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| September 15, 2006

Ronald Bailey crunches the numbers and finds that medical costs are something we can absolutely afford to pay.

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|9.15.06 @ 4:15PM|

I never understood the whole crusade against "high costs of healthcare". At a basic level, isn't healthcare something we should want to spend a lot of money on? The healthcare costs in places like Niger and the Sudan are pretty low. They must be paradises.

|9.15.06 @ 5:40PM|

Give me a break. The one thing this study shows is that these legally derived values for a life are inflated. Since $200,000/year is more than the average annual per capita income by several degrees, then they are saying that if every penny you earned & more went to health care, with none left over for any basic necessities of life, that would be a reasonable level of cost.

What kind of suspension of disbelief is required to post this nonsense?

On another note, anybody with major medical insurance or no insurance who takes any services at a hospital knows how absurd the billing is. You go in for some simple thing like a phlebotomy & the bill comes back like this:

Billing Rate---Allowed Amount---Service
$425 --------- $50 ------------ Out-patient service
$325 --------- $20 ----------- Topical Pain Reliever
$75 ---------- $5 ------------ Aspirin


It's a billing system that makes buying a used car on the black market in Bogota seem downright civilized, and even the "allowed" charges are absurd. Some of the new clinics coming out may solve some of these problems, but the fact of the matter is that at this point, for some services you either sign your rights away as you check into a hospital, you go without the service, or you don't pay the bill. I don't see how anyone (1) with any experience with basic services in our health system or (2) who critically read the PR fluff that is the topic of this post, could see any level of fairness or cost-effectiveness in the system as it currently runs.

I'm as strong a proponent of free markets as anyone, but the third party payment system that is inevitable with health care is simply a disaster as it is currently structured.

|9.15.06 @ 6:04PM|

I'm as strong a proponent of free markets as anyone, but the third party payment system that is inevitable with health care is simply a disaster as it is currently structured.

I doubt that many Hit and Runners are apt to confuse any aspect of healthcare in this country with a free market:)

|9.15.06 @ 6:07PM|

I pretty much have to agree with kebko on all points., particularly the ridiculous billing system. The worst part of it is that people who pay cash for medical services on the spot have to pay far more than the insurance companies (with all the necessary paperwork and related expense) for the exact same service. There is no possible way that the medical industry (from providers on up) can be said to even resemble a free market when it comes to how treatment is billed.

|9.15.06 @ 6:08PM|

I'm as strong a proponent of free markets as anyone, but the third party payment system that is inevitable with health care is simply a disaster as it is currently structured.

My purely anecdotal experience, based upon handling the benefits for my small company of 18 employees, and personal and family use of health insurance indicates that the system is wildly inflationary. As such I don't think the cost can grow at it's current rate simply, because at some point the train will run off the tracks. That's alright and welcome.

It does however present certain social and policy issues as the pain will almost certainly inspire the public to seek a remedy from the government.

|9.15.06 @ 6:37PM|

The terminology and math in that article confounds me. WTF did David say?

John: The need is to get the citizens to live preventively and to identify medical needs quickly and not spend the resources of America on the dying.

Larry A|9.15.06 @ 7:27PM|

There's another way to look at "inflating" health costs. Prior to 1974 the amount spent on CAT scans was $0.00. They were not yet available. Or you could say that they weren't available at any price. So for CAT scans the price has dropped dramatically, from "you can't get one" to what they cost today.

Yes, we're spending more on CAT scans today than in 1974. But I submit that can't be characterized as "inflation."

Similar examples abound. It would seem that calculating health care inflation needs to take into account the products and services purchased today, that formerly were not available.

|9.15.06 @ 8:35PM|

Larry,

The thing is that CAT scans should reduce the cost per person of treatment over ones lifetime. In effect they allow doctors to forego exploratory surgery (which killed my grandfather in the 1950's) which is far more expensive, diagnose illnesses earlier etc.

Like all improvements in capital goods, it should increase the productivity of workers, and the increase in production should reduce per unit costs.

When one adjusts for the inflation caused by the government printing presses, one is still left with rising per unit costs. The reasons for it are pretty common when govenrments predate on the mass of the people.

1) In the U.S. officers of state governments create shortages of Doctors by severely limiting the numebr of people allowed to train for the profession and to actually practice the profession. 9 out of 10 people who seek to become doctors are rejected from even begining training. Most of them are quite qualified to provide medical care, yet they are turned away.

2) Government officials restrict the sale of medicines requiring that people wishing to consume them pay one of the lucky few permitted toparactive medicine for permission to do so. the government officials also limit the production and sale of medicines, and protect established manufacturers from competition by making it extreemly expensive and time-consuming to build new manufacturing facilities.

3) The government promotes the rise in costs directly by subsidizing the medical industry in the form of medicare, and medicaid. There is also a "subsidy" of sorts in that money spent for state sanctioned "medical treatment" is not taxed. This of course makes dollars spent on medical care worth less than dollars spent on other forms of consumption. Thus, spending is biased in favour of medical care.

I am continually amazed that depite the myriad obstacles thrown by government officials we still get a better quality of care than our parents did.

|9.15.06 @ 10:32PM|

kebko-

...then they are saying that if every penny you earned & more went to health care, with none left over for any basic necessities of life, that would be a reasonable level of cost.

Duh!

You just steal the "extra" that you 'need' from your grandchildren...

This is known as "Medi(s)care".

|9.16.06 @ 1:13AM|

I don't think anybody here is against anybody making a profit. These are actual items from a recent procedure:

A squirt of topical anasthetic: Billed-$212.42, Allowed-$67.80
500ml of Saline: Billed-$103.08, Allowed-49 cents.

These charges were applied for a routine visit at a hospital where entry was only allowed after we signed documents agreeing to all treatments, and where no costs were ever discussed.

The point is that these kind of charges could not remotely be possible in anything near to a functioning market (well, maybe the 49 cent saline - but without insurance they would actually charge $103.08 for that). And, secondly, anybody who has ever seen a bill like that (which is anybody who has ever used the US health system) and then claims that there is not outrageous inflation, in the technical sense (for basic procedures that aren't related to new technologies) is delusional.

|9.16.06 @ 1:17AM|

I don't think anybody here is against anybody making a profit. These are actual items from a recent procedure:

A squirt of topical anesthetic: Billed-$212.42, Allowed-$67.80
500ml of Saline: Billed-$103.08, Allowed-49 cents.

These charges were applied for a routine visit at a hospital where entry was only allowed after we signed documents agreeing to all treatments, and where no costs were ever discussed. And, by the way, the anesthetic was literally a squirt out of a big giant bottle, so, inside the hospital, the bottle apparently has a value of something like $100,000. Are they getting this stuff from a Columbian drug cartel?

The point is that these kind of charges could not remotely be possible in anything near to a functioning market (well, maybe the 49 cent saline - but without insurance they would actually charge $103.08 for that). And, secondly, anybody who has ever seen a bill like that (which is anybody who has ever used the US health system) and then claims that there is not outrageous inflation, in the technical sense (for basic procedures that aren't related to new technologies) is delusional.

|9.16.06 @ 2:12AM|

Sorry, can someone tell me who or what the fuck that thing in the caption is? It's 2am and I need to get to sleep.

thoreau|9.16.06 @ 8:23AM|

It's interesting to me that laser eye surgery has become significantly cheaper over time, because it isn't covered by insurance.

Although health care is a little more complicated than car maintenance, I think there's a lot of truth to the adage that we only use car insurance for major repairs, not oil changes. It may not capture all of the phenomena at work here, but it does help us understand some of the underlying economics.

|9.16.06 @ 12:13PM|

absolutely ridiculous. this is easily the most absurd display of statistical acrobatics - albeit a rather adept one - that I have seen in a while. this made it into a respected, peer reviewed publication? this was seriously reviewed by a respectable publication?


just plain silly.

|9.16.06 @ 12:55PM|

Hmm. I was going to tell joe I was surprised at doing something he never does (asserting something as "silly" without even trying to back it up) and then I looked and saw that this is an imposter. For shame, fake joe.

|9.16.06 @ 2:16PM|

SxCx-

I *think* the pic by the story headline is the character Lo Pan from the movie "Big Trouble in Little China," which I might add is one of the greatest films of all time.

|9.16.06 @ 5:20PM|

In the U.S. officers of state governments create shortages of Doctors by severely limiting the numebr of people allowed to train for the profession and to actually practice the profession. 9 out of 10 people who seek to become doctors are rejected from even begining training. Most of them are quite qualified to provide medical care, yet they are turned away.

The applicant/matriculant rate for students trying to get into medical school is more like 50% than 10%, and that's intentional. Not to limit the number of physicians, but to limit the number of dropouts. Medical shool is not like law school where a a third of the admitted students are expected to wash out. Graduation rates for most schools are in the upper 90's, if not 100%. It's too expensive to lose the tuition from failing students.

|9.16.06 @ 5:20PM|

In the U.S. officers of state governments create shortages of Doctors by severely limiting the numebr of people allowed to train for the profession and to actually practice the profession. 9 out of 10 people who seek to become doctors are rejected from even begining training. Most of them are quite qualified to provide medical care, yet they are turned away.

The applicant/matriculant rate for students trying to get into medical school is more like 50% than 10%, and that's intentional. Not to limit the number of physicians, but to limit the number of dropouts. Medical shool is not like law school where a a third of the admitted students are expected to wash out. Graduation rates for most schools are in the upper 90's, if not 100%. It's too expensive to lose the tuition from failing students.

|9.16.06 @ 7:38PM|

I follow Thoreau's line of thinking on this a bit more. I have nothing against profit, and the market but health insurance distorts the market by trying to cover all the things that should be affordable out of pocket. It creates a floor in pricing that shouldn't exist.

A personal example. I had a series of 10 procedures a couple of years ago. The doctor didn't believe it would be covered by insurance, and neither did I. We agreed that I would pay $80.00 per visit. As it turns out insurance did cover the cost. He proceeded to bill insurance at a rate over 3 times the charge he'd agreed to bill me, insurance knocked about $40.00 off each bill, half of which was made up by my co-pay. This proceedure is not typically covered, and because it is not the rate is not terribly high. The worst thing that could happen to the market is that all the other insurance companies as well.

Don't even get me started on the perils that vetrinary health insurance has in store for the vetrinary market place.

|9.16.06 @ 8:50PM|

APL,

Actually we're both wrong.

The national numbers for acceptance rates into Medical school that I have seen are 37%. That is, 37% of those who apply find a seat. Those who apply of course are first filtered through the MCAT, which I believe knocks out about 40% of those who take it (Some resources I looked at said that a score of 10 placed one at the 50th percentile of the tested population. Others claimed that the test scorers adjust the scores so that the # applicants who average a 10 across the various sections will approximately = the number of seats open.)

Thus, by my back of the envelope calculation, rather than 10% of those who which to go to medical school being accepted, 22% are. Which of course still leaves 78% of the applicants finding other careers.

Now one could argue that I am lowballing, and in the absence of reliable statistics I cannot refute such claims.

What is incontrovertible is that as medical school licensing came under the control of state licensing boards in the late 19th early 20th century, the number of seats dramatically dropped.

The notion that schools are trying to save tuition money is laughable. In effect, a school is paid tuition, whether a student graduates or fails. They pay by semester. In other words, the student bears the risk of losing his investment, not the school. It is in the interest of schools to maximize the number of seats they fill. I will explain with a thought experiment:

You are the dean of Harvard Medical School. Currently you have 10,000 students paying tuition X. You hire a marketing and sales consultancy to analyze the applicant pool, and they report that if you drop your tuition 10%, that the number of applicants to the school will rise so that you should be able to seat 1500 qualified students. Drop it by 20% from the original amount, and you can seat another 3000 qualified students. Drop it by 50% and you could seat another 8,500 students.

Now you analyze the costs of providing instruction, the extra facilities and teachers you have to hire, coupled with the increased economies of scale as the overhead is spread over more students. What one reasonably expects is that until the current facilities capacity is reached, one will see a slight decline in the costs per student taught.

Thus, if the percentage rate at which the costs per student decrease exceeds the percentage rate at which the tuition drops in order to attract each additional qualified applicant the school can seat, it is in your best interest to hire more teachers and to train more students.

It is not the free market limiting the number of students each medical school seats. It is rather the state medical boards. In fact, at one time there was a federal bureau that was providing advice to these boards (it was called COGME and parts of their website could be found in google cache's as recently as six months ago), which in the late 1990's was calling for a cutback in the number of doctors trained because we in the U.S. were facing a "glut" of doctors.

The fact is, prices are high because of an artificial shortage created by government officials. The schools wish to train more applicants. everytime they are permitted to do so, they quickly expand the number of seats to meet the quota's they are granted. Qualified people devote years of their lives in preparation to apply for a chance to enter the profession, a significant portion of whom are turned away.

The training is made unnecessarily arduous and brutal in order to scare people away from the profession (I used to be in the Navy, I know the bad decisions trainees make when they are on their 24th hour without sleep).

This is not done to assure quality of medical care. It's classic rent seeking behavior on part of the medical profession. In the late 19th century the AMA was quite honest about its purpose, to keep competition low and doctor's salaries high.

|9.17.06 @ 8:39PM|

I've got a way to cut health costs: cut grocery costs. We have way too many fat people in this country. Any moron knows by now that obesity is an enormous health risk.

Larry A|9.17.06 @ 10:16PM|

I've got a way to cut health costs: cut grocery costs. We have way too many fat people in this country. Any moron knows by now that obesity is an enormous health risk.

Sorry. Cutting obesity will raise health costs. Obese people die sooner, therefore consume less health care over their shortened lifetimes.

The person who really whacks it to the health care system is the one who lives to be 110, therefore spending 45 years on Medicare and 20 years on Medicaid in long-term care.

|9.17.06 @ 11:36PM|

Is that a picture of Lopan?

|9.18.06 @ 10:40AM|

I wonder if Ron Bailey gets cronically ill, will Reason need to have a fund raiser to help him pay his medical bills?

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