many other HMO-like organizations have.

Anyone have any ideas on the problem of patients who can't measure quality of care?

By Randall Parker    2006 May 07 03:45 PM Entry Permalink | Comments (6)
2006 April 27 Thursday
Rate Of Medical Uninsurance Rises

Medical insurance is out of reach for a growing portion of the population of the United States.

  • Two of five (41%) working-age Americans with incomes between $20,000 and $40,000 a year were uninsured for at least part of the past year—a dramatic and rapid increase from 2001 when just over one-quarter (28%) of those with moderate incomes were uninsured (Figure ES-1).
  • Adults with incomes under $20,000 were still the most likely to be uninsured: more than half (53%) had spent time uninsured in the past year.
  • Most people who are uninsured are in working families. Of the estimated 48 million American adults who had any time uninsured in the past year, 67 percent were in families where at least one person was working full time.

The web page has a chart showing increases in the rate of medical uninsurance from 2001 to 2005 in all 4 income categories studied. For the low income group lack of insurance at the time of polling went from 33% to 37%. For moderate income lack of medical insurance went from 17% to 28%. For middle income people it went from 6% to 9%. The highest income didn't have a reduction of medical insurance at the time of polling but they did have an increase in the percentage of upper income people saying that at some point in the previous year they had no medical insurance.

Overall at the time of polling the percent without health insurance went from 15% in 2001 to 18% in 2005. The percent who said they went without health insurance at some point in the previous year went from 24% to 28%.

The worsening of this problem feeds on itself. As more people go uninsured hospitals and other providers increase prices for paying customers to make up for money lost on non-paying customers. That, in turn, drives up insurance costs and therefore prices medical insurance out of the range of even more people. Hispanics are medically uninsured at two and a half times the rate of whites. Since Hispanics are the most rapidly growing ethnic group in America they are driving up the rate of medical uninsurance and therefore they are driving up both medical insurance prices and government subsidies for medical services.

What to do about this problem? Deportation of all the illegal aliens would help lower the rate of medical uninsurance by removing uninsured people and also by driving up wages for lower class folks who can not now afford medical insurance. More restrictive legal immigration that let in only people who will earn enough to be net taxpayers (i.e. they pay more in taxes than they receive in benefits) would also help. A shift toward health savings accounts would introduce more market pressure by causing more medical expenses to be paid for out-of-pocket. Also, increased funding to accelerate biomedical research will speed the development of much cheaper ways to cure and prevent diseases.

By Randall Parker    2006 April 27 10:32 PM Entry Permalink | Comments (0)
2006 January 15 Sunday
Sicker People Should Pay Less To Lower Cholesterol

A Rand Corporation study found that people at greater risk of heart attacks and strokes should pay less for statin drug co-pays than people at lower risk.

Cutting drug copayments for people taking cholesterol-lowering medication can keep them healthier and save more than $1 billion a year in medical costs in the United States, according to a RAND Corporation study issued today.

The study found that when cholesterol-lowering drugs cost less, patients are more likely to take the prescribed medication. As a result, many people have fewer health problems and are hospitalized less often.

The Rand researchers were able to get at the effects of co-pays by using data from many health insurance plans that differed in their levels of co-pays.

Researchers based their findings on estimates that about 6.3 million U.S. adults with private insurance or Medicare coverage take cholesterol-lowering medication. The study says cutting copayments to make the drugs cheaper for the sickest patients would avert nearly 80,000 hospitalizations and more than 31,000 emergency room visits each year – accounting for the more than $1 billion in savings.

RAND Health simulated the impact of a variable copayment plan by analyzing information from 88 health insurance plans that served more than 62,000 patients who began taking cholesterol-lowering drugs between 1997 and 2001.

“Reducing drug copayments for the sickest patients taking certain drugs can be a way to both improve patient care and hold down rising costs,” said Dana Goldman, director of health economics at RAND Health and lead author of the study. “There are obstacles to these policies, but our research suggests they should receive wider consideration.”

The RAND work needs to be duplicated for other drugs and diseases. This would be an interesting way to get at the general efficacy of a large assortment of drugs to find out which one really help reduce the incidence of disease and which ones best reduce other medical costs.

The study found that patients who had $10 per month copayments for their cholesterol-lowering medication were 6 to 10 percent more likely to fully comply with doctors' orders to take the drugs than patients who had $20 per month copayments. High-risk patients were less likely to be influenced by higher costs.

In addition, researchers analyzed the link between patients' drug compliance and their use of medical services for up to four years after starting cholesterol-lowering therapy. The researchers found that patients who were more compliant in taking their medication had lower hospitalization rates and emergency room use, particularly patients who had a higher risk profile.

Using these findings, researchers simulated the impact of a policy that eliminated copayments for both high-risk and medium-risk patients, but raised monthly copayments required for low-risk patients from $10 to $22.

While the approach appears promising, researchers warn that there are some potential problems their study did not resolve. For example, health plans with lower drug copayments for high-risk and medium-risk patients may attract higher numbers of sick patients, while discouraging healthier patients who may perceive they are penalized by being charged higher copayments.

Note that the existence of a large variety of health care plans ends up being a big experiment. Data mining on records from those health care plans could turn up many other insights on what works and what doesn't work to reduce the incidence of disease and medical costs.

By Randall Parker    2006 January 15 06:36 PM Entry Permalink | Comments (1)
2006 January 09 Monday
US Medical Spending Reaches 16% Of GDP

Medical costs keep eating up an increasing portion of the US economy.

Rising health care costs, already threatening many basic industries, now consume 16 percent of the nation's economic output -- the highest proportion ever, the government said yesterday in its latest calculation.

...

The health care increase of 7.9 percent in 2004 was almost three times the overall national inflation rate, which was 2.7 percent. The average hourly wage for workers in private companies was essentially unchanged that year, according to the U.S. Department of Labor.

A prescription drug spending increase of 8.2% is seen as good news because it is the first non-double digit increase sinc 1994.

Spending on prescription drugs rose 8.2 percent, to $188.5 billion in 2004, the government said. This was the first year of single-digit growth in retail drug sales since 1994.

But spending on hospitals and doctors' services surged in 2004, and the nation spent far more on them than on prescription drugs.

The 8.6 percent increase in spending for hospital care and the 9 percent increase in payments to doctors were the highest recorded since 1991.

An aging population is contributing to this trend. So are technological innovations that produce new treatments for previously untreatable conditions.

Rising health care costs are eating in to part of raises in salaries.

Meanwhile, workers are expected to shoulder a 10 percent increase in annual health insurance premiums, according to Towers Perrin, a management consulting firm.

"In 2005, health insurance premiums rose by 9.2 percent, which was three times the increase in wages," says Larry Levitt, vice president for communications and online information at the Kaiser Family Foundation, which studies health care issues. "Certainly, there are no signs of that abating. It's very likely that in 2006, health care costs will continue to squeeze out wage increases."

Whether health care costs are rising faster than income increases depends on your age and income level. Self insurance costs rise more rapidly for the middle aged. Lower income people have to spend larger fractions of their income on medical insurance and bills.

The growing Hispanic portion of the US populace contributes to the rise in the uninsured and in taxes to take from the rich to give to the medically uninsured. A decline in the size of the smarter white upper middle class means fewer people will have to pay more money to support the rising fraction of the population that is poor and uninsured.

Of course America's useless corrupt and traitorous national elites are divided between, on one hand, Democrats who want to import more poor people to use them as reliable Democrat voters and, on the other hand, Republican business interests that want cheap labor now and to hell with the future. Top Congressmen are too busy going to vacation junkets paid by business interests to bother thinking about the consequences of their terrible misrule.

By Randall Parker    2006 January 09 10:35 PM Entry Permalink | Comments (5)
2005 October 02 Sunday
Medical Tourism Seen As Growth Industry

Some medical tourists save two thirds of the costs for procedures that cost tens of thousands of dollars in the United States.

Bradley Thayer, a retired apple farmer from Okanogan, Wash., traveled 7,500 miles to get his torn knee ligament fixed, and says he paid a third of what it would have cost him in a U.S. hospital. And that included air fare to Bombay.

Thayer was uninsured when he suffered his injury. If more people paid their medical costs out of pocket then more would shop around and even go abroad for treatment. Insurance decreases competition in medical services. Wider use of tax-advantaged medical savings accounts therefore would increase competition and drive down prices in health care.

The article quotes patients saying that Indian doctors provide more information and their phone numbers to call for questions.

Thailand leads in the medical tourism market but India's business is growing.

India is still a relative newcomer to the international medical market, attracting 150,000 foreign patients last year, compared with Singapore's 200,000 and Thailand's 600,000. But India's numbers are increasing. In Jaslok, one of Bombay's top private hospitals, three Americans were recovering from orthopedic surgery in June alone.

IVF in India costs only an eighth the cost in the US.

In vitro fertilization can cost $20,000 in the United States and $15,000 in Europe. In India it costs about $2,500.

Medical tourism is easier for medical conditions that are less debilitating. This puts an upper limit on medical tourism. Also, people in the United States who are old enough to quality for government-funded Medicare have little incentive to look abroad. Plastic surgery might be a better bet for growth in medical tourism because for most people plastic surgery is both optional and paid out of pocket. However, due to its optional nature and the fact that insurance companies rarely cover its costs plastic surgery is probably already the most competitive type of surgery in the United States.

I would expect the medically uninsured to be the biggest customers of medical tourism. Will insurance companies eventually start providing their customers with monetary incentives to seek treatments abroad?

Travel distance is another obstacle for medical tourism. This provides an opening for Mexico. The Mexican government ought to allow doctors from South and East Asia to come in on work visas to set up hospitals and clinics to serve US customers. That would cut travel times and provide a big revenue source for Mexico as those treatment centers use Mexican suppliers, secretaries, nurses, and other laborers. Other Central American governments and Caribbean governments where salaries are lower could also try for this business using imported doctors to provide the breadth and depth of brain power and skills.

By Randall Parker    2005 October 02 04:21 PM Entry Permalink | Comments (16)
2005 July 26 Tuesday
Medicare Rewards Hospitals For Poor Care And Excessive Treatment

Medicare rewards high costs and incompetence.

Under Medicare's rules, each time a patient comes back for another treatment, a hospital qualifies for an additional payment. In effect, Palm Beach Gardens was paid a bonus for its mistakes.

Medicare's handling of Palm Beach Gardens is an extreme example of a pervasive problem that costs the federal insurance program billions of dollars a year while rewarding doctors, hospitals and health plans for bad medicine. In Medicare's upside-down reimbursement system, hospitals and doctors who order unnecessary tests, provide poor care or even injure patients often receive higher payments than those who provide efficient, high-quality medicine.

"It's the exact opposite of what you would expect," said Mary Brainerd, chief executive officer of HealthPartners, a nonprofit health plan based in Bloomington, Minn. Her Medicare HMO ranked among the top 10 in the nation last year for quality but was paid thousands of dollars less per patient by Medicare than lower-performing plans.

"The way Medicare is set up," Brainerd said, "it actually punishes you for being good."

As Medicare approaches its 40th anniversary on Saturday, much of the debate about the nation's largest health insurance program revolves around whether it will remain solvent for aging baby boomers. Yet another critical question is often overlooked: whether taxpayers and patients get their money's worth from the $300 billion Medicare spends each year -- now about 15 percent of federal spending and projected to grow to nearly a quarter of the budget in a decade.

Read the whole article.

Medicare does little to try to monitor quality of service delivered.

Medicare has difficulty controlling waste because of deficiencies in the way it monitors and enforces quality standards. Its oversight system is fragmented, underfunded and marred by conflicts of interest, records and interviews show. For every $1,000 that it pays to hospitals and doctors, it invests just $1 or $2 to oversee and improve patient care.

Part of Medicare's budget should go toward funding the devleopment of cheaper treatments. Another part of Medicare's budget should go toward tracking and comparing quality of care at different medical institutions. Also, more Medicare outlays should funnel through HMOs that are rewarded for higher quality and more cost effective service.

The United States also needs to reduce the percentage of medical costs paid for by insurance plans. Tax advantaged medical savings accounts would introduce much more accountability by making the payers and the receivers of medical services the same people. Imagine you had a medical insurance plan with a $5000 per year deductible (I have such a plan) and you had, say, at least $20,000 in your medical savings account with which to pay for medical insurance and for all medical expenses that might come up in the course of a few years. Even if you lost your job and went through a major illness for a couple of years you'd still be able to pay all your medical expenses. Since you'd be spending your own money you'd look much harder for lower priced services and services more assured to allow quick recovery times. In short, you'd shop around the way plastic surgery customers do now. Medical savings accounts with large deductibles are one way to bring more competition to medicine.

A lot of medical procedures have costs that run into the tens and hundreds of thousands of dollars. One way to bring competition to the provision of such services would be to make the tax advantaged nature of medical savings accounts greater for people who put more money into their accounts and buy higher deductible insurance policies. So, for example, a person who agrees to put $50,000.00 into their medical savings account and buy medical insurance with a $20,000.00 per year deductible should get a bigger tax break than someone who puts in only $10,000.00 and buys medical insurance with a $5000.00 per year deductible. People should get a tax advantage for paying larger portions of their own medical expenses.

Currently much of the medical industry is a massive uncompetitive racket. Medical care providers actively lobby Congress to defeat attempts by Medicare to run competitions for provision of major types of services. The article cites some examples of pilot projects which Congress killed after their initial success. But the cost of medical care in general and specifically the cost of medical care paid for by taxpayers has become so great that the same racketeering business as usual has got to come to an end. We need competition and publically available performance data on doctors and hospitals.

By Randall Parker    2005 July 26 02:53 PM Entry Permalink | Comments (17)
2005 May 09 Monday
Obese Workers Paid Less Only When Receiving Employer Provided Medical Insurance

The invisible hand of the market triumphs once again.

STANFORD, Calif. - Studies have consistently shown that obese employees are paid less than normal-weight employees doing similar jobs, leading many people to attribute the gap to prejudice against workers based on their appearance.

But new research from Stanford University health economists adds another wrinkle to understanding these pay differentials: obese workers are paid less only when they have employer-sponsored health insurance.

These findings, just published in a working paper on the Web site of the National Bureau of Economic Research, suggest that employers-recognizing that obese workers are likely to have higher medical costs-compensate with lower pay for them. Given that employment-based health insurance requires that employees in the same plan make the same contributions to premiums, the employers adjust wages to account for the greater expense for obese workers' health care, according to the paper.

"A self-correcting mechanism is at work in the labor market," explained study co-author Kate Bundorf, MPH, PhD, assistant professor of health research and policy at Stanford and a fellow at the university's Center for Health Policy/Center for Primary Care and Outcomes Research. The study doesn't address whether the wage disparity is fair, she noted; it simply demonstrates that there are strong economic incentives for employers to adjust for the varying costs of providing medical benefits to different types of workers. "Our findings reinforce that these market forces are powerful," she said.

The findings also shed light on the question of who bears the cost of obesity-related health care. While it is often assumed that obese workers' medical expenses are passed on to their employers and normal-weight co-workers, the Stanford study indicates that obese workers are paying for it themselves through lower wages.

The market is efficient!

One consequence can be inferred from this result: the rapidly rising cost of health insurance is suppressing wage gains for most workers who receive medical benefits from their employers.

Aside from providing insight into the costs of obesity among workers, the study provides perhaps the strongest evidence to date that the costs of employer-sponsored health insurance are, in fact, passed on to workers through lower wages. By implication, insured workers should be just as alarmed by rising health-care costs as their employers are.

One thought: Once DNA sequencing becomes cheap if employees are allowed to volunteer their DNA sequencing results to employers then employers would be able to better ascertain the odds of illness by employees. Then employees with excellent genetic profiles would benefit from revealing their genetic profiles to employers. One can even imagine job hunters with excellent genetic profiles posting them on web sites with some authentication service certifying the accuracy of the sequence data. Then employers looking for employees could examine the DNA sequences of potential hires before having any direct contact with job seekers.

By Randall Parker    2005 May 09 02:01 PM Entry Permalink | Comments (1)
2005 May 02 Monday
Nurses Could Take Over Many Physician Tasks But Are Slower

Nurses can provide many forms of primary care with adequate quality but they take more time to do it and thereby cancel out much of the cost savings.

“ The findings may be considered controversial by health care professionals and policymakers, as there is a widely held belief that nurses can save physicians’ time and reduce costs,” says lead reviewer Miranda Laurant of Radboud University, Nijmegen in the Netherlands.

...

The systematic review included 16 studies totaling more than 25,000 patients in the United Kingdom, United States and Canada. The review appears in the most recent issue of The Cochrane Library, a publication of The Cochrane Collaboration, an international organization that evaluates medical research. Systematic reviews draw evidence-based conclusions about medical practice after considering both the content and quality of existing medical trials on a topic.

In each study, nurses were responsible for one of the following types of care: first contact and ongoing care for general patients; routine management of patients with chronic conditions; or first contact care for patients seeking urgent attention.

In the first two categories, the reviewers found no appreciable differences between doctors and nurses in health outcomes, process of care, resource utilization or cost.

Patients were happier with nurses. Longer consultations seem the likely cause of this effect.

Among urgent-care patients, health outcomes were similar for nurses and doctors. Moreover, nurses tended to provide longer consultations, offer more information, recall patients more frequently and receive higher patient-satisfaction ratings.

But the longer time spent with patients cancelled out the savings from lower salaries of nurses.

Because nurses spent more time with each patient, however, they saw fewer patients per hour. In four of five studies on nurse-led urgent care, lower salary costs were offset by this so-called “lower productivity” and increased use of resources.

Do male nurses spend less time per patient than female nurses? Is there personality type of female nurse that would be just as efficient who would spend less time per patient? Or are the doctors faster because they are smarter on average and can therefore think their way to diagnoses more quickly? For whatever reason(s), those stereotypical rude abrupt doctors are time efficient.

Perhaps in the United States the savings from nurses is greater because (and I'm guessing) the salary gap between doctors and nurses in the US is larger than in Canada or Britain.

“As salary differentials between nurses and doctors may vary from place to place and over time, the net saving to health care services, if any, will be highly context dependent,” note the reviewers.

The single study that investigated the impact of nurses on doctors’ workload confirmed reductions in demand for doctors when nurses responded to patients needing after-hours care. While such substitution may save time for physicians, note the authors, it is also possible that doctors’ workloads may remain unchanged either because there was previously unmet need or because nurses generate demand for care where previously there was none.

If automated devices and advances in testing technologies can serve up more accurate diagnoses more quickly will people continue to demand just as much face-to-face time with physicians?

Caveats, caveats, caveats:

Laurant cautions, however, that many of the studies had methodological limitations, and follow-ups of less than one year left long-term health outcomes unclear. In addition, most studies included only a few nurses, so the findings may reflect personal variations rather than broad trends.

This study is interesting because health care costs continue to grow more rapidly than the economy as a whole. Shifting more responsibility onto nurses might not help. Researchers need to discover why nurses take more time with patients. Is it because they like spending time with patients? Or because they don't want to be rude by cutting off conversations quickly? Or because they are less efficient at deciding questions to ask to examinations to do? Or because they require more time to think through the information that patients provide?

Also, are there types of illnesses for which nurses are nearly as quick as doctors?

By Randall Parker    2005 May 02 10:52 AM Entry Permalink | Comments (6)
2005 April 27 Wednesday
Americans Are More Worried About Health Care Costs Than Losing Jobs

The Kaiser Family Foundation's latest survey on public attitudes about health care finds health care worries outrank many other financial worries.

Since April 2003, we have asked several questions to compare Americans' health care worries to their worries about other possible problems. We have consistently found that more Americans are personally worried about their health care costs than about losing their job, paying their rent or mortgage, losing money in the stock market, or being the victim of a terrorist attack.

Among health care worries, the public is most concerned about having to pay more for their health care or insurance, with almost half (49%) saying they are very worried. Somewhat fewer say they are very worried about not being able to afford health care services (42%), not being able to afford prescription drugs (35%), and declining quality of care (32%). Among those who currently have health insurance coverage, nearly four in ten (38%) report being very worried that their health plan will be more concerned about money than about what is best for them, and more than one-third (35%) say they are very worried about losing their health insurance coverage.

People in different demographic groups report different levels of worry about their own ability to access and pay for health care. For instance, non-whites, those with lower incomes, and those without health insurance coverage are more likely than their counterparts to report worrying about health care issues. In addition, more women than men are worried about their health care, perhaps due in part to the fact that women are often the primary health care decision-makers in the home, and they have more contact with the health care system than do men.

Losing a job or inability to pay the mortgage just do not rate next to medical care on the list of worries for most people.

Nearly half (49%) of adults say they are very worried about having to pay more for their health care or health insurance, somewhat more than the share who say they are very worried about their income not keeping up with rising prices (46%). Around four in ten adults say they are very worried about not being able to afford health care services (42%) and that their health plan cares more about saving money than about what is best for them (38% of those with health insurance). More than one-third of adults say they are very worried about not being able to afford prescription drugs (35%) and about losing their insurance coverage (35% of insured). Just over three in ten adults say they are very worried about the quality of their health care getting worse (32%).

Health care worries rank ahead of other non-health concerns, including not being able to pay their rent or mortgage (29%), losing a job (23% of those who are employed), losing money in the stock market (20%), and being a victim of a terrorist attack (19%).

With health care costs rising faster than inflation and companies cutting back and even dropping health care benefits these worries seem pretty rational to me.

My favorite proposal for the medical insurance problem: Tax-advantaged health savings accounts If you lose a job you lose your health care coverage and suddenly have to pay for health insurance at the very time you do not have a source of income. People need to be able to save money pre-tax while working at jobs with medical benefits so that they can continue to buy medical insurance between jobs. Also, the self-employed should be able to buy health care with pre-tax dollars just as those who work for companies can with employer-supplied medical benefits.

Also, medical insurance should be decoupled from any one job. COBRA coverage lasts for 18 months if you can afford it after you leave a job (and if your employer didn't go bankrupt or cancel medical coverage before laying you off). But even if you can afford to pay for COBRA coverage, should you develop a chronic condition while working at job you may find yourself uninsurable once COBRA coverage expires.

Health savings accounts would also reduce the number of parties involved in health care transactions. Employers would not be involved in choosing insurance and more medical care would be purchased directly rather than by an insurance company paying. This would make medical providers much more solicitous toward the wishes of patients.

Such accounts ought to require any insurance purchased from such accounts to have high deductibles and money from the accounts should be used to buy medical care up to the level of the deductibles. This would inject stronger market forces into medical care as more people directly spent their own dollars for medical care. This would tend to increase efficiency, decrease costs, and make service more customer-centric.

By Randall Parker    2005 April 27 01:00 AM Entry Permalink | Comments (8)
2005 April 17 Sunday
Health Care Now 10 Percent Of US Military Budget

Tim Weiner of the New York Times reports that military health care costs are skyrocketing.

The cost of the main military health care plan, Tricare, has doubled since 2001 and will soon reach $50 billion a year, more than a tenth of the Pentagon's budget. At least 75 percent of the benefits will go to veterans and retirees.

Over the next decade, a new plan for military retirees, Tricare for Life, will cost at least $100 billion, according to confidential budget documents, rivaling the costs of the biggest weapons systems the Pentagon is building.

That is for almost 9 million active duty and retired personnel and their dependents. So it works out to about $5500 per person and rapidly rising. Parenthetically, article illustrates why "cheap" illegal alien labor is not cheap. The taxpayers end up paying for their health care when they show up in hospital emergency wards and when they have children born here their kids are eligible for Medicaid and other government medical benefits programs that middle class and higher income taxpayers pay for.

Tricare for Life is a supplement to Medicare and, according to an accompanying graph, will cost about $13 billion per year by 2015. That is more than double the $6 billion it cost in 2004. So how much will it cost in 2025 or 2035? The article doesn't say but the answer seems obvious: many billions more.

Bush and Congress are on a binge to pile on more unfunded liabilities for the future decades.

The government's unpaid-for promises grew by more than $13 trillion last year, a sum larger than the nation's 2004 economic output, and they now surpass $43 trillion, said David A. Walker, comptroller general of the United States. Last year "was arguably the worst year in our fiscal history," said Mr. Walker, who runs the Government Accountability Office, the budget watchdog of Congress. "It seems clear that the nation's current fiscal path is unsustainable."

The US military is going to become a hollow force in future decades as its budget goes increasingly for health care.

The cost of military health care is now bigger than the Army's budget for buying new weapons, the Navy's budget for new ships and submarines, or the Air Force's budget for new planes.

The lack of money spent on acquisitions feeds the health care cost problem because old equipment requires a larger staff to do maintenance and newer equipment is more automated and requires fewer people to operate. For example, newer ships have smaller crews because of advances in ship design that automate more tasks.

The US military should be making a much larger push to replace high maintenance equipment and to develop tools and designs that automate work. By reducing human labor needs the extent of the rise in future costs of medical care for military workers could be reduced.

Also, the rising cost of health care for the military illustrates once again the value of developing technologies that automate the delivery of health care. Plus, measures to accelerate the rate of advance of biomedical science and technology could reap savings by producing treatments that prevent diseases and treat diseases more cheaply. But unfortunately there is no big push in Washington to look at health care costs as a problem to solve with acceleration of the advance of science and technology.

The budget of the rest of the US government will go increasingly to pay for old age health care and health care for poor folks (a large and growing percentage of which will be illegal aliens and their legal citizen children).

Edward Rubinstein has a handy table on medical uninsurance by immigrant groups and natives.

Here are the uninsured rates for various immigrant groups (Table 1):

The rapid escalation of ER usage by uninsured immigrants has brought financial disaster to many hospitals. Southwestern border hospitals lost hundreds of millions before the recent federal bailout. In LA County the cost of caring for illegals has diverted money from other services, forcing clinics, trauma centers—and emergency rooms—to close.

We can not afford to pay for an aging population, a strong national defense, and tens of millions of poor illegal aliens and their offspring.

By Randall Parker    2005 April 17 02:50 PM Entry Permalink | Comments (8)
2005 April 02 Saturday
Drug Price Controls Reduce Incentives For New Drug Development

Doug Bandow of the Cato Institute says price controls in other countries are decreasing the incentives for new drug development and hurting us all. In the latest extension of harmful socialist interventions in drug markets Germany is eliminating the ability of drug companies to charge more for most patented drugs.

Health care is expensive, but inadequate treatment is even more expensive. This is a lesson the German government has yet to learn. For years much of the world has been a free rider on U.S. medical R&D. Most industrialized states rely on a mix of price and volume controls to limit pharmaceutical spending. These governments expect American drug makers to keep supplying their products, almost irrespective of price.

As a result, U.S. citizens are bearing a steadily increasing medical burden: Since 1999 America has accounted for 71% of the sales of new chemical entities, up from 62%. Japan and Germany, the next two largest pharmaceutical markets, account for just 4% each.

Washington is under increasing pressure to end this sweet deal for other nations. In fact, the U.S. has started to raise the issue in trade negotiations.

The real solution, however, is for other nations to pay a fair price for what they use. After all, countries that impose drug-price controls are degrading the health of their citizens while raising other treatment expenses.

Germany's newly tightened therapeutical reference-pricing program is an unfortunate example. Under reference pricing, drugs are grouped by pharmacological equivalence. Generics and patented products are listed together and reference prices are set based on the difference between the cheapest and most expensive drugs.

I see the drug price control issue as a matter of life and death. If more countries allowed market pricing for drugs more and better drugs would be brought to market and we'd all benefit from better treatments, better health, and longer life expectancies.

Where a disease can be effectively treated or avoided by use of a drug it almost always saves money over other treatment options. Surgery and other methods of treatment are typically much more expensive and often orders of magnitude more expensive.

According Dr. James Cleeman, coordinator of the National Cholesterol Educational Program in the U.S., statins are cost effective even at $100 a month because heart disease costs "hundreds of billions of dollars." Treatment for high cholesterol demonstrates how Germany fails to balance lower cost with better treatment. Some 1.8 million Germans take Pfizer's Lipitor, sold there as Sortis. Numerous studies have demonstrated that Sortis lowers cholesterol and thereby reduces the risk of heart attacks and strokes, even among high-risk populations suffering from diabetes and hypertension.

However, Sortis is being bundled with generic statins, which would impose a price cut of 38% this year and a cumulative reduction of 63% next year. The other medicines work, but studies indicate that Sortis works better -- reduces cholesterol more with fewer side-effects. Yet GemBa refused to delay implementation of the reference pricing for statins. Average Germans are the big losers.

The Germans are preventing better drugs from having a higher price than lousier drugs. They are also preventing drugs under patent from earning back their development costs and thereby decreasing the incentive to develop new patented drugs. Short term cheap drug prices come at the expense of reducing the number of new drugs that will be available in the future. I can understand the selfish motives of those who are old enough to know they won't benefit from new drugs 20 or 30 years hence. But anyone who is young enough to expect to need new treatments 20, 30, 40, or 50 years from now has a vested interest in deregulating drug prices in Europe, Canada, and other price-regulated markets.

The Bush Administration ought to make drug price controls and intellectual property rights violations of pharmaceutical companies a far higher priority in foreign relations. Far more lives would be saved by better protection of pharmaceutical intellectual property than from the vast bulk of the issues which are the focus of current US diplomacy.

As Tyler Cowen points out the US market's funding of the bulk of current drug development is "a massive form of implicit foreign aid". Other industrial countries should stop freeloading off of the American drug consumer and adopt market pricing. The result will be better health for all of us as much larger numbers of drugs and more effective drugs are developed.

By Randall Parker    2005 April 02 12:19 PM Entry Permalink | Comments (33)
2005 March 08 Tuesday
US Chief Financial Offcers See Rising Health Care Costs As Big Worry

You know how you can feel a lot of satisfaction finding that some person or group you respect turn out to agree with you on a subject? That is my reaction to a survey of Chief Financial Officers. US corporate Chief Financial Officers think rising medical costs are more important that Social Security reform.

To understand the causes of this reduced optimism, the survey asked executives to choose the top four items, from a list of 16, that are concerns for their companies. The results showed that intense competition is the number one concern among CFOs around the world, with more than half listing competition among their top concerns. In the United States, 53 percent of CFOs cite high health care costs as a top issue. CFOs expect health care costs to increase by 9 percent in the coming year. High fuel prices, increased interest rates and fears about increased regulation round out the top concerns for U.S. CFOs.

European and Asian CFOs do not list health care costs as a major issue, but do cite concern about world economic stability and reduced pricing power.

"Nearly two-thirds of U.S. CFOs say that it is very important for Congress to address the cost of health care, and another 29 percent say that it is somewhat important," Graham said. "A similar percentage say that it is important for Congress to address the budget deficit. Only 31 percent say that it is very important to implement Social Security reform."

Granted, the reason CFOs are concerned about medical costs is their own corporate bottom line. But if costs are rising for corporations then costs are rising for the rest of us. The corporate CEOs correctly see medical care as a souce of rapidly rising costs of production.

My lack of enthusiasm for Bush's Social Security private investment accounts stems in part from the future expected growth of medical costs. Both Medicare and Social Security have large unfunded liabilities. But medical care is a rising cost for the entire population. See my previous post "Medical Costs To Be 18.7% Of US Economy In 2014" for some background information on the problem. Medical costs are the more interesting and more pressing problem for a few reasons. First of all, medical costs are rising across the board regardless of whether the medical care is being paid for by the government or private insurance. Secondly, the potential solution of accelerating the rate of biomedical science and biotechnology would be both incredibly bullish for economic growth. Picture a much healthier work force that can work for more years. Also, picture medical treatments that are much cheaper and more effective. Thirdly, the result of dealing with medical costs by accelerating the rate of advance of medical science would make each of us individually healthier and happier. Whereas the choices for how to solve the Social Security problem do not provide an option which has anywhere near the potential upside for us as individuals or for the economy and society as a whole.

Another reason that health care as a policy area is more interesting than Social Security is that medical spending accounts could accomplish some of the same things that privatized Social Security accounts would accomplish (e.g. more savings and more investment). But the medical spending accounts would have more far reaching and beneficial effects because medical spending accounts would also remove layers of middlemen in the buying of health care. The use of medical spending accounts to buy high deductible medical insurance would cut employers and insurers from many transactions in the relationship between patient and care provider. So medical spending accounts would have more pro-market effects than Social Security accounts.

If you are of the opinion that biomedical advances can't make a huge impact on rising health care costs check out what some smart money is saying about the prospects for getting control of health care costs using biotechnology (Sorry I don't have the transcript of the show but the 3 people from the Charlie Rose show I refer to there really did express the sentiment that I attribute to them). We need to treat our aging population as a financial problem that has a technological solution.

Update: For more on the Social Security debate see Tyler Cowen's posts on Social Security reform proposals.

By Randall Parker    2005 March 08 12:12 PM Entry Permalink | Comments (6)
2005 February 23 Wednesday
Medical Costs To Be 18.7% Of US Economy In 2014

Economists and actuaries at the Centers for Medicare and Medicaid Services and the National Health Statistics Group are projecting much higher spending for medical care in the US economy by 2014.

National health spending growth is anticipated to remain stable at just over 7.0 percent through 2006, the result of diverging public- and private-sector spending trends. The faster public-sector spending growth is exemplified by the introduction of the new Medicare drug benefit in 2006. While this benefit is anticipated to have only a minor impact on overall health spending, it will result in a significant shift in funding from private payers and Medicaid to Medicare. By 2014, total health spending is projected to constitute 18.7 percent of gross domestic product, from 15.3 percent in 2003.

Of course medical costs will continue to rise beyond 2014. But 2014 is not even 10 years away. Think ahead another 10 years . Young people are going to become wage slaves for the old.

The US government's portion of total medical costs in the USA will rise from 45.6% of 2004 to 49.4% in 2014.

By 2014, overall medical payments are projected at about $3.6 trillion -- with the government footing $1.8 trillion, or 49.4 percent, and private funding covering just over 50 percent, the report said.

Keep in mind that George W. Bush just proposed a 2.57 trillion dollar US federal budget for 2006.

Scared you do not have or may lose medical insurance? You should be. The cost of medical insurance is rising quite rapidly. In fact, health insurance premiums rose 11.2% in 2004. That is a scary increase. The per person costs for medical care will be very high in 2014.

The new report, published yesterday, says spending for health cost will reach a projected $11,045 per person annually by 2014, up from $6,423 now. Nationally, health expenditures were $1.8 trillion last year. By 2014, they are expected to be $3.6 trillion, meaning the government would be paying about $1.8 trillion for health care. President Bush's entire proposed federal budget for next year is $2.57 trillion.

Think about that $11,045 per person figure. The cost is obviously higher for old folks. But working people need to pay for the medical care of older people who are no longer working. So for a person who is working who has a family which includes members that do not work that person has to be earning a really high income to be breaking even in their net financial lifetime effect on society. This illustrates why illegal immigrants who have low educational achievements, low productivity, and hence earn low wages are no bargain. They will cost far more over their lifetimes than they will pay in taxes.

Is the rising cost of health care an argument for total federal take-over of health care?

"The whole idea of money moving from a private share to a public share is interesting," said Paul Fronstin, a senior research associate with the Employee Benefit Research Institute, a nonpartisan research group. "It seems to me it gives proponents of national health insurance ammunition to further make their argument that the government is already spending half; why not go the full amount and provide coverage for everybody?"

My guess is that the federal government will be in such a deep financial hole in 8 years that the idea of taking over paying for the health care of the entire population will be considered financially impossible. In 2014 the government will already be spending over 9.3% of the GDP on health care (the total will be 18.7% with the government paying 49.4% of that). It would need to grab over another 9% of the economy in taxes to be able to nationalise all of health care. But the tax increases needed just to support the existing expected increase in old age entitlements will make further tax increases for other non-old age entitlements impossible to enact.

Increased medical spending for old folks is coming at the expense of government funding of health care for old folks as Medicaid budgets for the poor are cut.

Health care costs for public programs are already straining many state budgets: Texas Gov. Rick Perry last week said his state and others may go bankrupt unless they get additional federal assistance for their Medicaid programs. Many states have already made cuts to Medicaid. And they may have to do more: President Bush's 2006 budget proposes shaving $40 billion from the federal share of Medicaid over 10 years by cracking down on state accounting methods.

Poor folks are politically less organized and less informed than old folks. The poor can not hope to compete for limited dollars in entitlements spending. Don't be poor in 2014. It will not be fun.

Financial disaster is approaching. What is the solution? A huge increase in medical research spending could produce far more effective and therefore much cheaper treatments for diseases. I believe that science holds the only hope for solutions that can have a big enough effect to prevent America from becoming a massive old age home with most of its people working as wage slaves to pay for medical care.

Update: Rising Medicaid costs are taking money away from education.

Medicaid spending has shot up 63 percent in the last five years, so that federal and state outlays together now total more than $300 billion a year. With no change in current law, the Congressional Budget Office says, the cost will grow an average of 7.7 percent a year in the next decade.

Governors desperately want to slow the growth of Medicaid, which they say is eating up state tax revenues they want to use for education.

Education is going to experience budget cuts in the coming decades as medical expenses eat up more of state and federal budgets. Think education spending is too low now? It will go lower per student. The money will be channeled to pay for health care of poor folks and old folks.

My modest proposal to reduce the cost of Medicaid: Deport all the illegal aliens. Illegals are driving up the number of medically uninsured. Being medically uninsured is much more common among immigrants. That means everyone else pays more taxes to pay for Medicaid for immigrants. The cost of a single year's tax paid health care for illegal aliens would pay for a barrier to keep out illegals on the full length of the US-Mexican border. Then we'd just have to authorize police to round up illegals and we'd remove millions of people from public subsidy.

By Randall Parker    2005 February 23 11:43 PM Entry Permalink | Comments (5)
2005 February 09 Wednesday
New Medicare Drug Benefit Estimate $724 Billion

Cost projections for the US Medicare drug benefit keep rising.

When the plan to help seniors cope with skyrocketing drug costs passed Congress in 2003, the advertised price was $400 billion over 10 years. Two months later, the Bush administration “revised” the estimate to $534 billion. Now, Medicare officials project the cost to be $724 billion from 2006 to 2015, its first full decade.

The Bush Administration played games by using a 10 year total cost that included 2 years during which the drug benefit did not even exist.

The new figure for years 2006 through 2015 is much higher than the $534 billion cost calculated for years 2004 through 2013. That’s because under the previous decade-long projection, the benefit did not exist for two of the 10 years.

The chief actuary of the US government's Centers for Medicare and Medicaid Services (CMS) was silenced by the Bush Administration to prevent Congress from learning how expensive the drug benefit was going to be before the bill creating it was voted on.

Rick Foster, CMS’s top actuary, said last year he would have been fired if he provided his price tag of the Medicare bill as it was working its way through Congress.

The projected yearly costs in 2014 and 2015 show an increase of over 10% from one year to the next.

The new estimates show spending of $98 billion in 2014 and $109.2 billion in 2015. That reflects more beneficiaries, more prescriptions being filled and inflation, said Medicare administrator Mark McClellan.

Imagine what the Medicare drug benefit money could have accomplished if instead the money had been allocated to increasing basic and applied biomedical research. Allocated to the NIH it would have more than quadrupled the NIH's budget.

The United States is peaking as a world power because rising medical costs are going to eat the federal budget and rising taxes to pay for medical costs are going to choke future US economic growth. The Medicare drug benefit alone has a bigger unfunded liability than Social Security. The United States is going to become like Europe with a slower rate of economic growth and a less motivated workforce working many fewer hours per year at paying jobs as high marginal tax rates make work less financially rewarding and less attractive.

I see only one way to avoid economic stagnation: fund medical research to discover cheaper ways to treat and cure illnesses.

Because of the financial crisis building up in the Medicare program Tyler Cowen argues for indexing Social Security to inflation rather than to wage increases.

3. It is necessary to freeze social security benefits only because Medicare is in future fiscal trouble. Social security itself can keep on going at current levels with only marginal adjustments, if we so choose. But broader fiscal problems loom, as Bush's critics so correctly and frequently remind us. Medicare, of course, benefits the elderly. We would not be freezing social security benefits to throw a giant party for the young. I will admit that if we can solve the Medicare problem (I don't know how to), we can drop my social security proposal. I will also admit that my social security proposal is only one drop in a much bigger bucket; other reforms and spending cuts will be needed also. Many of these burdens should fall on the young, which will make the relative effects fairer to some degree.

4. The projected growth in Medicare implies a huge shift in relative resources devoted to the elderly. A gradual freeze of social securty benefits should be viewed in this broader context. The net flow of resources is still very much toward the elderly.

Tyler also argues that the indexing should be to the inflation rate that the elderly experience for their market basket of goods. But this proposal brings up an obvious question: Is it reasonable to assume that the inflation rate for the mix of goods and services the elderly purchase is less than the rate of increase of wages for the working population? To put it another way, do the elderly spend so much out-of-pocket for medical treatments that the inflation rate for their market basket of goods and services is higher than the rate at which wages increase?

What is the rate at which, for example, the price of nursing home care is going up? The rising average age of the elderly is increasing the fraction of them that need nursing home care. For example, half of the people over the age of 85 have Alzheimer's. (Alzheimer's would be, btw, a very cost effective disease on which to spend research money to find a cure.) So even if the cost of a year of nursing home care does not go up faster than the overall rate of inflation isn't the amount of nursing home care purchased per elderly person going up so fast that the elderly are really experiencing rapidly rising costs of care?

An argument can be made for lowering monthly Social Security payments for people in their 60s and early 70s and then increasing the payments in their 80s and 90s to pay for the more expensive forms of care that the elderly need as they become more frail and cognitively impaired.

Update: One factor that may work in favor of proposals to change Social Security indexing from wages to inflation is that most Americans incorrectly believe that the cost of living has been rising more rapidly than wages over the last 20 years.

Perhaps most significant, about seven in 10 Americans believe that the cost of living has been rising faster than wages over the past 20 years, although the reverse is true. This belief probably shapes policy preferences: The same percentage wants to peg initial Social Security benefits to the cost of living, as Bush reportedly wants, instead of the current formula, which pegs them to wage increases. That change would result in significantly lower guaranteed benefits for future generations, according to both supporters and opponents.

Of course in some parts of the country housing costs have been rising faster than wages. But does a larger fraction of the people in those parts of the country which have rapidly rising housing costs report that wages are not keeping up with inflation? Also, do people who have medical insurance through their jobs perceive a faster or slower rate of rise in costs than those who pay medical insurance payments directly? What is behind these perceptions?

By Randall Parker    2005 February 09 11:40 PM Entry Permalink | Comments (3)
2005 January 31 Monday
Many Companies Move To Ban Hiring Of Employees Who Smoke

Employers are banning smoking by employees even off of work sites.

In fall, Union Pacific Corp., an Omaha, Neb.-based transportation company, stopped hiring smokers in seven states. Company officials said the move was made to help quell employee health costs, which have jumped more than 10 percent each of the past three years.

Weyco Inc., an employee benefits company with 200 employees in Okemos, Mich., began random drug tests for nicotine on Jan. 1, saying it would fire workers who failed the test or refused to quit smoking.

Note the parallel with employers who fire workers who fail tests for illicit drugs. The difference here is that smoking nicotine-carcinogen combo sticks is legal. But what if an employee was using Nicorette or other non-smoking form of nicotine? They'd be fired anyway. Though I could imagine the development of blood tests that would detect the toxic chemicals that come in with the nicotine in the cigarette smoke.

The President of Weyco doesn't want to pay for the costs of smoking.

Weyco Inc. administers benefits plans for other companies. Its president, Howard Weyers, wants it to be a role model for them as they aim to keep health costs low. He says, "I don't want to have to pay for the results of smoking."

Hey, I don't either. I also do not want to pay for the illegitimate kids of others, the abandoned kids of others, the kids born messed up by drug addict moms, or alcoholics crippling people for life in car accidents. Some more things I don't want to pay for: poorer health outcomes from others eating lousy food and from others not getting enough exercise. Oh, and this is motivated by someone I know: People who would rather buy themselves a new truck or take vacation trips than buy health insurance for their kid (I picture a tax on parents who do not have health insurance for their kids). I could go on. The list is long. The more society as a whole pays for irresponsible behaviors the more at least some people will behave more irresponsibly.

Plus, the responsible (and more capable) end up getting less as a result of the irresponsibility of others. Imagine everyone took far better care of their health. Then medical costs would be lower and health insurance costs would be lower and more employers would find medical insurance affordable. So more people who are now behaving responsibly but who can not afford medical insurance would have medical insurance.

6% of Weyco's workers quit smoking in response to the ban.

Among the company's 200 workers, about 12 kicked the habit before the ban.

Some workers quit their jobs in response to the ban rather than quit smoking (such is the power of the demon weed). But other workers responded to the greatly increased cost of their habit by breaking the habit. If more of the costs of irresponsible behavior were levied on those who act irresponsibly then there would be a lot less irresponsible and costly behavior.

Weyco uses a large array of carrots and sticks to get their employees to be more responsible about their health.

Clearly, smoking is dangerous to smokers and others. In fall 2003, we decided that, as of Jan. 1, 2005, we would no longer employ smokers. Since then, we've assisted employees through a series of meetings about the program, as well as supportive efforts including smoking-cessation classes, medication, and acupuncture. We've implemented the change gradually, encouraging smokers to become healthier and remain WEYCO employees.

We also provide employees with a $35 monthly incentive to use a fitness facility, another $65 for meeting modest fitness goals. We created and use walking trails on our campus.

While trying to be sensitive to smokers' personal predicament, we're also saying, "You can choose to smoke after Jan. 1, but if so, you'll need to find other employment."

Some call this a violation of privacy, pointing to the principle that "what you do in your own home is your own business." But they forget the part about "so long as it doesn't harm anyone else."

Michigan businesses have the right to protect themselves from the enormous financial harm that smokers inflict upon society. So do individual employees and taxpayers.

As another way to cut costs one can easily imagine employers making rules about being overweight with too much body fat. Ditto for the use of blood tests for nutrient levels to detect whether someone is pigging out on junk food.

Less than half the states allow total smoker bans by employers but some big population states including California are in the list of states that allow such bans.

Moreover, they argue, it monitors what people do outside the workplace and discriminates against their lifestyles, a practice that is banned in 29 states that have smokers' rights statutes, also known as "lifestyle rights laws," which prohibit employers from discriminating against smokers.

Michigan is one of 21 states that do not have such laws. Others include California, Florida, Ohio and Texas.

About 1% of employers in one poll were found to ban smokers from their work forces.

A study conducted this month by the Society for Human Resource Management found that about 32 percent of the employers polled offer stop-smoking programs, 12 percent prefer not to hire smokers, nearly 5 percent charge higher health care premiums for smokers and 1 percent have a formal policy against hiring smokers.

Note that the current tax laws regarding medical insurance and medical costs makes the cost of medical premiums less for employers who pay in pre-tax dollars than for employees and the self-employed who pay in post-tax dollars. Whether a person smoked or not would matter far less to employers if medical insurance was just as easily purchaseable by individuals. However, if insurers are allowed to charge higher prices to smokers then the smokers are still going to pay financially for their habit.

The move of employers to get tough with employees who smoke comes in the face of medical insurance premiums that are becoming incredibly expensive.

Washington, DC – Employer-sponsored health insurance premiums increased an average of 11.2% in 2004 -- less than last year’s 13.9% increase, but still the fourth consecutive year of double-digit growth, according to the 2004 Annual Employer Health Benefits Survey released by the Kaiser Family Foundation and Health Research and Educational Trust (HRET). Premiums for employer-sponsored health insurance rose at about five times the rate of inflation (2.3%) and workers’ earnings (2.2%).

In 2004, premiums reached an average of $9,950 annually for family coverage ($829 per month) and $3,695 ($308 per month) for single coverage, according to the new survey. Family premiums for PPOs, which cover most workers, rose to $10,217 annually ($851 per month) in 2004, up significantly from $9,317 annually ($776 per month) in 2003. Since 2000, premiums for family coverage have risen 59%.

The survey also found that the percentage of all workers receiving health coverage from their employer in 2004 is 61%, about the same as in 2003 (62%) but down significantly from the recent peak of 65% in 2001. As a consequence, there are at least 5 million fewer jobs providing health insurance in 2004 than 2001. A likely contributing factor is a decline in the percentage of small employers (three to 199 workers) offering health insurance over this period. In 2004, 63% of all small firms offer health benefits to their workers, down from 68% in 2001.

As health becomes an increasing portion of total costs employers are increasingly incentivized to lean on employees in an increasing number of ways to get employees to eat and behave in more healthy fashions. In some cases we may also see changes to internal and external work site layouts to increase the amount of exercise employees get in the course of workdays.

By Randall Parker    2005 January 31 11:15 PM Entry Permalink | Comments (5)
2005 January 24 Monday
US Health Savings Accounts Starting To Grow In Popularity

Teresa Chovan and Hannah Yoo of the Center for Policy and Research of an organization called America's Health Insurance Plans have written a brief report on the growing popularity of Health Savings Accounts to pay for medical care. (PDF format)

Health Savings Accounts (HSAs) are designed to give consumers financial incentives and information to choose their health care providers and manage their own health expenses. HSAs were created in December 2003 as part of the Medicare Modernization Act of 2003, and regulatory guidance was released by the Internal Revenue Service mid-year 2004. Modeled after Archer Medical Savings Accounts (MSAs), individuals’ HSAs must be coupled with a High Deductible Health Plan (HDHP) to cover current and future health care costs.

...

Responding companies reported a total of 346,000 people covered by individually purchased HSA/HDHPs in September 2004. A subgroup of companies reported the percentage of policies that were sold to previously uninsured people, compared to those that were replacement policies. For those providing this data 3 , the survey showed that 30% of policies were purchased by individuals who previously did not have coverage.

If you know anything about the rules for health savings account eligibility (e.g. can self-employed people create HSA accounts at places like Fidelity or Schwab? or how much money do you need to put in to get started or how much can you deduct from income each year to put in an HSA?) then place post in the comments. I haven't had time to check out the HSADecisions web site which AHIP co-sponsors with the US Small Business Association. It might provide useful information for the self-employed.

Found that previous link on the Heritage Foundation Policy Weblog. (which really ought to put names on posts) Heritage Foundation wonks are fond of HSAs.

So what does this all mean? First, HSAs help to make health care affordable; in a broader point, cutting down on disintermediation, the basic idea of consumer-directed health care, really does work.

Second, HSAs aren't just for the young, the healthy, and the wealthy. They work for almost anyone.

Third, these numbers show that HSA plans are affordable for working Americans and that a refundable tax credit for health care, such as Stuart Butler proposes here, would be sufficient to help many of the working poor leave the ranks of the uninsured.

In my view there is an urgent need for changes in the tax treatment of medical spending to reduce the ranks of the uninsured and uninsurable. People need to be encouraged to save for major illnesses and for retirement medical costs. The current US system of health care that ties health care so heavily to employers causes lots of people to lose coverage between jobs (when they can least afford to pay medical expenses) and to find themselves in the ranks of the uninsurable when they develop a chronic medical condition. It should be possible to pay ahead in pre-tax dollars on long term catastrophic care insurance policies when employed and to have that coverage continue when unemployed.

The other compelling argument for tax-advantaged medical savings accounts is that the medical care market suffers from the distorting effects of too many intermediate agents between providers of services and recipients of services. A person who goes in for medical care under their employer's medical insurance gets the services from the provider but the provider is paid by an insurance company that is paid by an employer. The provider is therefore too disposed toward serving the interests of parties other than the patient. With HMOs the problem is made even worse as the provider comes out best by avoiding provision of services. The interests of the patient are not always well served by such arrangements.

Medical savings accounts in which most services are paid for directly but where catastrophic illnesses are paid for by insurance both increase market forces and provide funding for medical care when the costs are too high for most people to be able to afford to pay. Such accounts also make it easier for the self-employed and the unemployed to have medical coverage.

By Randall Parker    2005 January 24 12:25 PM Entry Permalink | Comments (3)
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