You have some very good comments and thoughts on Medicare and healthcare costs, but I think that you are a bit off on the idea of physician supply. Our current healthcare system is not a market based system (Oh, how I wish that it was). If it was then you would be absolutely right that increasing the supply of physicians would generally decrease the cost of healthcare. Most people do not understand that physicians in general do not get paid on a fee for service/market price type system. We get paid according to what the insurance companies/government decide our services are worth. This causes some major problems with physician supply. There is a shortage of primary care physicians (disclaimer: I’m a primary care physician) because we are reimbursed at a much lower rate than the specialists. If you are a young medical student and you are $100k+ in debt and you have a choice of Family Practice or Gastroenterology what are you going to choose? Of course, most are going to go into specialties where they are going to be paid more for their services and get rid of their debt faster.
This thread is mainly about Medicare/SS and I agree with Extremely extreme extremist (great name) that it should all be abolished. Medicare/caid/SS are all socialist programs. You are taking money by force from one group of people and giving it to another group which I believe is completely immoral.
As far as health care costs are concerned below is my diatribe that I will submit for your consideration. I know it’s lengthy.
How to reduce Healthcare costs.
As a physician this topic is near and dear to my heart. I was a family practice physician for six years and have recently changed to occupational medicine. Probably the best article I have ever read on the costs and potential solutions for health care comes from the Cato Institute at http://www.cato.org/pubs/pas/pa211.html.
The greatest cause of increased Healthcare costs is simply over utilization. This is due to a dissociation between the consumer and the product. When someone else pays your Healthcare bill whether it be your employer or the government you naturally will over utilize those services because you do not see the direct cost. Of course we all actually pay for our own Healthcare either in the form of taxes (of coarse some pay more than others aka Socialism) or decreased wages but we do not directly see this and therefore it does not influence our healthcare decisions. (See John Stossel’s excellent article at http://www.townhall.com/columnists/JohnStossel/2006/10/25/getting_medical_insurance_from_your_boss_is_a_bad_idea) The solution to this is simple. Employers should stop offering health insurance. The only reason that employers offer health care is because of antiquated tax laws. If everyone had their own individual insurance over utilization would be reduced. Think about it. Almost everyone driving has automobile insurance. You very well know what happens if you get a speeding ticket or in an accident that was your fault: you’re rate will go up. If you know that you’re rate will increase if you go to your doctor excessively or demand expensive services you naturally will become wiser when it comes to utilizing these services. Also if everyone has their own individual policies competition will increase among providers and innovation such as Healthcare savings plans will increase. What about the Medicare crowd? I see two possibilities to improve over utilization. One would be to stop paying the doctors directly. Roll the clock back to the time when the doctor simply gave the patient the bill and the patient submitted the bill to Medicare. This way the consumer actually sees the cost of the care. Since Medicare obviously would not pay the entire bill the consumer would be responsible for the deference and this alone would be reduced over utilization. The other option would be to make an average payment to each Medicare recipient in the form of a health savings account for them to spend on their health care. Talk about the sudden resurgence in frugality!
The next cause of increased Healthcare costs is technology. Here I will take to task my colleagues. We love the latest and greatest pills and tests. Many physicians enjoy pulling out the latest and greatest drug despite how much it costs or recommend the newest test without much thought to its cost. The only solution to this is better education for the physicians (I actually did get quite a bit of instruction in family practice residency on how to make the most cost-effective decisions) and making the consumer more aware of the costs. Part of the drive for the newest and best technology leads us to our next topic: risk of malpractice.
Defensive medicine significantly drives up the cost for health care. My favorite example is the headache patient. There is really no good scientific evidence that helps a physician decide when to get a CT or an MRI. A good rule of thumb is the patient’s age and neurological findings. But what most often happens? We get a CT or MRI on everyone just to make sure we don’t miss that one in a million brain tumor. I could go on and on: x-rays for minor trauma, cancer screening tests that are marginal at best, unnecessary C-sections, etc. etc. How do we improve this? First, a true loser pay legal system. Second, a government sponsored set of clinical recommendations. (I know I’m not really thrilled about the idea of the government being involved in anything in Healthcare but actually I think this would be of benefit, let me explain……) Using our above example of headache and MRIs: the government would issue a set of recommendations for this specific scenario stating that a physician should only order a CT or MRI for a headache patient if they are over 45 or have neurological signs or symptoms. If that physician follows these recommendations,(they would not really be law so they don’t have to) and they miss the one in a million brain tumor they would have protection from litigation. These evidence based very specific objective recommendations could then be used by the insurance industry to either justify or deny a given test. If a patient insists on having any of these tests they simply would be on their own to pay for them.
Another major cause of high Healthcare cost is regulation. There is entirely too much time and money spent on paperwork and regulations that have nothing to do with the care of the patient. There are many potential solutions that are beyond my meager knowledge of economics but I have one solution that I believe would go a long way to reduce costs. Physicians as a group need to stop accepting payment from insurance carriers. If you come to see me as a patient I simply gave you a bill and you pay it at the time of service. It would then be your responsibility to haggle with the insurance company over reimbursement. This would actually have several effects. It would greatly reduce the overhead for the physician. It would introduce greater competition among the physicians. If you tried to charge more than your competitors you would be expected to provide greater service. Most people do not realize that physicians must accept a certain level of pay from the insurance carrier despite the actual level of care given. And again it would reduce over utilization by making the consumer more aware of the actual cost of care.
The last major cause of high Healthcare cost (at least that I can think of) is indigent care. I hear people discuss the idea of socialized medicine all the time. We already have socialized medicine either in the form of higher taxation or cost shifting. The solution to this problem is very simple and I know will be very shocking to many people. Stop providing indigent care. Stop forcing hospitals to care for those who cannot pay. Oh! horror of horrors you say, who will care for those who cannot pay for health care? First there is an underlying philosophy to be discussed. Is Healthcare a right or a privilege? Healthcare is not a right but a privilege. You and I should not be forced to pay higher taxes or higher Healthcare costs because someone chooses not to purchase Healthcare insurance. (Yes, I believe there is a sizable portion of the populace who spend their money on beer, cigarettes and lottery tickets instead of purchasing health insurance or saving it for a rainy day.) Stopping indigent care would make those who could be responsible for their health care responsible for it. What about those who truly are in need or those who are faced with emergency our tragedy? Simple: charity. I do feel that you and I have a responsibility to help our common man who is truly in need. The big difference is that you and I should do this privately and should not be forced by the barrel of the government’s gun. Let’s bring back the charity hospital. Let’s encourage and support organizations that pay for health care of those who are truly in need. Let’s stop our current wasteful system of socialized medicine.
I know this is a lengthy post. I’ve discussed this on various forums over the years and have finally decided to put these ideas together in one post.
Eric Roth M.D.
Bravo. Lawyers have performed pro bono work for years, yet no one ever legislated that they “must” provide such services. Why should it be any different for hospitals/doctors ?
I think HSA insurance would stop socialized medicine cold if only more companies and institutions would offer it to their employees and have it become the de facto standard that now belongs to HMO/PPOs. It “forces” the policyholder to maximize their health care dollars by seeking lower prices when still in the deductible’s grip.
Now for the bad news....
There is no political will to make the kinds of changes that are necessary. Healthcare will almost certainly be demogogued to death. The only viable political solution will be to essentially create a two-tier system. The first tier will be European-style socialized medicine crafted out of the current Medicare benefits program. The benefits will be means tested, however. The second tier will be more market-oriented and open to those who can afford it. The requirement to join Medicare at 65 will be eliminated and private insurance will be able to enter the market again. This will be very expensive, but there is certainly a significant segment of the population that will opt for this choice. I also expect to see the supply side augmented by a growing offshore medical services industry including cruise ships converted for use as floating hospitals. Some Caribbean countries will become new healthcare meccas as have certain cities in India and Thailand.
I agree with you that it’s not market oriented, but my aim would be to change that so it is.
I don’t think you can simply abolish medicare, and private health insurance is also here to stay. I don’t really view that as inconsistent with a market system, though. Yes, if you’re going to have health insurance (public or private) that pays the bills, then you must have a managed structure to make sure that the bills you’re paying are justifiable. The mistake we’ve made though is to assume that we can reduce the overall cost of healthcare by tinkering with that managed structure. Waste is inherent in such a structure, and tinkering with it (particularly by legislation, which is a very blunt tool) is not going to do much to eliminate the waste. More likely, by adding layer upon layer of bureaucratic oversight, you are going to end up reducing the waste to the level that is inherent in the system, and then further “gains” will be illusory because you are actually cutting out necessary or beneficial services that the insurance is supposed to cover. Also, bureaucracy has it’s own costs. We’re paying people to shuffle paper, and ultimately, their activities end up reducing the quality of care anyway.
I think we’ve already wrung out of the system all of the waste that we can reasonably expect to wring out. That’s why I say focus on supply.
Supply is something we can do something about. I am under no illusion that increasing supply is going to be a panacea. But the system is so badly out of whack that I believe very large gains could be obtained by increasing the number of doctors and other healthcare personnel. If we can do that, and let the markets adjust to those new realities, then I think the other problems with the healthcare system that we can’t do anything about will be less problematic.
“The greatest cause of increased Healthcare costs is simply over utilization.”
I have yet to meet someone who thought that they had too much healthcare though. True that if you’re coming out of pocket for it, you are a little more careful about whether you really need it. But the reality is that the mere fact that your health ins. co. is picking up most of the bill does not mean you’re going to use vastly more healthcare than you need. No one likes to go to the doctor. You have to take off work and sit around in a waiting room for an hour. You’re not going to do it unless you think you must.
From the perspective of a policy maker, you’ve got to assume that what the patient wants is a justifiable service, unless there is some proof otherwise. A system that emphasizes bureaucratic review of the consumer’s choice is not going to substantially improve the outcome, and is more likely to impair the outcome. In any event, managed healthcare is here to stay, so there is no point in dwelling endlessly on its faults.
So for the most part, we’ve got to take “demand” as a given, just like in every other area of economic activity, and simply focus on how to efficiently generate sufficient supply to satisfy that demand.
We spend vast amounts of effort tinkering with the demand side. Virtually nothing has been done to make more supply available. In fact, most of the tinkering on the supply side has been designed to reduce supply, not increase it. The policy-makers would have us believe that unlike every other area of economics, we can reduce costs and prices by suppressing supply.
great post , the best overall treatise on health care I’v seen.
Thanks for putting it together. I hope a lot of folks read it.