The Unlikelihood of Cutting Health Care Costs

Two libertarian bloggers have had a few posts on health care costs recently. Arnold Kling argues, and I agree, that Peter Orszag “makes it sound way too easy to control health care spending.” While there is undoubtedly waste as there is in any industry, most of the low lying fruit has been picked after years of various attempts at reducing health care costs (although I am always amazed that they are not doing more to crack down on all the fraud in medical equipment).

While  Kling and others have written a considerable amount about the various reasons why it is difficult to cut health care spending, in this post Kling makes his point with an anecdote:

I think he makes it sound way too easy to control health care spending. Let me give a semi-anecdote.

My oldest daughter is in her mid-twenties. She has a friend the same age who was stricken with cancer last year. She was treated with chemotherapy, Initially, the doctors thought this had worked, but now the cancer is back. My guess is that her prospects at this point are rather frightening.

That ends the anecdote. What follows is my imagination.

Imagine it were my daughter. What would be my attitude? I imagine that I would be walking into the oncologist saying, “Look. There has to be something you can try. I don’t know whether it’s bone marrow transplants or stem cells or some clinical trial somewhere. But we can’t just sit here and watch her die. Either you give us something that has a chance of working, or we’ll find another oncologist who will.”

Next, imagine that the best hope is a treatment that costs $100,000 and offers a chance of success of 1 in 200. Would I want her to get that treatment? Absolutely.

But look at the issue from a rational, bureaucratic perspective. You have to treat 200 patients at a cost of $100,000 each in order to save one life, for a cost per life saved of $20 million. Is that what a rational bureaucracy would do?

A rational bureaucracy would not even tell the family about this treatment option. But I think that in the American culture regarding medicine, I would find out about it.

Megan McArdle adds that we are exporting our attitudes to other parts of the world:

It’s worth noting that, at least anecdotally, the internet means we’re increasingly exporting our cost inflation to other countries.  In the 1990s, breast cancer patients wouldn’t even have found out about a treatment like Herceptin.  Now they fight (and win) public relations battles with their governments to get their treatments covered, even when the treatment is not deemed cost-effective by the health care regulator. And the woman who fought that famous and “inspirational” battle in Britain recently died; the drug didn’t buy her that much extra time, perhaps because she had to fight so long to get it.

In another post Megan gave reasons why health care costs so much along with pointing out the difficulties in overcoming these problems. I was surprised by her conclusion as to whether we should be spending so much:

Practically, we have to pay healthcare workers a lot because we have to pay everyone a lot; in a rich country, wages for healthcare workers are high.  And measuring healthcare productivity is really insanely difficult, which makes it very hard to figure out what’s worth spending money on. As long as Americans don’t want to sacrifice access to procedures–and they don’t–there’s just not much room for decreasing costs.

That doesn’t bother me that much.  The mindless trend extrapolation about how much we’ll spend on health care in the future elides the point that we’ll be much richer in the future; why shouldn’t we spend all that extra income on healthcare?  Your ancestors spent 2/3 of their daily income on food.  Now you spend about 15-20%.  But spending much more of your income on clothes and housing doesn’t mean that you’re starving; it means that you’re so rich, you only spend a small fraction of your income on food.  When I look around at our incredibly bountiful economy, I don’t see any obvious lack that we’re creating by spending ever more of our income on leading longer, healthier lives.

Businesses and individuals struggling to pay for health care coverage might not agree that we are not creating any problems by our spending, but her point is a valid one. We continue to spend more on health care because not only do Americans want the best health care available, they want it without restrictions or waiting. Add to that ever increasing technology and an aging population, and it is hard to see any significant reductions on health care spending which will be acceptable in this country.

Update: More along these lines from Mickey Kaus.

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9 Comments

  1. 1
    Eclectic Radical says:

    The fundamental problem with health care reform was brilliantly stated by Ms. McCardle, though I doubt she and I agree on the conclusions to be drawn from that problem. I certainly don’t agree that ‘there is no obvious lack.’ The statement even shows how out of touch she is.

    Nevertheless, as I said, she captured the fundamental problem perfectly:

    Americans with access to quality health care would rather deny there is a problem (and ignore the human cost of them problem, and the economic cost of meeting the human cost of the problem) than have to spend more time in the waiting room than they already do.

    The problem is that those who cannot get into the waiting room at all would gladly wait if they could just get inside.

    I am not saying that anyone enjoys all-day wait-times to see a doctor or that waiting should be any longer than absolutely necessary, but I am saying that the fundamental conservative/libertarian argument against meaningful health care reform is ‘I would rather require someone else to go without care entirely than to give up any convenience.’

    I agree that costs are not likely to go down, in the sense that many people believe they can be so drastically reduced. I am all in favor of society sharing that cost far more efficiently, so that society’s members can share access to medical care far more equitably.

    It is worth noting, however, that costs can be greatly managed by eliminating the ‘for profit’ element of medical care.

  2. 2
    bigfishh says:

    Two points:
    1. it is not to hard to imagine the govenrnment implementing pay caps on doctors, nurses, and others.  Once the government is paying f or everything they will convert the medical industry’s pay scale to the public sector pay scale. 
    2. one conservative gripe about government funded health care is that one group of people will be taxed to provide a free benefit to another group of people.  This is the sort of policy that tears a democracy apart. 

  3. 3
    Ron Chusid says:

    The health care plans on the table don’t include the government paying for everything. Such caps would be far easier in a British type system. Besides, that would not make very much of a difference on overall health care costs. It would also be difficult considering we have a shortage of nurses and primary care physicians which would only be worse if we had universal health care. There is potential room to cut costs in the income of some subspecialties but that won’t result in large enough savings to have much impact.

    One of many problems with the conservative gripe is that they are already paying more for health care due to the cost shifting because of the uninsured. It would be better to do this in a more open and more cost effective manner.

  4. 4
    Susieq says:

    Nowhere in these discussions or in the house bill (which, unlike our legislators, I have read) is there mention of tort reform.  Defensive medicine is a leading cost of medical care today.

  5. 5
    Ron Chusid says:

    Defensive medicine is not a leading cost of medical care with conservatives often exaggerating the cost. Still, as I’ve discussed in other posts, this is something which should be addressed. If the goal is to save money, this is an area where we can save some money without denying anyone of needed care or limiting choice. Only the trial lawyers would lose out with malpractice reform.

  6. 6
    Eclectic Radical says:

    “If the goal is to save money, this is an area where we can save some money without denying anyone of needed care or limiting choice. Only the trial lawyers would lose out with malpractice reform.”
     
    Depending on the stringency of the tort reform, genuine victims of incompetence, negligence, or depraved indifference might lose out as well. Tort reform is an area where ‘slippery slop’ arguments have a lot of validity. The balancing act necessary to determine genuine causes for legal action versus ‘frivolous claims’ is a very tricky one. On general principle, I favor erring on the side of protecting citizens’ rights to legal redress over protections from liability in questionable situations. There is a reason we have judges and legislating standards of action is very close to Congress leaving its own proper role in government and encroaching on the Judicial Branch.
     
    There is also the problem that the principle means of tort reform advocated, either specifically enacting a broad immunity from liability for hospitals and HMOs or enacting procedural regulations that deny legal aid to anyone unable to pay for it up front, are entirely unacceptable.
     
    It’s true that there are a lot of situations in this country where legal action is taken improperly and concepts of liability are abused. However, no one has yet offered a system of tort reform that both protects genuine claims and the rights of those with genuine claims but limited economic means.
     

  7. 7
    Ron Chusid says:

    “Depending on the stringency of the tort reform, genuine victims of incompetence, negligence, or depraved indifference might lose out as well.”

    Probably not (depending upon how it is done). Malpractice cases have little to do with poor medical care and such cases do very little to benefit actual victims of medical negligence. Most malpractice suits arise because people just don’t like their doctor, have unrealistic views as to outcomes, or are looking for easy money. A small percentage of malpractice suits are over legitimate complaints, and even in these cases it is the lawyers who benefit far more than the victims. It would be best to take medical malpractice entirely out of the court system due to the added costs for medical care which arise from this system.

    Investigating actual cases of medical errors would be done better outside of the legal system due to both the poor correlation between malpractice suits and actual malpractice and the development of a culture of hiding errors out of a fear of suits which makes them harder to fix. Most medical errors are a result of system problems which could be better addressed without the fear of law suits hanging over any attempts to look for problems.

    A mechanism for treating victims of medical errors should also be established independent of the tort system. If we have universal health care we will no longer need big settlements to ensure that people receive medical care that is necessary to remedy problems from true malpractice. We also need an objective way to compensate people who have legitimate need for additional assistance beyond routine health care as a result of malpractice.

  8. 8
    Eclectic Radical says:

    “A small percentage of malpractice suits are over legitimate complaints, and even in these cases it is the lawyers who benefit far more than the victims.”
     
    This isn’t the first thing you said, but I felt a need to address it first. I’ve heard this one before, in nearly every discussion of tort reform in every venue of the subject. It was tremendously popular when California attempted to pass a law (through ballot initiative) that would have denied legal access to anyone unable to pay for it up front. The arguments then were that contingent fees were a convenient way for the lawyer to soak the plaintiff and that if people had to pay for a lawyer then they would only sue when it was really justified.
     
    The facts are that contingent fees are strictly regulated percentages, that all expenses charged must fall within the contingent fee and cannot exceed it, and that the lawyer taking such a case bears the costs until the verdict and must pay all the court costs for the plaintiff if the plaintiff loses. A lawyer who benefits ‘far more’ than his clients is not only himself guilty of actionable malpractice, but also faces fraud charges that could lead to prison and ethics violations that could lead to disbarment.
     
    On the flip side, lawyers who represent clients who can pay for service face no limits but what the client is willing to pay. Because to set legal fees by scale would be ‘restraint of trade’ and that is socialist. In such a case, yes, many attorneys benefit far more than their clients.
     
    I’ve always thought conservatives had it backwards and the law should require all lawyers to work on a contingent basis.
     
    That rant done with…
    “A mechanism for treating victims of medical errors should also be established independent of the tort system. If we have universal health care we will no longer need big settlements to ensure that people receive medical care that is necessary to remedy problems from true malpractice. We also need an objective way to compensate people who have legitimate need for additional assistance beyond routine health care as a result of malpractice.”
     
    I could support such a system if it were a government agency. Conservatives argued for such a system and wanted it amended to the patients’ bill of rights, together with a ban on patients suing their HMOs. Their solution was to have it run by the HMOs. I’m willing to have this fight again, but it would be important not to allow the right wing to make the oversight system subject to the insurance companies.
     
    I’d also be concerned about the risk of a presumption of falsehood. No one ever feels their complaint is ‘frivolous’ and most people seeking redress have a legitimate belief they were wronged, and being mistaken is not the same as malice.

  9. 9
    Ron Chusid says:

    Eclectic,

    People filing frivilous suits might think they have a legitimate belief they were wronged but in the vast majority of malpractice cases they were not. There is a fine line between being mistaken and malice. Often it turns out that someone files a suit against a doctor because of not liking the doctor’s bedside manner or seeing something the doctor said to them as rude.

    On the other hand, those who legitimately suffer injuries often do not sue. There is very little correlation between malpractice suits and true medical errors or situations in which patients are truly harmed. Society pays the consequences of this warped system with higher medical expenses.

    Of course any system to replace the legal system could not be run by the HMO’s.

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