Health Care: Better, Faster, Cheaper!

health care costs bedIn a much discussed post, Ezra Klein produced a series of graphs showing that Americans pay more for office visits, scans and imaging, drugs, and other aspects of health care — often, far more — than is the case in Canada or Western Europe.

There is a simple explanation for why American health care costs so much more than health care in any other country: because we pay so much more for each unit of care. As Halvorson explained, and academics and consultancies have repeatedly confirmed, if you leave everything else the same — the volume of procedures, the days we spend in the hospital, the number of surgeries we need — but plug in the prices Canadians pay, our health-care spending falls by about 50 percent.

In other countries, governments set the rates that will be paid for different treatments and drugs, even when private insurers are doing the actual purchasing. In our country, the government doesn’t set those rates for private insurers, which is why the prices paid by Medicare, as you’ll see on some of these graphs, are much lower than those paid by private insurers. You’ll also notice that the bit showing American prices is separated into blue and yellow: That shows the spread between the average price (the top of the blue) and the 90th percentile (the top of the yellow). Other countries don’t have nearly that much variation, again because their pricing is standard.

Bernard Finel, recalling a series of posts and comment threads from a while back, observes,

James Joyner has argued that in order to reduce health care expenditures we need to make a choice — we can’t have it be better, faster, and cheaper.  Yes, we can.  The reason we can is that the choice isn’t simply between better, faster, and cheaper, it is between better, faster, cheaper, and more profitable.  If you cut profits — for medical insurance providers, for medical malpractice insurance providers, for med-mal attorneys, for doctors, for hospitals, and for drug companies — you can have better, faster, and cheaper.  The problem is that our system is essential optimized for profits — our goal is not to make people healthy but to make people wealthy.

That’s true up to a point, although some of this is simply the Find The Umbrella phenomenon combined with arbitrary itemizing of costs.  (Maybe the scans are $900 because they can bill that much for it while something that they’d otherwise bill more for is capped because the insurance companies won’t reimburse above a certain rate.)

Beyond that, as Dave Schuler points out, there’s no good reason to think OUR government is going to hold down costs in the same way the social democracies have.

I see no reason to believe that even if we went to a single-payer system that the federal government would be willing to lower healthcare prices so that we’re spending what France, Germany, or the Netherlands is. Despite the legislative mandate to do so that’s been around for about ten years they haven’t lowered Medicare reimbursement rates. Every year they postpone that painful choice and, indeed, they’re preparing to do so again.

And, indeed, as Kevin Drum acknowledges, nothing in the bills before Congress will do anything at all to reduce costs.

FILED UNDER: Economics and Business, Health, , , , , , , , , , , , , , ,
James Joyner
About James Joyner
James Joyner is a Security Studies professor at Marine Corps University's Command and Staff College and a nonresident senior fellow at the Scowcroft Center for Strategy and Security at the Atlantic Council. He's a former Army officer and Desert Storm vet. Views expressed here are his own. Follow James on Twitter @DrJJoyner.

Comments

  1. Crust says:

    [S]ome of this is simply the Find The Umbrella phenomenon combined with arbitrary itemizing of costs.

    Right. Though a good chunk of the umbrella they’re hiding is the cost of the paperwork in playing cat and mouse with the insurance companies. Another piece (especially for certain specialties like ob-gyn) is the cost of litigation (or insurance for same).

  2. floyd says:

    GEE!! I was SO EXCITED when I read the headline!!….
    guess I shoulda stopped there, huh??[lol]

  3. Crust says:

    James, any thoughts on the Arar case from a political point of view? It seems like a mighty dangerous precedent to me.

  4. PD Shaw says:

    What I take from the story today about mandatory compensation for prayer healings is that Dave Schuler is correct: American culture cannot hold down costs the same way as other countries.

    And this is not a religous freaks are at the gates complaint; it’s all of us.

  5. I’m frustrated by the notion that other governments can do what ours cannot.

    Every possible avenue forward involves difficult choices. Our government isn’t going to want to do any of them. And yet, it will have to.

    Our government has done any number of very difficult things in its history: win various wars, build various bits of infrastructure, impose revolutionary changes like integration, fly to the moon.

    Government is not necessarily incompetent. There is no law of nature involved. Any number of governments have demonstrated great competence — including our own — and it’s just facile cynicism to start with the assumption that government is helpless.

  6. yetanotherjohn says:

    You know what, we could get even lower costs by rolling back treatments to an earlier level. I mean, how much does it cost to bleed someone and apply a few leeches? Think back at the medical advances made over the last 20 years. If you arbitrarily set prices to dispense what we have now, in 20 years I suspect we won’t see much improvement beyond what is already in the pipeline. How is that better health care.

    Further, look to see how accessible health care is in Canada. Not that they say they have universal care, but actually getting in to see a doctor. Price points created by open market supply and demand tend to also mean the goods or services are also available. If you arbitrarily set the price point, you are then setting the supply point, no matter what the demand curve looks like. The Canadian health care system is a prime example of the reality of the world slapping the liberals up side the head.

  7. Dave Schuler says:

    I’m frustrated by the notion that other governments can do what ours cannot.

    Why would it be surprising that relatively small, ethnically homogeneous countries have a greater sense of solidarity than we do? It’s significant. The French or Germans find it easier to achieve a consensus than we do. More shared values, not only in the sense of priorities but of relative priorities.

    In my view that’s why our meta-rules system makes sense for us while their rules system makes sense for them. Why should one size fit all?

  8. Zelsdorf Ragshaft III says:

    If Harpers magazine is the quote from which you draw your information, Crust. You get what you pay for. I trust the learned opinion of the Supreme Court Justices far more than any conclusion reached by Scott Horton. As long as lobbiest have more influence on congress critters than their constituents. The costs will never be brought under control. Competition would level the playing field but democrats do not believe in competition. At any level.

  9. Crust says:

    Zelsdorf:

    I trust the learned opinion of the Supreme Court Justices far more than any conclusion reached by Scott Horton.

    FWIW, the Supremes haven’t weighed in yet. It was the Second Circuit Court of Appeals (ruling 7-4). It certainly seems to me like they decided that state secrecy trumps investigations of torture. Which sounds like a very bad precedent to me. YMMV.

  10. Steve Plunk says:

    It seems the Republicans have a plan to cut costs and will get it out soon.

    JJ is correct that we can’t have better, faster and cheaper. Those other countries have a different set of circumstances and give up some of the better and faster for cheaper. Putting a government mandated cap on charges will damage the quality of care in the long run.

    The focus should be on free market ways to cut costs not just finding more money to pay ever rising costs.

  11. PD Shaw says:

    I’m frustrated by the notion that other governments can do what ours cannot.

    I think the problem is that what other governments can do, was done over a generation ago.

    For example, a primary care physician in France gets paid approximately $84,000, versus $146,000 per year in the U.S. OECD Study pdf (Specialists are similar, $144,000 in France, and $236,000 in the U.S.) This reflects to me at least a generation of compromises, which we could not expect the United States to achieve simply by adopting the French system.

    OTOH, the same study shows GP remuneration in the U.S. is fairly flat and actually declined during the last decade, while it increased 12% in France and 44% in the UK.

    It’s quite possible that switching to one of these other systems may be the worst of both worlds.

  12. Clovis says:

    Government is not necessarily incompetent. There is no law of nature involved.

    There seems to be a sort of critical mass of incompetence, perhaps a governmental Peter principle. At a certain size and given a certain inertial incumbency, idiocy becomes as immutably ingrained as entropy.

  13. Look, the issue is simply about understanding the debate properly. Would fixing the problem be difficult? Yes. Would it be impossible to do politically? Probably. Do the current bills fix the problem? No. Are they a step in the right direction? Probably not in terms of cost savings.

    That’s all well and good. As long as people acknowledge the basic fact: our health care system is not better than anyone elses. It just costs more.

    And John… I am sick of that kind of BS post. No one is talking about leeches. We’re talking identical procedures and treatments costing 50% less abroad. And for all the talk of waiting period… I just made an appointment to see my doctor… first open date: January. Sick people get in sooner, but they do so as well in Canada and even Britain. All this talk of long waits is 95% anecdotal BS. There are a small number of procedures that are considered lifestyle in other countries and hence get put on waiting periods. Those are also the same kind of procedures that the 40 million+ uninsured Americans can’t get done at all unless they can pony up the cash themselves. But its not like if you have cancer or a heart attack that you have to wait around months for treatment. It just does not work that way. Which is why if you actually look at any serious study of health outcomes — range from the macro studies of life expectancy to the micro studies of specific outcomes of illness and conditions (and even those that measure lifestyle outcomes) you find no systematic benefits for our system.

  14. MarkedMan says:

    I just got off the phone with my educated, sensible sister who went off with the Jenny McCarthy vaccine crap. I despair of ever having a sane health care system, not because of the politicians, but of the willfully ignorant who vote them into office. Why should a politician take a risk and support something like actual scientific studies when they’ll just get their nuts handed to them by a bunch of screaming lunatics? The power of people like me who give them props for fighting the good fight is minuscule compared to the disease fundamentalists who “know” everything, won’t listen to anything that changes their outlook, and are willing to picket and phone call and get out the vote in favor of their crank causes.

  15. Drew says:

    Nice slight of hand, Michael. Incompetent and helpless are quite different things. I do not know anyone who views our government as helpless. In fact, quite the opposite, most people rightfully fear their power.

    But any realistic look at the resources consumed vs the results produced by our government would cause one to consider the word “incompetent.”

  16. Drew says:

    Bernard –

    And anyone else who “can’t get in to see a doctor.” I admit it is anecdotal, but there is just something awry here. I’ve been through this wihe Dave Shuler as well. I live approximately 45 minutes from Dave, in suburban Chicago and am part of a very competant, high reputation physician group. I can get in in a few days notice. And, unfortunately, I have had several nuerosurgical procedures done. I have been evaluated literally on days notices, and operated on (not an emergency procedure) on a very reasonable time frame?

    What gives?

    I don’t know, but I have canvassed my relatives, who are allmost all Indianapolis, IN located. Appointment problems? Nope. (And one is seriously ill and can see her doctor almost on a moment’s notice.)

    I suspect the issue may be an imbalance of the patient/physician ratio in largte cities like NY, Chicago or Washington.

    But if Dave could travel 40 – 45 minutes and get very competant care is his a situation of unavailable care, or consumer choice? I don’t know your location, but I wonder same.

    From what I know a 45 minute drive would not fix Canadians problems.

  17. Tlaloc says:

    Beyond that, as Dave Schuler points out, there’s no good reason to think OUR government is going to hold down costs in the same way the social democracies have.

    So much for American Exceptionalism. Apparently we not only aren’t better than everyone else we aren’t even as good as our peers.

  18. Triumph says:

    This goes to the old adage that Jim Jarmusch told me: fast, cheap, good; pick two.

    You can have fast and cheap, but it wont be good.

    You can have fast and good, but it won’t be cheap.

    You can have good and cheap, but it won’t be fast.

    Fast, good, cheap: pick two.

  19. Tlaloc says:

    And anyone else who “can’t get in to see a doctor.” I admit it is anecdotal, but there is just something awry here. I’ve been through this wihe Dave Shuler as well. I live approximately 45 minutes from Dave, in suburban Chicago and am part of a very competant, high reputation physician group. I can get in in a few days notice. And, unfortunately, I have had several nuerosurgical procedures done. I have been evaluated literally on days notices, and operated on (not an emergency procedure) on a very reasonable time frame?

    What gives?

    I frequently could not get into see my GP for routine things (physicals, etc.) unless I waited 3-6 weeks. For more critical stuff I could get in within a week and of course for emergencies I can go to an ER or urgent care same day. I’m in western Oregon, FWIW.

  20. Steve Verdon says:

    Well, I believe health insurance companies have a very low profit margin. Also, I’d be curious to see where drug company profits come from as well. The U.S….and? If the main source of drug company profits are the U.S. then removing those profits might well reduce supply. And correct me if I’m wrong, but I thought a great many hospitals are non-profit. If that is the case, then there isn’t much in the way to cut in terms of profits.

    Now…doctor’s salaries, profits for medical equipment, and so forth…who knows. But again, where are the profits coming from. For new equipment is it in the U.S. or is it evenly distributed?

  21. Why would it be surprising that relatively small, ethnically homogeneous countries have a greater sense of solidarity than we do? It’s significant. The French or Germans find it easier to achieve a consensus than we do. More shared values, not only in the sense of priorities but of relative priorities.

    Germany and France, to take your two examples, are not small countries, although smaller than the US. In economic terms Germany is a powerhouse only recently eclipsed by a billion Chinese.

    France has a fairly heterogenous population, and beyond ethnic heterogeneity there are political divisions that run deeper than ours in some ways, class divisions, regional divisions. A Parisian is as far from a Charentais as a New Yorker is from an Alabaman.

    And I’d point out that both the German and French governments (in earlier incarnations) afford extravagant examples of governmental incompetence. Look at our two centuries of government compared with theirs. Logically we should have far greater confidence in our government.

    I think in this case it’s conclusion first, facts second. We believe as an article of faith that our government is uniquely incompetent. As Tlaloc points out above this is a rather odd version of American Exceptionalism. We argue that we are simultaneously the best at just about everything but cannot manage a health care program as well as the French who currently have a per capita GDP about 2/3 of our own and who, at the time when they moved to universal care probably had a relative per capita GDP of half that amount.

    We can’t do it for the same reason the elephant in the zoo can’t break his rope: we’ve come to believe we can’t. It’s an article of faith, not reality-based.

  22. ggr says:

    Further, look to see how accessible health care is in Canada. Not that they say they have universal care, but actually getting in to see a doctor. Price points created by open market supply and demand tend to also mean the goods or services are also available. If you arbitrarily set the price point, you are then setting the supply point, no matter what the demand curve looks like. The Canadian health care system is a prime example of the reality of the world slapping the liberals up side the head.

    I’ve no idea why Canada keeps getting brought up in the context of US health care, the situations are very different. But despite what you might have heard, Canadians really aren’t dying in the streets because we can’t get medical care … in fact we tend to live longer than Americans, and probably with better health.

    The reason most Canadians are indifferent about the health care system (to the extent that despite all sorts of problems, no political party dares even to talk about serious changes to it) is that for 90% of the population it works just fine. I personally don’t know anyone who’s had to wait more than a couple of weeks for serious surgery, more more than a day to see a doctor (walk in clinics abound in every city). Elective surgery can take longer, but most of what you hear in the US an exaggeration, its not as good or as bad as you generally hear in the US media.

    I could see my doctor tomorrow if I wanted (in fact I’ve done that because of injuries). I was in a serious car accident, and despite what you hear about Canadians not being to get medical treatment, was taken into surgery immediately. The same is true for 99% of anyone who gets into an accident in Canada. We don’t walk down the street picking our way through the dead and dying. Nor does our health care system instantly and perfectly take care of everyone. It works most of the time for most people, and that’s good enough for most Canadians.

  23. steve says:

    Canada’s outcomes are about the same as ours. Same with Germany, France and most European countries. If you think wait times are more important than outcomes, go to Japan which has the shortest wait times.

    Wife and I are both physicians. By dint of our status, we got our son in to see a developmental pediatrician when he was younger with a 6 weeks waiting period. It is now over a year in our area, Allentown/Bethlehem, Pennsylvania.

    Steve

  24. Steve Verdon says:

    Germany and France, to take your two examples, are not small countries, although smaller than the US.

    But that is just it, it is the relative that often is the key, not absolutes. In economics, everything hinges on relative concepts. Relative prices, relative rates of marginal utility, and so forth. Even in the old Ricardian models of international trade it is the relative production capabilities that mater not absolute.

    So yes, France is bigger than many European countries, and maybe ethnically diverse by European standards, but the U.S. is bigger than France and maybe even more ethnically diverse. That could have implications for both health and socio-political aspects of the health care debate.

    And at the same time France’s health care system is unsustainable as well. It isn’t as bad here, but they are heading in the same direction we are.

  25. anjin-san says:

    Nice to hear a bit about the state of health care from an actual Canadian instead of the right wing/health insurance noise machine. After all, those are the same folks that have been telling us the French health care system is on the brink of collapse since what, 1980?

  26. Steve:

    But it’s pure speculation that our size or diversity are any part of the problem. We have a lot of Mexicans so we have to pay $900 for a procedure that costs everyone else $100?

    I think we pay more because we have a profit-based system, an AMA stranglehold on training, a ludicrous state-by-state patchwork of insurance regulation, and an over-the-top litigiousness that arises from our love affair with greed and addiction to grievance.

    If there’s one thing you can point to that defines the difference between us and our wealthy western counterparts it’s not size or ethnic diversity, it’s that they have more central government planning than we do. We are the most free market, and we are the most overpriced.

    Let’s grant that the current system is unsustainable. (And in the short term, because in the long term no system is sustainable.) But let’s also grant that we are not going to let people die for lack of treatment because that’s not supportable in a modern Western nation. So we’re going to continue to have government/taxpayer involvement in the system, it’s just a fact of life.

    There is no reason to believe that we could become more like France by becoming less like France; that we could improve our lot by emphasizing precisely those differences that so far have placed us at so marked a disadvantage.

  27. Bill H says:

    “But let’s also grant that we are not going to let people die for lack of treatment because that’s not supportable in a modern Western nation.”

    We currently do let people die for lack of treatment, every day.

    No one has commented that the real reason for our inability to change the cost of our system is corporate control of our governmant.