Slowing the pace of rising health-care costs is the holy grail of domestic and economic policy. It’s pretty much the key to everything that’s desirable. For starters, it’s central to heading off the debt-induced economic calamity that is fast approaching. If health-care costs in the future were to rise at something close to the rate of growth of wages (instead of a couple of percentage points more, as they have for most of the past half century), trillions in unfunded government liabilities now on the federal books would vanish altogether. The massive deficits now projected for coming decades wouldn’t necessarily go to zero overnight, but they would be in a range that is politically solvable, not hopeless. And if premiums for private health insurance rose moderately, it would be much easier to expand coverage to more people, even as employers could pay workers more with cash instead of health benefits. Our collective future would look far, far brighter under such a scenario.
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So, yes, “bending the cost curve,” as the president famously put it, is the right objective. But what will actually do it?
To answer the question, it’s useful to start with a recent post from the Washington Post’s Ezra Klein, who himself approached the issue in the form of a question. He asks what makes Congressman Paul Ryan so confident that the Ryan plan for Medicare reform (offered with former Clinton administration budget director Alice Rivlin, and so now called the Ryan-Rivlin plan) will work to control cost growth while Obamacare won’t.
From Klein’s perspective, it seems as if Ryan is applying a double standard. In Obamacare, Congress cut Medicare payment rates for hospitals and other providers of services quite dramatically — to the tune of about $500 billion over a decade. Ryan and others — yours truly most definitely included — have argued that these cuts are illusory because they are politically unsustainable. Klein wonders why that same argument doesn’t also apply to cuts under Ryan-Rivlin. After all, Ryan-Rivlin would bring Medicare spending well below baseline projections in the future by converting the Medicare entitlement into a defined-contribution payment from the government. Isn’t Congress just as likely to get cold feet about those cuts as it would about Obamacare’s payment-rate reductions? In fact, aren’t the Ryan-Rivlin cuts even more vulnerable, as they would seem to more transparently fall on the shoulders of the beneficiaries?
But that’s not how to look at this problem at all. Bending the cost curve is not a matter of simply paying less for a service. What’s needed is real and continuous productivity improvement in the health sector: doctors, hospitals, nursing homes, labs, clinics, and others finding better ways to deliver higher-quality care at less cost. Because if productivity in the health sector does not rise, then payment-rate reductions will simply drive willing suppliers of services out of the marketplace.
And that’s exactly what would happen under Obamacare. Providers of medical services aren’t going to take payments for services that don’t cover what it costs to care for patients. As Richard Foster, the chief actuary of the Medicare program, has repeatedly warned, Obamacare’s cuts would drive Medicare’s average payment rates so low that they would fall below those of Medicaid by the end of the decade. And Medicaid’s rates are already so low that the network of physicians and hospitals willing to take care of large numbers of Medicaid patients is notoriously constrained.
I agree in large part with Mr. Capretta, but one of the things lost in the cost debate is the difference in buying behavior associated with health care.
"And the way to bring that about is by giving people the control and financial incentive to become active, cost-conscious consumers both of the insurance they select and the delivery system by which they get their care."
As in most services, but more particularly in health care, when they can most consumers don't purchase according to cost. The level of service and the manner in which it is delivered is often the primary concern.
In order to truly begin to get costs under control we must first uncouple the idea of health care, when what we mean in health insurance.
You could have answered Ezra Klein's question even quicker. Obamacare will not have any impact on costs other than increasing them because Obamacare seeks to cut services to Medicare recipients in order to provide a benefit to ALL Americans.
There is no way that that will be sustainable, especially when you look at who has to pay and who receives. If we go off the current employment base of 264 million and multiply that by 10% to factor in the numbers of Americans who don't pay taxes, that means under Obamacare 238 million workers will be responsible for paying for healthcare for over 310 million people. Just looking at those numbers you are almost guaranteed that the program will be costs UP, because the demand for healthcare will certainly exceed supply because people will perceive there is a shortage in the market which for all intents and purposes they would be correct.
The only way, the only way, to bring costs down is to have the consumer pick up the tab. This is how costs come down in everything, except in those markets where government's involvement is greater than half. It's no surprise that year after year costs in healthcare and education continue to outpace the rate of inflation; those two markets are the two where government intrusion is way above half.
The problem with health insurance and health care is that they're not frozen veggies in the grocery freezer. The average consumer can't make wise buying decisions. What's harder to pick: a mutual fund or a health insurance plan? How come there's an army of investment advisors out there making a living telling people what mutual funds to invest in? How carefully do you think people with self-directed IRA's and 401k's pick their investments? Half of all Americans have below-average intelligence. How might they fare on eTrade?
Actually, I would guess that the average consumer knows LESS about the manufacture and contents of frozen veggies than they do about their own health and healthcare needs. Yet, these folks trust the frozen veggies they buy.
You see that is the information-generating and sythesizing beauty of the market that social engineers simply don't understand. They are not smart enough to know that they are not smart enough to know.
The only answer is to use the German Healthcare system. Citizens pay 8% of their earnings for a basic insurance policy from a non-profit insurance company. They can purchase additional specific coverage as dictated by their family needs from a for profit insurance company. The U. S. Congress and Obama never looked at what other countries' insurance programs were. German program has been in use since WWII.
The earlier comments are spot on. When consumers need health care, they are not in the frame of mind to be rational about picking services. To bend the cost curve does not mean a more consumer directed marketing campaign, it means more effecient health care services. This can be started by changing peoples behavior before they become sick. 40% of next years health plan costs are from people who are not sick this year. How do you get in front of that? You have to offer the acute care that people need, driving them away from that is counter productive. An example are diabetics, 80% of diabetics or prediabetics in America can lose the diagnosis in 90 days with diet and exersize. Once end organ damage has occured, bending the cost curve on treatment has a small reward. We have to get in front of the cost curve with behavior modification interventions.
BTW, I have 25 years in the managed health care business, am executive director of a health plan and am living this problem with over 105,000 members to care for.
Controlling costs while providing good service is always a problem. Changing cost by lowering what we are willing to pay means that cuts have to be made by the health insurance industry somewhere, and that means controlling three costs: labor, material (medication), and resources (equipment).
Resources are the easiest to control, but offer the least value as they tend to be around longer (buildings, equipment, etc.).
The other two are multi-faceted problems, with no single solution. Doctors, nurses, pharmacists, drug companies all have to spend money on protecting themselves from frivolous lawsuits (Why does a drug company have to pay for side-effects when the FDA approved the drug for use? Shouldn't the FDA bear the responsibility?). The legal suit system needs to be revamped, perhaps by limiting how much of the settlement can go to the lawyers vs. the patients.
The other side of the labor/resource issue that needs addressed is the cost of going into these fields (medical professionals, research scientists), and that goes to controlling the cost of higher education (yet, no one ever mentions this). The average cost to become a pharmacist is over $100,000; to become a doctor is over $200,000; and this is just to get the degree. Add on insurance, licenses, books, supplies, and the interest on the loans. Afterwards there is the liability insurance (part of what was mentioned above). We need to dramatically cut the cost of education, which is rising at a rate (according to a USA Today article in 2007, education rose 35% in five years) on par with the rising cost of health care itself (7.1%, according to the Keiser Foundataion).
Controlling medical costs is far more complex than just saying, "let the people control how much they pay." If you cut one side without cutting the other we will end up with low-cost, low-quality health care, with the only winners being the lawyers, and the losers being the patients.
R-Bow and MikeB show the typical condescension liberals show to consumers who can't possibly make rational decisions about their own healthcare, yet we are to believe that "experts" can do it.
"What's harder to pick: a mutual fund or a health insurance plan? How come there's an army of investment advisors out there making a living telling people what mutual funds to invest in?"
You can use your analogy for anything that requires an advisor. What is harder to pick: an area to live or a what type of car to drive? How come there's an army of realtors and car dealers out there to give people information?
MikeB, your questions answer themselves: There are an army of financial advisors because the market created a demand for them. You are exactly correct that not everyone is a financial whiz, but because they need INFORMATION people specialize in financial services to give INFORMATION to consumers so that they may ingest it. The same is not true of healthcare. Here is a better question: Why are they more health policy experts than there are health advisors? Wouldn't James Capretta, Avik Roy, Ezra Klein, Tevi Troy, John Graham, John Goodman, and a variety of other health policy "experts" better serve America if they were health advisors instead?
Instead of insulting Americans, try to think beyond stage one and look at the underlying issue.
Let me condescend to Chrisboltssr by noting that realtors and car dealers are not in the business of giving people pertinent information about where to live or what cars to buy.
"Let me condescend to Chrisboltssr by noting that realtors and car dealers are not in the business of giving people pertinent information about where to live or what cars to buy."
No, MikeB, you're not condescending me, but you are revealing yourself to be quite naive (that's the nice word I will use) about how the world works. That is ably revealed in your original answer and in the second. If you don't think that realtors don't give people pertinent information about where to live and car dealers don't give people pertinent information on what to buy, then why are there realtors and why are there car dealers?
Like I said, MikeB, naive. A realtor doesn't just sell you a house and a car dealer doesn't just sell you a car. If it were as simple as that, there would be no need for a realtor or for a car dealer.
Of course, you missed the entire point of my original post, but I have come to expect that from you.
ChrisBoltssr, that is the first time I have ever been called liberal. I am speaking from experience and people (not all but a sizable portion) are to dense to do the right thing. They want instant gratification. Right now over 80% of our health care costs are being driven by 15% of the population. At the same time, we know that much of these costs are preventable with behavior change. Yet we don't see behavior change in the majority of people until their behavior slaps them in the face. "Oh, I just had a heart attack I guess I do need to lose weight." If the people could be relied upon to do the right thing and plan ahead (read take responsibility for their choices) we wouldn't have many of the problems we have today.
Now let me take this one step further. The average IQ is 100, by definition. Half of the people have a below average IQ. I am talking about inherent ability, not education. Is it fair to ask the bottom 10% (IQ less then 80) to function at the same level as everyone with an above average IQ? Do you not see that modern life has made this divide even greater with the choices and challanges available to people now? Of course people need help and not sales people more interested in a commission then guideing the proper behavior.
In addition, health care is not a one off purchase, like a car or realestate or an investment such as a mutual fund. It is insurance. If you are not paying for insurance you are paying for service providers who invest millions of dollars into training and equipment and have the right to expect to get paid. Not have you declare bankruptcy because you bet on being well and you lost.
After 30 years as a health insurance executive, I came to the conclusion that health care and health insurance are a match made in hell. Doctors and hospitals competing for the consumer dollar, as they did before the forties, would keep prices in check as neither the government nor the insurance plans ever could.
"To the extent that medical care fights an inevitably losing battle against our mortality, we can expend as much of our resources as our will and technology permit, but the result will be the same." 2008 External Link
