The median wage figure and the health care costs figure

by on January 15, 2012 at 3:51 pm in Economics, Medicine | Permalink

The U.S. median wage for 2010 was $26,363.

The average health care insurance premium today is over $15,000 and by 2021 it may be headed to $32,000 or so (admittedly that estimate is based on extrapolation).

Therein lies the problem.

To oversimplify a bit, treat the wage as the economic value produced by the median individual.  This will be most on target for individuals who do not receive health care benefits through their current jobs.

Again to oversimplify, treat the health care costs as the economic value needed to produce or maintain the modern individual.  (Or rather as part of those costs.)  Of course not everyone requires health care in a given year, but societal norms for health care treat these expenditures as if they were necessary, if only morally necessary.

Another relevant comparison is “median income for those who do not have employer-supplied coverage” vs. “future insurance costs for those same individuals.”  I have not seen such numbers, but the median income of this group is lower, though the stipulation probably is selecting for younger individuals with lower potential insurance premia.

In any case, we will have increasing numbers of individuals for whom the economic value needed to maintain them exceeds the economic value they produce.  I don’t mean elderly people on life support, I mean able-bodied, working-age individuals.  This will make it increasingly hard to implement “health care egalitarianism.”

Here is how health care premia rose 63% over the last seven years.  In the very last year, however, health care as a percentage of gdp did not rise at all, mostly because a weak economy and higher co-pays cut back on utilitzation.  That is the most obvious way our health care cost crisis could end up being solved, though of course it is probably not the best way.  We cannot expect it to last whenever substantial economic growth picks up again.

1 Michael Makowsky January 15, 2012 at 4:03 pm

Does that median wage include that value of any employer provided/subsidized health insurance? The point is still relevant regardless, just curious.

2 Brian Donohue January 15, 2012 at 4:55 pm

Pretty sure the answer is no.

3 Brian Donohue January 15, 2012 at 5:45 pm

Which is to say, the “true” median wage is higher than $26,363, so it’s not as dire as Tyler’s numbers suggest. This seems like an important part of the explanation for “wage” stagnation over the past 3 decades. How much have “wages”, adjusted for the largely unreformed health care and retirement benefits in the public sector, risen versus private-sector wages?

4 NAME REDACTED January 16, 2012 at 7:02 am

I would argue its /the/ factor causing ‘wage stagnation’, because once you include it into wages, the stagnation vanishes.

5 Bill January 15, 2012 at 4:06 pm

Is this a plea for repealing the Bush tax cuts for the wealthy, reducing taxes on the poor (sales taxes, social security (whose benefits will be cut to support tax cuts for the wealthy), an argument against VAT taxes proposed by Romney as a corporate VAT tax, and the institution of insurance subsidies for the poor under the Ryan medicare plan.

Good point showing the plight of the poor and the need for a more equitable society, one which does not burden the poor any more than it does today.

Bravo.

6 ad*m January 15, 2012 at 5:08 pm

zero-sum.

You really do not want to get it. Let me give an example. If Tyler had written in the 1920’s:
The economic cost of giving every American a T-Ford exceeds the economic value they produce.
would you have called for the government taking over Ford motor, or the government capping the cost of T-Fords?

No, hopefully you would have agreed that every American should make their own decision on whether they want to eat and have a house and/or have a T-Ford. There would be a market, and because of the market, car makers would be incentivized to make more cars.

Your solution would remove all incentives. Health care would remain so expensive, even if you make slaves out of all physicians, and there would be little or no innovation.

After all, when discussing the average health care premium, this is not primarily because of high catastrophic care insurance here (which should be a common good), but the humdrum fungible 90% of every day healthcare.

This advocacy for solutions that European countries started to reject in the eighties is depressing.

7 ad*m January 15, 2012 at 5:09 pm

No preview. make more cars -> become more productive and make cars more affordable

8 anon January 16, 2012 at 7:38 am

+1

9 Bill January 15, 2012 at 5:18 pm

ad*m,

I get you: You have a Jonathan Swift solution

As Mr. Swift said:

”I have been assured by a very knowing American of my acquaintance in London, that a young healthy child well nursed is at a year old a most delicious, nourishing, and wholesome food, whether stewed, roasted, baked, or boiled …”

10 ad*m January 15, 2012 at 5:20 pm

God man, I emigrated 9 years ago from a country with a previously socialized system that was already moving to some market based solutions. I have seen several health care systems. Debate on arguments, not on who has what experience.

11 Bill January 15, 2012 at 5:25 pm

ad*m. If you have no solutions and you don’t want to pay or help in paying for a solution when there is an income constraint: You are closer to Mr. Swift than you realize.

12 ad*m January 15, 2012 at 5:51 pm

No solutions? I have spent my entire career as a physician / scientist trying to come up with solutions and I may actually have one for my specialty – that is why I started a company. I am not doing the latter for the money but for my patients, even though you will not believe that. I tried as a non-profit.

My main concern is that productivity increases will not happen because healthcare becomes socialized and incentives are gone. I really tried to work as a physician with such a system for 10 years until circumstances made me see I should emigrate.

I am fine paying other people’s catastrophic care. But I am not fine with removing incentives on the patient’s side to look for affordable care. I am not fine just paying what the government, physician guilds and the government all more or less working in concert, decide we should be paying.

13 Bill January 15, 2012 at 6:10 pm

a*dm, Then you won’t mind COMPETING to get a contract from an exchange or from an ACO. I’m glad you’re for competition, and not one of those docs whose solution is to create a big deductable so he/she can maintain a high income before the insurance component kicks in. It’s no surprise that the doctors in congress favor the high deductable approach.

And, if you are working for efficiency in healthcare, there is a lot to be made. I’ve represented device companies and HMOs, and, although everyone talks about getting more efficient and offering better outcomes, they don’t seem to act to get more efficient until they see their income earned from layers of inefficiency being threated by reduced reimbursements. Too bad, because they could make more if they were more efficient.

14 Cliff January 15, 2012 at 8:51 pm

Bill,

What are you talking about with big deductibles? “Before the insurance component kicks in”? The doctor gets paid the same regardless of whether the deductible has been reached or not. How can you be against high deductible plans?

15 The Original D January 15, 2012 at 9:33 pm

Exactly. If anything, I expect doctors would prefer low deductibles. That way the median patient is more likely to be paying with someone else’s money, thus reducing price sensitivity.

16 Bill January 15, 2012 at 9:41 pm

Cliff, If the doctor negotiates with a plan to be in it, he does not get his Usual and Customary, sorry, but he doesn’t. That’s not to say he doesn’t get it from YOU under the deductable.

Original D, You might want to look at the AMA’s position and the docs who are in the House and Senate. Your presumption is opposite to their preferences. Think of it this way: there is a two price model: full price from the insured, and a discounted or controlled price offered by the plan.

17 Cliff January 15, 2012 at 9:45 pm

Bill,

Huh? Do you not understand how high-deductible plans work? You always go through your insurance even if you are within the deductible. The doctor has no way of knowing if you are within it or not and gets paid the same (insurer-negotiated) rate regardless. I mean, maybe there is some plan somewhere that doesn’t work that way, but I can’t imagine why anyone would pick a plan like that.

18 Bill January 15, 2012 at 9:47 pm

Cliff, From the AMA: “The American Medical Association has policy supporting health savings accounts, which are often paired with high-deductible plans, as one form of financing health care. The AMA also supports first-dollar coverage of preventive services.”
Cliff, I do know how they work and how doctors, and health plans, view first dollar coverage and recovery under deductables. But, you may not.

19 Bill January 15, 2012 at 9:57 pm

Cliff, And, for poor people with chronic conditions, high deductible plans are really bad, even though docs may like them: From the Incidental Economist: http://theincidentaleconomist.com/wordpress/high-deductible-plans-for-those-with-chronic-conditions/

20 Cliff January 15, 2012 at 11:11 pm

Bill,

You totally avoided my questions, which I assume is because I am right?

And of course a high deductible plan is not as good of a deal for a poor person with a chronic condition compared to a plan that shifts more of the costs to someone else.

21 Andrew' January 16, 2012 at 8:12 am

Bill, the incidental economist series explains why your “pay for outcomes” solution will not work. Just because a successful nose job is successful does not mean that other OECD countries don’t cover it.

The problem has been explained, and yet the ideologues (who ironically believe they are the ones with the monopoly on reality) still keep getting the solutions completely wrong.

22 Bill January 16, 2012 at 11:27 am

Andrew, You’ve changed the subject. Incidental economist link showed that high deductibles for low income persons, the topic of this link, is devastating to the chronic poor and counterproductive to long term care. I have no idea of what you are talking about re your nosejob, but if the plan does not cover nosejobs, it is irrelevant, and should start there. If it is a required procedure, pay for outcomes works. I get paid for outcomes as an attorney, and I would add that a ZMP worker eventually gets paid for his outcome as well.

23 TallDave January 16, 2012 at 1:50 pm

Bill, your link just says they’re more likely to report a financial burden if they have a chronic condition and a high deductible. That’s basically a truism and doesn’t tell us anything about whether the plan is “bad.”

24 Stan January 15, 2012 at 4:06 pm

Eventually either (a) Americans will cut back drastically on their health care or (b) governmental action will compel doctors and hospitals to limit their annual price increases to the general rate of inflation. I’m betting on (b).

25 Ryan Cooper January 15, 2012 at 4:53 pm

Yeah, especially because that’s pretty much how every other country does it.

26 Tracy W January 15, 2012 at 6:31 pm

Funny, I thought pretty much every other oecd country was seeing healthcare spending rising faster than gdp, or average wages, too.

27 NAME REDACTED January 16, 2012 at 7:05 am

They are.

28 Floccina January 16, 2012 at 11:40 am

Yes it seems that socialization at best have only delivered a one time reduction.

29 Bill January 15, 2012 at 5:23 pm

b also, but for a different reason: that we have aceded to the demands of providers in the past to their sticker prices, and as a purchaser will either engage in bargaining, or employing other agents to manage and bargain on our behalf.

Managed medicare. Managed Medicaid. Split savings with the manager and or direct contracting with ACO’s via a bidding mechanism to create a market. If we can get some the exchanges going in 2014.

30 The Original D January 15, 2012 at 9:34 pm

The problem is consumers have no idea what the sticker price is. Seriously, I have no idea what anything costs when I go to the doctor. I just know I pay a co-pay.

31 Phill January 16, 2012 at 2:03 pm

That’s OK. Neither does your doctor.

32 JWatts January 16, 2012 at 2:32 pm

+1, “That’s OK. Neither does your doctor.”

Its infuriating when you ask a Doctor’s office how much something costs and they can’t give you an estimate. Not even an order of magnitude estimate. Generally, the response is, ‘We’ll have somebody in Accounting get back to you in a couple of days’. I’ve literally asked if X procedure was going to cost, closer to $100 or $1,000 and no one in the office had any idea of the actual cost, but they routinely performed the procedure.

33 Bill January 15, 2012 at 10:13 pm

Original, Consumers never shop, but their agents do, via an exchange, aco, managed care plan, etc.

34 Andrew' January 16, 2012 at 6:18 am

Huh?

I just did.

35 Bill January 16, 2012 at 12:19 pm

Andrew, Quick. I have this pain in my side which I think is appendicitus. I need to be in the hospital within an hour. Can you tell me the lowest price physician in the area? My kid also just broke his leg and is in the ambulance, Which is the least cost hospital.

36 Silas Barta January 16, 2012 at 2:09 pm

Oh look honey, it’s another internet poster confusing the market for health care with the market for health insurance, and switching to the other whenever you pin them down on one!

That’s nice, dear.

37 OneEyedMan January 15, 2012 at 7:58 pm

Indeed. This is figure is much closer to the cost of a family plan. An individual plan is likely far less. For example $2,196 (http://finance.yahoo.com/news/How-Much-Does-Health-iw-1773357078.html)

38 Maxxxx January 15, 2012 at 9:06 pm

These are hard to believe. I am in the individual market and pay around 260 for 5000 deductible. Either other states are incredibly cheap or I wonder where these numbers come from.

39 Andy January 16, 2012 at 4:48 am

My friend was paying $50/month for a $7,000 deductible before she got insurance with her job.

40 NAME REDACTED January 16, 2012 at 7:06 am

I have a 4k deductible and pay 140 a month. Move to a less socialist state, and you will be more able to afford the health insurance. Texas is nice this time of year.

41 Andrew' January 16, 2012 at 8:25 am

I wonder if to some degree high deductible is a de facto method of price discrimination. It’s not linear, so it’s not making you think twice about a heart bypass, but makes you think twice about a boob job.

42 Floccina January 16, 2012 at 11:43 am

I only pay $400/month for my family of 4 and my wife and I are in our 50s and she has had some big health problems. Our insurer is Blue Cross.

43 Floccina January 16, 2012 at 11:45 am

BTW that is for $10,000 deductible. I live in Florida.

44 Berk Ozler January 15, 2012 at 4:19 pm

Median wage for individual, health care insurance premium per household. Not comparable…

45 Anonymous coward January 15, 2012 at 4:34 pm

Come on, we’ve progressed so far towards 100% single-person households already. In 10 years we’re bound to be so much closer.

46 tom hynes January 15, 2012 at 4:39 pm

I was gonna say that.

47 john personna January 15, 2012 at 4:26 pm

As you identify, it is a problem with “averages.”

48 Cameron Mulder January 15, 2012 at 4:29 pm

Doesn’t your doomsday scenario basically assume no improvement in the productivity of healthcare services?

It appears to me that there are a variety of both organizational and technological advancments that are happening that could bring down the cost of healthcare.

Looking at things like Zoom-care and Healthtap we are starting to see ideas that could improve productivity in this sector. Right now if i want to see my doctor i do it via skype for a flat fee of $50. If i have just a random health related question i can ask it on Healthtap for free and get multiple answers from real doctors.

If the Draco drug being developed at MIT (http://bit.ly/nMRx1w) works out, which is doubtful but you never know. Then problems from viral infections will be a thing of the past.

I think people will start having to pay a larger % of healthcare costs out of pocket which will finally align incentives properly for us to start seeing real productivity improvements in this area.

49 foosion January 15, 2012 at 4:31 pm

If US median wage is in the top range of major industrial nations and US healthcare costs are twice the next most expensive country, such that in those countries there are many fewer individuals for whom the economic value needed to maintain them exceeds the economic value they produce, what does that say about differences between the US and the other countries?

50 NAME REDACTED January 16, 2012 at 7:09 am

Its not accurate as their wages include healthcare costs (in the form of taxes) but US wage statistics do not include healthcare costs, as those are paid by the employer. So, if anything the wage stats /vastly/ understate exactly how much income US median people have.

51 buddyglass January 15, 2012 at 4:39 pm

This stat has always seemed a little bogus to me. Many workers are part time. Many workers are unemployed for part of the year. Reported wages don’t include employer subsidies for health insurance (as you point out). Reported wages don’t take into account hours worked (which vary even among “full-time” workers).

What I’d like to see is something like “median rate of compensation” for those between 25 and “retirement age”. Preferably broken out into a grid by gender, race and educational attainment. The guy who gets paid $150k/year but works 80 hours/week should be ranked behind the guy who earns $100k/year but only works 40 hours/week. The guy who works half the year for $20/hour (but is unemployed the other half) should be ranked the same as the guy who works the entire year at $20/hour. The guy whose employer subsidizes his health insurance at 100% should have that subsidy counted as income.

Once you know this “median rate of compensation” you can make statements like, “an individual who is compensated at the median rate, who works 40 hours/week and who is not unemployed at any point in the year earns X, which is N times the cost of his/her health insurance.”

52 mr. commenter guy January 15, 2012 at 4:56 pm

I don’t agree about the two guys working 80 hrs versus 40 hours per week.

The 80-hr/week guy could be producing $110k/year worth during his first 40 hours, and the other $40k/year during the next 40 hours.

The 40-hr/week guy could be ZMP once you get past 40 hours per week. He could be incapable of doing any work that anyone wants 80 hours/week worth of.

53 Ricardo January 15, 2012 at 8:43 pm

Jared Bernstein once broke down wages earned by married couples between 25 and 54 in the 40-60% household income percentile with at least one child at home. Husbands’ real wages declined between 1979 and 2007 — that’s ignoring the recent recession and hours worked actually increased very slightly. True, this is not further broken down by education and race but it’s a safe bet that these men are mostly white and have at least some college education. The increase in HH income over this period in the 40-60% percentile is due entirely to more married women joining the labor force and women’s wages increasing over the same period.

54 NAME REDACTED January 16, 2012 at 7:12 am

Did he include full compensation in wages or no? In my experience the men are more likely to work full time and get insurance than the women are. If he isn’t including employer paid insurance then its not representative.

55 Blaise January 15, 2012 at 4:46 pm

Why is health so expensive in US compared to the other developed countries? How can the US align their health expenditures with European countries?

56 Cameron Mulder January 15, 2012 at 4:55 pm

Not sure if you listen to Econtalk but in the most recent with Dean Baker (http://bit.ly/yo5Evg) he made an interesting suggestion for healthcare. What if we let people use medicaid/medicare to buy into other nations health systems and the individual would just pocket the difference. So if I was on medicare i could use the British NHS for my healthcare needs, which costs about $8,000 a year and just pocket the extra $7,000. Sure travel expenses would suck but i would still end up with more cash and a couple nice visits to the UK.

57 CBBB January 15, 2012 at 6:03 pm

Yeah Baker has been making that argument for a while. It’s a good idea – health care would be much cheaper if doctors actually had competition.

58 Blaise January 15, 2012 at 8:53 pm

I’m not sure how the British would react if thousands of Americans crossed the Atlantic to be cured there. In the short term, medical facilities could be overwhelmed. Moreover, they already face shortages in the UK and some patients prefer to cross the channel and be treated in France to avoid queuing.

59 Cameron Mulder January 15, 2012 at 9:02 pm

The idea is that you would be able to pick whatever country you wanted and we would make a deal with that nation to facilitate it. So the NHS in the UK could actually make a profit from Americans going there for treatment.

People already do medical tourism and if the state allowed you to use Medicare/Medicaid it would help to make this type of trade flourish. From what i understand India actually had some great hospitals and can do major surgery from significantly less that US hospitals. But if you are part of the 50% on some type of government healthplan in the US, you can’t take advantage of that deal.

60 Richard January 16, 2012 at 12:32 pm

How would you guarantee that the people buying into NHS are reflective of the population at large rather than say the fat tail that uses up more than the median in medical costs?

And would these people be satisfied with NHS restrictions on treatment methodologies?

61 Jamie January 15, 2012 at 4:55 pm

By reducing administrative overhead and rents captured in various opaque ways.

Two words: single payer.

62 The Other Jim January 15, 2012 at 7:15 pm

Yeah! And if only the Government would take over education, too, it would be cheap and super-awesome as well!

Oh wait — they already did, and we spend more money per-person on education than any country except Luxembourg, and we regularly come in around 27th on every international test.

Oops. Don’t worry, I’m sure it’ll be different with healthcare.

63 Floccina January 16, 2012 at 12:26 pm

we regularly come in around 27th on every international test.

Some would argue with that 27th position.

http://super-economy.blogspot.com/2010/12/amazing-truth-about-pisa-scores-usa.html

Also Democrats could argue that PISA does not measure anything important. But they wont

64 Hasdrubal January 17, 2012 at 12:06 pm

What’s special about administrating health insurance that causes overhead costs to be so untenable? How can car insurance companies profit and still have low rates, but health insurance companies not? Why don’t we need single payer car insurance to make that affordable?

I am not seeing anything fundamentally different between car and health insurance. The big difference I do see is the amount of government regulation in the two markets. It would seem to me that overhead costs are correlated with the amount of regulation, very likely caused by regulation (at least in part.) Isn’t it a bit disingenuous to say that overhead is too high and therefore government should take over when it’s the government intrusion that is causing the overhead in the first place? What makes you think that government caused overhead would be any lower when the government is running the system than when profit-seekers are running the system?

65 CBBB January 15, 2012 at 6:07 pm

The US health care system is the most privatized – and unlike many other markets there really is no incentive to cut costs and become more competitive in the health insurance market. In the car industry more customers likely means more profit – this is certainly not the case in insurance markets – the TYPE of customer matters more then the quantity.

66 Cliff January 15, 2012 at 8:58 pm

If the insurance companies were allowed to correctly price their product for each individual (like car insurance companies) every customer would be profitable.

67 CBBB January 15, 2012 at 9:20 pm

But then many customers couldn’t afford the insurance – leaving a great many people uninsured with no access to health care. If that’s the kind of society you want well..I guess so be it but it’s a value judgement not an economic one.

68 Cliff January 15, 2012 at 9:49 pm

That’s ridiculous. If they can’t afford health care then we either give them the money to pay for it, or they can’t afford it. Just like anything else.

Why confuse things by talking about heath INSURANCE? Why create this bizarre anti-competitive web of regulations that invisibly subsidize old and sick people’s insurance with young and healthy people’s premiums. It makes no sense.

69 CBBB January 15, 2012 at 11:03 pm

That’s right so just have a national single payer system where you cut out all the waste and inefficiency of the corporate insurance companies who expend massive amounts of resources trying to get out of paying their clients claims. At the end of the day this is a value judgement – health issues are life or death issues that turn on luck

70 Cliff January 15, 2012 at 11:15 pm

Well, I agree that single payer would probably be better than what we have. But what also would be better (probably best) is a free market, with some kind of means-tested voucher/subsidy. That would equally if not better address the problem you brought up.

Also, health issues are very strongly influenced by lifestyle, so I do not think it is correct to say they “turn on luck.”

Also I don’t know what “value judgment” you are referring to. Whether to pay for poor people’s health care? Because that’s got little to do with the debate over single payer, AMA, etc.

71 CBBB January 15, 2012 at 11:19 pm

No, the free market approach would be disastrous for most people. It simply doesn’t address any of the issues.

People who live healthy lives get sick too – or get in car accidents, etc. It’s not all about lifestyle choices.

72 Cliff January 15, 2012 at 11:34 pm

Actually, it addresses all of the issues. How could any system be “disastrous” if all the people who cannot afford their healthcare (your supposed concern) have their healthcare paid for?

73 CBBB January 15, 2012 at 11:44 pm

How will they have it paid for if they can’t afford the premiums? Or if they get their coverage cancelled or denied because of some per-existing condition?

74 Brian_2 January 16, 2012 at 4:37 am

“How will they have it paid for if they can’t afford the premiums?”

See “means-tested voucher/subsidy”. You know, like we do for food and housing instead of having the government pay for it all because some people can’t afford it.

75 CBBB January 16, 2012 at 10:13 am

I STILL don’t see how this is more efficient then a single payer system. You’re talking about having insurance provided by profit-seeking corporations running on a model where you’re not necessarily trying to attract the most customers – and you think the best option is some kind of patchwork system with a multitude of private companies and vouchers (which will surely have rapidly decreasing real purchasing power).
This is just ideological – you want a market system whether or not it’s more efficient simply for ideological reasons.

76 Runner January 16, 2012 at 10:14 am

“Also, health issues are very strongly influenced by lifestyle, so I do not think it is correct to say they “turn on luck.””

Three years ago I was training to run a half marathon. I got a very mild form of food poisoning from a local restaurant and after a few weeks found that I was getting weaker and weaker. I was diagnosed with Polymyositis and spent six months in a wheelchair. And lost my job because I couldn’t go to work. And lost my health insurance when I lost my job.

I’ve fully recovered but $175,000 worth of medical expenses later, I know this: after a lifetime of voting Republican, I never will vote R again. And I’ve removed my name from the organ donor registry: if you want a free market health care system then you can compensate me for my organs while I’m alive.

77 TallDave January 16, 2012 at 1:43 pm

Runner — sorry to hear that. But the problem was not that you got sick, it was that your insurance was through your employer. In a free market system you wouldn’t lose your insurance with your job.

But if you elect enough Democrats, the state-employed doctors can deem your mysterious illness untreatable and put you on the Liverpool Pathway. You’ll be dead but you can rest easy knowing you saved the taxpayers money.

78 Phill January 16, 2012 at 2:06 pm

A death panel argument, TallDave? Really? Or was that meant to be sarcasm?

Yes, clearly you do not currently live in such a regime vis a vis your HMO’s board.

79 TallDave January 16, 2012 at 4:48 pm

Are death panels some crazy right-wing notion, or a great idea that we should really implement right away? I can’t keep up.

Your HMO is a contracting party, not the gov’t. The difference is important.

80 Careless January 18, 2012 at 8:58 pm

I’m confused, he wants them to buy his liver from him while he’s alive? Doesn’t he know he’s using it?

81 buddyglass January 16, 2012 at 9:56 am

It’s possible Americans just use “more” health care. Especially pharmaceuticals. The American torts system probably plays a small part, since it’s more plaintiff-friendly than other countries. That said, “tort reform” is a red herring when it comes to making significant inroads into controlling cost. Americans may also have (on average) less healthy lifestyles than those in peer nations, which again plays a part.

82 CBBB January 16, 2012 at 10:15 am

Pharmaceutical patents play a part in causing healthcare costs to be high, so does the artificially limited supply of doctors. There are many factors.

83 buddyglass January 16, 2012 at 11:38 am

With respect to pharmaceuticals, it seems like a twofold thing. First, there’s more demand from patients and doctors are more likely to prescribe. Look at the usage of drugs designed to treat depression and anxiety between the U.S. and Europe.

When it comes to price, seems like the drug companies just price them according to what each market will bear. A single-payer system representing an entire country has enormous bargaining power w/ the drug companies when it comes to setting a price. The relative wealth of a country’s populace probably also plays a part; you charge less in poorer countries because the price point that maximizes your profit is different in those regions than in the U.S. The U.S. is wealthy so we get charged more.

84 Hasdrubal January 17, 2012 at 12:12 pm

Tort reform would be a significant improvement. Malpractice insurance is a HUGE cost for health providers: I know a small town doctor, only been sued for malpractice once (and won, no claim was ever paid out), he has two nurses and owns his office building. Malpractice runs around $300,000 a year, more than salary and mortgage expenses combined, it’s his largest expense by far.

85 Hasdrubal January 17, 2012 at 12:13 pm

And that doesn’t even begin to look at the costs of defensive medicine.

86 Adam January 15, 2012 at 5:03 pm

Well, like you said, “economic value” is oversimplifying. Even microeconomic modeling only suggests that the price paid for a good or service is equal to its economic value in perfectly competitive markets with no externalities, which isn’t exactly a great description of the markets for either healthcare or labor.

On the other hand, there is still a very real problem when the price to keep so many people alive and healthy far exceeds their ability to pay.

87 Ryan Cooper January 15, 2012 at 5:03 pm

There is a whole lot buried in your oversimplifications. The US spends way more than anyone else on healthcare, for noticeably worse outcomes on a lot of metrics, so I think your “economic value needed to produce or maintain the modern individual” is kind of bogus. We could just as well say “the medical sector is extracting a greater and greater share of national income for little in the way of better outcomes,” and conclude that heavy price controls won’t do serious damage, especially if that’s helping secure access for the poor.

88 Cliff January 15, 2012 at 8:54 pm

Noticeably worse outcomes? Really? On an apples-to-apples basis I seem to recall U.S. outcomes being the best in the world?

89 Cliff January 15, 2012 at 8:55 pm

Not that the difference in outcomes is worth the difference in cost, but just saying.

90 Gunnar Tveiten January 16, 2012 at 4:39 am

It’s tricky to say what is “apples to apples”. Because the US has a stratospheric GINI, i.e. you’ve got huge differences between poor and rich, compared to all other countries that are similarily wealthy. This creates problems for health-statistics, because very poor people (which USA has many more of than other wealthy countries) really do have a lot more health-problems than average people, whereas very-rich people are *not* significantly healthier than average people.

If you just look at life-expectancy, cancer-survival-rate, infant-mortality, diabetes-mortality, or most other indicators, then USA does score poorer than many countries who spend a lot less on healthcare.

But some of this is due to your larger population of poor. They have poorer health largely as a result of lifestyle, and it’s not clear that healthcare as such is responsible for this.

I think lowering GINI would do more for American longevity than improving healthcare, to put it that way.

91 Megan McArdle January 16, 2012 at 9:40 am

Could you post a link to the cancer survival data? AFAIK, depending on the cancer, our survival rates range from best in the world to above average. Adjusted for accident and homicide, our life expectancy is also longest in the world.

92 David January 16, 2012 at 1:08 pm

Megan, isn’t that partly because you diagnose earlier than other countries do, so the survival rate after diagnosis looks longer even though the actual outcome isn’t so different? (Would also love to see link to data.)

93 TallDave January 16, 2012 at 1:58 pm

very poor people (which USA has many more of than other wealthy countries)

Um, no. Our “very poor” people are actually relatively well-off compared to other wealthy countries — in absolute PPP dollars they get more per-capita aid than any other country. Not only that, something like half the population of most wealthy countries would be considered “poor” in the U.S.

We have the best cancer survival and diabetes survival. We also have the best infant mortality and life expectancy, when adjusted for ethnicity and reporting differences.

94 Sonic Charmer January 15, 2012 at 5:12 pm

In any case, we will have increasing numbers of individuals for whom the economic value needed to maintain them exceeds the economic value they produce. I don’t mean elderly people on life support

The median person does NOT require anything like $15,000/year worth of health-care services to maintain himself. He is having $15,000/year of his productivity diverted PRECISELY in order to maintain other, elderly people on life support.

In other words, what we call ‘health insurance’ masks what is, to a large extent, transfer payments to people such as….elderly people on life support.

That may or may not be a desirable situation, but whatever the case it is a mistake to think of it as ‘the cost of maintaining the marginal worker’. It’s the cost of maintaining the current system of transfer payments we have set up. There are other imaginable setups in which the marginal worker costs far, far less.

95 anne January 15, 2012 at 6:35 pm

Correct ^

96 The Original D January 15, 2012 at 9:37 pm

But wouldn’t an elderly person on life support be on Medicare?

97 Sonic Charmer January 15, 2012 at 10:07 pm

Perhaps. Who pays for Medicare? Is Medicare a self-funding and financially sound accounting entity in its own right? If yes, I understand why you wrote ‘But’ there. If not, I don’t. (I think not.)

98 The Original D January 17, 2012 at 9:01 pm

I think we’re talking past each other. The original post said that the average insurance premium is $15k. Since people over 65 are on Medicare, those patients wouldn’t be included as a direct driver of insurance costs. Insurance companies are not paying for those patients.

99 NAME REDACTED January 16, 2012 at 7:15 am

“The median person does NOT require anything like $15,000/year worth of health-care services to maintain himself. He is having $15,000/year of his productivity diverted PRECISELY in order to maintain other, elderly people on life support.”

Correct, as its *illegal* to charge people anywhere near what they cost to maintain. I forget the number but the most expensive individual on a plan cannot legally be charged more than a certain multiple of the least expensive.

100 Richard January 16, 2012 at 12:36 pm

Every time I talk to a patient about keeping a terminal family member alive, I wonder if he would have made the same decision if the costs of treatment were deducted from his estate.

101 Sonic Charmer January 16, 2012 at 1:35 pm

Every time I talk to a patient about keeping a terminal family member alive, I wonder if he would have made the same decision if the costs of treatment were deducted from his estate.

Every time I hear about how much it supposedly costs to keep a terminal patient alive, I wonder how much it would cost if there were an actual transparent free market in health care and thus health care providers didn’t have to e.g. recoup the losses from government price controls/mandated welfare on things/patients ABC by overcharging for things/patients XYZ.

102 Silas Barta January 16, 2012 at 2:12 pm

+2, and you beat me by 18 hours or so.

103 Jim January 15, 2012 at 5:23 pm

We could see the same trend in education.

I still do not understand Mr. Cowen’s argument that the great stagnation is explained by lack of technological progress when government controlled industry (that is, health care, education and banking) is not only usurping all wage increases, but threatening our national viability.

You just cannot redistribute yourself to wealth. Why not at least subsidize people instead of regulating coverage and institutions, and let the market do what it does best, which is find economical balance between cost and value.

104 The Original D January 15, 2012 at 9:39 pm

Wouldn’t a subsidy drive up premiums even further? What I don’t understand is why the insurance companies don’t have more power over costs. For all we here about their penchant for denying payment, costs just keep rising.

105 The Obese Dog January 15, 2012 at 10:09 pm

Do banks control the price of houses? Of course not. They are an intermediary. So is an insurance company. Admittedly, the relationship between ins companies and health care providers is more complex, but ins companies only have so much bargaining power. If their customers don’t like it, they can’t do it. If key providers don’t like it, they can’t do it. If the goverment don’t like it, they can’t do it. People don’t want high deductibles, they want to be “insulated” from costs. Not much an insurance company can do about it. They been trying for years and not much has stuck yet.

106 The Original D January 17, 2012 at 9:04 pm

Banks don’t care about the price of houses. If anything, they want them to rise because they can deploy capital more efficiently. It’s easier to loan $200k to one household than $100k each to two households.

107 ad*m January 15, 2012 at 5:24 pm

Point made better than I did.

108 mw January 15, 2012 at 5:36 pm

For some reason–and I’ve wracked my brain trying to figure this out–you cannot, under any circumstances, get a right-winger to engage the issue of: why are so many countries that are so comparable to us not suffering from this problem (or other ones like 1% inequality) to even a remotely similar extent? The game is always to have some “erudite” abstract discussion about the state of affairs in the US, right here right now, and pretend neither history nor the rest of the world exists (which might provide *evidence*–dirty word!–that counters the erudite abstractions and theory).

109 maguro January 15, 2012 at 5:44 pm

False premise. The northern European socialist utopias that liberals admire and want to emulate *aren’t* comparable to the US in terms of demographics, lifestyle and culture.

110 Ricardo January 15, 2012 at 11:34 pm

Demographics and lifestyle have little to do with the disparity in health care costs, though. See this series, for instance. And what about Canada or the significant regional variation of health care costs within the U.S.?

I’m not sure what you mean by “culture” or what theory you are relying on to link culture to health care costs.

111 maguro January 16, 2012 at 9:32 am

For one thing, America is more litigious than most developed countries and that can drive doctors to order more tests to protect themselves from lawsuits.

112 The Original D January 17, 2012 at 9:05 pm

Not in Texas. And yet costs keep going up there.

113 bluto January 16, 2012 at 12:08 pm

One big difference is the socialist utopias don’t have gangs of young, poor shooting each other to move up the drug distribution industry. That usually requires expensive care, and noticeably reduces our average health statistics.

114 Phill January 16, 2012 at 2:09 pm

Man, that’s just racist.

The real issue is a systematic cost overflows caused by a lack of price competition. Read some of Atul Gawande’s pieces, or those This American Life episodes.

115 Jan January 16, 2012 at 3:55 pm

Don’t you know about the Swedish propensity to refuse health care, even when needed? Or the oft-cited statistic that >75% of English physicians have refused raises, and demanded the funds go to bankers? And did you realize that the many Turks in Germany are documented to by about twice has healthy as the typical Bavarian. We just couldn’t do it here. Too different, sorry. And by the way, why would we? We have the best health care in the world. Nobody is getting their government hands on my Medicare.

116 JonF311 January 16, 2012 at 6:48 pm

They are homo sapiens, same as us, and their biology is not in any way different. Nor do the laws of chemistry or mathematics work differently there.

117 Sonic Charmer January 15, 2012 at 6:20 pm

mw,

If you could expand upon precisely what is the problem you think exists in the U.S. that these unnamed other countries are supposedly not suffering from, it might be possible to respond to your comment.

118 The Original D January 17, 2012 at 9:09 pm

Problem: In the US the share of GDP spent on health care is double what it is in the UK and 50% higher than Switzerland. During the Bush era *all* growth in income for the middle class went to health care.

119 Tracy W January 15, 2012 at 6:22 pm

It depends how you define “the problem”. If the problem is levels of spending then the USA is unusual. If the problem is healthcare spending rising faster than average wages, or GDP, then please name those countries that you think don’t have this problem, because I thought it was pretty universal.

120 Andrew' January 16, 2012 at 7:36 am

Thanks for the link Ricardo, which explains most of the difference is wealth. Now there is still some unexplained difference left over and that must be explained as well.

This is far different from the “we spend DOUBLE what every other country does” that I suspect mw thinks right-wingers need to grapple with.

121 Andrew' January 16, 2012 at 7:50 am

mw,

With all due respect, if you think just about Ricardo’s provided link, and the lack of how this was discussed (by anyone other than myself it seems) I find that the leftish discussion of healthcare is, there is no better word for it, stupid.

122 Jim January 16, 2012 at 7:41 am

I do not understand mw’s reasoning. All countries with socialized medicine are bankrupt. They survive by constraining supply.

The other fallacy is to consider that the US system is a market system. It is not. It is actually the worst of both worlds. But the government regulates coverage, supply, diagnosis, operations, and prescription.

123 Richard January 16, 2012 at 12:38 pm

The US would do well to move to one of the extremes – single payer or pure market system – rather than continue under the current mish-mash of plans.

124 JWatts January 16, 2012 at 2:49 pm

+1, this is why though I’m a conservative, I’d accept a single payer system, since it would still be better than what we’ve got.

125 Jan January 16, 2012 at 3:59 pm

I don’t think Sweden, the Netherlands, the UK, etc. are bankrupt. There are a special few, such as Italy, that may potentially be bankrupt in the near future. But that is for entirely different reasons. I’d say their universal health care systems are one the very things that saves the money.

126 The Original D January 17, 2012 at 9:09 pm

Switzerland is bankrupt?

127 Andrew West January 15, 2012 at 5:52 pm

I was initially amazed by this, but there’re (at least) two problems. First, it’s comparing median wage to average health insurance cost. Second, it’s comparing median wage of one person to average health insurance cost of one family. The trend makes it interesting but it’s nothing like as extreme as the post portrays it.

128 xysmith January 15, 2012 at 6:52 pm

It’s also not median wage, it’s median income subject to federal taxation. If we add back in the various deductions I have a feeling the number would go up somewhat. Not that it’s going to be awesome or anything, but it would be helpful for such things to be accurate.

Another interesting thing is that there appear to be 600,000 fewer workers in 2010 as compared to 2009.

129 Ken S January 15, 2012 at 5:53 pm

“In any case, we will have increasing numbers of individuals for whom the economic value needed to maintain them exceeds the economic value they produce.”

Except, of course, the cases where the oversimplifications turn out to be incorrect.

130 CBBB January 15, 2012 at 6:01 pm

Maybe you can get that premium cost lower if you eliminate the chunk of the premium going to corporate profits, executive bonuses, people who’s job it is to find ways to deny coverage, and advertising expenses.

131 maguro January 15, 2012 at 7:10 pm

So how come that doesn’t work for products other than health care? By this reasoning, the Soviet Union should’ve been a huge success.

132 CBBB January 15, 2012 at 7:17 pm

Health Care insurance is not a market like any other, it’s not simply like cars, computers, etc. If you’re a health insurance company – getting more customers is not necessarily a good thing the way it would be for say Apple if it sold more iPads. So competition in the insurance industry doesn’t work the way it’s supposed to.

133 Cliff January 15, 2012 at 8:57 pm

This is only the case because of government regulation. If the insurance companies were able to correctly price their product for the individual (like car insurance companies) every customer would be profitable.

134 CBBB January 15, 2012 at 9:21 pm

And many couldn’t afford to pay at all.

135 Cliff January 15, 2012 at 9:52 pm

Well, the solution to that problem is surely to expand Medicaid, i.e. healthcare for people who can’t afford it. Why destroy all competition with an invisible subsidy? Isn’t that just about the worst possible way to go about it?

136 CBBB January 15, 2012 at 11:05 pm

I agree Medicaid/Medicare should just be expanded to everyone. Competition is only good if it can be used to create good outcomes, I see no reason why this would ever happen in the insurance market – there are way too many information asymmetries and most people wouldn’t be able to afford to pay the premiums on their own

137 Cliff January 15, 2012 at 11:23 pm

What?? So now you’re not talking about poor people, but just government taking over an entire industry for no reason?

Probably you “see no reason” competition would be good because you are not an economist and don’t know anything about it. Case in point: “most people wouldn’t be able to afford to pay the premiums on their own”- that is logically impossible. Average premiums would not go up, and would probably fall. There are as or more severe information asymmetries in just about every imaginable purchase- e.g. car mechanics.

138 CBBB January 15, 2012 at 11:31 pm

I don’t think there are as many information asymmetries in other sectors as there are in the health care sector – suggesting auto-mechanics as a favorable comparison does not fill me with confidence. Decent healthcare, however, is much more fundamentally important.
And don’t talk about economists – those guys are more clueless then anyone, I know a fair bit about their analysis and don’t see how any of the standard models apply to a health-care market. Saying average premiums would not go up is not inconsistent with saying many or most people would not be able to afford them.

139 Cliff January 15, 2012 at 11:37 pm

Well, I think anyone reading this will understand the absurdity of saying that economics has nothing to offer the healthcare debate.

I guess your position is that right now, “most people” cannot afford their insurance premiums. That is factually incorrect, so…

140 Cliff January 15, 2012 at 11:41 pm

And what “information asymmetries” are you talking about exactly that exist in a free market but not with the system we have now?

141 CBBB January 15, 2012 at 11:41 pm

Is it incorrect? Many people THINK they might have healthcare – until they actually try to use it and find their provider has used the fine print to cancel their coverage. Or they lose their jobs because they’re too sick to work and hence their insurance coverage. The market insurance system comes with all sorts of nasty surprises like that.

142 TallDave January 16, 2012 at 1:34 pm

If you have an information problem, the solution is probably not more central planning, but less.

The notion that health insurance companies in a competitive market would profit by denying legitimate claims ignores the bad PR and lawsuits such behavior would engender — in a free market customers would flee. But as it stands now most people have little choice, precisely because of all the gov’t meddling — good intentions married to coercion have once again birthed a raft of unintended consequences.

143 The Original D January 15, 2012 at 9:40 pm

You seriously think profits and bonuses are the reason our health care costs twice as much (as a percentage of GDP) as the rest of the world? Health care has 50% margins?

144 CBBB January 15, 2012 at 11:16 pm

So then what is it? You can’t say it’s too much government regulation – the rest of the world (particularly the developed world) has much more government intervention in the heath-care sector.

145 Cliff January 15, 2012 at 11:24 pm

You don’t think the kind of government intervention or the context matters?

146 Andrew' January 16, 2012 at 7:47 am

See Ricardo’s link above.

http://theincidentaleconomist.com/wordpress/what-makes-the-us-health-care-system-so-expensive-introduction/

Most of the difference is ability to pay. Shocking huh?

The rest of the difference might be explained if roughly half the economists weren’t busy lobbying.

147 The Obese Dog January 15, 2012 at 10:12 pm

There a plenty of non-profit insurance companies and they haven’t been able to curtail premiums. The problem isn’t on the administration side.

148 Ken S January 15, 2012 at 11:20 pm

Maybe so but it might not actually lower them enough to solve the problem that people are worried about and it would create entirely new ones.

A report called “Accounting for the Cost of Health Care in the United States” blames wasteful spending on care that doesn’t improve outcomes. That money does end up somewhere and they break all that down and it’s not just the things you listed.

149 Richard January 16, 2012 at 12:45 pm

Which would be removed by having individuals face incentives in decision-making. If patients challenged their providers to provide a price and the studies showing effectiveness of a particular treatment being suggested, health care expenditures diverted to waste would go down.

Providers currently have no incentive to constrain costs – they’re being paid for by insurance. Patients don’t ask for that information because they’re (unless they’re on HSA) not exposed to the marginal costs of increasing treatment.

In a sense, it would be an interesting development by moving to a pure out of pocket payment model. Sure, many people would not be able to afford the absolute newest treatments, but unless you believe that absolutely equal access to health care is a right, that’s not a problem.

150 R Richard Schweitzer January 15, 2012 at 7:03 pm

It seems so frustrating to have to repeat this:

Insurance is the transfer of risks. Premiums for true insurance are based on risks and the expenses of spreading those risks.

However, the charges referred to here as “premiums” are not for risks, they are for spreading (or sharing) COSTS of various statutorily constructed benefits of care programs.

The costs of all the levels of services involved in making thsoe benefits available have to be met, right down to the pay of the person who empties the waste baskets at the claims office.

Stop paying for CARE through something called INSURANCE (which is little involved); separate the two, and we will be on our way –
Oh! except for the prgrams run through the government agencies. That’s a thriller coming up!

151 Sonic Charmer January 15, 2012 at 8:07 pm

Bingo.

What most people call ‘insurance’ in these discussions is not, in fact, insurance.

152 TallDave January 16, 2012 at 1:20 pm

Yep.

153 The Original D January 15, 2012 at 9:29 pm

+100

I’m not sure if one side or another has a stake in this, but use of the word “insurance” rather than “financing” or “payment” really warps the debate.

154 steve January 15, 2012 at 9:49 pm

Without insurance how do you pay for the care of premature babies, major trauma, cancer care and major cardiac disease? Few people can afford that w/o insurance. Those who want to eliminate insurance are concentrating on the 50% of people who consume 3% of health care.

Steve

155 Cliff January 15, 2012 at 9:53 pm

Exactly. High-deductible insurance is real insurance.

156 Bill January 15, 2012 at 9:58 pm

No, Cliff, for a poor person with a chronic condition, high deductible IS NOT Insurance: http://theincidentaleconomist.com/wordpress/high-deductible-plans-for-those-with-chronic-conditions/

157 maguro January 15, 2012 at 10:10 pm

Yeah, but most people aren’t poor and don’t have chronic conditions. Those who are and do are in need of welfare, not insurance.

158 Bill January 15, 2012 at 10:21 pm

You can look at the post to see the income levels this post is addressing….$20 k

159 maguro January 15, 2012 at 10:32 pm

Well, exactly. If you make $20K a year and have a serious, chronic medical condition, you don’t need insurance. You need someone else to pay your medical bills.

160 Bill January 15, 2012 at 10:48 pm

Magguro, then high deductibles are not a solution to the poor, especially the chronic infirm.

161 maguro January 15, 2012 at 10:58 pm

I never said they were. Nevertheless, they make sense for some people.

162 Cliff January 15, 2012 at 11:28 pm

Bill are you retarded? I thought you claimed to understand insurance? A person who can’t afford their food needs their foods to be paid for, not food insurance. A person who can’t afford their routine healthcare costs doesn’t need insurance either, as insurance would INCREASE their costs. The insurance company charges you a premium for the extra risk they are taking on. What they need is for their healthcare to be paid for.

163 Ricardo January 15, 2012 at 11:38 pm

Lost in this distinction is the fact that middle class people today can become poor tomorrow, healthy people today can develop extremely expensive chronic conditions tomorrow and, if you have individual insurance pre-PPACA, there is sometimes little protection against being dumped by your insurance company once you become sick.

164 Cliff January 15, 2012 at 11:43 pm

Ricardo,

What is the relevance of your comment?

165 Ricardo January 16, 2012 at 12:18 am

Cliff, try reading.

166 Andrew' January 16, 2012 at 9:58 am

“if you have individual insurance pre-PPACA, there is sometimes little protection against being dumped by your insurance company once you become sick.”

Then WTF is the government doing if they can’t even enforce contract? And WTF are we doing giving them more jobs if they can’t even do their second job?

167 TallDave January 16, 2012 at 1:24 pm

No, Cliff, for a poor person with a chronic condition, high deductible IS NOT Insurance:

That’s mostly because people have stopped insuring against chronic conditions and instead purchase a policy that says “pay all bills for any treatment or diagnostic my doctor recommends, whatever the cause happens to be.”

Back in the misty ancient days of the 1960s, it was still fairly common to buy an insurance policy against developing, say, diabetes.

168 Sonic Charmer January 15, 2012 at 10:09 pm

Nobody that I can see ‘wants to eliminate insurance’. What I *would* like to eliminate is the use of the term ‘insurance’ to refer to and to smuggle in functions that are plainly not insurance, such as welfare, charity, transfer payments, etc.

169 Cliff January 15, 2012 at 11:29 pm

+1

170 Richard January 16, 2012 at 12:49 pm

Yeah. Does insurance really apply when you’re *eventually* guaranteed to be a user of the service?

Car and accident insurance models work by grouping risk, assuming that x percentage of the payers will never have what is being insured against happen to them.

Health insurance does not work like that. Everyone eventually taps in at some point. In a sense, the economics become a way of spreading out payments throughout your lifetime and throughout the group being insured.

171 Sonic Charmer January 16, 2012 at 1:27 pm

Richard,

It’s not just that the benefits of health insurance is disproportionately time-shifted though. Some may argue with the notion that ‘everyone eventually taps in at some point’. This may be true ‘on average’, but if you look in any more detail, it’s not so obvious.

Some portion of the population engages in behavior that is highly correlated with their developing diabetes, for example. Another portion does not. The latter will not, on average, ‘eventually tap in at some point’ to any form of treatment for diabetes for related complications. They still pay for it, however.

As another example, black men have far shorter lifespans than white women. A white woman who reaches 65 has an expected lifespan of another ~20 years while a black man who reaches 65 – the retirement age – has an expected lifespan of maybe ~5 (I just made those numbers up but I doubt they are far off). That’s an extra 15 years the average white women will go to various doctors like 3x/month, getting all sorts of gadgets and treatments and x-rays. Given this context, from one perspective an alien visitor could be forgiven for looking at all our schemes and forming the conclusion that they are, among other things, mechanisms for garnishing the salaries of working-age black men in order to keep white octogenarian women alive. Obviously (I think..) that is not the intent, but if that is the *net effect*, this gets into some very unpleasant territory.

Which is avoided more easily if we would cease our decades-long project to smuggle in health socialism under the banner of ‘insurance’.

172 R Richard Schweitzer January 15, 2012 at 10:27 pm

People of child bearing age could (Southern: used to could) buy insurance against the risks of natal mishaps.

Major Medical insurance is a known form to cover major trauma.

AFLC (of which I am a “Founder) made its original base insuring against the expenses incurred from the occurence of the single dread disease -Cancer.
And many group insurors tried to exercises coordination of benefits against AFLAC benefits; politicians (backed by guess who) in some states fought issuance of single disease coverages.

All cardiac disease can be covered by policies rated for the risk exposures; smoking, family history, stress factors, etc.

But, you have to pay for the risk you and the others with similar risks need covered, rather than as “Health Care Benefits.”

173 R Richard Schweitzer January 15, 2012 at 10:32 pm

Hit the wrong button look down under charmer

174 Andrew' January 16, 2012 at 9:56 am

People want to mix resource distribution/transfer with the insurance aspect. If they don’t mix them, they don’t get all the distribution they want. It also militates for control as you can’t mix the two without increasing costs to the system which they claim validates their claim that the government must get involved.

175 Andrew' January 16, 2012 at 10:25 am

Thanks for the Southern translation for those of us’ns so disposed.

176 The Original D January 17, 2012 at 9:11 pm

This is exactly what insurance is for: the worst case scenario. It is not for strep throat and I dare say a broken arm.

177 Sargeant Tomato January 15, 2012 at 8:39 pm

I wonder if by de-linking employment and health insurance, we can achieve the same result of controlling costs that we see as a result of the economic downturn.

178 David N January 15, 2012 at 8:58 pm

“Insurance” premiums won’t stop rising because (1) you gotta have it, (2) you’re probably not paying for it, and (3) it’s hard, or takes a long time, for your employer to shift this cost to you. There won’t be incentive to reduce consumption or control costs until the cost directly impacts the consumer and insurance companies and health care providers are allowed to compete and tailor benefits to what consumers want, not what the state mandates.

179 Richard January 16, 2012 at 12:54 pm

Health costs will continue to rise faster than population or GDP until someone in the chain says “STOP” to certain treatment modalities that are not cost effective (either they do not work better than existing standard of care or do not justify expenditure when measured in QALY).

Government can do a good job of it (see NHS), but the American voting public already voted against “death panels”.

Providers are extremely reluctant to do it, as they don’t want to be seen as the “bad guy” denying care by saying “there’s a treatment option that can be effective but is not worth the cost”. Plus, a competing and less scrupulous provider can rake in the income of performing or referring treatment by offering non-cost-effective treatments.

Patients can do a good job of it as well, but people also do not want that burden being placed on them. Understandable. How would you feel having to decide between paying for 2 of food, housing, medicine, or cellphone plan? Or how about the 18 year old grandson having to decide his grandfather’s fate. Either “kill him off” quicker or be left with no inheritance.

180 TallDave January 16, 2012 at 4:51 pm

Yeah, the NHS does a great job. Just ask about their Liverpool Pathway plan, it’s a killer!

181 Cliff January 15, 2012 at 8:59 pm

Really bad post. Horribly oversimplified and poorly selected data is worse than no data at all. Gets us nowhere in a hurry.

If you want to make the case that for a lot of people, the cost of their healthcare is greater than the value they can produce, you are light-years away from doing that. Please go back to the drawing board.

182 The Original D January 15, 2012 at 9:27 pm

I find this $15k figure hard to believe. I pay my own insurance via COBRA and it’s 75% less. My previous employer was a small company of less than 100 people, so it’s not like we had economies of scale in our favor.

183 Ricardo January 15, 2012 at 11:39 pm

Are you single? $15,000 sounds close to the number given by Kaiser for average family coverage.

184 Rahul January 16, 2012 at 8:18 am

Tyler was comparing a individual wage to a family premium. No doubt the numbers seem off.

185 Lord January 15, 2012 at 9:58 pm

This would be the reverse of historical behavior. In the past, prices would increase most when people lost their jobs and coverage since the uncovered must still be provided for and prices would moderate during recovery and expansion as there were more covered to bear the cost.

186 Hein January 15, 2012 at 10:18 pm

This is why we need robots.

187 The Original Frank January 15, 2012 at 10:18 pm

Median is growing. Nice.

188 jorod January 15, 2012 at 10:38 pm

Somehow the human race survived without health insurance before 1900 for about 7 million years.

Too many restrictions on the supply of health care providers. Remove these restrictions before you do anything else.

Stop subsidizing health care with government funds. If people know their health care is free, there is no reason to be productive. There are plenty of charities to take care of the poor. Problem is, it is not the poor who are being subsidized, it is able bodied people who don’t work.

If the government paid for our food, no doubt there would be food shortages and higher prices (although the “official” price may be lower.)

189 CBBB January 15, 2012 at 11:17 pm

That’s all a bunch of bullshit.

190 Cliff January 15, 2012 at 11:31 pm

“Too many restrictions on the supply of health care providers.” – bullshit?

“Somehow the human race survived without health insurance before 1900 for about 7 million years.” – bullshit?

Even “If the government paid for our food, no doubt there would be food shortages and higher prices”- bullshit?

191 CBBB January 15, 2012 at 11:39 pm

“Somehow the human race survived without health insurance before 1900 for about 7 million years.” – bullshit?
Yeah that’s an extremely bullshit argument because you can make those types of arguments about anything. On the one hand the libertarians love to extoll the virtues of modern technology and human innovation – on the other hand you get these kind of “HEY you need to be happy with a 19th Century level of living standards!”

The food market is absolutely nothing like the health-care market it’s a totally false equivalency.

The first point has some merit though.

192 Cliff January 15, 2012 at 11:44 pm

Okay, so what you meant was all the statements were true but you disagree with the conclusion to draw from them. Got it.

193 CBBB January 15, 2012 at 11:48 pm

Okay…it’s still bullshit

194 TallDave January 16, 2012 at 1:18 pm

Primarily in the sense that the government has not ruined the food market.

195 maguro January 16, 2012 at 1:56 pm

Yet.

196 GiT January 16, 2012 at 12:53 am

Acting as if ‘how the human race survived’ matters here is bullshit.

Humanity survived for millions of years without property rights, and with the violent redistribution of goods through coercive force.

So who needs property rights or individual rights? Not the human race.

Perhaps one is concerned with the existence of individual humans, and not their race?

And the third statement is bullshit. It’s certainly not necessarily true. And the statement you fail to quote is also quite obviously false. Hence why you didn’t quote it. Which is bullshit.

197 anon January 16, 2012 at 7:47 am

@CBBB: Can you please take your nastiness to your own blog?

You have degraded the level of comments here.

198 Andrew' January 16, 2012 at 8:29 am

Many doctors are going to self-financing their patients’ insurance. Actually, a lot of them are still accepting the medicare payments while they do this. We are coming full circle to the beginnings of the medical insurance.

The government pays for procedures it shouldn’t pay for because they pay for things that aren’t really healthcare. This is not the fault of the medical system, per se because their job is to do what the government provides funding for. Now the government is paying doctors while the doctors are charging more on the pretense of getting off of medicare.

It would be nice if a lot more people demonstrated more knowledge of this subject.

199 Andrew' January 16, 2012 at 10:30 am

“Humanity survived for millions of years without property rights,”

Barely.

200 The Original D January 17, 2012 at 9:16 pm

What was average life expectancy for 7 million years?

201 DL January 15, 2012 at 11:53 pm

Forgive, I’m just a poor country Scientist, but could someone explain to me how the median wage represents the average economic contribution of each worker? Wouldn’t that assume that labor was receiving all of the value that it produced, and thus there was no profit being made from the labor side of the equation? Are we assuming that all Americans are employed for non-profits firms? Perhaps a better estimate (though flawed as well) would be looking at per capita nominal GDP, which at around $48,000 more accurately represents how much resources society has per individual.

202 CBBB January 15, 2012 at 11:58 pm

Shhh…these people are still under the delusion that MP = MW

203 Andrew' January 16, 2012 at 8:31 am

Profits are not entirely extraction of labor surplus, btw. Some, assuredly mostly due to government rules, but certainly not significant to the discussion at hand.

204 TallDave January 16, 2012 at 1:17 pm

That tends to be balanced out by those workers that are unprofitably employed.

For the most part, wages are like prices, roughly equivalent to perceived value.

205 waitaminute January 16, 2012 at 12:14 am

If you’re using the mean insurance premium, the median wage is simply not the appropriate comparison. You have to compare the mean insurance premium to the mean wage. And if you want to make any kind of comment on the economic value produced, you need to use total income, including benefits, not just wage.

Unfortunately for this post, mean total income is considerably higher than the median wage. It’s more difficult to sound the alarm using the appropriate statistics. I understand why you do it, Tyler, but you should try not to be so obvious about it.

206 Andrew' January 16, 2012 at 8:52 am

To my mind, TC hand-waves all your critiques and hand-waving is well accepted.

Basically you are implying that people will not be denied employment because the rising health insurance premiums will marginally overtake increasing numbers of workers and TC disagrees. The exact values of the numbers matter little for the conclusion (in bold). What matters is the rate of change of cost versus productivity.

207 Rahul January 16, 2012 at 9:01 am

IMHO “We spend more than half our income on healthcare” is a very different conclusion from “We spend 10% of income on healthcare”

208 AlanH January 16, 2012 at 1:32 am

The working poor have been convinced that they deserve all the latest surgeries, replacement joints, and so forth. Physicians have made sure that they control their own fees and standards-of-care even though the taxpayers pay to educate them as med students and residents. The system will break. Eventually the below-median wage earner will realize they’ve been had, that they have been left for the moment with no choice but to see their career earnings steered to Big Medicine for a dubious life extension and ill-educated children. At that point the US will nationalize much of its medical system and re-balance the distribution of government spending. The poor get a few extra years. The physicians and Pharma get rich. When it breaks, we’ll end up with a system much more like Sweden or France. Will our economy survive the prolonged revanchist battles? Maybe not. We will go through the same process with security and policing as the pension costs for those fully kick in. It cannot be otherwise. The outcome, the path to the outcome, is not yet determined. I expect a very sub-optimal path to be followed. We’ve seen that before with military spending: Many of the same legislative power lock-ins and cash-flow power imbalances are involved in all three challenges, military, health care, and state peace-keeping.

209 James January 16, 2012 at 1:40 am

I would be interested to know if other developed countries have this problem. My guess is that the median wage might be a little less and the healthcare costs would be a lot less.

210 Andrew' January 16, 2012 at 8:42 am

Go find Ricardo’s link above.

1. Wealth
2. Outpatient services

Why? Because these things are covered. Why? Because the government regulates what is covered and covers a lot of it themselves. You simply cannot opt out of the cost death spiral.

211 anonymous... January 16, 2012 at 2:50 am

Ultimately, this sounds like a recipe for creating the sort of underground off-the-books economy that is characteristic of countries like Greece or eastern Europe, the sort of place where only suckers pay taxes or play by the rules. Once a country goes down that path it will not prosper again for at least a generation, if ever.

An even darker analogy is Mexico, where ordinary people increasingly are seduced or coerced into shifting their true allegiance and tax payments from the constitutional government to vicious shadow governments, in a creeping bottom-up coup d’etat.

212 NAME REDACTED January 16, 2012 at 7:16 am

This wins the thread.

213 Rahul January 16, 2012 at 2:54 am

Isn’t it sneaky comparing an average number to a median number?

What’s the median healthcare premium and the average US wage?

214 NAME REDACTED January 16, 2012 at 7:17 am

OH, I take that back, THIS wins the thread.

215 Rahul January 16, 2012 at 8:14 am

I think there’s more. The $15,000 premium is probably a family average if at all. Tyler is comparing “median individual wage” to a “family mean premium”.

Tyler’s comparison is bizarre.

US Mean wage (2010) was $39,959 . The mean individual premium was about $3,000. to $4,500 depending on your source.

216 Andrew' January 16, 2012 at 8:53 am

Two-earner families are not typically double-insured. So, a lot of accounting benefits might be illusory.

217 Sean Brown January 16, 2012 at 11:52 am

Thanks for posting; this makes more sense (though it is mean instead of median). I do think that kids’ insurance costs are a real form of “maintenance costs” though from a societal POV.

218 TallDave January 16, 2012 at 1:13 pm

In many cases comparing the median to the mean makes sense. The income distribution is considerably more skewed than the insurance premium distribution. Median to median would be best, but probably median premium is harder to find (but much closer to mean than income).

The premium number you cite is for single coverage. Presumably the difference is explained by the average insurance policy covering multiple people. Since dependents (esp. children) typically don’t produce anything, Tyler’s comparison probably makes more sense than using the single coverage number.

219 Andrew' January 16, 2012 at 8:26 am

Meta-analysis. Does any of the hand wringing over medians, averages, and definitions change the directionality of the post?

220 Rahul January 16, 2012 at 8:44 am

Sure changes the shock-factor.

221 Andrew' January 16, 2012 at 8:54 am

Who cares about shock factor? Maybe that’s the problem. I’ve been saying for years the impending doom sayers were wrong. That’s why I keep making fun of Obama. Remember “we have to fix healthcare to fix the economy”?

222 Andrew' January 16, 2012 at 8:35 am

The actual problem with Tyler’s analysis is that he makes the liberal assumption.

No, the premiums you pay are not going toward YOUR healthcare. They are going, on net, to other people.

223 Andrew' January 16, 2012 at 8:58 am

In other words, if your company chooses not to hire a young guy because he can’t afford $X thousand a year in health premiums, bad plan.

224 Joel Rosch January 16, 2012 at 10:51 am

I see very a different issue arising from this post.

Government subsidies (NIH grants etc.) help create incentives to produce products for which without other public policies (tax incentives for health insurance, medicaid, medicare etc.) there would probably be much less demand. Factor in Arrow’s observations on the special nature of health markets, how presently spend healthcare dollars, and what surveys tell us about how people make decisions about the purchase of healthcare, and we are going to spend far more on the “healthcare system” than the value we can derive from that system. Ironically, what we know about the factors that lead to increases in longevity and overall health, this spending may actually be leading to a less healthy society as this spending may be crowding out spending on things that we know leads improved morbidity and mortality rates.

225 TallDave January 16, 2012 at 1:05 pm

This is why I keep saying the problem isn’t the 1%, it’s the 50% who are consuming more than they produce.

Also, the healthcare cost system is broken due to several factors, most notably the insulation between cost decisions and consumers caused by the employer tax incentive, the lack of interstate competition, and the ability of other countries to use monopsony power to steal R&D that we have to pay for.

226 Silas Barta January 16, 2012 at 2:08 pm

In any case, we will have increasing numbers of individuals for whom the economic value needed to maintain them exceeds the economic value they produce. I don’t mean elderly people on life support, I mean able-bodied, working-age individuals. This will make it increasingly hard to implement “health care egalitarianism.”

WTF are you on about, Tyler_Cowen? Those working, able-bodied individuals do not need the full $15-32k worth of services from the health insurance policy in order to “maintain them”! Most of them don’t even need checkups.

Yes, this is a bad trend, but it’s not like you MUST pay $15000/year simply to maintain your existence healthwise before even buying food or shelter.

227 JonF311 January 16, 2012 at 6:42 pm

The base value of every human being is no more 0 than the rest mass of an electron is 0. All viable human beings are worth what it takes to sustain them in life (note: I said “viable”, not people who are in fact dying). Take that as an axiom and the problem goes away. Though to be sure we should not be funding healthcare through employment where it’s tempting to assume that an individual’s healthcare is “earned” by his labor. It isn’t, and shouldn’t be. It’s earned by virtue of the fact of being human. Same as basic education, justice, and defense against foes external and internal.

228 MC January 18, 2012 at 5:28 pm

We continue to treat and price healthcare as if it is one single product. One faction looks at basic care as a right and looks at a society that cant provide this care (even for a healthy working individual as Tyler puts it) in horror. Another faction looks at the costs of providing a gold-plated service to every individual and balks. No discrimination in the basket is the real issue and pointed out by Tyler when he says egalitarianism is hard to achieve.

Healthcare is not one basket. Its not like buying car insurance. Every car doesnt get stolen. Every person needs some form of healthcare — trying to provide a gold-plated level of care to everyone is a non-starter. If all of us could keep a physician at our beck and call throughout life, we would. Choices need to be made. Whats critical is differentiating the types of care needed and making policy decisions whether those costs should be socialized or left to free markets.

In my book, painted with very broad brush are three levels of care. Preventative care — esp. one that has a lot of social costs if ignored by individual such as vaccinations or even simple annual physicals — should be socialized. It reduces long-term care costs and helps society in the long run. Catastrophic care insurance — hospitalizations and the like — is provided at lowest cost by maximizing the insured pool. Essentially most like car insurance and premiums and costs vary inversely with age. Finally chronic/preventable diseases need to handled via a free market mechanism to prevent moral hazard and encourage judicious use of health care services, personal incentivization for a healthy lifestyle and ultimately corporate incentivization (to me, spending billions to develop treatments that impact a very few people takes resources from developing treatments that impact the widest array of people. Its immoral to try to socialize those costs. R&D investments should match the true market).

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