Increasing Health Care Expenditures

Basically, I see the government's role in health care to be two things:

1. Making sure everyone has access to insurance. This includes subsidies for the poor, and banning preexisting conditions (which of course requires an individual mandate, as proposed by the Heritage Foundation and Bob Dole, and as implemented by Barack Obama).

2. Providing solid choice architecture. I'm perfectly fine with private health insurance. The problem is expecting the average person to wade through all the legalese and fine print that health insurance policies typically entail, and decide which procedures they want covered. None of this crap where people think that their surgery is covered, but clause 47B of their insurance policy specifically rules out that procedure. The government should set standards for what services health insurance MUST cover, so that consumers can more competently compare various options. I think consumers can make better choices when they aren't flooded with unintelligible information, and when they only have to compare a few variables (e.g. monthly premium, out-of-pocket maximum, and annual deductible). And another aspect of choice architecture is, well, making sure the consumer actually HAS a choice: This means the government should end the subsidy for employer-covered health insurance, to encourage people to move toward individual insurance.

Lachean said:

Lasik however, which is not covered, has a competitive price that keeps going down. If people used insurance properly and shopped around, providers couldn't raise prices so easily that people get use to them.

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it's difficult to argue that the demand for Lasik is comparable to the demand for antibiotics, heart surgery, or cancer treatment. the demand for the former is elastic. the demand for the latter services is not.

I don't see the reasons I would pick on the poll list... First I'd say chronic disease would be first, second would be the under and uninsured, and third would probably be a lack of efficiency in the system itself.

Helix said:

it's difficult to argue that the demand for Lasik is comparable to the demand for antibiotics, heart surgery, or cancer treatment. the demand for the former is elastic. the demand for the latter services is not.

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It would all be elastic if you only got what you paid for. And what is elastic becomes affordable, naturally.

Neomalthusian said:

It would all be elastic if you only got what you paid for. And what is elastic becomes affordable, naturally.

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no, life saving treatment would just be out of the reach of more people. most would still probably pay everything they had not to die.

Lasik means increased convenience over glasses or contacts. cancer treatment can mean not being dead. the two scenarios do not share the same demand dynamic.

Helix said:

no, life saving treatment would just be out of the reach of more people. most would still probably pay everything they had not to die.

Lasik means increased convenience over glasses or contacts. cancer treatment can mean not being dead. the two scenarios do not share the same demand dynamic.

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It would still make elastic. And no one would get as rich performing overpriced services, because fewer people could afford them at all, and others would forego them even if they could scrape together the money. But the story never ends there... with everyone dying melodramatically on the streets. People who innovate more cost-effective treatments stand to gain a lot because people will have major incentive to cost-shop, whereas now they have virtually no such incentive. Costs would plummet.

Innovation in other industries leads to lower prices in every other industry BECAUSE the cost is not socialized in those industries. Cash-only is the antidote to our cost problem.

drz-400 said:

Please answer the poll and provide some reasoning for your answer if you wish. Note: Please select the LARGEST or most prominent cause for the increase of health care expenditure in the US in your opinion.

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wow. it looks like so far, people get it. i'm impressed.

The reason is the United States' healthcare system is drastically inferior in comparison with the rest of the industrialized world. Most of Western Europe spends something like half what we spend, comparatively, and they provide healthcare for nearly everyone, many of them also have better outcomes. Economist Dean Baker has pointed out that in addition to all the other reasons for adopting universal healthcare, it would also eliminate the deficit, in fact; we'd have a surplus.

I think the biggest contributor to increasing health care expenditures is that it is not a sector that adheres to the laws of supply and demand.

For example, if I want a new TV, I go out and shop around and if I feel the costs of that new TV are out of line, then I choose not to get it. End result - Demand for TVs goes down as the cost goes up.

If I need a heart bypass, I pay whatever I am told to pay for that heart bypass because if I don't I die. If I have cancer, I undergo cancer treatments even if they are extremely expensive, because if I don't, I die.

Kind of hard to control costs with that kind of an economic model. That said, I think price insulation certainly plays a role in rising health care costs. Another big contributor is the fact that individuals are largely insulated from the costs of their lifestyle choices. If you are obese, you will pay the same health care rate than if you are fit, even though your lifestyle choice will almost certainly lead to far more health care utilization.

Finally, we have the highest paid doctors in the world. Frankly, we are probably paying our doctors too much.

yes and no

1. we pay our doctors a lot not least because there are so few of them (supply and demand as you point out) - we have a shortage - and medical school in the United States costs more than anywhere else in the world. Doctors are also generally overworked due to said shortage and our stupid procedure restrictions.

2. when consumers have to purchase the product, alternate providers provide same choice factor that you are identifying solely within the buy/don't-buy decision. for example, we all have to eat food - but I can purchase my food from wal-mart, bruno's, the piggly wiggly, a dozen other places. competition is maintained because of multiple providers, between whom I can compare quality and costs. currently we lack any incentive to compare cost - so we don't. the result being if the closer hospital is going to charge us $500,000 for that open-heart surgery, but the hospital down the road would only cost $350,000; we're still going with the closer hospital, because hey, it's closer.

cpwill said:

yes and no

1. we pay our doctors a lot not least because there are so few of them (supply and demand as you point out) - we have a shortage - and medical school in the United States costs more than anywhere else in the world. Doctors are also generally overworked due to said shortage and our stupid procedure restrictions.

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The problem with this argument is that we have a shortage of General Practitioners, which are some of the lowest paid doctors. Yet, compared to other nations we have a glut of specialists, which are some of the highest paid doctors.

2. when consumers have to purchase the product, alternate providers provide same choice factor that you are identifying solely within the buy/don't-buy decision. for example, we all have to eat food - but I can purchase my food from wal-mart, bruno's, the piggly wiggly, a dozen other places. competition is maintained because of multiple providers, between whom I can compare quality and costs. currently we lack any incentive to compare cost - so we don't. the result being if the closer hospital is going to charge us $500,000 for that open-heart surgery, but the hospital down the road would only cost $350,000; we're still going with the closer hospital, because hey, it's closer.

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I agree with this in principle. The problem is that while innovation results in cheaper food, it results in more expensive healthcare services.

SouthernDemocrat said:

The problem with this argument is that we have a shortage of General Practitioners, which are some of the lowest paid doctors. Yet, compared to other nations we have a glut of specialists, which are some of the highest paid doctors.

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the problem with this being "compared to other nations" - as other industrialized nations tend to have universal systems, we're putting apples against oranges due to the alteration between private and public sector compensation. we have a glut of specialists compared to Britain because Britain has an even worse shortage than we do.

I agree with this in principle. The problem is that while innovation results in cheaper food, it results in more expensive healthcare services.

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that is not true - consider the drop in price that has occurred along with the increase in quality of laser eye surgery. the difference between food and most healthcare, however, is that we care what we pay for food, but we don't care what others pay on our behalf for healthcare. many procedures (setting a broken arm, for example) remain virtually unchanged over the last two or so decades, yet the price for them has skyrocketed along with everything else in healthcare, despite the relative lack of "innovation". because it's not the innovation - innovation tends to increase quality and decrease prices. it's the market distortion.

Blue Cross Blue Shield tradional plan was the best of all of them....It had a deductible that everyone had to meet before the insurance kicked in and everyone paid 20% over a certain cost number. That plan could have been tweaked as it went along to increase the deducticles for people that could afford it....BUT
The insurance companies basically KILLED that program and forced everyone into HMOs and PPOs...which have small copays and no deductibles for the most part...I have to believe that in some way the insurance companies benefited and made more money by forcing the switch.

There are some that clamor than any changes for the common be good be based on free market and capitolism...I read a long article recently from a capitolist who believes in our system...who also believes certain aspects of our life that are absolutely necessary should be profit FREE..
He mentioned health care in the insurance sense...not for services....and another example he used was Utilities...he said its absurd that profit is in the cost of electricity which is a must have today....Of course the rich will vehemently oppose that and label the guy a communist...but it does have merit whether you would admit to it or not.

Well, the way things are going with our insurance giants, I'd actually be willing to relinquish a little private sector control and let "gubmint" give it a shot. Preferably not Obama, but I'd be willing to give it a crack if I had to.

And this is from someone who has always been a proponent of the single-payer system.

Gipper said:

Well, the way things are going with our insurance giants, I'd actually be willing to relinquish a little private sector control and let "gubmint" give it a shot. Preferably not Obama, but I'd be willing to give it a crack if I had to.

And this is from someone who has always been a proponent of the single-payer system.

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Thanks for being honest about it gipper...I personally have cadillac health insurance..part is paid for I pay the other half and its NOT CHEAP...I am not on medicare yet....but anyone thats willing to be honest...knows that obscene profits in the health care industry is a big part of the problem.
Just like electricity if we took the profit out of electricity it benefits EVERYONE...from big business to small to the guy that makes minimum wage...the guy in the article made so much sense to me...he said no one should profit on anything that fellow countrymen need to survive...and I agree...there so much more to get rich on...without the few basic necessities..

SouthernDemocrat said:

I think the biggest contributor to increasing health care expenditures is that it is not a sector that adheres to the laws of supply and demand.

For example, if I want a new TV, I go out and shop around and if I feel the costs of that new TV are out of line, then I choose not to get it. End result - Demand for TVs goes down as the cost goes up.

If I need a heart bypass, I pay whatever I am told to pay for that heart bypass because if I don't I die. If I have cancer, I undergo cancer treatments even if they are extremely expensive, because if I don't, I die.

Kind of hard to control costs with that kind of an economic model. That said, I think price insulation certainly plays a role in rising health care costs. Another big contributor is the fact that individuals are largely insulated from the costs of their lifestyle choices. If you are obese, you will pay the same health care rate than if you are fit, even though your lifestyle choice will almost certainly lead to far more health care utilization.

Finally, we have the highest paid doctors in the world. Frankly, we are probably paying our doctors too much.

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You, as a consumer also have no real way of comparing the "product". If you go shopping for a TV it only takes about a day of talking to salespeople and a little research to be able to compare the quality of one TV set with another. But how do you compare say, surgeons? Take heart bypass one surgeon might have a 95% success rate and the other an 85% success rate. On the surface you would pick the first surgeon. But a closer look shows that surgeon A only operates on people under the age of 70 who are non-smokers and are not obese. Surgeon B on the other hand operates on everyone including 85 year old smokers who ARE obese. So in fact surgeon 2 is the "better" surgeon

Actually your best bet if you ever have to go under the knife is to ask the nurse working in the area - they will usually tell you who is the best. Unfortunately you cannot always do that and have to rely on pot luck - and this is where ONE of the normal drivers of market forces falls flat on it's face

SouthernDemocrat said:

I think the biggest contributor to increasing health care expenditures is that it is not a sector that adheres to the laws of supply and demand.

For example, if I want a new TV, I go out and shop around and if I feel the costs of that new TV are out of line, then I choose not to get it. End result - Demand for TVs goes down as the cost goes up.

If I need a heart bypass, I pay whatever I am told to pay for that heart bypass because if I don't I die. If I have cancer, I undergo cancer treatments even if they are extremely expensive, because if I don't, I die.

Kind of hard to control costs with that kind of an economic model. That said, I think price insulation certainly plays a role in rising health care costs. Another big contributor is the fact that individuals are largely insulated from the costs of their lifestyle choices. If you are obese, you will pay the same health care rate than if you are fit, even though your lifestyle choice will almost certainly lead to far more health care utilization.

Finally, we have the highest paid doctors in the world. Frankly, we are probably paying our doctors too much.

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Again a big part of what doctors make goes to Malpractice insurance...the surgeon that performed a delicate intricate operation on my wifes spine in her neck...told me he pays over 2million a year in malpractice insurance to protect him from the claws of every lawyer trying to milk a buck out of every teat they can get their hands on..
Theres so many factors involved in the rape of consumers....Doctors to be fair...deserve the big bucks, there is no profession with as much responsiblity..your dealing with the most delicate and precious of all LIFE...parents looking to you to save their children...No I disagree I dont think doctors are paid to much....LAWYERS are paid waaaaaaaaaaaaaay to much...insurance companies rape everything is sight....

of course it's a combination of issues, but when you take a look at the market for the third quarter, it's underperformed. therefore, insurance companies raised their rates.

cpwill said:

the problem with this being "compared to other nations" - as other industrialized nations tend to have universal systems, we're putting apples against oranges due to the alteration between private and public sector compensation. we have a glut of specialists compared to Britain because Britain has an even worse shortage than we do.

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Actually, in Britain's case, they have a relative shortage of specialists, but a larger number of General Practitioners. That is the case in most other nations.

that is not true - consider the drop in price that has occurred along with the increase in quality of laser eye surgery.

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Laser eye surgery is a completely voluntary procedure. If it's too expensive as a consumer you can simply choose to stick with glasses or contacts. It's not comparable to most healthcare services which are not voluntary.

the difference between food and most healthcare, however, is that we care what we pay for food, but we don't care what others pay on our behalf for healthcare. many procedures (setting a broken arm, for example) remain virtually unchanged over the last two or so decades, yet the price for them has skyrocketed along with everything else in healthcare, despite the relative lack of "innovation". because it's not the innovation - innovation tends to increase quality and decrease prices. it's the market distortion.

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Actually, the difference between food and healthcare is that one can purchase lesser quality foods for far less money that have the same results. For example, I can choose to purchase cheap pack of hotdogs and meet the same caloric needs as an expensive steak. While this is true with many prescription drugs in terms of generics, its not true with most healthcare services. There is no premium versus generic option for setting a broken arm. One most simply pay for whatever the service costs. That is the problem with just implementing market controls as cost controls for healthcare, the economics of healthcare are unlike any other sector. In any other economic sector, the consumer has a wide variety of choices in terms of cost and quality to meet their needs. I can go into a tire store and have a wide variety of different choices on tires that all meet the same need. I have a wide variety of choices on clothes and electronics, housing, food, and so on that all meet the same needs. However, if I need a broken bone set or cancer surgery, you have to go with what ever your physician tells you to go with. There are no cheaper options that meet the same need. Thus, there is no cost control mechanism even if you removed the third party payer.

Cost Insulation and Consumer Demand are the biggest drivers of spiraling costs.

And Obamacare does nothing to address either problem.

liblady said:

of course it's a combination of issues, but when you take a look at the market for the third quarter, it's underperformed. therefore, insurance companies raised their rates.

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You think insurance companies are raising rates to compensate for low stock valuations? Really?

Sensibility said:

You think insurance companies are raising rates to compensate for low stock valuations? Really?

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I dont know about lady...but I think insurance companies raise rates just because they can...

Sensibility said:

You think insurance companies are raising rates to compensate for low stock valuations? Really?

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how do you think insurance companies make money? by sitting on cash? no....they invest their cash, our premiums.

cpwill said:

that is not true - consider the drop in price that has occurred along with the increase in quality of laser eye surgery.

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an elective procedure with a much less expensive alternative (glasses / contacts) that it must compete with. hospitalization for your two year old who has serious pneumonia and can't breathe is something else entirely. would be pretty hard to "shop around for the best price."

Helix said:

an elective procedure with a much less expensive alternative (glasses / contacts) that it must compete with. hospitalization for your two year old who has serious pneumonia and can't breathe is something else entirely. would be pretty hard to "shop around for the best price."

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Medical care, contrary to the opinion of a ton of people here, is not always inelastic.
How about we compare situations where one can shop around, instead of always using the reasons one has insurance to begin with.