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POLICY: And while it’s Jon Cohn week….Health Care Like The Europeans Do It

Here’s his New Republic piece called Health Care Like The Europeans Do It republished on CBS news. Personally I think that he gives the American system too easy a ride, even though Ezra beats up the Cato boys on this too. When I looked at this issue of performance on particular disease categories a while back I found this quote.

Contrary to popular belief, the health care here isn’t always the best. Many other industrialized countries provide health care that is just as good and sometimes better. For instance, 30-day acute myocardial infarction case-fatality rates are below 7% in Denmark, Iceland, and Switzerland, compared with almost 15% in the United States. Incidence of major amputations among diabetic patients in Finland, Australia, and Canada is less than 10 per 10,000 compared with 56 per 10,000 in the United States. And Australia, Canada, England, and New Zealand all have a better 5-year kidney transplantation survival rate than the United States.

You’ll never hear that in a Cato/Manhattan/PRI/AEI press release—and it defies belief that they want to go down that path.

But the overall point is that health and medical services are only distantly related, and talking about outcomes in the context of different health systems is stupid. But there are two outcomes that it is not stupid to talk about, and those are the two on which America leads the world. High costs across the system, and poor (and middle income) people losing all their wealth due to medical care costs.

After spending his whole piece beating back the silliness about individual disease outcomes, Jon does get to the real point:

Not even conservatives dispute the one clear advantage other countries have over us: You don’t see their citizens choosing between prescriptions and groceries, or declaring bankruptcy, because of medical bills.

And that is the point. Universal health care insurance is not about health, it’s about wealth. As in not losing it when your sick because you didn’t have good health insurance. Because as I’ve said before on THCB good insurance is mostly a function of good employment, which is mostly a function of good education, which is mostly a function of how you choose your parents.

As John Edwards put it when he announced his health care plan, "It doesn’t have to be that way."

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18 replies »

  1. Barry. you answer this question/statement (which you pose) “We cannot give people complete or near complete insulation from out of pocket healthcare costs and expect utilization to be contained.” with this one “Leaving the UK and Canada aside, are the other countries employing age cutoffs for certain procedures or do they just have a different definition or conception as to what constitutes good sound medical practice or this there some other factor?”
    My take is that culturally it’s the second factor. Only the UK really does formal tech assessment, although it clearly does informal age rationing. But as you say it all comes down to the medical professions definition of “futile care”.
    I recall the trouble I got in last year when I suggested that spending several hundred thousand on Gerald Ford’s last months alive was a waste of money. I’m sure that an average 90ish year old patient in Europe would have been given palliative care–not three angioplasties and several weeks of intensive care.
    But also form/culture here meshes with finance. Of we ever get to the stage where there’s no more money for that type of care (because say the Chinese want their ball back!), perhaps the culture will change too.

  2. John–I’m awaiting an article from Cato/Manhattan/PRI/AEI, etc, admitting that care in several aspects in the most free market of all health care systems is worse than in some of the socialist paradises.
    As I’ll explain tomorrow again; I think the comparison of outcomes across countries is a foolish game to play, and to be fair you & PRI don’t play it much. But many others do.
    The lives cost by over-regulation comment is a cop-out, as that’s all about not allowing drugs on the market quicker….and of course that can be played both ways. Don’t 500,000 a year die from aspirin (at least I think Kevin Trudeau said that!) or maybe 30,000 a year would have died from Arcoxia had the FDA let it on the market, etc, etc…
    But in terms of managing people whom we know how to manage (e.g. those diabetics and those cancer patients) my guess is that overall it’s about a wash. Except of course that it costs more here.

  3. As sure as I am that Cato can stick up for itself, I can’t help but note that you can see similar statements in a “Cato/Manhattan/PRI/AEI press release” (me being PRI). If you look at at the paper by Chris Conover that Cato published on the cost of over regulation in U.S. helath care, he states a body count of 22,000 annually.

  4. My other line of objection to your argument is that I think (1) and (2) should be put in play. There are obvious, and large, practical and political barriers to changing physician incentive systems, and to giving payers more power to limit prices and/or control utilization. Nonetheless, other nations do these things and they manage to make it work. So long as we can see the success of the German, French, Japanese, Dutch, etc., systems I will not believe that the only option available to us is greater cost-sharing.
    I absolutely agree with this. I would be interested in more insight from jd, Matthew, Maggie Mahar, or anyone else regarding just how they do this, especially as it relates to the elderly. Leaving the UK and Canada aside, are the other countries employing age cutoffs for certain procedures or do they just have a different definition or conception as to what constitutes good sound medical practice or this there some other factor?
    If I project myself into the shoes of an oncologist, for example, I know I get paid more money for continuing chemotherapy longer than what objective observers might consider optimal or appropriate. However, on an emotional level, it’s really hard to tell the patient and the family “there’s nothing more I can do for you.” Besides having to break the news that the end may be near, I may also feel like I failed the patient in some way, though I may be widely viewed by my peers to be as good or even better than most others in the field.
    In the case of heart disease, stress test and other test results are often inconclusive. If an angiogram is ordered and a significant blockage is found, the path of least resistance is to insert a stent. In more severe cases, bypass surgery is performed. While there are financial incentives to over treat, the fear of lawsuits also push doctors in that direction. The litigation environment may also be a significant difference between the U.S. and other countries with respect to its impact on practice patterns.
    Finally, again in the case of the elderly, I think Maggie pointed out in her book, Money Driven Medicine, that middle aged children often have not yet come to grips with their own mortality and, partially for that reason, may insist that everything possible be done for their loved one unless there are clear instructions to the contrary from a living will.
    So, where does that leave us, especially as it relates to the big ticket cases that drive a disproportionate share of healthcare costs? I think government clearly needs to take the lead here. I don’t see why we should perform any surgical interventions at all on patients with advanced Alzheimer’s or severe dementia. Age cutoffs may well be worth considering for bypass surgery, knee and hip replacement, kidney dialysis, etc. unless the patient or the family can self-pay. If a doctor certifies that a patient with cancer, ESRD, etc. has less than six months to live, perhaps the default protocol should be hospice and comfort care unless there are clear instructions to the contrary, and, even then, doctors should have to certify that providing such care is not futile. I think this is an area where sensible system wide decision tools can lead to better healthcare and lower costs than under the current system where emotion and an unwillingness to face reality lead to lots of expensive, futile care and wasted resources that could be much more wisely spent elsewhere.

  5. Spike,
    I tried to find the study again, too, and failed. I remember two versions of the press release, one which said that costs associated with claims and billing were 33% of total health care costs, and the other said that 33% of health care costs went towards admin, “including” costs for insurance functions like billing and claims. That’s a big difference, and only the latter phrasing makes sense given the other data.
    As for the general point about efficiency, I completely agree that from a cost perspective a significant benefit of a single payer system is that it simplifies processes relating to eligibility, billing and claims. But any well-designed universal coverage system will accomplish these things as well. You don’t have to get rid of private insurers to do it (although you might have to get rid of publicly traded insurers and make them non-profits). I would also agree that getting rid of brokers and other middlemen would provide non-trivial savings.
    But a lot of the waste has nothing to do with paying insurers, as I think you know. Too many hospitals and physicians are insatiable revenue seekers, and for hospitals in particular all this revenue doesn’t take the form of profit, but of massive complexity and beauracracy, not to mention capital improvements whose main purpose is to attract wealthier patients. It’s a lot like universities. They have a captive clientele that they can keep jacking up the prices on (or in the case of providers, seeking new “advanced” treatments to charge more for). And like universities, they have relatively little incentive to run a lean operation. Getting rid of private insurers won’t change that. Only structural change to how providers get paid will do it.
    One last suggestion: don’t refer back to Canada all the time. There are lots of systems out there that work as well or better. There are systems out there that require less disruption to the current US system, and consume a smaller share of GDP, than Canada’s.

  6. Barry,
    You wrote: We cannot give people complete or near complete insulation from out of pocket healthcare costs and expect utilization to be contained. It’s not an easy balancing act.
    In the current system, I agree. So long as (1) providers have a financial interest in providing more and more costly care, (2) price and utilization controls by government or private payers are ineffective and (3) patients are insulated from the costs of care, then (4) costs will continue to rise faster than inflation.
    If we assume that (1) and (2) are not going to change, or that we don’t want to change them, then removing (3) is the only way to get control of costs. Or to be more accurate, reducing (3) will tend to have a dampening effect on utilization and costs.
    But I have two general objections to going this way, which I’m sure you’ve heard before. The first is that high-deductibles alone don’t actually accomplish much. We had a high-deductible system from the 50s to the 80s, and health care costs increased faster then than they do now. I’ve been paying a lot of attention to the experience of companies that have implemented CDHP and I get the strong sense that high-deductibles alone don’t make the difference. What makes the difference is education, information and culture/behavioral change. CDHP is effective when it comes with a whole new attitude that is actively promoted by the plan/employer. When CDHP is just a bigger deductible, it just results in a cost shift. Wellness programs that use modest incentives appear to be able to generate the same kinds of behavior change as CDHP programs, regardless of whether they have high-deductibles or not. In short, I suspect that changing patient behavior is as much a matter of education ad ethos as of monetary incentive, and that the monetary incentives can be on the order of a few hundred dollars in rewards rather than $5,000 in deductibles. I would love to get solid evidence on whether this is true, but for now it is just a hunch.
    My other line of objection to your argument is that I think (1) and (2) should be put in play. There are obvious, and large, practical and political barriers to changing physician incentive systems, and to giving payers more power to limit prices and/or control utilization. Nonetheless, other nations do these things and they manage to make it work. So long as we can see the success of the German, French, Japanese, Dutch, etc., systems I will not believe that the only option available to us is greater cost-sharing.

  7. I tried to glue one of those jaguar hood ornaments to my Honda, but it would not stick…
    Neither apparently did my comment as no national health care supporter has answered it…

  8. Try as I might, I couldn’t track down the original study, only more and more press releases about the study. I agree that it might be a little inflated a number.
    Ok, so total admin costs account for 2X as great a percentage in the U.S. as they do in Canada, and once you factor in the fact that the U.S. spends 2X as much on health care per capita than Canada, that means that we actually spend 4X as much per capita on admin costs than do Canadians. Basically, you’re telling me that if we adopted Canada’s system, we could shave off 24% of our health care spending on admin costs alone, keeping utilization and provider reimbursement constant. And this isn’t huge news??
    All I know is this: I’ve made plenty of money over the past 4 years working in health care services for companies (that made plenty more money) that exist solely to profit off built in inefficiencies in the health care system. First in Billing, then in Medicaid Eligibility.
    And as for Orthopedic surgeons, it’s perhaps true that preventive treatment wouldn’t obviate the need for surgery, but that doesn’t mean a more rational approach to health care wouldn’t lower their reimbursement, considering the percentage of orthopedic surgeries that actually make the condition worse.

  9. jd,
    I appreciate your comments about the working class, though I’m not sure how you define it in terms of income. The point I was trying to make is that a high deductible plan (which under HSA rules can mean anything from roughly $1,000 to $2,700 per person) is far superior to no insurance at all and might be affordable whereas a low deductible plan may not be. It doesn’t completely insulate them from financial risk in the event of a serious illness, but it’s a lot better than nothing. Ideally, we should be able to develop an insurance system that makes the deductible some reasonable percentage of income rather than a flat dollar amount. I note that the IRS, for example, only allows healthcare and health insurance costs to be deducted from income to the extent that they exceed 7.5% of adjusted gross income (AGI). That suggests, at least in the IRS’ view, that health costs of 7.5% of income or less are ordinary and not extraordinary. While the poorest cannot handle much, if any, out of pocket cost, the middle and even the working class could probably work through costs in this range, at least if they are not an annual occurrence. We cannot give people complete or near complete insulation from out of pocket healthcare costs and expect utilization to be contained. It’s not an easy balancing act.

  10. As much as I like to agree with you Barry, I take strong exception to something you wrote on universal health care as wealth protection:
    The wealth protection argument could probably be best addressed by high deductible catastrophic coverage for the upper half of the income distribution. The lower half, especially the 55 million people on Medicaid, don’t have much wealth to protect.
    I don’t mean to be harsh, but that is about as in-touch with America’s working class as Giuliani’s belief that a gallon of milk costs $1.50. People earning less than the mean don’t have much wealth to protect? Relative to what? If you are referring to how much wealth a millionaire has, sure, but that isn’t the appropriate measure. These people are getting by, saving a little here and there, buying modest homes and hoping to trade up to a better one, etc.
    In fact, because they have a modest amount of wealth to protect, they are the most in need of protecting it from huge health care expenses! For someone with $5 million in the bank the chances of being bankrupted by health care expenses are almost nil. For someone with $20 thousand in the bank just barely making a mortgage or rent payment, the odds are not so small at all, especially if the person has a spouse and children to be responsible for.
    But I wish Matt hadn’t gotten us on to this track of treating universal health care as an either/or proposition: either it’s about the equitable protection and distribution of health or it’s about the equitable protection and distribution of wealth. It has to be about both, especially since the unlucky ones we’re most interested in have to choose between health and wealth!

  11. Sorry Spike, Barry has it right: the admin cost of insurance for public and private combined is around 7%, with 4-5% going to private insurance and 2-3% public programs.
    The 7% total insurance figure for the US comes from taking into account that private insurance only pays for about 35% of all healthcare expenditures, while government programs, out-of-pocket payments, philanthropy and other sources cover the rest. This does not include the cost of billing and claims for providers, but those costs, as Barry says, are a small fraction of total admin costs. Anyone familiar with a hospital can tell you that the FTEs devoted to billing are substantial, but far outweighed by the FTEs devoted to things like making appointments, scheduling staff, managing staff, dealing with vendors, educating staff and providers, maintaining and improving facilities, seminars on how to maximize reimbursement from Medicare, etc. There is also money spent on rent that goes into admin costs.
    The press release for the study that suggested 33% of all costs related to billing/claims was so badly worded as to be deceptive. The 33% figure is for all admin, not just admin related to insurance. Read the study itself, not the press release or the press reports which mangled it even more. By way of comparison, consider this study published in NEJM. According to it, total admin costs were 31% in the US, compared to 16.7% in Canada. Canada’s health insurance system had overhead of 1.3%, compared to 11.7% for private insurance in the US. (Note: 11.7% x 35% is about 4%.)
    No one (I hope) is saying that insurance in the US is as efficient as it is in Canada. But neither is it anywhere near 33% of total costs. We can all make our preferred political points on this topic and still refer to the actual facts on insurance costs, so please let’s do so.

  12. A recent study generated some buzz when it claimed that 33% of healthcare dollars go into doctors submitting and insurers paying claims. And the only reason it didn’t generate more buzz is because that number was pretty much in line with what everybody thought already!!
    Most people would be wrong! The California Healthcare Foundation estimates total administrative costs at 7% of total healthcare costs. Doctors who outsource their billing are charged 5% of revenue actually collected (somewhat less for high billing specialists). For hospitals, where even a routine procedure can generate a bill into four figures, billing and claims related costs are minimal as a percentage of revenue. The only part of the health insurance sector where administrative costs are in the 30% range is the individual underwritten market where all of 19 million people (out of over 250 million with insurance) get their coverage. For those who can successfully pass the underwriting screens, they are able to buy health insurance at low cost despite the high administrative cost.
    As for preventive services, many of these are not cost-effective. See the Agency For Healthcare Research and Quality website (www.ahrq.gov) and click on preventive services. I also wonder how many orthopedic surgeries in particular are due to sports injuries from skiing, tennis, bike riding, basketball, golf, etc. as people not only have fun but try to maintain a healthy life style including plenty of exercise. Conversely, I’ll bet that most of the early heart attacks are due to either genetic factors or unhealthy life styles and not lack of access to preventive care.
    The existing system can be fixed, and it should be. Cover the uninsured and provide default coverage for early retirees and those who are between jobs. Require employers to provide coverage or pay into a fund an amount equal to the average percentage of payroll that it would cost to provide coverage in their industry. Develop the price and quality transparency tools that will allow most of the healthcare delivery system to function more like a real market. Develop a more sensible approach to end of life care and replace the current jury system to settle medical disputes with health courts. Do all that, and we will have a system that works much better and fits our culture (which a single payer system doesn’t).

  13. JAM wrote:

    Universal coverage is indeed about “wealth protection”: health insurance provides coverage against the financial risk of sickness.

    Just so: and now, for universality’s sake, all we have to do is define things like “what level of wealth”, how much “protection” (and what “protection” is), which kinds of sicknesses merit this protection, what level of risk against which to protect….
    Of course all of these things are done now – sloppily, clumsily, harshly and arbitrarily in varying degrees within and across populations. Just not ‘universally’.
    But it sounds like you may have a different course of pursuit we all should consider.

  14. Why add money to a failing system just so more people can be covered by the failing system?
    A recent study generated some buzz when it claimed that 33% of healthcare dollars go into doctors submitting and insurers paying claims. And the only reason it didn’t generate more buzz is because that number was pretty much in line with what everybody thought already!!
    The system we have is riddled with perverse incentives (like rewarding expensive specialty surgeries instead of early care that removes the need for the surgeries), inefficiencies (like doctors having to bill to 25 different insurers, on a good day), and no organization. It doesn’t work. It costs too much and gives us a sicker populace in the end. Adding the other 45 million people to the mix won’t fix anything and will just make a bad system worse.
    We need to have an actual system. One that can respond to new challenges. Currently, we have nothing but chaos and millions of people looking at the healthcare industry with big eyes, trying to figure out a way to get their cut of the wasted money.
    The point the Universal Health Care people are trying to make is that the only way to fix most of the really big problems the health care system has is to have an actual system through which we can resolve these problems. Sure, Eric Novack might have to give back one of his Jags once he’s part of a system that rewards preventive care more, thus obviating the need for many of his most expensive surgeries, and we know how hard that will be for him. But in the interest of the country, I think it must be done.

  15. Matthew,
    The wealth protection argument could probably be best addressed by high deductible catastrophic coverage for the upper half of the income distribution. The lower half, especially the 55 million people on Medicaid, don’t have much wealth to protect. Medicaid beneficiaries, however, who have comprehensive coverage on paper, have a hard time finding providers that will see them because reimbursement rates are generally poor.
    My bigger frustration with the healthcare debate, however, is the disconnect between people who tell pollsters politically correct answers like everyone, whether rich or poor, should have access to high quality healthcare when needed. Of course, we should have universal coverage. However, very few are willing to pay significantly higher taxes to either cover the currently uninsured or replace the current system with complete taxpayer financing. If they personally have good coverage now, they don’t want to trade it in for something less. They think we can finance universal coverage trough a combination of lots of savings in administrative costs and getting someone else (the wealthy) to provide any additional funding that may be required. Until the middle class steps up and says it’s willing to pay significantly higher taxes to replace the current system with taxpayer financing that would cover everyone, both the pollsters and those polled have zero credibility. Their comments and answers are worthless and should be treated as such.
    Medicare and Medicaid, along with the VA and Tricare, pay for about 40% of healthcare costs or about 6.5% of GDP in taxes raised. That does not count out of pocket spending for services not covered or the purchase of Medigap policies which seniors pay for themselves. If we cut one percentage point of GDP out of healthcare costs through administrative efficiencies and other savings (extremely optimistic assumption), we would still need to raise 7.5% of GDP to finance the rest of healthcare costs except for 1% of GDP which could be left for patient co-pays and other out of pocket spending. For perspective, the current federal income tax raises 10% of GDP. A Value Added Tax as broad as most of those in Europe, would have to be between 17% and 20% to raise 7.5% of GDP. Even if everyone who currently receives employer provided health insurance received a raise equal to the current employer cost, I suspect most people would not be very enthusiastic about paying the incremental tax burden that would be necessary to get the job done.
    I think it would be enormously simpler to just fix the current system by coming up with the $90-$120 billion of incremental funding necessary to cover the 47 million currently uninsured of which 9 million are children and millions more are young, healthy adults who would not need much healthcare in any case. Establish default coverage (federal employee plan, for example) for those who lose their job, leave a job for a different opportunity that may not provide health coverage and early retirees who are not yet eligible for Medicare. Peg the premium to some reasonable percentage of their income or make it free if they can pass a means test. Throw in some price and quality transparency and other sensible reforms related to healthcare delivery (as opposed to financing), and much of the current anxiety among the middle class would likely disappear.

  16. I am regularly puzzled about how ‘universal health care’ will provide ‘wealth protection’ — who, then, will pay for care? Protecting one person’s wealth, My limited understanding of economics would tell me, requires the opposite of ‘wealth protection’ for others– especially children and future generations, all of whom have no say in how their future income is being spent today.

  17. Universal coverage is indeed about “wealth protection”: health insurance provides coverage against the financial risk of sickness.
    Insurance is a way of pooling and spreading risks. A universal, unified pool is more efficient than a fragmented or incomplete one. It would minimize the effect of adverse selection and it would create positive public health externalities. But it is also about “health care”, by facilitating access to preventive services and to treatment of diseases at earlier, less costly stages.
    Universal coverage is an issue with obvious moral implications. But there are also sound economic arguments to support it.

  18. Universal health care insurance is not about health, it’s about wealth. As in not losing it when your sick because you didn’t have good health insurance. Because as I’ve said before on THCB good insurance is mostly a function of good employment, which is mostly a function of good education, which is mostly a function of how you choose your parents.

    every day I get confused.
    it appears that universal coverage is still important – maybe even central? – to…something. But it is no longer about health care; it’s about “wealth protection” – I think; unless it’s not.
    Could we start over? I’d like to start over.

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