You Heard It Here First: Insuring People Increases Healthcare Spending

October 23rd, 2009 by Al Lewis (alewis)

The Office of the Actuary, which makes the official Medicare cost projections,  just announced exactly what was in this blog last week – that there is no chance of overall health care costs falling as a percentage of GDP, and that the more people who are insured, the greater the level of healthcare spending. 

I myself am not the slightest bit opposed to universal coverage.  Frankly, the sooner the better as far as I am concerned, because my COBRA runs out in about six months.   (Yes, I know.  It’s what my ex-wife used to say.  It’s not always about me.) 

However, we have to learn as a nation that we can’t magically reduce costs by insuring everybody.  Yes, the European Union insures everybody and, yes, the EU has lower costs than we do.  But it’s not because they insure everybody.  It’s because our drug companies charge them less for drugs, and because their doctors – especially specialists– make less money and order fewer tests than ours do.   If someone would like to convince doctors here to make less money and convince pharmaceutical companies to charge less for drugs, go for it.  Otherwise our health care spending will always be higher than theirs.

But if there is one thing the American insurance system is really good at – best in the world – it is keeping people out of the hospital.  Yet somehow the cost savings from universal coverage is supposed to come from addressing problems early so that people don’t get hospitalized or go to the ER.  Well, our hospital rates are already lower than anyone’s, and the ER, which does get overused, only represents about 2% of all healthcare spending so there is not much room for improvement in either category.

Therefore, to afford coverage for more people, we need to think about actual tradeoffs, as opposed to playing a game of fantasy healthcare.  What are we willing to stop covering, as a country?   I focus on artificial life extension, for one.  OOBonomics suggests a number of possibilities, all voluntary, all painless (literally and figuratively), to encourage people to die with more comfort and dignity than is now the case for many people.   In future weeks we will be addressing some of them in these blogs.  We will be proposing “a kinder, gentler, death panel.”

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2 Responses to “You Heard It Here First: Insuring People Increases Healthcare Spending”

  1. RR Says:

    No, the European Union insures nobody. Individual member nations have their own health care systems. In some nations there are government-run clinics. In some, the government pays for medical care in private clinics.

    Doctors acting in a cost-plus environment will always perform unnecessary tests and treatments. Doctors who are employed by the ultimate payer will try to do as little as possible.

    The best diagnostic decisions would be made by well-salaried doctors who would have no incentives for extra procedures. On the other hand, the procedures would be performed best by professionals who had no incentives for keeping down costs.

    Thus, what if there were government-employed doctors for diagnostics and privately employed doctors for procedures? The procedures would be paid by private insurance. On the other hand, the private insurance would be obligated to pay for all treatments deemed necessary by the government-employed doctor who made the diagnosis.

    In such a system only necessary procedures would be performed, but those procedures would be performed as well as possible.

    Of course in the real world diagnostics and procedures can not be cleanly separated. For this reason, some of the procedures would have to be performed on a non-profit basis by the government-run clinics, but would be paid for by the private insurance.

    Any other ideas?

  2. Ken Freeman Says:

    Hey Al,

    Actually, David Goldhill made a similar point last summer at http://www.theatlantic.com/doc/200909/health-care. He recommends that insurance only be used for its traditional purpose: handling catastrophic losses. Normal life events would be paid for from health spending accounts. The idea is to create a competitive market for health care so consumers can compare price, reputation, and other factors as we do when buying any other commodity.

    His also points out that health insurance is not the same as health care, and health care is not the same as health. So if our goal is to get the biggest improvement in the nation’s health for the least dollars, we might be better off spending on environmental and lifestyle programs instead of health care. Worthwhile reading.

    Cheers,
    Ken

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