Paying For Health Care Reform Without a Free Lunch

One reason I’ve been disappointed in Hillary Clinton’s campaign is that, when talking about health care, she has discussed the easy arguments such as promoting preventative health care while avoiding the difficult decisions. David Leonhardt questions the cost savings from preventative care in a column in The New York Times:

The theory goes like this: By practicing preventive medicine, doctors can keep many people from getting sick in the first place. Those who do end up with a chronic illness will be closely tracked so that fewer of them develop complications. These steps will result in less illness, which in turn will require less health care. With the savings, the country can then lower its medical bills or provide health insurance for the 40-odd million people who lack it — or maybe even both.

As Hillary Clinton recently told The Atlantic, it’s possible to “save money and improve quality and cover everybody.”

The would-be reformers have hit on something important here. The current health care system doesn’t pay hospitals, doctors and nurses to keep people healthy; it pays for tests, surgeries and drugs. So Americans often get expensive invasive care of dubious medical benefit while missing out on sensible basic care. Millions of other people go without any care for chronic illnesses like heart disease and diabetes. If Medicare and private insurers paid for more preventive care, Americans would be healthier than they are today and live longer.

But the current presidential candidates go one step further. They don’t merely argue that preventive care delivers good bang for the buck. They argue that it delivers good bang for no bucks whatsoever. And this is where the candidates are overreaching.

No one really knows whether preventive medicine will save money in the long run, let alone free up the billions of dollars a year needed to help pay for universal health insurance. In fact, studies have shown that preventive care — be it cancer screening, smoking cessation or plain old checkups — usually ends up costing money. It makes people healthier, but it’s not free.

“It’s a nice thing to think, and it seems like it should be true, but I don’t know of any evidence that preventive care actually saves money,” said Jonathan Gruber, an M.I.T. economist who helped design the universal-coverage plan in Massachusetts.

This is a tough idea to swallow because better health really does seem as if it should lead to lower medical bills. Indeed, if it were somehow possible to wave a wand and turn people into thin nonsmokers who remembered to take their statins, this country’s health care expenses would fall.

But any effort to promote health has its own costs. Doctors and nurses need to spend time with patients to persuade them to change their behavior. (Ever tried to get someone to stop smoking or drinking?) For a new program to work, it has to reach people who are not being helped by whatever exists now — and who thus will be among the most difficult and expensive patients to treat. The program would also have to treat a whole lot of people who never would have gotten sick.

Jay Bhattacharya, a doctor and economist at Stanford’s School of Medicine, estimates that to prevent one new case of diabetes, an antiobesity program must treat five people — “not cheaply,” he says. Along the same lines, Mr. Gruber found that when retirees in California began visiting their doctor less often and filling fewer prescriptions, overall medical spending fell. People did get sick more often, but treating their illnesses was still less costly than widespread basic care — in the form of doctors visits and drugs. Louise Russell, an economist at Rutgers, points out that programs that focus on at-risk patients cost the least, but even they are rarely free.

As Dr. Mark R. Chassin, a former New York state health commissioner, says, preventive care “reduces costs, yes, for the individual who didn’t get sick.”

“But that savings is overwhelmed by the cost of continuously treating everybody else.”

The actual savings are also not as large as might at first seem. Even if you don’t develop diabetes, your lifetime medical costs won’t drop to zero. You might live longer and better and yet still ultimately run up almost as big a lifetime medical bill, because you’ll eventually have other problems. That would be an undeniably better outcome, but it wouldn’t produce a financial windfall for society.

Certainly, there are examples of preventive care that can save money. As Mrs. Clinton has noted, Safeway and a handful of other companies have held down health costs by emphasizing prevention. (This, of course, is only over the short term.) Perhaps the best examples fall under the category of what Dr. Brent C. James calls “do it right the first time.”

Not only won’t preventative care save money in the short run, it will also cost more to provide such care to people who are not currently receiving care. I believe that in the long run preventative care, as well as more intensive care of chronic diseases, will save money. It is far less expensive to treat problems such as diabetes early, than to pay for renal dialysis, coronary artery bypass surgery, and treatment of stroke patients after years of inadequately controlled diabetes. Not everyone develops these problems, but the number of diabetics has been growing and these costs will increase.

Nobody can say for certain that the overall savings from preventative care will outweigh the additional costs. While I believe they will, ultimately I support preventative care and better routine care of chronic diseases as they are what is better for the patient, not merely because this might save money. Leonhardt is right that such discussion of preventative care does not provide a satisfactory answer as to how a health care package will be financed in the early years.

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  1. 1
    Rich Paul says:

    Don’t forget economics, either. Every time you buy something, you create a tiny upward pressure on the price of that thing. When you buy a great deal of something, you create large upward pressures on the price of that thing. And when you allow one person to spend somebody else’s money on a thing, you create HUGE upward pressures on the price of that thing.

    When insurance companies are your medical decisions, the results are worse than when individuals make their own decisions. That is one of the reasons that medical “insurance” did not become popular until WWII, when maximum wage laws caused companies to find innovative ways to attract employees. But insurance companies do have incentives to save money.

    When governments make your medical decisions, their incentive is neither to provide you with the best possible outcome, nor to save money. It is the worst of all possible worlds. Their only incentive is to get reelected, by creating the appearance of “doing something”. They are focused 2 or 4 years in the future, not on your lifetime. Your life is just a statistic to them.

    So what is the answer to health care? Deregulation. Stop requiring by law that doctors perform procedures that can be done by a Navy Corpsman after 3 months training. Stop requiring that people with ADD visit a doctor every month for decades in order to get a prescription for the same drug they have been taking all that time. Not only will this save people money by not forcing them to pay for “services” they neither want nor need, it will reduce demand for medical care, and force providers to provide service at lower prices.

    The destruction of our medical system has been brought about by the AMA, the FDA, the politicians, and their hangers-on. All you have to do is to ask yourself: Cui bono?

  2. 3
    Ron Chusid says:


    This is really a variation of the same falacy discussed in the post in believing that minor changes will save enough money to solve the problem.

    Many services previously provided by physicians are now provided by PA’s and nurse practitioners. The requirements for monitoring medications such as Ritalin (as well as Schedule II narcotics) does increase office visits and is an example of where the medical profession is used for things beyond pure medicine. In this case the regulations are written as a means to attempt to reduce diversion of these drugs. However, this represents a tiny percentage of health care expenses.

    You cannot reduce costs by reducing such services and lower costs. One problem with this idea is that there is far more demand for services than is currently being delivered if you consider the number of people not receiving preventative care and sufficient care of chronic diseases. As we make health care more affordable, more of this demand will be met.

    Another problem with this analysis is that payment to physicians is a small percentage of health care costs, and is not the portion which has been increasing rapidly. The real costs come from increased technology, hospitalizations, and increases in drug prices.

    Insurance companies did get a boost when wage price conrols caused employers to give more benfits as opposed to pay increases, but this does not mean that there is any validity to the conservative argument that we should transfer more of the costs to individuals. Medical advances since WWII have also greatly increased the cost of medical care and it isn’t feasible for people to pay more out of pocket.

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