Update on the bending of the health care cost curve

From Peter Orszag:

So is it possible to keep the trend going? On this, we have somewhat conflicting news. A recent report from the Altarum Institute found that slow growth is continuing at the national level, with total health-care spending rising slightly more than 4 percent in nominal terms from January 2012 to January 2013. On the other hand, incoming Medicare data suggest spending is speeding up a bit.

The Medicare data this year are complicated because the 2012 figures were artificially depressed by the calendar (the start of the 2012 fiscal year, on Oct. 1, 2011, fell on a weekend, so some payments were shifted back to fiscal year 2011.) Adjusting for these timing details, spending per beneficiary fell slightly in 2012. In the first five months of fiscal year 2013, by contrast, the adjusted spending per beneficiary figures show an increase of more than 2.5 percent. That is still very low by historical standards, but noticeably higher than in 2012. At this point, it is unclear what is driving the acceleration.

It seems, by the way, that if the last three years remain typical that about one-third of our long-term budget problem goes away.


And yet, if only the U.S. could figure out how to provide the health care of the next most expensive health care systems (these days, apparently the Dutch and the Swiss, as the Germans have dropped from the top ranks), we could save so much more,

Well, this counts as progress, undoubtedly.

And if we could ship the American underclass to the Netherlands, Switzerland, and even Germany, they would spend more on their health insurance systems than we do.

Like it or not, America is not a small, homogenous European country, and our health care costs reflect this.

Why would Germans, Dutch, Swiss, Japanese, French, Brits, Canadians, Mexicans mingling together in the US have much higher health needs than they would have had if their parents stayed in their home country?

Because we have so many guns and pollution and a US diet of junk food for higher food profit in the US that their health care costs soar far above what they would be in their country of origin?

Because the US economic system promotes great economic inequality that creates health problems at the same income levels from worse food, living environment, and health care access that in their home nations?

Given the US population today is made up of immigrant families from nations with lower health care costs, you are arguing that it is US society that causes the sickness, unless you are arguing that the American soil is harmful to life.

"Germans, Dutch, Swiss, Japanese, French, Brits, Canadians, Mexicans"

You left out one extremely important group... intentional?

Is that data driven? I thought that our costs were concentrated in end-of-life, across the board, right? And not in an "underclass?"

Yeah, we generally don't give the "underclass" access to health care except in emergency situations.

Nonsense. Every county and most cities--even small ones--have programs and free clinics for health care. Just because you are ignorant doesn't make your flaccid attempt to pose a populist fallacy any less laughable.

I cannot find the link but I have read that in the USA 1.5 as much per person is spent on the poor.

Or schooling or police protection, or defense.

It's the recession, stupid. If the last three years remain typical will our problems go away?

It is evidence that healthcare is sensitive to affordability. And if that's not it, then it would be the worst possible great stagnation. In my life, I've had exactly zero medical benefits. I've been at hospitals while they have waited for my body to heal itself at enormous expense to me, and they've stood by to resuscitate (which anyone can do a lot of that too). But I've had virtually zero health enhancement.

Never been vaccinated, then? Or are you under the impression that polio and smallpox just disappeared on their own?

No glasses? No condoms?

Thought, in fairness, these are vastly cheaper than most healthcare.

No, no, and no. And you don't understand herd immunity. Vaccinations by the way, are not primarily a medical service. Even so, name another.

(By 'no' on the vaccines, I mean I have been vaccinated and they've done no good for me. I was in zero danger of getting anything I'd been vaccinated against. 50 years ago then maybe. But again, 99% of vaccination is the technology, not the associate's degree holder opening the single-dose needle direct from the manufacturer and doing what every diabetic does to themselves)

Condoms and glasses are medical? Come on goofballs.

You went to hospitals simply because you could afford to pay tens of thousands out of your pocket, and if you didn't have money you would simply have stayed at home in your own bed and healed, or better yet, chosen to not be sick or injured?

But why did you chose to be sick or injured in a hospital? Was that better than a trip to Disneyland?

No. You go because you aren't paying out of pocket and because you don't know. This is the area where the jack legs are right with their asymmetric information hyperbole.

Let's say that all they added was the monitoring of vital signs and being on standby in case of additional resuscitation need. How much is that worth to you? If you had stayed home and needed it...

You remind me of the guy who refuses to pay a city levy for the fire department, only to yell and scream when there's a fire and the fire department shows up to watch your house burn down.

Vivian, If it were just the recession, you couldn't explain the decline in medicare spending.

Here is a link which explains it in more detail: http://jaredbernsteinblog.com/

No doubt doctors have in the past deserved much of the scorn they've gotten, but I think it's not far-fetched to think that with all the massive national attention on health costs, norms are changing perhaps for the next generation of doctors, who may be thinking more carefully about things re independent practice vs large organization, useless pharma and device prescriptions, dangerous and pointless CT tests and so forth. It's not totally crazy. (I know it's not supposed to be "possible" because doctors aren't humans they're "income-maximizing rational agents," but even agents can surprise you).


Let's play a game.

Doctor gets to choose:

Option 1: Doctor makes more money;

Option 2: Doctor makes less money.

Which option does Doctor( or Hospital or Hospital Administrator) choose?

So you would tend to agree that the problem is incentives, and that a move away from fee-for-service is preferable?


If it were so simple then why are there differences in doctor's prescription behaviour? Of course, most people also try to behave (or appear to behave) in accordance with social norms. Public discussion sometimes does change behaviour especially if you believe your peer group is along for the ride.

Were the effects limited to prescription patterns? As to peer pressure, assume peer pressure. Do doctors look over the shoulders of other docs without violating HIPPA?

It's worth noting that health care spending is closely related to overall employment. So, I consider it unlikely that the past three years are representative of future health care expenditures.

But people have a pretty screwed up idea of health care expenditures. They automatically consider large health care expenditures a bad thing. I understand why they feel this way, but the truth is that a booming health care sector is good for the economy. Or at least, it would be good for the economy if it were not so tangled up in government expenditure.

Thus we see some very perverse incentives to whittle down sectoral expenditures during a stagnation. When government is the primary customer, economic growth becomes anemic.

Maybe because health care dollars are expended only when there is something wrong with a person's health. Which sucks. In the ideal world, there would be zero health care expenditures.

We can also apply that same reasoning to any other aspect of the economy. In an ideal world we would never have to buy anything at all because we would never have to satisfy any of our desires. In an ideal world, we would be in a state of pure bliss and enlightenment and no aspect of any economy would be necessary...

Like I say, I understand why people feel that way, but they are still wrong. In the real world, people must seek medical attention, and a thriving health care sector is one that can better attend to our needs than a decrepit one.

I was joking a little, but in all seriousness, increases in health care spending are not an unambiguous good, any more than a rise in war spending is an unambiguous good. On the other hand, a decline in health care spending without a decline in health (i.e., healthier people and/or health care productivity) is an unambiguous good. Your twofold assumption is that (i) there is significant unmet demand for health care such that the increase in spending is due mostly to satisfying this unmet demand and (ii) increases in health care spending are accompanied by corresponding increases in health. Certainly both of those conditions have an element of truth, but there is a lot of other things going into the increased spending that make it less than an unalloyed good.

Perhaps I did make it seem as though increases in health care expenditures were unambiguously good. But what I actually intended to do was dissent against what I perceive to be the prevailing counter-assumption: that increases in health care expenditures are unambiguously bad.

You're right about my assumptions, i suppose, although I was thinking a little more simply than that, i.e. just that people wouldn't spend a lot of money on something if they didn't feel they were getting value for it.

That was my intended point, anyway.

We also know that delaying care can increase costs, ultimately. Avoiding the dentist, etc.

"It seems, by the way, that if the last three years remain typical that about one-third of our long-term budget problem goes away."

It's early in the morning...that's meant sarcastically, right?

>about one-third of our long-term budget problem goes away.

This is wildly untrue, and also, it only claims to celebrate that we are going to hit a brick wall at 60mph instead of 90mph.

The main driver of our budget problem is entitlements, specifically medicare and medicaid. Their cost growth is primarily driven by 1) increasing costs for treatment/care and 2) an increasing pool of folks that need treatment, mostly on the medicare side. If medical spending increases at rates closer to 4% than 10%, yeah, a substantial portion of the 30-years-from-now budget issues are alleviated. It doesn't make it a non-issue, but it certainly helps.

And why do people keep using cliff or wall metaphors? The debt growth is something that happens progressively over time, not suddenly all at once.

Not just. Let's say that government spending on public services was not just a colossal waste of money and actually did something for the economy.

They don't do any of that part anymore. The entitlement fiasco is simply why the government is bankrupt. Fix that and all you've done is gotten back to the government doing net zero for the economy.

A bit about that increasing cost of treatment. Much of that is driven by new procedures, medicines, and devices that improve outcomes at the margins. The problem is that the US health consumer is price insensitive and lacks information on treatment costs. After all, why bother if the insurance company is going to foot most of it? It's gotten so bad that no health care provider knows the cost of treatment because hospital billing takes care of it all (and costs vary tremendously across jurisdictions). What doesn't change though is that providers are going to give the best treatment, costs be damned, due to this setup.

How can we change this? Death panels are a start (it's how the NHS decides to approve paying for a kind of therapy, by quality adjusted life years), but we can also shift the burden onto the individual with FSAs. That does lead to the unsavory and difficult conversation of, "Well, yes there's this new drug that's shown to be 30% more effective against resistant strains of the bacteria you have, but costs $4000/dose versus $200/dose. We can't know for certain the sensitivity pattern for your particular infection until 2 days, at which point the discussion is likely moot. What is your preference?" How would you like that as a patient?

Oh btw, am in India at the moment on an international elective. You'd be surprised at how longingly they speak of being able to access US-level technology and therapies. The patients here are also almost all self-paying, and many choose to refuse care due to cost reasons, with the expected results.

Total health care spending is being tamped down by cost-shifting changes in employer sponsored health plans where FFS is a distant memory. According to Mercer:
"Enrollment shift to low-cost consumer-directed health plans helped to hold down overall cost increase.
With a growing number of employers now positioning a high-deductible, account-based consumer-directed health plan as their primary plan – or even their only plan – employee enrollment jumped from 13% to 16% of all covered employees in 2012 (Fig. 5). Many employers see these plans as central to their response to health care reform provisions that will raise enrollment. Over the past two years, offerings of CDHPs have risen from 17% to 22% of all employers, and from 23% to 36% of employers with 500 or more employees. Well over half (59%) of very large organizations (20,000 or more employees), which typically offer employees a choice of medical plans, now offer a CDHP (Fig. 6)." See: http://www.mercer.com/press-releases/1491670

Medicare costs are also no doubt being tamped down by decline in the rate of physicians accepting new Medicare patients.

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