Map of life expectancy at birth from Global Education Project.

Friday, December 03, 2004

Reality bites

So we have a Chairman of the Dept. of Economics somewhere writing a letter to the Boston Globe (Wednesday, Dec. 1) explaining that the reason the U.S. spends so much on health care is that people have insurance, so that consumers are insulated from the costs. If we can just get rid of that ugly violation of free market principles, we'll see health care spending much better controlled.

The gentleman just proves what has always been obvious: economics is a branch of theology, not science. Out there in that godless place called Reality, one observes that the U.S. spends 2 to 3 times as much per capita on health care as do any of the other affluent countries. Yet in all those other countries, everybody has health insurance. In the U.S., something like 15% of the people don't! Not only that, but in most of those countries that just refuse to obey the laws of economics and of God, consumers make little or nothing in the way of copayments, whereas here, most people pay something like $10 and up for an office visit and $5 to $20 for a prescription. Medicare recipients generally have paid 100% of the cost of their drugs. But for some reason, health insurance isn't causing even half as much spending in other countries as it does here.

The scientific process consists of observing reality, and trying to explain what one observes. Theology consists of starting with received wisdom and building fanciful arguments on that foundation. If reality doesn't happen to correspond to one's conclusions, the fault lies with reality. Hence our newly faith-based National Park Service tells visitors that the Grand Canyon was created by Noah's flood, and the Department of Economics tells students, and newspaper readers, that our excessive health care costs are created by health insurance.

As Mr. Bush's Lower Father once said, Facts are stupid things.

6 comments:

Heather said...

I just found your blog and am interested to see what you have to say on these matters. I've heard that argument before - that having health care gives people incentive to, you know, take care of themselves. While it may be true that a person is more likely to get some procedure if they have insurance, the benefits greatly outweigh the potential extra costs; and the alternatives are even worse.

When people have health care, they're more likely to get preventative care - that means lower costs in the long run because it's much cheaper to get a mole removed than to pay for chemotherapy. This means smaller burdens on the ERs, less of a government burden to take care of the sick, and less burden on those of who continue to have insurance and are forced to subsidize the massively bigger percentage of people that don't.

More importantly, the alternative that the Administration favors - private health accounts - is a sham. First, it's a huge tax shelter for the rich - do you think the McDonald's worker is going to be putting a third of their paycheck into their health account? - Not likely. The money deposited into the account isn't taxed yet, so a wealtheir person can put half their income into this "health" account and severely reduce their tax burden that year.

And of course, for the rest of us middle class-ers, the health account is a big gamble. Should we put in $2000 a year? $5000? How sick do you *think* you'll get this year? (I think in the model, your employer matches some or all of what you put in.) What if I'm in a serious accident? What if I get cancer? What if my normal pregnancy goes wildly out of control? If my account runs dry, there's no where else to look to but myself, and hey, if I was in that serious accident, maybe I'm not even getting a paycheck anymore. Alternatively, if I put too much in, as a moderate or low income earner, that can put my family at a high burden because that's less money I have to put food at the table.

Anyway, I'm going to enjoy keeping updated with your site. Thanks for the interesting reading.

Anonymous said...

Cervantes,

An anecdotal story:
When the wife was pregnant, a few years back, her OBGYN told me that under my wife's insurance at work, everything, and I mean everything, was covered, except the anesthesiologist. It was Aetna, and in those days Aetna was superb. The best.

He told me that the anesthesiologist would cost me between 900 and 1,000 dollars.

I said fine.

However, the wife's job switched insurance companies, to U.S. Healthcare (before they merged with Aetna). I wasn't worried, though, because I knew everything would be grandfathered.

So, our daughter was born, and I sat and waited for the one bill that was going to come: The anesthesiologist.

The bill finally came, and I opened it up, and it was for over 3000 dollars. I was stunned. Besides the fact that they billed for 9 hours, at $90 per 15 minute increment, including long after my daughter was born, I was also billed by a male doctor. I know that I was under a lot of stress the night my daughter was born, but I still could tell the difference between the sexes, and the anesthesiologist who took care of my wife was most certainly a woman.

So, I called the anesthesiologist's office, and they told me that my wife was treated by a resident, but the anesthesiologist was most certainly around, somewhere in the hospital at that time. "Okay," I said, very dubiously.

I was ready to negotiate with them on price, when the person I was talking with just laughed and assured me that under U.S. Healthcare we were covered, and not to worry. Just send the bill to my insurance company.

I called U.S. Healthcare, and they assured me also, that, under the new benefits, I was covered, and that I shouldn't worry about it and just send in the bill.

I told them that I was really calling to express my concern with what seemed like intense gouging by the anesthesiologist and she also laughed and told me to forget it. Just send them the bill.

Was my OBGYN wrong about the price? I doubt it since, besides being one of the most reknowned in NYC, he had delivered the babies of many of my wife's coworkers,and was very aware of the specifics of what Aetna covered, in those days.

There is no doubt in my mind that if the money were to come out of my pocket, instead of the insurance company, I would have been charged less. Much less.

When I was a kid, there was very little health insurance; just catastrophic and hospitalization. The doctors were paid in cash, and lived nice upper middle class lives, driving their Cadillacs, etc. If the doctor raised his prices too much, moms like mine generally gave a lot of thought to changing doctors. Market forces were in play, in that sense, as were the prices of presciptions at the local pharmacies.

Nowadays, all the doctors I know, and I know a lot of them, are pretty damn well-to-do, and are definitely part of the meritocratic class that has formed over the recent years, as opposed to the middle class that they occupied in the old days.

One of the biggest factors that changed over those years is the ubiquitousness of health insurance.

Look, if you put a pile of cash in front of someone, it is human nature to take advantage of it.

I'm not saying that health insurance and the lack of market forces are the sole causes of high health care costs, but, to discount that as a factor in the discussion is just denial. Just about everybody is greedier these days (remember Reagan's theme: "Greed is Good"). Our culture has changed, so why would doctors, and other healthcare providers, be an exception?

You speak of "other countries," but we are not "other countries." We have a different culture here, and to leave the greed and market forces part out of the equation is not going to lead to a viable solution. Universal healthcare is a pipedream. It ain't gonna happen here until the culture changes, and, based on Nov 2, I don't see that happening for a while, barring some catastrophic economic event.

Health insurance does keep market forces out of play, just as loose credit and easy credit cards keep retail prices higher (but I won't get started on that rant).

Cervantes said...

Heather -- all good points, I'll discuss this further when I get a chance, probably Tuesday. (I'm busy all day Monday and over the weekend with a conference.)

Anonymous-- it is certainly true that insurance companies can be very frustrating to work with. The system of private insurance is a real problem for consumers sometimes. But you may be surprised to know that physicians and hospitals actually charge more to people who pay out of pocket than they do to insurance companies. The reason is that the insurance companies negotiate discounts with them, and they try to make it up by gouging out-of-pocket payers.

Also, physicians incomes have not gone up compared with inflation for many years now -- decades I believe, although I would have to check on that. Basically, it's the same reason - instead of being entrepreneurs as in the past, most are on salary now with managed care organizations, who make them see more patients (which is why they don't have a lot of time for us) and don't pay them as well as they got accustomed to being paid.

Basically, the way it works in Europe, doctors don't make as much money as they do here, but they're still about as well off financially because they don't have to pay the huge medical school debt -- typically a quarter million dollars - that they do here. That's because medical school is free, you just have to get in!

A system of universal health care coverage does require controls on utilization, but we have those here too -- rationing by ability to pay. Again, I'll have more to say about this later. Thanks for your comments, they're interesting and it's important for us to have a dialogue here and even controversy.

Anonymous said...

Theology, yes. I also find it hilarious (ok, not really) that these proposals are invariabley made by academics/policy types with nice insurance benefits. Irony is not dead.

Anonymous said...

follow-up to 2:45 pm - more to the point, these types of recommendations are made by people who are financially secure, e.g., could afford to pay out of pocket for pharma.

Anonymous said...

One of the big obstacles to universal health coverage is the notion "we can't afford it." People reading this blog probably understand that better health achieved through preventive care is cheaper in the long run than lost productivity and expensive acute care, but what the public at large sees, and what politicians see, is the Medicare/Medicaid funding mess; and they imagine universal coverage as a similar but much bigger funding mess. So let's consider how to clean up the mess we have, as a way of demonstrating we can handle the problem of funding universal coverage.

Our current funding problem is not just the amount of money required, but where it comes from: a payroll tax. Every worker in America is reminded every pay period that his health costs largely depend not on his health, but on his earnings. The more you work, the more you pay. No wonder they're not enthused about a bigger system. Employers also see health equated with costs and paperwork; no wonder they're not enthused either.

How about this: Instead of funding health by taxing Good Things (work, job creation), let's fund health by taxing Bad Things -- things that make us sick. Let's do away with the payroll tax for Medicare, and fund Medicare by taxing stuff such as the following:

Cigarettes (easy target).
Alcohol (1 penny per ounce = about a penny on each can of beer).
Trans fatty acids.
Saturated fats.
Cholesterol.
Sugar.
Industrial pollutants.
Cars and trucks (tax at sale and at annual registration; tax should vary based on amount of pollutants emitted and crash safety ratings for occupants of taxed vehicle, occupants of other vehicles it might crash into, and pedestrians).

More production of Bad Things = more revenue to treat the illnesses they cause. Less production of Bad Things = healthier population = less revenue needed.

Extending the same logic, we could offer an annual tax credit (or hell, just a yearly wad of cash) to every American who can pass an age-and-sex-calibrated fitness test.

Michel Phillips
michelp@mindspring.com