More health care cost fallacies

This comes from Robert Reich but you will find it all over the place:

Social Security is a tiny problem. Medicare is a terrible one, but the
problem is not really Medicare; it's quickly rising health-care costs.

You would think it is hard to resist the fiscal conservatives' core argument — X is slated to grow a lot in cost, therefore we have at least one reason to spend less on X — but such resistance is becoming a growth industry.

There are two simple points in response.  First, it matters whether a given expenditure shows up on the balance sheet of the government or not.  It matters for the incentives of our government, for its credit rating, for future marginal rates of taxation, and ultimately for the future of the health care (or other) sector.

Second, if Medicare were less generous, much less would be spent on health care.  Now you might think that would be a bad result and that of course a debate worth having.  But the mere fact that you favor some amount of Medicare does not lower the cost burden of the amount you favor.  If your preferred policy induces say "40 percent more of health care costs," you can't put all the blame on the preexisting level or path of health care costs.  You also have to accept responsibility for the 40 percent boost or whatever the increment is.


Sometimes I wonder whether it would be better to just sink all that money into public research focused on creating cheaper treatments and let the free market sort out applying the results.

Patent gridlock and the pharmaceutical industry's bizarre research incentives are not likely to reduce healthcare costs in the long run, I daresay.

Total health care costs must be distinguished from per person health care costs. Average medical costs are about $7500-8000 per capita but are significantly higher for the Medicare above 65 years old group than the under 65 group. Part of the reason is the much higher utilization of all medical procedures in the over 65 group than in younger people. The over 80 age group accounts for a very large proportion of Medicare costs.

When utilization is high, average costs per person reflect actual expenses as opposed to the under 65 group where non-users and low expense users subsidize high and normal cost users.

As the proportion of the population in the US over 65 and over 80 grows, total health care costs will grow even if the average cost per person in these higher cost groups does not change.

Any attempt to make significant savings in the Medicare group through benefit reductions, is offset in part by the growth in number of persons in this group. It also requires reducing the current level of expensive care to the over 80 age group.

The under 65 group, (I have seen the data but can find sources) averages about $5500 per capita costs and the over 65 group is about $16,0000-22,000 per capita with most of this costs attributable to the over 80 age group.

Therefore, to attack the cost problem with Medicare requires recognizing that the seniors group is a growing population and requires discussions about eligibility and means testing within this group.

Utilization is higher in the Medicare group so there are fewer (or none) non-users to subsidize regular users of acceptable benefit levels. So, a decrease in generous benefits might have no significant cost benefit effect for this group.

Are we willing to discuss denying or decreasing benefits to the very old (over 80) group particularly in their last few years of life to save money?

I don't see any explanation for how the cost of health care is to be limited.

As conservatives are on record for going to the Supreme Court in order to force a dead women to be kept as a very expensive ward of the state, and conservatives condemn and hint of euthanasia as murder, and the idea of dumping sick people on the streets of skid row seems universally repulsive, conservatives offer no way to reduce spending on such programs as Medicare.

Conservatives are opposed to experts evaluating the data to see what treatments are cost effective, but instead believe that the uneducated who are driven by emotion are the best decision makers. Instead of experts deciding to spend $50 on vaccination, $1000 on colonoscopy, $500 on mamogram, it is better to have the individual spend that money on a night out, a vacation, or even the rent or car repair to maintain a place to live and a way to get to work. After all, the conservatives advocate the insurance coverage of unrationed high tech and expensive ER care and cancer treatment paid by a third party.

We have seen the results of the conservatives' solutions over the past five decades and the result has been a divergence between the cost of health care in the US and the costs in several dozen nations with universal comprehensive care and in the outcomes. The US system costs more and delivers less. The data is very clear on that.

Why conervatives refuse to look at the data is beyond me. Can someone explain why conservatives keep making decisions that fly in the face of the data?

"We have seen the results of the conservatives' solutions over the past five decades..."

I finally think I understand. Because we are always awaiting the next statist solution, everything prior must have been the conservative or free market solution.

Price should be distinguished from quantity when talking about the source of increasing costs of health care. For most long-established medical procedures, prices are falling. If you take a CPI-style measure of the cost of getting 1970s style treatment and a few nights care in the hospital, prices have fallen for similar quantities of consumption! This is probably why poor countries like Cuba can offer great basic healthcare today.

But if you change the quantities and mix of care consumed to include newer, more invasive and expensive procedures like surgical bypasses then total costs dramatically increase. So what's happening is that people are consuming a different mix of treatments. As lives are extended, they are also getting a greater number of treatments because more marginal care is required to produce marginal years (diminishing returns).

At some point, the hardest question which Medicare needs to ask is: how long does somebody have the right to live? What generation/level of technology should the government pay for? Warning for economists: explaining this in non-economic jargon is really hard for us but is the secret to getting some policy changes into place because these are very sensitive topics at the individual level even if we can abstract them to macroeconomics.

"Conservatives are opposed to experts evaluating the data to see what treatments are cost effective, but instead believe that the uneducated who are driven by emotion are the best decision makers."

First of all, who are these 'experts' and who are these 'conservatives'? I count myself as a conservative and have no problem whatsoever with making coverage decisions based on scientific and actuarial data. Isn't this what private insurers already do? Are you sure this is what you want? Also, there are a lot of treatments that are currently considered experimental (for example cancer) whose efficacy would not be backed up by data and would be excluded.

Social security is more than a "tiny problem" for those of us who are paying and will probably never get anything back!

Sorry to have jumped the snark on this thread, because Tyler deserves better for his efforts.

It's just that libs always come in with "conservatives don't trust experts" and they think that's the end of the argument and they've won. The "experts of good game" argument.

Could you elaborate a bit, or at least rephrase your last paragraph? I know I am a little slow, but I cannot tell what you are trying to say at all -- there seem to be some missing subjects, verbs, and connecting words -- much less what relevance it has to either Reich's entire piece or the bit you quoted.

For example, is this a sentence?

If your preferred policy induces say "40 percent more of health care costs" and you can't put all the blame on the preexisting level or path of health care costs.

What nemo said. I have no idea what sort of point the author is trying to make. I do understand Reich's point.

Medicare has deficits of $34 Trillion and the Baby boomers haven't all gotten there yet. We now have a significant number of MD's refusing to accept Medicare which is making it more difficult to find an MD. More MD's will leave the profession as they are forced to reduce their income in a public plan. We will have government healthcare with the compassion of the IRS and the efficiency of the Post Office. The only ones who will come out on top are the wealthy who can pay cash and government employees who will still retain their private, taxpayer funded plan.

I think Cowen's point in the last paragraph is if you want to spend less on health care as a country, the easiest way would be for Medicare to cut spending. There are those who say that single payer is needed before spending can be cut. This is untrue since the government is already buying 50% or more of the health care in this country. If it were possible for the government to achieve easy reductions in health care spending there is nothing stopping the government from doing it now.

mulp - Your links seem to be disabled.

Its not just his links.

Here's the ugly reality, health insurance isn't really "insurance". Look up "insurable risk" and you'll see several elements are askew. It encourages over consumption because it presents an illusion about cost at the point of purchase. First lets start with the concept of "significant risk". A 100-125 dollar office visit isn't significant, so why do we think that a "good" health plan provides for a $15 co-payment?

Industrial health insurance got its start as a standard benefit because of federal intervention (FDR's wage and price controls), after it got a foothold, it continued to grow because of the unlimited tax deduction for employer premiums (formally codified in the 1954 tax code)-and the per capita cost really took off after the introduction of Medicare/Medicaid in the 1960's.

Yes, I have all the confidence that the federal government will give us the fine, fine service and efficiency we're all accustomed to from the IRS, the post office, defense procurement, and oh yes, Medicare/Medicaid. Right....

Every time I hear Robert Reich, which is not often, I must admit, by intention, I don't get the impression that he is interested in an objective dialogue. He's not fit to carry Tyler's invisible handbag.


Good point, and a part of the 'data' that is usually ignored in the cry for UHI. Untill UHI advocates explain and aknowledge market forces, and priceing, then another "price control" will work as ineffectively as all prior "price control" policies tried in and since WII.


I thought were Tyler was headed was the idea that less might actually be better. I have long believed that we actually spend too much on "health care". Direct pay for care as needed would - in my opinion be a better alternative. The medical landscape is littered with labs that need to run tests to make money and be profitable - whether the tests are necessary or not. The complicated rules of each insurer make the reasonable doctor or group of doctors seek a "benefits administrator" to make sure the maximize their revenues within the "rules" - we used to call this a "production orientation" - it certainly has little to do with better care.

And vulture - be careful with facts like "survival rates" - one of the neat tricks that our health care folks have discovered is that by focusing on early detection they get the benefit of the extra months or in some cases years of "survival" - patient still dies XX months after the cancer begins to grow - we just knew about sooner. I am not saying there has not been progress - but it may not be as impressive as the PR folks would suggest...

Reich is an integrity pigmy; stature has nothing to do with this. Milton Friedman was a GIANT. Reich reminds me exactly of the character in the Lord of the Rings books, Wormtongue.

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