Administrative Costs

by on July 7, 2009 at 7:15 am in Economics, Medicine | Permalink

In the latest debate: Paul Krugman attacks Greg Mankiw for linking to a study by Robert Book arguing that administrative costs under Medicare are not as low as many people think.  Book defends against Krugman's attack here.  I find the debate peculiar for a number of reasons:

1)  Picking out one measure of health care "costs" to compare systems is sadly reminiscent of the arguments for socialism.  Do you remember those arguments?  Under socialism:

  • "Think of how much money we will save on advertising!"

  • "Socialism will lower costs by maximizing economies of scale!" 

  • "Money will be used for production not profits!"

Exactly these arguments are regularly trotted out in the debate over administrative costs in health care so color me unimpressed.  To be clear, the point is not that these statements are false – the point is that these premises to the argument are all in some sense true it's just the conclusion, socialism is more efficient than capitalism, which turned out to be false.  We tried that and it didn't work. In other words, you have to compare systems not arbitrarily pick out for comparison one type of costs.

2)  Closely related to this point is the bizarre habit of taking about costs without mentioning benefits.  The implicit argument appears to be that administrative costs are simply waste – this is the ancient cutting out the middleman fallacy.  Administrative benefits, for example, reduce fraud and are a necessary consequence of making it easy for patients to get second and third opinions from different doctors.

3)  Even if we could switch from a private to a public system and save administrative costs, the deadweight costs of taxation will far exceed any reasonable savings.

4)  Any savings on administrative costs is a one-time level effect but the real issue with health care costs is growth as a share of GDP.  (By the way, this same point explains why the debate over whether the public plan will discipline private monopolies is not especially important, monopoly–even if it is a  problem–could at best explain a level effect not a growth effect which is where the action is.)

5)  I'm not surprised that administrative costs under Medicare and under Canada's system suggest some potential cost reductions from moving to a single-payer system–again, Lada did save on marketing expenses–but it's a complete blunder to use Medicare administrative costs as an argument in favor of a "public option."  The whole point of the public option, so we are told, is to compete on a level footing with private plans which means marketing expenses and all the rest.     

Addendum: n.b. this post is about administrative costs not other reasons for preferring one system to another.  See also Tyler on administrative costs further below.

fusion July 7, 2009 at 7:19 am

The whole point of the public option, so we are told, is to compete on a level footing with private plans which means marketing expenses and all the rest.
No – it means providing a better product as a lower cost. Health insurance is a highly concentrated and regulated industry. Competition is good.

jhe July 7, 2009 at 8:00 am

Most arguments that a market approach would be better than the proposed reform package are really arguments for a system that we don’t have against one that no one is proposing.

Right now, we have fifty small oligopolies whose participants have have strong incentives to figure out who not to insure, how to deny care to people they do insure and how to shift their percentage of the fixed cost of health care capacity to someone else. Those three items are a significant chunk of the administrative costs. And you’re right, to the firms they’re not an inefficiency, they’re what they do. These costs are significantly different from marketing costs.

The right kind of ‘public option’ is a product which a sane person would actually pay for. The idea is not to get everyone on the public option, but to provide a product with which insurers would have to compete.

And the argument that the deadweight taxation costs would somehow be worse than the current system seems laughable, but maybe it’s just that I don’t understand how paying more than any other developed country for less is a better than paying less and getting more, but having taxes somehow in the mix.

Doc Merlin July 7, 2009 at 8:10 am

Also, the same arguments that were used when the government was making lots of protected monopolies.
The arguments generally turn out to be bunk.

JDM July 7, 2009 at 8:21 am

“In other words, you have to compare systems not arbitrarily pick out for comparison one type of costs.”

Agreed. Why don’t you compare the health care systems of Canada, Australia, and the U.S. in terms of a) cost, b) medical effectiveness, and c) satisfaction levels?

There is no disagreement about the answer to a); the U.S. is twice as expensive.

There is absolutely no good evidence that the answer to b) favors the U.S.; we seem to get absolutely no health improvements for all the extra money we spend.

That leaves c). While not having done a statistically controlled survey, I have spoken to many people in Australia and Canada during travels there and the overwhelming consensus of the people I spoke to is that they like their systems and think the U.S. system is a disaster. Having some experience with health care in the U.S., I have to agree with the last point.

About marketing, I get my car and house insurance from Amica, which is regularly ranked number 1 (each of the last 7 or 8 years for both home and auto) by J.D. Power on customer satisfaction. They don’t market at all and seem to do just fine – they’ve been around a hundred years. I don’t see why the public plan, once it is announced and set up, would need to waste money on marketing either.

JDM July 7, 2009 at 8:34 am

It’s also telling that Amica, the highest rated auto and home insurance company for customer satisfaction, is a mutual insurance company,
and Vanguard, the best overall mutual fund and brokerage firm in the country, is owned by and operated for the interests of its clients.
In both cases, the owners are in a sense the clients, rather than third party investors. Interests are aligned.

Colin July 7, 2009 at 8:44 am

That leaves c). While not having done a statistically controlled survey, I have spoken to many people in Australia and Canada during travels there and the overwhelming consensus of the people I spoke to is that they like their systems and think the U.S. system is a disaster. Having some experience with health care in the U.S., I have to agree with the last point.

Which is more plausible: That those people you spoke with are basing their opinion with the US system on personal experience or from watching Sicko and other negative portrayals in the media?

Paul Zrimsek July 7, 2009 at 9:01 am

Another way of making the same point would be to observe that, if the people who run Medicare were given incentives to maximize their cost-effectiveness by Krugman’s preferred metric, they would not just rubber-stamp fraudulent claims as fast as they could– they would encourage providers to file more. The bigger the denominator, the smaller the ratio. Sometimes it’s a good thing that we don’t pay bureaucrats based on their performance!

JDM July 7, 2009 at 9:11 am

I don’t know. The people I spoke with were for the most part seemed well educated and well informed. I didn’t get the sense that they formed their views on health care based on watching Sicko, which I haven’t seen myself. The Australians said that when they switched to their public system in the 70’s, the insurance industry and medical establishment employed the same arguments that they are now using in the U.S.

My own extremely poor opinion of the U.S. system isn’t based on my conversations with Canadians or Australians but my own first hand experience and close second hand observation.

I’m not an ideologue. I just see that other countries that are similar to ours have a much cheaper and at least equally effective system in place that works. Why should we keep spending twice as much as they do for less universal coverage and getting nothing for it in exchange?

josh July 7, 2009 at 9:41 am

Every time I read something from Krugman, my first thought is “Who the hell does this guy think he is?” Is he completely incapable of decorum? Does anyone know him personally? It seems like he might have snapped since winning the nobel.

Robert A. Book July 7, 2009 at 10:41 am

As the author of the study that started this whole exchange, I have to agree with all of Alex’s points (1)-(5) above. (Although I might have a slight quibble with the second part of (4).)

The debate is indeed quite odd, and I chose to make the argument on “their” turf (i.e., that of public plan advocates) because it is easy and can be done with published numbers, which are harder to dispute than basic economic prinicples.

The public plan advocates argue the proposition that “Medicare administrative costs are lower, therefore a public plan is a good idea.”

I don’t agree with that proposition, but the point of my article is that even if one does agree with that proposition, it doesn’t matter — because Medicare administrative costs are not, in fact, lower. Even without the higher costs of marketing, profit, replication of fixed costs, etc., Medicare’s administrative costs per beneficiary are still higher than those of private insurance. Mentioning those extra costs the private insurers have emphasizes how Medicare is less efficient, not more!

The argument of the public plan advocates fails even by its own standard, because it assumes “facts” that are not actually true.

This is quite aside from the fact that even if the assumed facts were true, there are many other reasons why a public plan would still be a bad idea.

Thanks for the links and the discussion!

k July 7, 2009 at 11:00 am

Life expectancy , controlled for car accidents and fire arms related death is larger in the USA than in most countries
When you are diagnosed cancer in Canada you are referred to the USA .
My mother in law was diagnosed with a heart condition in Spain. Her appointment was for 11 months later.
The brother in law of a former canadian PM was the CEO of a private health enterprise( forbidden in Canada).
Movies: see Barbarians Invasion

dale July 7, 2009 at 11:12 am

A previous post (from an MD, no less) says “let the private insurers use the Medicare reimbursement rates” (paraprased). These are not copyrighted, so that is already possible. And, there is a reason why it is hard in many places to find providers willing to provide services under Medicare. When you set the price so far below the market level, a shortage indeed arises. So, lowering costs by fiat will require a different form of rationing than the one we currently have (we can debate which is better, but the single payer system is not condemned merely because it rations care – and not all wealthy Canadians come to the US for all their treatment).

Regarding administrative costs, some comments make me wonder whether their authors have ever dealt with actual health care insurers. The complexity of conflicting forms (and don’t forget the costs for providers to deal with this system – estimates are that these far exceed the insurer’s administrative costs) creates pure waste from my point of view. I see no value added in having multiple conflicting forms. In fact, I believe the real reason for them is to convince patients to not contest insurer’s payment decisions, and to have providers decide it isn’t worth fighting with the insurer. This is surely one way to deal with the high costs of care – but it is one that I find unacceptable in a country as wealthy as we are.

The real purpose of the administrative costs is to reduce reimbursed care. If you don’t believe this, then you probably have too little real experience with our health care “system.” It is debateable whether a single payer system will be better – but let’s not fool ourselves into thinking that our current system of differing forms, payment schedules, and payment policies was designed to improve the quality of care or add value to anybody other than the insurers themselves.

Tomasz Wegrzanowski July 7, 2009 at 11:29 am

As Krugman said:

I know that some people find that answer unacceptable: they know that the private sector is always more efficient than the government, and no amount of evidence will shake their faith. But that’s what the evidence shows.

beamish July 7, 2009 at 11:33 am

Once again to several of the commenters, where is the evidence that Americans will live longer and more healthily under, let us say, the Canadian system than under the present system in the US?

Here’s a prima facie argument: we spend more than twice as much as the average OECD nation, yet our life expectancy is below average for the group, worse than Portugal’s though better than Slovenia’s.

Since other countries spend so much less than we do, the project should be to show not that we would live longer under a Canadian system but that we wouldn’t live less under any other system.

Anyway, some of the extra US costs are due to lifestyle, some to excess spending on useless medical treatment, and some due to administrative costs.

Yancey Ward July 7, 2009 at 11:46 am

beamish,

So, where is the study that shows Americans wouldn’t live shorter lives, than they do, if they had Canadian healthcare?

John Dewey July 7, 2009 at 12:11 pm

beamish: “some of the extra US costs are due to lifestyle, some to excess spending on useless medical treatment, and some due to administrative costs.”

Some of the extra costs are due to spending on “excess” spending on medical research. The point was made by a commentor on CNN recently that the entire medical research budget of Canada did not equal the research of a single U.S. research hospital, M.D. Anderson in Houston. Of course, the entire world benefits from the “excess” spending on medical research by our hospitals and our pharmaceutical companies.

Some of the extra U.S. costs are due to spending on “useful” but not necessary medical treatment. A wealthy nation such as the U.S. should be expected to spend more for orthodontia, for breast augmentations, for hair implants, etc.

Some of the extra costs are due to what European nations would likely refer to as “excess capacity”, as our medical care providers compete by offerring reduced wait times.

Unfortunately, some of the extra U.S. costs are due to defensive medicine practices forced on hospitals and physicians by lawyers and idiot juries.

Robert A. Book July 7, 2009 at 12:36 pm

Dale: In this context, “administrative cost” refers to cost incurred by the health plan, not the cost to the doctors and hospitals of dealing with the health plans (private or public). That cost is substantial to be sure — and it’s over and above the administrative cost we are talking about here.

Unless otherwise state, when health policy wonks say “administrative costs,” they mean “total program costs minus total benefit claims paid out.” For private insurance, “total program costs” means “total premiums collected.”

The administrative cost incurred by the doctors and hospitals in complying with health plan requirements, filing claims, etc., is, from this point of view, part of the “claims paid out.”

There are very few reliable studies on the administrative cost incurred by the doctors. There is one that is basically a “time-and-motion”-style study of a single physician practice. There are various surveys of doctors offices, some of which are even used by Medicare in determining their payment rates. No study I’m aware of makes a serious attempt to measure the difference between provider-level administrative costs associated with Medicare (or other public plans) and provider-level administrative costs associated with private insurance. There are arguments that either one should be higher than the other, but no hard data (except for some studies of specialty pharmacists).

For what it’s worth, the Medicare estimate of physician-level administrative cost amounts to about 17% of claims paid under the physician fee schedule (averaged over all procedures). In the health policy world, that is considered “health care benefits paid” because it’s included in money going from the health plan (public or private) to the doctor.

Obviously, if you added the plan-level administrative costs everyone talks about all the time to the provider-level administrative costs that are rarely discussed, you’d get a much higher figure for total administrative cost.

Floccina July 7, 2009 at 12:46 pm

The statistics clearly show that we’re not any healthier and don’t live any longer in the U.S. than people do in similar countries, so all the great medical techniques that we supposedly have in the U.S. don’t do anything to make us healthier or live longer. If we lived a few years longer than people in other countries, the exra money might be worth it, but we don’t so it isn’t.

We might live shorter and be less health except for superior medical care. We die more from accidents and homicides. We do not know. Also those are not the only measure of healthcare quality. Are hospital rooms nicer, can we get service quicker etc. You may be righ but it is anything but clear.

I disagree with you about advertising as well. Most advertising aims to fool people into buying a lot of crap that they don’t need and won’t make them any happier. I go out of my way to deal with companies that don’t advertise (e.g. Amica, Vanguard) and usually save a fair bit of money by doing so.

Do you watch ad supported TV browse ad supported web pages etc.?

Andrew July 7, 2009 at 1:01 pm

“Do you not see that it’s suggestive (though not conclusive) that we spend a lot more on health care than other OECD nations but live less? What kind of study would convince you?”

It may be true, but absolutely nothing follows from it. The study that would be convincing is the one Yancey Ward asks for, that with the same medical inputs, that we would achieve better outputs applying the ‘European’ process.

Andrew July 7, 2009 at 1:24 pm

Krugman: “So how would you test this assertion? I can think of two obvious approaches: (1) Compare the administrative costs of different systems serving similar populations (2) Compare the administrative costs of similar systems serving different populations”

No. The way to test efficiency is to find the administrative costs for a private insurer and strip out all the things that Medicare DOES NOT DO. You should separate the efficiency question from the one-time savings of eliminating from the system the things that Medicare DOES NOT DO. But, hey, why do things right when you can use an effective propaganda?

Mike Huben July 7, 2009 at 1:40 pm

Can Alex really be blind enough not to recognize that we already have deadweight costs from employer-provided health insurance? And other uncompensated costs from the uninsured who must be treated anyhow? And huge non-monetary costs in time and energy on the part of consumers spent planning on coping with medical payments?

Just another example of counting only one side.

beamish July 7, 2009 at 1:46 pm

the same medical inputs

This isn’t really the right comparison to the question that Yancy is asking (would something like the Canadian healthcare system shorten the life of the average American) though it is the right comparison with respect to the original dispute. Tabarrok’s post assumed (at least for the sake of argument) that administrative costs would be lower with a government system more like what other countries have, but argued that for other reasons we would expect overall health outputs to be worse, at which point Yancy’s question becomes the central one.

The issue of whether, with the very same medical inputs, a private insurance system would have lower administrative costs than a government system is what the initial dispute between Book, Krugman, and Hacker is about. And that becomes more definite by focusing on the question of the right way to compare Medicare and Medicare Advantage costs (where Medicare Advantage works through a private insurer). It’s actually an interesting debate. Here (and in a comment from Book under that post) are something like the latest words on the debate. But, in the end, Yancy’s question is the important one.

Td July 7, 2009 at 1:58 pm

From http://directorblue.blogspot.com/2009/07/emergency-democrat-health-care-by.html

13: The number of teeth that British veteran Ian Boynton pulled out himself with pliers “because he couldn’t find an NHS (National Health Service) dentist… [he] could not afford to go private for treatment so instead took the drastic action to remove 13 of his teeth that were giving him severe pain.”

14: The percentage of all patients in Britain who wait more than one (1) year to receive treatment after a referral by a general practitioner. Half of all National Health Care patients in Britain wait between 18 and 52 weeks for treatment.

37: The “health care ranking” assigned to the U.S. by the World Health Organization among the world’s countries. This oft-quoted number is used to justify an overhaul of the U.S. health care system and lists countries like Italy (2), Andorra (4), Malta (5), Singapore (6), Oman (8), Portugal (12), Greece (14), the United Kingdom (18), Ireland (19), Columbia (22), Cyprus (24), Saudi Arabia (26), the UAE (27), Morocco (29), Canada (30), Chile (33), the Dominican Republic (35) and Costa Rica (36) ahead of the U.S. Considering that no U.S. citizens travel to these countries when experiencing a life-threatening situation, it’s worth questioning the methods by which the WHO arrived at these rankings. Their criteria included subjective and political assessments such as “Fairness in financial contribution”. Suffice it to say that the WHO’s rankings are clearly fraudulent and are designed to influence U.S. policy.

60: Average cancer survival rate (all types) for patients in the United States. Canada’s survival rate is significantly lower at 55%, while Europe’s is a dismal 48%.

81: Average percentage of those who survive a diagnosis of prostate cancer in the United States versus 43% in Britain under their National Health Service.

90: Number of days, on average, each Canadian patient must wait for an MRI under the Canadian government-run health care system.

750: The estimated number of people waiting in line (in the pouring rain) at Britain’s Bury Office attempting to register for dental care.

2050: By this year, “Social Security, Medicare and Medicaid (health care for the poor) will consume nearly the entire federal budget.” And by 2082, Medicare spending alone will consume the entire federal budget. This trajectory is, quite obviously, unsustainable for our children and our grandchildren. Congress is bequeathing our descendents a bankrupt health care system — for just the third of the medical system that the government already runs!

10,000: Number of Canadian breast cancer patients to file a class action lawsuit against Quebec’s hospitals because, on average, they were forced to wait 60 days to begin post-operative radiation treatments.

280,392: The number of jobs that employers would shed if government levied an employer mandate, requiring them to insure all employees. A 2007 study by Katherine Baicker of Harvard University and Helen Levy of the University of Michigan (“Employer Health Insurance Mandates and the Risk of Unemployment”) found that “0.2 percent of all full-time workers and 1.4 percent of uninsured full-time workers would lose their jobs if a health insurance mandate were written into law. Workers who would lose their jobs are disproportionately likely to be high school dropouts, minority, and female.”

443,849: The number of British patients of the National Healthcare Service (NHS) who waited four or more weeks for inpatient admittance into a hospital (Excel file) in May of 2009 (more than 75% of all patients).

1,500,000: The number of Canadians who do not have — and cannot find — a general practitioner/primary care physician due to shortages in medical staff: “In Norwood, Ontario, 20/20 videotaped a town clerk pulling the names of the lucky winners out of a lottery box. The losers must wait to see a doctor… Shirley Healy, like many sick Canadians, came to America for surgery. Her doctor in British Columbia told her she had only a few weeks to live because a blocked artery kept her from digesting food. Yet Canadian officials called her surgery ‘elective.’ …’The only thing elective about this surgery was I elected to live,’ she said.”

12,000,000: number of illegal immigrants who would qualify for free health care and — in all likelihood — additional health care rights for relatives under the Democrats’ universal health care plan, according to a reported statement by the office of Sen. Robert Menendez (D-NJ) and spokespeople for the racial separatist group La Raza.

$311,000,000 ($311 million): The amount of additional funding requested last month by the Obama administration simply to combat Medicare fraud. Medicare fraud is estimated at $60 billion annually.

$3,600,000,000 ($3.6 billion): The amount of added malpractice insurance costs to the current health care system instigated by an out-of-control trial lawyer lobby that donates heavily to Democrat causes.

$10,000,000,000 ($10 billion): The estimated amount of Medicaid fraud, based upon FBI estimates. Criminal practices include billing for nonexistent, overstated, or unnecessary services, kickbacks to patients, inflated costs, etc.

$60,000,000,000 ($60 billion): The estimated annual amount of Medicare fraud, due to widespread criminal operations that victimize taxpayers and specialize in dead doctors, fake patients, non-existent treatments and the like.

$107,000,000,000,000 ($107 trillion): The estimated shortfall of the Medicare and Social Security programs, which are utterly and completely bankrupt; they can be legitimately called an “enormous version of Bernard Madoff’s Ponzi scheme”.

Nick Papageorge July 7, 2009 at 2:13 pm

Robert: , of course you’re right — “getting more” would actually require us to define what we want in the first place. What’s more, there are oodles of horror stories of Canadians literally dying (DYING!) in the streets of Montreal, Ontario and Vancouver because their system doesn’t deem them worthy of an Aspirin; of German grandmothers being refused surgery and yarn; of French children (CHILDREN!) being refused … I dunno, something.

Actually, they all spend less on care. Show me a few measurable health outcomes where they perform a lot worse. (And this does not include 20/20 videos of the worst scenario possible…. I mean, if we want to go the 20/20 route, just go to any emergency room in this country and check out how many people are using it as their primary care…..now THAT’s inefficiency.)

Andrew July 7, 2009 at 2:19 pm

We spend more on cars and yet we never go anywhere, on average.

“The same medical inputs” is the right test if you are going to test the Canadian process against our inputs. You could also test our process on Canadian inputs, think about less diverse, healthier populations like not-the-south.

If your goal is to change our inputs, then fiddling with the medical system is handwaiving unless you simply want to cut costs, and that’s not going to happen through adminstrative savings.

The important question is that when the public option (we have one) is expanded and when they attempt to implement their cost controls, will the supposed administrative savings survive. That answer is no, apart from the things that they simply do not do, such as advertising once the public plan has taken over. But that is different from claiming that the bureaucracy is more efficient than the private providers.

beamish July 7, 2009 at 2:43 pm

There are a lot of countries that spend a tenth as much on healthcare as the US and have life expectancies that are only a year or two shorter. On a cost/benefit basis, do you think we should aim for that as a goal?

There are 29 countries with longer life-expectancy and smaller health costs. That would make for a better goal.

(I tried to post something like this a while ago. I apologize if it turns into a double post.)

John Pertz July 7, 2009 at 2:50 pm

beamish

The big issue is will changing the way health care is paid for in this country, improve health outcomes?? My answer is hell no. It will still be the same simple carbs loving, saturated fat consuming, neglectful of exercising American population. Why people think rationing health care is going to raise mortality rates is beyond me.

John Dewey July 7, 2009 at 3:05 pm

beamish: “Medical research is about 6% of US health care spending. Differences there can’t do much work in explaining why we spend twice as much on medicine than anyone else.”

I don’t understand your “can’t do much work” argument. If Canada spends less than 1% of medical spending on medical research and the U.S. spends 6%, that’s significant.

A recent study revelaed that the U.S. spends 7 times more per person on cancer research than do the 25 member countries of the European Union (EU).

beamish: “US cosmetic surgery is about $12.4 billion which is a drop in the total spending budget.”

Cosmetic surgery is hardly the only type of elective medical treatment. Others include abortions, fertility treatments, lasik eye surgery, orthodontia, tubal ligations, and many more.

Walkinggeek July 7, 2009 at 3:30 pm

If it is a fair competition with the private sector, as they claim. Why do they need to raise tax to “pay for it”?

http://www.bloomberg.com/apps/news?pid=20601087&sid=a3wUXb42NPX0

Yancey Ward July 7, 2009 at 3:36 pm

Mulp,

Again, I am asking for proof of causation. It isn’t enough to point to countries that spend 60% as much and have longer life expectancies since that tells us nothing about causation. If it were really otherwise, then countries like France, Great Britain, and Canada should adopt the healthcare system/spending of Japan, Hong Kong, or Macau. Indeed, the US could spend as much per capita as Cuba and only lose a half year in life expectancy.

How can you be sure that Americans don’t spend as much as they do because that is what it takes to keep Americans alive as long as we do in consideration of the lifestyle and culture? Americans are not going to adopt the diet, lifestyle, and culture of the Japanese or the French on the adoption of a similar healthcare system.

Note, I actually do think a lot of the spending is a waste (I have seen it up close and personal), and I would certainly rather keep the $100,000 spent buying me another 6 months of life (or, at least, that is the way I feel today), but that is my preference. All I really want to see is an acknowledgement from people like you and beamish that you don’t really know that the path to greater longevity is to spend less in the United States.

beamish July 7, 2009 at 3:57 pm

Why people think rationing health care is going to raise mortality rates is beyond me.

Well, you have to ration public spending, or the deficit or taxes will go through the roof. And, for that matter, you have to ration private spending, in a way. Economics is about the distribution of limited resources.

A central public policy question is how should we best ration public medical spending. If we could do this in a way that cut overall health care spending and didn’t kill people while we’re at it, that would be great. This last goal might seem like crazy optimism, if it weren’t for the international comparisons, for the high rates of iatrogenic death and disease, and the evidence that a good portion of health care spending doesn’t do any good.

I don’t understand your “can’t do much work” argument.

The US spends about $6700 per capita and Canada spends about $3700 per capita on health care. If the US spends $400 dollars per capita on research, that can’t explain much of the $3000 per capita disparity. For stronger reasons, if the US spends forty-something dollars per capita on cosmetic surgery, we should be skeptical that that or related costs explains much of the disparity. (I started looking for total elective surgery costs in the US, but then I thought you could do it, if you felt like it.)

John Pertz July 7, 2009 at 4:16 pm

Again, my question remains, does DIET AND LIFESTYLE AFFECT HEALTH OUTCOMES?

If it doesnt then the US should be ashamed for being so far behind their public health care counterparts in terms of mortality rates. However, if diet and exercise does affect health outcomes then why not tell people to eat more raspberries, broccoli, blueberries, olive oil and consume less corn feed based red meat, simple carbs, etc. etc. etc.

It seems like you could greatly improve health outcomes by using public messages to convince the public to live a healthier lifestyle.

However, if Americans are going to continue to eat cheese burgers, fries, and exercise very little on a routine basis then there isnt much that public or private health care can do to remedy the situation, short of technological progress in the fields of cardiology and oncology.

piglet July 7, 2009 at 4:40 pm

One last comment, since the argument started with administrative costs. Many Americans specifically complain about the complexity and intransparency in the health care system. The many forms you have to fill out, the fight with the insurers over payments, all the byzantine details in the insurance conditions – copayments, deductibles, in-network, out-network. Do I have to call the insurance before seeing the doctor to make sure I’m covered? Many Americans find the amount of health care bureaucracy they have to deal with staggering – and then our right-wingers say leave it to the market because government is too bureaucratic? Go figure!

Other countries don’t have this period. Germany and Canada are different in many respects but both have systems that are easy to understand and handle: you have an insurance card, you show it to the health care professional, end of story. This is something valuable. How valuable, you have to judge for yourself. But given that the quality of health care in advanced countries is basically comparable – they are all capable of treating the same range of conditions and there is little evidence of significant differences in outcome – I would argue it matters how much hassle you have to go through in each case. I find it astonishing that our right wing friends completely dismiss this whole issue. After all, markets are supposed to offer benefits to consumers. That is why they are supposed to be superior to government control. The US health care market does the opposite – it tries to generate profits by NOT offering benefits to consumers. And frankly, in that respecdt it is successful.

John Pertz July 7, 2009 at 4:49 pm

Piglet

The ease of use of the system doesnt mean jack crap when you have pancreatic cancer. Thats great for Canada and Germany, GO THEM!!! However, when I am looking for treatment beyond the pesky cold or easily treatable malady, I am going to start to worry about this thing called quality. You see, its one thing to be told to go wait in line while you wait for treatment when you have a soar throat.

However, its quite another to be told that you have to wait in line while cells within your body are metastasizing. That sucks and those are the kinds of complex medical issues that the public countries are not cut out to deal with. Their health outcomes against the BIG BOY maladies arent that hot and certainly pale in comparison to the US. Im not a defender of the status quo, but arguing about that we need to be Norway, Canada, France, or the UK is childish and laughable.

beamish July 7, 2009 at 5:58 pm

All I really want to see is an acknowledgement from people like you and beamish that you don’t really know that the path to greater longevity is to spend less in the United States.

I grant that I don’t know that there’s some definite general plan that policy makers could adopt that would certainly both cut spending and increase longevity in the US. (I bet that there are policies that would reduce infections acquired in hospitals and might technically meet the challenge, but that seems like cheating.)

Tony Cohen July 7, 2009 at 7:35 pm

To Yancey Ward:
You have it backwards. As a Canadian style supporter. You have to prove to me that ‘your’ system makes the US healthier. Why? Because I cost half as much!!!!

I am taking this idea from a post in Krugman’s comments, so I can’t claim originality but I would like further clarification.

While I agree it is silly to claim admin costs as % of total expenditure, shouldn’t we compare admin costs on a per encounter/transactional basis? Isn’t my admin cost more expensive every time you come in and I need to perform X and Y admin? Wouldn’t this mean that the sickest people have the most admin because they have so much time/paperwork spent on them?

So you have a terribly sick/old cohort at $509 a month, and a self selected for health and profit cohort which consciously and effectively avoids many people in the first cohort clocking in at $439.

You want to show me admin costs are more, compare cohorts or per encounter costs. Saying it is more expensive to admin to a dying old man with renal failure than a healthy kid makes about as much sense as comparing as a % of total value

Phillip Huggan July 8, 2009 at 12:01 am

I don’t expect the market for USA bonds will reward pointless private beauracracy when boomers really start to get sickly. It is a productivity loss, and if gross enough, will be enough (maybe not till two decades time) to turn your GDP growth negative well before AGW (another market stroke of genius).

John Dewey July 8, 2009 at 5:57 am

David Shor: “The most “leftist” position I have heard advocated is single-payer, where the government acts as the primary insurance company and doctors are free to do as they please.”

Do you honestly believe that “doctors are free to do as they please” when the government is paying the bill for everyone? Do you believe that paients will be “free to do as they please”? Do you really believe that?

Jon A Firebaugh July 8, 2009 at 8:22 am

One of the most repugnant results of the health care system of other countries is the rationing and wait times.
We have heard story after story of long waits and denied services.
But as has been stated above, this discussion is about “Administrative costs”. And Krugman’s arguments are severely lacking and based on a narrow definition of administrative costs. Many in this discussion have cited the lower cost in other countries, but have ignored two of the major reasons for high health care costs in the US.

1. An assault on the medical profession by outrageous explosion of medical malpractice litigation which is severely restricted in the single payer countries.

2. An incredible explosion in the documentation required at all levels of medical care caused by new government regulations and………. see ITEM 1.

That Donkey Benjamin July 8, 2009 at 12:57 pm

WHAT ABOUT MASSACHUSETTS, LEFTISTS? WHAT ABOUT MASSACHUSETTS?

I will not let you destroy the future of this country on my watch.

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