Democracy in America

American politics

Health spending

Cost curve, slightly bent

Jan 11th 2012, 19:59 by C.H. | NEW YORK

SPENDING on health care, as any cabbie can tell you, is out of control. How to lower health costs is one of the biggest questions of 2012, second only to how to create jobs. Republicans say Barack Obama’s health law does nothing to curb costs. The president insists it does. All this is just conjecture, as the law’s main provisions won’t take effect until 2014. But the country finds itself in the odd position of seeing, at least for the moment, health-care spending almost stand still.

On Monday the Centres for Medicare and Medicaid Services released its newest numbers for health spending. America still spends more on health care per person than any other developed country. But the rate of growth was just 3.9% in 2010, following growth of just 3.8% in 2009. Since 1960 health-care spending has grown faster than America’s GDP in all but eight years, points out a recent report from McKinsey. But last year growth for GDP and health spending began to converge.

Mr Obama can take credit for a few factors that lowered spending, such as drug rebates and lower rates to Medicare providers. But the slowdown is largely thanks to a drop in consumption of health services, and that drop in consumption is largely thanks to the downturn. Those who lost employer-sponsored insurance bought less health care. Even those with jobs seemed to have deferred elective procedures.

However the deceleration in spending is not entirely cyclical. David Knott and Rodney Zemmel of McKinsey point out that the rate of spending growth has declined for each of the past eight years. Three factors—drugs, hospital care and administrative costs—used to account for an outsized share of the growth. Since 2006, however, spending on each has slowed remarkably. Drug costs have fallen as products lose their patents. Big Pharma is not introducing new blockbusters as quickly as it is losing old ones. More and more services are moving from the hospital to less expensive clinics. Private health insurers are wringing efficiencies from their back offices.

Most important, Americans’ spending habits seem to be changing for good. Insurers and employers have redesigned health plans over the past decade, with health costs steadily becoming more transparent to consumers. First companies devised tiered systems for drugs, making a consumer pay more for a branded drug than a generic. Now insurers have introduced such incentives across a range of health services.

The trend towards value will continue. Companies such as Castlight are creating tools that let consumers shop for health services, showing the cost of a procedure at one clinic versus another, as well as patient reviews. Barack Obama’s health law created “accountable care organisations”, which use Medicare dollars to reward those who deliver good health care below a certain cost. Insurers and hospitals are already testing new ways to reward value and efficiency, rather than the quantity of care delivered.

Several uncertainties loom. Eventually some of the pent-up demand for health care will be unleashed. Drug companies may defy expectations and produce a new generation of blockbusters. A continuing trend of hospital consolidation may drive up prices. Most important, the main provisions of the health law will take effect. Over the next year politicians will continue to bicker about whether the law will push spending up or push it down. But a more interesting shift is already underfoot.

Readers' comments

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rVGvR6EjpR

Hamilton Mencher in Lima suggests that it is "Illness care" not Health care that is raising hackles.
If all Americans would have an ID card tht was issued on birth and like an account in Facebook,continually updated it might be the first step towards HEALTH CARE.
As the child grew data on weight height,sicknesses, accidents, and other normal occurrences could be accessed and evaluated statistically as a matter of course.
With permission the data regarding the Physical, dental and mental condition of every child could be accessed by authorized doctors or Clinics. Recommendations to the parents or the individual would be automatic as statistics-routinely produced- provided useful Health and Illness Prevention information. Addditionally,
School records, athletic,musical or artistic interests or achievements would form part of the Individual Record for statistical and comparative purposes by season, region,sex, or physique, to mention a few parameters.
Surveying the Health Care universe for tendencies,preferences or other socially important characteristics which would create adataand information base to form "a more perfect union" as desired in The Constitution.
The potential for finding and tracking the qualities of HEALTHY persons can be exploited to make Illness care much more timely and far less expensive.

ThorThunder

The problem with US health care is sick pays to doctors, insurers and a lot of bureacracy (I have lived there for 10 years). I have compared costs of a few types surgery and medical procedures in the US and Norway and they seem to be double as high in the US although the general income level is higher in Norway than the US.

CSeattle

It's a fantastic irony that I've witnessed firsthand. Republican ideas about freeing up the health care market and making consumers aware of prices (rather than hiding them via government subsidy) is winning out as Obamacare and the loss of jobs pushed prices to the brink. Let me spell it out: when ObamaCare kicked into gear, premiums began to skyrocket. Employers and self-employed folks (which have increased in number with the loss of jobs) fled to ever higher deductible plans, shifting the costs away from the opaque employer/government sponsored plan and toward the consumer. Suddenly, when consumers realized that it costs well over $100 to visit the doctor (and often in the $300-range) and not $30 for that cold, they quit consuming.

I supported Obamacare because I really felt a national exchange would aid this process by forcing insurers to compete. Unfortunately, with his latest move to bring the exchanges down to state level, we will not see the greater efficiency/value happen. My own state-- Washington-- only allows 4 insurers in because they have such high standards for what constitutes a health plan... they must include chiropractic, massage visits, and other boutique health care items. This only pushes prices up and limits the number of insurers legally "allowed" to operate in the state.

The insurers are more than happy to keep the fat share of our dollars and not have to compete with smaller, more ingenuitive outfits. But as a self-employed person over the past 10 years who has personally had to downshift every year to higher and higher deductible plans as premiums rocketed out of control, I can tell you that this set up is not fair to the consumer or citizen. I became a very adept consumer of health care-- questioning and researching doctor's rash requests for tests and saving the system thousands of dollars-- and I know what sort of plan I need. It's not what the chiropractors and specialists have lobbied for, nor what legislators so generously would like to "give us," but what actually serves to best protect my long-term personal and financial health. And I believe I'm doing everyone in my "insured pool" a benefit by limiting my consumption.

BubbaBrooks

We need to take a step back and look at the REALLY big picture here. Clarification is required, first and foremost. America, typically, does not practice medicine, it practices triage. That is, they are hell bent on curing disease rather than preventing it from occurring. Any society can benefit most readily on staying healthy rather than targeting the already sick and hoping for recovery. Copious amounts of money could be saved from this strategy alone.

guest-iilmwwi

Currently, the cost of health care is rising at a much higher rate than inflation. Even if we were to implement your beloved single payer, at a certain point we can not afford to pay for every new treatment and technology that comes along if we want to have any semblance of an economy. If you dont have insurance you should check out "Penny Medical" for information on how to get one.

guest-iilmwwi

Currently, the cost of health care is rising at a much higher rate than inflation. Even if we were to implement your beloved single payer, at a certain point we can not afford to pay for every new treatment and technology that comes along if we want to have any semblance of an economy. If you dont have insurance you should check out "Penny Medical" for information on how to get one.

gogotennis

My MDs will tell you that spending is down because their patients have less money for routine visits and are delaying procedures for a day when the economy is better and they have a job.

Top Hat 001

I personally believe America needs to move away from employer provided health care for a couple of reasons. The main reason is that it makes unemployment that bit worse for people because if they get sick they will have to pay the medical costs when they can least afford them. The other reason is that companies normally have one size fits no one policies.

The problem is that I cannot think of an alternative that is desirable. The USA doesn't want the NHS and I don't think liberals would accept the Friedman call for higher wages with no plan from employers on the basis some of that wage can go towards health care that I personally support.

Thoughts anyone?

bradshsi in reply to Top Hat 001

I'd question whether the USA really truely doesn't want an equivalent of the NHS. If you look at the US health systems that get high satisfaction ratings it is Medicare and the VA.

(For that matter most government administered health systems like the NHS score generally higher for customer satisfaction).

Medicare is halfway between the NHS and private health care IMO. However the VA system is a full on evil socialist death panel wielding government meddling arrangement.

Do satisfaction ratings matter ? Or are people in the VA/NHS just happiier because they don't have as much choice ? I'm not totally sure.

Vaudevillain in reply to Top Hat 001

I think most liberals would be all for wage increases. They might insist that the increase in wages exceed the amount currently spent on health insurance, but if that possibility is acceptable such an idea could find some traction.

I think the problem is that the people currently advocating it are of the opinion that wages should increase very modestly, and it thus looks like (likely because it is) a thinly-veiled proposal to soak the workers so C_Os can take larger bonuses and major shareholders can see the stock price rise a few hundredths of a percent. Liberals are not, generally, very high on such things.

Anderson-2 in reply to Top Hat 001

I think this is one of the stealth features of Obama's individual insurance markets.

Employer health insurance is kind of an historical artifact that makes less and less sense. Right now employees and the government basically pay employers to administer health insurance. If you work for a large company, this is a reasonably good deal in that you probably get a volume discount, and somebody paid to try to make sure you aren't getting screwed. On the downside those working for smaller companies, and the companies themselves often don't get those benefits, and individual purchasers are famously getting the shaft. A worker that gets sick and loses his job finds things more than a bit worse, and the system greatly reduces labor mobility for those with chronic conditions.

In a lot of countries everybody has individual insurance, and employers and the government directly or indirectly subsidize those plans. Here in France it is all very tightly regulated and on the consumer end, very simple, good and relatively cheap. Everybody is obliged to have insurance, and those that can't afford it are provided for. This was also the case when I lived in Germany, though the mixed system there was not so cheap to society as a whole.

Now one might ask oneself why a plumbing company, say, ought to have a sideline in health insurance administration. But we mostly don't. And of course it is out of the question to do the economically rational and fair thing in terms of mandating individual insurance, because the Constitution is not a suicide pact, and anyway it is all so complicated and we need to concentrate on digging a trench along the Mexican border so that we can fill it with hungry alligators.

Anderson-2 in reply to bradshsi

You know, there might be something too that. Regular old alligators are plentiful and cheap, but if a couple of planes crash and Newt gets in, we could see really expensive state of the art killer drone newts patrolling the borders. Like we could spend a lot of money, set up a website and give poor kids a computer and pay them a couple of cents an hour to run the drones and use them to devour anchor baby wannabees and maybe the odd stray kitten. Give the kids a chance to work, develop a sense of achievement at a job well done, and spend a lot of money. We could even televise it all, what a great reality show.

jomiku

A problem for the future is the GOP is adamantly opposed to efficacy testing. I've never been sure why. Is it catering to medical products and drug companies? Is it the "free market" religion which says regulation creates a favored class when the market should sort the bad from the good? Is it the literalness of anti-science belief? But they are opposed.

In this regard, I stumbled across a quote from conservative / libertarian idol Hayek regarding science:

"Personally, I find that the most objectionable feature of the conservative attitude is its propensity to reject well-substantiated new knowledge because it dislikes some of the consequences which seem to follow from it – or, to put it bluntly, its obscurantism. I will not deny that scientists as much as others are given to fads and fashions and that we have much reason to be cautious in accepting the conclusions that they draw from their latest theories. But the reasons for our reluctance must themselves be rational and must be kept separate from our regret that the new theories upset our cherished beliefs. I can have little patience with those who oppose, for instance, the theory of evolution or what are called “mechanistic” explanations of the phenomena of life because of certain moral consequences which at first seem to follow from these theories, and still less with those who regard it as irrelevant or impious to ask certain questions at all. By refusing to face the facts, the conservative only weakens his own position. Frequently the conclusions which rationalist presumption draws from new scientific insights do not at all follow from them. But only by actively taking part in the elaboration of the consequences of new discoveries do we learn whether or not they fit into our world picture and, if so, how. Should our moral beliefs really prove to be dependent on factual assumptions shown to be incorrect, it would hardly be moral to defend them by refusing to acknowledge facts." From The Constitution of Liberty, 1960.

Lafayette in reply to jomiku

Jomiku, I don't think it is fair to say that the GOP opposes efficacy testing, other than the small fringe of libertarian wingnuts that want to abolish the FDA.

What they oppose is the concept of cost-effectiveness analysis, and particularly the idea that product choice (especially for Medicare) should be limited because of high prices. Of course that runs completely against the logic of slimming entitlements, but hey.

bampbs in reply to jomiku

The Yahoos idolize Hayek; they don't read him. Can you imagine what they'd say if they knew that in The Road to Serfdom he wrote that comprehensive government-provided social insurance - including health care - is just fine by him ?

Glenn Beck obviously doesn't read the books he recommends.

Top Hat 001 in reply to Anjin-San

Dear Anjin-San

"'We are all Austrians today.' And one of us may be a certain Austrian born in 1889 in Braunau am Inn??"

Now that’s unfair, the Austrian economists like F.A. Hayek were some of Hitler's biggest opponents and critics. It is a pity that the school of thought has the same name as a nationality; you couldn't make a link like that with Keynesians.

In short, please never make undue connections to Hitler for comedic reasons or otherwise.

With Regards and No Regrets
Top Hat 001

bampbs in reply to AtlantisKing

Hayek is referring in The Road to Serfdom to European-style, government-provided, tax-supported, social insurance. So paying for it is mandatory. But no one will force you to use the services you've paid for. He did not find anything wrong in principle with the UK's NHS.

bampbs in reply to AtlantisKing

Is the free rider problem too complex ? It is a problem only because civilization demands that we help the sick even if they haven't contributed. It is a classic commons problem. If many choose not to participate because they know that the rest of us will not leave them to die, those who do will be taken gross advantage of by those who don't.

Even if you'd like us to let them die, you would have to dig up Judeo-Christian ethics by the roots before most of us would agree with you. Fortunately, very few prefer Ayn Rand's infantile selfishness to The Sermon on the Mount.

Ausonious M. in reply to jomiku

Jomiku is pointing out in part why Hayek left the US after publishing "Why I am not a Conservative". He was more aligned with the ordo-liberalism of Walter Euchen and the Frieburg School (despite some differences), which Germany built into its constitutional framework after 1949. And, interestingly enough, they have quasi-private healthcare delivering better population results than the US for a whole lot less. The free-market laissez-faire attitude of CSeattle is just so much b*llsh*t and does not reflect reality. Only the naive would believe that a full-blown price rationing model will deliver best health outcomes to a population. But then again, tsuch folks really believe only those with the requisite income should be able to get quality medical care.

Dan112

McCain advocated taxing plan but then redistributing that money as tax credits of $2,500 and $5,000.

McCain was an Anti-colonial Panamanian Socialist.

bampbs

We need to get serious about health care. Recent improvements are still too haphazard and accidental given what's ahead.

Doctors ought to prescribe drugs based on efficacy at minimum cost, not Big Pharma marketing. Certainly, it is ridiculous - though currently profitable - that more is spent on selling drugs than on finding new ones.

Fee-for-Service, which guarantees overtreatment - especially when doctors own hospitals or other medical facilities - has to be replaced by reimbursement that encourages minimal effective treatment. That will tend to improve patients' well-being in itself, for nothing done is without some risk of complications and side effects.

Administrative costs would be minimized by a single-payer, but much can be done through nationwide standardization. Why not a universal electronic form for all insurance claims ?

Anderson-2 in reply to bampbs

Oh, man, if we get serious about health care, how are we going to concentrate on building an electrified fence along the Mexican border? Much less the trench filled with hungry alligators that needs to go with it to keep out the anchor babies, some of whom are going to turn out to be homosexuals and join the military and then maybe sexually abuse the cavalry horses. It's a slippery slope. Priorities, we got to keep our eyes on the ball and our noses to the grindstone.

Cornish expat

"A continuing trend of hospital consolidation may drive up prices." Does that mean that the purpose of consolidation is to establish regional monopolies? Or is it to strengthen bargaining power with insurance companies?

Either way, surely some kind of regulation seems to be in order.

tmbass

"Barack Obama’s health law created “accountable care organisations”, which use Medicare dollars to reward those who deliver good health care below a certain cost."

I wonder how popular Obamacare - already none too popular - will be when Americans wake up to the reality that an ACO is just an HMO by another name.

bradshsi

Following on from this, if one believes that a civilized society should offer a basic safety net of medical care, surely it behooves us to get the best results for the public $ spent ?

Again the only way to effectively do this is to study the data on treatment outcomes and make some serious choices for our limited resources. We need something like the British NICE to bend the Medicare/Medicaid curves.

I'd bet ending the favorable tax treatment of employer-provided health insurance would bend the cost curve a whole lot more.

Too bad. Obama in 2008 on McCain wanting to tax employer-provided health insurance: "For the first time in history, he wants to tax your health benefits. Apparently, Senator McCain doesn't think it's enough that your health premiums have doubled. He thinks you should have to pay taxes on them too."

Megan McArdle had a couple posts on the failure of some of the ObamaCare pilot programs that promised pain-free cost savings. Left-leaning wonks loved them but it turns out not every hospital can be the Mayo Clinic. Who would've thunk? Just goes to show that "proven to work" doesn't necessarily tell us whether it will actually work elsewhere.

bradshsi

The problem is that the best curve bending bits got dropped thanks largely to Republicans whining about death panels.

Even if a purely private health system is the right way to go (as the libertarians argue and I don't personally agree with), the consumer can only make choices based on the information available to them. Even the private/public mix we have today needs transparency and science applied to highlighting what treatments really add value.

Right now I can't easily find out what treatment has a better success rate or what hospital has a high rate of iatrogenic events (and should thus be avoided).

So as it is tools from Castlight et al are only likely to be partially effective.

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In this blog, our correspondents share their thoughts and opinions on America's kinetic brand of politics and the policy it produces. The blog is named after the study of American politics and society written by Alexis de Tocqueville, a French political scientist, in the 1830s

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