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U.S. Health CareU.S. Health Care

Contemporary Problems In EconomicsContemporary Problems In Economics

Steve CunninghamSteve Cunningham

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Healh Care in 1975Healh Care in 1975

In 1975, per capita health care spending was half In 1975, per capita health care spending was half what it is today.what it is today.– At that price, it would be affordable to all but the very At that price, it would be affordable to all but the very

poorest Americans today.poorest Americans today.– Antibiotics cured infectionsAntibiotics cured infections– Vaccinations prevented diseases.Vaccinations prevented diseases.– Infant mortality was half what it was in 1940, so that Infant mortality was half what it was in 1940, so that

only 1.5% of infants failed to survive their first year.only 1.5% of infants failed to survive their first year.– Life expectancy increased from about 66.5 in 1945 to Life expectancy increased from about 66.5 in 1945 to

72.5 in 1975.72.5 in 1975.– Deaths from cardiovascular disease had plunged. Deaths from cardiovascular disease had plunged.

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TodayToday

Record numbers uninsured.Record numbers uninsured. Corporations face staggering costs.Corporations face staggering costs. Medicare and Medicaid are taking over the Medicare and Medicaid are taking over the

state and federal budgets.state and federal budgets. Medical costs are skyrocketing.Medical costs are skyrocketing. What is the source of this? What is the What is the source of this? What is the

solution?solution?

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What are the facts?What are the facts?

Health Care Reforms: Facts and FictionHealth Care Reforms: Facts and Fiction, by , by Vincent W. Cangello, MD, Director, Health Care Vincent W. Cangello, MD, Director, Health Care Reform Institute. Gives cases from his experience:Reform Institute. Gives cases from his experience:– Four patients need dialysis, but the budget only allows Four patients need dialysis, but the budget only allows

for three. Who dies? In some countries they have “God for three. Who dies? In some countries they have “God squads” who have to make such decisions.squads” who have to make such decisions.

– ““To do surgery to repair a broken hip on a 93 year-old To do surgery to repair a broken hip on a 93 year-old woman is immoral.”woman is immoral.”

– ““Do we void the warranty on the human body abused Do we void the warranty on the human body abused with alcohol, drugs, cigarettes, or food?”with alcohol, drugs, cigarettes, or food?”

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ScopeScope

In 1995, the CBO announced that “in any given In 1995, the CBO announced that “in any given month, 40 million Americans are without health month, 40 million Americans are without health insurance.”insurance.”– Uninsured is not the same as without health care.Uninsured is not the same as without health care.

» If any hospital refuses any patient needing life-saving If any hospital refuses any patient needing life-saving attention, they are in violation of law.attention, they are in violation of law.

» There are many free clinics.There are many free clinics.

– Problem with “any given month.”Problem with “any given month.”» Change to “any 3-month period” and the number drops in half!Change to “any 3-month period” and the number drops in half!

» Change to “any 28-month period” and only 4% lack coverage.Change to “any 28-month period” and only 4% lack coverage.

» Many without health care are transitional.Many without health care are transitional.

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Scope (2)Scope (2)

Based on 5 different studies,Based on 5 different studies,– 27 million (75%) of the 40 million are working or are dependents 27 million (75%) of the 40 million are working or are dependents

of workerof worker» 14 million of these 14 million of these havehave employer group insurance through a relative employer group insurance through a relative

(spouse or household head), (spouse or household head), yet they are listed as uninsured!yet they are listed as uninsured!» 20% are young adults, 18-24, many covered by the family’s policy.20% are young adults, 18-24, many covered by the family’s policy.

The study of the American College of Surgeons found The study of the American College of Surgeons found that that – 6 million people are “hard core uninsured.”6 million people are “hard core uninsured.”– Those in need of non-emergency care get care from hospitals.Those in need of non-emergency care get care from hospitals.– In 1988, the value of such care was $17.5 billion.In 1988, the value of such care was $17.5 billion.

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Scope (3)Scope (3)

Based on a random sample of 20,000 “uninsured”, Based on a random sample of 20,000 “uninsured”, 50% were uninsured for 3 months or less.50% were uninsured for 3 months or less.– Often they are just between jobs and choose not to buy Often they are just between jobs and choose not to buy

coverage.coverage.

– Some are eligible for Medicare during this period, but Some are eligible for Medicare during this period, but have not bothered to apply.have not bothered to apply.

According to an independent study, “Most of our According to an independent study, “Most of our uninsured citizens obtain necessary health care uninsured citizens obtain necessary health care sooner than citizens in countries with national sooner than citizens in countries with national health care systems.”health care systems.”

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Scope (4)Scope (4)

In the U.S., poor people are eligible for Medicaid In the U.S., poor people are eligible for Medicaid or other programs—gov’t provided health care.or other programs—gov’t provided health care.– Many of the “uninsured” are Many of the “uninsured” are notnot eligible for Medicaid eligible for Medicaid

because their incomes are too high, or because they are because their incomes are too high, or because they are not citizens.not citizens.

» Many of the uninsured believe the cost is too high relative to Many of the uninsured believe the cost is too high relative to the probability that they will need it.the probability that they will need it.

In the U.S., 86% of health care is paid by In the U.S., 86% of health care is paid by someone other than the patient.someone other than the patient.– Third-party payments remove incentives for efficiency.Third-party payments remove incentives for efficiency.– The patient never weighs the cost of the care received.The patient never weighs the cost of the care received.

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Universal Health Care: First FactsUniversal Health Care: First Facts

In nations with “universal care”, there are often In nations with “universal care”, there are often long waiting lists for hospital admission.long waiting lists for hospital admission.– Many Canadians carry American health policies and Many Canadians carry American health policies and

cross the border to avoid waiting lines.cross the border to avoid waiting lines.– In 1985, according to news reports, two children In 1985, according to news reports, two children

awaiting heart surgery in England died while waiting.awaiting heart surgery in England died while waiting.

Price/wage controls have driven physicians to give Price/wage controls have driven physicians to give up medicine or move to other countries (like the up medicine or move to other countries (like the U.S.) to practice medicine. It has proven more U.S.) to practice medicine. It has proven more difficult to attract new students to medical schools.difficult to attract new students to medical schools.

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Universal Health Care (2)Universal Health Care (2)

In some nations with national health care, cardiac surgery In some nations with national health care, cardiac surgery for smokers or kidney dialysis for drug addicts may be for smokers or kidney dialysis for drug addicts may be denied.denied.

CanadaCanada– Women have opened up their own clinics to get prompt PAP Women have opened up their own clinics to get prompt PAP

smears and Mammography.smears and Mammography.– Hidden cost—Canadians buying U.S. insurance. According to Dr. Hidden cost—Canadians buying U.S. insurance. According to Dr.

Adam Linton, a Canadian professor of medicine, “We have private Adam Linton, a Canadian professor of medicine, “We have private practice in Canada. It’s called the United States!”practice in Canada. It’s called the United States!”

– British Columbia ordered a 20% reduction in physician fees in British Columbia ordered a 20% reduction in physician fees in 19931993

» 2/3 of doctors in Prince Rupert, BC, threatened a boycott.2/3 of doctors in Prince Rupert, BC, threatened a boycott.

– Bureaucratic nightmares.Bureaucratic nightmares.

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Universal Health Care (3)Universal Health Care (3)

Great BritainGreat Britain– Have moved to more of an HMO approach after their Have moved to more of an HMO approach after their

National Health Service (NHS) was failing.National Health Service (NHS) was failing.

– The HMO are causing prices to rise.The HMO are causing prices to rise.

– Striking workers are asking for private health insurance Striking workers are asking for private health insurance in their new contracts.in their new contracts.

– Several thousand “fed-up” dentists said they would bill Several thousand “fed-up” dentists said they would bill NHS no longer.NHS no longer.

– A British reporter wrote that it was difficult to find a A British reporter wrote that it was difficult to find a British subject over 40 with natural teeth.British subject over 40 with natural teeth.

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Universal Health CareUniversal Health Care

GermanyGermany– Doctors are forced to charge “per visit”, so they Doctors are forced to charge “per visit”, so they

often take several visits to complete their often take several visits to complete their diagnosis.diagnosis.

– Hospitalization periods are long.Hospitalization periods are long.– Doctors annual incomes top out around Doctors annual incomes top out around

$80,000.$80,000.– Ineffective medicines are prescribed because Ineffective medicines are prescribed because

they are on the official list.they are on the official list.

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High and Rising Costs—Why?High and Rising Costs—Why?

One argument has to do with the way medicine is One argument has to do with the way medicine is practiced now.practiced now.– In 2005, more than 24 million MRIs were performed at In 2005, more than 24 million MRIs were performed at

a cost of hundreds of dollars each.a cost of hundreds of dollars each.– In 2005, in the U.S., patients are more likely than ever In 2005, in the U.S., patients are more likely than ever

before to visit a specialist.before to visit a specialist.– Patients receive treatments that are more capital-Patients receive treatments that are more capital-

intensive.intensive.– Some call this “premium medicine.”Some call this “premium medicine.”– It is less sure how often premium medicine makes a It is less sure how often premium medicine makes a

difference in health outcomes.difference in health outcomes.

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Premium Medicine: Key PointsPremium Medicine: Key Points

Health care in the U.S. today is more expensive, and this is Health care in the U.S. today is more expensive, and this is primarily because of premium medicine.primarily because of premium medicine.

U.S. health care today utilizes more physical capital and U.S. health care today utilizes more physical capital and human capital than before or elsewhere.human capital than before or elsewhere.

Premium medicine reflects cultural expectations of a high Premium medicine reflects cultural expectations of a high level of effort to diagnose correctly and treat effectively. level of effort to diagnose correctly and treat effectively.

Evidence is mixed about whether it has increased the Evidence is mixed about whether it has increased the benefits of health care.benefits of health care.

We have conquered many infectious diseases. Now we are We have conquered many infectious diseases. Now we are tackling degenerative diseases which cost more for less tackling degenerative diseases which cost more for less marginal benefit.marginal benefit.– We’ll spend more and more for less and less improvement.We’ll spend more and more for less and less improvement.

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Premium MedicinePremium Medicine

According to Arnold Pring, According to Arnold Pring, Crisis of Abundance: Crisis of Abundance: Rethinking How We Pay for Health Care, Rethinking How We Pay for Health Care, 2006.2006.– The U.S. has the highest ratio of specialists to GPs in The U.S. has the highest ratio of specialists to GPs in

the world.the world.

– Heart bypass surgery is 3 times more common here Heart bypass surgery is 3 times more common here than in France, 2 times more common than in U.K.than in France, 2 times more common than in U.K.

– Often extreme measures used for diagnosis or treatment Often extreme measures used for diagnosis or treatment are the result of fear of lawsuit.are the result of fear of lawsuit.

– Rarely do premium diagnostic procedures affect the Rarely do premium diagnostic procedures affect the treatment plan.treatment plan.

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Premium Medicine (2)Premium Medicine (2)

Options for treatment:Options for treatment:– Do nothingDo nothing– Treat “empirically”Treat “empirically”– Treat after thorough analysis, ruling out other Treat after thorough analysis, ruling out other

possibilities right away.possibilities right away. Example given by Pring of 1,000 patients Example given by Pring of 1,000 patients

with severe cough.with severe cough.

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Scenario 1: Private Insurance FailsScenario 1: Private Insurance Fails

Fails because risk pools break down:Fails because risk pools break down:– Adverse selectionAdverse selection

– This makes premiums higher (because pool is biased)This makes premiums higher (because pool is biased)

– Insurer has to cut back benefitsInsurer has to cut back benefits

– Insurer wants to exclude those who would actually Insurer wants to exclude those who would actually make claimsmake claims

– Uninsured people resultUninsured people result

Pring argues that this is theoretically possible, but Pring argues that this is theoretically possible, but there is little evidence that risk pools have failed there is little evidence that risk pools have failed in this way.in this way.

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Scenario 1 (continued)Scenario 1 (continued)

Employer-provided coverage seems to have mitigated this.Employer-provided coverage seems to have mitigated this. Evidence suggests that health insurance companies have Evidence suggests that health insurance companies have

been able to pool risks effectively.been able to pool risks effectively. Why would pools suddenly break down?Why would pools suddenly break down? If adverse selection/pool breakdown in the U.S. private If adverse selection/pool breakdown in the U.S. private

sector is the problem, then there should be significant sector is the problem, then there should be significant differences in costs for pre-65 people relative to countries differences in costs for pre-65 people relative to countries with all public sector coverage. There is not.with all public sector coverage. There is not.

Result: this can’t be the cause of U.S. cost problems. It is Result: this can’t be the cause of U.S. cost problems. It is not a private sector failing.not a private sector failing.

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Scenario 2: Providers OverchargeScenario 2: Providers Overcharge

Those who support this argument say that under a multi-Those who support this argument say that under a multi-payer system, purchasers lack bargaining power.payer system, purchasers lack bargaining power.

If this is true, then industry concentration ratios should be If this is true, then industry concentration ratios should be high, U.S. costs should be higher than foreign provider high, U.S. costs should be higher than foreign provider costs, and U.S. profit margins should be higher. costs, and U.S. profit margins should be higher. – In a study by Gerard Anderson, et al., they compare the prices and In a study by Gerard Anderson, et al., they compare the prices and

costs of a dermatologist visit in the U.S. vs. France. Argues that costs of a dermatologist visit in the U.S. vs. France. Argues that U.S. spends more, but are no more healthy. Doesn’t compare U.S. spends more, but are no more healthy. Doesn’t compare procedures in the two places. procedures in the two places.

– Profit margins are high, but concentration ratios are not Profit margins are high, but concentration ratios are not particularly high.particularly high.

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Scenario 3: Premium MedicineScenario 3: Premium Medicine

Greater use of specialists and technology causes higher Greater use of specialists and technology causes higher health care costs.health care costs.

If this is going on, should we be demonstrably healthier?If this is going on, should we be demonstrably healthier?– No better longevityNo better longevity– No lower age-adjusted mortality rates.No lower age-adjusted mortality rates.

Several authors argue that the marginal benefit due to Several authors argue that the marginal benefit due to premium medicine is very small.premium medicine is very small.

Aggregate longevity is affected by deaths in which Aggregate longevity is affected by deaths in which medical intervention would make no difference:medical intervention would make no difference:– Homicides, suicides, traffic fatalities, smoking, nutrition, genetics, Homicides, suicides, traffic fatalities, smoking, nutrition, genetics,

etc.etc.

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Imposing a Single-Payer SystemImposing a Single-Payer System

ScenarioScenario Single PayerSingle Payer DescriptionDescription

Insurance FailureInsurance Failure Doctor-friendlyDoctor-friendly Pay doctors at Pay doctors at usual ratesusual rates

Supplier Supplier overpricingoverpricing

Doctor hostileDoctor hostile Pay doctors lessPay doctors less

Premium medicinePremium medicine Doctor limitingDoctor limiting Ration supply or Ration supply or use of proceduresuse of procedures

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Insulation vs. InsuranceInsulation vs. Insurance

Doctors like health insurance because it insures they get paid Doctors like health insurance because it insures they get paid reliably for any procedure.reliably for any procedure.

Doctors prefer insulation:Doctors prefer insulation:– They’d rather not have to charge patients.They’d rather not have to charge patients.– Make best decisions on patient needs without considering costMake best decisions on patient needs without considering cost– Allows them to make lower risk diagnosesAllows them to make lower risk diagnoses– Would also prefer not to be over-ridden by patients or insurance Would also prefer not to be over-ridden by patients or insurance

companies regarding the value of a treatment.companies regarding the value of a treatment. True health insuranceTrue health insurance

– Covers major expenses, not minor ones.Covers major expenses, not minor ones.– Covers major, long-term illnesses.Covers major, long-term illnesses.– Reduced renewal risk by guaranteeing low-cost renewal.Reduced renewal risk by guaranteeing low-cost renewal.– Givers the insurer an interest in the long-term health of the consumer.Givers the insurer an interest in the long-term health of the consumer.

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Single-Payer SystemSingle-Payer System

Single-payer systems (or third-party Single-payer systems (or third-party systems) offer no incentive to consumers to systems) offer no incentive to consumers to ration health care spending.ration health care spending.

Any system we adopt will be subject to the Any system we adopt will be subject to the competing pressures of competing pressures of – Patients’ and physicians’ desire for autonomyPatients’ and physicians’ desire for autonomy– Patients’ desire to be insulated from costPatients’ desire to be insulated from cost– Society’s need to restrain health care spendingSociety’s need to restrain health care spending

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Other Possible CostsOther Possible Costs

Are drug company profits the problem?Are drug company profits the problem?– Drug company profits are less than 1% of GDP, Drug company profits are less than 1% of GDP,

while health care spending is 15%.while health care spending is 15%. Is malpractice insurance and litigation the Is malpractice insurance and litigation the

problem?problem? Are free riders driving up costs?Are free riders driving up costs?

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Limits?Limits?

If we actually allow unfettered access to If we actually allow unfettered access to health care, then government must set health care, then government must set budget limits.budget limits.– Gov’t sets health care priorities.Gov’t sets health care priorities.

» Premium health care would have to be curtailedPremium health care would have to be curtailed» People could go outside the system to buy additional People could go outside the system to buy additional

treatments.treatments.» Like public vs. private schools, the rich will still buy Like public vs. private schools, the rich will still buy

premium services while the poor are relegated to premium services while the poor are relegated to limited gov’t programs.limited gov’t programs.

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ProposalProposal

Remove insulation from health care costs; Remove insulation from health care costs; make private or public insurance essentially make private or public insurance essentially catastrophic coverage.catastrophic coverage.

Provide cash or vouchers for the poor. (like Provide cash or vouchers for the poor. (like food stamps)food stamps)

Patients would have a large incentive to Patients would have a large incentive to consider costs of treatments.consider costs of treatments.

Efficiency would rise, costs fall.Efficiency would rise, costs fall.