Category Archives: Costs

Cesareans Lead to Higher Priced Insurance

Watch out!  If you have a Cesarean delivery you may find it more difficult and more expensive to find health insurance in the individual insurance market.  Go ahead and add Cesarean to the growing list of pre-existing conditions. Since the individual market is growing (18 million people) and the Cesarean rate is growing (31.1% of births or 1.2 million Cesareans a year) one could assume that many people have faced this issue.  You can read about a few women who have discovered this reality here.

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A Most Sincere and Irreverent Letter to John McCain

Dear John McCain,

It seems that you have only listened to half of what the health care experts have told you and then were shamed into cobbling some rhetoric to cover the glaring gaps. Let me help you.

Let’s first go over what is good about your plan. I like most of your tax reform. Tax credits are better than tax deductions. They are fairer and more progressive. However, you still may want to give a small incentive for employers to stay in the game. I would hate to lose their support, and with your plan they might just all get up and leave. If they do it seems that the small government plan you are envisioning may have to grow to fill the gap. But you have the general right idea with tax credits and $2,500 per individual and $5,000 per family is getting close to the price of insurance, but still falls short. Does everyone get this credit? Is it related to income? Does it rise with inflation, or even better yet rise with health care inflation? Just wondering. Those damn details.

Cost reduction. That’s big with you and you are right to emphasize it. We spend too much on health care – over $6,000 per person. Almost double what the next most generous country spent. And some of your ideas are fine. They are the same as your Democratic rivals (good copying skills), and will only nibble at the corners, but important nonetheless. We should invest in electronic health records, have improved coordinated care, generic drugs, re-importation of drugs (very maverick of you), smoking cessation, state flexibility to encourage creativity, increased focus on chronic conditions, tort reform, and Medicaid and Medicare reform. All good suggestions. Your two sentences on each of them really demonstrates your breadth of understanding. And again your competition beat you to the punch on almost all of these. I like the bipartisan spirit, but I was hoping that since cost reduction was your big thing you might have a new trick up your sleeve. I guess your big price reducer is increased competition. So let’s talk about that.

Your plan will cripple the employer-based health care system. Not a bad thing, but since health care accounts for 16% of our GDP and you are recommending pulling the foundation out from under it (I admit a shaky foundation) you might want to say a little more than you want to put health care decisions back in the hands of the patient. So under your plan the patient would select their health plan, right? And you are assuming that the patient has the information to sort through all of the health plans to choose what is best. Surveys on this topic show that the typical person shopping for insurance bases their decision on things that do not reflect quality. How do you plan to educate America on this? Remember for a market system to work you need an informed consumer. The quality reporting systems in America are improving, but any plan that puts the insurance decisions with the consumer better focus more on quality measurement and reporting than you do. I would suggest you expand on that a bit.

Lastly, Elizabeth Edwards. You two have been so cute fighting in your sandbox, but I would listen to her. I think you have. You realized that she is right saying your plan would leave out the sick. Maybe a person with a history of melanoma? We know that insurers compete by avoiding high-risk people. Risk avoidance is where the profits are – not quality delivery systems. That pre-existing condition thing. That age discrimination thing. Shoot foiled again, and you know it. In the last minute you threw in the line, “We will work with the States,” to make sure these people are covered. What does that mean. High risk pools, perhaps? Well, that is really expensive. Under your plan the really high cost people (up to 30% of the national health care bill) would be denied coverage by insurers (remember since they are not under an employers plan they could be denied) and potentially fall into these groups which would be subsidized heavily with tax dollars. Oops, that sounds like a big government plan. So I would suggest you rethink how you are going to pool people together. Did you know that the premise behind insurance is pooling? You have to find a way for the high-risk people to be pooled with the low risk people based on something besides health. That is what employer-based health insurance was all about.

And lastly, many States have their ways of dealing with these issues. For example New York uses community rating. Under your plan with cross-state purchasing these New York plans would all collapse because nobody who is healthy would join. So much for State flexibility.

I would suggest that you go back to the table and provide a bit more detail. Again, I like the tax credits and I am okay with leaving the employer-based model, but you have to have thought through what’s next. I look forward to your third draft.

Sincerely,

Lucas Pauls

Costs Put into Perspective

I was in class last night and my professor quoted a statistic:

“For the first time insurance premiums for a family are now higher than the gross income of a person working full-time on the minimum wage.”

Let’s assume that this is a family of four, based on the federal minimum wage, and that these are nationally averaged insurance premiums. And for skeptics out there, let me be forthwright. I have not researched whether this claim is true, but my professor is a leading health care policy expert and is very well respected. The point is that costs have gotten prohibitive and this has monstrous ramifications. Think about one thing. If we are to have universal coverage without significant cost savings we will need a huge redistribution of wealth.

Huge!

There my few friends is why creating such a system is politically so difficult.

UPDATE:
I did some quick off the cuff calculations: Minimum wage is $5.85/hour * 40 hours *52 weeks = $12,168 annually. According to the Kaiser Family Foundation in 2006 the average annual premium for a family was $11,480. Lets assume that premiums are a bit higher in 2008 as annual increases range from 7-13% (roughly $13,000 assuming a 7% increase annually). It seems that this assertion above is true, or – at least for the most skeptical – very nearly true.

Technology’s Two-Sided Sword

Technological advances in medicine are and have been astounding.  This includes pharmaceuticals, surgical techniques, diagnostic equipment, various implants from stents to joint replacements, and a whole onslaught of therapies that can only amaze.  Medicine today looks very different than the medicine of the 1970’s let’s say.  The amount of life saved, diseases cured, and hope given to those who have benefited from such advances is remarkable and practically immeasurable.  We are blessed to live in a time filled with the miraculous wonder of medicine today. 

So what’s the issue, you ask? 

You know me too well. It’s the other side of that sword. Advances cost money. Even advances that save money cost money.  For example, various new heart procedures save money per procedure, but since they are also less invasive, have fewer side-effects, and are cheaper, more and more people are having them performed.  Overall, the costs are higher.  It’s all about: Costs = Price X Quantity.  Often when the price drops the quantity rises and this more than offsets the price reduction.  But surely the overall cost is worth all the benefits?  I would argue that it is. 

But what if the therapy isn’t really proven (at least not yet)?  What if the costs per procedure are higher and the benefit small or not known?  Is that advance still a positive thing for society?       

Imagine that a company invests millions of dollars into a new treatment and it’s proven to be safe.  The company will obviously market the new technology to everybody and anybody to recoup its huge investment.  The company will tout its new proton, laser-guided, micro-fabulous device that has such great promise to treat <insert disease of your choice>.  The company will discuss why this therapy is the next thing. The company will talk about how the protons are better than the x-ray or how the laser is more powerful than its predecessor.  Maybe it is.  The theory could be sound, but as of yet its effectiveness is unproven (how much health does it provide?). Meanwhile, the marketing campaign by the company is a smashing success, and hospitals are building new wings for such devices. Millions more pour into this device.  Hospitals buy in and the company turns a profit.  Hospitals now need to create demand so they can recoup their investments.  Before the science is in, the device is deemed effective by professionals. It’s too late now to turn back.  The investment needs to be recouped. The fancy new device is a go and there is no turning back. 

This scenario does happen.  Is it a bad thing?  Is this how progress is made?  Or is this responsible for our rising health care bill? Question one is difficult.  The answer to question two is a firm YES.

Check out this article for a real, well-funded, unproven, proton, cancer-treating therapy. Or this article.

A Must Read

I will not say much, but this piece in the Sunday’s New York Times editorial page is a must read if you want a synopsis of why health care costs so much in the U.S. It weeds through the inaccurate information used by politicians and pundits and begins to look at what can be done. Again, it is a must read.

Ouch, Is That What It Costs?

How expensive is health care? Many people only pay attention to their co-pays, their share of the premium, maybe their deductible. But what are the real costs – to each individual, to the country as a whole? Health care spending reached nearly $2 trillion in 2005 (the last year numbers are available) up from 28 billion in 1960. This number means little by itself. To all but economist it could be billions, trillions, quadrillions, or even vigintillion (it’s a real number).

Don’t tune out just yet! Here are possibly some more useful numbers:

In 2005, 16% of the GDP (total economy) was spent on health care up from 5.2% in 1960. This is projected to rise to 19.6% in 2016. In simplified terms today 1 out of every 7 dollars spent today is spent on health care. One out of 7! In 2016 it could be as high as 1 out of 5 dollars.

In 2005, the national health spending was $6,697 per person. Averaging all of the health care out each person’s care averaged over $6,000! That figure is up from $3,783 in 1995.

In comparison, in 2005 here are the numbers for a few other countries. Let me remind you that almost all of these countries have better health outcomes than the U.S and all provide universal health coverage.

Switzerland (2nd most expensive): $4,077
Canada: $3,165
France: $3,159
Australia: $3,120
U.K.: $2,508
Spain: $2,094

These numbers were accumulated by CMS (Center for Medicaid and Medicare Services) and the OECD (Organization for Economic Co-operation and Development). Check out these numbers and many more at the California HealthCare Foundation.

I will try to get into the many reasons why health care is so expensive in the United States. But I hope that everyone can sit for a second and digest these numbers. They are huge in total number. They are huge in percent of economic activity. They are huge in comparisons with other health care systems, and they are huge in relation to the quality that we are getting.