Inconvenient Facts (For Both Republicans and Democrats)

I call your attention to Ezra Klein’s column in the Washington Post this morning.

In it he cites data that has been out there for a long time but Ezra puts some perspective on it that never occurred to me before.

Examining the Kaiser Family Foundation brief, “Health Care Spending in the United States and Selected OECD Countries” he points out, “Our government spends more [as a percentage of GDP] on health care than the governments of Japan, Australia, Norway, the United Kingdom, Spain, Italy, Canada, or Switzerland.”

The data would seem to indicate that even our single payer government-run American health care programs, Medicare and Medicaid, cost way more than similar health plans in these nations.

The argument is often made that we should adopt a single payer—or perhaps a “public option”—health plan in the United States in order to control costs and cover everyone. But it would appear that even those programs in America are way too expensive when compared to similar programs in other industrialized nations.

As for the Republican market-based approach, Klein also points out that those programs have been ineffective at cost control. House Republican Paul Ryan often cites the Medicare Part D drug benefit as proof his proposals to privatize Medicare would work better than what we have. But as Klein points out, Part D premiums have risen 57% since 2006 and the program is on track to see nearly 10% growth in annual costs over the next decade.

And, the existing private Medicare Advantage program “ended up costing about 120% of what Medicare costs.” That’s a new data point for me. However, I do know that Medicare Advantage insurers in recent years have been paid at least 13% more than traditional Medicare.

My takeaway from all of this is that neither side has the answer to bringing America’s health care costs under control.

Liberals think that a single payer, or at least a “public option,” is the best hope and point to Europe and Canada as proof of that. But, as a percentage of GDP, the cost of our already run government health care plans rivals many of those nations’ entire government spending on health care.

Republicans argue we need to move entirely toward market-based solutions, but with two big market-based Medicare programs already operating, neither Part D nor Medicare Advantage has come close to demonstrating affordable cost growth.

But both Republicans and Democrats do have something in common—each is offering supposedly painless solutions. For the liberals, just put the government in charge and we will magically have affordable health care for everyone. For the conservatives, just put the market in charge and we will have a solution.

Painless solutions might be politically attractive, but the data indicates they will not get the job done.

Robert Laszewski has been a fixture in Washington health policy circles for the better part of three decades. He currently serves as the president of Health Policy and Strategy Associates of Alexandria, Virginia. You can read more of his thoughtful analysis of healthcare industry trends at The Health Policy and Marketplace Blog, where this post first appeared.

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  1. Maybe somewhat late for a comment…however: Government healthcare programs in the US covers nearly 1/3 of the population. Meidcare is over-65s, medicaid is the people who are sick already…these are by a very large margin the most expensive patients.

    In addition, all healthcare programs in the US includes a very large bureaucracy working on billing and gatekeeping -functions that simply do not exist in Beveridge or NI model healthcare systems. And are heavily streamlined in Bismarck type ones.

  2. Rob,

    You referenced some tortured abuse of statics, always a risk when quoting Ezra.

    “But as Klein points out, Part D premiums have risen 57% since 2006 and the program is on track to see nearly 10% growth in annual costs over the next decade.”

    This is a meaningless number. Your comparing one set of drugs, those available and filled in 2006, to those available and filled in 2011. The cost of generics has dropped substantially during that time, if we only covered generic drugs then bragged that Part D has lowered the cost of Drugs X% have we really accomplished anything? All you have done is control the cost of current drugs. The inflation is high single digits for existing brand, negative for generic, then new drugs are what cost a fortune. As long as we have new drugs cost will increase, that doesn’t say anything meaningful about market based approaches. If Medicare part D was allowed to implement a Therapy based reimbursement that would be a different story, which raises the point how can you even use a heavily regulated Medicare plan in an argument about market solutions?

    “And, the existing private Medicare Advantage program “ended up costing about 120% of what Medicare costs.”

    How can you make this argument and not qualify it by adding while providing substantially greater benefits? Someone not familiar with MA would read this and think MA cost 120% of Medicare for the same thing which is far from the trust, in fact MA delivered traditional Medicare benefits for 98%.

    “neither Part D nor Medicare Advantage has come close to demonstrating affordable cost growth.”

    Neither system are even close to market based solutions. CMS tells you what you will cover, how you will cover it, and dictates everything down to what your forms look like, where is the market in these solutions? Why don’t you compare private insurance in UT to these other countries, adjust for the younger average age and see how it compares. What is UT doing that we can model after to achieve those same results?

  3. Saying that “our government SPENDS…” may be technically correct but the phrase is misleading. A more accurate phrase would read “our government ADMINISTERS…” because funds collected from payroll taxes earmarked for Medicare are (or should be) separate from general revenue funds deriving from income and other taxes as well as federal “fees” and other income sources.

    That said, the phrase “our government administers…” would be even more accurate as “our government carelessly squanders…” since stewardship of those payroll tax dollars is so irresponsible. Make a mental note of this little factoid next time you watch an expensively marketed new designer drug during prime time TV, or those commercials for motorized chairs on more affordable air time promising “You won’t pay anything for your chair because Medicare covers the cost.” (DTC ads were once forbidden, but that practice was torpedoed several years ago with expensive results.)

    Nearly half of all medical revenue is from either Medicare or Medicaid. That has been the case for decades, but only since ACA has there been any meaningful attempt to curb wholesale waste. (And much of that is still several years out.) Medicaid and the VA, for example, have been able to negotiate better prices with drug companies for years. But not Medicare. One of the scandals of the sausage grinding which produced that monster (PPACA) was the administrations tacit assurance of Big Pharma that the drug prices non-negotiating tit would not be molested. I don’t know how that turned out but the biggest money-saver of them all, the public option, was axed before the bill was finally passed.

    Health care is not a market commodity. No, I said that wrong: it shouldn’t be treated as a market commodity. Unfortunately it is, but the consumers are not in most cases individuals but corporations. Of course Dr. Goodman’s folks with MSA’s (see next post) can afford to shop around or be parsimonious with their assets, but most people depend on the largesse of their employer or some other control mechanism to receive whatever medical or pharmaceutical benefits are left after shareholders, marketing expenses, sales people and well-paid executives receive their portion.

    I think ACA has something about “medical-loss ratios” but like the individual mandate the definition of what that means is being attacked by those who stand to lose. I better stop here. Thinking about this is making me crazy.

    • “Health care is not a market commodity”

      Can we even rationally assume that “market” has only one meaning? The Wild Oats guy argues that “shopping” for health care is no different than shopping for a flat panel HDTV or groceries or a car or whatever.

      What is the proper moral underpinning of a “market”? Simply win/lose winner-take-all transaction outcomes in all cases where such are the unfettered upshots? Across the breadth of goods and services?

  4. Of course “painless solutions” are offerred up by politicians whose fundamental goal is to get elected or re-elected.

    Until campaign finance and election reform comes we are hopelessly stuck with these wimps

  5. It is almost impossible to compare market forces in the US vs other European countries, Canada. The population base of these nations pales in the shadow of the US health care system and budget.
    In truth the market in the U.S. is a regional one, with local factors affecting supply and demand. Medicare’s attempts to equalize and adapt to differing costs in regions in inadequate and poorly planned. Many of their demographic categories of rural, suburban, urban are dated, and lag ten years or more. This is due to the sheer size of the U.S. The U.S. is also culturally diverse compared to other nations which are more homogeneous. The only comparison I see is the influx of Latinos into the US, and the influx of eastern populations into the European workforce.

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