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May 23, 2005

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The 2002 health care spending per person in the US was $5,267. Here are the 2002 health care spending per person in some other countries: France $2,736, Germany $2,817, Japan $2,077, Canada $2,931, Sweden $2,517, Australia $2504. This means that the US is spending almost twice as much per person, and still failing to provide universal health coverage. All these other countries have longer life expectancies at birth than the US and lower infant mortality rates.

Overuse of health care when patients are not paying a significant portion of the cost is a problem, but you would think it would be a larger problem in countries like Canada and France that have government run, single payer universal health coverage.

While overuse of health care is a problem, it is a small part of the problem. It does not explain why the US spends almost twice as much per person as most other industrialized countries in the world, and still ends up failing to provide universal coverage or the highest quality health care.

Health care cost in the US is becoming a serious issue for business. A significant fraction of the high health care costs in the US are paid by business through health insurance premiums. In almost all other industrialized countries corporations are not paying for health care. As health care cost increase in the US, US labor cost become less and less competitive with other industrialized countries that have government run health plans.

There has been a steady trend of health care costs increasing by about 10% per year, when overall inflation is 2-3% per year. In the 1990, the rate of growth of health care costs flattened out for a few years as HMOs squeezed some costs out of the system. HMOs have now squeezed all the costs out the system they can, and health care costs are back to the 10% rate per year. This is clearly not sustainable. US health care coast are already 14.6% GDP.

All of this should be evident to both liberals and conservatives.

mikeca, the issues you address in your comment I previously discussed here: Let’s de-socialize our healthcare.

Hi Half Sigma and mikeca
That sure is an impressive comment by mikeca in terms of just the ammount of data that went into it. I have often noticed that the quality of the commentary here at Half Sigma is excellent. That's one reason why people keep coming here.

People probably have little incentive to undergo unnecessary procedures because who wants to have a colonoscophy or whatever? What does happen is that people have no incentive to shop around. In a market where insurance pays for everything and the insurer give the patient freedom to choose, we will always choose the best - and most expensive - doctors.

I think it is very misleading to suggest that we have socialized medicine. The government does pay about 45% of the cost, and it uses its buying power to force the prices it pays down, but what we have is a hodgepodge of private, public and employer paid programs that sill leaves 40 million people without either private or government health coverage. Much of our medical care is still delivered by for profit businesses, even if the government is paying the bills. In most states hospitals, even for profit hospitals, are required to provide treatment to anyone in the emergency room, regardless of their ability to pay.

There has been some analysis attempting to understand why costs are so much higher here. The higher costs are not the result of more doctors or more hospital beds per person. Most other countries in fact have slightly higher numbers of doctors and hospital beds per person. The higher costs can not be explained by higher drug costs. Dug costs are not really a bigger part of the health care spending in the US than in other countries. The higher health care costs cannot be explained by an aging population. Most of the other countries have a higher percentage of their populations over 65. Smoking rates are also lower in the US. The only negative health factor is people are fatter in the US.

The higher costs appear to be a combination of things:

Doctors are paid more here. For years doctors have lobbied state legislatures to keep medical schools small, so that there would not be an oversupply of doctors.

About 10-15% of health cost goes to the expensive overhead of doctors, hospitals and insurance companies billing and collecting from each other.

Doctors, hospitals and insurance companies have a high administrative overhead because they have to deal with many different government programs with ever changing requirements.

Some medical decisions made by doctors are influenced by maximizing their financial gain rather than the patient’s health. It is very hard to know how much of this is going on, but it clearly is happening.

Finally, there is the insane way health care is delivered to the 40 million people with no private or public health coverage, which is to send them to extremely expensive emergency rooms when they get really sick, and then let the hospital try to charge higher rates to everyone else to pay for this.

I think it is very likely that most employers will switch to only providing catastrophic health insurance over then next 10 years or so, and leave employees to pay 100% of their routine medical costs or buy their own insurance for this. I suspect this will only increase medical costs and not significantly improve health care. Individuals are not in a very good position to evaluate doctors, hospitals or medical treatments. Doctors and hospitals will be able to very effectively market overpriced medical tests and treatments to middle and high income consumers without any oversight from insurance companies, because everyone wants the best health care they can afford. To a certain extent this is already going on. A few years ago some doctors tried to start marketing $1000+ whole body scans to healthy people just to be sure there were no hidden problems. These scans were not covered by insurance, but with good marketing they were able to get lots of customers for a while. Fortunately, people wised up, and most of those private scan clinics have gone out of business.

All of this will do nothing to solve the problem of those without private or government health insurance, most of whom will find it hard to afford routine health care costs, even if prices come down a little.

Healthcare prices in the U.S. are not determined by a free market. People's health insurance is "given" to them by their employer or the government, and they have little or no say in what they get. For the most part, pepole don't pay directly for medical services consumed. Around half of healthcare is paid for by the government. There are massive government regulations.

So I'm simply reiterating the point of my previous post to say that this is far closer to a "socialized" system than a free market system. Therefore it's not necessarily a shock that some other countries with socialized medicine might have better healthcare at lower prices, because we're not comparing socialized medicine to free maket medicine, we're comparing socialized medicine to socialized medicine.

You are right that there are many factors contributing to the high prices, not just one single factor. But most boil down to lack of efficient free markets.

Something I can fully agree with, Half Sigma. Here's a link giving some analysis of factors.

http://www.oklp.org/cundiff2.html

I agree very much with the essay at http://www.oklp.org/cundiff2.html. Recommended reading.

"I think it is very likely that most employers will switch to only providing catastrophic health insurance over then next 10 years or so, and leave employees to pay 100% of their routine medical costs or buy their own insurance for this. I suspect this will only increase medical costs and not significantly improve health care."

As opposed to the current system, which... increases medical costs without significantly improving health care?

"Individuals are not in a very good position to evaluate doctors, hospitals or medical treatments."

Because they don't get a payoff from doing so! In a free market, they'd be in just as good of a position to evaluate doctors and hospitals as they are to evaluate auto repair shops.

"Doctors and hospitals will be able to very effectively market overpriced medical tests and treatments to middle and high income consumers without any oversight from insurance companies"

As opposed to the astoundingly effective oversight they're exercising now? The consumer would be providing the oversight.

"because everyone wants the best health care they can afford. "

Everyone wants the best health care that works that they can afford.

"Fortunately, people wised up, and most of those private scan clinics have gone out of business. "

But somehow, without insurance companies or the government providing oversight, individuals won't ever be capable of "wising up" when left to decide cost/benefit on their own?

And overconsumption of health care doesn't just mean health care that doesn't actually improve your health. It also covers repair of damage that could have been avoided, and that people would tend to avoid if they were paying market price for the repairs (or even for insurance that covers the repairs). Let insurance charge more for insuring smokers and overweight people, and you'll get less smoking and overeating in the population, and lower overall health care costs.

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