Have you ever heard that Medicare, or single-payer systems in Europe, have much lower overhead costs than does private insurance? Don’t fall for that trick. My NYT column drives home what ought to be a familiar point:
Medical insurance, whether private or government, is always going to be
faced with a fundamental problem: patients and doctors will try to get
the most out of any system. When they aren’t paying directly, patients
will seek extra care and doctors will be happy to oblige. To deal with
that problem, health care systems can offer services indiscriminately
and write off the resulting losses, spend money on monitoring, or limit
services and prices. An analogous problem is faced by retail stores:
they must either put up with theft, hire security to limit theft, or
carry lower-value items.
Tiffany’s, which sells diamonds, has higher overhead costs than does a 7-11 store. When you work through the different options, the overhead costs can be shifted or transformed, but they don’t go away:
Just as some items are harder to shoplift than others, so some medical
services are less prone to overuse. European systems are relatively
good at providing prenatal care or mending someone hit by a car. Few
people would try to get these services unless they were really needed.
No one but an expectant mother, for instance, will show up for a
prenatal checkup; nor would excess prenatal checkups cost a great deal.
The unwillingness of European systems to spend on overhead means they
will do best specializing in these kinds of services.
When it comes to expensive, discretionary health care benefits, single-payer systems are more likely to resort to queueing, lack of comfort or convenience (compare U.S. and European hospital rooms) or to remove the service altogether. My conclusion:
…as populations age and the value of medical technology grows, the
overhead costs of private insurance will prove an increasingly wise
investment. For all its high immediate expenses, the American health
care system is looking toward the future rather than the past. In the
long run, the hidden and indirect costs of single-payer systems are
harder to measure and thus are ultimately harder to control.
I should note that I drew the point about young vs. old (see the full article) from a Bloggingheads.TV dialogue (Megan McArdle vs. Henry Farrell), though it was not possible to cite that in the published piece.
Addendum: Mark Thoma offers commentary and Paul Krugman cites.
Thanks, good article and good links. The thing I don’t get about the linked Krugman piece is his quote: “So if costs are to be controlled, someone has to act as a referee on doctors’ medical decisions. During the 1990′s it seemed, briefly, as if private H.M.O.’s could play that role. But then there was a public backlash.It turns out that even in America, with its faith in the free market, people don’t trust for-profit corporations to make decisions about their health.”
So, Krugman wants the federal government to restrict treatment MORE than HMO’s do? He’s not arguing for a free lunch, he’s arguing for treatment reductions plain and simple.
Using the analogy of a retail store has one drawback – most theft in retail (over 60%) occurs internally. The huge salaries going to management of the HMO’s comes from premiums; lower the overhead and maybe the premiums will decrease. Next to the “war” in Iraq, this is the largest issue facing the American people.
Good point Anon.
BTW I just saw “Barbarian Invasions” on monday. If socialized medicine looks anything like that, I think I will pass. If I can.
Unless we’re willing to acknowledge the futility of spending gargantuan amounts of money keeping dying people alive for a few months or even weeks longer, when the chances of long-term survival and quality of life are both zero, any attempts at health care reform in America are just rearranging the deck chairs on the Titanic. And it also would help to acknowledge this quaint concept known as “preventative medicine.”
But Tyler – this is brilliant!
I’ve been reading health policy stuff off and on for the last couple of decades, including 3 years as a professional public health physician, and I have never seen these points made.
The scales fall from my eyes about why our family experience of OBGYN has been so very much better than any other aspect of UK health care. I have puzzled over this, but couldn’t understand it.
I do now – Thanks!
What about a national, anonymized priority-ranking system for proposed procedures based on input from (also anonymized) doctors? Something like this:
You’re a doctor and you want to do some heart procedure on some patient.
So you go online and find the “template” for this procedure (it has a bunch of blanks you need to fill out, like “is the patient about to die,” and “how much will it cost”, and “how old is the patient” and a whole bunch of whatever else is relevant).
These submissions are randomly audited with stiff penalties for being untruthful (like if you say the patient’s going to die when they aren’t).
Then, you’ve submitted your form into the ether. Now, 10 other doctors (who have relevant expertise) have to perform let’s say 5 paired rankings involving this proposal and another proposal. For each pair, the doctor has to say “more important”, “less important”, or “same”, possibly also options for “much more/less important”.
Then you basically rank the most important procedures, with some cutoff (e.g., take the 50% most important proposed procedures for heart surgery XYZ). If people feel they got shafted, there’s some appeals procedure.
Eventually, we’ll have to accept the fact that there’s no magic in the private sector, and that health care – including the decision about what treatment is provided – is a public responsibility.
To me the biggest problem with mandated government-provided insurance is the lack of choice. If your insurance company refuses to pay for some super-fancy treatment, that doesn’t mean you can’t get it, it just means insurance won’t foot the bill and you are stuck with it. Krugman seems to want to establish by fiat what is allowable medical treatment to receive. That’s pretty much the worst possible outcome of any proposed reform.
can you explain why Britain’s health care crisis is hurting pregnant women and their children so deeply? you say prenatal care would stay high quality. the british experience is not that whatsoever. the mortality rate of pregnant women is rising.
Missing from the whole debate is the fact that a single payor system is a government system and thus subject
to the same ineffiencies and impertives of all government programs. Since health care accounts for 16%
of GDP, any change in the level of health care will have significant impacts on the general economy.
Since it is the government that will make these decisions, the decisions will be driven by political
expediency – the need to pander to and reward consistuencies. Witness the past and current debates in
New York over proposals to consolidate or close under-utilized hospitals. The health care unions are
fighting to prevent the closures/consolidations in order to protect their members jobs. The Chinese have
a term for this “iron rice” bowl. The net effect of a single provider system would be to convert 1/6 of
the economy into an iron rice bowl. No savings in that.
mickslam, I already quoted Krugman as saying “So if costs are to be controlled, someone has to act as a referee on doctors’ medical decisions.” What does a cost-controlling referee do other than reduce the number of approved treatments?
And I’m not saying he is wrong — he is clearly talking about unnecessary and wasteful treatments, and I don’t think anyone disagrees with that. I just disagree when he starts arguing that people will be more likely to accept government rationing than HMO rationing.
My problem with this post, and the article, is that it seems to be devoid of any evidence in support of its claims. It deals with an issue – the high overhead cost of American medical care – by suggesting a reason why it might not be as bad as it looks, but there is little or nothing beyond ideology backing up the argument.
There was an article in Science back when Mrs Clinton was saying the single payor thing. The article pointed out that the Japanese system was multiple payor, less expensive than ours and still the Japanese enjoyed health care in the top five world-wide.
You don’t have to construct a huge argument that isn’t based on research. The same goes for vouchers and schools. Systems that have better outcomes than ours have lots of differences. The systems are complex and conservative solutions are simplistic. The whole thing is retarded.
Puerto Rico has a poor school system and fixed it. The guy who did it addressed only the parts of the system that were measurable. People’s hard-ons for stuff they don’t like blinds them to honestly addressing real issues.
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