Economic aspects of health care

Great Debates
1

I was hoping folk would be willing to discuss economic (defined broadly) aspects of current US health care.

I find myself not overly thrilled with many aspects of what I perceive in American health care. Much of my negative perception strikes me as related to “economic” issues. I perceive services to be offered based on what is most profitable for the providers, with less focus on the ultimate individual or societal impact.

Everyone has heard the exaggeration that eventually half of Americans will be on dialysis, and the other half will be employed providing dialysis. Is there a “healthy” portion of our economy that should be based on medical services? After all, the construction and maintenance of hospitals and drug companies do provide employment.

I don’t wish to underrate the amazing advances that have been made in medical technology. But I find myself dubious as to the costs of some wonder treatments. Can we simply afford to provide Hep C treatment to everyone affected? Personally, I find myself comparing the cost of some treatments against the recipients’ contributions to society. I feel EVERY person should be guaranteed SOME level of medical care - but I feel as though I would draw the upper limit considerably lower than many folk would.

If resources were unlimited, I suspect I would feel otherwise. But I would prefer that some limited funds be directed towards things like education and nutrition. (I know that is an impossible argument, bringing in taxation, government spending across all categories, etc.)

I guess I find myself dubious of the goal of simply prolonging life, independent of cost or the quality of that life. I also suspect I have somewhat extreme views on personal responsibility, regarding poor habits/addictions such as obesity, smoking, drinking, etc.

In short, it does not impress me that much of US medical care is aimed at enabling people to lead the healthiest and most productive lives that could be obtained from a certain level of expenditure. Instead, it seems primarily aimed at creating profit for certain individuals/entities. There even appears to be a perverse goal of rendering “customers” dependent on receiving ongoing services. The chiropractic model: diagnose as many folk as possible as having treatable pathologies which require treatment (as long as their money holds out.) A facet of this is the encouragement of folk to consider themselves “disabled”, and thereby deserving extra attention/services/consideration/etc.

Final disclaimer: my job brings me into contact with a population which is unemployed and generally consuming considerable medical care. So I acknowledge my ongoing contact with this population has likely skewed my views.

(In order to avoid making this overlong, or skewing the direction of this discussion, I’ll stop here, and develop my thoughts should the thread develops. I’d prefer that this work as a discussion, and see where it goes. But f folk insist on my defining a position more clearly than I’ve done so here, I’ll decide how far I wish to go down that route.)

2

I doubt if there’s an objectively determinable optimum for any measure of expenditure on medical and public health care. Somewhere along the line a political judgement comes into play, whether its a predominantly publicly-financed system (and hence dependent on government budgeting) or one with some degree of regulated private insurance; and that’s influenced by cultural expectations, the extent to which people trust their doctors’ judgement as to, e.g., whether this or that test or treatment is really necessary or cost-effective, when it’s time to accept the inevitable, and so on.

3

There is a way to coordinate people’s wants and desires with society’s ability to produce, the market. The market uses price signals to transmit information up and down the line to produce optimum coordination. Thus the choice as to whether the hep-c treatment is worth the money is left to each individual and so if the optimum balance of healthcare, education, and nutrition. The problem is that healthcare is an area where people hate using markets so the government tries to insulate people from costs as much as possible.
The only reason so many people are on dialysis is that the government makes compensating people who donate kidneys for their time, pain, and missed work illegal. Yet because the government outlaws compensation it spends 50 billion a year on dialysis and allows thousands of people a year to die from kidney disease.

4

Every other wealthy nation spends 8-11% of gdp on health care while the US spends 18%. So 8-11% is likely the normal level and you can still have a healthy economy with that kind of spending.

Healthy Lifestyle has very little effect on health spending. Counterintuitively, it can actually increase health care spending. The reason is because healthy lifestyle causes less health spending per year, but your life expectancy goes up and that increases spending. Smokers develop lung cancer, but they also tend to die in their 70s while thin, athletic non smokers usually live to their 80s. That extra 5-10 years of life expectancy costs more than lung cancer therapy.

Also rates of overweight are about the same in Australia vs the US, and Japanese have higher smoking rates. But both nations spend half on health care as we do. So healthy living will not fix the expenses of our system.

In the UK, the nhs has something called the NICE program. They determine they will only spend 35,000 pounds per quality adjusted life year. I don’t understand the calculation, but if an intervention costs more than that, they won’t cover it.

So a cancer drug that costs $200,000 but only extends lifespan by six months would not be covered.

5

I don’t see why we have to make it any more complicated than, say, education.

In the US, all children are entitled to free education. This includes disabled kids and kids who aren’t the best academicians, for whatever reason. Is everyone entitled to the very best teachers and facilities? No. But we do expect children to be able to read, write, and do math at grade level. And we have collectively decided that extracurriculars like sports and arts also have their place.

Will providing Hep C medications to everyone who needs and wants it bankrupt the country? I don’t think so. But I don’t have a problem coming up with a prioritization system based on patients’ compliance histories and/or well-established predictors of poor prognosis. For instance, if a patient isn’t willing or able to stop smoking or abusing food/drugs, I’m fine with not advancing them to the front of the line just as long as they can still get in line. As long as whatever system we adopt is transparent, consistently applied, and subject to regular review, I think most people would fine with it.

6

Thanks for the thoughtful replies. So, what exact “harms” result from spending 18% of GDP on healthcare, as opposed to 8-11%?

7

You have more faith in the market than I do. I don’t reject it, and I think it works really well in some areas, but it’s not at all evident to me that working well in some areas means that it works well in all (after all, we don’t take a free-market approach to police or fire protection), or that health care is an area in which it does work.

It may well be that a more free-market-based approach would improve health care, at least in some areas. But you’d have to provide a good argument or evidence for it, not just assert it.

8

I’m not sure I see education as a great model. Not sure our current system does a good job of directing resources to those who would benefit most, or provide the greatest societal benefit. Of course, how do you achieve the greatest results? Buy providing the best education to the few kids in high income communities? Or by providing adequate education to the less privileged masses?

I think education is expected to achieve goals that are mutually exclusive. Personally, not thrilled with the funds that go to athletics, as opposed to the arts/languages. And I don’t understand the economics behind the amount of resources given to special needs students who may never be economically productive. What is the goal of those resources? And I certainly disagree with the “college for everyone” idea.

Personally, I favor your suggestions re: “compliance histories.” Of course, many folk will maintain that noncompliance is an element of various pathologies… So I question whether “most people” would favor it. I think that societal influences supporting overconsumption and unhealthy lifestyles constitute huge pubic health issues. But a lot more complex than simply popping a pill…

9

Well, as an employer, it sucks. We cover 100% of our employees health insurance costs, and it’s about $15,000 per employee per year. Leaving aside the craziness of employer based health insurance, this amount is a considerable cost. Half would be much better. All the Republican bluster about “regulations” and “paperwork” and what not, is small potatoes compared to the cost of health care. Tax me $7,500 per employee to cover universal health care and it’s a win-win.

10

Yeah, I’m not terribly comfortable simply leaving health care up to the market, but I DO see benefits to be derived from increasing market forces. I maintain the average consumer is simply not able to be an informed consumer, but he could be allowed to be more effective. I think the average health care consumer should more clearly have more “skin in the game.” But I do not know how to enable the average consumer to compare costs and alternative treatments.

Procrustus - I agree that primary reliance on employer insurance is insane. But why does your firm pay 100%? Doesn’t that reflect a decision that you derive some benefit from being so generous?

11

“A pence of prevention is worth a pound of cure” … just the profit margins on a pence is significantly less than the margins on the pound …

12

I think it just reflects that owners’ view that health care is something that should be provided to everyone. If not by the government, then we’ll do it. From each according to their ability, to each according to their needs. Or something like that.

Regarding your question about “some benefit” to us, I actually don’t think it helps recruit and retain the best employees. They tend to be concerned most with salary and job responsibilities. They like the “perk” of health insurance, but I honestly don’t feel they fully appreciate how lucky they are to have it paid 100%.

13

Imo, there’s a lot of things wrong with the way healthcare operates in the US, but things I find the most striking is the lack of free market on healthcare services, US citizens really not wanting to pay for it (not even just a "I don’t want that person to have it), and people not really understanding or agreeing what healthcare is.

Healthcare shouldn’t be provided through employers. I don’t mind the government making it easier for people to buy healthcare, it just should not be done through employment and this is from someone who, until ACA, had free healthcare. Insurance companies should be allowed to compete across state lines. If the government wants to get involved, they can set standards of form, but not substance. For instance, all mortgages sort of look the same, that’s fine. But, they shouldn’t be dictating what the interest rate is (that might not be the best example). Basically, regulation should be tailed to make the industry uniform and simple for consumers to gleam information. But say a couple wants family insurance, but doesn’t want to pay for potential ob/gyn services, then fine, they should be allowed to have a plan that tailors their needs.

The amount of taxes people pay in the UK, for example, is ridiculous. As a country, we have decided that we want other obligations, the big three: medicare, SS, and a giant army. I’m sure others will strongly argue for more taxes for more services/outcomes, etc., but there is no guarantee that the new tax will be used for such a purpose. Additionally, taxes and benefits are things that never seem to go away. What I think people fear is that more government provided healthcare will lead to more taxes, on top of what we are already paying now. Of course, reasonably, we should just re-direct money already spent in the appropriate direction, but things don’t seem to happen that way in practice.

Lastly, even among my friends and professional colleagues, we all disagree on what should be covered. I had one boss who thinks all healthcare should be free, to the point of pointing guns at people and making them perform healthcare services (he was of course drunk and extolling how he would be a great dictator, the Great Tie-Breaker). Some of my friends and I think that insurance should just be that, insurance against catastrophic events. Even what constitutes a catastrophic event is up to debate, but I, for one, think the decision of how we utilize healthcare should be left up to the individual or his parents. For an example, see the case of Charlie Gard who I just heard about last weekend. If having government run healthcare means that I cannot make the decision about treatment that may prolong my boy’s life (at no cost to the state), that I cannot even remove him from the hospital or choose when hospice starts/ends, then that is something I’m willing to go to war over.

Oh, and another point (based on what I saw on preview), without market forces, for instance, the perception that healthcare is free or cheap, doesn’t teach people to use it responsibly or efficiently. I’m reminded of an example in one of my econ classes. Let’s say that the government requires everyone to have table insurance. It costs $1. The amount of table makers willing to sell a table at $1 becomes vanishing small. Then, the government says, well, ok, you can charge other people who don’t have table insurance whatever you want to make up the cost (or table makers just do it on their own). What you have is one person paying $1 for a table and another person paying $1000 in some roundabout fashion so that the table maker can make his profit. This is somewhat similar to what we have today. Healthcare providers that even take medicare/medicaid file claims and get the negotiated/state mandated amount. Those who don’t have insurance get charged a shit-ton. What happens if no one is paying? Then those healthcare providers start ramping up the claims arguing against the state and other insurance providers for more money. This is all incredibly wasteful and inefficient.

14

I am regularly amazed at how many other folk seem to view things - such as how your employees don’t appreciate that the $ you contribute towards their health care could be given to them as salary/time off/etc.

Could you give your employees flexibility? Say you pay $7500 towards health care, and give them an extra $7500 pay. If they want the barebones $7500 policy, that is their choice. If they want to pay the additional $7500 for better insurance, fine.

15

Well, speaking as a UK taxpayer, I don’t think so. I would happily pay more for an even better National Health Service. You won’t find that’an eccentric view here.

We both depend on and love the NHS. The USA approach to ‘health care’ appals us.

16

Your understanding of how markets work is exceptionally oversimplified. This leads you to draw conclusions that are at odds with how we can observe reality to work.

It has always been known that some areas are not suitied to market delivery. Contract enforcement and military defense were among the first ones to be identified for example.

Health care has a number of features that make it unsuitable for market delivery, and lead to what is known as market failure. Huge information asymmetries, zero price elasticity, high barriers to entry, to mention some classic ones.

Market delivery of healthcare also has some unique externalites and resons why it does not behave like a classic market. There is an entire field of economics, Health Care Economics, dedicated to how the economics of health care works. That it is badly suited for market delivery is a fairly well established orthodoxy. This is also heavily supported by real-world evidence.

The field was in fact originated by an American, Kenneth Arrow, who received the Nobel prize in Economics for his work on uncertainties including health care economics.

This is the article that founded the discipline. It is available online and not all that difficult for Nobel price work.

puddlegum, please don’t take this the wrong way, but I cannot help but think that this has been explained to you before. Yet still, you summarize the fact that specialist economists and decades of experience with systems around the developed world agree that it is an unsuited area for market delivery as “The problem is that healthcare is an area where people hate using markets so the government tries to insulate people from costs as much as possible.”

What is it you find so very difficult to understand? How can I explain this to you in a more comprehensible way?

17

I’m not sure what that means. The harmful effects are that we are spending money on something that isn’t making people healthier, and that money can’t be spent on other things.

People aren’t healthier in the US just because we spend more money on health care. That money still stays in the economy, but it goes to people that work in, or own the health care system. I believe studies have shown about 1/3 of US health spending doesn’t actually make people healthier.

If our health care were only 10% of GDP instead of 18%, that means we’d save nearly 1.5 trillion a year in health care and see no real changes in health outcomes.

With that 1.5 trillion in savings we could easily

-eliminate all deficits on the federal, state and city level
-provide free public college to everyone
-triple investments in renewable energy
-end homelessness
-vastly increase science funding

And still have money left over.

18

Currently, many Americans get health insurance that is mostly paid for by their employer. I think the popularity of a US single-payer healthcare system would depend almost entirely on who is paying for it.

If employees had to pay for it, they’d suddenly be forking out massive premiums. The negative backlash would make the Obamacare backlash look like a walk in the park.

If employers paid for it, people would be happier, but then what about people who are unemployed? And it would be a deterrent to starting up a new business.

19

Most proposals for single payer recommend paying for it via a mix of payroll taxes split between employer and employee, and income taxes.

20

You seem to assume that UK taxes are all earmarked for healthcare. This does not really fit the numbers, since the UK healthcare spending is so much less than the US.

The **UK government **spends about 25 % less per person on healthcare than the US government does. And provide healthcare to 100 % of the population for that, whereas the US government spending covers about 28 % of the population for all that they spend so much more than the UK.

If the US government provided healthcare at the costs the UK does, everyone in the US would have healthcare at a cost between 1000 to 1500 $ less per citizen than the US currently spends. So about 300 - 450 billion saved compared to current expenditure.

(I think the US military budget is about 550 billion)

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